The Economic And Legal Analysis Of Dumping

Shruti Ojha - 1/10/2008

One of the main reasons behind distortion of international trade and fair competition is that though increasing returns in a monopolistic market promote international trade this situation ignores many of the detrimental effects that can arise due to imperfect competition, such as a disparity in the prices a firm charges for its goods that are exported and the ones that are sold in their respective domestic markets, constituting price discrimination. The most common form of price discrimination is dumping, defined as a situation where, the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country.1 The definition of dumping according to GATT2 is: The sale of products for export at a price less than the normal value where normal value means roughly the price for which those same products are sold on the home or exporting market.3 The concept of dumping seems fair because it is recognized that producers may sell their goods in different markets at different prices and that prices of a goods are influenced by several market forces and may vary at different times. It may be a perfectly legitimised business activity like discounts offered by airlines to students or senior citizens etc. There may not seem anything intrinsically unethical or illegal about dumping. Adam Smith has famously quoted: If a foreign country can supply us with commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.4 Economists have emphasized that economic law and policy should only be about economic efficiency. They rebuff any legal doctrine that entrenches any economic rights at all on grounds of fairness, rather than efficiency. According to them the whole purpose of competition is for consumer welfare. However, dumping is regarded as an unfair trade practice as it may cause or threaten to cause material injury to the importing markets and hence, anti-dumping measures are initiated.5 These measures include imposition of anti-dumping duties that are imposed at the time of imports in addition to other custom duties that are intended to off-set the supposed injury and price undertaking, wherein the exporter himself undertakes to raise the price of the product and then sell it in the importing country to avoid the antidumping duties.6 The credibility of these measures has been debated upon since on one side anti-dumping measures aim at providing speedy relief to the domestic industry against the trade-distorting phenomenon of dumping and on the other hand, it is argued that countries take advantage of anti-dumping laws because of their economic and political manipulability7 and prove to be a threat to the free market access that the GATT/WTO have strived to achieve in the past 50 years. The agreement on Anti-dumping had been made in the Uruguay round Agreement on Anti-dumping, formally called the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, that allows GATT contracting parties to offset the margin of dumping of dumped goods if it can be shown that such dumping causes, or threatens to cause material injury to competing domestic industries8. Most lawyers defend anti-dumping as a trade remedy that is necessary for ensuring fair trade. According to them, international price discrimination is objectionable. If left uncontested and unchallenged, it confers a comparative advantage on exporters. Exporters exploit the market, with considerable negative effects on domestic industry.9 The use of anti-dumping actions therefore enables the domestic producers to offset, quantitatively the artificial advantages received by the exporting countrys producers so that they are able to compete on an equal footing with the exporting countrys producers. Anti-dumping measures largely provide this level playing field10. Dumping has two differing effects in the importing country. The low prices of the imported products may harm the domestic industry which is producing like products. At the same time, consumers and other industrial users of the importing country may benefit from such low prices. However, these users and consumers are not well organized and their voice is not as strong as the producer industries which are normally backed by trade unions. Hence, pressure for acting against dumping is usually much stronger than that of dumping. The researcher feels that the anti-dumping lobby is unfairly strong because it has the backing of organized institutions like trade unions that can challenge dumping and thus has the authority and influence in the world market to enact legislations that punish dumping. However, consumers, the main users of all industrial and non-industrial products benefit from dumped products in terms of both cost and efficiency. However, their voices are muffled by the strong opposition of self-minded producers who are vehemently opposing dumping. Therefore, through this project, the researcher plans to bring to light the two sides of dumping and answer the following questions: 1. Chapter I: An economic analysis on dumping: Why do firms dump products? What are the benefits of dumping? 2. Chapter II: A legal perspective on anti-dumping: Why are Anti-dumping laws enacted and what is the reasoning behind the legislations of the WTO/GATT to curb predatory pricing and dumping? 3. Chapter III: The concluding chapter shall deal with the EC Bed Linen Case: A case of anti-dumping filed by the EU against India. Here, all the legal loopholes and economic issues that this landmark case has raised in the Anti-dumping agreement under GATT and how does it affect the Indian producers shall be questioned and answered. The researcher shall try to explain both the ill-effects and advantages of the practice of dumping by bringing out the legal support for anti-dumping vis--vis the economists stress on economic efficiency and welfare as a result of dumping. That shall be the focus of the final project. CHAPTER I: IN DEFENSE OF DUMPING: ANTI-DUMPING FLAWS The rhetoric of anti-dumping is that it disciplines unfair trade practices. The agreement specifies that price discrimination is an unfair trade practice if it causes injury to domestic industry. However, economists argue that without showing predatory intent, price discrimination cannot be held to be an unfair trade practise. Since there is no such pre-requisite of anti-dumping use, it itself is an unfair trade practise that blocks fair competition. 11 Benefits of dumping: On the exporting country 1. It finds market for its surplus production 2. By exporting more, it is able to strengthen its balance of payments position 3. Consumers in the importing country benefit as they have to pay lower prices for whatever they purchase of the commodity dumped.12 Dumping benefits the consumers in the importing country who can buy the products at cheaper rates. The losers are the consumers in the exporting country.

