What is it with Dumping and China?

Nations never cease to amaze with their competitiveness as they develop and pursue a strategy to stay aggressive in the dynamic world of trade. Countries undertake numerous mechanisms and produce immensely to acquire a share in the global market. Invariably, an ambitious war prevails in disguise to obtain the most of the comparative advantages. While few countries are involved in discarding wastes in other countries, some nations practise dumping of goods inadvertently to gain a trading platform in the domestic markets of other countries. As per the World Trade Organisation -- erstwhile General Agreement on Tariffs and Trade (WTO/GATT), dumping refers to the act of selling a product to the importing country at prices less

than the typical price in the market of the exporting country. Dumping is of primary concern for developing nations as it causes material injury to the domestic markets of importing countries.


GATT, since its inception, has assigned signatories to employ duties to counteract dumping that provokes or has a tendency to cause potential damage to industries in the jurisdiction of a GATT member. The US introduced the first antidumping laws in 1921. Academicians often criticize the cumbersome process of anti-dumping duties as sometimes they are unfairly levied on the exporting countries. Even today, it is a debating topic, as to whether the habit of dumping creates a problem or dumping itself a problem. To that, Jacob Viner affirmed that dumping itself is a ‘problem in International Trade’ in his seminal paper in 1923. According to international trade theories, price discrimination has an apparent effect on dumping. Due to the presence of monopolies, cartels and collusions in the domestic markets, market distortions create the ability to maintain the domestic market’s pricing higher than the export markets. Hence, the distortion effect itself enables the countries to entertain dumping prospects and, not the relative competitiveness of individual producers, hinting at Viner’s argument.


Dumping has been a serious issue to the importing countries, as it affects their domestic market producers. Of all the countries, China faces enormous anti-dumping duties for dumping the goods to its trading partners, while it is the least country to undertake anti-dumping charges on others. Between the period 1995 to 2001, anti-dumping cases against China soared up to 14 per cent of the total dumping disputes filed with the WTO. In one of the studies by Messerlin (2004), he talked about the anti-dumping and safeguards implemented against the Chinese economy. He analyzed the trend of anti-dumping duties imposed by developing and industrial economies on Chinese goods for the period 1995-2002. First, the top 10 anti-dumping users registered 90 per cent of the anti-dumping complaints to the WTO, which implies that the anti-dumping enforcement was highly concentrated in a few countries only. Secondly, opposite to the Uruguay statement of Anti-dumping users are Industrial countries, this timeline witnessed additional anti-dumping users, who were developing economies.


Except for Brazil, the domestic interests enjoyed through the anti-dumping protection outweighed the effect of foreign anti-dumping measures on the anti-dumping users (them). This contradicts the views of protectionism, as the conflict of interests persists between the domestic export and import-competing markets rather than between countries. Moreover, the anti-dumping users impose a higher welfare cost on the domestic market than the dumping tariffs imposed on the industrial economies.


The discrepancies with anti-dumping duties on China raised several questions about how countries evaluate the damage caused by the cheap imports sold in their domestic markets. Countries have delegated institutions to perform remedial actions if they encounter trade disputes. For instance, India has the Directorate General of Trade Remedies to deal with anti-dumping, countervailing duties, safeguard measures and also, provides defence support to the domestic industries. DGTR commission investigates to find the actual quantity of dumped imports in India based on the prices in the domestic and exporter’s market and, thus levies the anti-dumping charges accordingly for specified years. This common practice is said to be misleading as many countries are not sure about the status of the Chinese economy.


When China became the full member of the WTO in 2001, it joined with an accession protocol. These include the designation of China as ‘Non-Market Economy (NME)’ status in anti-dumping investigations for 15 years and ‘transitional product-specific safeguard’ provision for 12 years. However, China’s, this unique strategy of anti-dumping and safeguards for on-boarding the WTO backfired on their economy with tremendous accusations of dumping. Countries with NME status, generally have distorted prices. The US took advantage of this situation, as they had the discretion in selecting the surrogate countries for calculating the costs of Chinese firms. Before China entered the WTO, the US treated all the antidumping investigations with China based on NME status. Now, with China’s accession provisions itself as NME, irrevocably led the US to use the opportunity as ‘a thin legal veil’ to frequently invoke anti-dumping impositions on the Chinese imports. Zeng and Liang (2010) performed a complete study that supported the US’s pattern of antidumping charges on China with statistical evidence for the period 1991 to 2005.


Still now China is accused of dumping chemicals, industrial steel, electronics to the US, Australia, the EU, India, and others. Many articles and research papers discoursed on how China is misinterpreted for dumping cheap goods in other countries. While many anti-dumping cases are sensible, there is no clear rationale for the calculation of the cost of Chinese goods with the Chinese economy labelled as NME. Connoting Viner, conflict of interests and, the incongruity in commodity pricing let create an environment for dumping, and thus, dumping itself is a problem in the world.



References


Zeng and Liang (2010). US anti-dumping actions against China: the impact of China's entry into the World Trade Organization. Review of International Political Economy, August 2010, Vol. 17, No. 3. pp. 562-588.

Patrick A. Messerlin (2004). China in the World Trade Organization: Antidumping and Safeguards. The World Bank Economic Review, 2004, Vol. 18, No. 1, Economic Effects of China's Accession to the World Trade Organization, pp. 105-130.

Howell and Ballentine (1997). Dumping: Still a Problem in International Trade, pp. 325. International Friction and Cooperation in High-Technology Development and Trade. National Academy Press.

The Truth about China's Dumping Practices

WTO: Anti-Dumping - Technical Information.


By: Bharathi Jayaraman (aqf18bharathi@mse.ac.in)

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