A Brief History On the reasons for Anti-Dumping Regimes

Few under stand the origins of antidumping and why it has been enshrined as one of the WTO Agreements.

What is anti-dumping? Very simply it is where an exporter sells product into an export market at a price less than that it sells the same or similar product into its domestic market. The difference is the dumping margin. Is this illegal or unlawful, a distinction that many commentators find difficult to comprehend. It is neither illegal nor unlawful under Australia’s anti-dumping legislation nor under WTO rules. Indeed, price discrimination was removed from the Trade Practices Act 1974 (Cth) in the 1990s to permit price discrimination as a lawful and "fair trade" practice in domestic trade.

So what is the problem with “dumping”? The General Agreement on Tariffs and Trade condemns dumping if it causes material injury to a domestic industry in the importing country. Where it does so, anti-dumping measures, that is, protective customs tariffs, may be imposed up to the extent necessary to remove such injurious effects. Similarly, with subsidies.

But why is this practice “condemned”? This requires a trip down the history of dumping.

Dumping measures were first introduced in North America by the Canadians to deal with steel rails being exported to Canada from the USA in 1914. The concern was that the US was engaging in predatory pricing through high tariff protectionist barriers in the US enabling its steel industries to leverage of those barriers to ship low priced imports to Canada with the aim of driving out Canadian producers, whereupon the US suppliers could increase their prices and obtain monopoly rents in Canada. This was the justification of anti-dumping measures in 1914 and has been so ever since then.

However, there has never been any case or any evidence of predatory dumping in any country either then or since. Further both the General Agreements on Tariffs and Trade 1847 and 1994 and free trade agreements, which are actually preferential trade agreements, have eliminated or significantly reduced tariff barriers. For example, tariff barriers in Australia range from 0% to 5% on most products with free trade agreements and other concessions eliminating 5% tariff barriers. Similar changes in tariffs are occurring in other countries, either unilaterally or pursuant to free trade agreements. This has have made the opportunity of exporters hiding behind high tariff barriers and engaging in predatory pricing impossible.

So when commentators argue that dumping is “unfair”, what is “unfair: about dumping, that is international price discrimination. What makes it intrinsically “unfair”? Alternately, what is “fair” trade? Is “unfair” or “fair” trade based on a practice that has never happened in the history of dumping? Is international price discrimination somehow “unfair” compared with domestic price discrimination that is “fair? It would seem that much has to do with domestic politics for this this distinction and not commerce!

Where has this led to in the analysis of dumping? Recently, governmental authorities concerned about imports from countries such as China and Russia, once formerly regarded as non-market economies but now recognized as market economies, thereby precluding from using costs and prices from “surrogate counties” in dumping margin calculations, now find that “particular market situations” exist in such countries. A “particular market situation” is defined in the WTO Anti-Dumping Agreement as where, because of a particular market situation, the domestic selling prices do not provide a “proper comparison” with export prices to determine whether the product being is being exported at a dumped price.

This has been interpreted by governmental authorities as occurring where the government, through legal regulation and governmental policies, influences the price of end products but also the inputs to manufacture for such products rendering both to be “artificially” low. This assessment is usually based on comparing domestic prices with some international benchmark price but ignoring or, without assessing, whether such international benchmark prices have not themselves been influenced by government regulation and policies or whether they are properly comparable (i.e. are they subject to the same level of regulation, do they have similar cost structures, labour, energy and raw material costs, and so on).

What market in the world exists where governments have not influenced, directly or indirectly, prices through influencing labour costs, energy costs, raw material costs, financing costs and costs of doing business in that particular jurisdiction? This seems to escaped the attention of governmental authorities undertaking dumping and subsidy investigations. Why? Further, it also has escaped attention as to what extent, if any, governmental influence actually has influenced prices of either the inputs to manufacture or, flowed through and influenced, the end product and to what extent. What objective and verifiable evidence supports any such finding.

Importantly, notwithstanding the above, if government regulation and policies have influenced the prices of inputs to manufacture, then such influences have had an effect not only on domestic selling prices but also export prices. Uplifting domestic selling prices by such governmental influences but not doing so for export prices or, at least, making some adjustment to take account of the uplift, then one is not comparing like-with-like, which is the touchstone of dumping. The governmental influences on pricing apply equally to domestic selling prices and to export prices and there is no need and, indeed, it arguably would be contrary to WTO rules to compare an uplifted domestic price with an export price that has not similarly been uplifted when both have been the recipients of, according to governmental authorities, of “artificially” low priced inputs to manufacture.

Further, it fails to recognize the fundamental difference between dumping and subsidisation. The former involves a proper comparison between export prices and domestic selling prices to determine whether dumping is occurring (i.e. whether price discrimination is occurring between export and domestic prices by an exporter). The latter involves governments subsidizing products either directly or indirectly. If governments are artificially lowering inputs to manufacture by providing government financial support in one way or another, then this should be addressed as a subsidy, assuming it qualifies as such under-WTO rules, and be dealt with accordingly. This, of course, would again involve assessing and quantifying the extent that the subsidy “passes though” to the end product’s price. Why has this not been done?

Further, the Government is undertaking so-called "improvements" to the anti-dumping system. What needs improving? Does anyone know whether anti-dumping measures (i.e. protective tariffs) are effective? Why introduce protective anti-dumping tariffs when tariffs are being reduced, either unilaterally or pursuant to free trade agreements? What effect do such protective tariffs have on the industries concerned - does it make them more competitive - and what costs does it impose on downstream users of such products an on the Australian economy? Has anyone assessed this? Why not?

It would appear that advocates of an antidumping regime do not know about its history or the consequences antidumping measures may have for the industries seeking them, downstream users of products subject to antidumping measures or on the Australian economy. Further, what "improvements" can be made to the Australia anti-dumping system without assessing the effects and operation of the existing system and its objectives.

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