Next round of trade protection (Part II)

4. Anti-dumping

Anoth­er peren­ni­al favorite, anti-dump­ing duties, like safe­guards are WTO-com­pli­ant, dis­cre­tionary and high­ly pro­tec­tive because they’re tai­lor-made pro­tec­tion for indi­vid­ual firms against import com­peti­tors who cut their prices.

Domes­tic com­peti­tors cut their prices, too, of course when the mar­ket turns down. It’s a stan­dard busi­ness prac­tice; slash prices to just cov­er your fixed costs (cap­i­tal), cut your vari­able costs (labor, leas­es) and try to hold on for the ‘ride’. If you’re lucky or have planned well, your com­peti­tors will strug­gle with the low­er price and fall over. It works, it’s com­mon, and it’s per­fect­ly legal… in domes­tic com­pe­ti­tion. But, for rea­sons that can only be described as medi­ae­val, it is defined in law as ‘anti-com­pet­i­tive’ action when the com­pet­ing firms are in dif­fer­ent coun­tries.

You can’t real­ly blame firms for seek­ing the pro­tec­tion of this anti-con­sumer law. To them, it’ is an avail­able com­mer­cial strat­e­gy pro­vid­ed by the pro­tec­tion­ists and nation­al­ists in gov­ern­ment. If a firm can show ‘injury’ from com­peti­tors’ low prices—for exam­ple, a loss of mar­ket share or sales or the like­li­hood of the loss of mar­ket share or sales—it may be award­ed what­ev­er pro­tec­tion is nec­es­sary to stymie com­peti­tors’ aggres­sive pric­ing. For years.

Time line of anti-dumping news from GoogleWTO initiation notices and Google Scholar articles

What signs are there of new anti-dump­ing action? Cur­rent WTO sta­tis­tics date to June 2008, before the down­turn began to bite seri­ous­ly. They show declin­ing num­bers of report­ed inves­ti­ga­tions (“ini­ti­a­tions”) since the last reces­sion in 2000–2001. See the chart. Just for fun, I’ve plot­ted, too, the num­ber of times the word ‘anti-dump­ing’ turns up in arti­cles list­ed in Google Schol­ar. What this seems to show is that aca­d­e­m­ic inter­est lags initiations—we can spec­u­late that the aca­d­e­m­ic arti­cles are pub­lished only some time after the anti-dump­ing case is com­plet­ed (about a year after the inves­ti­ga­tion starts—but shows a sim­i­lar con­vex shape. If we look at ordi­nary news-media items as report­ed by Google, the time­line shows a mas­sive expan­sion after devel­op­ing coun­try mem­bers of WTO start­ed to use anti-dump­ing more (mid-1990s), but the same decline in inter­est as the 2001 reces­sion pass­es.

But watch this space!

5. Buy-local laws

Since gov­ern­ments are plan­ning to spend a big slice of their ‘stim­uli’ (your tax­es) on gov­ern­ment projects or agen­cies, they can take advan­tage of a ‘loop­hole’ that they made for them­selves in the trade rules. The GATT explic­it­ly exclud­ed pro­cure­ment of goods by gov­ern­ments from the key nation­al treat­ment oblig­a­tion (Arti­cle III of GATT). In oth­er words, they could dis­crim­i­nate in favor of local sup­pli­ers if they wished. In 1994, the WTO mem­bers exclud­ed gov­ern­ment pro­cure­ment of ser­vices from the main mar­ket access com­mit­ments of the GATS.

Buy-local” is per­fect­ly legal under WTO. Forty gov­ern­ments belong to the vol­un­tary ‘Gov­ern­ment Pro­cure­ment Code’ which requires gov­ern­ments to open up some of their pur­chas­es to for­eign sup­pli­ers (there’s a long list of excep­tions in every case). Some others—including Aus­tralia and the USA, for example—have reached agree­ments to exchange these rights in an FTA. But those agree­ments and oblig­a­tions can be a mine­field of excep­tions.

It’s only mod­est com­fort, there­fore, that Sec. 1605 of H.R.1 (the “Amer­i­can Recov­ery and Rein­vest­ment Act” ), con­cern­ing all “iron, steel and man­u­fac­tured goods” used in any project that ben­e­fits from funds appro­pri­at­ed by the Bill, now says: “(d) This sec­tion shall be applied in a man­ner con­sis­tent with Unit­ed States oblig­a­tions under inter­na­tion­al agree­ments.”

Here’s the log­ic of buy-local; it may sound like a patri­ot­ic idea, but in real­i­ty it’s insane. Sup­pose there are just two coun­tries, one very big and one rather small. Now, sup­pose the small coun­try decides to dis­crim­i­nate against sup­pli­ers from the big coun­try: not pur­chase from them but reserve all pur­chas­ing for local sup­pli­ers. Who will win, eco­nom­i­cal­ly? Not the small coun­try, that’s for sure. Prices will go up because small-coun­try con­sumers can’t buy in the biggest mar­ket where the best prices are usu­al­ly found and (with a math­e­mat­i­cal cer­tain­ty known as the ‘Lern­er equiv­a­lence’) small-coun­try pro­duc­ers will export less to the big coun­try because they will be mak­ing few­er of their most com­pet­i­tive prod­ucts and at high­er prices. As local infla­tion ris­es, the stronger exchange rate will also under­mine com­pet­i­tive­ness. Aggre­gate trade in this two-coun­try world will shrink dra­mat­i­cal­ly. But small-coun­try cit­i­zens will suf­fer most for their stu­pid deci­sion.

What two coun­tries are we talk­ing about? The ‘small coun­try’ is any coun­try you like. The Unit­ed States will do. The ‘big coun­try’ is the rest of the world, where almost all your poten­tial cus­tomers and sup­pli­ers live.

Defenses

What defens­es do we have against the threat of ‘wig­gle-room’ pro­tec­tion? By def­i­n­i­tion, there is lim­it­ed WTO con­trol over ‘wig­gle-room’. The Dis­putes Sys­tem doesn’t guar­an­tee con­trol over the ambi­gu­i­ties that gov­ern­ments have cre­at­ed or allowed to remain in the rules. Nor does it have much dis­sua­sive effect; it takes about 3 years to pros­e­cute a dis­pute and there are no ‘injunc­tions’ to sus­pend a dis­put­ed mea­sure pend­ing a deci­sion.

Opti­mists argue that gov­ern­ments’ behav­ior should be mea­sured against a pledge not to use these five sleazy options. Insane opti­mists look to the com­ple­tion of the Doha Round this year as a buffer against pro­tec­tion­ism.

But the best defense is expo­sure of the costs that these mea­sures impose on firms and house­holds, at home and abroad, who have the biggest stakes in gov­ern­ments col­lab­o­rat­ing to sus­tain an open glob­al mar­ket dur­ing the reces­sion. More on that idea to fol­low.

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