EU Trade News: Further Evidence that Anti-dumping Makes No Sense
The European Union’s executive is proposing to extend anti-dumping duties on Chinese and Vietnamese shoe exports for a minimum of 15 months, a compromise that aims to satisfy shoemakers and retailers alike in Europe.
The European Commission, under pressure from shoemaking countries like Italy, first imposed duties on imports in 2006 for two years, amid accusations that the two governments were unfairly subsidizing their low-cost shoemakers. (New York Times)
Gotta love anti-dumping, the policy of choice for protectionists. The best part is that since it is entirely legal, anti-dumping allows you to be a protectionist out in the open, unlike other protectionist trade policies that masquerade as something else.
The commission reimposed the tariffs on a temporary basis last October pending a review, despite opposition from the majority of member states and the threat of legal action by Beijing at the World Trade Organization.
Also gotta love EU politics. Some commissioner from Italy gets yelled at by shoemakers, and despite widespread disagreement, the AD action gets rammed through the commission anyway. Yay!
Interesting words from the commission:
“As regards consumers, there was no noticeable price-increase following the imposition of the anti-dumping duties,” the commission wrote, and “there are no indications that consumer prices will increase disproportionately in the future.”
Right. No price increase. Meaning that just because a distributor or producer can slash their margins, and therefore consumers face no price increase, it’s OK to blatantly protect Italian shoe firms in a desperate attempt to maintain market position.
Here’s my favorite bit. You can’t make this stuff up.
The commission could have proposed an extension of up to five years, but limited it to 15 months — for now. It said the European footwear industry needed that protection in the “short/medium term” while it adjusted to competitive pressure from Asia.
“There is no legal or economic justification,” said Lourdes Catrain, legal adviser to the European Footwear Alliance, which says it represents small producers, including some in Italy, as well as large global brands which want the duties lifted. “The commission have still to justify what kind of adjustment process the European industry could complete within the 15 month period they propose.”
Ha ha. Just give us another 15 months, they say. Everything will be different then, we promise! Sure, we didn’t do much in the last two years, but trust us, this time will be different. Really.
Note: someone said to me the other day that I’ve written about anti-dumping several times, yet hadn’t actually explained what the hell it is. Fair enough.
Let me know if the following is sufficient, which I found (of course) on Wikipedia. The page has a lot of stuff, but the core idea is this:
. . . dumping is defined as the act of a manufacturer in one country exporting a product to another country at a price which is either below the price it charges in its home market or is below its costs of production . . .
Keep in mind that anti-dumping (AD) is dealt with by domestic law, so the U.S. has its AD rules and procedures, China has its own, etc. Europe deals with AD at the EU level.
Basically the way it works is that a complaint is made to a government (or a government acts on its own) alleging dumping, an investigation may follow, and if dumping and injury to domestic industry are found, tariffs may be raised.
The fact that the WTO system essentially condones the use of AD says a lot about how sincere some industrialized countries are when it comes to the concept of “free trade.”
One could always flip that back and argue that “free trade” is impossible with China because of its peg to the dollar and its political decision to keep interest rates artificially low in order to foster its export driven economic policy..I think the proper term for what WTO and FTA’s are suppose to generate is “Free-er trade.”
Sure, the cheap RMB has certainly been a major factor in pushing Chinese exports over the past few years. But that has nothing to do with anti-dumping. Moreover, the currency alone does not explain the entire price differential on a lot of these products, so an RMB revaluation would not suddenly make China trade “fair” overnight.
My problem with AD goes deeper than whether it is/is not appropriate against specific Chinese products. I simply don’t like AD used by any country for any reason. I subscribe to the general idea that if a company wants to sell something at a low price, it should be able to do so. There are exceptions, but few.
Currency is a tough issue since it is related to a lot of other, non-trade issues with a country’s economy. Subsidies, on the other hand, are absolutely trade distortive and are dealt with by the WTO legal regime. But coutervailing duties, safeguards, and other AD-ish mechanisms are topics for another occasion.
