Antidumping -- remedy or protection?

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.