Dumping may also be caused by what is known as transitional dumping. It occurs when an exporter needs to price below marginal cost in order to maximize sales and expand market share. In this case below cost-pricing is a kind of investment in the marketing of the product to reap profits in the long run. Because this may require fixing price below marginal cost, it may be treated as predatory pricing. Yet, clearly it is not. 13 Originally designed as a weapon against predatory and powerful companies, the role of anti-dumping measures has changed from ensuring fair competition to protecting inefficient competitors. They are being increasingly used against efficient producers, especially from developing countries.14 Confronted with such situations developing countries like China are formulating their own anti-dumping legislations. The bias in the definition of dumping favors the party imposing anti-dumping duties. Dumping is considered to exist if the export price of a product is less than the comparable price of the product or like-product in the domestic market in the ordinary course of trade. However, when the average export and product prices of a product are calculated, domestic sales prices below total cost are considered beyond the ordinary course of trade and therefore excluded, while all export prices are included, thus artificially raising the level of domestic price. This is a discrepancy in the calculation of dumping, and thus even in cases where there is no dumping, according to the strict definition of dumping as per the GATT Anti-dumping agreement, it will be considered as dumping and anti-dumping measures will be unfairly levied on the producer; whilst in true cases of dumping, a producer might be exempted from the anti-dumping measures. Thus this arbitrariness in the calculation of dumping makes anti-dumping an unfair mechanism that randomly levies duties on innocent producers or exempts the real dumping producers, due to non-uniformity in the application of the anti-dumping rule. Also, if no home market price can be found, the sales price in a third country surrogate countrycan be used for comparisons. Since different countries have varying levels of economic development and comparative advantages in different sectors, the arbitrary choice of a third country may easily lead to the definition of dumping.15 Furthermore, when neither home country nor a third country price is available, a constructed value is used which is the sum of material and labor costs of production plus administrative, selling and general costs plus profit. As items such as administrative costs and profits vary greatly among countries and companies, it is not difficult to see the inherent subjectivity of the approach.16 Sometimes, selling below total cost is a normal business practice, and not necessarily dumping. According to the theory of micro-economics, so long as the price is above average variable cost of production, a firm has incentives to continue production in the short run, in order to minimize losses on fixed investment, in the hope that the market situation will improve later to bring it back to profit. The duration of these short periods may vary from firm to firm. 17 When a product enters a foreign market the exporting firm may have to sell below total cost of production to attract consumers or to meet the existing competition without any intention to dominate the market, especially if the product does not enjoy the same established reputation as similar products in the market. It is unreasonable to subject such business practises which are normal within many countries to anti-dumping charges when foreign companies are involved. According to the Uruguay Round of anti-dumping code, an importing country can only apply for anti-dumping duties when it is demonstrated that the dumped imports have indeed caused injury to domestic industries. Yet too often in reality either due to the complexities of the issues involved or to protectionist considerations, anti-dumping authorities determine dumping without carefully considering whether the difficulties of domestic producers resulted from their own efficiency or inefficiency or from the allegedly dumped products. The consequent imposition of anti-dumping duties tends to penalize the most efficient foreign producers. The problems associated with anti-dumping rules are also related to the rules of origin. In a world with increasingly globalizing tendencies and production, a product may be the result of production in many countries. As there is no substantive multilaterally agreed rules of origin, the same product can be considered to have different origins by different countries. 18 Therefore even if dumping has been correctly determined it may be difficult to find who the party at fault is. The application or abuse of lax anti-dumping rules penalizes foreign producers who enjoy comparative advantages, to the benefit of inefficient domestic producers. It also increases uncertainty in international trade, thus acting as a deterrent against potential foreign competitors. But foreign producers are not the only victims. The importers and industrial users of the product in the country imposing the anti-dumping duties may become less competitive due to higher prices caused by such measures. Consumers have to pay more for similar products. As anti-dumping rules vary for different countries, their complaints may not be adequately represented. Even if some anti-dumping legislation requires consideration of the views of these groups, the theory of political economy tells us that it is unlikely for these diverse groups to be as vociferous as the concentrated producers of an industry in lobbying activities. 19 The abuse of anti-dumping rules hits the developing countries harder whose exports are increasingly subject to such measures in recent years. Due to their less diversified economies, the developing countries enjoy comparative advantage in only a few sectors. If the export of their competitive products is obstructed by anti-dumping measures, their foreign exchange earnings and even economic development may be negatively affected. Furthermore, as they lack financial resources and experienced personnel on anti-dumping law, the expenses that their exports have to pay for dealing with anti-dumping cases increases. For developing or transitional economies undertaking economic reforms, anti-dumping duties on exports already priced by market forces only serve to hinder their painful process towards a full market economy and to create cynicism about the western preaching of free trade. If an importing country finds that a trade partner subsidizes its exports, it can invoke multilaterally agreed countervailing measures designed for this purpose. If due to some unforeseen developments an industry of an importing country is seriously injured with a flood of imports, the country can take measures to protect domestic producers in accordance with WTO agreement on safeguards. Anti-dumping measures are not an effective cure for difficult market access in another country either, because they do not tackle the problem at its source.20 A number of economists argue for scrapping the anti-dumping agreement altogether. They maintain that unless the anti-dumping laws seek to check predatory pricing the application of the laws is welfare reducing. By seeking to protect domestic producers who cannot face foreign competition the consumers are put to a loss. They argue that domestic consumers benefit from low prices and if the import market is perfectly competitive, the benefits to consumers outweigh the losses to domestic producers21. The current anti-dumping agreement imposes no substantive obligations on the authorities to take the broader public interest into account. Many countries have recommended that investigating authorities must consider public interest before imposing anti-dumping duties. It is not fair that the consumers be asked to pay the price for no commitment on the part of the domestic producers even in the future to be able to take care of their interests. However, it must be noted that public interest is not consumer interest alone. It is a much wider term which covers in its ambit the general social welfare taking into account the larger interest of various stake holders.22 Sporadic dumping is when the producer intends to dispose of the casual overstock of the producers. Sales in the specified period may not be as good as expected and the producer finds himself with surplus stock. He finds it difficult to either dispose it off in the domestic market or to hold it for the next season for various reasons. He therefore tries to sell it in the foreign markets at lower prices to recover some cost, which results in dumping. Sporadic dumping may be unintentional. It could be due to currency fluctuations or due to inexperience of the exporters.23 Also, in sporadic dumping there is an occasional sale of a commodity at lower costs abroad to unload an unforeseen and temporary surplus of the commodity without having to reduce domestic prices, and persistent dumping which may prove to be benefit to a nation since if the producer faces different marginal cost and marginal revenue lines in each market, then it pays to charge different prices in each market. Thus, even though the foreign markets will not be monopolized, the anti-dumping duties will cause severe losses of producer surplus. 24 Also, in countries like USA, according to their Robinson-Patman Act, selling of goods at unreasonably low prices to drive out competition is prohibited and anti-dumping

