Tag: antidumping

U.S.-Mexico Sugar Agreement: A Tribute to Managed Markets

The U.S. Department of Commerce (DOC) announced Oct. 27 that it had reached draft agreements with Mexican sugar exporters and the Mexican government to suspend antidumping and countervailing duty (AD/CVD) investigations on imports of sugar from that country.  Commerce has requested comments from interested parties by Nov. 10, with Nov. 26 indicated as the earliest date on which the final agreements could be signed.  Given the obvious level of consultation by governments and industries on both sides of the border leading up to this announcement, it’s reasonable to presume that the agreements will enter into effect within a few weeks.

Suspension agreements that set aside the AD/CVD process in favor of a managed-trade arrangement are relatively rare.  They sometimes are negotiated when the U.S. market requires some quantity of imports, and when the implementation of high AD/CVD duties would be expected to curtail trade severely.  This would have been the case, assuming the duties actually had entered into effect.  However, as this recent blog post indicates, it’s not at all clear that the U.S. International Trade Commission (ITC) would have determined that imports from Mexico were injuring the U.S. industry.  A negative vote (a vote finding no injury) by the ITC would have ended these cases and left the U.S. market open to imports of Mexican sugar. 

What are the key provisions of the agreements?  There are restrictions on both the price and quantity of imports from Mexico.  Sugar will only be allowed to be imported into the United States if it is priced above certain levels:  20.75 cents per pound (at the plant in Mexico) for raw sugar, and 23.75 cents per pound for refined sugar.  (For comparison, U.S. and world prices for raw sugar currently are about 26 cents and 16 cents, respectively; for refined sugar about 37 cents and 19 cents.)  Additional price controls on individual Mexican exporters based on their alleged prior dumping (selling at a price the DOC determines to be less than fair value) will further raise the prices at which they will be allowed to sell.

Managed Trade for Sugar from Mexico?

Mexican Economy Secretary Ildefonso Guajardo was in Washington this week arguing on behalf of an agreement to suspend the U.S. antidumping/countervailing duty (AD/CVD) investigation against imports of sugar from Mexico.  The case will soon enter its final phase, with the U.S. International Trade Commission (ITC) expected to determine early next year whether the U.S. sugar industry has been injured by imports from Mexico. 

In the context of North American sugar politics, an agreement to suspend the AD/CVD process and implement a managed-trade arrangement makes some sense.  Both U.S. and Mexican sugar industries already are more or less wards of the state, or at least are very heavily guided and controlled by their respective governments.  Both governments have given indications that they are interested in settling this dispute.  The history of bilateral sugar trade has been dominated by government intervention rather than by free-market economics.  It seems almost natural to take the next obvious step by allowing Mexican sugar to enter the United States only under terms of a suspension agreement (i.e., with the quantity limited or the price set high).

It’s worth mentioning that Mexican sugar growers are the only ones in the world currently allowed to sell as much sugar as they wish in the U.S. marketplace.  Even U.S. growers are not permitted to do so.  Years ago they gave up that right in exchange for retaining an almost embarrassingly high level of price support.  That strong price incentive was inducing them to grow more sugar than the market could absorb.  Under the provisions of the U.S. sugar program, that excess sugar could end up being owned by the U.S. Department of Agriculture at considerable expense to taxpayers.  So U.S. sugar growers made the decision to sell less sugar, but keep the price high.

Mexican growers, on the other hand, obtained unfettered access to the U.S. market in 2008. That followed a contentious period of bilateral trade in sugar and high-fructose corn syrup (HFCS) dating to 1994, which was when the North American Free-Trade Agreement (NAFTA) began to be implemented.  In a nutshell, the United States adopted a much more restrictive approach to imports of Mexican sugar than Mexico thought had been negotiated, and the Mexicans reciprocated regarding imports of HFCS. 

Given that historic context, the open access to the U.S. market enjoyed by the Mexicans since 2008 seems to be rather an anomaly.  Why not go back to the good old days of closely managed trade? 

U.S. Trade Policy Attacks U.S. Energy Policy, Both Hurting

First there were oil and gas export restrictions, then pipeline injunctions, now import restrictions on the steel needed for exploration and extraction.  Washington is coming from all angles to kneecap the energy boom sparked by the horizontal drilling and fracking revolutions – a once in a generation supply-side shock, which otherwise promises to attract a flood of foreign investment and serve as a wellspring of economic growth and job creation.
 
The most recent assault on our “All of the Above” energy policy comes via our fantastically self-destructive trade policy. Last Friday, in a final antidumping determination, the U.S. Department of Commerce found exporters from nine countries to be dumping “Oil Country Tubular Goods” (OCTG) – a class of steel products used primarily in oil and gas well projects – in the U.S. market. The most important foreign source of OCTG in the case was South Korea, whose exporters were found NOT to be dumping in the preliminary determination issued back in February.
 
