The US Antidumping Law : Rhetoric versus Reality

Journal of World Trade

Volumn 34, Issue 1, 2000, Pages 1-38

  Lindsey, Brink ^a,b  

^a CATO INSTITUTE   (United States)

^b Centre for Trade Policy Studies   (United States)

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[No Author keywords available]

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EID: 0034410468     PISSN: 10116702     EISSN: None     Source Type: Journal    
DOI: 10.1023/A:1009022907836     Document Type: Article

References (67)

1. Although the US antidumping law dates back to 1921, dozens of other countries now have similar laws. The authority of national governments to impose antidumping duties is recognized under Art. VI of the General Agreement on Tariffs and Trade and the World Trade Organization Agreement on Implementation of Art. VI.
2. This article focuses exclusively on what constitutes "dumping"; it does not address the effect of "dumped" imports on competing US industries or the broader US economy. Accordingly, this article is concerned solely with the phase of antidumping investigations administered by the Commerce Department; it does not cover issues pertaining to the International Trade Commission's injury inquiry.
3. Greg Mastel, Antidumping Laws and the U.S. Economy (Armonk, N. Y.: M. E. Sharpe, 1998), p. 43.
4. Ibid., p. 41.
5. Ibid., p. 40.
6. "Observations on the Distinctions between Competition Laws and Antidumping Rules", Submission of the United States to the WTO Working Group on the Interaction of Trade and Competition Policy, Meeting of 27-28 July 1998, p. 2. Cited hereafter as U.S. Submission.
7. Ibid., p. 15.
8. Ronald A. Cass and Richard D. Boltuck, "Antidumping and Countervailing-Duty Law: The Mirage of Equitable International Competition" in Fair Trade and Harmonization: Prerequisites for Free Trade? Jagdish N. Bhagwati and Robert E. Hudec (Eds) (Cambridge, Mass.: MIT Press, 1996), vol. 2, p. 351.
9. S. 773(a)(1)(B)(i) of the Tariff Act of 1930, as amended, codified at 19 U.S.C. § 1677b(a)(1)(B)(i).
10. S. 773(a)(1)(C) of the Tariff Act of 1930, as amended, codified at 19 U.S.C. § 1677b(a)(1)(C).
11. S. 773(a)(1)(B)(ii) of the Tariff Act of 1930, as amended, codified at 19 U.S.C. § 1677b(a)(1)(B)(ii).
12. 19 C.F.R. § 351.405(a) (1999).
13. Ibid. According to Commerce Department practice, a product sold in the comparison market will normally not be considered "comparable" (in other words, sufficiently similar) to a product sold in the United States if the difference in variable manufacturing costs between the two products is greater than 20 percent of the total manufacturing cost of the comparison-market product.
14. S. 773(b)(1) of the Tariff Act of 1930, as amended, codified at 19 U.S.C. § 1677b(b)(1). Under a recent court decision, Commerce may not resort to constructed value in such situations unless there are no contemporaneous above-cost sales of any similar models of merchandise. Formerly, Commerce would use constructed value if there were no above-cost sales of the particular identical or similar model chosen by Commerce under its product-matching criteria. In other words, Commerce must now do its product matching after applying the sales-below-cost test, not before. This methodological change increases the likelihood that normal value will be based on above-cost sales rather than constructed value.
15. While the distinction between nonmarket and market economies was sensible during the Cold War, it is difficult to draw a clear line at present between the "transition" economies of post-communist countries and other developing countries. Nevertheless, to date the Commerce Department has revoked NME status only for the former East Germany, Poland and the former Yugoslavia and has explicitly refused to do so for China, Russia, and Ukraine.
16. S. 773(c) of the Tariff Act of 1930, as amended, codified at 19 U.S.C. § 1677b(c).
17. "Facts available" were formerly known as "best information available".
18. "Facts available" determinations are routine in NME cases. In those cases Commerce will calculate producer-specific dumping margins for qualifying companies, as well as a countrywide rate for other producers and exporters. That countrywide rate is usually based on "facts available". By contrast, in market-economy cases, all uninvestigated companies receive an "all others" rate equal to a weighted average of the investigated companies' margins ("facts available" and de minimis margins, however, are excluded from the average).
19. 19 C.F.R. § 351.411(b) (1999).
20. Biases in antidumping methodologies are reviewed extensively in Richard Boltuck and Robert Litan (eds) Down in the Dumps: Administration of the Unfair Trade Laws (Washington: Brookings Institution, 1991).
21. To take just one obvious example, in "constructed export price" cases (normally, cases in which the importer of the investigated merchandise is related to the foreign producer), Commerce deducts the profit allocated to US selling expenses from the US price but makes no equivalent profit deduction from the comparison-market price. S. 772(d)(3) of the Tariff Act of 1930, as amended, codified at 19 U.S.C. § 1677a(d)(3).
22. The antidumping statute authorizes the Commerce Department, in making a "facts available" determination because a foreign producer has failed to co-operate, to "use an inference that is adverse to the interests of that party". S. 776(b) of the Tariff Act of 1930, as amended, codified at 19 U.S.C. § 1677e(b).
