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Dumping: Still a Problem in International Trade

Thomas R. Howell

Dewey Ballantine

SUMMARY

Dumping is the export of products at less than "normal value," often defined as the price at which those products are sold in the home market. Since its inception, the General Agreement on Tariffs and Trade (GATT) has authorized signatories to apply duties to offset dumping when it causes, or threatens to cause, material injury to an industry in the territory of a GATT member.1 National antidumping legislation dates from well before the GATT. For example, the United States passed its first antidumping statutes in 1921.

Despite their longevity, antidumping measures are frequently subject to sharp criticism, especially from academic economists. Indeed, some observers advocate their complete elimination, raising the question whether dumping itself is a problem sufficiently serious to warrant retention of the antidumping regime provided for under the GATT. This paper notes that antidumping measures, like any complex regulatory regime, may give rise to anomalous or undesirable results in some cases, but argues that dumping itself remains a "problem in international trade," as described by Jacob Viner in his seminal 1923 study of the subject. As such, dumping requires continued regulation, especially for countries with relatively open national markets.

1  

As noted in the Recommendations and Findings of this project, dumping and antidumping are subjects that elicit strongly divergent views. As a result, no consensus could be reached on dumping and antidumping issues. See Recommendation 21 in the summary report of the study, Conflict and Cooperation in National Competition for High-Technology Industry. This paper outlines why some practitioners believe antidumping measures should be retained as an integral part of national trade policy. For a contrary view, see Section V, pp. 223-233, of Conflict and Cooperation. For a summary discussion of the issue, see Box G. Ibid, pp. 82-84.



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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings Dumping: Still a Problem in International Trade Thomas R. Howell Dewey Ballantine SUMMARY Dumping is the export of products at less than "normal value," often defined as the price at which those products are sold in the home market. Since its inception, the General Agreement on Tariffs and Trade (GATT) has authorized signatories to apply duties to offset dumping when it causes, or threatens to cause, material injury to an industry in the territory of a GATT member.1 National antidumping legislation dates from well before the GATT. For example, the United States passed its first antidumping statutes in 1921. Despite their longevity, antidumping measures are frequently subject to sharp criticism, especially from academic economists. Indeed, some observers advocate their complete elimination, raising the question whether dumping itself is a problem sufficiently serious to warrant retention of the antidumping regime provided for under the GATT. This paper notes that antidumping measures, like any complex regulatory regime, may give rise to anomalous or undesirable results in some cases, but argues that dumping itself remains a "problem in international trade," as described by Jacob Viner in his seminal 1923 study of the subject. As such, dumping requires continued regulation, especially for countries with relatively open national markets. 1   As noted in the Recommendations and Findings of this project, dumping and antidumping are subjects that elicit strongly divergent views. As a result, no consensus could be reached on dumping and antidumping issues. See Recommendation 21 in the summary report of the study, Conflict and Cooperation in National Competition for High-Technology Industry. This paper outlines why some practitioners believe antidumping measures should be retained as an integral part of national trade policy. For a contrary view, see Section V, pp. 223-233, of Conflict and Cooperation. For a summary discussion of the issue, see Box G. Ibid, pp. 82-84.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings The existence of price discrimination between domestic and export markets generally indicates the presence of a market distortion in the home market, such as import barriers, a monopoly or cartel, or some combination of these factors that gives domestic producers the ability to maintain domestic prices at a level higher than export prices. Under such circumstances, dumping is a mechanism through which competitive outcomes are determined, in effect by the distortion itself, not the relative competitiveness of individual producers. In the short run, dumping enables protected firms to run their facilities at higher utilization rates than would be economically feasible in an open market, giving them a major cost advantage unrelated to their comparative cost competitiveness. Over the long run, dumping can deter investment in the market where it is occurring and, conversely, may well foster increased investment in the protected market. Over time, through such dynamics, dumping may permit an initially less efficient (but protected and cartelized) industry to displace an equally or efficient competitor, that is, not benefiting from a protected home market. Because dumping can result in the erosion or destruction of national industries for reasons unrelated to normal market competition, simply permitting dumping to occur without any regulation could endanger the political consensus which supports the current liberal multilateral trading system. Friction arising out of dumping can become particularly acute when dumping injures or destroys industries regarded as vital to national economic well-being and national security, a phenomenon which has been observable at a number of points in this century. Fundamentally, the controversy surrounding antidumping is a symptom of a larger phenomenon, the divergence which exists between various national markets with respect to competition policy and which has frustrated all attempts at consensus for at least half a century. Antidumping measures have been assigned, more or less by default, the task of addressing specific problems created by this divergence. They are admittedly an imperfect tool. But until broader national differences with respect to competition policy are reconciled, these measures remain essential to the world trading system, acting, in the words of John Jackson, as an "interface mechanism... necessary to allow different trade systems to trade harmoniously." * * * Today's open multilateral trading system stands as one of the greatest achievements of the generation of statesmen that laid the foundations of the postwar world order. The legal underpinning of this system is provided by the General Agreement on Tariffs and Trade (GATT) and its ancillary agreements and codes, currently administered by the newly formed World Trade Organization. The GATT has made possible the progressive liberalization of world trade through the basic mechanism of binding commitments by signatories to reduce trade barriers on a most-favored-nation basis. The GATT has survived, however, in significant part, because its framers were wise enough to recognize that the system would not be sustainable in the absence of certain exceptions to the general com-

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings mitments undertaken by the signatories. These exceptions, which include "escape clause" provisions, special rules for developing countries, and antidumping and countervailing duty measures, have functioned as interface mechanisms to soften the dislocations that have occurred as the reduction in border restrictions has brought differing national economic systems into progressively closer competitive contact. Without the existence of these mechanisms, given the politically sensitive subject of international trade . . . the General Agreement might never have been concluded or might never have endured in the face of the pressures that have buffeted it.2 One of the most significant exceptions to the basic GATT principle for most favored nation treatment authorizes contracting parties to apply duties "in order to offset or prevent dumping." GATT Article VI provides that dumping, by which products of one country are introduced into the commerce of another country at less than the normal value of the products, is to be condemned if it causes or threatens material injury to an established industry in the territory of a contracting party or materially retards the establishment of a domestic industry.3 The right to apply antidumping measures was an important element in the original consensus that made the formation of the GATT possible, and the contracting parties to the GATT subsequently elaborated a complex system of rules and procedures pursuant to which members may apply antidumping duties in appropriate cases.4 Within these parameters, most major trading nations have enacted antidumping rules. It is often overlooked that the most active users of antidumping measures have been GATT members with the more open markets—countries such as Australia, Canada, the European Union, and the United States. As a number of newly industrializing nations liberalize their trade regimes, they are becoming more active in applying antidumping measures. Antidumping policy is now the subject of scathing attacks from many quarters, including prominent figures in law, business, and academia. 5 Forbes characterizes the antidumping laws as tools that U.S. firms use to push foreign firms into "a quick descent into legal hell" as they "lustfully anticipat[e] a price hike" for domestic consumers. 6 Claude Barfield of the American Enterprise Institute calls antidumping measures ''the chemical weapons of the trade wars," a "system 2    John H. Jackson, World Trade and the Law of GATT (Charlottesville, Va.: Michie Company, 1969), p. 536. 3    GATT Article VI(1). 4    "There was general consent among the majority of countries in the discussion on Antidumping and Countervailing Duties, that circumstances might arise in which such duties might properly be applied" (U.N. Doc. EPCT/C.II/SY at II [1946], cited in Jackson [1969], op. cit., at 404n). 5    See, for example, the essays in Richard Boltuck and Robert E. Litan (eds.) Down in the Dumps: Administration of the Unfair Trade Laws (Washington, D.C.: The Brookings Institution, 1991). 6    David Frum, "Dump It," Forbes (September 28, 1992).

