Antidumping at the Intersection Between Free and Fair Trade
Antidumping policy is a controversial issue at the intersection of the principle of the trade liberalization and fair competition. “The starting point for any discussion of policy for the international economic system of today is the notion of ‘liberal trade’, meaning the goal to minimize the amount of interference of governments in trade flows that cross national borders” (Jackson 1989, 8).
Accordingly, the key principle of the WTO is trade liberalization, the elimination of quantitative and non-quantitative trade barriers (Krugman, Obstfeld 2003, 239). This fits with Held et al.’s first two principles underlying the current trade regime. In detail, “[t]he GATT regime, on which the WTO is built, was based on four main principles:
- non-discrimination (the MFN principle):
- reciprocity, that tariff reductions in one country should be matched by reductions among its trading partners;
- transparency, that the nature of trade measures should be clear; and
- fairness, so that practices like dumping of goods at below market prices of predatory pricing by exporters were deemed unfair and countries were entitled to institute protection against them.” (Held et al., 1999, 164).
Hoekman and Kostecki, as an example for slightly different views, propose a their own list of important principles. Apart from Held et al.’s non-discrimination, reciprocity, and transparency, they see safety valves and enforceable commitments as substantial rules. Safety valves include the legitimate use of protectionism for certain noneconomic, and economic reasons as well as to ensure fairness. The fifth and only real additional principle brought forth by Hoekman and Kostecki are enforceable commitments referring to the dispute settlement (2001, 29- 34).
However, sometimes Held et al.’s first two principles (Hoeckman and Kostecki’s first and third) that express trade liberalization collide with the fourth one, fairness or safety valves. In other words, states can make exceptions to liberalized trade and impose trade barriers to fight against unfair competition. One controversial issue concerning the nature of unfair competition is dumping. As to the question if dumping should be considered an unfair trade practice, opinions differ. The WTO does not pass judgment but allows its member states to take antidumping actions when they claim to find evidence of dumping by foreign companies. This is based on Article VI of the GATT agreement as well as the Antidumping Agreement. Specifically, the WTO “allow[s] countries to act in a way that would normally breach the GATT principles of binding a tariff and not discriminating between trading partners” (WTO 2003). According to proponents of antidumping measures, antidumping legislation can be seen as one of the methods to ensure fair trade (Lindsey 1999, 1). Its opponents think that antidumping actions, disguised as devices to ensure fairness in international trade, can be misused as protectionist measures (Bhagwati 1988, 48), which is a breach of the basic liberal principle of trade liberalization.
After this general outline of antidumping in today’s trade order, three scholar’s opinions were chosen for closer analysis. In The World Trading System: Law and Policy of International Economic Relations, Jackson explains trade law and policy as the interplay of international law, national law, political science and economics. Apart from clarifying the trade details, he dedicates one of his fourteen chapters to “Unfair Trade and the Rules of Dumping” (Jackson 1989, 215-247). Besides giving the basic insights into antidumping policies and laws as well as the determination of injury, Jackson offers two more specific, interesting aspects. Firstly, he states that antidumping is a response to unfair trade practices. Especially in the case of predatory pricing, dumping is considered as unfair. Predatory pricing occurs when large foreign companies use market leverage and sell their products at a very low price to drive small domestic firms out of business and thus reduce competition in order to be able to reap monopoly profits. Secondly, Jackson brings up the question of interface problems, problems that emerge when different economic systems trade with each other. One interface problem concerning antidumping involves the determination of whether a product has been sold at “less than fair value” because variable costs need to be determined, which is especially complicated in non-market economies (1989, 215-247). Jackson’s analysis of the current world trading system accords an important role to the discussion on antidumping.