duties are slapped on firms even if the impact on these competing firms is negligent and temporary. Thus, even though antitrust laws are meant to protect competition, antidumping laws are wrongly used for the same purpose because of the simple reason that any firm would be better off without competition.25 An important reason why anti-dumping laws are abused is to obtain protectionist outcomes is the definition often used to label acts as acts of dumping. According to this definition, a firm is dumping if it sells its products abroad below fair market value i.e. the average price of the product in its home market. Thus, even if it charges a competitive price for its products in the foreign country, just because they may be lower than their home market prices because of several price determining factors such as markets, demand, tariffs, advertising and selling costs, domestic taxes, skewed market functioning and corruption amongst producers leading to artificial deviances in prices or the company simply having lower cost of production than its foreign counterparts, a company is allegedly dumping. The principal argument against this practice is that if price discrimination is accepted as a valid measure domestically, how can it be called dumping merely because it is done internationally?26 Also, the definition of dumping doesnt consider the fact that normal values of goods may differ from time to time. Thus, one cannot just compare the face value of the prices of the good in the two countries to determine the dumping margin and impose a similar anti-dumping duty on the imports.27 Additionally, because it is often difficult to prove that foreign firms charge higher prices to domestic than export customers, many a times a supposedly fair price based on estimates of foreign production costs is used to calculate the dumping margins. This fair price can interfere with perfectly legal business practices such firms willingly incurring losses to sell its goods and simultaneously reducing its costs through experience or making an entry into a new market.28 The WTO rules do not define market economy conditions. Thus, each member has broad discretion in setting the conditions in antidumping allegations and taking advantage of these loopholes to demand protection.29 Since, anti-dumping duties are discriminatory, it implies that the domestic industry can use this instrument to their benefit and target only those foreign firms it views as market rivals. Also, in case of multinational firms, the definitions of domestic and foreign firms are often blurred. Since they produce diverse products, one company may be treated as a domestic firm that seeks protection from dumping, while for another product it may be treated as a foreign firm. The WTO does mandate that the above factors be taken into consideration when determining whether or not dumping is occurring. However, many developing nations and some industrialized nations believe that the most nations do not carry out this obligation in order to gain or keep the political favor of specific groups of voters.30 There is still much confusion as to whether countries are actually using WTOs standards or not in their dumping investigations. There are many theoretical problems with some anti-dumping procedures. Allegations of unfair investigations abound. The WTO's Antidumping Agreement was made very complex to help to deal with these problems. However, it has become too opaque to be able to correctly determine the validity of some anti-dumping measures; thus arbitrarily imposing anti-dumping charges on efficient and innocent producers, posing to be a serious threat to the international market and jeopardizing the concept of free trade.