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings of price-fixing cartelization . . . that stacks the deck in favor of local producers against their foreign competitors."7 In a 1993 Wall Street Journal commentary, James Bovard branded the U.S. antidumping laws as a "fraud," castigating the laws for their "hypocrisy and absurdity," which enable "a few greedy producers" to invoke remedies that cause the U.S. government ''to inflict unlimited amounts of unfairness in the name of fair trade."8 Although academic critics are usually less colorful in their choice of words, the sheer number of eminent economists who have attacked antidumping is impressive. One might ask why laws so odious have not been quickly repealed. This has not occurred in the United States at least, according to some critics, because of "lobbying" by "protected U.S. producers," 9 because of "bureaucrats" at the Department of Commerce seeking "to flaunt the fact that there are few restraints on [their] power over foreign companies,"10 and, perhaps inevitably, because of the baneful influence of "lawyers."11 Curiously, there has been little response to the rising chorus of criticism of antidumping policy. Apart from a few obscure monographs and articles, little has been published defending the rationale for antidumping policy since Professor Jacob Viner, one of the draftsmen of the original U.S. antidumping laws, produced what remains the seminal work on the subject in 1923.12 The purpose of antidumping measures is to offset economic injury caused by the commercial practice of dumping. Although antidumping measures can be, and sometimes are, applied in an arbitrary, irrational, or unnecessarily burdensome manner, the same can be said of any major regulatory program or system of legal redress, and such problems do not, by themselves, constitute a basis for 7    Claude Barfield, "Dumping Know-Nothingism," Journal of Commerce (March 18, 1993). 8    James Bovard, "Commerce's Latest Fair Trade Fraud," Wall Street Journal (January 28, 1993). 9    Hans Mueller "Backdoor Protection for Steel," Journal of Commerce (February 5, 1993). 10   James Bovard, The Fair Trade Fraud: How Congress Pillages the Consumer and Decimates American Competitiveness (New York: St. Martin's Press, 1991), p. 48. 11   According to one recent monograph, the antidumping law "benefits a powerful lobby in Washington, D.C.—the international trade bar. Eliminating antidumping law would dramatically reduce the business of international trade lawyers" (Raj Bhala, "Rethinking Antidumping Law," George Washington Journal of International Law & Economics 29(1), 1995, p. 20). By far the majority of practitioners of antidumping law in Washington represent foreign firms seeking to avoid the imposition of antidumping duties. Many of them have been vocal in criticizing the antidumping law, and if the "international trade bar" were polled on the subject, it is likely that a majority would support repeal of the law. Prominent international trade lawyers who have sharply criticized antidumping include N. David Palmeter and Gary O. Horlick. 12   Viner was the author of Dumping: A Problem in International Trade (Chicago: University of Chicago Press, 1923) and helped draft the Antidumping Act of 1921. Noteworthy exceptions to the general lack of academic work supporting antidumping include Jorge Miranda, "Should Antidumping Laws Be Dumped?," a monograph presented at a conference on "Antidumping and Competition Policy: Complementary or Supplementary," Center for Applied Studies in International Negotiations, Geneva (July 11-12, 1996) and Clarisse Morgan, "Competition Policy and Antidumping: Is It Time for a Reality Check?" Journal of World Trade 30(5) (1996).

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings scrapping an entire system. The real issue is whether dumping itself is a practice that warrants continuing restriction by national governments. The common strand that unites most critiques of antidumping is the extent to which they avoid that question, tending to minimize or dismiss altogether the phenomenon of dumping itself as not warranting serious examination. In the thousands of pages that have been written attacking antidumping, it is a challenge to find any detailed case study of an actual episode of dumping or an examination of its problematic aspects and implications. Were such inquiries more common, it would be evident that dumping remains "a problem in international trade" that warrants the continued existence of workable regulatory constraints on the practice. The term "dumping" has enjoyed a casual business use for at least two centuries and is still loosely applied in a lay context to a variety of export practices involving low pricing. Jacob Viner' s groundbreaking 1923 work proposed a precise definition, "price discrimination between national markets," that has gained general acceptance as the definition of "classic" dumping and is now embodied in the GATT and national antidumping legislation. Under classic dumping, a seller charges higher prices in the home market than in export markets, or, much less commonly, charges higher prices in one export market than in another. The dumper is able to maintain a price differential because some factor or combination of factors separates the two markets—generally either the sheer distance between the markets or a protective barrier around the market where the higher price is charged, coupled with restraints on competition in the latter market.13 The first antidumping statutes, which were enacted between the end of the nineteenth century and the early 1920s, were directed against classic dumping only, but during the postwar era, their scope has been expanded, in effect, to embrace some types of export sales that are made below the cost of production, notwithstanding the absence of price discrimination between national markets. THE EFFECTS OF DUMPING Dumping leads to the erosion and in some cases the disappearance of industries in markets where dumping is occurring for reasons unrelated to the relative competitiveness of those industries—put most simply, dumping enables less efficient firms to prevail over more efficient firms in international competition. Competitive outcomes are determined by market distortions, that is, the factors that make dumping possible, rather than the relative competitiveness of individual producers. This occurs for two reasons: 13    Viner recognized that in his time businessmen also tended to use term "dumping" to apply to the practice of export sales below the cost of production, which, although "closely related" to dumping in its nature and "in its economic objectives or consequences," was not strictly speaking, classic dumping.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings Capacity utilization. Over the short run, other things being equal, dumping firms tend to enjoy lower unit costs than comparable firms in markets where dumping is occurring because dumpers can operate their plants at higher rates of capacity utilization—a factor that often has a far greater impact on cost than any other consideration. Firms in the market where dumping is occurring cannot respond in kind if the market of the dumper is closed to them. In this way, a relatively inefficient plant run at 100 percent utilization rates may well enjoy lower unit costs than a state-of-the-art facility run at a 50 percent rate. Investment deterrent. Over the longer term, dumping discourages investment in markets where dumping is occurring, and, at the same time, encourages higher levels of investment in the protected markets from which dumping is taking place. This occurs because investment risks are higher, and returns lower, in markets where dumping is taking place, and risks are lower, and returns higher, in the protected market from which dumping is taking place. The short-run cost advantage that dumping firms enjoy is thus eventually translated into a capital and technological advantage as investment dries up in the one market and intensifies in the other. The fact that unconstrained dumping can gradually lead to a shift in competitive advantage has implications that extend beyond the firms directly affected. A given nation's economic well-being, standard of living, and security are all determined in significant part by the composition of its industrial base. The ultimate implication of the competitive dynamics of dumping is that the industrial base can be altered in deleterious ways as a result of market distortions abroad, such as protected markets and cartels, that make dumping feasible. Because such distortions can be deliberately created and manipulated, whether by governments or by private syndicates enjoying the toleration or tacit encouragement of state authorities, the decision to permit unrestricted dumping is a decision to allow a national economy to be shaped by anticompetitive strategies and market distortions that are engineered in other countries. Although experience has shown that GATT signatories will accept, as part of the price of an open trading system, the need for adjustment by domestic industries that have lost international competitiveness, it is quite another matter to expect signatories to accept the burdens of adjustment that arise out of anticompetitive practices in other countries. It is unlikely that many nations would accept such a result for any sustained period. It is equally unlikely that a political consensus could be sustained for any multilateral regime that attempted to enforce it through proscriptions on national antidumping measures. DUMPING UNRESTRICTED: THE BRITISH CASE Would the world trading system as a whole, and its members individually, be better off if all antidumping measures were eliminated and dumping allowed to

