Wto Antidumping Agreement example essay topic

While antidumping doesn't get a lot of press, it is certainly one of the biggest issues that the WTO is dealing with today. During the recent WTO Ministerial Conference in Seattle, much was mage about protesters who were demanding higher environmental standards or international labor standards. Little was mentioned about antidumping. However, In the midst of the many demonstrators there were steel workers and members of other union organizations like the AFL-CIO who were there to defend US antidumping laws.

Antidumping regulation was a major issue for Seattle as it is for the organization of the WTO in general. From the inception of the WTO, there has been controversy over antidumping laws from diverse groups. Some countries feel that other countries place antidumping measures on products that have not really been dumped. Since the 1994 Uruguay Round, many developing nations feel that they have been unfairly targeted for antidumping penalties by the industrialized nations. Countries such as Japan and South Korea have also called for reforms.

The US, being the largest economy in the world tends to be on the receiving end of much of this controversy about its national antidumping laws. Adding to the confusion, not many cases brought to the WTO panels have been settled as of yet. There are many complaints about antidumping procedures, and some economic graphs can be used to demonstrate these complaints about antidumping and the WTO's antidumping laws. In 1995, the World Trade Organization was born out of the Uruguay Round of trade talks. The WTO has upwards of 123 member countries and new members are always in the process of joining. The WTO is an organization that basically a more formal extension of the GATT (General Agreement on Tariffs and Trade) which had existed for around 50 years.

However, the WTO agreements also cover trade issues not in the GATT agreement, such as trade in services and intellectual property rights. Also, WTO member countries must agree to all the obligations of its agreements. The WTO also features binding panel resolutions. Countries must accept the panel rulings; under GATT that was not necessarily true. Still, WTO embodies the same spirit as GATT. It favors trade liberalization and globalization over trade barriers.

In particular, one main objective of the WTO is to reduce trade restrictions, and one of the first agreements it reached was a general reduction in tariffs. (Schott, 1). For all of the WTO's promise to tear down of trade barriers, there is some concern that antidumping procedures are a covert way of hanging on to some of these practices. Since the WTO has come into existence, antidumping cases have flourished. Between January 1994 and July 1995 there were 238 new provisional or actual antidumping measures were enforced by 19 WTO members (Schott, 221). Most came from countries such as the United States, Australia, Canada and the countries of the European Union.

Under the WTO Antidumping Agreement, dumping is generally defined as selling a product in an export market at a lower price than the product is sold in the exporter's home country. It is also associated with selling the product at less than the marginal cost of production. This action is often called predatory pricing. The dumping company keeps its price so low that it drives its competition out of business so it gains monopoly power after a time. A company is able to do this in the long run because after a time it only has to cover its average variable cost, once it covers its overhead expenses. Antidumping is the practice where governments place tariffs or quotas or duties on imported goods that they believe are being dumping in their in order to prevent their domestic industries from collapsing due to the importer's unfair pricing.

Examples of goods that often affected by antidumping measures are steel, computer screens and supercomputers, and agriculture. If in fact a domestic industry is indeed having competing products being dumped in its country, it is possible that it could be injured. The lower price imports could decrease the amount of domestic products purchased, and domestic companies may not be able to lower their prices in order to compete with these imports. Thus, antidumping procedures may be prudent in these cases.

Antidumping can be a necessary measure for countries to enforce in certain cases. However, this paper focuses with the problems of antidumping. One particular issue is whether or not countries are using the valid methods (by the WTO's standards) to determine the presence of antidumping. Since this is such a controversial issue, this paper often examines the results if there are antidumping measures placed on products that are not actually being dumped or that do not severely harm domestic industries. It should be absolutely noted that this is not all there is to say about antidumping.

Rather, it describes some of the arguments against antidumping. The WTO has in place a very long and complicated set of agreements on antidumping. This agreement contains some new additions to the GATT's antidumping rules. The WTO contains more specific procedures about how antidumping investigations can be started and how they can be carried out. There are also more specific rules for calculating the dumping margin and determining injury.

There is a new sunset clause about how long antidumping duties can be in place. Plus, with the new panel dispute settlement mechanism in the WTO, new rules had to be formed to accommodate it (Consultations with Canadians). Some of the key pieces of the WTO agreement can be summed up as follows. First, an antidumping investigation cannot be started unless the companies that start the investigation make up more than 25 percent of total domestic production. The dumping margin is the difference between the "normal price" (or the fair price, usually comparable to the foreign company's home price) and the alleged dumped price. An investigation is not valid if the margin of dumping is determined to be less than 2 percent of export price.

