Free Term Paper on Dumping Of Imports

Dumping is selling an imported product for less in the United States than the seller charges for a comparable product in the seller’s own domestic market. This kind of activity is illegal in the United States, even if it does not reduce competition. Antidumping is part of a broader set of laws that deal with so-called unfair trade practices. Antidumping laws can allow the U.S. government to impose taxes, called tariffs, on foreign-made products that have been found to have been dumped. Additional tariffs, called safeguards, can temporarily be imposed to offset surges in imports of a particular product.

Outline

I. Who Dumps?

II. Enforcing Antidumping

III. Impacts

IV. Justification

V. Dumping Reform

Who Dumps?

Dumping Of ImportsDumping has been illegal in the United States since 1921, but dumping cases have become more common in recent decades. More antidumping tariffs are now imposed globally in a single year than were imposed over the entire period of 1947 to 1970 (Blonigen and Prusa 2003). U.S. firms that compete with imports are the main beneficiaries, and they are also the main political proponents of antidumping law. High tariffs against dumping are a way to circumvent the limits on tariff levels agreed to by members of the World Trade Organization.

All buyers of imports and close domestic substitutes are harmed by antidumping laws. U.S. antidumping law applies to all trading partners, including its North American Free Trade Association partners, Canada and Mexico. Some of the more controversial cases have involved Canadian and Mexican products. The basic U.S. antidumping law was amended in 2000 by the Continued Dumping and Subsidy Off set Act, better known as the Byrd Amendment. The Byrd Amendment was found to violate the rules of the World Trade Organization regarding protectionism, and it was repealed by Congress in January 2006.

In the early experience with antidumping, U.S. firms were the most frequent filers of complaints. Over time, Canada, the European Union, and Australia became more frequent filers, and, by the late 1980s, these four traders accounted for more than 90 percent of antidumping cases filed in the world.

Recently, firms in other countries have become more frequent complainers, and since 2000, the four traditional filers accounted for only 33 percent of the cases. China and India have become more frequent filers, and since 2000, India has filed more cases than any other country. U.S. firms that were once the most frequent complainers about dumping have become some of the most frequent targets of antidumping cases. The United States is the world’s largest trading nation, and its economic size influences the number of cases in which U.S. firms are involved. When data are adjusted for the volume of a country’s trade, the prominence of U.S. firms is reduced.

East Asian countries—especially China, South Korea, and Taiwan—have been the most common targets of antidumping cases. The U.S. steel industry has generated more antidumping complaints than any other industry. These cases have pitted domestic steel producers against important steel-using firms. Steel users have organized a lobby, claiming that tariffs have destroyed more jobs in steel-using firms than they have saved in steel-producing firms. Other prominent dumping cases in the United States involved Canadian lumber, cement from Mexico, wooden furniture from China, and chemicals and electrical products.

Enforcing Antidumping

How is the U.S. antidumping law administered? U.S. firms claiming to be harmed by dumping can initiate action by filing a complaint with the U.S. Department of Commerce (DOC) against specific foreign dumpers. As the result of an investigation, the DOC has ruled in favor of dumping in 94 percent of recent cases filed. In determining whether the price charged in the United States is too low, the DOC rarely compares the price charged in the United States with a price charged in the supplier’s home market. Instead, the DOC makes its own estimate of cost of production in the supplier’s market. In effect, dumping in the United States becomes pricing below cost of production as estimated by the DOC.

If the DOC rules in favor of dumping, the case moves to the U.S. International Trade Commission (USITC) to determine whether U.S. producers were harmed by dumping. The USITC has found injury in 83 percent of recent cases. In assessing injury, the USITC staff is guided by a peculiar asymmetry in the law. The USITC is asked to estimate the damage done to U.S. producers by dumping, but it is not allowed to take into account the gain to U.S. buyers from paying lower prices for products affected by dumping. If harm is found, the USITC estimates the amount of dumping and recommends a remedy to the president. It is usually a tariff whose level is related to the dumping amount, and it is imposed for an indefinite period against firms guilty of dumping. The tariff is retroactive to the day the dumping complaint was filed. Consequently, imports from accused firms often stop before cases are resolved. On the basis of the high percentage of successful cases, U.S. firms competing with imports have a strong incentive to complain about imports.

Impacts

What are the economic effects of the U.S. antidumping law? Domestic producers gain in the same way they gain from any tariff. Competition from imports is reduced, and domestic producers can charge a higher price for their products. Foreign suppliers who are not accused of dumping and do not face the dumping tariff also gain from the reduction in competition.

Consider the example of steel. Say that antidumping tariffs are imposed on certain foreign steel producers. All steel producers in the United States and foreign steel suppliers not subject to antidumping tariffs gain from antidumping tariffs. Because of reduced competition, domestic producers are able to raise their steel prices. Since both domestic steel and imported steel are more expensive, all buyers of steel in the United States are harmed by antidumping laws. Since the United States is a net importer of steel, the total value of losses to buyers of steel exceeds the gains to domestic steel producers. Many of the steel buyers are businesses that use steel in their own production, and an association of steel users has become a vocal opponent of steel tariffs in recent years.

