CHAPTER 18 1. BACKGROUND TO AUTIDUMPING RULES THE REVIEW OF During the WTO Seattle Ministerial Meeting, Japan, along with many other members, mostly developing countries, proposed a review of the Antidumping Agreement. The United States vigorously opposed any review, and directly prior to the Seattle meeting, US Secretary for Commerce William Daley published an editorial in the Financial Times. Below is a summary of his argument. 1) The US interest in the Seattle Ministerial Meeting is ensuring that US industries can continue to meet the challenges of the global marketplace and compete on equal terms with the rest of the world. For that to happen, we need to maintain strong US trade laws. These laws are not only fair and judicious, but are also necessary as trade barriers are torn dawn. 2) Some of America's trading partners, including Japan, which have one of the largest and most persistent trade surpluses with the US (Dollars 64bn in1998)are aiming to disarm these laws in the new round. While they claim that the dumping and subsidy laws are used for protectionist purposes, but in point of fact these laws are reserved for situations in which even the most productive American workers are harmed by unfair trade. 3) During the steel crisis of last year, the collapse of markets in Asia and Russia caused imports reached record revels, and more than ten thousand US steelworkers lost their jobs. The crisis was quelled by swift enforcement of antidumping and countervailing measures. 4) It is not surprising that some of the countries involved in the recent steel cases including Japan are now pushing the hardest to weaken US dumping laws. These countries claim that US dumping laws impedes imports, but in 1998, US imports totaled Dollars 900bn, but only about Dollars 4bn of these were affected by dumping cases.. 5) The new round should focus on full implementation of the existing procedural rules in the dumping and subsidy agreements. 6) Opinion surveys of workers in the United States over the past year indicate that it is in the US interest to stand firm against review that has the potential to weaken US trade law. 353 Vice Minister for International affairs MITI Hisamitsu Arai responded on the ministry's behalf in a rebuttal that was also printed in the Financial Times. Below is an outline of the case he made. 2. 1) The US would like us to believe that their dumping law are not used for protectionist purposes, but are reserved for exceptional situations in which truly serious injury is done to domestic industry. Why then are twenty-five countries dissatisfied with the current anti-dumping rules and have submitted proposals to the World Trade Organization for bringing in more disciplines to them? Why are anti-dumping petitions filed in the US seemingly concentrated in those old “smokestack” industries such as base metals and chemicals? 2) What is important in the import volumes is whether trade opportunities are lost, not the volume of trade actually influenced. It is quite obvious that the imposition of antidumping duties cause a substantial decline in imports, so it is not surprising that the affected imports do not represent a large percentage. In addition, even if the overall percentage is low, as anti-dumping cases are concentrated in a relatively small number of sectors, they can have a significant effect in that sector of the economy.. 3) Finally, it is indeed in the US interests to introduce more disciplines in the conduct of antidumping investigations. There has been a rapid increase in the number of antidumping measures taken in recent years and in the number of countries imposing them. The total number of antidumping cases against US products for the past four years is 64, making the US the second largest target of antidumping investigations, next to China with 119 cases against it. This makes me wonder why the US could be so complacent about this alarming trend. 4) It is not our intention to "weaken" the US trade law. We are trying to improve the global trade rules. including those applicable in the US We are not seeking unilateral disarmament of the U.S trade regime. Rather, our initiative is comparable to multilateral arms reduction talks for the common benefit of mankind. With more disciplines in the world’s antidumping regimes, we will be able to have more security and predictability in the multilateral trading system. This will enhance productivity and welfare in every economy. I sincerely hope that the US will be able to join in this win-win game in the coming trade round. During the Seattle Ministerial Meeting, the proposal to review the Antidumping Agreement was supported by the majority of members and included in the text of the working committee chairman's draft report. However, no agreement was reached with the United States, which maintained its hard-line opposition. For the Ministerial Meeting, Japan created a pamphlet to provide background, including the debate with the United States summarized above. The data and materials included in that pamphlet are quite interesting and informative, so it is reproduced in part here as a supplement to this text. 354 1. Number of Anti-Dumping Cases and the Proposals for Negotiations Some have argued that there is no need to negotiate about anti-dumping rules in the new round. Yet the number of anti-dumping measures