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings occur without interference? A distinguished contemporary critic of antidumping policy, J. Michael Finger of The World Bank, argues that The most appealing option is to get rid of antidumping laws and to put nothing in their place. Then all of the evils of such policy—its power politics, its bad economics, and its corrupted law—would be eliminated.14 Is Finger's proposal a sound one? Fortunately, this question is not altogether speculative, since trade between industrialized nations did occur for at least half a century before the widespread adoption of antidumping measures in the 1920s. Dumping was pervasive and its dynamics and effects widely reported and discussed. While many countries (including the United States) were relatively unaffected by dumping because high tariff walls severely limited import competition, Britain offers an example of a major, fully industrialized country that elected to avoid any policy action against dumping and to remain, in effect, an open "dumping ground" for a protracted period. Britain's rationale for adhering to free trade in the face of widespread dumping in her domestic and overseas markets was based on many of the lines of reasoning that are used today by those who urge the complete elimination of antidumping measures. Britain's disheartening industrial and commercial performance during this period, which saw the precipitous competitive decline of the industries most severely affected by dumping and a disastrous (and very near fatal) erosion of the country's strategic industrial base, is now an established historical fact. Although the "British disease" was the product of an extraordinarily complex tangle of economic and social problems of which dumping comprised only one strand, the historical record yields enough evidence of the harmful effect of unrestricted dumping on British industry to cast serious doubt on the wisdom of the policy that was followed. In 1870 Britain accounted for more of the world's manufacturing output than any other nation, its industries boasted the lowest costs and the most advanced production technologies, and its banks and shipping firms dominated world commerce. Britain's prosperity and commercial dominance appeared to validate the philosophy of the Free Trade movement that, after a series of intense political battles, had in the 1840s succeeded in clearing away most of Britain's import restrictions. 15 In retrospect, however, it is evident that Britain's success prior to 1870 was attributable, in substantial part, simply to the fact that the country had industrialized before any other nation. Beginning in the 1870s, and growing in intensity thereafter, the rapidly growing manufacturing industries of Germany and the United States mounted a commercial assault on traditional British mar- 14   J. Michael Finger, "Reform" in J. Michael Finger, ed., Antidumping: How It Works and Who Gets Hurt (Ann Arbor: University of Michigan Press, 1993), p. 57. 15   See generally W. Cunningham, The Rise and Decline of the Free Trade Movement (Cambridge, England: Cambridge University Press, 1912).

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings kets. In contrast to Britain, both the United States and Germany were avowedly protectionist; by 1880 both national markets were surrounded by high tariff walls. In addition, in both of these countries, highly organized and sophisticated anticompetitive industrial combinations were formed for the purpose of reducing competition and exploiting their partial or complete monopoly power. In the United States, so-called "trusts" regulated output and prices in many major manufacturing industries, and in Germany, manufacturing was dominated by kartells (cartels) in which price and output restrictions were maintained through legally enforceable contractual commitments.16 It was the standard practice of both the American trusts and the German kartells to engage in large-scale dumping as a deliberate export strategy.17 British industries did not exist in a competitive milieu that permitted them to respond in kind to this challenge. They could do nothing to reopen the American or German markets that had been lost to them, and they lacked both the protected home market and the organized character needed to engage in dumping on an American or German scale. 18 American and German firms not only captured sales from British firms, but began surpassing British industry in the level of industrial technology, productivity, and economies of scale. British producers confronted a strategic dilemma for which the Free Trade doctrine offered no obvious answers. Britain's Tariff Commission summarized this quandary in 1904 as follows: [I]t is the control of the home market which their tariffs give to foreign countries, combined with the facilities for exportation which they secure through their trusts and kartells, and the free access to the British market, which is the condition of their rapid progress relative to the United Kingdom. These tariffs were, in many instances, deliberately adopted to shut out British products which came into competition with home manufacturers. Their adoption has been followed by (i.) the extinction or diminution of British competition in the foreign protected markets; (ii.) the closing of British works or of departments of British works which depended on these markets; (iii.) the rapid growth of the foreign 16   See generally J.H. Clapham, The Economic Development of France and Germany, 1815-1914. (Cambridge, England: University Press, 1928); Robert Brady, The Rationalization Movement in German Industry. (New York: Howard Fertig, 1974); Hans B. Thorelli, The Federal Antitrust Policy: Origination of an American Tradition (Baltimore, Md.: The Johns University Hopkins Press, 1955). 17   Witness No. 11, Report of the Tariff Commission, Vol. I (London: P.S. King & Son, 1904), pars. 795, 806. 18   Episodes of dumping by British manufacturers were reported throughout the nineteenth century, but they were precisely that—episodic, and generally poorly documented as well. Jacob Viner catalogs an anecdotal history of alleged dumping by English manufacturers in the late eighteenth and early nineteenth centuries. He concludes that most of the allegations were poorly supported, if not altogether unfounded, and that there was no evidence of predatory dumping by British manufacturers. There was "less reason to doubt that there were occasional instances of the practice of dumping in less objectionable form, especially as such branches of English industry as were in the control of relatively few individuals or combinations of producers" (Viner, [1923], op. cit., pp. 35-50).

