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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