The Effects of Antidumping (AD) upon Foreign
Direct Investment (FDI) : an Overlapping of
International Trade and FDI Perspective
Dang, Jun
SCID, Stanford University
Xi’an International Studies University
5, July, 2011
Contents
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Antidumping and FDI current trends
Literature review
Overlapping of international trade and FDI
The dynamic game of AD and FDI
Policy implications
Backgrounds : Antidumping
• Antidumping law: over 90 countries
• Cases: 3752 by exporting countries from 1995 till 30,
June, 2010. (www.wto.org )
• Developing countries became new major users
• India, Mexico, Argentina, Brazil, South Africa, Turkey and
China.
• Developed countries still rank high in the list
(e.g. Antidumping measures taken by the USA accounts for 1337 till 2000, of
which 981 were taken after 1980s. But from 2000 till 2009, there are 341
antidumping measures taken, although it is less than India and EU in
numbers. And there are 420 since 1995 till 30, June,2010)(Liu Zhenhuan, U.S.
trade policy studies, Law press, Beijing, 2010.2. P: 66. )
World Current FDI
• FDI since 1990s has been prevailing, developed
countries are the main recipient country; developing
countries are the new receivers.
• Intra-industry trade accounts for 2/3 of the world trade.
• Multinational Enterprises are big players in the world
economy: Anderson and Cavanagh(2000) multinational
corporations are very big. (51/100 )
• Seventy percent of world trade is controlled by 500 of
the largest industrial corporations, and in 2002, the top
200 had combined sales equivalent to 28% of world
GDP (http://www.thomhartmann.com/users/ajagbe-adewole/blog/2010/11/multinational-corporations).
AD effects
• Basic theoretical protection goals of AD
- local production increase after AD: fair trade
- increase prices of the product
- maintain the domestic employment
• Empirical Studies
-T. Prusa(1996) : the US AD did restricted import from named
countries, but there is a significant trade diversion effect from named
to non-named countries.
-C.M. Krupp, S. Skeath(2002) : the imposition of antidumping duties
in an upstream industry positively affects the quantity and value of
domestic upstream production and negatively affects the quantity of
downstream production.
• Arastou Khatibi (2009) shows that although antidumping
protection predominantly benefits the EU domestic
market rather than non-named countries, it is not strong
enough to offset the decrease in imports from named
countries.
• H. Vandenbussche, M. Zanardi(2010) New evidence on
antidumping’s “chilling” impact: heavy new users of
antidumping, experienced a substantial reduction of their
aggregate annual import volumes due to the use of
antidumping. However, aggregate imports are affected
only for those users that have established themselves as
frequent users of antidumping…
• Andrew J. Kaelin(2004): unintended effects, antidumping tariffs
could increase China’s competitiveness.
• Chu Tianshu(2004) mentioned that AD could be an incentive to
Make an FDI in China.
• Maya Cohen-Meidan(2010) found duties imposed on Japanese
producers shipping cement to the West-Coast's coastal markets led
to imperfect substitution to other imports, allowing domestic prices
and production to increase, but other areas insignificant.
• Of FDI studies, Isabel Faeth(2009) generalized 9 models: the early
studies of determinants FDI; neoclassical trade theory; ownership
advantages; aggregate variables; OLI model; knowledge capital
model; horizontal and vertical model; diversified FDI and risk
diversification models; and the policy model.
• Among them, the early studies mainly agreed that the
market factors, trade barriers, cost factors, and
investment climate are decisive,. The consensus is that
marketing factors, including market size, market growth,
and maintaining market share are important.
• KH Zhang, Markusen(1999) states that the vertical
MNEs depend on transport costs, market size and factor
abundance in the host country.
• Markusen and Markus(2002) analyzed the horizontal,
vertical FDI and the knowledge-capital model.
• But these are all about why do they invest abroad, the
reactions of FDI to policy factors are seldom touched.
The Effects of AD upon FDI
• Feng Zongxian, Zhu(2006) found out there is a
negative effect similar to previous findings, $550
million in chemical sector for each AD case.
• More related studies addressed this topic by case
studies, and some empirical, Zhu Wei, Dong
Youde(2005) ; Li Jun （2005);Chen Yang, Wang
Yanming（2007).
• One noteworthy study by Bao Xiaohua(2004)
stated that the antidumping had a tendency to
cause more FDI into China.