restricting world trade continues to increase. Over the past five years, the number of measures has increased 50 percent, to almost 1,000 anti-dumping orders in place. See Figure 18-1,18-2. <Figure 18-1>Countries maintaining antidumping measures As of the end of 1993 Number of AD COUNTRY Measures Imposed 1 United States 293 2 EU 126 3 Canada 78 4 Australia 71 5 Brazil 28 6 Mexico 28 7 New Zealand 23 8 South Africa 7 9 Argentina 2 10 Korea 2 Others 2 Total 12 countries 660 (Source: WTO semi-annual reports) As of the end of 1998 Number of AD COUNTRY Measures Imposed United States 326 EU 139 Mexico 82 Canada 77 South Africa 57 India 43 Australia 42 Argentina 37 Turkey 34 Brazil 33 Others 111 Total 26 countries 981 <Figure 18-2>Affected countries of effective antidumping measures As of the end of 1993 Number of AD COUNTRY Measures Imposed 1 EU 110 2 Japan 81 3 China 70 4 South Korea 46 5 United States 40 6 Chinese Taipei 37 7 Brazil 29 8 Canada 18 9 Thailand 16 10 Singapore 14 Others 199 Total 77 countries 660 (Source: WTO semi-annual reports) 355 As of the end of 1998 Number of AD COUNTRY Measures Imposed China 191 EU 148 Japan 76 United States 65 Chinese Taipei 53 South Korea 48 Brazil 45 Russian Federation 35 Thailand 34 India 23 Others 263 Total 73 countries 981 This explains why so many countries (25 in total, ranging from ASEAN to Zimbabwe) are dissatisfied with the anti-dumping rules as applied today and have submitted proposals to the WTO for bringing in more disciplines to them. They are concerned about the arbitrary and artificial calculation of dumping margins. Many of them take the view that injury is determined without adequate causation analysis. (See Figure 18-3.) It would be quite odd for the topic that has generated the broadest-based interest to be left off the negotiating agenda. anti-dumping must be part of the agenda. <Figure 18-3>List of countries that proposed to review AD rules at the Seattle Ministerial Conference Asia Japan, Korea, India, Pakistan, Sri Lanka, ASEAN (Malaysia, Singapore, Philippines, Indonesia, Brunei, Thailand) Oceania New Zealand Europe Romania Latin America Brazil, Guatemala, Colombia, Jamaica, Chile, Africa Egypt, Zambia, Kenya, Tanzania, Zimbabwe, Uganda 2. Who Is Bashing Whom? Increasingly, the United States has become the target of many anti-dumping actions by its trading partners. It may not be well-known, but the fact is, according to the WTO statistics, the number of anti-dumping cases against products originating in the United States for the past four years is 64, making the United States the second largest target of antidumping investigations in the world, following China with 119 cases against it. See Figure 18-4. <Figure 18-4>Number of anti-dumping investigations initiated in each year, broken down by target countries (i.e. sources of imports) 1995 1996 20 43 China 12 21 United States 14 10 Korea 5 6 Japan 4 8 Chinese Taipei 7 9 Germany 3 11 India 7 9 Thailand 8 10 Brazil 2 7 Russia (Source : WTO Semi-annual report) 1997 31 15 16 12 16 14 7 5 5 5 1998 25 16 21 15 10 7 11 10 7 14 Total 119 64 61 38 38 37 32 31 30 28 These developments are worrisome because anti-dumping duties are powerful non-tariff barriers, as Joseph Stiglitz, Former Senior Vice President and Chief Economist of the World Bank, explains. See Extract 1. 356 Some argue that “full implementation of the existing procedural rules” in the antidumping agreement can sufficiently address this situation, without reviewing the shortcomings of the existing rules in the negotiations. However, no country can be sure that the issues are being adequately addressed under the existing Anti-Dumping Agreement. <Extract 1>* Today, we recognize that there are many forms of non-tariff barriers to trade (NTBs), and that these have multiplied in recent decades as tariff barriers have come down. This is not surprising; after all, the political forces that give rise to high tariffs do not disappear once tariffs are brought down. Rather, they must seek protection through other channels. Unfortunately, these NTBs are far more pernicious than tariffs, precisely because they are so much harder to assess and quantify, and they can exact even higher costs in efficiency terms. One notorious form of GATT/WTO-legal NTBs is anti-dumping duties and countervailing duties. I have already noted that the provisions of dumping laws do not conform to economic principles concerning fair trade. *Remarks by Joseph Stiglitz, Former Senior Vice President and Chief Economist of the World Bank, in “Two Principles for the Next Round or, How to Bring Developing Countries in from the Cold” (Geneva, September 21, 1999, emphasis added) [http://www.worldbank.org/knowledge/chiefecon/articles/geneva.htm] 3. Can Anti-Dumping Measures Reduce Trade Deficits? The United States has conflicting views about “dumping.” Even while some officials aggressively attack “unfair trade,” other officials acknowledge the economic reality: that concern about bilateral trade surpluses is largely misplaced and that anti-dumping measures can be too easily abused. Extract 2 is from the report of the Joint Economic Committee of the US Congress (chaired by Senator Connie Mack), entitled 12 Myths of International Trade (June 1999). Here, the fallacy of an argument linking bilateral deficits with “unfair trade” is clearly