Speeches and Papers
Antidumping: A look at US Experience--Lessons for Indonesia
by Gary Clyde Hufbauer, Peterson Institute for International Economics
Paper for the Ministry of Industry and Trade
Republic of Indonesia
August 20, 1999
© Peterson Institute for International Economics
I. Historical background
- First antidumping law: Canada (1904): to protect against steel dumped in Canada by U.S. firms.
- First U.S. antidumping law (1916): a criminal statute to protect against predatory post WWI dumping from Europe.
- Second U.S. AD law (1921): a civil statute to assess penalty duties to compensate for price differentials.
- Jacob Viner, Dumping, 1923, established the intellectual case for concern about discriminatory pricing and cartel behavior.
- Between 1934 and 1954, only 146 U.S. cases were brought; between 1954 and 1974, fewer than 100 cases were brought and most were dismissed.
- The U.S. Treasury investigated both price determination and injury; it did not operate under "sunshine", and it did not face time limits to complete an investigation. The Treasury was a custodian that followed the principle of benign neglect.
II. The Big Change: Trade Act of 1974 and Trade Act of 1979
- In the Trade Act of 1974 (which gave the President "fast track" authority for the Tokyo Round negotiations), selling below the cost of production was added to price discrimination as a form of dumping. As a matter of terminology, both price and cost dumping are referred to as selling at Less Than Fair Value (LTFV).
- Cost of production was defined to mean (a) average costs; (b) plus administrative margin of 10%; (c) plus profit margin of 8%.
- This provision was a minor "sweetener" thrown in, at the insistence of the sulphur and steel industries, to ensure passage of the Trade Act of 1974 (the major "sweetener" was the Jackson-Vanik Amendment).
- "Sweetening" continued in the Trade Act of 1979 (which enacted the Tokyo Round agreements into U.S. law).
- Administration of the law was shifted from the U.S. Treasury Department (Mr. Benign Neglect) to the U.S. Commerce Department (DOC, Mr. Defender of Domestic Industry) for LTFV determinations, and to the U.S. International Trade Commission (USITC) for injury determinations.
- Administrative determinations by the DOC and the USITC must be made within strict time limits. The total elapsed time between filing a petition and the final determination is limited to 235 days; in most cases, provisional duties are applied to imports (i.e., "liquidation" is suspended) much sooner.
- The DOC has considerable flexibility in deciding how prices and costs should be calculated. The DOC can select among a range of possible exchange rates. It can disregard home market sales below the cost of production. When home market sales are small it can instead use prices in third markets. It can disregard sales in the U.S. market that are above LTFV. The DOC can amortize R&D expense over different time periods. Importantly, the U.S. can be divided into regional markets. And so on.
- The finding of LTFV sales critically depends on the DOC's methods of calculation. Importantly, however LTFV is calculated, the concept sweeps in many forms of price discrimination that are common practice (and indeed essential practice) in carrying out modern business. St. Thomas Aquinas may be long dead, but his spirit lives on in the antidumping law!
- Likewise, the USITC has a flexible mandate in determining whether there exists "material injury" or "threat of material injury". It can look at sales, profits, employment and other indicators. As a general rule, it "cumulates" injury from LTFV imports from more than one country.
III. The Political Economy of Antidumping Administration
- Between 1980 and 1990, U.S. petitioners brought about 500 antidumping cases. About half ended up with the imposition of dumping duties ("affirmative determinations"). About two-thirds of the cases with negative determinations were rejected by the USITC. As to DOC findings of LTFV, about half the cases looked at home market values (costs more often than prices), and about half the cases looked at prices and costs in third markets. On average, affirmative determinations resulted in antidumping duties of about 30% to 40%, and the volume of imports averaged about $50 million per case in the late 1980s.
- Statistical analysis reveals that declining industry capacity utilization and/or shipments, and rising imports, are strongly associated with an affirmative determination by the USITC. The causality links between unfair (LTFV) imports and injury or threat of injury are soft, at best.
- In the 1990s, dumping actions remain the favored form of U.S. "contingent protection". For example, in 1994/95, 82 new cases were initiated; in 1997, 16 new cases. As of December 1997, 302 antidumping orders were in force, many of them dating from bygone investigations.
