All Quiet on the Antidumping Front? Take a Closer Look

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Introduction

So far this year the U.S. government has initiated only twoantidumping cases on behalf of domestic industries. In all of 2005,only 12 cases were initiated, which was substan­tially fewerthan the 26 initiations in 2004, and well below the most recent11-year average of 33 initiations per year.1 Antidumping use is clearly on thedecline in the United States, and that trend is mirroredglobally.

Before concluding that this trend will continue and thatantidumping reform is no longer necessary, it is important toconsider the causes of the decline. While some of the factorsunderlying the trend appear to be structural--and likelyper­manent--other factors are more transitory or cyclical.Looking forward, it is also important to consider theimplica­tions of recent developments in U.S. antidumpingpractice, including sustained efforts to make the law moreuser-friend­ly to potential U.S. petitioners. The confluence ofthese developments portends a resurgence of antidumping use in theyears ahead.

Although the post-Doha Round commentaries have rightly focusedon the forgone opportunities to reform agri­cultural policiesand open markets for more trade in goods and services, prospectsfor meaningful reform of the World Trade Organization's AntidumpingAgreement (ADA)--and the national antidumping laws it presumes todiscipline-- have been even more severely undermined.

While trade liberalization is likely to continue throughbilateral and unilateral channels, there are no other crediblenegotiations or venues--multilateral or otherwise--aimed atreforming antidumping laws. But greater discipline of the use ofantidumping measures is vital to securing the market open­ingsachieved in previous and prospective trade agreements.

Factors Curtailing Antidumping Initiations

The recent decline in antidumping initiations can beattrib­uted to a few positive developments. First, the U.S.economy has been growing steadily since the recession of 2001. In ahealthy economic environment, it is more difficult to make the casethat a domestic industry is materially injured--one of thetechnical requirements of winning antidumping protection. Althoughinjury is based on economic conditions particular to thepetitioning industry, which do not necessarily move in lockstepwith the performance of the overall economy, there exists a fairlystrong relationship between broad economic indicators and thenumber of initiations.

That relates to the second reason for the decline in antidumpinguse: today, the U.S. steel industry, which has accounted for thepreponderance of antidumping activity in the past, is arguablyhealthier than it has ever been. Demand for steel products ishighly procyclical. When the economy is expanding, more people buymore vehicles, construction activity increases, and demand for newhousing and appliances rises. Steel industry fortunes are a strongdeterminant of the number of antidumping initiations in the UnitedStates (and abroad). Of the 366 antidumping cases initiated by theUnited States over the past 11 years, 208 (or 58 percent) werelaunched on behalf of steel producers.2 But since 2003, only 10 of the 77 antidumpinginitiations (or 13 percent) covered steel industry products--and in5 of those cases the U.S. International Trade Commission found thatthe domestic industry was not suffering materialinjury.3

Certainly, the business cycle affects steel industryfor­tunes. But the industry has undergone a major restructuringthat has involved the rationalization and consolidation ofproduction capacity within the control of fewer firms. According tothe Financial Times, the top three U.S. produc­ers todayaccount for about 70 percent of U.S. flat-rolled steel productioncapacity, whereas in 2003 the top three accounted for only 25percent.4 Underthis more optimal structure, steel producers have greater controlover aggregate output and can respond to declining demand bywithholding production and maintaining prices. Althoughprofitability could decline during the next downturn, thelikelihood that the U.S. steel industry will experience materialinjury from dumped imports is remote. The industry is much morecapa­ble of handling economic downturns today, and the appealof the U.S. market to foreign steel producers has wanedconsid­erably as surging demand in developing countriesexperienc­ing catch-up growth has created large alternativemarkets for steel. And that is reflective of a broader trend, whichconsitutes the third explanation for declining antidumping use.

As the world economy has expanded and new markets havedeveloped, producers have many more sales opportuni­ties inmany different markets relative to even the recent past. Emergingdemand in previously small or flat markets has caused managers torethink their sales strategies: fewer are pursuing a strategy ofcompeting on price in the United States, while more are looking tobe early entrants and to cultivate their presence in developingmarkets.

As international trade flows continue to rise and add pressureto rising shipping costs already elevated by high energy costs,producers will have greater incentive to serve regional markets.With rapidly growing consumer and infrastructure demand in Chinaand India--to name just a couple emerging economies--local andregional producers are like­ly to be less willing to sell tocustomers in the United States unless they are able to get apremium for their products, which includes coverage of largetransportation costs. In other words, underpricing in the UnitedStates to win market share is a less attractive strategy than itmay have been in the past, given the costs of maintaining thatstrategy relative to the alternative of serving growing regionaldemand.

