International Friction and Cooperation in High-Technology Development and Trade Papers and Proceedings (1997) / Chapter Skim
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Dumping: Still a Problem in International Trade
Dumping: Still a Problem in International Trade
Pages 325-377
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From page 325... ...
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.
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From page 326... ...
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.
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From page 327... ...
Antidumping policy is now the subject of scathing attacks from many quarters, including prominent figures in law, business, and academ~a.5 Forbes charactenzes the antidumping laws as tools that U.S. firms use to push foreign firms into "a quick descent into legal hell" as they "lustfully anticipated a price hike" for domestic consumers.6 Claude Barfield of the American Enterpnse Institute calls antidumping measures "the chemical weapons of the trade wars," a "system 2John H
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From page 328... ...
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
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From page 329... ...
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.
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From page 330... ...
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.
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From page 331... ...
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.
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From page 332... ...
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.
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From page 333... ...
Bntish industry was still fanny well under free trade.24 The industries complaining of dumping were i9Report of the Tariff Commission (1904)
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From page 334... ...
The arguments against antidumping measures earned the day in turn-of-thecentury Bnta~n, 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?
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From page 335... ...
The slump in Bntain's position as a steel producer in the 1890s "was particularly alarm~ng,"3i given steel's status at the time as the most important of all strategic industnes, 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 m~d-1890s, Bntish steelmakers were under attack from low-pnced Ger 27Between 1880 and 1913 Britain's share of total world manufacturing output fell from 22.9 to 13.6 percent.
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From page 336... ...
The iron and steel bar manufacturers of England have had to contend with a great deal of dumping on both home and foreign markets...." Through the use of export bounties paid by the Stahlwerksverband (German steel cartel) , "German iron and steel goods have gained a foothold in the markets previously regarded as British preserves, and have materially affected British trade" (Federal Trade Commission, Cooperation in American Export Trade [Washington, D.C.: Federal Trade Commission, 1916]
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From page 337... ...
British "dumpers" generally could not do this; foreign markets were increasingly closed to their exports, and continuous running for purposes of serving only the home market tended simply to further depress prices in that market, without necessarily increasing sales volume.34 "Continuous running" had a particularly dramatic impact in capital-intensive industries with high fixed costs, that is, sunk costs incurred whether or not goods were actually produced. In such industries (steel, chemicals, machinery)
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From page 338... ...
may well have been overstated in the Report of the Tariff Commission, but there is no question that selling below average cost gave both German and American exporters a very real competitive advantage in world markets. The constant refrain of witnesses before the 1904 Tariff Commission was that British manufacturers were inhibited from pursuing a like policy because of 'the openness' of the home market, in which American, German, and Belgian manufacturers were malting growing inroads by 'unfairly' undercutting domestic producers.
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From page 339... ...
. 4iAlfred Chandler writes of the British iron and steel industry in the 1920s that it is "clear why the British steelmakers were unable to carry out the plans that all agreed were needed to modernize their industry and make it competitive in international markets.
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From page 340... ...
Webb, "Tariffs, Cartels, Technology and Growth in the German Steel Industry, 1879 to 1914" in Journal of Economic History, vol.
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From page 341... ...
Such is the ordinary position of the manufacturer under free trade. Compare it with the position of his protected rival, who controls his home markets.
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From page 342... ...
Thus, although dumped sugar may have weakened England's sugar refining industry, cheap imported sugar fostered new food processing industries jam, confectionery, biscuits, condensed milk that employed far more people than the sugar refining industry had ever utilized. British shipbuilders reported that they bought dumped German castings and forgings, "built them into ships and machines, and sent them back to Germany."5i Even within the British iron and steel industry 49Arthur James Balfour, Economic Notes on Insular Free Trade (London: Langmans, Green & Co., 1903)
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From page 343... ...
Many sheet mills would have had to have stopped in consequence of the high price of pig iron if it had not been for German steel, and it cannot be said that the late advent of German steel has done any harm, but that it has actually supplied a want.... Black sheet makers are helped very considerably by using German steel sheet bars, which are so cheap comparatively" (Ryland's [December 28, 1901 and December 13, 1902]
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From page 344... ...
The Germans found that under the new system, the purchasing power of the home market was increased because downstream firms could, in effect, buy semifinished materials for use in production for export at "dumping" prices and expand their export sales of finished products through 56Typically, following months of reports of widespread sales of low-priced German steel in various parts of the United Kingdom, Ryland's reported that "Germans are declining to quote owing to the improvement of their home market. The withdrawal of cheap German steel has caused home sheet makers some inconvenience [February 21, 1903]
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From page 345... ...