23. In constructed-value cases the costs used are the foreign producer's own, whereas in NME cases costs are calculated by valuing the foreign producer's "factors of production" according to price data from a surrogate market-economy country.
24. It can be argued that inclusion of an amount for profit is appropriate on the ground that a "normal" profit is part of a company's cost of capital. In other words, a company earning a subnormal return is selling below its full economic costs, if above its full accounting costs. First of all, it should be noted that antidumping supporters clearly convey the impression that the law targets sales at a loss, not insufficient profitability. More fundamentally, the claim that low profitability is evidence of market distortions is much weaker than is the case with respect to outright losses. Determining exactly what constitutes a normal profit for a given company in a given industry at a given time is significantly more difficult than determining whether or not that company is losing money. Moreover, low profits are generally sustainable over a much longer period than are outright losses. Persistent failure to earn competitive returns can undermine a company's ability to make necessary investments and thereby may lead eventually to outright losses; it may also threaten the employment security of the company's management. Unlike sustained losses, though, low profitability in and of itself does not imperil a company's solvency and future as a going concern. Accordingly, even chronically low profits are much less suggestive of "artificial" market conditions caused by government interventionism than are either acute or chronic losses.
25. Interestingly, among the critics of the NME methodology is the current US Trade Representative, although she expressed her criticism before holding public office. Charlene Barshefsky, Non-Market Economies in Transition and the U.S. Antidumping Law: Remarks on the Need for Reevaluation, Boston University International Law Journal 8, No. 2 (Fall 1990), pp. 373-380.
26. The US antidumping statute was revised in numerous respects by the Uruguay Round Agreements Act but has not been amended since. A number of proposals to revise the antidumping law are currently under consideration in Congress.
27. Commerce Department investigations are specific to a particular product from a particular country. In a single investigation, though, Commerce may calculate separate dumping margins for numerous different foreign producers.
28. In original antidumping investigations, any dumping margin of less than 2 percent is considered de minimis and effectively equal to zero.
29. "Dumping typically involves international price discrimination", states the U.S. submission to the WTO working group on trade and competition policy. U.S. Submission, p. 8.
30. For 34 of the 36 determinations, Commerce relied entirely on "facts available"; in other words, it made no use whatsoever of information provided by the foreign producers. For two of the determinations (Maktas in the investigation of pasta from Turkey, and Winbond in the investigation of SRAMs from Taiwan), Commerce relied on a combination of foreign producers' information and facts available. These two determinations were included because in both cases the partial use of facts available was both extensive and punitive (that is, Commerce purposefully selected adverse facts).
31. This figure is a subset of the 37 determinations mentioned above in which Commerce partially or totally rejected home-market or third-country comparison product sales. This smaller figure excludes those determinations in which any third-country sales were used and those in which all comparison-market sales were rejected.
32. Interestingly, ISSI is a US-based "fabless producer" that designs chips in the United States but relies on a semiconductor "foundry" in Taiwan for production. In this case, then, the antidumping law is being used by one US company (Micron Inc., the petitioner) against another.
33. Specifically, the programme was run without the "cost test" element, so that below-cost home-market sales were not excluded from the calculation. The recalculation was performed by ISSI's counsel at the law firm of White & Case. The revised programme was reviewed by the author of this study.
34. This total consists of 16 determinations in which Commerce used constructed value because of an absence of viable comparison markets or similar comparison products, and another four determinations in which publicly available information makes clear that Commerce rejected all comparison-market sales as below cost and therefore relied exclusively on constructed value.
35. The total consists of the 31 "mixed" cases discussed above, plus an additional two determinations in which Commerce rejected at least some third-country sales as below cost and instead relied either on above-cost third-country sales or constructed value. In those 33 determinations, it cannot be determined with certainty from the public record whether Commerce in fact used constructed value in every instance (such use would be unnecessary if there were any above-cost sales of the comparison products), nor can the extent to which constructed value was used be determined.
36. This respondent consists of two companies with common ownership whose operations are partially integrated. They were treated as a single company for purposes of the antidumping investigation.
37. These recalculations were performed by the companies' counsel at the law firm of White & Case. The revised dumping margin calculation programmes were reviewed by the author of this study.