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings competing industry; (iv.) the appearance in the British market of the products of that industry at prices which the British manufacturer cannot touch. Thus, the positions of the United Kingdom and its most powerful competitors have been reversed.19 Britain's eroding competitive position relative to two dynamic protectionist powers began to foster dissent from the prevailing free trade orthodoxy, and in 1895, the issue was moved to the center of the nation's political arena by the governing Conservative Unionist party.20 In that year, Joseph Chamberlain, the government's Colonial Secretary and an avowed imperialist, began a crusade against free trade in favor of an imperial customs union that would establish a wall of protective tariffs around Britain and the Empire. Conservative Unionist Prime Ministers Lord Salisbury (1895-1902) and Arthur Balfour (1902-1906) shared Chamberlain's skepticism about free trade and were concerned over mounting evidence of Britain's economic decline relative to Germany and America, but were ultimately unwilling to commit their party and their country to a renunciation of free trade. Instead, Balfour sought a middle ground, the selective imposition of retaliatory tariffs against trading partners that practiced restrictive trade which hurt British industry. The British debate over dumping at the turn of the century closely parallels the current controversy in the United States at the century's end. The Chamberlain and Balfour factions singled out "dumping" by foreign "trust system[s] working behind tariffs"21 and argued that dumping was injuring or destroying key industries on which Britain's economy and security rested.22 Dumping, it was argued, placed domestic industries at a cost disadvantage, eroded producers' profits, and jeopardized "the provision of adequate capital for carrying on great modern industries."23 Nonsense, responded the Free Traders. British industry was still faring well under free trade.24 The industries complaining of dumping were 19    Report of the Tariff Commission (1904), Vol. I, par. 58. 20   See, generally, Aaron L. Friedberg, The Weary Titan: Britain and the Experience of Relative Decline, 1895-1905 (Princeton, N.J.: Princeton University Press, 1988), pp. 45-79. 21   Speech by Prime Minister Balfour in House of Commons, May 28, 1903, cited in Friedberg (1988), op. cit., p. 63. 22    Joseph Chamberlain used the example of the sugar industry: "Free imports have destroyed sugar refining . . . one of the great staple industries of the country, which it ought always to have remained. . . . Sugar has gone; let us not weep for it; jam and pickles remain." Cited in William Smart, Return to Protection: Being a Re-Statement of the Case for Free Trade (London: MacMillan and Co. Ltd, 1906), p. 154. 23   Speech by Prime Minister Arthur Balfour, June 26, 1903, cited in Friedberg (1988) op. cit., p. 63. 24   The Free Traders drew considerable support from a substantial study by Sir Robert Giffen, which contended that the trade data showed trends that were quite favorable, Britain's exports were growing faster than those of Germany, the British trade position was sound, and there was "no weakening in the hold of the United Kingdom upon either the import or export trade of the world." Giffen reached these conclusions by using statistics for Germany for only the period 1890-1892, thereby producing distorted results when the country was in a recession; nevertheless, Giffen was a "high authority," and his study was seized on by the defenders of the status quo and widely cited. One historian writing from the perspective of three decades later characterized it as an "excellent example of official optimism, Cobdenite certainty that nothing could be basically wrong with a nation adhering to free trade principles, and the misleading possibilities of statistics" (J.S. Ross, Great Britain and the German Trade Rivalry 1875-1914. (Philadelphia, University of Pennsylvania Press, 1933), p. 231., citing Sir Robert Giffen, Foreign Trade: Statistical Tables Relating to the Progress of the Foreign Trade of the United Kingdom, and of other Foreign Countries, with Report to the Board of Trade Thereon. [C7349, 1894]).

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings seeking to blame imports for problems that were really of their own making. Dumping was actually a positive good, not only because it provided a stimulus to such firms to reform their ways, but because it provided cheap inputs for many other industries, lowering their costs.25 The alleged threat to "staple" industries was brushed off as exaggerated; moreover, it was pointed out, the disappearance of staple industries was more than offset by the appearance of new industries utilizing dumped inputs. The arguments against antidumping measures carried the day in turn-of-thecentury Britain, and the Conservative Unionist assault on free trade served only to bring an electoral debacle upon the governing party.26 Britain took no measures to restrict dumping until a number of years after World War I. But while the Free Traders won the political debate, what were the consequences? Did Britain ultimately fare better or worse for having allowed itself to exist as a "dumping ground" until well after World War I? Dumping and the Erosion of British Competitiveness From the perspective of the late twentieth century it is evident that in the period 1880-1914 British industry was moving on a path of decline relative to the industries of the United States and Germany, a trend that would become increas- 25    By dumping in Britain, "the Germans are in this way our benefactors, and last year supplied to us sugar to the extent of nearly £9,400,000 at less than its cost, not to speak of other articles outside the class of food products . . " (Manchester Guardian [July 27, 1896], cited in Hoffman [1933], op. cit., p. 253). 26   Following months of internal debate, Chamberlain and several like-minded ministers, who felt that Balfour's "selective retaliation" proposals did not go far enough in the direction of protection, quit the Cabinet to wage a campaign of public education against free trade. At the same time, despite Balfour's comparative moderation, his party was identified in the public's eye with protectionism, which, it was believed, would result in higher food prices for consumers (the so-called "dear loaf"). His attempt to find a middle ground between the extremes of free trade and protection satisfied neither camp; instead, his government entered its "death agony," a protracted and bitter public controversy over trade policy that culminated in the election of 1906, in which Balfour's party suffered one of the worst electoral defeats in British history. The trade issue played the major role in the Conservative Unionist defeat. "All the evidence suggests that nothing was more disastrous to [Balfour's] party than Joseph Chamberlain's campaign for tariff reform" (Robert Blake, The Conservative Party from Peel to Churchill [London: Eyre and Spottswood, 1970], p. 180, cited in Friedberg [1988], op. cit., p. 77).