A related, and fourth, reason for the decline inantidump­ing activity is that as globalization has progressed,foreign direct investment has flourished and supply chains havegone international. The once clear definition of a domesticindustry has been blurred by the fact that production of a finalproduct often takes place in multiple countries. Bringingantidumping suits has a greater downside now, as domesticpetitioners are more likely to ensnare an entity in their ownsupply chains or related to them in some other way.

That situation was evident in a recent antidumping caseconcerning Wooden Bedroom Furniture from China. Although the casewas ultimately initiated, domestic petitioners had a difficult timesecuring enough industry support for the case because many U.S.furniture producers had investments in--or ownedoutright--furniture manufacturing facilities in China.

Most of the explanations for declining antidumping use appear tobe structural. The steel industry is now optimally positioned towithstand import competition should imports ever surge again, whichis unlikely since the steel industries in most other countries haveundergone restructurings similar to that in the United States.Foreign firms are now also less inclined to overproduce and willthus have little need to seek markets for their excess production.The conditions that gave rise to that behavior in the past havelargely disappeared from the steel industry.

The emergence of demand in China, India, the former SovietRepublics, and many other places that were not viable markets justa few years ago gives international suppliers many more salesopportunities, so the importance of the United States to theirmarketing plans is diminishing. Likewise, the process ofglobalization and the integration and collaboration between U.S.and foreign firms have raised and will continue to raise the costof bringing antidumping petitions.

Despite past proclamations regarding the death of the businesscycle, there will inevitably be future economic downturns. Underthose conditions, businesses are likely to do whatever ittakes--including filing trade petitions--to hold or win marketshare. And in anticipation of declining fortunes, U.S. supportersof the antidumping law have been working to make the antidumpingoption more attractive and accessible to U.S. industries.

Lowering the Legal Thresholds

While supporters argue that a strong antidumping law isnecessary to protect U.S. companies from foreign producers who areartificially advantaged by the market-distorting poli­cies oftheir governments, the fact is that no U.S. antidump­inginvestigation ever even considers whether such market-distortingpolicies exist. Petitions for antidumping protection are not evenrequired to include evidence of the existence, let alone theeffects, of such policies. Rather, the Commerce Department simplyassumes that lower prices in the United States than in theproducer's home market or sales made at prices below the full costof production prove incontrovertibly the existence of foreignmarket-distorting policies. That conclusion plainly ignores themultitude of legitimate, ration­al, profit-maximizing reasons acompany might sell at differ­ent prices in different markets orat prices below the full cost of production.5

Furthermore, even a finding of dumping by the CommerceDepartment cannot be considered evidence of price discrimination orsales below cost. The methodologies employed to calculate dumpingare so slanted in favor of an affirmative finding that the resultcan be considered nothing more than an artifact of those flawedmethods.6 U.S.courts, NAFTA panels, and the WTO dispute settlement system haveall found various aspects of the Commerce Department's calculationmethodologies to violate U.S. law or U.S. WTO commitments.

Yet, in Congress, the antidumping law enjoys broad bipartisansupport. Most lawmakers consider antidumping rules a legitimateresponse to unfair trade, and many cannot conceive that theadministration of the rules might be at times overzealous and inviolation of U.S. law or U.S. WTO obligations. In Congress, WTO orNAFTA rulings finding fault with U.S. administration of the law areoften perceived as judicial overreaching on behalf of predatoryforeign interests intent on weakening the law. Few lawmakersconcern themselves with the fact that companies penalized byspuri­ous administration of the law are never found to beengaging in unfair trade. Nor do many care much that antidumpingmeasures calculated pursuant to those biased and distortedmethodologies severely and unfairly handicap U.S. compa­niesthat rely on the affected imports.

It is against this backdrop that Rep. Phil English (R-PA)introduced in May the Trade Law Reform Act of 2006 (H.R 5529),which would, among other things, lower the already minimalevidentiary requirements necessary to impose antidumpingmeasures.

Under current law, an affirmative finding requires the U.S.International Trade Commission to conclude that dumped imports area cause of material injury to the domestic industry. In reachingthat conclusion, the U.S. courts have interpreted the law asrequiring the ITC to find that material injury is "by reason" ofthe subject imports, and that the mere presence of "less than fairvalue" imports when an industry is found to be injured does notimply causation. In other words, the antidumping law requires a"showing of causal--not merely temporal--connection between theless than fair value goods and the material injury."7 The requirement to show acausal connection implies an analysis that at least isolates fromother factors the effects of imports on the condition of theindustry, which is an explicit requirement of the ADA.

English's legislation would change the law to include thefollowing language: "The Commission need not determine thesignificance of imports of the subject merchandise relative toother economic factors." Not only would that change lower thethreshold by allowing a "merely temporal" con­nection to leadto an affirmative finding of causation, but it would baldly violateU.S. WTO obligations.