We are beginning to feel it already.60 National Security Implications British imperialists noted that dumping was destroying certain "primary" and "staple" industries and warned that foreign competition could weaken or eliminate industries that were essential to national security. The Free Traders ques 59Special Report of Consul General Lucius G
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From page 346... ...
Five days later, on August 9,1914,80,000 men of the British Expeditionary Force, representing virtually all of Bntain' s professional army that could be gathered in the home islands, began embarking for the continent, and within days its "tiny numbers were sucked inexorably into the military planning of the great continental powers."63 On August 13, 1914, the Germans began bombarding the forts defending Liege which had been expected to hold out for monthswith terrifying new weapons that the British did not know existed huge 420mm howitzers, the "Big Berthas" that had been developed secretly at the Krupp steelworks in Essen. Smashed to pieces by these guns, all of the forts fell within four days; the German armies passed through Liege and began a sweep across Belgium.
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From page 347... ...
. 65The British Expeditionary Force consisted of six regular infantry divisions and a cavalry division, which were augmented later by two divisions withdrawn from India.
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From page 348... ...
Indeed, Britain soon found itself under partial blockade as German U-boats began sinking the merchant ships that constituted the country's lifeline. But the most appalling surprise known to Britain's leaders but not the public was the sheer extent to which the country's industrial base had decayed.
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From page 349... ...
Over the next four years, the Bntish army paid dearly for this deficiency, which was never wholly made good; the shell shortage limited the army's ability to sustain offensive action, or, if an attack was made, greatly increased the cost to the attackers, since the German trench systems were seldom adequately softened up by prelim~nary artillery fire.72 On May 15, 1915, a Bntish offensive at Festubert was broken off because the Bntish forces had expended their ammunition along the entire front.73 In the fall of 1915, compelled to take the attack at Loos to relieve German pressure on their Russian allies, the Bntish assaulted the German trenches despite the fact that the shell shortage left them without adequate artillery support "all we wanted was ammunition." They suffered 60,000 casualties, making no appreciable dent in the German lines.74 In Britain the shell shortage fueled 70John Terraine, Douglas Haig: The Educated Soldier (London: Hutchinson & Co., 1963)
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From page 350... ...
the limiting factor."78 The Ministry of Munitions concluded at war's end that It was only the ability of the Allies to import shell and shell steel from America and iron ore from neutral Spain that averted the decisive victory of the enemy.79 The ammunition shortage was only one symptom of a broader problem, the inability of the nation's steel industry to produce the quantity and quality of steel needed by the nation's armed forces to fight the war. It was a "steel war," in the words of Sir Winston Churchill, the Minister of Munitions.
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From page 351... ...
Germany, the principal source of imported semifinished steel, was now the enemy; Belgium, another source of steel, was occupied, as were most of the iron ore fields of France. Bnta~n's allies, Italy and France, were utterly unable to meet their own steel needs and looked to Bnta~n to do so.
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From page 352... ...
During this interval, from early 1915 to late 1917, the British army launched repeated mass infantry offensives against the German trenches at the Somme (1916) and Passchendaele (1917)
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From page 353... ...
Until m~d-1917 Bntish steel manufacturers could not make adequate numbers of track links at the tensile strength required. As a result, the production of track links proved a limiting factor in the output of tanks and contributed considerably to the accumulation of arrears, since it was always some six months from the time of placing a contract before a new foundry could produce satisfactory links in considerable quantities.92 What might have been achieved, and the losses that could have been avoided, had tanks been employed en masse at an earlier date, was revealed when the first mass tank assault was undertaken by the Bntish at Cambra~ on November 20, 1917, in the last year of the war.
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From page 354... ...
The stagnation of investment by the British steelmakers in the years prior to the war, and indeed, through the war years themselves, reflected the demoralization that had set in as the British confronted a competitive dilemma for which they had no solution. While it is impossible to state with certainty that the qualitative problems revealed by the war, such as the difficulties in making track links for tanks, could have been resolved more readily by a larger and more robust steel industry, it is reasonable to assume that a bigger and a more vibrant industry would have grappled with such challenges more successfully.
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From page 355... ...
