Anti‐​dumping Law Doesn’t Compute

This article originally appeared in Investor's Business Daily on May 20, 1999.
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Sometimes the most interesting trade policy stories are ones that don't make headlines.

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

His response: "In the U.S. market, there was absolutely no impact toSGI's supercomputer business by the products of NEC or Fujitsu."

No impact? That's an astonishing admission, given the fact thatJapanese supercomputers were hit with anti-dumping tariffs of up to454% in 1997. The ridiculously high rates were imposed for theexpress purpose of offsetting "material injury" to Cray. Now we hearthat Japanese supercomputers were never really a threat. There mustbe a lesson here somewhere.

Clearly, an anti-dumping tariff of 454% will have an impact. Suchtariffs aren't limited to this case. America's anti-dumping laws areso biased against importers that foreign products are routinely andunfairly excluded from the U.S. market. In the Cray-NECsupercomputer case, the bias was merely more blatant than usual.

The story began in 1996 when a U.S. subsidiary of NEC was bidding ona $ 35 million five-year leasing contract for a weather-simulatingsupercomputer for the National Center for Atmospheric Research(NCAR). NEC submitted the lowest bid, but Cray had a weapon notavailable 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 beforethe NCAR announced the winning bid, Cray had convinced twosympathetic members of Congress, Reps. David Obey, D-Wis., andMartin Olav Sabo, D-Minn., to press the Commerce Department toinvestigate Cray's competitors."

In response to the political pressure, Commerce sent a letter to theNCAR -- before any investigation had been conducted -- warning itthat NEC was probably guilty of dumping. The NCAR ignored Commerce'sthreat. Two months later, Cray filed a petition officially chargingNEC with "dumping" its supercomputers on the U.S. market.

Predictably, Commerce upheld the charge, as it does in theoverwhelming majority of cases. Shortly thereafter, theInternational Trade Commission determined that Cray sufferedmaterial injury from NEC's low prices. The government began chargingpunitive tariffs so high that Japanese supercomputers wereeffectively priced out of the U.S. market.

NEC filed a petition in the U.S. Court of International Trade inresponse to the obvious political machinations. The case wasrejected because Commerce "routinely" engages in such behavior. Butbecause NEC did not participate in the anti-dumping probe, Commercerigged the results. It took the "best information available" tocalculate degree of dumping.

In reality, "best information available" often means that Commercerelies on data provided by domestic competitors. In this case, Crayprovided the "evidence." Commerce concluded that NEC was pricing itssupercomputers at a whopping 80% below cost.

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

"Demand in the supercomputer market has in general shifted away fromvector-processing systems, in which Cray had taken a strongposition," said Belluzzo. "This direction must be a global trend andcaused Cray to shrink its operation.''

Exactly. It was never possible that the sale of a single computerwould "damage" Cray in any meaningful sense -- a fact that thecompany now publicly admits.

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

There are two lessons here. First, U.S. anti-dumping law ishopelessly biased against foreign companies and ought to bescrapped, or at the very least reformed. But Congress is busy movingin the opposite direction. It's considering whether to tiltanti-dumping law -- primarily to please large steel companies -- inan even more protectionist direction.

The second lesson is that Belluzzo's remarks ought to wake upsupporters of so-called fair trade measures. They should realizethat abuse, not fairness, is the rule. To extol the virtues of alevel playing field and then to ignore the blatant injustices ofU.S. trade policy is careless and dishonest.

Aaron Lukas

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