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BENEFIT OF LAW AGAINST DUMPING DISPUTED
Terms of violation open to interpretation
John McQuaid
The Times Picayune, Sunday March 14, 2004
WASHINGTON -- In the world of international trade, "dumping" is a word with vaguely sinister connotations. It conjures up images of foreign firms pursuing a deliberate, coordinated strategy to drag domestic businesses under by swamping the market with cheap imports.
That's the refrain from some in the U.S. shrimp industry. American shrimpers say they're overwhelmed by a rising tide of dumped imports from six shrimp-farming countries that have sent prices plunging. A group representing the industry in eight states including Louisiana has petitioned the government under the anti-dumping law, asking it to impose tariffs on imports and provide them price relief.
In fact, the U.S. anti-dumping law doesn't require proof that foreign firms accused of dumping are coordinating their actions or that they have any intent to flood the American market. Economists say the law is broadly written and that many of the practices it targets are standard operating procedure for businesses in the United States and around the world.
Such gaps between rhetoric and reality are common in the world of anti-dumping that shrimpers have entered.
Numbers crunchers
As globalization sends waves of disruption through the U.S. economy, international trade has become a bitter political issue in Louisiana and many other states that have lost jobs due to foreign competition.
The anti-dumping law offers a way for embattled industries to get temporary economic relief. It's also a political safety valve.
Although anti-dumping decisions reverberate around the globe, they are decided within a small and insular Washington subculture, overseen by bureaucrats crunching numbers in arcane formulas and brigades of expensive trade lawyers poring over documents. The cases are governed by rules that few outsiders understand and, critics say, are rife with inconsistencies.
Proponents say the anti-dumping law can "level the playing field" of international trade, where foreign firms often don't play fair and their behavior endangers American jobs. The law is a tool Congress has given industries to defend themselves.
"The goal is to offset unfair trade," said Deborah Regan, a spokeswoman for the Southern Shrimp Alliance, which organized the industry's anti-dumping drive. "The concept of anti-dumping law is similar to antitrust law in that there is a market distortion that needs to be fixed in order to remain competitive and protect consumers in the long run."
But a recent report by the nonpartisan Congressional Budget Office says the anti-dumping law's costs to the economy outweigh its benefits to individual industries.
"Measured broadly, the policies are harmful to overall U.S. economic well-being," the report says.
Other critics, including free-trade advocates and many mainstream economists, agree that the global marketplace is often unfair. But they say that the law and its rules -- especially the complicated formulas the government uses to calculate tariffs -- are arbitrary and penalize firms that are operating by normal rules in international markets.
They say that it's essentially a form of protectionism and thus inimical to free trade. "Anti-dumping is ordinary protection with a grand public relations program," economist J. Michael Finger wrote in a book on the subject, "Antidumping: How It Works and Who Gets Hurt."
A fighting chance
The shrimp anti-dumping case before the government is one of dozens filed every year. It alleges that six of the leading exporters of shrimp to the United States -- Brazil, China, Ecuador, India, Thailand and Vietnam -- have flooded the U.S. market with their product at prices below cost. The U.S. industry wants the government to impose tariffs on shrimp imports that range from 26 percent to 349 percent.
Government officials are analyzing the claims, and trade experts generally give the shrimp industry a good shot at winning.
The government uses a complex, two-tiered system to analyze dumping cases. It's up to the Commerce Department to decide whether dumping is actually happening and what tariffs, called "dumping margins," should be applied. The U.S. International Trade Commission has the final word, looking at whether U.S. businesses -- in this case the shrimp businesses -- have suffered "material injury" because of imports. So far, both agencies have made preliminary rulings in favor of U.S. shrimpers.
If those findings are upheld later this year, the government will tax imports for five years. Under a recent law, the money would be distributed to the industry.
In general, the government tends to side with U.S. industries. It finds dumping in more than 80 percent of cases and certifies harm to domestic businesses in about 60 percent of cases, according to University of Oregon economist Bruce Blonigen, who studies the issue.
"The Commerce Department almost never finds no dumping. So basically you are going to get a positive dumping margin in the shrimp case," said Thomas Prusa, an economist at Rutgers University who studies trade and anti-dumping cases.
Although he said that doesn't mean the more skeptical International Trade Commission will ultimately find in favor of U.S. shrimpers, analysts say the industry is being hurt by the upsurge in inexpensive imports, so satisfying that requirement may not be that hard.
The shrimp case is unusual in that it targets the six countries that lead in exports to the United States. They accounted for 72 percent of shrimp imports during the first nine months of last year. Most cases target individual countries or smaller slices of the market.
"Because (the) imports are so big, the idea of putting a large tariff on shrimp might be a difficult political decision because it will affect such a big portion of what's consumed in the United States," Prusa said, adding that a possible alternative would be a settlement between the exporting countries and the government in which imports would be restricted, he said.
Economists split on law
Economists have differing views about the underlying policy goals of the anti-dumping law. Many see it as fostering protectionism. Others defend the concept as a tool to save jobs and help cushion the blows of the global economy. In the case of the Gulf shrimping industry, an entire culture is undergoing wrenching hard times due in part to foreign competition and may never be the same.