CHAPTER II: RATIONALE BEHIND ANTI-DUMPING LAWS Political reality suggests that any government that attempts to establish or maintain an open import regime must have at hand some sort of pressure valve - some process to manage occasional pressures for exceptional or sector-specific protection. Since the 1980s anti-dumping has served this function. An anti-dumping petition is the usual way in which an industry, plagued with troublesome imports, will request an anti-dumping investigation. It is the way in which the government then provides protection.31 Anti dumping is a measure to rectify the situation arising out of the dumping of goods and its trade distortive effect. Thus, the purpose of anti dumping duty is to rectify the trade distortive effect of dumping and re-establish fair trade. The use of anti dumping measure as an instrument of fair competition is permitted by the WTO. In fact, anti dumping is an instrument for ensuring fair trade and is not a measure of protection for the domestic industry. It provides relief to the domestic industry against the injury caused by dumping.32 Adam Smith noted that by restraining, either by high duties, or by absolute prohibitions, the importation of such goods from foreign countries as can be produced at home, the monopoly of the home market is more or less secured to the domestic industry employed in producing them33. It can be inferred from his writings generally that he was of the view that by imposing duties, imports that harm domestic industries should be discouraged. Anti-Dumping is a reactionary measure to the dumping of goods into a foreign market. When a country feels that another country is dumping goods into its economy it may institute anti-dumping measures to protect the interests of the domestic producers of that good. The exponents of anti-dumping justify it on the ground that it is a defense mechanism in the hands of the importing country to safeguard their domestic producers. The primary justification for anti-dumping measures is the perceived threat of predatory dumping. In an imperfectly competitive and segmented market i.e. where the prices of goods are controlled by firms and not by the market forces, and consumers have minimum access to goods meant for export purposes, respectively, dumping can prove to be profit-maximising strategy for a monopolist firm.34 Firms may indulge in predatory dumping, wherein the prices of their goods in the foreign markets are reduced temporarily.35 The lower price imports could decrease the amount of domestic products purchased, and domestic companies may not be able to lower their prices in order to compete with these imports, driving these local firms out of business. These foreign firms then command the prices, taking advantage of their newly acquired monopolistic status and cause material injury36 in the form of economic retardations of the locally established industries. The cumulative effect of these injuries, it is contended, will finally lead to job losses, slowdown of economic growth and spread of non-competitiveness. In such cases it is argued that anti-dumping measures are justified as they protect domestic industries from unfair competition from abroad, help in restoring the domestic economies and may thus prove to be prudent measures. By imposing anti-dumping duties, dumped imports are discouraged and domestic firms maximize their own production and profits. It must be recorded however, that predatory dumping is a rarity because it assumes capital market imperfection and an irregularity in financial resources that favor foreign producers.37 It also assumes an impossible coordination between firms to precisely calculate when and how much to dump to drive domestic industries out of business. Additionally, since it is difficult to determine whether dumping is predatory or not, domestic producers demand protection against any form of dumping even if it actually not harmful.38 From a petitioners point of view, anti-dumping stand out since it is a good instrument to obtain protection because imposing other restrictions like import tariffs or voluntary export restraints are inconsistent with the norms of the WTO and most governments are not open to help domestic producers with protection. Also, anti-dumping producers can disguise their fear of being destroyed by gigantic foreign rivals by asking for protection and accusing these foreign competitors of unfair trade practice. 39 The main argument advanced for taking an anti-dumping measure against foreign producers is that such a step ensures that national producers get better experience than the foreign firms. It is frequently argued that such industries bring special advantages to a country, either because they enable domestic factors of production to earn higher returns than in other sectors of the economy or because they generate externalities or spill over benefits for the rest of the economy. Anti-dumping policy is the best instrument for achieving these objectives. 40 According to them, anti-dumping is an instrument that is necessary as it acts as a safety valve that ensures domestic political support to trade liberalizing initiative. Antidumping in their view is the price paid for the maintenance of an open trading system among nations. 41 Anti-dumping is a trade remedy for domestic producers injured by cheap imports. It is a tool that discourages predatory dumping. Anti-dumping is a GATT/WTO legal tool that is used to grant protection to the import competing domestic industry, which is adversely affected by free trade. Government imposed trade barriers and government-tolerated anti-competitive practices permit domestic producers to create monopolies in their home market. This enables them to charge a low price in export markets and compensate the loss by charging higher process in the domestic market without attracting foreign entry.42 Producers in the importing countries fail to expand capacity, to improve productivity and to use all resources efficiently. The distorted price signals in the market thus stimulate overproduction of the exportable goods and underproduction of importable goods. This in turn leads to a chronic oversupply by inefficient producers on one hand and the closure of otherwise competitive facilities on the other, reducing worldwide efficiency. Anti-dumping duties restore relative pricing to prevailing world market

conditions and hence efficient resource allocation.43 The main reason why international price discrimination is usually considered unfair is that a dominant firm, exporting its surplus over domestic profit-maximizing sales at lower prices, can benefit from economies of scale in production which its competitors abroad are not able to achieve. Such a system could be sustained as long as its home market remains protected. However, such conduct enhances competition in the export market as long as the firm sets export prices at or above cost. Selling abroad at a loss could only be rational for predatory purposes.44 Objectives of dumping45 To enter into a foreign marketdumping may be resorted to make an entry in a foreign market with subsidies being provided by the government To dispose of occasional surplus at a lower price in foreign markets To develop a market in foreign countries by selling at a lower price in the initial stages just as new markets van be developed in the country itself by selling at lower prices. Effects of dumping:On the importing country 1. Domestic industry might be affected adversely by a decline in sales and profits. Indian steel industry was affected by Chinese dumping of steel. 2. If dumping is continued for a longer period, survival of the domestic industry may be threatened. 3. Dumping may create balance of payments problems for the country subjected dumping. Predatory dumping is when there are exports at low prices to drive out rivals and establish monopoly power in the importing market. There is an elimination of competition in the importing markets with the intent of recouping the loss at a later date. This type of dumping creates monopolies and damages productive capacity of the importing country. It harms consumers and producers in the long run.46 Permanent dumping is continuous and for many years. It occurs when a producer intends to obtain full production from the existing capacity without cutting the domestic prices or he intends to obtain various economies of larger scale of production without cutting the domestic prices. In sectors where scale economies are important, firms can limit the domestic supply to charge higher prices to maximise profits. For operating at full capacity or to avail of full economies of scale advantages, they look for export markets and charge lower prices because market power is less. Thus the firms produce a surplus output with intent to dump on to export markets. 47 Import competition adversely affects domestic producers who are unable to compete with the low prices of foreign competitors. Anti-dumping measures will help protect domestic producers and is the only mechanism that countries currently have against foreign producers, in order to survive in a world market.