But in the intervening months, the U.S. steel industry and the Congressional Steel Caucus impressed upon the bean counters at Commerce that the methodology they used for the Korean preliminary determination was inferior to an alterative they favored.  Without getting too into the weeds here, as tends to happen when exposing the dishonesty of the antidumping regime, suffice it to say that the revision from 0% dumping margins to 10%-16% for Korean exporters was primarily the result of Commerce changing its estimate of what the home market profit rate “should be.”
 
For the preliminary determination, that estimate was based on Korean OCTG producers’ experiences (with OCTG and other products).  For the final determination, Commerce changed its estimate to one based on a University of Iowa graduate student’s estimation of the profit experience of a single Argentine OCTG producer named Tenaris.  That’s right!  The cost of steel for U.S. oil well projects will rise – maybe 16% – because some student was messing around with @functions on Microsoft Excel.
 

WTO Indictment of Chinese Export Restrictions Unearths U.S. Hypocrisy

Last week a WTO dispute settlement panel ruled that certain Chinese restrictions on exports of “rare earth” minerals are inconsistent with China’s WTO obligations and recommended that the PRC government bring its policies into compliance with the rules. The decision was hardly surprising, as export restrictions are prohibited under the WTO agreements – except under certain limited circumstances, which were not demonstrated to exist.

Formal complaints about these export restrictions were lodged in the WTO by the United States, the European Union, and Japan, whose manufacturers require rare earth minerals for production of a variety of high tech products, including flat-screen televisions, smart phones, and hybrid automobile batteries. By restricting exports, the complainants alleged, China’s actions reduce supply and raise prices abroad, putting foreign downstream manufacturers at a disadvantage vis-à-vis China’s domestic rare earth-using companies, who enjoy the effective subsidies of greater supply and lower input prices.

The WTO decision was lauded across Washington, but more for its dig on China than for its basis in principle or sound economics. Emblematic of official sentiment was the following statement from arch-import-foe-temporarily-turned-globalization-advocate, House Ways and Means Committee Ranking Member Sander Levin (D-MI):

Through the aggressive efforts of the Obama Administration, the WTO has struck down China’s efforts to block our companies from having access to key inputs.  Our high-tech industries, from smartphones to medical equipment to wind turbines, depend on access to these rare earths and other chemicals. Holding China accountable, and enforcing the rules of international trade are vital to U.S. businesses and workers and key to trade expansion efforts (emphasis added).

Instead of Free Trade, Have the Transatlantic Trade Talks

Has the intellectual debate about free trade been won? The close-to-consensus answer among several scholars discussing that question at Cato last week is “yes.” The better answer is “wrong question.” After all, how much does it really matter that free traders have won the intellectual debate when, in practice, trade policy is distinctly anti-intellectual and free trade is the rare exception, not the rule, around the world?

Consider the just-launched Transatlantic Trade and Investment Partnership negotiations. If the free trade consensus were meaningful outside the ivory tower, these negotiations would not take place. At the heart of the talks rests the fallacy that protectionism is an asset to be dispensed with only if reciprocated, in roughly equal measure, by “negotiators” on the other side of the table. But if free trade were the rule, trade policy would have a purely domestic orientation and U.S. barriers would be removed without any need for negotiation because they would be recognized for what they are: taxes on consumers and businesses. It really is that simple.

But the TTIP is shaping up to be the mother of all negotiations: an interminable feast of mercantilist horse-trading, self-serving press conferences, and ever-premature, congratulatory pronouncements all intended to aggrandize negotiators and politicians who thirst to be seen doing something to restore economic hope without having to shake their respective vested interests from their protected perches. It’s all quite nauseating, really, but at least it serves to remind us that free trade is the rare exception, and when all else fails…

Granted, U.S. tariffs are relatively low on average, most quotas have gone away, and most other countries have reduced barriers to trade over the past half century, which has contributed in no small part to improvements in per capita income and quality of life around the world. Why that cause and effect hasn’t reinforced the theory enough to drive a stake through the heart of protectionism is the better question.

In the United States, instead of free trade, we have protectionism in its many guises, including: “Buy American” rules for government procurement; heavily protected services industries; apparently inextinguishable farm subsidies; sugar quotas; green-energy subsidies; industrial policy; the Export-Import bank; antidumping duties; regulatory protectionism masquerading as public health and safety regulations, and; the protectionism euphemistically embedded in so-called free trade agreements in the forms of rules of origin, local content requirements, intellectual property and investment protections, enforceable labor and environmental standards, and special carve-outs that immunize products—even industries—from international competition. In fact, the entire enterprise of trade negotiations is a paean to protectionism, conducted with the utmost care to avoid unsettling, without recompense, the special privileges of the status quo.