H.R. 5529 would also mandate a change in current pro­cedureswhereby the ITC exempts from the case countries from which importsare a small percentage of total import volume. The logic behind thecurrent practice to exempt is that small volumes cannot have animportant impact on price and therefore cannot realistically becausing material injury to a domestic industry. H.R. 5529 wouldbuck the logic and require the ITC to consider the effects ofimports from small-volume countries, making it easier to ensnareexporters from countries that are not injuring U.S. industries.

The legislation would also require that, in calculating dumpingmargins, the Commerce Department deduct from U.S. price anyantidumping duties paid by the importer, which would have theeffect of reducing the net U.S. price before comparing it to normalvalue, thus increasing calculated dumping margins. Thismodification would be akin to a dog chasing its tail. Anantidumping duty is supposed to convey to a foreign exporter thathis U.S. price is too low. The rate of duty roughly translates tothe amount by which he should raise his U.S. price to avoid futuredumping. If the antidumping duty paid is deducted from the U.S.price, then the exporter gets no credit for his efforts to avoiddumping because--all else being equal--the new antidumping rate isthe same.

The legislation contains several other modifications to theantidumping law, each of which serves the purpose of chipping awayat the already lax requirements for winning antidumping relief. Forthose who might believe that U.S. obligations under the ADA willensure that Congress does not pass laws that lower the thresholdsand otherwise know­ingly contravene those commitments, the U.S.track record regarding its responsiveness to adverse findingsagainst its antidumping practices and procedures suggestsotherwise.

The long-running softwood lumber dispute with Canada finallyended in a settlement. But the United States essentially gave theCanadians no choice but to settle because after losing time andagain on its injury and dumping findings, exhausting its appeals,U.S. authorities refused to abide by those rulings.8 And despite several indictmentsfrom the WTO and a NAFTA panel of the U.S. antidumpingcalcula­tion methodology known as "zeroing," the United Stateshas thus far refused to change its practice.9

Although the United States has taken preliminary action tocomply with the WTO's ruling that the so-called Byrd Amendmentviolates provisions of the ADA, the process between enactment andrepeal of the law will have taken seven years. The Byrd Amendmentwas a provision snuck into an agriculture appropriations bill atthe eleventh hour in 2000. The provision directed all antidumpingand countervailing duties collected by the Customs Service to bereserved in special accounts for reimbursement to the petitionersand support­ers of the respective trade remedy cases. Byrd wasimmediate­ly challenged by 11 WTO members and found by adispute panel in 2002 and again by the WTO Appellate Body in 2003to violate provisions of the ADA (and other WTO agree­ments).Although the U.S. Congress refused to repeal the Byrd Amendment formore than two years after the decision, despite retaliation beingauthorized to most complainants and imposed by some, the law wasfinally repealed as part of a budget reconciliation bill in late2005. The provisions of that repeal, however, allow Byrd duties tobe collected and distrib­uted through September2007.10

While U.S. petitioners, and most notably the trade lawyersrepresenting them, argued that the Byrd Amendment in no wayencouraged the filing of antidumping cases, the fact is that lawfirms used the prospect of receiving Byrd dis­tributions toencourage companies to support trade remedy petitions. With repealof the Byrd Amendment, the petition­ers' bar is looking foralternatives to induce domestic compa­nies to bring and supportthese cases. With legislation like Rep. English's, which would makeit easier for the International Trade Commission to find injury andthe Commerce Department to find affirmative dumping margins, themissing component is one that would address the cash flowuncertainty facing prospective petitioners. Bringing antidumpingcases can be expensive. And that cost can be an obstacle,particularly for companies that are not convinced that imports arecausing them harm. But in late 2005 and early 2006, a new modeldesigned to overcome that obstacle may have emerged.

A Sign of Things to Come?

In 2004 the U.S. shrimp industry filed antidumpingpeti­tions against exporters from six countries. After ayear-long investigation of the claims, antidumping orders wereimposed with nearly 100 foreign companies receiving indi­vidualantidumping rates, and all other exporters assigned country-widerates.

Under provisions of the law, every year the Commerce Departmentinvites parties involved in antidumping cases to request reviews ofthe most recent year's imports to deter­mine the actual amountof dumping for that year, and to set new deposit rates goingforward. Neither petitioners nor the respondent companies arerequired to request a review, and if no such requests are made, theduty rates already in effect continue.

In the shrimp case, most of the foreign companies receivedrelatively low antidumping rates in the original investigation.While each of those companies would have preferred zero antidumpingrates, the rates for many were low enough that they could continueexporting to the United States. And subsequently, many foreigncompanies were not inclined to request reviews because the cost oflitigation, as well as the cost of the uncertainty that the reviewmight gen­erate higher dumping margins than they weredepositing, exceeded the cost of the rates they were posting.