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings ingly obvious as the twentieth century progressed.27 Britain's decline from the zenith of the mid-1800s has been extensively examined, but its causes remain something of an enigma.28 Dumping in British markets by foreign cartels was not the sole or even the primary proximate cause of Britain's relative industrial decline, but it does not follow that dumping played no role, or that Britain was, on the whole, better off for having permitted unrestricted dumping. Dumping was identified by many contemporary partisans in the trade debate as a significant factor contributing to both the erosion of British cost competitiveness and the inadequate levels of British capital investment.29 Both of these factors have been cited by subsequent generations of scholars as important, if not central, elements underlying British industrial decline.30 The British iron and steel industry was the centerpiece of the British debate over dumping, and its particular experience with dumping in this industry is probably of greatest relevance to the current dumping controversy because dumping in this industry was more pervasive in its extent and effects than in most other sectors, and because of steel's central importance to Britain's economy and national defense. The slump in Britain's position as a steel producer in the 1890s "was particularly alarming,"31 given steel's status at the time as the most important of all strategic industries, and it was addressed and analyzed by virtually all of the partisans on both sides of the trade controversy. While Free Traders argued that there was insufficient evidence that dumping was substantially injuring domestic producers, 32 the weight of evidence from the period makes it clear that by the mid-1890s, British steelmakers were under attack from low-priced Ger- 27    Between 1880 and 1913 Britain's share of total world manufacturing output fell from 22.9 to 13.6 percent. Britain's competitive position eroded in basic industries such as iron, coal, and textiles, where it had led the world in 1880; more seriously, British industry failed to invest adequately in the new industries that made possible the so-called "second industrial revolution"—electrical products, steel, specialty steel, mass-produced machinery, industrial chemicals, and pharmaceuticals (Paul Kennedy, The Rise and Fall of the Great Powers [New York: Random House, 1987], p. 228; Alfred D. Chandler, Jr., Scale and Scope: The Dynamics of Industrial Capitalism [Cambridge, Mass.: Belknap Press, Harvard University, 1990], pp. 12, 62-67). 28    Paul Kennedy writes that "[t]he slowdown of British productivity and the decrease in competitiveness in the late nineteenth century has been one of the most investigated issues in economic history. It involved such complex issues as national character, generational differences, the social ethos, and the educational system as well as more specific economic reasons like low investment, out-of-date plant, bad labor relations, poor salesmanship, and the rest" (Kennedy [1987], op. cit., p. 228). 29    In general, see the materials appended to the Report of the Tariff Commission (1904), Vol. I, "The Iron and Steel Trades." 30   Chandler (1990), op. cit., p. 330; Peter Temin, "The Relative Decline of the British Steel Industry, 1880-1913," in Henry Rosovsky, ed., Industrialization in Two Systems: Essays in Honor ofAlexander Gerschenkran (New York: John Wiley & Sons, 1966). 31    Peter Cain, "Political Economy in Edwardian England: The Tariff-Reform Controversy," in Alan O'Day, ed., The Edwardian Age: Conflict and Stability, 1900-1914 (Hampden, Conn.: Acchon Books, 1979), p. 35. 32    See Smart (1906), op. cit., p. 156.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings production and shipment levels for televisions. The JFTC did not impose sanctions for any of the anticompetitive activities engaged in by the Japanese companies,127 and its relative passivity was essential to the continued functioning of the cartel: Regular, frequent meetings, at which manufacturers' representatives negotiated outputs and prices at the retail, wholesale, and manufacturers' levels were an important element of [the cartel's] success. . . . The story of the cartel shows that it would have been an impossible venture had the JFTC possessed more power. The members were continuously renegotiating complex, detailed agreements at numerous meetings, which did not escape notice by the JFTC.128 But it is unclear that a series of warnings and recommendations by the JFTC to the Japanese electronics firms, spanning over 30 years, has done much to curb anticompetitive behavior.129 In 1984, "evidence suggesting anticompetitive behavior in the marketing of office computers and other final products utilizing microchips" [was] uncovered by the JFTC;130 the JFTC noted the increasing "capture" of wholesalers by manufacturers, increasing producer shareholding in distributors, and transfer of management personnel between manufactures and sellers, and found that contracts signed between producers and dealers contained "restrictions regarding retail prices, sales area, retailers to whom the products could be sold, and other matters, [and] restrictions which conflict with the intent of the Antimonopoly 127   The Electronics Industry Association of Japan (EIAJ) collected sensitive data from each producer on television production volume, shipments, and inventories, broken down by screen size and tube type, and disseminated this information to all other manufacturers on a monthly basis through at least 1975. Documents seized by the JFTC indicated that the primary goal of this "welter of clandestine groups and overt cooperative activity" was price fixing and the cooperative control of distributors. These groups openly discussed and agreed on bottom prices for each type of television as well as wholesale and retail profit margins and rebate levels to distributors. The same producers participated in export cartel arrangements that divided the U.S. market among these companies (to avoid interfirm rivalry among Japanese producers) and that facilitated a massive wave of dumping which virtually destroyed the U.S. television industry during the 1970s. For a detailed account of this activity see Yamamura and Vandenburg (1987), op. cit. 128   David Schwartzman, The Japanese Television Cartel (Ann Arbor: University of Michigan Press, 1993), pp. 75-76. 129   See, generally, Marcel F. Van Marion, Liberal Trade and Japan: The Incompatibility Issue in Electronics (Groningen, Netherlands: Rijksuniversiteit Groningen, 1992), pp. 77-101. In 1957 the JFTC issued a report describing anticompetitive practices of the Japanese television manufacturers in the domestic market, including price fixing and resale price maintenance with respect to distributors, and it issued an order prohibiting the firms in question from carrying out their agreement, but the order did not prohibit a new agreement dated subsequently to the order. In 1966, in the six-company case, the JFTC again found that six Japanese television manufacturers had violated the Antimonopoly Law, but it concluded that the violations had ceased. The cartel continued to operate after this decision (Schwarzman, 1993, op. cit., p. 28). 130   Yamamura and Vandenburg (1987), op. cit., p. 270.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings Act."131 In 1992 the JFTC and Ministry of International Trade and Industry (MITI) began investigations into allegations of illegal price fixing of audio-visual appliances by Matsushita, Sony, Hitachi, and Toshiba.132 In 1993 the JFTC was reportedly investigating allegations of dango (bid rigging) in connection with the sale of large-scale display screens manufactured by Sony, Matsushita, and Mitsubishi. 133 A recent German study found that 80-90 percent of the retail sales of consumer electronics products in Japan involved retailers' sales of items made by "their" domestic manufacturer, and that "the tied retailers do not usually carry directly competing products. . . . Japanese manufacturers of domestic electrical appliances have broad control over the marketing chain right down to the consumer. . . . [T]his means that the tied retailer sector, which also has service facilities, is in general not accessible to non-Japanese manufacturers and their direct marketing partner (importers)."134 Eventually, the anticompetitive practices that were endemic in the Japanese domestic electronics market spilled over into the international arena—with devastating effects. As one recent study observed, the facts demonstrate that the seven [Japanese electronics] firms carefully coordinated their export plans; they notified one another of the intended quantity of shipments and prices, allocated U.S. customers among themselves, and cooperatively concealed a web of illegal, covert activity while charging prices low enough to suddenly and decisively gain a large share of the American market.135 In the television case, although numerous legal remedies were invoked by U.S. producers, no real answer was found either to dumping itself or to the Japanese market barriers and cartel practices that had made dumping possible. Instead, the U.S. television industry largely disappeared, foreclosing not only U.S. participation in this sector in the future, but in succeeding generations of products such as VCRs. The problems that "downstream" British industries faced at the turn of the century as the effects of dumping gradually made them dependent on their Ger- 131    JFTC, Office Computer no ryutsu jittai chosa ni tsuite (September 28, 1984), cited in Yamamura and Vandenburg, 1987, op. cit., p. 278n. 132    Nihon Keizai Shimbun (March 27, 1992). 133    Asahi Shimbun (November 16, 1993). 134   Erich Batzer and Helmut Laumer, Deutsche Unternehmen in Japangeschaft (Munich, Germany: IFO Institute for Economic Research, 1989). 135    Yamamura and Vandenberg (1987), op. cit., p. 259. The Japanese firms devised the so-called "Five Company Rule," which required each exporter to specify five U.S. companies as its only and exclusive customers. No firm could sell to another company's U.S. customer without prior approval of a committee made up of executives from each company, "including, of course, any would-be Japanese competitor." Violations were punished by the Committee through fines equal to one-third of the value of a transgressing shipment. The purpose of these arrangements was to ensure that U.S. buyers did not play off one Japanese firm against another, and that any "increases in sales would be at the expense of American competitors." Ibid.