Anti-Dumping Laws

A Devil in Disguise
"The trade certified by GATT is like the fox put in charge of the hen house. The fox is clever enough not only to eat the hens, but also to convince the farmer that it is the way things ought to be." - Michel J. Finger

Dumping is, in general, a situation of international price discrimination, where the price of a product when sold to the importing country is less than the price of the same product when sold in the market of the exporting country. Anti- Dumping laws basically comprise the provisions that govern such practices. In the globalize economy, dumping is one of the most controversial issues and so are the anti-dumping laws.

This paper explores the evolution of anti- dumping laws and looks into the investigation procedure for establishing anti-dumping duties critically, in the process of taking a closer look at the debate that surrounds the actual need for such anti-dumping laws.

History
The origin of the anti-dumping legislation can be traced back to the 19th century, when the European sugar industries appealed to their respective governments for protection against sugar being dumped at unfairly low prices. In 1902, there was a formal agreement on anti-dumping. Canada adopted the first anti-dumping law in 1904, followed by the European countries and then the US in 1916. The US law, as modified in 1921, and the Canadian one, formed the basis for the original GATT article (Article VI of GATT) on anti-dumping in 1947. Subsequently, codes on anti dumping were developed during the Kennedy Round (1962-67) and Tokyo Round (1973-79). However, these were not binding on all GATT members; they were open to signature by those countries that wished to do so. They were plurilateral agreements, not multilateral ones. Unlike these, the Uruguay Round, (1986-94) anti-dumping agreement is a multilateral agreement binding on all GATT or WTO members.

GATT's Take on Anti- Dumping

The GATT/WTO system does not prohibit dumping; for an action to be taken against dumping, in addition to establishing that goods are being exported at lower than its normal value, it is required to establish that there has been an injury to the domestic market. It is only when a causal link between the act of dumping and the act of injury is established, that the anti-dumping duties can be imposed. An anti-dumping investigation can be started only if there is a written complaint on behalf of the domestic industry. This complaint can be considered if a significant share of the domestic producers supports the complaint.

Unsubstantiated complaints must be rejected. Investigation will be terminated, if the margin of dumping is de menimis, i.e. less than 2% of the export price. Investigations will also be ceased if the volume of dumped imports from any country accounts for less than 3% market share of imports of the like product in the importing country.

All this has to be done within the rules of multilateral trading system that requires that anti-dumping investigations be conducted with the due cognizance taken of the principles of due process i.e. in a transparent, objective and equitable way, with all interested parties given adequate opportunity to defend their interests.
The WTO website has a synopsis of the anti-dumping agreement and highlights its plus points.

However, there are plenty of minuses:
1. There is bit of arbitrariness in determining what is like product. What when there are no similar products sold in the domestic market?

2. The domestic sales price can be considered only if it is in the ordinary course of trade. Thus low prices charged for sales in the domestic market can be ignored on grounds of these not being regular transactions and, therefore, not in the ordinary course of trade. This serves to boost up the domestic sales price and makes it easier to prove dumping.

3. If the normal value is constructed, there are complicated cost calculations and allocations to be made, for instance, between sales in the domestic market and the export market. Arbitrariness steps in especially when there is a conflict between accounting practices in the exporting country and the importing country. This is so because investigating authorities typically follow accounting practices of the importing country.

4. Comparison of the export price and sales price in the domestic market requires exchange rate, conversions, and exchange rate fluctuations can influence such comparison. The agreement stipulates that the exchange rate on the date of sale should be considered. But the date of sale can be the date of contract, purchase order, order conformation or date of invoice, and depending on which is chosen, comparisons may differ.

5. The agreement is unclear about whether the amount of anti-dumping duty should be equal to the margin of dumping or less.

6. Anti-dumping duties are product and source specific. They can, therefore be circumvented by changing the customs tariff classification, by slightly altering the goods or competing a part of production process in the country of import or a third country. The anti-dumping agreement is silent on such circumvention.

Given the present provisions of the anti-dumping agreement and the clauses that allow subjectivity, it is the easiest thing in the world to prove dumping, especially against the developing countries.

The Government of India had proposed in the 1999 newsletter of the Ministry of Commerce that there must be special and different treatment for developing countries. The de-minimis margin must be increased for developing countries and so must the figure for 'negligible' from developing countries. If investigations are to be launched against developing countries, the percentage of domestic industries that supports the application must be increased. The lesser duty rule must be followed.

The Debate
Supporters of such laws are in favour of anti- dumping action being initiated against an exporting nation because, according to them, various distortions in foreign markets, namely trade barriers, monopoly or collusion, government subsidies, and certain exit barriers that prevent loss making businesses from reducing capacity or going out of business allow foreign producers to charge lower prices in export markets than would otherwise be possible. Anti dumping provisions help in maintaining a check on such unfair import competition. Secondly, it is further put forward that anti- dumping laws ensure level playing field by offsetting artificial sources of competitive advantage. It is alleged that anti-dumping duties, by making up the difference between dumped prices and normal value extinguish the foreign producer's artificial advantage and put the domestic industry back on an equal footing. It is also contended that such laws benefit the domestic industry.

Anti-dumping laws, contrary to the claims of its supporters, penalize foreign producers for engaging in commercial practices that are perfectly legal and unexceptionable when engaged in by domestic companies. Such discrimination against foreign firms, in reality creates an unlevel playing field for imports. Secondly, economists are finding it difficult to justify any economic benefit as such or a rational behind anti-dumping duties. Even the consumer organizations criticize it on the ground that it deprives the consumers from benefits such as choice of products and cost advantages.

Conclusion
The anti-dumping agreement is violative of basic free trade principles and needs to be scrapped. On balance, developed countries have lost comparative advantage in goods and have become more protectionists. Conversely, developing countries stand to benefit from greater liberalization and opening up. This scrapping should not, however be interpreted as a simple repeal of Article VI. In the absence of Article VI, member countries will have the freedom to adopt whatever rules they desire on anti-dumping and such unilateral action is undesirable. Instead, Article VI needs to be disciplined and linked up to tests for predatory intent through competition policy provisions.

While Indian producers of import substitutes tend to lose if anti-dumping action is waived, welfare gains to users will be more than proportionate. In addition Indian exporters will benefit from removal of non-tariff barriers that anti-dumping investigations amount to. This is the reason why developing countries like India should advocate scrapping of the Anti-Dumping Agreement.

Bibliography
1. Anti Dumping Measures under GATT/WTO: Sheela Rai
2. A handbook on Anti-Dumping Investigations: Judith Czako, Johann Human & Jorge Miranda
3. Uses and Misusues of Anti-Dumping Provisions in World Trade- A Cross Country Perspective: Edited by Bibek Debroy and Debashis Chakraborty

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