by Nilanjan Banik

Jointly released by Liberty Institute and the Rajiv Gandhi Institute for Contemporary Studies

Executive Summary

The paper provides a brief overview of antidumping measures, especially their use as a non-tariff barrier (NTB) to trade. Although initially codified to stop predatory pricing, the antidumping agreement lost sight of this objective. Now, it is used essentially to safeguard interests of domestic industry.

Anti-dumping duties are primarily sought by industries that enjoy near monopoly conditions in the domestic market. Of the 64 cases on which final antidumping duties were imposed, the petitioner is a single party in 40 cases.

The principal reason antidumping duties are imposed is lobbying by industries seeking protection. Other factors, especially macroeconomic ones, lend weight to these lobbying efforts. For instance, in times of recession, industry associations will augment their arguments by claiming that jobs will be protected if antidumping duties are imposed. (The jobs of those who benefit from lower cost imports are given less weight by government officials because they are typically more widely distributed.)

With antidumping duties typically amounting to between 70 and 120 percent of the import price, and with alternative means of imposing restrictions on trade extremely limited in a period of trade liberalisation, it is hardly surprising that antidumping measures are becoming an increasingly popular means of protecting domestic industries.

However, the use of antidumping duties as a protectionist measure is not beneficial to society. While Indian producers of import substitutes tend to benefit from antidumping actions, consumers and others lose. Exporters, in particular, tend to lose because of the higher costs of intermediate goods on which antidumping duties are imposed. Most of the products on which antidumping duties are imposed by the Indian antidumping authorities are intermediate inputs used in the manufacture of goods for exports. Total loses exceed total gains and the number of losers far exceeds the number of beneficiaries.

The study shows that the price of items subject to antidumping duties have risen at a higher rate than other items. Between 1995-96 and 1999-2000, the average rise in the price of manufactured goods (excluding steel) was 4.11 percent. By comparison, over the same period prices of goods subject to antidumping have risen much faster: chemicals prices rose 5.8 percent, steel prices rose 3.98 percent, the prices of basic chemicals and pharmaceuticals rose 9.4 percent, and consumer goods prices rose 7.94 percent. Antidumping duties have clearly contributed to the faster increase in prices for these items and thereby harmed both manufacturers and consumers.

Aside from India, the country most affected by Indian antidumping actions is China. The study shows that the reason prices of many Chinese items are lower than their Indian equivalents is the higher efficiency achieved by firms in China, mostly because of much larger scale operations, and not because of a desire to "dump" goods in India. However, the non-market status of the Chinese economy has helped the Indian dumping authorities to clamp more antidumping duties against their items.

Such "irrational" imposition of antidumping duties is also prevalent in other countries. An US International Trade Commission (ITC) study published in 1995 found that antidumping and countervailing duty protection cost the US economy $1.59 billion in lost GDP. Moreover, the study concluded that when antidumping and countervailing duties are imposed on imports, the prices of those products and their domestically produced counterparts increase. As a result, the US consumer has to pay more for all these goods, regardless of whether they are imported or produced in the US.

On the other hand, there are many positive factors paving the way for free and fair trade. Competitive pricing, besides being a boon for consumers, can also be a boon for producers. Competition stimulates investment in research and development and leads to the production of higher value added goods and services. Hence, firms gain in the long run. Whilst there are of course instances of firms failing as a result of increased competition, that nevertheless helps drive more efficient deployment of capital. Overall the welfare of society as a whole is improved by competition and harmed by the irrational imposition of antidumping duties.

Many countries are currently abusing the antidumping clause in order to protect inefficient local industries. However, the blame for this must be placed on the Anti-dumping Agreement itself, which contains many loopholes. It does not take into account problems arising from: currency fluctuations, trade in perishable products, construction of the "normal" value, and (perhaps most importantly) differential pricing by producers.

The irrational imposition of antidumping distorts trade. Since the WTO generally endeavours to do away with trade distortions, it must get its act together on this front. The best option lies in scrapping the domestic antidumping laws and disbanding the domestic anti-dumping directorate, so that there is no incentive for vested interests to try to manipulate these regulations. At the same time there is a need to modify and strengthen the WTO so that affected parties can file complaints against those countries that continue to impose anti-dumping duties to protect their own manufacturers.