The amount of dumped goods from a specific country cannot be less than 3 percent of the total imports, unless countries that make up than 3 percent combined account for more than 7 percent of imports. (Consultations with Canadians). Currency fluctuations are also be considered when calculating the true prices. A country must also prove that the dumping injures or threatens to injure domestic industries. The term injure has a very specific meaning... Injury means that there is an unfavorable effect on many different aspects of the industry, including (actual and potential declines in sales, profits, output, market share, productivity, return on investments, and capital utilization.

(K & S Law). There is also a new rule called the "sunset rule". This rule states that antidumping measures should be dropped after five years once they have been implemented. In order to reapply the antidumping measures a new investigation should be opened. As a result of the WTO's very complex rules on antidumping, there is some confusion as to when antidumping measures are justified. There have been many questions about whether countries are using the right methods in calculating the margin of dumping and price differences.

There is also suggestion that these rules need to be even more specific. It is very difficult in many cases to actually access whether on not a company is actually violating dumping laws. That company may simply have lower cost of production than its foreign counterparts. Even if the company sells its product at a lower price abroad than its does in its home market, it may not necessary be dumping. Factors such as differences in the cost of advertising and selling conditions at home may lead to the discrepancy. Also a wide variety of complex domestic taxes may also cause the domestic price to be higher than the foreign price.

As is the case in many developing nations, skewed market operations and corruption among buyers in the home country may also lead to an artificial inflation of the domestic price (Raghavan). In these cases, one can not simply just compare the face value of the prices in the two countries. The WTO does mandate that these factors be taken into consideration when determining whether or not dumping is occurring. However, many developing nations and some industrialized nations believe that the industrialized nations do not carry out this obligation in order to gain or keep the political favor of specific groups of voters. Legal experts in these first world nations unfairly pad the cases in favor of their domestic producers.

Also many countries, not just the developing nations, contend that the appropriate prices are not be used by [other] developed nations, especially by the US. According to some Japanese analysts, the US only uses a few selective (unrepresentative) price statistics of a few companies in determining the importers' domestic price. Then, they use this analysis to enact antidumping measures against firms from that country [Japan] in related industries. (Dumler) In possible cases of predatory dumping, other key facts to be looked in to relate to the structure of the industry worldwide and the number of firms competing in national markets., economist Christopher Dumler contends.

Most antidumping cases involve products and sectors with a considerable number of sellers, and therefore successful predatory pricing strategy is unlikely (Dumler). The steel industry has been a very hot topic in terms of antidumping measures. Historically, the steel industry has been among the major players in many of the US antidumping litigation. In the past few years, steel imports from Russia, Brazil, Japan, and a sprinkling of developing countries have increased by dramatic amounts- by more than 30 percent by late 1998.

The US Congress quickly opened up dumping investigations. In March 1999, the US House voted to allow quotas and tariffs on steel imports from various countries. In one case, the Congress to impose duties of over 100 percent on Japanese steel. The US government is also investigating India, Korea, Indonesia, and the Czech Republic and is also threatening antidumping measures. If the Japanese claim that they are simply more efficient is true, the losses produced by the US slapping on tariffs can be shown in the Ricardian trade model. By having the US produce more of a good that it does not have a comparative advantage in producing, it and Japan in general will less well-off.

Graph 1 and 2 demonstrate this, using steel and wheat as the two commodities. Japan has the comparative advantage in producing steel; the US has the comparative in wheat. If there is no trade, both countries ppf would be the solid lines in their respective graphs and they would produce at point A on indifference curve y 0. But if they specialized in the products they have the comparative advantage in, their ppf's will shift outward to the dotted lines. They will produce at point B and be on a higher indifference curve, y 1. Since they are not completely specialized they cannot obtain the indifference curve y 1; they will be on a curve in between the two.

The tariffs and quotas would actually hurt some US industries; the ones that consume steel. Since the US has mainly considered placing tariffs or countervailing duties on steel imports (which work much in the same way that tariffs do), Graph 3 shows the losses and gains for the US if it slaps a tariff on steel. Pw is the world price and domestic (US) price without the tariff. Once the US places a tariff on steel, the domestic price changes to Pd. Pf is the price of steel in the trading partners market so that the market clears. As the graph indicates, area a is the producer surplus and area c and area e are gained by the government tariff revenue.

But areas a, b, c, and d are the consumer surplus losses. While one might not think a lot about the consumer surplus loss, it can have a grave impact on the US economy. The automobile industry, construction industries, and the food packaging industries are all other large industries that consume a fair amount of steel. Thus, they would suffer from the increase in price. Griswold in his article "Industry Sets Steel Trap for US Economy" feels that domestic car buyers would be hurt by this increase in steel prices.