38. Profit rates were derived from the following sources: Chen Hao Taiwan, Commerce Department disclosure documents for correction of ministerial errors, 31 January 1997; brake drums and rotors from China, Commerce Department final factors memorandum, 21 February 1997; cut-to-length steel plate from China, Commerce Department final factors memorandum, 24 October 1997; PT Multi Raya, Commerce Department disclosure documents for correction of ministerial errors, 31 January 1997; collated roofing nails from China, Commerce Department final dumping margin calculation memorandum, 23 September 1997. These documents were made available by the companies' counsel at the law firm of White & Case. Commerce usually calculates the profit rate as a percentage of cost of production. To express the profit rate as a percentage of sales, the Commerce figures were divided by one plus the Commerce profit percentage.
39. The products under investigation and their equivalent US industries are as follows: melamine institutional dinnerware, rubber and miscellaneous plastic products; brake drums and rotors, motor vehicles and equipment; cut-to-length steel plate, iron and steel; collated roofing nails, fabricated metal products. Profit rates for US industries were the average rate of pre-tax profits per dollar of sales during the year the investigation was initiated, as reported in Bureau of the Census, "Quarterly Financial Report for Manufacturing, Mining, and Trade Corporations", Table B, available at www.census.gov/prod/www/abs/qfr-mm.html.
40. This recalculation was performed by Dieng/Surya Jaya's counsel at the law firm of White & Case. The revised dumping margin calculation program was reviewed by the author of this study.
41. The scope of antidumping investigations and duty orders is defined by a verbal description of the "subject merchandise" not by US Harmonized Tariff System numbers. The HTS numbers selected here were the ones that corresponded most closely with the product description; if multiple HTS numbers corresponded equally well with the product description, the one with the highest imports in the period immediately preceding the initiation of the investigation was selected.
42. Since the US tariff system and foreign systems are not harmonized all the way to the 10-digit level, the foreign tariff items most closely corresponding to the relevant US HTS numbers were selected. Foreign tariff rates are from the relevant country's tariff schedule for the year that the antidumping investigation was initiated, with the following exceptions: steel concrete-reinforcing bars from Turkey (1997), SRAMs from Korea (1996), SRAMs from Taiwan (1995), stainless steel wire rod from Trinidad and Tobago (1998), and stainless steel wire rod from Korea (1996). US tariff rates are as of the year that the relevant antidumping investigation was initiated.
43. The dumping margins included in Table 5 exclude determinations calculated on the basis of "facts available", as well as those calculated purely on the basis of constructed value.
44. The Two investigations in question are SRAMs from Korea and stainless steel wire rod from Japan. With respect to the former, the 1996 and 1998 NTE reports charge that import licensing and product pre-approvals impede foreign sales of electronics and high-tech products to Korea, but no specific mention of SRAMs is made. As to the latter, all NTE reports reviewed allege anticompetitive practices and restriction of distribution channels in the Japanese steel sector, but the clear focus of those allegations is on carbon steel. The distinctive stainless steel industry is not specifically mentioned.
45. ISSI's profit rate was derived from the Commerce Department's final computer printout, 19 February 1998. This document was made available by ISSI's counsel at the law firm of White & Case. Since Commerce calculates profit as a percentage of cost of production, it was necessary to divide the Commerce figure by one plus the Commerce profit rate to arrive at profit as a percentage of sales. The profit rate for the US electrical and electronics products industry was taken from Bureau of the Census, "Quarterly Financial Report for Manufacturing, Mining, and Trade Corporations", Fourth Quarter 1997, Table B, available at www.census.gov/ prod/www/abs/qfr-mm.html
46. ISSI's Taiwan and US sales figures were taken from the business proprietary version of its 6 August 1997 supplemental response to the Commerce Department's antidumping questionnaire. This document was made available by ISSI's counsel at the law firm of White & Case.
47. Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980), p. 9.
48. The US antidumping law does attempt to match US and comparison-market sales made at the same "level of trade" and make price adjustments when such matching is impossible. The variations in competitive intensity referred to here, however, can occur within the same level of trade as define by Commerce and thus elude any adjustment.
49. An estimate now over a decade old found that gray market imports total USS 10 billion a year. S. Tamer Cavusgil and Ed Sikora, How Multinationals Can Counter Gray Market Imports, Columbia Journal of World Business 23, No. 4 (Winter 1988), p. 76.
50. Lawrence M. Friedman, Business and Legal Strategies for Combating Grey-Market Imports, International Lawyer 32. No. 1 (Spring 1998), p. 28.
51. U.S. Bureau of the Census, Statistical Abstract of the United States: 1998, Table 863, p.544.
