The Mounting Costs of Antidumping Laws: Time for Action?

Alden Abbott —  23 May 2016

In a 2015 Heritage Foundation Backgrounder, I argued for a reform of the United States antidumping (AD) law, which allows for the imposition of additional tariffs on “unfairly” low-priced imports.  Although the original justification for American AD law was to prevent anticompetitive predation by foreign producers, I explained that the law as currently designed and applied instead diminishes competition in American industries affected by AD tariffs and reduces economic welfare.  I argued that modification of U.S. AD law to incorporate an antitrust predatory pricing standard would strengthen the American economy and benefit U.S. consumers while precluding any truly predatory dumping designed to destroy domestic industries and monopolize American industrial sectors.

A recent economic study supported by the World Bank and released by the European University Institute confirms that the global proliferation of AD laws in recent decades raises serious competitive concerns.  The study concludes:

Over a century, antidumping has gradually evolved from an obscure and rarely used policy tool to one that now constitutes an important form of protection not subject to the same WTO [World Trade Organization] controls as members’ bound tariff rates. Rather, antidumping is one of several instruments that allow members to exceed their bound tariffs, albeit subject to very detailed WTO procedural disciplines. Moreover, while the application of antidumping was until the WTO era mainly the province of a few traditional users, emerging markets have become some of the most active users of antidumping and related policies as well as important targets of their application. And though these policies are known collectively as temporary trade barriers, WTO rules governing the duration of antidumping measures are much weaker than for safeguards.

As antidumping use has evolved and proliferated (about 50 countries now have antidumping statutes although some are not active users), both its economic justification and the concerns raised by its possible abuse have also evolved. While the original justification of antidumping was to protect importing countries from predation by foreign suppliers, by the 1980s antidumping had come to be regarded as just another tool in the protectionist arsenal. Even more worrying, evidence began to mount that antidumping was being used in ways that actually enforced collusion and cartel arrangements rather than attacking anticompetitive behavior.

Today’s world economy and international trading system are much different even from those of the early 1990s, when this concern reached its peak. Some changes, in particular the significant growth in the number of countries and firms actively engaged in international trade, tend to limit the possibility of predation by exporters. Moreover, antidumping has developed a political-economic justification as a tool that can help countries manage the internal stresses associated with openness. But other changes, especially the important role of multinational firms and intra-firm trade and the increased use by many countries of policies to limit exports, suggest that concerns about anticompetitive behavior by exporters cannot be entirely dismissed. Vigilance to ensure that antidumping is not abused by complainants to achieve and exploit market power thus remains appropriate today.

In sum, the study reveals that anticompetitive misuse of AD law has become a serious international problem, but, because the potential still remains for occasional predatory use of dumping (China is discussed in that regard), what is called for is appropriate monitoring of the actual application of AD laws.

Building on the study’s conclusion, the best way of monitoring AD laws to ensure that they were employed in a procompetitive fashion would be the redesign of those statutes to adopt a procompetitive antitrust predatory-pricing standard, as recommended in my 2015 Backgrounder.  Such an approach would tend to minimize error costs by providing a straightforward methodology to readily identify actual cases of foreign predation, and to quickly reject unjustified AD complaints.

This in turn suggests that a new Administration interested in truly welfare-enhancing international trade reform could press for redesign of the WTO Antidumping Agreement to require that WTO-conforming AD laws satisfy antitrust-based predation principles.  Initially, a more modest effort might be to work with like-minded nations for the consideration of plurilateral agreements whereby the signatories would agree to conform their AD laws to antitrust predation standards.  Simultaneously, of course, the new Administration would have to make the case to Congress that such an antitrust-based reform of American AD law made good economic sense.

American AD reform along these lines would represent a rejection of crony capitalism and endorsement of a consumer welfare-based approach to international trade law – an approach that would strengthen the economy and ultimately benefit American consumers and producers alike.  It would also reinforce the role of the United States as the leader of the effort to liberalize international trade and thereby promote global economic growth.  (Moreover, to the extent foreign nations adopted the proposed AD reform, American exporters would directly benefit by being afforded new opportunities to compete in foreign markets.)

Alden Abbott

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I am a Senior Legal Fellow at the Heritage Foundation. I write on antitrust, domestic and international regulatory policy, and law and economics. I am an Adjunct Faculty Member at George Mason Law School.