Also, he believes that an increase in steel prices would make it tougher for huge industries such as General Motors and Caterpillar to compete in world markets. Plus, as the graph indicates, the US as whole incurs a net loss of b and d. This loss may or may not be made up with the net gain of e, the terms of trade gain. While tariffs might benefit the steel industry, they hurt steel consuming industries.

They may or may not hurt the US in general. Although most developing countries believe that antidumping can be legitimate in many cases and would like to use them more for their benefit, they have been vocal about their beliefs that developed countries unfairly are targeting them for antidumping measures. Speaking of behalf of developing countries, trade representatives from Brazil stated in a WTO General Council meeting: "In the period 1987-1997, developing countries were responsible for only 31% of investigations opened. At the same time, they were affected by 62% of the investigations. This situation is even less acceptable given the concentration of measures in some specific sectors where developing countries have developed a competitive industry. One major trading partner [a reference to the USA], for example, in the last ten years, has opened 173 investigations in the steel sector, nearly half of all investigations opened by this Member" (Raghavan).

Thus, developing countries feel that developed countries are trying to keep the third world countries out of their markets. This could result in a stunt of economic growth for these developing countries, as they are unable to develop secure and stable long term industries. "The imposition or even the threat of imposition of AD duties has a serious adverse effect on the functioning of small and medium size firms, resulting in a fall in production, heavy unemployment and declines in incomes and increases in poverty levels". (Raghavan). To start the examination of a third world country's argument, Graph 4 shows the definite losses that a small trading partner suffers (like India or another developing nation) when an tariff is slapped on its exports. Steel is the specific example in this case, though it need not be.

Pw is the world price for steel; Pf is India's domestic price as a result of the tariff. The only gain for India is the consumer surplus gain of area 1. But that gain is more than negated with the producer surplus loss of areas 1, 2, 3, and 4. The net loss is 2, 3, and 4. Thus, India overall is definitely harmed.

The producer surplus loss is particularly troublesome, since many of these industries are just starting out. The local economy is more dependent upon their success. The Offer curves graph shows one major result of a large country slapping a tariff on a small trading partner (in the specific market) - a decline in the terms of trade for the small country. In graph 5, the US imports steel from India and exports food. Line A is the original international price line with equilibrium achieved at point A. When the US slaps a tariff on steel, its Offer curve shifts backward to the Offer curve with tariff. Line B in now the new price line with equilibrium at point B. The relative price pf / ps with a tariff is greater than pf / ps without the tariff.

Thus, the terms of trade for India have declined for India. And as Ricardian theory shows, a long term decline in the terms of trade with result in a long term decline in real wages. This could mean the developing countries could get poorer and poorer. The specific factor's model (graph 6) shows how this decline in the terms of trade leads to a decrease in the wages of all Indian workers. Labor is the mobile factor in this example. Capital is the specific factor for steel.

The original wage rate is w 0. But due to the decrease in the relative price in steel, the value of the marginal product of labor in the steel decreases to the dotted line. Thus the wage rate drops from W 0 to W 1. Less labor is used in the steel industry, resulting in less production. Graph 7 shows that both the returns to labor and capital have decreased. Graph 8 gives a more general picture.

In this specific factor's graph, capital is the mobile factor between industrialized nations and third world countries. As the third world countries relative prices decreases, there value of marginal product decreases (or is not as high as it would have been) as shown by a shift to the left to the dotted line. This movement shows that the developing countries are (relatively) losing capital to the industrialized nations. This leads right into graph 9. If the industrialized nations capital to labor ratio is at k as it would be in this possible case and the developing nations capital to labor ratio is a k, there can be no overlap in factor prices. This would mean that wages and rents in the developing nations could never be the same as in the industrialized world.

All these graphs show that there is real concern for third world nations if there is persistent antidumping measures taken against them by industrialized nations. The WTO has stated that in cases involving developing countries special attention should be paid to their economic situations when countries consider imposing antidumping provisions: " [ The WTO's agreement] also calls for ' constructive remedies' to be explored". (Raghavan) However, it is hard to say if this has ever been carried out. India feels that more specific rules should be made for developing nations: "Article 5.8 of the [WTO] AD agreement provides that the volume of "dumped" imports shall be normally regarded as negligible if the dumped imports from a country are less than 3%, unless countries individually accounting for less than 3% collectively account for more than 7%. In view of the liberalization of global trade, and of more and more developing countries entering untapped markets for them, these percentages should be increased to 7% and 15% respectively". (Raghavan).