illustrated. Extract 3 is taken from a statement by Alan Greenspan, Chairman of the Federal Reserve Board. He is warning against the dangers of anti-dumping abuse. <Extract 2>* Myth 6: A trade surplus is good; a deficit is bad. The trade deficit does not belong to any individual or institution. It is a pure statistical aggregate, like the number of eggs laid in the US or the number of bald-headed men living here. —Herbert Stein The term “trade deficit” is misleading. “Deficit” generally suggests 357 something bad—like excessive spending relative to income or an overdraft at the bank. A trade deficit occurs when a nation receives more goods and services from foreigners than it supplies to them. What's bad about that? After all, isn't consumption the ultimate objective of economic activity? Conversely, a trade surplus is present when a nation supplies more goods and services for foreigners to consume than it receives from them. What is so good about that situation? Is this something that people will want to continue to do? A trade deficit is the flip side of a capital account surplus. With floating exchange rates, market forces will bring the American purchases of goods, services, and assets from foreigners into balance with their sales of these items to foreigners. Thus, a trade deficit will occur when the US economy is offering investors such attractive options that foreigners are investing more in the United States—buying more assets—than Americans are investing abroad. Again, it is hard to see what is bad about this situation. Would we prefer that our economy to be in such poor shape that investors—domestic as well as foreign—had better options elsewhere? Doesn’t a trade deficit mean greater indebtedness to foreigners? Not necessarily. Much of the foreign investment involves the purchase of stocks and physical assets like buildings and business assets. Americans benefit because they are able to sell these assets to foreigners at more attractive prices than would otherwise be possible. Foreign investments of this type do not increase American indebtedness to foreigners. Of course, some foreign investments are in the form of loans or the purchase of bonds. These transactions mean lower interest rates for Americans. If the investments are sound, they will generate a future income stream that is more than sufficient to repay the loans. Even in this case, the loans are helpful to the US economy. Myth 8: If trade with another country is fair, our exports to the country will equal our imports from it. This statement is totally false. There is no more reason to expect bilateral trade to balance between nations than between individuals. Rather the predictable result is (a) trade deficits (purchases that exceed sales) with trading partners that are low-cost suppliers of goods and services that we import intensely and (b) trade surpluses (sales that exceed purchases) with trading partners that buy a lot of the things we supply at a low cost. Consider the trade “deficits” and “surpluses” of a doctor who likes to golf. The doctor can be expected to run a trade deficit with sporting goods stores, golf courses, and favorite suppliers of items like lawn care, plumbing, and auto repairs. Why? The doctor is highly likely to purchase these items from others. On the other hand, the doctor can be expected to run trade surpluses with medical insurers, elderly patients, and those with chronic illnesses. These trading partners are major purchasers of the services provided by the doctor. Furthermore, if the doctor has a high rate of saving, the surpluses will substantially exceed the deficits. 358 The same principles are at work across nations. A country can expect to run sizeable surpluses with trading partners that buy a lot of the things the country exports, while trade deficits will be present with trading partners that are low-cost suppliers of the items imported. Table 2 indicates the nations with which the US ran the largest bilateral trade surpluses and deficits in 1998. The surpluses were largest with Netherlands, Australia, Belgium-Luxembourg, Brazil, and the United Kingdom. Do these bilateral trade surpluses indicate that US treats these countries unfairly? Of course not. The surpluses merely reflect that these countries import goods that American producers supply cheaply. On the other hand, the US ran large bilateral trade deficits with Japan, China, Germany, Canada, and Mexico. Do these countries unfairly discriminate against American goods? The US will tend to run bilateral trade deficits with countries that are low-cost suppliers of goods Americans import intensely. This is the major factor at work here. Interestingly, Canada and Mexico—two countries that are most open to US products—are among the high-deficit countries. What about the trade deficit with Japan? Among high-income industrial countries, Japan's trade practices are perhaps the most restrictive. However, this is not the major reason for the US trade deficit with Japan. Japan is a major importer of resources like oil and a major exporter of high-tech manufacturing goods. Americans import a lot of the latter, but they export very little of the former. If the US were a low-cost supplier of energy, its trade balance with Japan would look much different. Major energy exporters—including Indonesia, Oman, Saudi Arabia, and