Do anti-dumping measures deserve to be dumped?

By Shardul Thacker, Mulla & Mulla & Craigie Blunt & Caroe
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When the world’s largest home appliance maker makes a noise, the US International Trade Commission (ITC) is bound to sit up and take notice! The anti-dumping and anti-subsidy petitions filed by Whirlpool have opened a fresh can of worms as the ITC unanimously ruled that Samsung, LG, Daewoo and Electrolux practised “unlawful pricing” for clothes washers originating from South Korea and Mexico.

Shardul Thacker
Shardul Thacker

The ITC’s final ruling, which came in response to petitions filed by Whirlpool in December 2011 on behalf of the US appliance industry, will result in the US Customs imposing import tariffs ranging from 11% to 151% on foreign manufacturers’ products.

Japan, China and India have been following in the footsteps of the US. As members of the World Trade Organization (WTO), they can unilaterally adopt anti-dumping measures, in accordance with the provisions of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade (GATT) 1994, called the Anti-dumping Agreement (AD Agreement).

Terms of the agreement

The basic principle of the AD Agreement is that a WTO member should not impose an anti-dumping measure unless it determines after an investigation that there are dumped imports, material injury to a domestic industry and a causal link between the dumped imports and the injury.

Under the agreement, a product is dumped when the price of the product in the country of import is less than the price of a like product in the “ordinary course of trade” in the country of origin or export. Material injury includes threat of material injury or material retardation of the establishment of a domestic industry. The determination of injury must be through an objective examination, based on positive evidence of the volume and price effects of dumped imports on the domestic industry.

Generally an anti-dumping action means charging extra duty to bring the value of the imported product closer to the value prevailing in its “home market” or to check the injury being caused to the domestic industry in the importing country as a result of dumping. Thus the AD Agreement allows the members to act contrary to the GATT principles of binding tariff and not discriminating between trading partners.

Disputes escalate

Lately, the anti-dumping disputes between the member countries of the WTO have escalated. Japan on 20 December 2012 moved the Dispute Settlement Board of the WTO claiming that Chinese anti-dumping duties on the import of high-performance stainless steel seamless tubes from Japan violate the AD Agreement and Article VI of GATT. China has also warned that it will impose anti-dumping duties ranging from 9.3% to 18.8% on US and EU chemical manufacturing companies producing ethylene glycol monobutyl ether and diethylene glycol monobutyl ether for hurting the Chinese industries.

India has also witnessed a rapid increase in anti-dumping disputes. The number currently stands at 188, according to the Indian Ministry of Commerce. Anti-dumping proceedings in India are initiated by the authorities only on an application by domestic producers that collectively account for more than 25% of the total domestic production of the like article. The application is deemed to have been made by the domestic industry if it is supported by domestic producers whose collective output constitutes more than 50% of the total production of the like article. The anti-dumping duties remain in force for five years unless revoked.

India recently started probing allegations that suppliers of solar cells from the US, China, Taiwan and Malaysia are selling their products below cost.

Wrong in principle?

Economists and scholars criticize the theoretical underpinnings of anti-dumping actions. They say that the basic premise of prohibiting price differentiation is irrational as price differentiation is one of the fundamental concepts of free trade. Another common criticism is that anti-dumping measures protect producers at the expense of consumers, which results in higher prices, lower quality products and fewer choices for the consumers.

Anti-dumping measures also distort international trade by provoking disputes between trading partners. For instance, the US has imposed an additional duty on Chinese solar cell imports and the EU is investigating whether the Chinese are selling cells and panels at a loss, while China has started a probe to determine whether the US, EU and South Korea have dumped polysilicon, a material used in the panels.

The greatest adverse effect of these actions is on competition in the market. Competition law aims to promote competition by attaching sanctions to price discrimination which adversely affects competition. Anti-dumping law ignores competition concerns. Its stated goal is to protect “domestic industry” but it ends up protecting producers against their competitors.

Shardul Thacker is a partner at Mulla & Mulla & Craigie Blunt & Caroe in Mumbai.

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