GATT Anti-dumping Provisions and Protectionism - Research Paper Example

GATT anti-dumping provisions and protectionism Name: Course: Tutor: Date: Introduction Dumping refers to a situation of international price discrimination whereby a company exports a product at a lower price than it normally charges in the domestic industry. There may exist differences in opinions on whether an act constitutes dumping or not.1 On the other hand, anti-dumping refers to a measure aimed at rectifying the situation arising out of the dumping of goods and its trade distortive effect. According World Trade Organization Anti Dumping Agreement, article 6 of the General Agreement for Tariffs and Trade (GATT) 1994 allows party states to take action against dumping. Similarly, the WTO agreement allows governments of signatory states to act against dumping where “there is material injury to the domestic industry of the target country” or it is threatening to do so.2 Precisely, the focus of the WTO agreement is on how a government can or cannot react to dumping. Notably, the provisions of WTO agreement on dumping expand the GATT, 1994 anti-dumping provisions and the two operate together. Generally, they allow countries to act in a way that would break the GATT 1994 principles of binding a tariff but without discriminating between trading partners. In essence, they stipulate actions that lead to charging of extra import duty on the particular product found to be dumped from a particular exporting country. This is aimed at bringing the price of that product closer to the normal value or to alleviate injury to the domestic market of the importing country.3 At the same time, these rules require importing countries not to accord treatment on the imported products that is less than that accorded to domestic products under the domestic laws and regulations. But as Daniel Ikenson explains, there is a risk that the GATT anti-dumping provisions will lead to greater use of anti-dumping measures as a form of protection to the domestic industries of the party states.4 The primary purpose of this paper is to explain how this has come about. Regal issue In this discussion, a regal issue arises on whether there is a risk that the GATT anti-dumping provisions will lead to greater use of anti-dumping measures as a form of protectionism. As described by Prusa the anti-dumping policy was established with a prime objective of correcting dumping problem.5 But according to Bolton, the use of antidumping policies may end up causing more injury in the recent world than any one could have imagined there before.6 To borrow an analogy, it can be argued that the medication (anti-dumping) is proving to be more harmful than the disease it was intended to treat (economically harmful dumping). In addition, the amount medication being administered goes beyond what any reasonable doctor would prescribe to treat the disease. Further, not only is too much medication being administered but it has less to do with the disease it is intended to treat. To be precise, the modern anti-dumping law has less to do with economically harmful practices. Instead, it is a clever designed form of protection for domestic industries of the member states. Notably, anti-dumping rules have emerged as the leading obstacles to free and fare trading system established under GATT/WTO. This begs the question; is there a risk that the GATT anti-dumping provisions will lead to greater use of anti-dumping measures as a form of protectionism? As established by Prusa many industrialized countries with protectionist interests stretch the definition of dumping with an aim of sheltering actions against importers under the anti-dumping umbrella. This can well be illustrated by recent actions involving USA and European Union.7 This has been well captured in data collected from World Bank by Prusa. The data depicts not only a new but also a troubling reality for those two strongest supporters of anti-dumping law. From the analysis of the data, Prusa establishes that both USA and European Union would like to retain Anti-dumping rules and have often applied them to protect their politically important industries from the impact of importers. Preserving this option also means that many politically important export oriented industries from those regions face protection from antidumping rules in many important export markets. A better example is the action taken by the United States steel industry in 1998. By then, steel demand in US was robust and its industry was unable to feed the high demand. As a result importation of steel from Japan and other countries sharply increased.8 The US steel industry responded by filing four anti-dumping and anti-circumvention suits against the importation of Japanese steel products (hot-rolled steel, stainless sheet strip in coils, corrosion-resistant steel, stainless steel round wires) in 1998 alone. In addition, the industry did put pressure on the US administration and Congress which resulted in changing of the anti-dumping investigation team for hot-rolled sheet steel. The US administration and Congress explained that the action was aimed at shortening the investigation period by alleviating and accelerating the determination of "critical circumstances".9 Notably, the US anti-dumping authorities used provisions as a shield to their domestic steel industries. A critical evaluation of these actions will conclude that this action constituted a violation of GATT anti-dumping law. Elements Required in Antidumping Claims Theoretically, there are several elements required in anti-dumping claims but also which are used improperly by some party states to protect their local industries. As noted earlier, article 6 of the GATT law defines dumping as a situation in which “products of one country are introduced into the market of another country at less than the normal value of the products”.10 However, it is not easy in many cases to determine what a “normal price” is for the purpose of antidumping investigations. For example, in the US, the commerce department first looks at the price charged for the product in the exporter’s domestic market.11 If the sales of the product in the domestic market of the exporter are less than 5% of the volume sold in the US or the product is not sold in the domestic country, the commerce department looks at other third party markets. If there are no comparable markets, this department constructs its own estimate of what the price of the product should be. To arrive at this, they make assumptions on what the cost