Similar impacts occur from other antidumping examples. In the case of Canadian lumber, antidumping has increased the cost of a key component of housing. In the Mexican cement case, antidumping restrictions magnified shortages of cement following the hurricanes that hit the Gulf Coast in 2005. For all antidumping cases combined, losses to U.S. buyers have exceeded gains to domestic producers by an estimated $2 billion to $4 billion per year. Antidumping has become one of the costliest forms of trade protection for the United States and for the world as a whole (Blonigen and Prusa 2003).

Justification

If antidumping laws are harmful for the nation, are they merely special interest legislation for U.S. producers, or can they be justified in some other way? One possible rationale is that antidumping prevents foreign companies from achieving monopoly power in the U.S. market. It has been suggested that foreign dumpers might charge low prices to drive all U.S. rivals out of business. Without rivals, they would then raise prices to monopoly levels. However, this argument has two weaknesses. First, if the predatory firm succeeds in destroying all current rivals, it has no way of blocking entry by new firms once it raises its price. Second, real-world cases of monopoly achieved by this strategy are extremely rare. If the goal is to prevent lower prices for foreign-made products from leading to monopoly control, there is no reason to have a special law against foreign firms. Antitrust laws, which are laws against monopolies, could be enforced equally against both domestic and foreign companies who might acquire monopoly power.

There is an additional practical argument against the U.S. antidumping law. The administration of the law is said to be systematically biased toward finding dumping, even when there is none. Lindsey and Ikenson (2003) have constructed examples in which the DOC procedures produce prices in the United States that appear to be lower than in the supplying foreign country, even when the true prices are identical in the two countries. They conclude that the antidumping law is just a standard form of protectionism.

Dumping Reform

Short of completely repealing the U.S. antidumping law, are there ways to reform the law that would better serve producers, consumers, and society in general? First, the antidumping law could be modified to make it consistent with general antitrust policy. In that case, price differences would not be illegal unless they also increased the monopoly power of the dumping firm. For example, if a South Korean firm is one supplier of imported steel among many, lower prices charged by that firm would not necessarily be illegal. Its illegality would be judged in terms of its contribution to monopoly power in the U.S. market for steel. Retailers who offer discounts to students and senior citizens do not violate domestic antitrust law, even though they charge different prices for the same product. Price differences by foreign firms could be judged by the same standard as price differences by domestic firms.

A second reform would allow the DOC and USITC to estimate the consumer gains from dumping and compare them with domestic producer losses. Instead of evaluating exclusively the losses and harm to domestic producers, the agencies would evaluate dumping in terms of the general public interest of both buyers and sellers of products. By this broader standard, dumping that harms U.S. producers but provides greater benefits to U.S. buyers would not be illegal.

A third reform is to reduce barriers faced by U.S. exporters, especially in countries that charge different prices for their products in their home and foreign markets. Dumping can only occur if buyers in the lower-price market are prevented from reselling the product in the higher-price market. If Korean firms tried to dump steel in the United States, and buyers could resell the cheap steel in Korea, their scheme would not be profitable, and an antidumping case would not be necessary. Thus, negotiating to reduce trade barriers facing exports from the United States would discourage dumping in the United States.

Antidumping laws and all laws that protect producers against unfair trade practices face the possibility of penalizing perfectly legitimate behavior by sellers. Is it unfair to invent a new and better product that harms producers of traditional products? Was it unfair to introduce automobiles, which replaced horses and buggies, or computers, which replaced typewriters? The new competition from automobiles and computers must have appeared to be unfair to the traditional producers, and they were definitely harmed. Candle makers may have considered natural sunlight to be unfair competition, and sellers of irrigation equipment may consider rainfall to be an unfair rival. However, if all practices that harm traditional producers are judged to be unfair and illegal, consumers will not be served, and there will be no economic growth.

 

Thomas Grennes

 

Bibliography:

  1. Blonigen, Bruce, and Thomas Prusa, “Anti-Dumping.” In Handbook of International Trade, ed. E. K. Choi and J. Harrigan. Malden, MA: Blackwell, 2003.
  2. Campbell, Doug, “Trade Wars.” Regional Focus (Spring 2006): 20–23.
  3. Drope, Jeffrey, and Wendy L. Hansen, “Anti-Dumping’s Happy Birthday?” World Economy 29 (2006): 459–472.
  4. Hufbauer, Gary Clyde, et al., U.S.-China Trade Disputes: Rising Tide, Rising Stakes. Washington, DC: Institute for International Economics, 2006.
  5. Lindsey, Brik, and Daniel Ikenson, Anti-Dumping Exposed: The Devilish Details of Unfair Trade Law. Washington, DC: CATO Institute, 2003.
  6. U.S. Tariff Commission, Information Concerning Dumping and Unfair Competition in the United States and Canada’s Anti-Dumping Law. Washington, DC: USTC, 2009.