On the Spread and Impact of Antidumping
"Only a decade ago, Prusa observes, developing nations filed perhaps one or two complaints of dumping per year. Today such countries account for over 100 petitions annually, nearly half of the worldwide total."
According to NBER Research Associate Thomas Prusa, the World Trade Organization (WTO)'s contentious antidumping policies will be the source of an increasing number of international trade disputes and therefore will be a key element in the next round of WTO negotiations. In On the Spread and Impact of Antidumping (NBER Working Paper No. 7404), Prusa documents some unexpected consequences of antidumping (AD) policies and argues that AD is easily misused.
Prusa notes that AD has been enthusiastically embraced in recent years by developing countries. AD's traditional users were highly industrialized nations, including the United States and members of the European Community. But in recent years there has been unprecedented growth of "new" AD users, primarily developing countries.
Only a decade ago, Prusa observes, developing nations filed perhaps one or two complaints of dumping per year. Today such countries account for over 100 petitions annually, nearly half of the worldwide total. Filing of AD complaints rose by 25 percent in the last decade from the 1980s level. A total of 29 countries initiated such complaints in the 1990s, about triple the number of the previous 10 years. Mexico, for example, signed the GATT/ WTO antidumping accord in 1987 and within three years filed more than 30 complaints. Argentina filed its first AD case in 1991 and has since averaged almost 20 cases annually. Similar patterns have emerged in South Africa, India, Indonesia, Turkey, Malaysia, Peru, Israel, Colombia, Costa Rica, and Venezuela.
Just why this phenomenon has occurred has yet to be determined, but evidence suggests that developing countries may seek antidumping protection in a "tit-for-tat" retaliation to AD actions taken by the leading industrial states; fully two-thirds of AD complaints, for example, are lodged against other AD users. Alternately, developing nations may simply exploit AD as a convenient loophole to see tariffs enacted without violating existing tariff agreements. But whatever the motivation, Prusa says developing nations should be alert to the costs associated with AD protection.
There are two categories of costs of AD protection. The first, Prusa says, is that once a country seeks dumping protection, it becomes difficult to restrain its use. AD rules and procedures may be interpreted broadly, and once a nation seeks protection in one industrial sector, other sectors begin clamoring for similar protection. This may occur even though these sectors present minimal evidence of injury. Indeed, mere protectionism for special interests, rather than AD's stated objectives of maintaining fair pricing and competition, becomes paramount. In this regard Prusa suggests that legal experts are not wrong in labeling the appetite for AD as a form of international harassment.
Secondly, Prusa says, AD duties are almost always remarkably large -- even as much as 100 times higher than normal levels. Prusa's data indicate that the enactment of AD duties means import quantities on average fall by almost 70 percent and import prices rise by more than 30 percent. Ultimately this can negatively impact trade by anywhere from 30 to 50 percent. Yet even if a dumping complaint results in no sanctioning of duties, Prusa says, trade patterns can be distorted, with imports falling by about 20 percent. The evidence even indicates that the very act of investigating such complaints results in a considerable drop in trade.
Prusa analyzes the effect of AD actions by examining data accumulated by the largest AD user -- the United States -- and recorded in the International Trade Commission's Annual Report. In examining the period 1987-97, he devises a formula for quantifying the effect on trade of AD petitions. The formula allows for interpretation not only of such petitions' impact on the exporting nations named in the complaints, but also the impact on competing exporters not subject to the complaints. As indicated above, whatever the determination of an AD complaint -- imposition of duties, settlement, or rejection -- a drop in value of trade will result.
The evidence clearly suggests that countries increasingly yield to the temptation to seek protection for significant import- competing industries. Yet if all countries use AD law, Prusa maintains, each country will be worse off than they would be under unrestricted free trade. In this interpretation, he adds, all users would benefit if everyone agreed to stop using the law. For this reason, Prusa concludes, policymakers would be well advised to weigh the repercussions of AD actions before rushing to initiate them.
-- Matt Nesvisky
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