EVENTS

Date:	Monday, October 27, 2003
Time:	9:00 AM -- 12:00 PM
Location:	Wohlstetter Conference Center, Twelfth Floor, AEI 1150 Seventeenth Street, N.W., Washington, D.C. 20036

October 2003
Saving Free Trade: The Case against Antidumping

On October 27, an AEI examined the economics of antidumping decision procedures and antidumping remedies. Topics included the impact of U.S. restrictions on U.S. users of imports, the increasing use of such actions against U.S. exports, reforms that might be made unilaterally as well as through bilateral or multilateral negotiations. AEI’s J. Michael Finger provided an introduction, the first panel" Identifying the Problem," included AEI’s Claude E. Barfield; Aluisio G. De Lima-Campos, Embassy of Brazil; and William Lane, Caterpillar. The second panel addressed solutions and included Rubens Barbosa, Embassy of Brazil; Gary Horlick, Wilmer, Cutler & Pickering; and Brink Lindsey, CATO Institute.

J. Michael Finger
AEI

Our focus in this seminar is trade policy as a domestic issue. The popular rhetoric of import policy draws attention to the harm done to domestic producers by import competition, investigation procedures (e.g., safeguard or antidumping investigations) through which the government decides if import protection will be provided make this rhetoric operational and official. These procedures identify and give voice to the interests in the U.S. economy that benefit from import protection; they ignore those interests in the U.S. economy that bear the costs. In so doing they encourage the false impression that U.S. trade protection is about defending U.S. interests against foreign.

The purpose of this seminar is to bring out the other side of the domestic economics of import protection. U.S. exporters are one other relevant group. The international sanction that U.S. protection seekers have crafted for themselves through the elaboration of WTO codes on antidumping and safeguards encourage as well as sanction increasing foreign actions against U.S. exporters.

Another relevant interest, U.S. import buyers, are in large part producers/employers who use imports as inputs into further production. They do not buy imports in order to lose money; cheaper and an increased variety of inputs allow them to expand their capacity, increase the employment they offer. To evaluate the impact of trade on the national economic interest, one must measure their gains against the burden import competition imposes on competing domestic producers. Economic science acknowledges that competition from imports--as competition from any source--will discipline those who must compete. The gains-from-trade, a part of economic science for several centuries, does not ignore that import competition will be a burden to some. The gains-from-trade is about the benefits from trade to some domestic interests being larger than the costs to others.

Our speakers will identify the costs to the U.S. economy of U.S. import protection; they will report recent estimates of the magnitude of these costs. They will also suggest reforms so that our policy procedures would provide a more balanced evaluation of the impact of protection on the U.S. economy; our policies reflect a fairer weighing of the interests of all parties in the U.S. economy.

Panel I

Aluisio Lima Campos
Embassy of Brazil

Companies in Brazil who export to the United States often ask the following questions:

• What happens to my exports if I am targeted in an antidumping or countervailing duty investigation?
• Will the company lose export sales even if it wins the case, i.e., do export losses cease at the end of the case?
• If the company loses, how much will the losses be?

To answer these questions we examined the history of Brazilian exports to the U.S. that were subject to antidumping or countervailing duty cases over the period 1989-2002. There were 33 such cases involving 21 products.

Our major findings were the following:

In cases that ended with a negative preliminary determination (2 products), U.S. imports over the short period in which the investigation occurred, approximately two months, fell by 11 percent or $638 thousand. In the same two-month period one year later, U.S. imports of these products from Brazil returned to their level of one year before the investigation.

In cases ending with a negative final determination (6 products), U.S. imports over the period of investigation, of approximately one year, fell by 65 percent or $205 million. In the year following the determination, U.S. imports of these products from Brazil returned to their pre-investigation level.

In cases ending with an affirmative final determination and where restrictions were imposed (13 products), imports over the period of investigation fell by 59 percent or $221 million. Following the affirmative determination imports that came under restriction fell to 5 percent of their initial level, a loss of about $350 million per year.

Filing petitions for investigation is good business for companies that compete with imports. The opening of an investigation creates uncertainty in the mind of buyers; they begin immediately to shift their purchases under threat that an antidumping or countervailing duty will be imposed on their purchases when they are delivered. Even when the preliminary determination is negative, imports are significantly reduced over the period of investigation. An investigation that extends to a final determination, even if it ends with a negative determination, has the effect of reducing imports by 65 percent over the year or more the investigation is in progress. This, plus the fact that 13 of 21 products suffered affirmative determinations that nearly eliminated imports suggest that filing an antidumping or countervailing duty petition, regardless of its merits, is good business for the petitioner.