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings man competitors for key inputs has been paralleled, to a degree, in electronics. Both U.S. and European firms have repeatedly been placed in competitive difficulty as a result of their dependency on the Japanese electronics producers' group for components and tools. The most dramatic instance was the ''chip shortage" of 1987-1990. 136 Japanese semiconductor production is dominated by the same large electronics firms that comprised the television cartel described above—semiconductors are a basic component used in the end products manufactured by these firms, not only televisions but other computers, telecommunications equipment, robots, and factory automation systems. Beginning in the 1960s, these firms were organized by MITI into a series of research and development consortia for the purpose of catching up with the United States in semiconductor technology. Foreign sales in Japan were severely restricted through a ban on foreign investment, import restrictions, and local content requirements.137 Under U.S. pressure, Japan committed to eliminate these formal market barriers by 1974, and MITI undertook an urgent program of "liberalization countermeasures" designed to offset the effect of liberalization when it was implemented. Japanese semiconductor and computer firms were encouraged to form tie-ups for the production, marketing, and sales of semiconductors and computers after liberalization.138 Perhaps not surprisingly, after elimination of formal barriers to market entry in 1975, there was no increase in the foreign share of the Japanese market. U.S. firms were able to sell semiconductor products in Japan when a competing Japanese alternative did not exist, but when Japanese devices became available (often simply copies of U.S. devices), U.S. sales fell dramatically, in some cases resulting in a total loss of market.139 In the early and mid-1980s, Japanese semiconductor companies used their protected home market to pursue an aggressive trade strategy characterized by periodic episodes of dumping in the United States. 140 In the 1980s, Japanese companies repeatedly dumped DRAM and erasable programmable read-only 136    See Semiconductor Industry Association, Creating Advantage (Santa Clara, Calif.: Semiconductor Industry Association, 1992), pp. 120-126. 137    Nikkan Kogyo (December 12, 1974); Japan Information Processing Development Center Computer White Paper (1975); Japan Economic Journal (January 14, 1969). 138    Nihon Kogyo Shimbun (February 19, 1974); Nihon Keizai Shimbun (January 24, 1974); Nikkan Kogyo Shimbun (March 20, 1974). 139    The Japanese press characterized this phenomenon as the "extinction of the market" (Nikkan Kogyo [July 28, 1982]). For a number of case studies see Semiconductor Industry Association, The Effect of Government Targeting on World Semiconductor Competition (Santa Clara, Calif.: Semiconductor Industry Association, 1983). 140   The best account of this episode is Kenneth Flamm, Mismanaged Trade? Strategic Policy and the Semiconductor Industry Association (Washington, D.C.: The Brookings Institution, 1996). See also Semiconductor Industry Association (1983), op. cit. and (1992), op. cit.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings memory (EPROM) chips in the United States, which in the case of DRAMs, succeeded in driving virtually all U.S. firms from the market.141 Most U.S. DRAM producers withdrew from the market in mid-1985, and the Japanese DRAM producers were left with a virtual world monopoly of this strategic product. At this point, the Japanese DRAM producers began jointly curtailing their production so as to raise prices.142 In 1986 MITI announced a system of production "guideposts" (indicative production limits) designed to create a state of tight supply and higher prices.143 By 1987, the market power of the Japanese producers was so great that a "chip shortage" occurred; they exercised concerted production restraint in the face of strong demand, resulting in worldwide shortages, skyrocketing prices, and economic dislocation for foreign firms dependent on Japanese components—and enormous profits for Japanese DRAM makers.144 The Japanese firms continued to supply their own end users with DRAMs during this period, giving them a competitive advantage internationally. In addition to price manipulation through coordinated production controls, Japanese DRAM producers reportedly attempted to leverage their dominant position in the DRAM market into other markets by "tying" DRAM sales to sales of other unwanted custom chips such as application-specific integrated circuits [ASICs]. 145 Significantly, none of these experiences was replicated in EPROMs, where U.S. producers retained a much more substantial presence in the market and served as a check on the market power of the Japanese firms. The strategic implications of U.S.-Japanese competition in electronics are not particularly difficult to discern. This competition occurred between the industries of two close allies between whom armed conflict is unlikely under any foreseeable circumstance. However, the Gulf War underscored the extent to which advanced electronic systems are likely to dominate future wars and to which U.S. forces will depend on foreign companies and systems. As other advanced electronics industries are emerging around the world, the competitive dynamics that characterized U.S.-Japanese rivalry in the 1970s and 1980s are likely to manifest themselves again, perhaps in a strategic context that is considerably less benign. Although the character of strategic industries has shifted from sectors such as steel and dyestuffs to technology-intensive industries such as advanced electronics, new materials, and aviation, dumping poses a problem little different from that which Britain faced a century ago. The loss of strategic industries, and the resulting dependency on foreign sources for defense-related supplies, inevitably poses security risks that cannot readily be remedied once a conflict actually breaks out. Even if the foreign source of supply is a close ally, access may be 141    The margins of dumping in EPROMs ranged from 60 to 188 percent (Federal Register, Erasable Programmable Read Only Memories from Japan, 51 Fed. Reg. 29,708 (U.S. Department of Commerce, 1986); 64 Kilobit Dynamic Random Access Memories from Japan, No. 731-TA-300 (final). U.S. International Trade Commission, Washington, D.C.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings foreclosed through enemy occupation or interdiction, competing demands on the products in question, or a foreign decision to withhold supply for a variety of policy reasons. BELOW-COST DUMPING Antidumping measures have evolved over time that have offset not only "classic" dumping (e.g., price discrimination between markets) but export sales below the cost of production.146 Commentators on antidumping frequently acknowledge that sustained below-cost export sales can be indicative of a predatory export strategy designed to drive rivals out of the market. However, it is argued that predatory schemes are rare and that assessing antidumping duties against below-cost exports penalizes certain legitimate economic activities, such as inventory clearance, "forward pricing" of new products whose average costs are initially high but decline rapidly as cumulative output increases, and export sales during recessions. In fact, predatory export strategies do appear to be extremely rare in the real world, at least as the term "predatory" is defined by contemporary economists and court decisions, and the need to protect industries against predation does not, by itself, appear to justify most of the cost-of-production antidumping duties that have been applied in recent decades.147 It is also probably true that 142    Sankei Shimbun reported that "semiconductor industry circles, which were forced to take rigid measures for the coordination of production because of the decline of the market prices of their products, have at last begun to show signs of recovery" (Sankei Shimbun, December 5, 1985). 143    Nihon Keizai Shimbun (April 24, 1986). 144   Nihon Keizai Shimbun (October 10, 1987; June 28, 1989); Wall Street Journal (February 19, 1987). 145    See U.S. General Accounting Office, U.S. Business Access to Certain Foreign State-of-the-Art Technology (Washington, D.C.: U.S. General Accounting Office, 1991), pp. 43-44. 146   The U.S. Department of Commerce (DoC), for example, normally determines dumping margins by comparing home market prices with export prices. However, in calculating the appropriate domestic price, the DoC disregards sales made at below the cost of production if they are made "in substantial quantities," "over an extended period of time," and "not at prices which permit recovery of all costs within a reasonable period of time in the normal course of trade." If over 90 percent of domestic sales are disregarded as below cost, the DoC moves to a "constructed value'' approach, in which it determines the "fair market value" for the domestic market by examining the exporter's costs (19 U.S.C. § 1677b[a][21, [b][c]). 147    When the antidumping laws were enacted the term "predatory" was one of a number of "loose catchwords" (such as "cutthroat competition," "chiseling," and the like) used to describe a broad range of commercial abuses, such as "putting a crimp in one's competitors, punitively or destructively attacking other firms, and acting vindictively with punitive effect" (International Air Industries v. American Excelsior Company [517 F.2d 722, 5th Cir. 1975]). However, economists and recent U.S. court decisions have so narrowed the concept that "predatory pricing," as so defined, almost never occurs. Judge Bork has gone so far as to say that predatory conduct "probably does not exist" in the real world (Robert H. Bork, The Antitrust Paradox: A Policy at War With Itself (New York: Free Press, 1978), p. 154. See in particular Matsushita Electrical Industrial Co., Ltd. et.al v. Zenith Radio Corp. 475 U.S. 574 [1986]).