Knowing that many exporters could live with their rates, thedomestic industry requested reviews of dozens ofcompa­nies--even though the industry had difficulty scraping upenough money to pay its lawyers for the original investiga­tionuntil Byrd Amendment subsidies became available. But before theadministrative reviews got underway, petitioners approached most ofthe respondents for which reviews were requested with an offer.Instead of going forward with the reviews, the petitioners wouldwithdraw their requests for review in exchange for cash. Reportsprimarily in shrimp industry publications and in foreign newspapersindicated that petitioners were asking respondents for cashamounting to between 2 and 3 percent of the value of their exportsto the United States in the previous year.

Most foreign companies accepted the deal, which arguably was thebetter option for both parties in each deal. But there is clearlysomething unseemly about the domestic industry extorting large sumsof money from foreign shrimp producers under threat of burying themin heavy legal costs and the uncertainty associated with theCommerce Department's calculating new antidumping rates. There isalso something ominous about the relative ease with which thepetitioners' bar was able to effectively sell access to the U.S.market and split the proceeds with U.S. companies.

Although the Byrd Amendment was found in violation of the ADAand will cease to operate next year, the petitioners' lawyers seemto have concocted a model for effectively resur­recting Byrd.With this success under their belts, petitioners' lawyers have anew way to market antidumping actions to their current andprospective clients. This strategy, in conjunc­tion withthreshold-lowering legislation like Rep. English's, points to anincrease in antidumping use in the future.

Conclusion

Although antidumping initiations have declined in recent yearsand structural changes in the world economy should curtail theconditions that traditionally have inspired antidumping cases,efforts are underway to make the law more accessible and moreattractive to protection-seeking U.S. industries. If legislationlike the Trade Law Reform Act of 2006 becomes law, it will changethe analysis industries conduct when considering trade actions,weighing more heavily in favor of bringing more antidumping suits.And if settlements like those that prevailed in the shrimp case flyunder the radar and fail to raise legal and ethical questions,antidumping will be marketable as a revenue-generating scheme andpitched with success to industries otherwise dis­inclined tobring such actions.

The shelving of the Doha Round is a serious setback forantidumping reform. Without significant changes to curtail theabuse of the antidumping law, sympathetic lawmakers andpetitioners' lawyers are more likely to succeed at broad­eningthe protectionist impact of the antidumping law.


1 World TradeOrganization; data compiled from table titled "AD Initiations byReporting Member from 01/01/95 to 31/12/05," available athttp://www.wto.org/english/tratop_e/adp_e/adp_stattab2_e.xls.

2 World TradeOrganization; data compiled from table titled"AD Sectoral:Distribution of Initiations by Reporting Member from 01/01/95 to31/12/05," available at http://www.wto.org/english/tratop_e/adp_e/adp_stattab12_e.xls.

3 U.S. Department ofCommerce, Import Administration, "Antidumping and CountervailingDuty Initiations: January 1, 2000 to Current," available athttp://ia.ita.doc.gov/stats/inv-initiations-2000-2005.html.

4 Doug Cameron, "WarinessRemains As Sector Finds New Rhythm," Financial Times, June 14,2006. For a detailed discussion of some of the legitimateexplanations for price discriminating and selling below cost, seeBrink Lindsey, "The U.S. Antidumping Law:Rhetoric versus Reality," Cato Institute Trade Policy Analysisno. 7, August 16, 1999.

5 For a detaileddiscussion of the Commerce Department's antidumping calculationmethodologies, see Brink Lindsey and Dan Ikenson, "Antidumping 101: The Devilish Details of 'Unfair Trade'Law," Cato Institute Trade Policy Analysis no. 20, November 26,2002.

6 For a detaileddiscussion of the Commerce Department's antidumping calculationmethodologies, see Brink Lindsey and Dan Ikenson, "Antidumping 101: The Devilish Details of 'Unfair Trade'Law," Cato Institute Trade Policy Analysis no. 20, November 26,2002.

7 Gerald Metals, Inc. v.The United States, et al., United States Court of Appeals for theFederal Circuit (97-1077) (1997).

8 For a summary of eventsin the U.S.-Canada softwood lumber dispute, see Dan Ikenson,"America's Credibility Goes 'Timber!'" CatoInstitute Free Trade Bulletin no. 20, October 28, 2005.

9 For further elaborationof the practice known as zeroing, see Dan Ikenson, "Zeroing In: Antidumping's Flawed Methodology underFire," Cato Institute Free Trade Bulletin no. 11, April 27,2004.

10 For a brief historyof the Byrd Amendment, see Dan Ikenson, "'Byrdening' Relations: U.S. Trade Policies Continue toFlout the Rules," Cato Institute Free Trade Bulletin no. 5,January 13, 2004.