Trebilcock and Howse, in The Regulation of International Trade, also dedicate their eighth of twenty chapters to “Antidumping Laws”(Trebilcock, Howse, 2005, 232-261). After discussing antidumping in the different trading rounds, Canada, the U.S. and the EU are examined more closely. These regions have three options when determining the normal fair price. Following the home-market method, the export price can simply be compared to the home market price. When this method does not work, the constructed-cost method can be applied where the import country calculates the cost incurred by the exporter and adds a profit margin and uses that as the fair price. The third-country method is used if the exporting country is not a market economy. Analogue country exports are used as a benchmark. Trebilcock and Howse call for a reform of antidumping laws because they see predatory pricing as the only legitimate economic rationale for antidumping. Also, for them, antidumping is at the interface between trade and competition policies. But the discussion goes beyond antidumping to domestic competition laws, that are the source of unfair competition (1995, 260-1). Therefore, the two authors focus on “one area of potential convergence between trade policy and competition policy”(Trebilcock, Howse 2005, 261).
In The Political Economy of the World Trading System: The WTO and Beyond, Hoekman and Kostecki illustrate in a bar chart of the major cases dealt with by WTO Disputes Settlements between 1995 and 1999 that antidumping and countervailing duties cases were the fourth and antidumping agreement cases were the ninth most important cases. The other major issues concern simple export and import cases, safeguards agreements, technical standards, investment measures, administration, and subsidies (2001, 80). Several problems of antidumping are more directly dealt with in the chapter on safeguards and exceptions. Market access restrictions of foreign markets should always be analyzed as well because they could be the source that makes antidumping possible. The procedures to follow can turn antidumping into a protectionist tool: methods used to establish the difference between dumping and fair price are flexible and the injury criterion can be influenced by the domestic industry. By focusing on three criteria (existence of antidumping, injury and link), users and customers are left out. Antidumping might lead to cartelization and often, foreign companies avoid antidumping duties by accepting price undertakings, which contradicts the principles of transparency and competition.
The Antidumping Agreement disciplined the use of antidumping. According to the sunset clause, duties have to be terminated within five years of imposition. De minimis rules ensure that antidumping margins have to be at least two percent, injury is not negligible and that market share of a company is more than three percent or more than seven percent for all exporters that supply less than three percent. Methodology of price calculation slightly improved. The dispute settlement is applicable to antidumping cases (2001, 326-30). In sum, “AD [antidumping] constitutes straightforward protectionism that is packaged to make it look like something different. By calling dumping unfair, the presumption is that AD is fair and thus a good thing. This is good marketing, but bad economics” (Hoekman Kostecki, 2001, 322).
In sum, the literature on the trade system indicates that antidumping forms an essential part of the discussion on liberalization versus fairness. As Moore observes, antidumping duties are an internationally accepted exception to the WTO core principle of the most-favored-nation status (2005, 4). Or, Lindsey would state that “[t]hose questions go to the heart of the ongoing debate over free trade versus ‘fair trade.’ Any complete assessment of antidumping policy must ultimately grapple with them” (1999, 2). Despite the unanimous interest for antidumping regulations among scholars, we find both opponents and proponents of these policies.
Bhagwati, J., 1988. Protectionism. London: The Ohlin Lectures.
Held, D., McGrew, A., Goldblatt, D. Perraton, J. 1999. Global Transformations: Politics, Economics and Culture. Stanford, CA: Stanford University Press.
Hoekman, L.M., Kostecki, M.M. 2001. The Political Economy of the World Trading System: The WTO and Beyond. Second Edition. Oxford, New York: Oxford University Press.
Jackson, J.H.. 1989. The World Trading System: Law and Policy of International Economic Relations. Cambridge, MA, London: MIT Press.
Krugman, P.R.; Obstfeld, M. 2003. International Economics: Theory and Policy: Sixth Edition. Boston, San Franciso, New York: Addison Wesley.
Lindsey, B. 1999. The US Antidumping Law Rhetoric versus Reality. Trade Policy Analysis No. 7. Washington: The Cato Institute.
Moore, P.M. 2005. Antidumping Reform in the Doha Round: A Pessimistic Appraisal. Working Paper. http://www.uoregon.edu/~bruceb/adpage.html
WTO (World Trade Organization). 2003. Anti-dumping actions. http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm8_e.htm, 10-8-2003