- Despite the growth industry characteristics of antidumping proceedings, the surprising feature is not how many, but instead how few cases are initiated. Bear in mind that the definition of LTFV sweeps in a vast number of transactions, far more than the number of antidumping petitions. Yet, even in the 300 outstanding orders on average cover $50 million of imports, the total import coverage would be $15 billion, less than 2 percent of U.S. merchandise imports.
- There are three big reasons why the caseload is not heavier. First, the injury test, weak as it is, still matters. Second, in many industries, the presence of multinational firms (each able to hold the others hostage in particular markets) serves as a critical brake on trade litigation. Third, there is no sense bringing a petition against a handful of "unfair" respondents in industries characterized by a highly elastic supply of "fair" imports. It is no accident that antidumping cases are common in steel and specialty chemicals (industries with few multinationals) and rare in autos and electronics (industries dominated by multinationals). Likewise, it is no accident that many cases involve niche products, supplied by a small number of firms, where the protective effect of dumping duties is not quickly and totally eroded by an influx of imports from alternative suppliers.
IV. The Political Economy of U.S. Antidumping Law
- Since 1974, nearly every change in the U.S. antidumping law (including administrative regulations) has tilted in the direction of making it easier to bring a petition, and establish LTFV and injury.
- Attempts at "reforming" the antidumping law resulted in technical changes that generally favor the petitioner.
- It was impossible to modify the antidumping law in the context of Canada-U.S. Free Trade Area or NAFTA negotiations, despite modest efforts by Canada and Mexico. (Note: the two NAFTA partners sometimes benefit indirectly from antidumping cases brought against third country suppliers.)
- Importantly, it was not possible to introduce "affirmative defenses" into the law. For example, the respondent is not allowed to show (as a defense) that the petitioner also dumps (within its home market or into third markets). The respondent cannot show that price discrimination has no predatory intent or result. Nor can the respondent show that it is merely meeting prices already established, by other suppliers, in the market. Finally, consumers (households and industrial purchasers) have no voice in antidumping proceedings.
- The coalition of lawyers, industrial firms, and bureaucrats with a vested interest in preserving and "strengthening" the U.S. antidumping law is small but powerful. It will be difficult for the United States to negotiate meaningful reforms in the Millennium/Seattle/Clinton Round of Multilateral Trade Negotiations. In fact, Ambassador Barshevsky has already said that the antidumping law is not negotiable, but this is the first word from the USTR, not the last.
- If several countries take a serious interest in reform, and if these countries are willing to "pay" for reform by making their own trade concessions, it might be possible to introduce one or two affirmative defenses into the GATT-1994 Antidumping Code. Specifically, consumers might be allowed standing in antidumping proceedings, and the respondent might be allowed to show that its home market is perfectly open to imports and that its pricing practices are entirely consistent with industry norms.
V. Lessons for Indonesia
- "When you dance with the devil, the devil doesn't change. The devil changes you." Any country that introduces an antidumping law to create a "negotiating chip" for talks with the United States, the European Union, and other industrial players, should be forewarned. The "chip" will soon become non-negotiable, as vested interests in the legal, industrial, and bureaucratic community learn to love the new instrument.
- On a global basis, the coalition of interests in favor of maintaining and strengthening antidumping laws is growing faster, and has more political power, than the reform coalition.
- In 1997, of the 240 new antidumping cases launched worldwide, the traditional players (Australia, Canada, the European Union and the United States) brought 113 cases. New players brought the rest, 127 cases. Of these, Indonesia brought 4 cases.
- By comparison, in the period 1980 to 1988, 1,764 cases were launched in total. The traditional players brought 1,689 of these cases, while the new players brought only 75 cases.
- If a country decides to adopt an antidumping law, for whatever combination of domestic and international reasons, it should take strong steps to prevent the complete capture of the law and its administration by protectionist interests and their bureaucratic allies.
- Specifically, it should create a distinguished panel of administrative law judges to hear cases, modeled after the Canadian International Trade tribunal. The judges should be well paid. They should have adequate staff. Hearings should be open and on the record.
- The country should also announce, as a policy matter, two reform measures. First, it will permit specific "affirmative defenses" for imports, on the basis of reciprocity, from another WTO member that allows the same defenses. Let the lawyers sort out whether this provision accords with GATT-1994 Article I (MFN )!
- Second, the country should announce that, in the context of a free trade agreement, it will eliminate its antidumping law, again on the basis of reciprocity. This is the formula adopted by the European Union, Australia-New Zealand, and Canada-Chile.
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