An Economic View on EU Trade Defence
– Policy, Practice and Impact
Patrik Svensson
Copenhagen Economics ApS
Sofia, 9 November2005
Purpose of the presentation
• To provide concrete examples of how and why trade
defence measures are imposed
• To explain the economic impacts of trade defence
measures in practice
• To help you understand how trade defence measures
might affect you
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Copenhagen Economics
• Nordic economics consultancy based in Copenhagen
• Specialised in quantitative economic analysis to support clients
facing complex decisions
– Example of clients: The World Bank, European Commission (DG Trade,
DG Internal Market, DG Competition, DG Enterprise), European
governments, private firms
• Three main business areas
– Impact assessments and trade policy analysis
– Competition policy
– Regional economics
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Agenda
1. The motivation for trade defence measures
2. Antidumping in practice
3. Impacts of antidumping measures
4. EU trade defence in a global context
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EU trade defence measures
•
The objective is to ensure fair trade and counteract “unfair” practices
•
The European Union uses a number of trade defence measures
– Anti-dumping measures
– Anti-subsidy measures
– Safeguard measures
•
Anti-dumping measures are the most frequently used
– 23 out of 25 new investigations in 2005 were antidumping investigations
•
The link to competition policy is non-trivial
– Trade defence measures are supposed to ensure competition in the long run
– Competition may be restricted in the short run
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Dumping
What is dumping?
• To sell goods abroad at a lower price than at home, or
to sell goods in foreign markets below “cost”
• Dumping does not necessarily imply any government intervention
Dumping can be a natural phenomenon
• Prices may differ across markets due to price discrimination
When is dumping harmful from an economic perspective?
• Predatory dumping: selling at artificially low prices to eliminate
competitors and achieve monopoly powers and ability to raise prices
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Agenda
1. The motivation for trade defence measures
2. Antidumping in practice
3. Impacts of antidumping measures
4. EU trade defence in a global context
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Antidumping investigations
The four steps
Determination
of dumping
Determination
of injury
Determination
of Community
interest
What do they mean in practice?
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Determination
of antidumping
duty
Dumping
Dumping is…
To sell goods abroad at a lower price than at home
or
to sell goods in a foreign market below “cost”.
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Example of dumping
Price on
home market
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Price on
export market
Average
production cost
Dumping?
€10
€9
€8
Yes
€10
€10
€11
Yes
€10
€11
€9
No
Injury
Injury in practice:
The imports have caused damage to the Community industry,
such as loss of market share, reduced prices for producers and
resulting pressure on production, sales, profits, productivity etc.
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Example of injury – 1
Case: PET from Australia, China and Pakistan, 2004
Trends in imports
Volume of imports from
the countries concerned
Prices of imports from
the countries concerned
tonnes
250000
Price undercutting ranging
from 10% to 17%
200000
150000
100000
50000
0
1999
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2000
2001
2002
IP
Example of injury – 1
Case: PET from Australia, China and Pakistan, 2004
Community industry development
Price development
Lost market shares
Other factors
100%
180
160
140
120
100
80
60
40
20
0
80%
Deterioration of profitability
2001 7,6 %
IP
0,9 %
60%
40%
Community producers’
market share
20%
1999
2000
2001
2002
IP
0%
1999
Imposition of anti-dumping measures for
a number of other countries
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2000
2001
2002
IP
Example of injury – 2
Case: Bicycles from China and Vietnam, 2004
Trends in imports
Volume of imports from
the countries concerned
1000 bicycles
Prices of imports from
the countries concerned
index
2500
120
2000
100
80
1500
60
1000
40
500
20
0
0
2000
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2001
2002
2003
IP
1999
2000
2001
2002
IP
Example of injury – 2
Case: Bicycles from China and Vietnam, 2004
Community industry development
Price development
Lost market shares
120
100
80
60
40
20
0
1999
2000
2001
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2002
IP
100%
90%
80%
70%
60%
50%
40%
Community producers’
30%
market share
20%
10%
0%
1999
2000
2001
2002
IP
Other factors
Profit has remained at low levels
(still around 4 %)
Community interest
The Community interest in practice:
• The costs for the Community of taking measures must not be
disproportionate to the benefits when considering effects on
individual interested parties.
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Community interest
• In practice, Community interest deliberations constitute a
relatively small part of most investigations
• Deliberations are case-specific assessments of costs and
benefits for
–
–
–
–
–
Producers
Suppliers
Importers
Users
Consumers
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Antidumping duty
Antidumping duty in practice
• The absolute maximum is the dumping margin.
• Minimum is whatever is needed to eliminate the injury.
• Normally, individual injury margins are computed for
each co-operating exporter.
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Examples of AD duties
Product
Originating from
Level of antidumping duty
Cotton-type bed linen
Pakistan
13,1 %
Okoumé plywood
China
6,5 - 66,7 %
Rainbow trout
Norway
Faeroe Islands
19,9 %
30 - 54,4 %
Paracresol
China
10,8 - 40,7 %
Silicon metal
Russia
22,7 - 23,6 %
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Agenda
1. The motivation for trade defence measures
2. Antidumping in practice
3. Impacts of antidumping measures
4. EU trade defence in a global context
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The direct impacts of an
antidumping duty
Suppliers
Positive
Healthier customers
Community producers
Negative
Lose customers
due to more
expensive products
Positive
Protected against
competition from
low-cost imports
User industries
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Targeted
exporters
Negative
Must adapt sourcing to
possibly include more
expensive inputs
Effects on trade flows
Volume of dumped imports will decrease
Imports are replaced by domestic production
and/or
Imports from countries with anti-dumping duties
are replaced by imports from other countries
The European
Community
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Targeted
exporters
Third
countries
Underlying actions by exporters
• Foreign Direct Investment
• Circumvention
– To formally move outside the targeted region,
while substantially continue doing the same
The European
Community
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Foreign Direct
Investment
Targeted
exporters
Third
countries
Agenda
1. The motivation for trade defence measures
2. Antidumping in practice
3. Impacts of antidumping measures
4. EU trade defence in a global context
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The global leaders (WTO statistics)
Top five countries/regions
accused of antidumping
(2004)
Top five countries/regions
initiating antidumping
investigations (2004)
1.
2.
3.
4.
5.
1.
2.
3.
4.
5.
China (47)
Republic of Korea (24)
Chinese Taipei (21)
United States (14)
Japan (9)
Thailand (9)
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European Community (30)
China (27)
United States (26)
Turkey (25)
India (21)
The bottom line
• EU trade defence measures can protect European firms from
“unfair” foreign competition
• But they can also create sourcing problems for importers,
retailers and users of the targeted product
• And EU exporters can be hurt by trade defence measures in
foreign markets
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Thank you!
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© Copenhagen Economics 2005