The Complexity of AD effects
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Traditional static theory vs. dynamic world economy
Product level policy vs. Industry level implications
Macro statistics vs. micro decision making
Optimal functions of countries vary: W=CS+PS+TR
One New feature of World economy: The Overlapping of
International Trade and FDI(OITF)
The Overlapping of International Trade and
FDI: International Statistics
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Growth in the volume of world merchandise exports and
production
• Geographical distribution of world trade flow
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FDI inflow and stock 2000-2009
• Trade in parts and finished goods trade share in selected
area (1992vs 2004)
• World Distribution of the Antidumping by Sectors
MNEs’ Possible Reactions under OITF :
Micro Analysis
• Hypothesis:
---In order to make an argument, here we address the
vertical FDI;
---assume that the rational reaction is transmitting from
upper-stream to down stream when facing an AD;
--- and the transfer pricing in the network of the MNE would
help to circumvent the barrier of investment;
--- the host market is crucial to the MNE;
--- the MNE is performing according to maximizing its
global profit both long term and short term( including
dynamic or strategic interests).
Possible Outcomes
a. If there is a MNE subsidiary existed in the host country, the MNE will
make use of Transfer pricing to offset the AD effects (collusion effect), the
key factor is the market share.
• b. If there isn’t a subordinating firm of the MNE, when there is a
potential demand, then the reaction would be an FDI into the
country. If we make a partial analysis of the AD effect, the supposed
protection to domestic producers would be dissolved. So the result
would be quite relieving if the government is to promote the FDI in
the target product.
• c. The MNE may divert its investment to a third country, the short
term effect is the goal of AD achieved, but in the long run, the third
country will definitely fill-up the market if the domestic producer
dose not increase production significantly. Finally, the AD is easy to
be offset.
The OITF framework: vertical integration
A, parent firm, X1
Dump, X1
AD
X3 sell back
to home A
Export
X1and X2
B, sub-branch 1, X2
C, sub-branch 2, X3
AD to
X2
FDI in C, X1 X2
Simplified AD to FDI in a vertical framework
The Antidumping and FDI Interaction
without Countervailing Statutory
Exit from the market
Antidumping
MNEs’
export
decrease
Diversion of
production
MNE Invest in a
third country
Adjusted
Export
FDI inflow not
increased
Continue to export to the
market, AD dissolved
The Antidumping and FDI Interaction with
Countervailing Statutory
countervailing
Exit from the market
Antidumping
MNEs’
export
decrease
Diversion of
production
MNE Invest in a
third country
Adjusted
Export
FDI inflow
increased
Countervailing offset the
diversion effect of the MNE
The Dynamic Interactions of Antidumping and FDI
AD induced
FDI
AD seduced FDI
Collusion dissolved
The market share of the Sub in B got
protected
Subsidiary 1
Dumping
MNE in A export
B, AD
FDI in B
Encourage new FDI
AD
Export
AD-FDI
AD to C
FDI maximization
C Produce and export to B
(Sub 2)
B
AD maximizationn
Diversion of FDI to C
Trade and FDI diversion, need a countervailing, or
antidumping to Sub 2 in C
Policy Implications
• This frame work compensated the dynamic and bias
upon the effects of the MNEs reaction to a countries
trade policy effects, enabled a dynamic policy
environment for the multi-lateral trading system
• For the host country, there should be a balanced
international trade policy, try to practice balanced
international economic goal: both domestic and alien
investment
• For the host country, keep a moderate development of
the market share of the foreign direct investment in the
country could be beneficial, namely, to keep the MNEs’
market share in a threshold level.
• For international trade disputes settlement,
this study could provide a way to extend
the macro factor analysis with the
dynamics of the micro enterprises
• Host country should consider the transferpricing issue, to ascertain the effect of an
AD, this is the link between the macro
policy factor and the Micro MNEs
reactions.
Future Research
• The OITF model need to be improved to integrate the
macro analysis on the basis of the Micro (MNE, which is
already making macro effect in the international
economics ) mechanism.
• Attach importance to the transfer pricing rules, try to
figure out how it affects the performance of the
Multinational enterprises (the black box).
• Form a dynamic mechanism to deal with the possible
reactions of the MNEs, possibly, I wish there could be
some hints for the reunion of micro and macro
economics.
Thank you!!
Comments are welcome!!