William Lane
Caterpillar

Antidumping procedures take normal commercial activities; litigate them through a maze of bureaucratic pseudo-legal process until the process takes on a meaning of its own. The underlying commercial realities no longer are of consequence. Caterpillar is one of the country’s largest exporters; quite often we sell below the U.S. "normal value." The reality of the marketplace is that we have to adjust to the intensity of the competition for each tender. Sometimes the realities of competition demand that we be satisfied that a sale-domestic or international-cover our variable costs and little more. (Some allege that dumping means selling below marginal cost but this is not the case; not in our business practice, not in what an antidumping investigation must identify in order to reach an affirmative determination.)

There is considerable room to make modest reforms in the antidumping code so that it will better discipline truly unfair behavior. As the world moves to a freer trade regime, antidumping laws need to reflect that change. If you are competing with someone in a protected home market, they have an ability to charge high prices at home and cross-subsidize their exports. Antidumping measures are required to prevent that from happening. Location, distance, and lack of infrastructure will always be barriers. Free trade agreements should reflect this new environment in their antidumping statutes. The U.S. has recently completed outstanding free trade agreements with Chile and with Singapore, but these agreements do not address the needed reform of antidumping. There is discussion now that the Free Trade Agreement of the Americas (FTAA) might leave some of the more contentious issues-particularly antidumping-to the WTO negotiations. We need to see the developing world start benefiting not through an array of free trade agreements, but with a comprehensive agreement that addresses its problems. Current difficulties with antidumping will only increase in the future.

Claude E. Barfield
AEI

To deal; with the increasing costly use of antidumping, is important to get back to fundamentals, to remind the public and politicians of the political and economic irrationality of the current antidumping system. There are three essential points here. First, we must continue to challenge the assertion put forward again and again that you can substitute competition policy laws with antidumping. Second, we need a public interest test that will bring forward those U.S. interests now excluded from the process; even politicizing the issue as was done in the safeguard debate. Finally, we should substitute safeguards for antidumping.

The defenders of antidumping laws insist that if antidumping laws are eliminated in favor of competition policies, fundamental problems with forms of competition that compromise the public interest would not be addressed. This is simply not true. The Clinton administration, in an expanded defense of dumping submitted to the WTO, argued that dumping occurs from artificial advantages created by market distorting industrial policies and/or differences in national economic systems. The focus of this argument is on adjudicating foreign versus domestic business conditions or behavior. This is an attention-getting approach, but instead of framing the key issue it diverts attention from it. The key issue is which interests in the U.S. economy will benefit and which will be harmed by the proposed government action. The relevant "leveling of the playing field" is between those U.S. interests who now have voice in the U.S. decision process and those U.S. interests who do not.

It is time to push for a public interest test. The model, with all of its faults, could be similar to the model we already have for safeguards. The President ultimately makes the safeguard decision. It ends up a highly political decision, but in the free-for-all of the political process all U.S. parties can weigh in, defend their interests, push their positions. We would have a better system if in antidumping cases the President were likewise charged to make the final decision, had to bear the political responsibility for that decision. Moving the antidumping decision to a sub-cabinet official who does not receive direct political scrutiny, the evolution of the trade remedy system toward antidumping and away from safeguards has not served the national economic interest of the United States. We would be better off if we moved from a regime of "technical" antidumping investigations to "political" safeguard decisions.

Panel II

Brink Lindsey
CATO

Antidumping cases are contentious, in large part because an antidumping investigation brings with it the accusation of unfairness on the part of foreign exporters. About half of the disputes before the WTO’s dispute settlement body concern antidumping cases and because of the animosity antidumping cases engender they take up a disproportionate amount of time in the dispute settlement mechanism.

Antidumping thrives because it has appealing rhetoric-words like "fair trade" and "level playing field." Meanwhile, the technical complexities of the laws prohibit all but a select few from understanding the reality of the situation, that reality being far different from what the rhetoric suggests. The key to improving the situation is education, to make clear what is actually happening, to inform the public of what the complexities of an investigation serve to hide.

The leading defense of antidumping offered by protection seekers in the United States is that antidumping is needed to level the playing field, to offset artificial advantages created by market distorting practices abroad. There is no requirement however in antidumping law to show evidence that those market-distorting practices are occurring. Antidumping is flawed at two different levels: (1) current investigation procedures do a poor job of identifying price discrimination and sales below cost, the pricing patterns that the law supposedly targets; (2) the law makes no effort to determine whether those pricing patterns reflect underlying market distortions or are simply due to normal, healthy competition.

The first step in the needed education program is to publicize that antidumping is not doing the job that its rhetoric suggests-the job that its rhetoric contends would justify the intervention of the U.S. government in the marketplace. The point is not however likely to influence the law’s strongest supporters, including the U.S. steel industry. Their objective is not to evaluate foreign competition; it is to eliminate it.

In Congress, a few members aggressively support maintaining the antidumping status quo. Many members have no particular attachment to the law, but at the same time any particular motivation to change it. The second step therefore is to mobilize reform constituencies-import users directly victimized, U.S. exporters hit by antidumping actions abroad. This is everybody’s fight, and there are politically muscular interests in the U.S. that can make a difference in trade policy by pushing the administration and Congress to make changes in the law.