52. Financial information taken from companies' 10-K reports, available at www.sec.gov.
53. Financial information taken from company's 1998 10-K report, available at www.sec.gov.
54. Kara Swisher, At Amazon, the CFO Sells Investors on the Merits of Losses, Wall Street Journal, 25 March 1999.
55. See, for example, Pankaj Ghemawat, Building Strategy on the Experience Curve, Harvard Business Review 85, No. 2 (March-April 1985), pp. 143-49.
56. Michael Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985), pp. 436-37. Emphasis in original.
57. Charles T. Horngren, George Foster, and Srikant M. Datar, Cost Accounting: A Managerial Emphasis, 9th ed. (Upper Saddle River, N.J.: Prentice Hall, 1997), p. 555.
58. See, for example, John C. Panzar and Robert D. Willig, Economies of Scope, American Economic Review 71, No. 2 (May 1981), p. 268. Panzar and Willig coined the term "economies of scope".
59. David Besanko, David Dranove, and Mark Shanley, The Economics of Strategy (New York: John Wiley & Sons, 1996), p. 178.
60. Ibid., p. 184.
61. Specifically, profit, selling expenses, general and administrative expenses, and interest expenses were stripped out of the calculation of normal value. What remained was total manufacturing costs - raw materials, direct labor, and factory overhead. This remainder still overstates variable costs, since it includes fixed overhead costs (for these respondents it was not possible to separate out fixed and variable overhead). The recalculations were performed by the companies' counsel at the law firm of White & Case. The revised dumping margin calculation programmes were reviewed by the author of this study.
62. S. 773(b)(2)(B) of the Tariff Act of 1930, as amended, codified at 19 U.S.C. § 1677b(b)(2)(B).
63. S. 773(f)(1)(C) of the Tariff Act of 1930, as amended, codified at 19 U.S.C. § 1677b(f)(1)(C).
64. Some antidumping supporters argue that cross-subsidization is itself an unfair trading practice. Thus, Terence Stewart, a prominent attorney who represents complaining US industries in antidumping cases, has argued that the antidumping law is designed to "offset any artificial advantage that flows from closed foreign markets, cross-subsidization by multiproduct firms, government largesse, or other factors that have nothing to do with comparative advantage". Terence P. Stewart, "Administration of the Antidumping Law: A Different Perspective" in Boltuck and Litan, p. 288 (emphasis added). This position, however, is untenable. Cross-subsidization is endemic among multiproduct firms, both foreign and American; indeed, the potential for cross-subsidization is one of the main reasons that multiproduct firms exist. It makes no sense to condemn cross-subsidization by foreign companies as "unfair" when identical business practices are routinely pursued by their US rivals.
65. Admittedly, the scope of interventionist policies that the antidumping law claims to address is broader than that covered under the CVD law: first, the CVD law does not apply to NME countries; second, it does not purport to address sanctuary-market situations or broad structural distortions like insufficiently developed commercial law. Nevertheless, for constructed-value cases - which are limited to market economies and (as seen above) generally occur in situations in which sanctuary markets are highly unlikely - there is a significant overlap in the ostensible targets of CVD and antidumping investigations. 66 There are limits on obtaining double relief through simultaneous antidumping and CVD petitions. Specifically, the CVD law distinguishes between export subsidies (subsidies tied to exports) and domestic subsidies (subsidies targeted to specific industries). For export subsidies, the antidumping law provides an offset for any CVD duties paid; for domestic subsidies, though, there is no offset, and therefore it is possible that simultaneous antidumping and CVD actions could double count the market-distorting effects of such subsidies.
66. Those four investigations are pasta from Italy, carbon steel wire rod from Canada, carbon steel wire rod from Trinidad and Tobago, and stainless steel wire rod from Italy. In each of those cases Commerce conducted contemporaneous antidumping and CVD investigations. In addition, another constructed value-based antidumping investigation included in the sample - stainless steel wire rod from Spain - covers a product that is subject to an outstanding CVD order. That CVD case has been inactive, however, since an administrative review determination in 1990 found de minimis subsidies. Furthermore, three other CVD investigations overlapped with antidumping investigations included in the sample reviewed in this study: pasta from Turkey, carbon steel wire rod from Germany, and carbon steel wire rod from Venezuela. In those three cases, however, the Commerce Department's determinations were based on "facts available", not constructed value.
67. Indeed, in one of those 22 investigations, fresh Atlantic salmon from Chile, Commerce did conduct a CVD investigation but made a negative finding. Yet for three of the five respondents in the antidumping case. Commerce made affirmative determinations on the basis of comparing US sales to constructed value (the other two respondents received negative determinations). It is hard to square an affirmative constructed-value-based dumping finding - which supposedly points to market-distorting government subsidies - and a negative subsidy determination in a corresponding CVD case.