Anti-dumping Policy: Anti-Dumping Dispute Pitting the U.S. and South Korea

Anti-dumping Policy: Anti-Dumping Dispute Pitting the U.S. and South Korea.

Anti-dumping Policy: Anti-Dumping Dispute Pitting the U.S. and South Korea

Anti-dumping is a protectionist governmental policy that imposes a tariff on imports that are priced below fair market value (Irwin, 2005). On the other hand, dumping occurs when products from another country are introduced into the commerce of another country at less than the normal value of products in that country (Prusa, 2005). To effectively determine whether dumping has occurred, the normal value is compared with the price of products at an equivalent level of trade (Irwin, 2005). The margin of dumping is the difference between the export price and the normal value. Dumping can threaten the establishment of industries or affect the quality of products in the concerned country. Consequently, countries impose anti-dumping duties to protect the industry from harmful dumping by the exporters (Irwin, 2005). However, the anti-dumping rates should not exceed the estimated margin of dumping. In the U.S the anti-dumping rates are set slightly above the dumping margin.

Theory of Dumping

Various economists and scholars have conducted research to establish how dumping affects the global economy. Different models have been put forward trying to explain the relationship between dumping and its effects on the economy. One of the models put forward is that dumping as a form of price discrimination (Grimwade, 2011). However, it is a different version of price discrimination because the two countries are in separate geographical locations. The exporters take advantage of the different elasticity of the same product in different markets to maximize profits by dividing output in the two markets (Grimwade, 2011).

Another model put forward is that dumping is another form of predatory pricing. In this case, the dominant firms in the global economy set prices of goods so low below the average cost that other firms are forced out of the market (McCalman et al., 2008). When the competitors exit the market, the dominant firm raises the prices of goods and services to recover the losses it had experienced when trying to push other firms out of the market. The case is rare since most of the countries in the globe have restrictive measures that control such an act.

Another model that is used to explain dumping is the emphasis in demand fluctuations. In this model, fluctuations cause demand uncertainty in the market (McCalman et al., 2008). Producers are sell outputs at low prices sufficient enough to recover variable costs only. The case is prevalent in the steel and chemical industries.

Process of Filing an Anti-Dumping Complaint

All the anti-dumping policies must be consistent with the provisions of the World Trade Organization (WTO). Failure to set the policies in line with provisions of the WTO can prompt concerned parties to file a complaint case with the WTO. In the U.S., the anti-dumping duty investigation case is initiated under the 19th Code, section 1673a. There must be available information and the administering authority. The administering authority establishes a monitoring program on a class of imports or kind of merchandise (WTO, 2017). Monitoring helps the administrative authority to establish whether it is sufficient to initiate an immediate investigation. Investigation helps to define the type of anti-dumping that has been committed (Grimwade, 2011). Later on, the action is expedited under results of the information found as per investigation and subparagraph’s A definition of the problem (Drope, et al., 2006).

Alternatively, an anti-dumping duty investigation can be initiated through a petition. When initiated through a petition, the petition requirements must be meet as per subparagraph C, D, E,  F and G of section 1677(9) (Legal Information Institute, 2017). The petitioner must provide relevant information alleging that the anti-dumping is supposed to be paid as per section 1673 of the Title. Additionally, the petitioner must fill another simultaneous petition with the commission on the same day the petition was filed with the administering authority (Legal Information Institute, 2017). The petition can be amended as per the description of the administering authority and the Commission. After that, the action is taken regarding the provision of the petition (Drope et al. 2006). Notification is made to the government of the exporter. The petitioner is then required to make a communication to the administering authority or the Commission.

The U.S- Korea Dispute

Korea filed a petition against the United States concerning anti-dumping and countervailing measures related to large residential washers from Korea. The USDOC had applied anti-dumping duty on imports of large residential washers from Korea. Consequently, Korea was concerned that the methodology used by USDOC to determine whether the large residential washers supplied by Korea had contravened the anti-dumping regulations. Korea felt that USDOC did not correctly use the W-T comparison methodology. The Differential Pricing Methodology was used in determining the application of W-T on the targeted dumping (WTO, 2017). According to Korea, the criteria for determining whether the W-T did not meet the conditions of application. Moreover, Korea claimed that USDOC included the non-pattern transactions. Under Article 2.4.2, Korea felt shortchanged by USDOC by applying the fixed numerical criteria to determine the existence of a “pattern” of the significant price difference at the expense of applying the commercial context where the pattern of significant pricing differences arose (WTO, 2017). However, the investigation panel found the argument made by Korea insufficient to prove that USDOC was wrong in determining the relevant price differences. Despite that decision, the investigating panel found it worth to expand the explanation clause to account for other factors that might cause prices to differ significantly other than the targeted dumping. Consequently, the panel compared the margin of dumping calculated using the weighted average –to weighted average (W-W) comparison method and that calculated using the weighted average-transaction-to-transaction (W-T) comparison methodology (WTO, 2017).

