Imposing Anti-Dumping Duties – Is this a new Trade War (Cold War)?
Last year, The European Commission announced the imposition of anti-dumping tariff varying between 17 to 42 percent on imports of Solar Panels from China. The obligation of provisional duties may depend upon Chinese exporter’s cooperation to European import-injury investigations. India’s escalating cost of imports, exceeding the value of its exports has resulted in a decline of the two-pronged trade relations with China. While India has a comparative advantage in exporting agricultural products and information technology services to China, it faces limited access in the Chinese markets due to several reasons, thus making it difficult for the two countries to sustain bilateral trade relations.
In a more recent event that took place on March 26th, 2014, the United States Trade Representative laid blame on China for violating its WTO accordance and General Agreement on Tariff and Trades by imposing export price floors for specific goods like rare earth materials, aggravating the U.S. antitrust cases. On the other hand, the outcome of investigating and estimation of dumping margins has its consequences of driving out billions of dollars worth Chinese products out of the U.S. markets. On the other hand, China instigated an official complaint with the World Trade Organization (WTO) against U.S. import tariff on several Chinese products in the market.
The real question as an end result of these events pertaining to international trade disputes that are arising out of commercial policies is that – Are these laws enforced to counteract unfair trade practices rooting for an international trade war?
When a firm exports its products to a foreign country selling them at a price lower than the domestic market price, it is participating in predatory and monopolistic market penetration activities by dumping its products in the foreign country. The imported price is set lower than the domestic production costs which is below the minimum price necessary for any domestic production to occur. This drives local producers out of business leaving a negative impact on the economy in a long run. However, country’s welfare rises as consumer gains often exceed the losses occurred by domestic producers, at least in a short period. Since governments are more concerned about long term effects like sustained unemployment and job losses caused by predatory dumping practices, anti-dumping barriers are enforced for preserving the profits of domestic producers.
The process of imposing an anti-dumping law starts with a complaint filed with the International Trade Commission (ITC) and Department at Commerce (DOC) against any suspected dumping activities. Upon investigation, if the authorities at ITC and DOC discover any material injury or threat to the domestic industry, an anti-dumping margin is estimated which determines the percent of trade barriers to counteract unfair dumping practices. According to the recent petitions and complaints filed with the United States International Trade Commission (USITC) there have been 30 cases filed since September 2013.
United States – Mexico Sugar war
One of the trending cases among those is the Sugar War between U.S. and Mexico – there’s nothing sweet about it. A letter to Ms. Lisa Barton, Secretary – USITC requesting an investigation under section 701 and 731 of the Tariff Act 1930 states that the sugar imports from Mexico are subsidized by the Mexican government resulting in a competitive sugar price in the U.S. markets. This complaint was filed on behalf of American Sugar Coalition by the founder of Cassidy Levy Kent LLP. Under the North American Free Trade Agreement (NAFTA), Mexico has access to U.S. consumers by exporting sugar without any tariff or quotas. The American Sugar Alliance states – even though the American sugar industry is much more proficient, it is losing business (up to $1 billion) this year, all because of low cost subsidized Mexican sugar products predating the markets. In response to this investigation, Mexican Economy Secretary Ildefonso Guajardo denies providing subsidy for the exports of sugar products to U.S. It is feared that if the ITC unearths sugar dumping in its injury test, Mexico might respond to U.S. trade barriers that would make the Pacific Rim Trade deals unpleasant.
Are the numbers right? United States – China (Revengeful Counteractions)
A more aggressive reaction to anti-dumping barriers against U.S. is enforced recently by China. China brings its own anti-dumping and countervailing duties cases against U.S. companies which have now progressed into a trade war and might eventually have consequences in terms of multiple product trade blocks. During the 12th Mushroom Review Investigation, China claims that Commerce Department use dumping margin values which were determined by surrogate countries, specifically Columbia. These prices were a hundred times higher than real value in Chinese production sector. Imposing export price floors has increased consumer costs in the U.S. According to Mr. Bill Perry, ITC, China bringing a large gun to the knife fight in a ‘what goes around comes around’ attitude has lead to serious concerns about future trade relations between the two countries.
In India – Government refrains from imposing import barrier for environmental reasons
In an entirely different encounter, the Indian Directorate General of anti-dumping decides to refrain from imposing any trade barriers for the imports of solar equipment from countries like U.S., China, Taiwan and Malaysia so that India could reduce its dependence on fossil fuels. However internal distress is evident due to this announcement as the domestic manufacturers in their application to the Directorate General state that solar equipment are imported in India at “ridiculously low prices”.
Heading back towards the Cold War period
This tinge of disharmony that goes back and forth during the investigations of charged unfair trade practices sours the relations between trading partners. Additional political pressure to impose countervailing duties and anti-dumping laws can plunge the economies to the cold war, the period of trade blocks and embargo. It is also assumed that certain interest groups like domestic producer associations might specifically target high risk importers and use lobbying as ways to imposition of anti-dumping and countervailing duties.
Effective measures – Independence of dumping investigation procedures
We must believe that the International Trade world would be a better place in absence of monopolistic behavior and market influencers and that fair market conditions would be re-established. An article by Mr. George P. Schultz that was published last month relating to Russia’s invasion of Crimea, generally states that “free flow of trade relations is vital ingredient for peace between countries”. It suggests having a representative quality government with no corrupt brand of excessive bureaucracy and maintaining a competitive market environment being essential for the global security and to evade any cross- border threats.
It was made clear earlier that refraining from imposing any anti-dumping duties to counteract unfair trade practices would eventually result in unemployment and manufacturer running out of business in a long run. In absence of corrective measures, it was estimated that 25,000 jobs in Europe were at risk due to low cost imports of solar panels from China. Implementation of anti-dumping policies must remain independent of the influence from selected few domestic producers but is ideal when petition is received from the council of aggregate domestic producers. Without the announcement of an injury investigation, the Indian government seeks to impose anti-dumping duty on imports of purified terephthalic acid (PTA) where it is known that the sole beneficiary of this act would be Reliance industries. If not a Monopolist behavior, this is still quite an influential practice from a company that is known for funding political parties, especially during election times. There might be several other cases where certain communities of interests like politicians and industrialists influence the inflow of competitive products to curb their demand and gain from undivided profits through personal market supremacy.
In conclusion, maintaining transparency while formulating anti-dumping laws is an indispensable facet for sustaining an apposite international trade environment and steer clear of cross-border political tension between nations.
- FAQ on European Commission’s provisional duties on Chinese imports – http://europa.eu/rapid/press-release_MEMO-13-498_en.htm
- EU imposing a maximum anti-dumping tariff on Chinese solar glasses – http://www.pv-magazine.com/news/details/beitrag/eu-imposes-maximum-421-anti-dumping-tariff-on-chinese-solar-glass-exporters_100013572/#axzz30KzwilLM
- India – China doubtful bilateral trade relations – http://www.eurasiareview.com/21042014-indias-growing-trade-deficit-with-china-what-can-be-done-analysis/
- US-China trade war – http://uschinatradewar.com/
- Current Trade Disputes – http://www.seia.org/policy/manufacturing-trade/international-trade/current-trade-disputes
- Recent Cases USITC – http://info.usitc.gov/sec/dockets.nsf
- Mexico U.S. Sugar War – http://westhawaiitoday.com/news/nation-world-news/sugar-war-between-mexico-us-threatens-broader-trade-relations
- Govt. against imposing duties in India – http://economictimes.indiatimes.com/news/economy/policy/india-may-not-impose-anti-dumping-duty-on-solar-power-gear-imports/articleshow/34355049.cms