Tuesday, April 10, 2012

India, China and Antidumping - A few thoughts

The Harvard International Law Journal recently had an incisive and scholarly piece titled 'Antidumping in Asia's Emerging Giants"  on the antidumping measures adopted by China and India. In this article Mark Wu explains that the increasing adoption of antidumping measures by China and India was a sign of "protectionism" and the U.S and EU should consider spearheading the reform of antidumping law within the WTO.
"Therefore, if we are to reform the international law on antidumping, now is the time to do so. The United States and EU are understandably reluctant, as the existing antidumping rules work to their producers’ advantage today. But this study cautions that, without reforms, this will unlikely be true in the long-run as India and China expand their use of antidumping sanctions against the United States and EU. Instead of being myopically focused on near-term interests, as Congress has been, U.S. policymakers need to recognize that U.S. long-term interests are best served by a less-permissive international legal standard governing the imposition of antidumping sanctions. Moreover, from a negotiating standpoint, it makes sense to seek reforms now. While the rules are perceived to be to their advantage, the United States and EU can extract concessions in other areas in return for agreeing to reforms. And in negotiating from a position of strength, the United States and EU will be better able to dictate the outcome of the reform proposals.

The case for reform becomes even more convincing once one considers national welfare, more fully defined, as well as general global welfare. Antidumping, as an economically-inefficient instrument, is not welfare-maximizing, either at the national or global level. On the domestic front, public choice theory explains why antidumping trade policy has been captured by producers. But if consumer welfare is brought back into the picture, then enacting reforms that further restrict countries’ ability to levy antidumping sanctions becomes a welfare-enhancing move, even today, when the existing standard works to U.S. producers’ advantage. From a global standpoint, antidumping duties trigger welfare-distorting effects that are often most harmful to developing countries. Frequently, the sanctions result in not only overall welfare loss, but welfare transfers from producers in developing countries to those in developed countries. Even countries not directly targeted are affected by trade-distortion effects. Reforms serve to minimize such distortions, increase global welfare, and increase distributive justice."
Making a detailed analysis of antidumping measures adopted by China and India, Mark Wu indicates that there is cause for concern in the use of these measures and an urgent need of reform in rules of trade concerning antidumping.
"In shaping the international law on antidumping, the United States and EU embraced a permissive legal standard, divorced from economic theory, which legitimized their own protectionist use of antidumping laws. Until recently, that standard served their industries well, albeit often at the expense of consumers. The rules legitimized their efforts to protect domestic industries from increased foreign competition when there was not necessarily an economic basis for doing so. However, others have learned to play this harmful game. Over the course of a decade, China and India—two longstanding targets of antidumping sanctions—have rapidly emerged as antidumping powerhouses. These two countries are now the source of more antidumping cases than the United States and EU combined. To date, the United States and EU have not treated this shift as cause for alarm. I suggest that this is a mistake. True, there may not be an immediate cause for concern. India and China are playing within the bounds of international law, and the current global antidumping rules continue to work in favor of American and European producers. But there is reason to believe that, contrary to the prevailing view, India and China’s use of antidumping measures will continue to grow and outpace the United States and EU’s use in the years ahead.
Scholars and policymakers have assumed that India and China’s recent rising use is a fleeting anomaly, triggered by historic tariff cuts and a need to retaliate against other countries that are targeting them. In fact, this is not fully correct. Many industries in India and China have yet to discover the utility of antidumping laws. China has not yet fully embraced a strategy of using antidumping sanctions as a retaliatory instrument. And retaliation does not explain why India continues to use antidumping sanctions aggressively, even after others have ratcheted down their use of antidumping sanctions against India. These signs suggest that India and China’s use of antidumping sanctions as a protectionist instrument will not level off in the years to come. Instead, as their domestic markets grow, American and European exporters will likely incur larger costs from antidumping duties imposed by India and China. 
For the United States and EU, if the current rules remain unchanged, then one day in the not-too-distant future, the net advantage that they currently enjoy will disappear. Therefore, while India and China still remain supportive of the notion of antidumping reform, the United States and EU should work to reshape the rules governing the imposition of antidumping sanctions. Rather than blocking reform efforts, as they have done, the United States and EU should be actively championing proposals in the Doha Round negotiations that will make it more difficult to enact antidumping duties for protectionist purposes. In other words, the United States and EU should be dismantling the permissive legal standard that they helped put in place. If they do not, they risk the danger that the standard will soon come to serve other countries’ protectionist interests more than their own."
Opinio Juris carried a response from Scott Kennedy on this piece as well as a rebuttal from Mark Wu.

I am not an expert in international law nor antidumping jurisprudence. However, several questions come to my mind:

1. Is the use of antidumping measures perse "protectionist" if they are within the limits of WTO law? Is not the legitimate use of antidumping measures within international law? Is the legal utilisation of antidumping rules in the WTO a "protectionist" tool?

2. While the western world has earlier extensively used antidumping measures to protect domestic industry, is it illegal or unethical now for the developing world to do so? Is protecting one's domestic interest (albeit producer's interest) as per permissible multilateral rules being "protectionist"?

3. Is it not legitimate to use trade rules within permissible boundaries to ensure domestic interests are protected? Why is there a need for reform when developing countries begin to understand and use the system while the rules are "fair" when the developed world uses it?

4. As long as India and China are playing by the rules of the game, should it not be perfectly legal to use these measures? After all the WTO Agreements permit such actions. This is not to suggest that the developing world never misuses antidumping measures to unfairly protect its domestic industry. However, does this justify the rethink to the rules themselves?

5. While there may be an economic rationale against the use of antidumping measures or the methodology involved in coming to a conclusion about dumping, should this be a ground for challenging the rules only when the developing world begins using the measures?

6. Reform of the rules may be a requirement. However, is it justified to attribute the need for reform to the extensive use of antidumping measures by the developing world?

7. While the developed world has used the same standards in the past why is it alarming now when the same standards are being used by the developing world. Are international trade rules only for the developed world to further their national interest?

8. I had earlier blogged about Alvaros Santos' article on domestic policy autonomy and the developing countries exercising their rights within the WTO. Does the reliance on antidumping within the limits of WTO rules signify the legitimate use of domestic policy space by India and China? is it not effective use of legal strategy to meet "developement goals"?

Seeking answers.

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