Moreover, Korea challenged the use of Zeroing in the context of W-T comparison methodology; it was established that pricing behavior of an exporter is important on the pattern transactions when determining the margin of dumping (Jae-man, 2017). Therefore, the move by USDOC to zeroing the exporter transactions was unnecessary. However, it was found that zeroing was consistent with the provisions of the individual clause in the article 2.4.2 second sentence. Conversely, it was established that Korea argument against Zeroing was also applicable in light of W-T comparison methodology (Jae-man, 2017). Subsequently, the WTO panel found that Application of Zeroing was inconsistent with the establishment of the dumping and margin of products about the universe of export transactions as per the second sentence of the article 2.4.2. (WTO, 2017)

In September 2016, the World Trade Organization panel ruled for Korea. The panel found that the anti-dumping duties imposed on were against the anti-dumping criteria. The panel established the targeted dumping and application of zeroing were against the WTO agreement. The zeroing led USDOC to counts any negative difference between the normal value of a foreign product and its export price as zero but took positive margins as is, thus making the overall average of dumping margins greater (Jae-man, 2017).

The anti-dumping policy plays a very significant role in protecting infant industries in countries where import of products threaten existence and growth of domestic industries. However, application of the anti-dumping policy should be in line with the WTO agreement in an attempt to avoid dispute among countries, which are party to the WTO Agreement.

 

 

 

References

Drope, J. M. & Hansen, W. L. (2006), Anti-dumping’s happy birthday. The World Economy, 29(4), pp. 459-470.

Grimwade, N. (2011). Anti-dumping policy- An overview of the research. London, Center for International Business Studies.

Irwin, D. (2005). The rise of US anti-dumping activity in historical perspective. Retrieved from http://www.dartmouth.edu/~dirwin/docs/AD.pdf

Jae-man, K. (2017). WTO rules in favor of S. Korea over dispute of U.S. antidumping duties on washers. Maeil Business News Korea. Retrieved from http://pulsenews.co.kr/view.php?year=2016&no=640238

Legal Information Institute. (2017). 19 U.S. Code § 1673a – Procedures for initiating an antidumping duty investigation. LII / Legal Information Institute. Retrieved from https://www.law.cornell.edu/uscode/text/19/1673a

McCalman, P., Stähler, F., & Willmann, G. (2008). A Theory of dumping and anti-dumping. Retrieved from http://ot-ds.sipr.ucl.ac.be/cps/ucl/doc/core/documents/willmann.pdf

Prusa, T. J. (2005), Antidumping: a growing problem in international trade, The World Economy, 28(5), pp. 683-700.

World Trade Organization (WTO). (2017). Dispute settlement: DS464: United States — Anti-dumping and countervailing measures on large residential washers from Korea. Retrieved from https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds464_e.h

 

Appendix

Anti-dumping cases initiated by exporting country, 1995 to 2008

 China

PR

Rep of KoreaUSAChinese

Taipei

JapanIndonesiaThailandIndiaTotal
199520141245783157
1996431121967911225
19973315151612958243
199828241511135212257
19994234142222201913356
2000442212159131210292
20015423151914181612366
20025123121613121216312
200352172113168714232
2004492414219898214
2005551212137141314200
20067111111311986202
20076113765594164
2008*37424057285
Total640247183182142140136133330

Source: WTO. * January to June only

 

 

 

 

 

 

Anti-dumping initiations by reporting country, 1995 to 2008

 

 AustraliaCanadaECUSADeveloped

Countries

Developing CountriesTotal
199551133147384157
1996175252273152225
199742144115117126243
1998138223680177257
199924186547157199356
200015213247124168292
200123252875158208366
2002165203573239312
200381573772160232
2004911302681133214
200571251245155200
200610735861141202
20072192850114164
2008*411012275885
Total19549382414119321123305

Source: WTO

* January to June only

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Anti-dumping Policy: Anti-Dumping Dispute Pitting the U.S. and South Korea

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