Rubens Barbosa
Embassy of Brazil

When the Uruguay Round antidumping agreement was completed many governments were optimistic that it would provide a useful instrument to discipline unfair trade practices and thereby help to generate support free trade throughout the world. Most WTO Members, the government of Brazil among them, recognize the need for such mechanisms.

It is unfortunate that in the years since the agreement has been in place many shortcomings have become evident. In the year 2002, 24 countries initiated 348 antidumping investigations on over 139 products. Brazilian exporters in that year were confronted with 44 new safeguard and antidumping investigations, 18 from the United States. On the other side of the ledger, since the Uruguay Round agreement has been in place, developing countries have initiated more antidumping investigations that developed countries.

The widespread use of antidumping demonstrates that the agreement leaves too much discretion in the interpretation of when action can be taken. The government of Brazil supports the Doha Declaration on revision of antidumping rules. The Declaration states that negotiations should aim to clarify and to improve disciplines while preserving the basic concepts of the agreement and the effectiveness of its instruments. The chairman of the WTO negotiations on rules has submitted a letter that lists 170 provisions of the agreement where Members are seeking changes. So far, the United States and Canada have been among those Members most reluctant to begin serious negotiations.

Antidumping is a crucial issue in the negotiation of the Free Trade Agreement of the Americas as well as in the WTO negotiations. The United States government has however refused to take up antidumping in the FTAA negotiations, preferring to leave the issue (along with subsidies) to the WTO negotiations. This creates a problem of timing. Some parties to the FTAA negotiations do not believe a comprehensive FTAA agreement can be reached until progress is made on disciplines for antidumping. Given the slow pace of WTO negotiations on the issue, it is not likely that the timetable for the FTAA negotiations can be maintained.

In whatever forum, solutions must be found. Ways can be found to fix the ambiguities and clarify the gray areas in the antidumping agreement, to introduce more transparence into the investigation process. Otherwise antidumping will continue to be used as a protectionist tool, by and against developed countries, by and against developing countries.

Gary Horlick
Wilmer Cutler & Pickering

My comments address the effects on U.S. exporters of antidumping actions abroad. My particular point is that the U.S. government administers the antidumping law in such a way that a foreign exporter gets a better deal in the U.S. than a U.S. exporter gets in foreign countries.

This can be seen from the sequence of steps in an anti-dumping investigation. First, it takes an affirmative administrative determination of both dumping and injury caused by the effects of dumping to win protection. While the Commerce Department in the U.S. almost always finds that imports are dumped, the U.S. International Trade Commission in its injury determinations has displayed considerable independence from prevailing politics. By contrast, in most foreign countries a finance or trade minister makes both determinations, persons much closer to politics than the members of the USITC have demonstrated themselves to be.

Second, the widespread and correct perception is that when a U.S. decision to apply antidumping duties is appealed to U.S. courts, the foreign exporter receives the same procedural and substantive fairness as the U.S. petitioner. By contrast, overseas the tendency of judicial or administrative review is to defer much more than in the U.S. to the minister ' s position. The result is that foreign exporters frequently appeal U.S. antidumping actions to the U.S. courts, but U.S. exporters hardly ever appeal to foreign governments for the administrative or judicial review that the WTO requires. Consequently, one would expect the USTR to favor taking cases against U.S. exporters to the WTO cases since it is the only place U.S. exporters get a non-political decision or non-deferential judge; in fact, for political and bureaucratic reasons, the USTR strongly opposes such. In effect, the USTR has frequently sacrificed U.S. exporters, normally agricultural, in order to maintain its ability to protect U.S. steel producers by petitioner-friendly antidumping rules. In an antidumping case in South Africa against U.S. chicken meat for example, the U.S. refused to bring a case even though the U.S. was barred (for legal reasons) from ever doing what South Africa had done, because the panel might say something that would affect what we do. In the only case brought to a panel by USTR (HFCS, only after a 96-0 vote in the U.S. Senate urging such a case) the U.S. so obviously refused to make the best argument (on like product, even though the U.S. had never done what Mexico had done) that the panel footnoted the U.S. omission.

In order to strengthen the hand of U.S. exporters hit by antidumping actions in other countries substantive changes in WTO rules are needed. USTR should make sure that it should be more difficult to initiate cases; there should be higher standards for the evidence on which a determination can be based. Moreover, national initiations of antidumping investigations should be made subject to immediate challenge at the WTO by the exporting country government, and the investigation should be suspended while the WTO makes a fast track decision as to whether the requirements for initiation were met. Under current practice, the initiation itself serves to deter imports. Even if the end result is a negative national determination or decision in the WTO dispute settlement mechanism that the national case did not meet the demands of the WTO rules, the U.S. exporter will have lost a significant share of the market because of the uncertainty that the investigation produced.