Wednesday, August 1, 2012

Antidumping - good, bad or ugly?

Anti-dumping duties are a common tool used by both developed and developing countries to protect local industry from a surge in cheap imports. It is viewed as an inevitable policy choice in a free trade environment when countries tend to  protect their industries. What motivates the imposition of anti-dumping duties? Is it a protectionist weapon in the hands of countries that undermines free trade with reduced barriers? Should it be discouraged? Is it a word in the WTO lexicon that needs to be gradually shunned? Or is it a legitimate domestic policy choice for countries to protect their local industries from unfair imports? This post does not go into the rationale of antidumping or the relevant rules but discusses two commentaries on the use and misuse of antidumping in international trade.

Mark Wu argued in his detailed piece "Antidumping in Asia's Emerging Giants" that this tool will be increasingly used by China and India in the coming years.
"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."
Mark Wu essentially argued that the rules of antidumping need to be reformed with the U.S. and E.U. at the forefront so that it is not misused as a tool of "protectionism"' by developing economies. I had blogged about this article here with some questions.

More recently, Vox carried an interesting piece titled "Antidumping as cooperation" where two economists Chad P Bown and Meredith Crowley have argued that antidumping need not necessarily viewed negatively. They argue that it is sometimes a necessary component of a free trade regime which ensures imposition of a tariff above a county's bound rates. They aver that the underlying motivations for the use of the measure needs to be fully understood in order to strategize a stand at the WTO with respect to the antidumping rules. They conclude that understanding the motivations of the use of these measures will ensure that necessary rules can be crafted to ensure that the limits of these rules can be set properly set.
" If future research shows that trade volume shocks in sectors with relatively inelastic import demand and export supply are an important determinant of antidumping use for a large set of countries, the current WTO rules – which are not written so as to be sympathetic to economic logic – might be re-examined. Recognition that unexpected events in the turbulent global economy trigger tariff hikes might result in a more informed set of negotiations over what constitutes an appropriate versus inappropriate use of the exceptions to the liberal trade policy rules of the WTO. This could better inform the discussion about potential limits and boundaries to cooperation in the WTO system."
The multilateral trading system often faces the uncomfortable questions of impinging upon the sovereignty of national policy space. Critics in developing countries argue that it restricts domestic policy choices to protect legitimate national interest. Antidumping is an exception which provides this flexibility within trade rules to protect one's domestic interests. It is like a safety valve that can be used effectively within the contours of the multilateral agreement. To shun it would be to legitimize that view that multilateral rules do in effect restrict policy space. Developing countries are increasingly using the tool to protect their local industries. Whether the imposition is in consonance with multilateral trade rules depends on the facts and circumstances of each instance. An improper use of antidumping duties can be challenged at the DSM of the WTO. There is a need to balance the legitimate use antidumping has in world trade with the dangers of it's misuse. The above study probably would provide some answers to tread that line.

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