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Arvind Panagariya Having carried out 51 anti-dumping investigations between July and December 2001 alone, India now has the distinction of being the top user of this lethal weapon against foreign goods. With 35, 16 and 15 cases, the United States, Argentina and EU, respectively, rank distant second, third and fourth. For trade economists, the question “Should anti-dumping be dumped?” is a no-brainer. WTO members should jointly agree to outlaw the use of this self-destructive weapon. But should they fail to do so, countries should unilaterally discard it from their arsenals. When a country resorts to anti-dumping to promote the interests of narrowly defined producer interests, it inflicts a disproportionately large injury on the rest of its citizenry. The net effect on the country is positively harmful. Anti-dumping is economically defensible only if dumping is predatory, meaning that the offending firms sell the product below cost to drive other firms out of the market and then earn super-normal profits by raising the price to the monopoly level. But with so many potential sources of supply around the world in modern times, the probability of a small number of firms establishing the monopoly price is virtually zero. The Chinese firms selling bicycles in India must compete against firms from not merely India but also from Japan, EU, Korea, Thailand, Mexico and Brazil. Unfortunately, WTO rules do not subject dumping to this high standard for the purpose of sanctioning anti-dumping duties. Instead, they define dumping as selling at “less than fair value,” where “fair value” is often measured by the price charged by the firm in its domestic market. It is easy to show, however, that this definition suffers from a serious internal inconsistency. Thus, suppose US and European firms are selling identical tyres at identical prices in identical quantities in the Indian market. Since the impact of these imports on India is identical in all respects, it makes no sense to treat them differently. Yet, if the US firms happen to charge a higher price for the tyres sold in their domestic market than that in the Indian market while the European firms do not, the former will be charged with dumping but not the latter! Anti-dumping measures were accommodated as safety valves originally into the General Agreement on Tariffs and Trade (GATT) and subsequently into WTO to encourage member countries to liberalise tariffs and quotas. It was felt that in their absence, import-competing interests would simply block the liberalisation of these conventional measures of protection. The option of anti-dumping reassured the import-competing interests by offering temporary relief in case of import surges following liberalisation. This justification remains unpersuasive for two reasons, however. First, anti-dumping is a highly targeted and discriminatory instrument. To provide protection to domestic firms, it often targets the most efficient foreign suppliers. A less costly means of providing temporary relief is available through the conventional safeguards permitted under the GATT Article XIX and the Uruguay Round Agreement on Safeguard Measures. These measures, invoked recently by the United States to provide protection to the steel industry for a period of three years, are broadly non-discriminatory. Second, foreign firms can avoid anti-dumping duties if they sell goods at prices at least as high as those they charge in their own markets. This fact gives the firms an incentive to charge higher prices in its export market than otherwise and undermines the benefits of free trade. Many pro-free trade economists had hoped that the Doha Round would help tighten the rule on the use of anti-dumping. But with developing and developed countries both becoming heavy users of it, the constituency for this reform has shrunken considerably. In addition, the United States is simply opposed to a serious reform of this instrument. As a result, the negotiating mandate on anti-dumping rules in the Doha Ministerial Declaration has been worded such that it leaves little room for meaningful reform. Economic Times, Tuesday, May 7, 2002 |
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