How has an intellectual consensus for free trade coexisted with these numerous and metastasizing affronts to it? Protectionism slipped the noose, that’s how.

You Say Tomato and I Say Tomate; Let’s Call this Whole Antidumping Racket Off

Last month, on the day the president was addressing audiences in the auto-parts-factory-rich state of Ohio, the administration filed a formal trade complaint before the World Trade Organization alleging that China is subsidizing exports of automobile parts.

Last week, at the request of domestic tomato producers operating preponderantly in the state of Florida, the Commerce Department agreed to terminate a 4-year-old agreement, which has allowed tomatoes from Mexico to be sold in the United States under certain minimum price conditions.

Of course it would be cynical to believe that these actions have anything to do with an incumbent candidate wielding Executive branch authorities to curry favor with special interests in major swing states before an election. So let’s make this latest episode a teaching moment about the perils of the antidumping status quo.

The long-standing – but vaguely understood – “trade agreement” between the United States and Mexico that was terminated last week was an agreement between Mexican tomato producers and the U.S. Department of Commerce to “suspend” an antidumping investigation that had been initiated at the request of U.S. tomato producers back in 1996. At the time, U.S. producers alleged that they were being materially injured by reason of tomatoes imported from Mexico and sold at “less than fair value.” The U.S. International Trade Commission agreed, preliminarily, on the issue of injury and the Commerce Department had calculated that the Mexicans were, in fact, dumping – selling in the United States at prices below “fair value.” (Here and here are two of many Cato exposés of what passes for objective administration of the antidumping law at the Commerce Department.)

But instead of carrying the investigation through to the final stage which likely would have included the imposition of duties, a “suspension agreement” was reached under which the Commerce Department would suspend the antidumping investigation if the Mexicans agreed to certain terms – most importantly, that they sell their tomatoes above a minimum benchmark price.  Understanding why the parties would agree to suspend an investigation – and why there are only seven suspension agreements among 240 active antidumping measures – is important to understanding one of the most anti-consumer, anti-competitive aspects of the U.S. antidumping law.

In an antidumping investigation, the Commerce Department calculates a dumping “margin,” which is purported to be the average difference between the foreign producer’s home market prices and his U.S. prices of the same or similar merchandise sold contemporaneously, allocated over the average value of the producer’s U.S. sales, which yields an ad valorem antidumping duty rate. That rate is then applied to the value of imports, as they enter Customs, to calculate the amount of duty “deposits” owed by the importer.

So, if a Mexican tomato producer’s rate has been calculated to be 14.6% and the value of a container of tomatoes from that producer is $100,000, then U.S. Customs will require the U.S. importer of those tomatoes to post a deposit of $14,600. Why is it called a deposit? Because the final duty liability to the importer is still unknown at the time of entry. The 14.6% is an estimate of the current rate of dumping based on sales comparisons from the previous year. But the actual rate of dumping for the current period – and, thus, the actual cost of importing tomatoes from Mexico – is unknown until completion of an “administrative review” of the current period’s sales by the Commerce Department, which occurs after the period is over.

In other words, because of the unique retrospective nature of the U.S. antidumping law, importers DO NOT KNOW the amount of antidumping duties they will ultimately have to pay until well after the subject products have been imported and sold in the United States. The final liability might be larger, much larger, smaller, or much smaller than the deposit. If smaller, the importer gets a refund with interest. If larger, the importer owes the difference plus interest.

How many business ventures would be started – or even qualify for a loan – with so much uncertainty about its operating costs? Imagine your local supermarket operating on the same principles. Imagine ringing up your basket-full of groceries, paying $122.45, and then waiting a year to find out whether you get a rebate or have to issue a supplemental check. Gamblers might enjoy the thrill, but this kind of uncertainty is anathema to business. Most grocery shoppers would buy their groceries somewhere else, where the prices are final.  Likewise, importers and other businesses in the supply chain are likely to stop doing business altogether with exporters who are subject to antidumping measures.

Such is the consequence of our ”retrospective” antidumping system. Every other major country that has an antidumping law has a “prospective” system, whereunder the duties assessed upon importation are final.  And this brings us back to Mexican tomatoes.