would be to sell the product in the domestic market of the exporter.12 This explains that there are no standards of judgment to deal with such a situation. Consequently, this leaves a large amount of discretion to the anti-dumping investigating authorities. Clearly, the above sequence of events raises question about the validity of assessments based on the assumptions. Under the EU practice, it applies asymmetrical rules in order to adjust the prices of products alleged to be dumped. For domestic prices of the importer, the EU deducts only selling expenses.13 On the other hand, it deducts direct and indirect expenses as well are the profits realized from the same goods for export prices. This leads to an overstatement of the domestic prices in the exporter’s country which eventually makes it easy to artificially create and expand dumping margins. In short, the GATT/WTO anti-dumping rules do not provide standards for determination of “normal value”. It is thus easy for party states to use the loophole as a way of protection to their domestic industries. Further, article 6 of the GATT anti-dumping rules provide for condemnation of an act described in that law if it “causes or threatens to cause injury to the domestic market of a contracting party or materially retard the establishment of a domestic injury”.14 Remarkably, this law does not provide a definition of what constitutes “material injury”. The appellate body holds that injury determinations can only be based on “positive evidence”, “objective determination” and “verifiable evidence”.15 These terms give much leeway to the investigating authorities for determining how to interpret evidence. Remarkably, this provision does not give direction to the importing country on how to disclose all the factors it has considered before reaching a conclusion regarding existence of “material injury”. Consequently, this provision has constantly been manipulated and used as a shield for domestic industries of the party states. One example comes from an investigation conducted by EU commission in September 1992 on Japanese ball bearings. The investigating authority found dumping but this was later overturned by an appeal to the court of the first instance in May 1995. The reason for rejection of the case was due to problems with the evidence used to find injury. The EU commission maintained that dumped imports had increased by 2.7 percent in terms of volume. But the total sales of in the common market by common market producers had increased by 14.8 percent by volume and total volume of sales in the common market, including imports had increased by 9.5 percent. Therefore, the court of appeal concluded that there was no material injury on the domestic markets of the EU countries that could be associated with the Japanese imports. The EU commission was dissatisfied with the ruling and later appealed to the European Court of Justice in 1998. The appeal was also rejected by the court under similar basis. As Chapter 5 Anti-Dumping Measures explains, there have been many more cases involving EU and Japanese exporters that have been disputed in a panel under similar circumstances.16 In spite of this, the EU commission has always held that their procedure for investigations have not been in violation of the GAAT/WTO rules against dumping. In addition, the EU anti-dumping rules allow the impact of past dumping to be considered in injury findings.17 Thus the lack of clear definition of what constitutes material injury under the GATT/WTO anti-dumping rules may be used as a loophole to enhance protection of domestic industries of the member states. Therefore, this is one of the biggest areas that need reform. Article 6 of the GATT also stipulates that anti-dumping duties shall be imposed upon parties if “the export price of the product exported from one country to another is less than the comparable price, in the ordinary course of trade, for the like products when destined for consumption in the exporting country”.18 But as noted earlier, there is so much that is up to the discretion of investigating authorizes. This brings problems in determination of “like products”. This can be well illustrated by a case in which Japan was exporting large Colour Picture Tubes (CPTs) in the US. According to Chapter 5 Anti-Dumping Measures, the technology required to make large CPTs is different from the one required to make small CPTs.19 During the time of petition, there were no large CPTs being produced in the US. Therefore, there was no US local industry to be damaged. In spite of this, investigators found “like products” though the small CPTs require much less advanced technology as compared to CPTs.20 It was explained that there is similarity between the large and small screen sets that is above and beyond any technical difference. Another example is the investigation by EU into the Laser Optical Reading System that was initiated in October 1997. The Laser Optical Reading System was primarily presumed to consist of car CD decks but the investigating authorities used extremely broad definition of “like products” that tried to encompass products that the parties filing the complaint were not even producing.21 In particular, the complaints included products that were clearly not “like products” and components that were not subject of the complaint. Remarkably, these two cases show how lack of clear meaning of “like products” can be used as a way to enhance protection to the domestic industries of the member states to the GATT/WTO anti-dumping rules. Therefore, it is vital that the scope of what constitutes “like products” be set or restrained to prevent improper expansion of the meaning. Proposals for Reforms To prevent further use of anti-dumping policies as a form of protectionism for local industries by the member states, it will be wise to implement several reforms that would remove vagueness or ambiguity in the provisions of the current anti-dumping law. To start with, several reforms are needed to remove discretion from domestic anti-dumping agencies when calculating the dumping margin. One of them is the elimination of the practice of ignoring the sales above the average price when calculating the dumping margin. Additionally, the reforms will involve ending the use of third country benchmarks to calculate the normal value and restrict the opportunities for creating “constructed values” that have no benchmark in reality.22 Another reform proposal is to increase the burden of proof that the domestic firms must present to the investigating agency so