Yes I agree with the general idea as well, and I agree that free trade should be promoted. But, I think it is strange for companies, be they supported by artificially low currency or direct government subsidies (ie defense contractors), that essentially operate outside of the free market to complain about a lack of free trade.
This is sort of what I was referring to:
http://www.economist.com/businessfinance/displayStory.cfm?story_id=14660438&source=hptextfeature
Basically I agree that China probably can make a lot of stuff cheaper than locals if all things are even. But the way the Chinese have set it up is that they make everything cheaper or keep those things that the West is better at out via regulation.
So if we are talking about free trade, we should talk about true free trade. Or we should just embrace the more pragmatic “free-er” trade which will take a huge beating in this recession and it will suck for us all.
My my, please do not take that Economist article too seriously. There are several factual errors in it and other misleading statements about Chinese law and procedure — surprising to see mistakes like that in the Economist, actually. For one thing, just because something is difficult for a foreign company over here, it does not logically follow that Chinese companies do not have the same burden. Sometimes, but not always!
That being said, of course there is protectionism here. Has been for a long time, will continue to be for a long time. But we should not conflate IP problems, bureaucracy, and corruption with protectionism — sometimes they are related, sometimes they are not.
All countries engage in dirty tricks, and many of them occur over here. I reserve the right to smack around the idea of anti-dumping, however, since it is so blatant. Other forms of local protectionism can be dealt with via legal reform or changes in policies — AD is institutional/legal protectionism. Very different thing conceptually, which I find particularly odious.
What is the theory behind anti-dumping? If I’m right, it is that the producer will sell below its costs of production, unfairly putting everyone else out of business. Once it is the only competitor, it will raise its prices and exactly monopoly rents.
This doesn’t make any sense with something like shoes. If Chinese manufacturers were dumb enough to sell below their costs of production, once they raise prices to exact monopoly prices, other producers (domestic or other foreign ones) will jump back into the game and start selling shoes again. Selling below the cost of production to later exact monopoly rents would seem to only work for something where there is a long time lag with actually being able to get a factory up and running. I don’t think shoes would fall into this category. So if Chinese companies were actually selling below the cost of production of shoes, it would actually be good for consumers, since they’d be getting shoes super cheap.
Now if we look at the definition of dumping as charging “below the price it charges in its home market” than I think a lot of Chinese companies are guilty of dumping. When I was in Shanghai, everything was way more expensive than back home. For some reason, things (e.g., clothes) get cheaper when you ship them across the ocean. Though I don’t think this is actually dumping, but just Chinese people getting screwed over on price (perhaps, because the market for these goods isn’t as great there; demand, etc).
On the theory behind AD — yeah, that sounds right to me. Agree with your comments as well. Hard to justify with respect to consumer welfare of course, which is always reduced by trade barriers.
Predatory actions by companies that sell below production cost to gain market share is a specific issue that is sometimes dealt with in national law. I believe that this is more of an unfair competition issue in this respect, but I’m really not an expert in that area. Not sure how something like that is demonstrated, but I would assume it involves more evidence than you would see in a typical AD case. (Anyone feel free to correct me on this point. I’m guessing here.)
If anti-dumping laws is based on the premise that something is made too cheaply, I wonder if China can respond with the antithesis: create anti luxury restrictions on imports because the goods are too expensive. After all, China is rapidly becoming one of the largest luxury goods consumers, so restrictions on this will be quite painful for EU nations like Italy.
That’s certainly creative. I suppose if we want to engage in pure logic, the opposite of a “too cheap” AD duty would be a “too expensive” luxury goods import subsidy, whereby the price to the consumer is lower than the assessed border value.
On a more serious note, targeting luxury goods, or anything of particular importance to a country, as a retaliatory gesture is something that goes on quite a lot (e.g., we just happened to find a sanitary problem with certain products at the same time your nation decided a big AD case against our imports).