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings the scope of below-cost antidumping measures permitted under the GATT and national legislation has resulted in the application of duties in specific cases in which little policy justification exists to support the measures taken, although refinements in the GATT Antidumping Agreement limit the extent to which this can occur. It does not follow, however, that below-cost antidumping measures should be abolished or even substantially curtailed. In a market-based economy, below-cost sales generally cannot occur indefinitely, since eventually the seller will be required to exit the market. Sustained sales at below cost are thus indicative of abnormal business behavior, and a variety of types of market distortion can give rise to sustained below-cost export sales. For example, a number of instances of below-cost dumping appear to involve the cross-subsidization of the exported product with profits generated from a domestic sanctuary market in which competition is restrained. This situation is simply a variant of Viner' s "classic" dumping and is harmful for the same reasons. Some normal commercial practices, such as inventory clearance sales, involve sales below cost for a limited time, but under current GATT rules and most national legislation, such short-term sales do not constitute a basis for imposition of antidumping measures. Although "forward pricing" of exports based on anticipated profits is cited as a legitimate rationale for below-cost export sales, this rationale could be used to justify any below-cost export sales—a product's life cycle cannot be predicted accurately, and there is no way of knowing whether it is reasonable to expect that full costs will ever be recovered. Finally, while it is certainly true that below-cost exports occur during recessions, the vast majority of these are not subject to antidumping measures. Moreover, a serious question is presented as to whether it is welfare-maximizing for the country of import to absorb, on a sectoral basis, somebody else's homemade recession. I dread to hear some people argue that, prima facie, this would be a good thing because it would result in low prices for consumers. If this were true, maybe we should not wait for recessions to be imported, but we should rush and ask our central banks to severely deflate so as to generate lots of low prices for consumers.148 In fact, it is unlikely that a multilateral regime that permitted unrestricted below-cost export sales—whether generated by recessions, anticompetitive syndicates, or some other factor inconsistent with market-based economies—could long endure the political pressures that would be engendered. ANTIDUMPING AND TRADE LIBERALIZATION For a century the concern that dumping by foreign syndicates might destroy key industries has been used by advocates of protectionism as a rationale for 148   Miranda (1996), op. cit., p. 6.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings restricting imports in general, whether through a high tariff wall, quantitative restrictions, tariff, or other means. A variant on this argument has been used in developing countries as ajustification for protectionist measures to defend against the feared depredations of multinational corporations. And yet despite the persistence of anticompetitive business groupings in international trade, and of dumping, the world trading order has been progressively liberalized since mid-century. The positive role played by antidumping—commonly castigated as nothing but a protectionist tool in this process—should be recognized. The enactment and refinement of antidumping measures worldwide is almost always an element in a broader program of trade liberalization or a mechanism for defusing protectionist pressures. Typically, proponents of liberalization argue that the danger of dumping in specific sectors should be addressed through administrative measures limited to the sectors where dumping actually occurs and should not stand in the way of a more general reduction in trade barriers. The world's first antidumping legislation was enacted by Canada in 1904 by the Liberal party to neutralize domestic manufacturers' opposition to a more general reduction in import duties.149 Similarly, the first U.S. antidumping legislation, the Antidumping Act of 1916, was supported by the Wilson administration which, "while showing itself wholly sympathetic with the desire for adequate protection against unfair foreign competition, was determined that it should not be employed to build up sentiment for an upward revision of the existing tariff act."150 In the modern era, congressional political support has been sustained for the ratification of a successive road of multilateral tariff reductions, in part because the implementing legislation has incorporated refinements in U.S. antidumping procedures. A similar process is now observable in newly industrializing countries such as Mexico, Korea, and Chile, which are making greater use of antidumping measures, and strengthening their antidumping procedures, as they move to make their markets more open. One of the most pervasive charges against antidumping policy is that it is spreading to newly industrialized countries like a sort of plague, threatening the liberal world trading order. But this reasoning implies that these countries' markets were previously open, and that a shadow is falling across this happy state of affairs as free-trading nations imitate the United States and begin to put in place antidumping regimes, a regression to a more protectionist policy. In fact, with the exception of a few special cases such as Hong Kong, virtually all newly industrializing and developing countries have been highly protectionist in the postwar era, even countries such as Taiwan and Korea, which were sometimes touted 149    "[T]he government found an ingenious escape in the enactment of the antidumping law, which gave the manufacturers the specific type of protection which they claimed they needed without antagonizing farmers by an increase in the rates of duty of the ordinary tariff" (Viner [1923], op. cit., p. 193). 150    Ibid., p. 242.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings as liberal. The market barriers in these countries were not particularly easy to identify because they consisted, typically, of opaque practices such as import licensing and prior approval requirements and the grant of import monopolies to domestic producers of the imported product.151 This situation began to change at the end of the 1980s as many newly industrialized countries and developing countries began scrapping their systems of administered protection in favor of transparent, GATT-based import regimes. The adoption of antidumping measures is part of that process of trade liberalization, and, as such, their advent should be welcomed, not condemned, provided that transparent and fair procedures are adopted. A member of the World Trade Organization Secretariat recently observed on this point that The literature on the effects of anti-dumping duties assumes that no alternative protection would have been put in place. This assumption, however, is highly debatable. All the countries that have undergone substantial trade liberalization understand how difficult it may be to implement this policy, especially when the groups adversely affected are (politically) visible while the groups benefitting are (politically) dispersed. It is more than likely that, at least on occasion, the country of import would have let some of the steam pressuring trade reform come out in the form of additional protection. 152 151   Professor Robert Wade of Princeton recently published a study of Taiwan's industrial policy that sets forth a detailed description of Taiwan's discreet system of import protection as it existed through the mid-1980s. Typically, issuance of an import license might require an import to secure approval from a bank to see whether or not the item was on the "Secret List" of restricted items promulgated by the Board of Foreign Trade. In other cases issuance of a license would require a domestic association representing domestic producers of competing products to give their assent to the import—a requirement that, according to one source cited by Wade, covered fully half of Taiwan's imports in 1984 (Robert Wade, Governing the Market: Economic Theory and the Role of the Government in East Asia Industrialization (Princeton, N.J.: Princeton University Press, 1990). This system was virtually invisible and enabled Taiwan to win kudos from U.S. economists as a dynamic outward-oriented economy, while Taiwan simultaneously restricted and controlled imports that threatened the development of key industries such as steel, petrochemicals, chemicals, machine tools, and bearings. It is perversely ironic that as Taiwan and other newly industrialized countries have moved to phase out their systems of clandestine protection, and have adopted transparent rule-based antidumping regimes, they are now coming under criticism from American economists for doing so. 152    Miranda (1996), op. cit., p. 8. A European Union official commented in 1989 that "there are of course those who argue that the whole principle of applying antidumping remedies is flawed and that market forces should be allowed to function unhindered. . . . This laissez-faire approach is, in the author's view, not only naive but also ignores the fundamental precept for open markets (i.e., open markets themselves). Everyone, in principle, is for free and open trade; however free trade is not possible if ones partners' exporters are not trading fairly. This is all the more true when the hidden hand of government creates the conditions facilitating the pursuit of price discriminatory policies. To blandly assume that, somewhere down the road, a liberalized world trading order will resume whilst ignoring the real potential for economic hardship during the 'adjustment' period seems to this author devoid of any practical, economic, or political reality" (Richard Wright, "Validity of Antidumping Remedies—Some Thoughts," in John H. Jackson and Edwin A. Vermulst, eds., Antidumping Law and Practice: A Comparative Study [Ann Arbor: University of Michigan Press, 1989], p. 421).