CHAPTER III: ANALYZING THE CONCEPT OF ZEROING: EC BED LINEN CASE Possibly the most egregious distortion of dumping, is the practice known as "zeroing." Zeroing is a concept whereby non-dumped sales are not permitted to offset dumped sales, essentially by setting the value of a negative dumping margin to zero. This is not something dealt with in article VI of the WTO Anti-Dumping Agreement48. It is a significant cause of the systemic overestimation of dumping margins and subsequent application of inflated anti-dumping duties. Certainly, the impact of zeroing varies from case to case. If every comparison generates a positive dumping margin, then the prohibition of zeroing will have no impact. But if there are many comparisons generating negative margins, or if there are only a few generating large negative margins, the prohibition of zeroing can have a very substantial impact on the amount of anti-dumping duties ultimately applied.49 The EU50 and the US argue that zeroing should be authorized by the WTO. Zeroing of course makes dumping easier to find. But that is an unsatisfactory rationale. The European commission explains that zeroing is needed to combat targeted dumping. A dumper, it says, may conceal dumping by selling at high prices at other times or places. However, even if targeted dumping is accepted as a plausible possibility, moreover, the ADA51 (article 2.4.2) allows national authorities to follow unusual trade practices if export pricesdiffer significantly among different purchasers, regions or time periods. But, to justify zeroing under that provision of the ADA, the authorities need to explain that zeroing is necessary and helps in tackling issues of targeted dumping.52

The practice of zeroing had the effect, in almost every case, of increasing the dumping margin. In many cases, the practice of zeroing also resulted in a dumping margin of more than the threshold of 2 per cent required to maintain an anti-dumping proceeding. In fact, in many cases, zeroing generated a margin of dumping where there would otherwise not have been any.53 The WTO Appellate Body has now conclusively determined in multiple cases that zeroing is contrary to member countries commitments under the WTO Anti- Dumping Agreement (ADA). Article 2.4.2 of the ADA requires that an investigating authority take into account all comparable export transactions in the calculation of dumping margins. The WTO Appellate Body held that, by converting negative dumping margins to zero, an investigating authority is not taking into account all export transactions. The Appellate Body thus said that it was impermissible to ignore the effects of negative dumping, i.e., those sales made at un-dumped prices.54 Hence, the current stand of the WTO is that zeroing is not a practice in accordance with the provisions of the Anti-dumping agreement, and thus should be not be followed. It is a measure that is fundamentally flawed in many respects and tends to give an unfair disadvantage to innocent producers. The EC Bed Linen Case: In September 1996 the European Communities (EC) initiated an anti-dumping case against imports from India of cotton-type bed linen. However, the European Union was split about the case. The reason for support for the action was clearprotecting the EUs fabric weaving sector from low-priced import competition. Equally obvious was the reason for opposing the anti-dumping action: job less companies that consumed the imports which incurred or faced redundancies as a result of the protective remedy.55 Because there were so many Indian exporters and producers of the subject merchandise, cottontype bed linen, the EC elected to analyze dumping from a sample of Indian companies. In determining the home (Indian) market price for bed linen sold by investigated respondents, the EC took the constructed value as a substitute for Normal Value. The reason for using constructed value as a proxy for normal value was a lack of sales made in the ordinary course in the Indian market (the market was not viable). The EC identified five types of cotton bed linen exported to it and also sold in representative quantities in India. However, not all five types were sold in India in the ordinary course of trade. Thus, the EC could not base normal value on prices from these sales, and had to use the constructed value.56 The EC established export price from prices actually paid or payable for cotton-type bed linen in the EC market and compared constructed value with export price, computed for each Indian respondent with the dumping margin being the difference between the weighted average constructed prices. In this computation EC applied a zeroing methodology. It deemed any negative dumping margin as zero.57 The EC calculated dumping margins for different models (for example- pillowcases and sheets) finding negative dumping margins on a number of them. It then zeroed these to obtain a dumping margin for bed linen. The panel ruled that the calculation did not take into account of all transactions, as WTO rules require it to. The WTO appellant body said that A comparison between export price and normal value does not fully take into account the prices of all comparable export transactionssuch as the practice of zeroingis not a fair comparison between export price and normal value (the price

