Commentary

Anti-dumping Law Doesn’t Compute

By Aaron Lukas
This article originally appeared in Investor’s Business Daily on May 20, 1999.

Sometimes the most interesting trade policy stories are ones that don’t make headlines.

Consider a recent statement by Richard Belluzzo, chairman and CEO of Silicon Graphics, Inc. (SGI). In an interview with the Nikkei Industrial Daily in March, Belluzzo was asked whether Cray Research - which is owned by SGI - was having trouble making money even after kicking Japanese supercomputer manufacturers out of the domestic market.

His response: “In the U.S. market, there was absolutely no impact to SGI’s supercomputer business by the products of NEC or Fujitsu.”

No impact? That’s an astonishing admission, given the fact that Japanese supercomputers were hit with anti-dumping tariffs of up to 454% in 1997. The ridiculously high rates were imposed for the express purpose of offsetting “material injury” to Cray. Now we hear that Japanese supercomputers were never really a threat. There must be a lesson here somewhere.

Clearly, an anti-dumping tariff of 454% will have an impact. Such tariffs aren’t limited to this case. America’s anti-dumping laws are so biased against importers that foreign products are routinely and unfairly excluded from the U.S. market. In the Cray-NEC supercomputer case, the bias was merely more blatant than usual.

The story began in 1996 when a U.S. subsidiary of NEC was bidding on a $ 35 million five-year leasing contract for a weather-simulating supercomputer for the National Center for Atmospheric Research (NCAR). NEC submitted the lowest bid, but Cray had a weapon not available to its Japanese competitors: the U.S. anti-dumping law.

The Japanese never had a chance.

As trade economist Christopher Dumler has pointed out, “Even before the NCAR announced the winning bid, Cray had convinced two sympathetic members of Congress, Reps. David Obey, D-Wis., and Martin Olav Sabo, D-Minn., to press the Commerce Department to investigate Cray’s competitors.”

In response to the political pressure, Commerce sent a letter to the NCAR — before any investigation had been conducted — warning it that NEC was probably guilty of dumping. The NCAR ignored Commerce’s threat. Two months later, Cray filed a petition officially charging NEC with “dumping” its supercomputers on the U.S. market.

Predictably, Commerce upheld the charge, as it does in the overwhelming majority of cases. Shortly thereafter, the International Trade Commission determined that Cray suffered material injury from NEC’s low prices. The government began charging punitive tariffs so high that Japanese supercomputers were effectively priced out of the U.S. market.

NEC filed a petition in the U.S. Court of International Trade in response to the obvious political machinations. The case was rejected because Commerce “routinely” engages in such behavior. But because NEC did not participate in the anti-dumping probe, Commerce rigged the results. It took the “best information available” to calculate degree of dumping.

In reality, “best information available” often means that Commerce relies on data provided by domestic competitors. In this case, Cray provided the “evidence.” Commerce concluded that NEC was pricing its supercomputers at a whopping 80% below cost.

Despite the excessive protection, Cray now faces difficulties that are the result of business mistakes, not import competition.

“Demand in the supercomputer market has in general shifted away from vector-processing systems, in which Cray had taken a strong position,” said Belluzzo. “This direction must be a global trend and caused Cray to shrink its operation.”

Exactly. It was never possible that the sale of a single computer would “damage” Cray in any meaningful sense — a fact that the company now publicly admits.

Yet, somehow, the U.S. anti-dumping process yielded astronomical penalties that denied the NCAR the best available price. It has effectively deprived the U.S. market of healthy competition.

There are two lessons here. First, U.S. anti-dumping law is hopelessly biased against foreign companies and ought to be scrapped, or at the very least reformed. But Congress is busy moving in the opposite direction. It’s considering whether to tilt anti-dumping law — primarily to please large steel companies — in an even more protectionist direction.

The second lesson is that Belluzzo’s remarks ought to wake up supporters of so-called fair trade measures. They should realize that abuse, not fairness, is the rule. To extol the virtues of a level playing field and then to ignore the blatant injustices of U.S. trade policy is careless and dishonest.

Aaron Lukas is an analyst at the Cato Institute’s Center for Trade Policy Studies.