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings It might be argued, of course, that even if some form of antidumping rules is needed as a transitional political concession to certain constituencies to facilitate the transition to liberal trade, this is a second-best solution, and that over the longer term, as the political base for open markets becomes stronger, antidumping should be phased out. The flaw in this reasoning is that if dumping really is a harmful commercial practice, foregoing its regulation will generally tend to undermine the political base for a liberal trade policy. It is worth returning to the case of Britain in this connection. Britain did adopt antidumping regulation in the 1920s, but the rules enacted were so cumbersome as to be unusable, so that for practical purposes, dumping was permitted to continue unrestricted through the 1920s. With the onset of a world economic crisis at the end of the 1920s, Britain's 80-year consensus in support of free trade collapsed dramatically, and a wall of tariffs was erected around the Empire. Although the precise causes of this seismic shift in British economic policy have been the subject of some disagreement, it is clear that "the speed and completeness with which the remaining free trade support collapsed in 1930 can only be understood in the context of growing disillusion with trade liberalism in the late 1920s."153 Underlying this disenchantment was the persistence of an old problem—barriers in foreign markets, coupled with dumping in Britain's own. Farmers were "shocked by the intensive dumping of foreign fruits and vegetables which had destroyed markets before smallholders were able to dispose of their crops,"154 and a 1930 manifesto by British banks—long supporters of free trade—proclaimed that Bitter experience has taught Great Britain that the hopes expressed four years ago in a plan for removal of the restrictions upon European trade have failed to be realized. The restrictions have materially increased, and the sale of surplus foreign products in the British market has steadily grown.155 The world trading system may never again confront stresses of the magnitude of those of the early 1930s, which saw an extraordinary regression into protection worldwide. But the current political consensus in support of liberal trade should not be taken for granted, if only because it ultimately rests on its members' continuing assessment of where their self-interest lies. Antidumping measures are a safety mechanism not only for defusing protectionist pressures, but for the wholly legitimate purpose of limiting a harmful commercial practice that, left unchecked, could undermine support for the current system. 153    Tim Rooth, British Protectionism and the International Economy: Overseas Commercial Policy in the 1930s. (Cambridge: Cambridge University Press, 1991), p. 70. 154    Rooth (1991), op. cit., p. 58. 155   The Times (July 10, 1930), cited in Rooth (1991) op. cit., p. 46.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings Antidumping as an Interface Mechanism Antidumping measures have become controversial, in significant part, because they have been assigned, by default, an impossible task—to reconcile the economic and strategic contradictions that arise out of the sharp divergences that exist between national markets with respect to competition policy. The fact that some markets are open and others are highly cartelized gives rise to distortions in trade and economic dislocations for which national antitrust policies and the multilateral system have no apparent answers. Antidumping measures are invoked by beleaguered industries because nothing else works, including improvements in their own efficiency and productivity. The application of duties at the border in a given instance may prevent the destruction of an industry by dumping, but it does not resolve the market distortions that gave rise to dumping in the first place. Virtually all of the extant literature on antidumping measures emphasizes the problems that such measures allegedly create, rather than on whether or not they are actually effective in addressing the problem at which they are directed—dumping. Thus, specific instances are raised in which antidumping measures are said to have been applied to inappropriate situations, or in a way that is unnecessarily burdensome or that results in margins of dumping that are too high. In some cases the criticism is valid and provides the basis for future reforms both at the national and the multilateral level. At the same time, however, antidumping measures do not always prevent serious injury to affected industries.156 Margins are not always high enough to fully offset the injurious effects of dumping, and antidumping orders can be circumvented through a wide variety of commercial tactics. In high-technology industries the sector may be largely destroyed even before preliminary relief is available. Antidumping actions are burdensome to petitioners as well as respondents and the cost of such proceedings has mounted as the information required of petitioners has increased. 157 If dumping itself remains a "problem in international trade," then true "reform" of antidumping policy does not simply entail weakening or eliminating national antidumping laws, but the shaping of those laws to rectify, to the fullest extent possible, the problem of dumping itself. Antidumping measures cannot, by themselves, open foreign markets or break up cartels, but they can form one element in a broader program aimed at such objectives. Antidumping should not disrupt exporters that are not engaging in anticompetitive practices (as now occurs), but it should offer the most efficient and complete relief possible to industries genuinely injured by dumping. Such reform is unlikely to emerge from a debate cast in the simplistic free-trade versus protectionism terms which charac- 156    For case studies in the failure of antidumping measures in the European Union, see Van Marion (1992), op. cit. 157   On this point see Office of Technology Assessment, "An Unfiled Dumping Case" in Competing Economies: America, Europe and the Pacific Rim (Washington, D.C.: U.S. Office of Technology Assessment, 1991), pp. 146-148.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings terized the British policy debates at the turn of the century. Effective pragmatic reform requires a far more informed and dispassionate examination of dumping itself and the closed markets and cartels that foster it. Only such a comprehensive approach, rooted in the realities of commercial practice, will make possible reforms necessary to enable the multilateral trading system to adjust to the challenges of the next century.