the United Arab Emirates—all run sizeable trade surpluses with Japan. In addition, the Japanese saving rate is high and its investment abroad is large. As we have already noted, an outflow of capital will mean a trade surplus. In contrast, the US has a low rate of saving. This differential saving rate between the two countries also contributes to the US-Japanese bilateral trade deficit. Myth 5: It is sound policy for a country to support a weak industry with subsidies. A liberal interpretation of "dumping" is necessary to protect domestic industry. Similarly, a liberal interpretation of “dumping” in the application of our anti-dumping laws impedes our country’s economic growth. Current law provides relief in the form of anti-dumping duties (tariffs) when a domestic industry is injured as the result of a good being sold in the United States at a price below cost or lower than that found in the domestic market of the exporting firm. However, it is not easy to tell whether dumping laws are, in fact, being violated. The prices charged in the home market generally vary and the cost of the firms charged with dumping are not directly observable. Some express fear that foreign producers might attempt to drive domestic firms from the market and then raise their prices to a high level. This is unlikely to be an effective strategy. After all, the high prices would soon attract competitors, including other foreign suppliers. When analyzing the merits of anti-dumping restrictions, it is important to keep two points in mind. First, price cutting is an integral part of the competitive 359 process. When demand is weak and inventories are large, firms will often find it in their interest to offer goods at prices below the average total cost of production. Domestic firms are permitted to engage in this practice. Why should foreign firms be prohibited from doing so? Second, the use of anti-dumping laws to reduce the competitiveness of domestic markets is sure to be contagious. As a few industries are protected from the competition of foreign rivals, others will seek similar treatment. Herein lies the real danger. If we are not careful, anti-dumping actions will soon become simply another rather thinly veiled mechanism to stifle competition. Our economy has prospered largely because of our reliance on market allocations and avoidance of this type of favoritism. We must not allow the credibility we have earned to be eroded by shortsighted policies. * 12 Myths of International Trade (Report by the Joint Economic Committee of the US Congress, June 1999) [http://www.senate.gov/ ~jec/trade1.html] <Extract 3>* While tariffs in industrial countries have come down sharply over the past half century, other barriers have become more prevalent. Administrative protection in the form of antidumping suits and countervailing duties is a case in point. While these forms of protection have often been imposed under the label of promoting “fair trade,” oftentimes they are just simple guises for inhibiting competition. Typically, antidumping duties are levied when foreign average prices are below average cost of production. But that also describes a practice that often emerges as a wholly appropriate response to a softening in demand. It is the rare case that prices fall below marginal cost, which would be a more relevant standard. Antidumping initiatives should be reserved, in the view of many economists, for those cases where anticompetitive behavior is involved. Contrary to popular notions about antidumping suits, under US and WTO law, it is not required to show evidence of predatory behavior, or intention to monopolize, or of any other intentional efforts to drive competitors out of business. *Remarks by Alan Greenspan, Chairman of the Federal Reserve Board, “Technology and Trade: The Pros and Cons to Isolationism” (Dallas, May 1, 1999) [http://www.bog.frb.fed.us/boarddocs/speeches/1999/19990930.html] 4. What Is the Effect of Anti-Dumping Measures? According to US officials, only $4bn out of $900bn imports into the United States were affected by anti-dumping measures. It is quite obvious that after the imposition of antidumping duty on a certain product, the import of that product will decline significantly or come to a complete halt. It is not surprising that the affected imports do not represent a large percentage. In addition, even if the overall percentage is low, as anti-dumping cases are concentrated in a relatively small number of sectors, they can have a significant effect in that sector of the economy. Any measure that can essentially stop all exports in a sector represents a serious impediment to legitimate trade. 360 5. Will Negotiations Weaken US Laws? Proponents of new negotiations on anti-dumping do not seek to “weaken” the US trade laws in the new round. We are trying to improve the global trade rules that apply to all countries including the United States. We are not seeking unilateral disarmament of the US trade regime. Rather, our initiative is comparable to multilateral arms reduction talks for the common benefit of all countries. With more disciplines in the world’s anti-dumping regimes, we will be able to have more security and predictability in the multilateral trading system. Concessions negotiated in one sector will not be taken away by abusive anti-dumping measures. 361 362