in the exporters home market) The Appellate Body of the World Trade Organization has faulted the methods adopted by the European Union in anti-dumping investigations and calculations of dumping and found them to be violative of the WTOs Anti-Dumping (AD) agreement, and ruled in favor of India, in the ECs actions against imports of cotton-type bed linen from India. In its ruling, the Appellate Body found fault with the EU Commissions AD investigations and measures such as58: the practice of zeroing; i.e. investigating the existence of margins of dumping - taking account of the averaging of positive dumping margins in investigated products, but ignoring the cases where there are negative margins and giving a zero value to them instead; calculating the administrative, selling and general (SG&A) costs and profits by using a method where data applicable to one other exporter or producer is used to apply to all others, and calculating the amount of profits by excluding sales by other exporters or producers not made in the ordinary course of trade; and using all types of bed-linen products - bed sheets, duvet covers and pillow cases, packaged for sale either separately or in sets, and made of cotton-type fibers, pure or mixed with man-made fibres or flax, and bleached, dyed or printed - as a single product competing with like products of the domestic industry, for certain purposes of investigation, but using the various components of the imported product for calculating export price and normal value and averaging them, to establish dumping. As a final observation about the bed linen cases, the appellate body exposed the hypocrisy of the ECs argument that bed linens were a single product, but different dumping margins had to be calculated and zeroing had to be used, for different product types. Despite the considerable leeway provided to the importing countries to invoke the Anti-dumping agreements instruments to protect their domestic industry - the WTO dispute settlement panels issuing the rulings shows, the extent of the abuse of the powers and trade harassment by the major industrialized countries, and the long time-period before any relief can be obtained by the exporters in such cases.59

CONCLUSION The use of anti-dumping measures as a trade protection tool has increased phenomenally during the last decade. One significant aspect of this new trend is the increasing involvement of developing countries. India is one such country which has emerged as a frequent user of antidumping measures. Those in favor of anti-dumping duties argue that it is a tool of protection in the hands of the domestic producers against the cheaper foreign imports. Critics of anti-dumping duties though find it difficult to prove the fact that the imposition of anti-dumping duties results in economic benefits to the domestic industry. Consumers are aggrieved as well, as they feel deprived of the lower costs and availability of variety of goods. The role of the government in tackling the problem of anti-dumping should be to protect the smaller industries rather tzhan concentrating on the major industries. This is because, it is these small scale industries which suffer the most as a result of

imposition of anti-dumping duties60. However, safeguarding competition in domestic industry is not the only purpose that anti-dumping laws serve and in the present situation, they are acting as barriers for free trade and domestic producers are concerned about avoiding competition. In case of allegations and anti-dumping duties slapped on economically weaker nations, it could result in a stunt of economic growth for these developing countries, as they are unable to develop secure and stable long term industries. Even the threat of imposition of anti-dumping duties has a serious adverse effect on the functioning of small and medium size firms, resulting in a fall in production, heavy unemployment and declines in incomes and increases in poverty levels.61 Anti-dumping duties were imposed by developed countries to protect their industries against the low priced imports. Right from the beginning there was a clear division between the fundamental aims of those countries whose exports were most commonly exposed to anti-dumping action (developing countries) and those which took such action (mostly developed countries). Developing countries wanted anti-dumping rules to be tight and explicit as possible, allowing minimum transparency. Developed countries wanted to retain and even expand their discretion to meet what they saw as being used by companies to get around the present rules of anti-dumping code and thereby cause injury to domestic industry, their proposals tended to be the most radical and controversial. 62 The wage rate differs from country to country, the economies differ and the demand levels are also different. It is a settled economic fact that firms are guided by profit-maximizing motives. The profits keep increasing till the time that marginal revenue is greater than marginal cost. To allow marginal cost based pricing to adversely affect industry in other countries cannot be justified on social welfare grounds. The capital dumped in the concerned industry and the employment generated by that industry cannot be allowed to go non-functional. This is not to say that the industry should be protected at all costs. The negotiating stance of developing countries like India should be for tightening the agreement. This is because India is a victim if the costs and benefits to different industry segments are assessed at an aggregate level. 63 Even though abolishment of these anti-dumping laws will lead to increased competition, lower prices for consumers, more efficient production, and higher national income, it is unrealistic to hope that the WTO will remove this trade device in the near future. But before things worsen, an immediate reform is necessary and the WTO anti-dumping rules need to be amended to allow a more transparent process of investigation and to determine correctly whether the material injury caused is because of dumping or higher competition only. The WTO rules need to be formulated so as to target only predatory dumping and not persistent or sporadic dumping. All countries need to have the uniform standards for determination of the dumping margins so as to maintain fairness. While aiming at consumer welfare, it is necessary to justify the use of anti-dumping laws as tools against unfair trade, to reconsider its definition and analyze as to what is essentially fair and whats not and keeping in mind the gross abuse of anti-dumping laws answer the very fundamental question of whether these laws are necessary at all. As economics, anti-dumping action looks at only half of the economic impact on the domestic economy. It gives standing to import competing domestic interests, but not to domestic users, be they user enterprises or consumers. As politics, it undercuts rather than supports a policy of openness; by giving voice to only the negative impact of trade on domestic interests and by