For third world exporters, they have many handicaps when it comes to fighting anti-dumping cases. One, there is utter paucity of exact information on anti-dumping laws, procedures as per WTO and as practiced by various countries. Two, there are very few legal experts and advisors in this field who have mastered not only the most complicated laws but even the procedures, and also have understood the various complicated technical aspects of WTO and the anti-dumping laws, international trade. Antidumping measures hit small and medium size firms very hard, because they often don't have the resources to defend themselves. It is also too expense for firms to pay the astronomical sum of money needed to defend one's company in the complicated antidumping investigations. -estimated by the Indians to be around 100,000 dollars per investigation. One US legal form was 400 pages long.

(Rule). The recent trade round in Seattle has done little to change any antidumping laws. No amount of arm-twisting could get the US to agree to negotiate the WTO's antidumping laws. With the substantial political pressure from those in the steel industry and other labor unions, 228 U.S. members of the House and Senate have signed a document insisting that Clinton and U.S. Trade Representative Charlene Barshefsky defend existing anti-dumping laws at the WTO meeting in Seattle. The legislation has enough support to pass in the U.S. House of Representatives. Thus, US negotiators flat out refused to discuss any changes to the WTO current laws on antidumping.

However, many countries such as Japan and some developing nations tried to tie any discussions of trade involving the Internet, a very important topic for the US, to discussions involving the antidumping laws. The US still refused. The language from some in the Us government was very strong regarding the demands for talks about the antidumping laws, especially with regards to Japan. U.S. Under Secretary of Commerce for International Trade David Aaron told the WTO " If [Japanese and others] don't back down, then they " ll? sabotage the Seattle round? We " re just not going to do [negotiate on antidumping]. We can't do it. We won't do it" (Reuters).

Chile, representing a small developing country, issued their statement about the problem with antidumping laws, a view similar to that of Japan's: "The aim is to remedy a situation in which anti-dumping measures have in most cases become a projectionist instrument that has nothing to do with anti-competitive behavior" (Schwartz). Among other issues the antidumping controversy may have helped in the futility of the conference and Seattle. Although it was reported that some nations had put antidumping on the preliminary agenda for the next round of trade talks, of course, no finalized agenda was ever approved. So, to date nothing has been done to change or clarify the WTO's antidumping laws. Moreover there have been few cases on antidumping that the WTO has ruled upon. Japan has filed complaints about antidumping measures placed on its cameras and supercomputers, but the WTO has yet to settle the disputes.

Also, South Korea recently filed a complaint with the WTO about Us antidumping tariffs against its flat computer screens, invoking the sunset rule that more than five years had elapsed since the US put on the restrictions. The WTO has yet to rule in that case either. Overall, it seems as if the WTO antidumping agreements need some refinement. There is still much confusion as to whether countries are actually using its standards or not in their dumping investigations.

There are many theoretical problems with some antidumping procedures. Allegations of unfair investigations abound. The WTO's Antidumping Agreement was made to be very complex to help to deal with these problems, it may be too opaque to be able to determine the validity of some antidumping measures. As the main part of this paper explores, the consequences of unnecessary or mistaken antidumping measures can be grave for both the exporting and importing countries. Tariffs and countervailing duties can hurt the domestic countries consumers and can have large negative effects on the small trading partners. This is especially problematic for developing countries that need access to industrialized markets to ensure they can obtain a basis for long-term economic stability and growth and clime out of poverty.

The industrialized nations should want this to occur so they don't have to perpetually give handouts to these developing nations. Of course, in order give a lengthy description of one aspect that is not necessarily popular in the United States of antidumping, this paper restricted its examination to only half of the antidumping story; there are many arguments for the antidumping laws that are currently on the books. No one is suggesting that the US or any other industrialized nation let its industries be unfairly put out of business, if that is truly the case at hand. Still, as the Seattle Round demonstrates, the WTO's antidumping laws seem to have satisfied to few countries. Given the spirit of its trade barrier reduction goals, the WTO should make sure it gets its antidumping rules right. "Consultations on FTAA and WTO Negotiations".

4 Oct. 99. Dumler, Christopher M. "Anti-dumping Laws Trash Supercomputer Competition". Cato Briefing Papers. 14 Oct. 1997. web. Griswold, Daniel T. "Industry Sets Steel Trap for U.S. Economy". Cato Center for Trade Policy Studies Articles.

23 October 1998. web / steel. html. Hindley, Brian and Patrick A. Messer lin. 29 Nov. 1999. web. "Japan Wants New Trade Talk". Reuters.

29 Oct. 1999. web. K & S Law. "Combating Injurious Imports". 29 Nov. 1999... Raghavan, Chakravarthi. "Call for Revision of Anti-dumping, Subsidy Rules".

Third World Network. web.