The suspension agreement terminated last week had been in effect since 2008 and required Mexican producers to sell their tomatoes at prices above $0.17 per pound between July 1 and October 22 and above $0.22 per pound between October 23 and June 30.  (That agreement was actually the third suspension agreement governing the terms of Mexican tomato sales in the United States since 1996.  The previous two were terminated at the request of the Mexican producers, presumably because market conditions had changed, and they were seeking better terms.)

The advantage of a suspension agreement is that it brings a degree of certainty – even if prices are higher.  It would be collusion but for the fact that the deal is struck between foreign producers and the Commerce Department and not between foreign producers and U.S. producers.  Occasionally, domestic producers desire certainty because its always possible that antidumping rates will decline in subsequent years. But foreign producers are more inclined to covet the certainty of a suspension agreement because the uncertainty that would otherwise confront their customers – U.S. importers – is often enough to chase them away entirely. And that helps explain the dearth of suspension agreements.

The retrospective nature of the U.S. law is just another example of how the antidumping regime is punitive and not remedial.

Solar Panels Trade Case Mocks Washington’s Ways

Later today the U.S. Department of Commerce is expected to announce preliminary antidumping duties on solar panels from China. This case might normally be met with an exasperated sigh and chalked up as just another example of myopic, self-flagellating, capricious U.S. antidumping policy toward China.

But in this instance the absurdity is magnified by the fact that Washington has already devoted billions of dollars in production subsidies and consumption tax credits in an effort to invent a non-trivial market for solar energy in the United States.  Imposing duties only undermines that objective. With brand new levies on imports to add to the duties already being imposed on the same products to “countervail” the lower prices afforded U.S. consumers by the Chinese government’s production subsidies, the administration’s already-expensive mission will become even more so – perhaps prohibitively so.

It’s not that President Obama and the Congress woke up one morning and agreed to craft policies that simultaneously promote and deter U.S. solar energy consumption. But that’s what Washington – with its meddling ethos and self-righteous politicians – has wrought: policies working at cross-purposes.

The Economic Report of the President in 2010 (published before Solyndra became a household name) boasts of the administration’s tens of billions of dollars in subsidies for production and tax credits for consumption of solar panels. This industrial policy continues to this day and there is no greater cheerleader for solar than the president himself. In this year’s State of the Union address, President Obama said:

I’m directing my administration to allow the development of clean energy on enough public land to power three million homes.

One month later, noting that 16 solar projects have been approved on public land since he took office, the president said:

[Solar] is an industry on the rise. It’s a source of energy that’s becoming cheaper. And more and more businesses are starting to take notice.

The president has couched his support for solar in terms of what he sees as the environmental imperative of reducing carbon emissions and slowing global warming. Thus his policy aim is to encourage consumption by making solar less expensive to retail consumers with production subsidies and consumption tax credits. (Of course, lower-cost solar is a mirage – accounting smoke and mirrors – because the subsidies come from current taxpayers and the tax credits deprive the Treasury of revenues already earmarked, forcing the government to borrow, burdening future taxpayers with principle and interest debt, which is paid with higher taxes down the road).

However, the president also sees solar and other green technologies as industries that will create great value, spawn new ideas and technologies, keep the United States at the top of the global value chain, and serve as reliable jobs creators going forward. And he seems to think that realization of that objective requires his running interference on behalf of U.S. producers.  He says:

Countries like China are moving even faster… . I’m not going to settle for a situation where the United States comes in second place or third place or fourth place in what will be the most important economic engine in the future.

There is nothing incompatible about holding the simultanous beliefs that greater use of solar power could reduce carbon emissions and that a solar industry has great potential to spur innovation, create value, and support good-paying jobs.  But promoting the realization of both premises simultaneously through policy intervention is a fools errand, and we are caught in its midst.

Efforts to protect and nurture these chosen industries by keeping foreign competitors at bay is incompatible with the president’s environmentally-driven objective of increasing retail demand for solar energy.  Intervening to reduce the supply of solar panels will cause prices to rise and rising prices (particularly in light of abundant cheap alternatives like natural gas) will cause demand to fall.  Sure, we may be left with some protected producers in the short-run, but how will they endure without customers.

That question is, apparently, far from minds of perennial interventionist Senator Chuck Schumer (D-NY) and arch-protectionist Senator Sherrod Brown (D-OH).  Just this week, the duo released a proposal that would make ineligible for the 30% tax credit, solar panels made outside of the United States, claiming that “Chinese solar panel producers’ eligibility for tax credit undercuts Amercian companies and jobs.”  The senators should tell that to the American business owners and employees in the much larger and more economically significant downstream industries that install and service solar panels in the United States.  The proposal would cause a dramtic increase in the retail price of solar panels and imperil livelihoods in these downstream industries.

This Cato video should be required viewing for Washington’s meddling policymakers.

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