inviting such interests to blame their problems on the "unfairness" of foreigners.64 The key characteristic of a sensible safeguard procedure is that it treats domestic interests that would be harmed by an import restriction, equally with those domestic interests that would benefit. The "morality" of the foreign interest is irrelevant - the issue is the plus and minus on the domestic economy. Operationally, this suggestion means simply that what is done in an "injury test," identification of impact on import competing interests - is repeated for users of imports.65 Some argue that there must be more rigorous anti-dumping rules that must be formulated at the domestic and international level. The notion of predatory pricing must be clearly incorporated in the definition of dumping. The burden of proof of dumping must be placed squarely on the party initiating dumping cases. The implementation of anti-dumping measures should be subject to the close inspection of the WTO. Countries should more amply inform their public of the costs and benefits of anti-dumping measures so as to promote an unbiased and fair public opinion on this matter. These measures would ensure that anti-dumping laws are fairly applied and assist only those producers who suffer as a result of the low prices, and not arbitrarily affect the production of efficient producers who are not in error.

BIBLIOGRAPHY
BOOKS: Bhala, Raj, International Trade Law: Theory and Practice, Lexis Nexis, 2003 Jackson, John; The World Trading System - Law and Policy of International Economic Relations, The MIT Press, New York, 2nd Edn., 2000 Krugman R. Paul, Maurice Obstfeld, International Economics: theory and policy, 6th ed., Pearson Education: Delhi, 2004. Rai,Sheela, Anti-Dumping Measures under GATT/WTO, Eastern Book Company, Lucknow, 1st Edition, 2004 Vermuslt Edwin, The WTO Anti-Dumping Agreement, Oxford University Press, United Kingdom, 2005

ARTICLES: A. Smith, The Wealth of Nations, sourced online from http://www.memoware.com/?screen=doc_detail&doc_id=8811&p=category%5E!Philosophy~!&sort_by=downloads&start=0 , last visited at 27/12/2007 Chakravarthi, Raghavan, EC anti-dumping investigation methods held WTO illegal, sourced online from , last visited at 27/12/2007. Finger, Michel, Francis Ng, Wangchuk, Sonam, Anti-dumping as safeguard policy, sourced online from , last visited at 27/12/2007. Goel, Ravinder, Reforming the WTO Anti-dumping Agreement in National Interest, Chartered Secretary, 12, Vol. 32, 2002, at p 1685 Hindley, Brian, Edwin Vermulst, Zeroing in on Zeroing: Anti-dumping in WTO dispute settlement, sourced online from , last visited at 27/12/2007. Ikenson, Dan, Zeroing In: Antidumping's Flawed Methodology under Fire, sourced online from< , last visited at 27/12/2007 M. S. Knoll, Dump Our Anti-Dumping Laws sourced online from R.L. Varshney, Anti-dumping duties and WTO, Chartered Secretary, 1, Vol. 32, 2002 S. Wittayarungruangsri, Antidumping: A Villain in International Trade sourced from http://economics.about.com/cs/moffattentries/a/antidumping.htm last visited on 26/12/2007. Zhu Xiaohua, Anti-dumping measures: time to roll them back, Economic and Political Weekly, 18, Vol. 32, 1997 Anonymous, Dump Anti-dumping, sourced online from , last visited at 27/12/2007 http://www.ogilvyrenault.com/en/ResourceCenter/ResourceCenterDetails.aspx?id=1011&pId=3 http://www.wto.org/english/tratop_e/adp_e/adp_info_e.htm#introduction http://commerce.nic.in/Anti-Dum.PDF 1 See http://www.wto.org/english/tratop_e/adp_e/adp_info_e.htm#introduction, last visited at 27/12/2007 2 General Agreement on Tariffs and Trade 3 Jackson, John, The World Trading System, 2nd edition, USA,1997, at p. 251 4 Rai,Sheela,Anti-dumping measures under GATT and WTO,Eastern Book Company: Lucknow,2004 at p. 1