Although it was argued contemporaneously that dumping of industrial inputs such as steel enhanced the competitiveness of downstream industries that consumed these inputs, it was also noted at the time that the downstream industries themselves suffered from the erratic availability of dumped inputs, the growing dependency on their direct competitors for key inputs, and ultimately by dumping in their own downstream markets and it was not merely the steel industry, but British industry as a whole that had declined dramatically by 1914. Finally, unrestricted dumping surely gave rise to short-run benefits to consumers of dumped products, a fact that was recognized and played a major role in the electoral victory of the Free Traders in 1906.
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From page 356... ...
Jackson, "Dumping in International Trade: Its Meaning and Context," in John J Jackson and Edwin A
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From page 357... ...
Following the immediate postwar era a sort of high water mark for U.S. antitrust ideals some national competition laws were amended to permit the formation of cartels as industrial policy tools.
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From page 358... ...
i03In 1994 a gathering of antitrust officials from many OECD countries was presented with a detailed description of a vast web of cartels in flat-rolled steel products, linking the principal mills of the European Union, Japan, Korea, and a number of newly industrializing countries. These arrangements, conducted in a relatively open manner which was sometimes reported in the press, included agreed floor prices, division of world markets into spheres of influence, and delivery quotas into various markets.
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From page 359... ...
International Trade Commission, Professor Robert Willig of Pnnceton, concluded that so-called "strategic dumping," involving aggressive pricing of exports in combination with protection of the home markets of the exporter, "may, in the long run, harm consumers in the country that receives the exports," as well as domestic industries in those countnes. So-called predatory dumping (designed to drive competitors out of business)
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From page 360... ...
The Politics of Steel: Western Europe and the Steel Industry in the Crisis Years (1974-1984) (Berlin, Germany: De Gruyter, 1987)
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From page 361... ...
One of the centerpieces of Finger's book is the Swedish stainless steel industry. The author of this case study, which is entitled "Antidumping Attacks Responsible International Citizenship," portrays the Swedish specialty steel industry in glowing terms as "an industry following good economic principles" and that receives little support from "a government demonstrating good international citizenship."~° A series of U.S.
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From page 362... ...
Basically, Avesta was a signatory to a secret agreement signed in Dusseldorf on May 16, 1986, that divided up the European market for stainless steel sheet [meaning the EC and EFTA (European Free Trade Association) countries]
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From page 363... ...
Groupings such as the Sendzimir Club seek to stabilize prices in their home markets by creating an artificial constraint on supply. At the same time, they can maintain high operating rates, reduce unit costs, and enhance profitability as long as outlets exist in external markets where surpluses can be disposed of without disturbing the market order at home that is, they are dumped.
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From page 364... ...
In fact, experience has demonstrated that dumping can be, if anything, even more destructive in its impact. It has had a devastating effect in several technology-intensive sectors, notably consumer electronics, microelectronics, and telecommunications equipment.
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From page 365... ...
Although these restrictions were largely phased out in the early 1970s, an even more effective market barrier was the arrangements made by the Japanese producers themselves to restrict market penetration. Japanese consumer electronics retail outlets and service facilities were usually owned or controlled by large keiretsu-affiliated elec 120For a comprehensive account of the promotional measures employed by the Japanese government in consumer electronics, see Developing World Industry and Technology, Inc., Office of Technology Assessment, Sources of Japan's International Competitiveness in the Consumer Electronics Industry: An Examination of Selected Issues (Washington, D.C.: Office of Technology Assessment, 1980)
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From page 366... ...
244. i23Japanese consumer electronics retail outlets committed to provide a minimum of 80 percent of their floor space to their franchiser.
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From page 367... ...
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.
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From page 368... ...
in connection with the sale of large-scale display screens manufactured by Sony, Matsushita, and Mitsubishi.~33 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....
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From page 369... ...
, U.S. sales fell dramatically, in some cases resulting in a total loss of market.~39 In the early and m~d-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.~40 In the 1980s, Japanese companies repeatedly dumped DRAM and erasable programmable read-only i36See Semiconductor Industry Association, Creating Advantage (Santa Clara, Calif.: Semiconduc tor Industry Association, 1992)
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From page 370... ...
U.S. International Trade Commission, Washington, D.C.
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From page 371... ...
, 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.
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From page 372... ...
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.
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From page 373... ...
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.
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From page 374... ...
. Everyone, in principle, is for free and open trade; however free trade is not possible if ones partners' exporters are not trading fairly.
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From page 375... ...
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,"~54 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.~55 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.
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From page 376... ...
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.~57 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.
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From page 377... ...
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.
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