Antidumping -- remedy or protection?

This is the first of two articles on antidumping actions written by Herry Soetanto, director for multilateral cooperation of the Ministry of Industry and Trade, and Alfons Samosir, the ministry's deputy director for trade defense/remedy, based on a presentation at a seminar in Jakarta on May 11.

JAKARTA (JP): Dumping is usually defined as price discrimination between domestic and foreign markets. The price discrimination may cause problems for the domestic industry in the importing countries as the exporting companies sell their products at lower prices in the export market than in the home market.

Dumping is a kind of marketing strategy and is thus not prohibited. Nevertheless, since the early 20th century, countries have believed that dumping is unfair and can be condemned if it causes serious injury or threat to the domestic industry in importing countries.

There are three main elements -- the dumping itself, the injuries and a causal link between the two -- to be tested before an importing country can take a protective action by imposing antidumping duties.

Before the 1947 General Agreement on Tariffs and Trade (GATT) came into effect, dumping problems were handled by countries through their own national antidumping laws.

This situation created big problems because the methods to determine the dumping margin and injury, and procedures for initiation of investigations, were substantially different across countries.

Consequently, national laws had the potential to become significant barriers to international trade.

GATT 1947 was the first multilateral agreement dealing with antidumping as contained in Article VI. This article, which covered not only antidumping but also countervailing duties, was intended as a guideline for contracting parties to GATT to initiate investigation of dumping practices.

The article says antidumping duties could only be imposed if dumping caused or threatened material injury to an established industry of a contracting party or materially retarded the establishment of a domestic industry.

Since this article had no comprehensive provision governing procedures to initiate and to conduct investigations, the contracting parties felt it failed to comply with the interests of all members.

Therefore, the article could not be used as guidelines for their national legislation.

During the GATT's Kennedy Round (1963-1967), antidumping was one of the issues proposed for discussion to reach a comprehensive antidumping agreement. Unfortunately, it never happened. The issue was then brought up in the agenda of the Tokyo Round (1973-1979) which successfully concluded negotiations on a code on antidumping measures.

The new antidumping code spelled out in greater detail the conditions that had to be met. It covered such matters as detailed questions in determining whether a product was actually being sold below its normal value, the allowed profit margin, increased imports and other issues.

Although the code was negotiated multilaterally -- as were other codes under the Tokyo Round -- not all contracting parties signed the code. This situation created a new problem in international trading relationships among members.

Therefore, the code, along with other codes at the Tokyo Round, was vigorously negotiated in the Uruguay Round (1986- 1994), and resulted in the Agreement on Implementation of Article VI of the GATT 1994, known also as the Antidumping Agreement.

Actually, dumping practices are not prohibited by World Trade Organization (WTO) rules and are a common means for foreign suppliers to penetrate new markets.

Hence, Article VI's paragraph 1 of GATT 1994 emphasized that dumping might be remedied only if it caused or threatened material injury to an established industry of a contracting party or materially retarded the establishment of a domestic industry.

Problems in international trade relations are continuing even though the conclusion of the Uruguay Round (1986-1994) has successfully reduced tariff levels of industrial products by 33.3 percent.

Developed countries have agreed to reduce their tariffs on industrial products from an average of 6.3 percent to 3.8 percent (a 40 percent reduction) and the proportion of industrial products which enter the developed markets under Most Favored Nations (MFN) zero duties is more than double, from 20 percent to 44 percent.

For certain industrial products, applied tariffs are now about zero percent to 5 percent in developed countries. The significant reduction of industrial tariffs has led to an increase in antidumping causes because tariffs can no longer be used as an instrument for protection.

During the Uruguay Round, many member countries such as South Korea, Japan, Hong Kong and certain developing nations were worried that several countries like the United States and those in the European Union (EU) would more frequently use this instrument to protect their domestic industries.

The fears have come true. Since the agreement came in to force in 1995, antidumping allegations, including the abuse of this instrument by developed countries, have increased steadily.

Most developing countries are of the view that antidumping actions have mostly been used as disguised protection since the 1970s.

The original intention to improve the antidumping code of the Tokyo Round was because several important elements in its rules and procedures lacked comprehension, detail and transparency.

According to scholars like Michael J. Trebilcock and Robert Howse, antidumping actions were the most popular measure for trade remedies of the 1980s, as compared to countervailing duties and safeguard actions.

By the end of 1989, 28 countries had adopted antidumping laws. In 1998, 83 countries had notified the Committee of Antidumping Practices of their domestic antidumping laws. Nearly 1,200 antidumping actions were initiated between July 1980 and June 1988.

During this period, the most active countries to initiate dumping actions were the United States, those in the European Union, Australia and Canada, which accounted for 97.5 percent of all actions brought (30 percent by U.S. producers, 27 percent by Australians, 22 percent by Canadians and 19 percent by Europeans).

Antidumping actions against newly industrialized countries, especially East Asian countries, including Japan and China, were most often initiated by the United States, Australia and the European Union.

Indonesia is one of the East Asian countries which has encountered many antidumping actions. Since 1990, there have been 77 antidumping actions taken against Indonesian exporters. Of these actions, 15 were initiated by Australia, 15 by the European Union, seven each by the United States and New Zealand, five each by India and the Philippines, four by Canada and three by South Africa.

Most antidumping investigations initiated against Indonesian export products are targeted on paper, textiles and clothing, steel, float glass, food, plastic and rubber products.

Although the Uruguay Round successfully negotiated a comprehensive Agreement of Antidumping Measures with tighter rules and disciplinary measures, antidumping increased.

Since tariffs can no longer be used to protect domestic industries, antidumping legal instruments could be used to offset injury. But antidumping actions (which are now becoming non- tariff barriers) have become a new type of protectionism rather than a remedy.