as to open an investigation. These reforms would help to reduce the number of anti-dumping investigations conducted and eventually the amount of protectionist tariffs. As Messerlin explains, failure to remove discretion from domestic anti-dumping agencies will result into increased use of the anti-dumping provisions as a shield for local industries by member states.23 Many more countries are likely to use the existing leeway to artificially create and expand dumping margins as well as to expand the meaning of “like products” at the expense of the GATT/WTO anti-dumping provisions. According to Bolton, a “lesser duty” rule would play a great role in restricting domestic agencies and improving article 6 of the GATT rules.24 Such a rule would require the domestic agencies to asses the lowest anti-dumping duty which will be adequate to remove injury to the domestic industry. In such as case, the parties to the GATT would have the option of assessing a duty equal to the dumping margin or assessing a lesser duty. This reform would help to remove the discretion and though it would not bring limitations to the application of duties, it would help to decrease the protection that is possible under the current anti-dumping framework. Also, Bolton proposes mandatory “sunset provisions” on the existing antidumping duties as well as restrictions on back-to-back investigations.25 This would help to limit the amount of time that duties can be in place and also prevent revolving duties against the same products. According to Waincymer, failure to implement these reforms would result into more abuse of the anti-dumping provisions to restrain importers and to protect local industries from competition derived from imports.26 Consequently, the domestic prices of products in those countries will remain high and the looser will be the consumer.27 Finally, I would also propose reforms advocated by Bolton.28 Though this seems to be at the extreme end, the author suggested wholesome elimination of the antidumping duties stipulated by the GATT/WTO antidumping rules. In its place, Bolton suggested implementation of a modified version of anti-trust law that more accurately prohibits those behaviours shown in theory to be welfare destroying such as strategic dumping and predatory behaviour.29 This can be enhanced through a multilateral agreement between the largest trading partners though with support from a new support cord within the GATT/WTO antidumping law. As described by Waincymer, another alternative would be to enhance expansion of the safeguard provision under article 17 of the GATT law.30 This would allow protection for domestic industries of the member states but under a more intellectually honest framework that would prevent improper use of anti-dumping provisions as a shield for domestic industries. Again, lack of implementation of the proposed reforms will definitely lead to extension of abuse to the current anti-dumping law. For example, more countries are likely to take advantage of the existence of a loophole in the determination of “material injury” as one way of protecting domestic industries from completion brought about by imported products. If no changes are done, it is likely that more countries will sign into the GATT/WTO with the aim of protecting their domestic industries from the impact of imported products.31 Conclusion In conclusion, the GATT/WTO antidumping rules are essential to protect domestic markets of party states from the harmful economic impact of dumping. However, as described in this discussion, there is a risk that some provisions of those anti-dumping rules will result into greater use of anti-dumping measures as a form of protectionism. As it has been demonstrated, the overall effects of abusive anti-dumping measures can be substantial in terms of trade volume and critical to a wide range of business activities. Unfortunately, importing countries can easily resort to such practices as it has been illustrated by the USA and the EU. They can accomplish this under the guise of measures sanctioned by GATT/WTO anti-dumping rules. Remarkably, many countries are easily succeeding in such actions by taking advantage of loopholes existing in the provisions of the anti-dumping rules. As noted, these acts are more rampant in the industrialised countries. But recent trends indicate that less developed countries are increasingly using the GATT/WTO antidumping rules. Basically, the reason for this is to protect their domestic and politically important industries from competition derived from imports. To combat the emerging trend, it will be vital to enhance the necessary legal reforms to the current GATT/WTO antidumping provisions in order to seal the existing loopholes. Failure to enhance reforms will definitely lead to increased abuse of the anti-dumping rules as well as increased acts of protectionism. References Brian Hindley, ‘the contingent protection after the Uruguay Round: safeguards, VERs and anti dumping action’, OECD, Paris, 1994, Viewed 26 April 2011, Chapter 5 Anti-Dumping Measures, “overview of rules”, not dated, Viewed 26 April 2011 Daniel Ikenson, “protection made to order Domestic Industry’s Capture and Reconfiguration of U.S. Antidumping Policy” Cato Institute, Massachusetts, 2010, Viewed 26 April 2011 Eastern Book Company, Anti-Dumping: Rhetoric and Reality, Eastern Book Company, Lucknow, 2004, Viewed 26 April 2011< http://www.ebc-india.com/lawyer/articles/854.htm> Jeff Waincymer, “implications for anti-dumping and countervailing” Hyatt Hotel, Canberra, Australia, 2001 viewed 26 April 2011 http://www.apec.org.au/docs/waincymerfta.PDF Patrick A. Messerlin, “competition policy and anti-dumping reform: an exercise in transition”, Institute for international Economics, Washington, 1998, Viewed 26 April 2011 Raed Safadi, “MENA trade & investment in the new economy” American Univ in Cairo Press, New York, N.Y, 2003 Reid, M. Bolton, “Antidumping and distrust: reducing anti-dumping duties under the WTO through heightened scrutiny”, 2010, Viewed 26 April 20112011 Bolton Thomas J. Prusa, “Anti-dumping: A growing problem in International trade”, Blackwell publishing Ltd, Oxford, 2005 United Nations Conference on Trade and Development (UNCTD), “anti-dumping and countervailing procedures- use or abuse? Implications for developing countries”, UNCTD publications, Geneva, Switzerland, 2001, Viewed 26 April 2011 World Trade Organization, “The Present Outlook for Trade Negotiations in the World Trade Organization”, World Bank Publications, New York, N.Y, 1998 Read More