5Directorate General of Anti-Dumping & Allied Duties Ministry of Commerce, Govt. of India, ANTI-DUMPING-A Guide, sourced online from ,last visited at 20/12/2007 6 Ibid 7 See B. A. Blonigen et al., Antidumping NBER Working Paper 8398 (2001) sourced from last visited on 12/12/2007 8 Supra 4 9 Aggarwal,Aradhna, Anti-dumping agreement and developing countries:An introduction,Oxford University Press:New Delhi,2007, at p.153 10 Ibid 11 See Aggarwal,Aradhna, Anti-dumping agreement and developing countries:An introduction,Oxford University Press:New Delhi,2007 12 R.L. Varshney, Anti-dumping duties and WTO, Chartered Secretary, 1, Vol. 32, 2002, at p 22 13 See Rai,Sheela,Anti-dumping measures under GATT and WTO, Eastern Book Company: Lucknow,2004 14 Zhu Xiaohua, Anti-dumping measures: time to roll them back, Economic and Political Weekly, 18, Vol. 32, 1997, at p 936 15 For example, while investing dumping by Chinese firms, the US authorities often use as surrogate country market economies which have higher costs of labour and raw material or countries where economic reform is proceeding more slowly and in many sectors production is less efficient than in China. 16 See supra 14 17 Ibid 18 See Supra 14 19 See Supra 14 20 Zhu Xiaohua, Anti-dumping measures: time to roll them back, Economic and Political Weekly, 18, Vol. 32, 1997 at p 936 21 Goel, Ravinder, Reforming the WTO Anti-dumping Agreement in National Interest, Chartered Secretary, 12, Vol. 32, 2002, at p 1685 22 Ibid 23 See Aggarwal,Aradhna, Anti-dumping agreement and developing countries:An introduction,Oxford University Press:New Delhi,2007 24 See Krugman R. Paul, Maurice Obstfeld, International Economics: theory and policy, 6th ed., Pearson Education: Delhi, 2004. 25 M. S. Knoll Dump Our Anti-Dumping Laws sourced online from last visited at 27/12/2007. 26 S. Wittayarungruangsri, Antidumping: A Villain in International Trade sourced from http://economics.about.com/cs/moffattentries/a/antidumping.htm last visited on 26/12/2007. 27 See supra 25 28 Krugman R. Paul, Maurice Obstfeld, International Economics: theory and policy, 6th ed., Pearson Education: Delhi, 2004 at p 144. 29 Ibid 30 Supra 26 31 Michel Finger, Francis Ng, Sonam Wangchuk, Anti-dumping as safeguard policy, sourced online from , last visited at 27/12/2007. 32 Anonymous, Dump Anti-dumping, sourced online from , last visited at 27/12/2007 33 A. Smith, The Wealth of Nations sourced from http://www.memoware.com/?screen=doc_detail&doc_id=8811&p=category%5E!Philosophy~!&sort_by=downloads&start=0 , last visited at 27/12/2007 34 See Krugman R. Paul, Maurice Obstfeld, International Economics: theory and policy, 6th ed., Pearson Education: Delhi, 2004. 35 Ibid 36 As required to be proved under Article VI of GATT 1994. 37 See Aggarwal,Aradhna, Anti-dumping agreement and developing countries: An introduction, Oxford University Press:New Delhi,2007

38 See Aggarwal,Aradhna, Anti-dumping agreement and developing countries: An introduction, Oxford University Press:New Delhi,2007 39 M. S. Knoll Dump Our Anti-Dumping Laws sourced from http://www.cato.org/pubs/fpbriefs/fpb-011.html last visited on 27/12/2007 40 Rai, Sheela,Anti-dumping measures under GATT and WTO, Eastern Book Company: Lucknow,2004, at p 2 41 Zhu, Xiaohua, Anti-dumping measures: Time to roll them back, Economic and Political Weekly, 18. Vol. 32, 1997, at p 936 42 Zhu, Xiaohua, Anti-dumping measures: Time to roll them back, Economic and Political Weekly, 18, Vol. 32, 1997, at p 936 43 Ibid 44 See Rai,Sheela,Anti-dumping measures under GATT and WTO, Eastern Book Company: Lucknow,2004 45 R.L. Varshney, Anti-dumping duties and WTO, Chartered Secretary, 1, Vol. 32, 2002, at p 22 46 See Aggarwal,Aradhna, Anti-dumping agreement and developing countries:An introduction,Oxford University Press:New Delhi,2007, at p. 151 47 Ibid

48 Bhala,Prof Raj,Modern GATT law a treatise on the general agreement of Tariffs and Trade, Thomson Sweet and Maxwell: London,2005, at p 738 49 Dan Ikenson, Zeroing In: Antidumping's Flawed Methodology under Fire sourced online from< , last visited at 27/12/2007 50 European Union 51 Anti-dumping agreement 52 Brian Hindley, Edwin Vermulst, Zeroing in on Zeroing: Anti-dumping in WTO dispute settlement, sourced online from , last visited at 27/12/2007. 53 See http://www.ogilvyrenault.com/en/ResourceCenter/ResourceCenterDetails.aspx?id=1011&pId=3 54 Ibid 55 Ibid 56 Ibid 57 Bhala, Prof Raj, Modern GATT law a treatise on the general agreement of Tariffs and Trade, Thomson Sweet and Maxwell: London,2005, at p 738 58 See Bhala,Prof Raj,Modern GATT law a treatise on the general agreement of Tariffs and Trade, Thomson Sweet and Maxwell: London,2005. 59 Chakravarthi Raghavan, EC anti-dumping investigation methods held WTO illegal, sourced online from , last visited at 27/12/2007. 60 For example, they are forced to purchase raw materials from the local monopolies for a price that is higher than what they could have got in the international market. 61 S. Wittayarungruangsri, Antidumping: A Villain in International Trade sourced from http://economics.about.com/cs/moffattentries/a/antidumping.htm ,last visited at 26/12/2007 62 Rai,Sheela,Anti-dumping measures under GATT and WTO,Eastern Book Company: Lucknow,2004 at p. 1 63 Goel, Ravinder, Reforming the WTO Anti-dumping Agreement in National Interest, Chartered Secretary, 12, Vol. 32, 2002 at p 1685 64 Michel Finger, Francis Ng, Sonam Wangchuk, Anti-dumping as safeguard policy, sourced online from , last visited at 27/12/2007. 65 Ibid

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