"The anti-dumping concept is perfectly legitimate and has been incorporated into WTO (World Trade Organization) rules because it is a tool to deal with some real issues," said Clyde Prestowitz, president of the Economic Strategy Institute, a left-leaning Washington think tank.
But many economists say the Commerce Department's methods are skewed against foreign firms and in favor of U.S. businesses. "It's hard to find economists who don't shrug and say this doesn't make sense," Prusa said.
"I think the way I would describe it is if the Department of Commerce wanted to unfairly treat foreigners, they have plenty of room to do it," said Michael Moore, an economist at George Washington University who was a member of President Clinton's Council of Economic Advisers. "Whether they do it or not, you have to look into the hearts of analysts who work on these projects. But the department's job is not to be fair to foreigners, it's to promote U.S. business, and Congress wants it that way."
A Commerce Department spokesman did not return telephone calls seeking a response.
Calculations imperfect
Among economists, the most controversial thing about the law is the way the Commerce Department calculates the anti-dumping tariffs. Department economists look at the difference between an imported product's price and a given fair market price. If the actual price is lower, it means foreign firms are selling to Americans too cheap: Dumping is occurring.
The main problem with that approach, Moore and other economists say, is that it's difficult, or in some cases almost impossible, to compare actual prices and a hypothetical "fair market price" because often no one really knows what the latter should be.
Depending on the circumstances of the case, the government defines the market price differently. In the simplest scenario, it looks at prices in the exporting country and compares them with prices in the United States.
But most cases turn on more complex scenarios. For example, of the six countries named in the shrimp anti-dumping case, documents filed by the shrimp industry say that only Brazil had a substantial home market for shrimp. The other countries either don't have much of a consumer shrimp marketplace or they are communist countries that don't have a true marketplace at all.
In those cases, the Commerce Department has several options. It may look for a stand-in market, tabulating shrimp prices in a third country it considers comparable to the exporting country.
Or it can try to determine whether the foreign businesses are selling their shrimp below the cost of producing them, plus a given profit margin.
The speculative nature of the approach is evident in the arguments the U.S. shrimping industry is making against Vietnam and China. The government will conduct its own investigation and derive its own numbers, so the assertions made by attorneys for the U.S. industry are not the last word on the matter. But they do show something about how the process works.
To make the argument that Chinese firms are dumping shrimp in the United States, attorneys for the American shrimp industry devised an elaborate economic model to come up with the cost of producing shrimp in China and Vietnam.
But because they are communist countries without market economies, reliable, basic data on the possible costs of production -- such as electricity, labor and chemicals -- are not available.
"Petitioner is not privy to Chinese producers' actual manufacturing costs for subject merchandise," says the U.S. shrimp industry petition.
Instead, the model borrows various prices and costs from the United States and India as a stand-in for the Chinese data. Lawyers surveyed American shrimp processors to figure out what they spent proportionally on various items, including electricity, water and packaging materials, to process a pound of frozen shrimp. To estimate the costs of those things, they researched the Indian economy. Then they combined the two to come up with a cost.
Finally, they estimated a profit margin for the Chinese. But the petition says they were unable to get good data on profit margins in India, so the estimate is based on "best information reasonably available."
The final "constructed value" for large Chinese shrimp was $10.60 per pound -- $7.72 more than the U.S. price taken from Customs Service data. That translates into a proposed tariff of 268 percent.
Economists say that approach is full of potential problems, starting with comparing costs in different countries. "Who knows whether those are the right prices or not?" Moore said. "The assumption that the price of transport should be the same in India or China is a wild assumption."
Bradford Ward, an attorney for the Southern Shrimp Alliance, defended the methodology, saying there has to be a way to evaluate production costs in different economic systems.
"I would agree it's probably not perfect, but it plainly is the best that folks have been able to come up with," he said.
Routine practice
The Commerce Department also assumes selling at any price below its estimates of fair value is dumping. But economists say that such a practice is universal: Companies routinely sell below the prevailing market value. Many temporary conditions can lead to price cuts -- having an excess of supply, for example. The only distinction in the anti-dumping law is that foreign firms are doing it, which makes it illegal.
"They're saying if you charge a price here in the U.S. that's lower than the domestic market, it's not fair. But (computer maker) HP sells at different prices in New Orleans, Washington and Eugene," Blonigen said.
"You could probably accuse every single firm in the world of dumping, and by Commerce's methodology you could find everyone is dumping."
Economists distinguish dumping from predatory pricing, which is selling at a very low price with the intention of driving competitors out of business. That practice is rare and usually can't be sustained over a long period of time without driving the perpetrator out of business instead.
But Ward said that the notion that "everybody does it" doesn't make it OK, because foreign producers can have unfair advantages over their American counterparts.
"The difference between selling from Louisiana to Arkansas is virtually none, but the difference from selling in Vietnam to Louisiana is very significant," he said. "There are different legal regimes, different investment issues, different government subsidy issues. They are fundamentally different economic systems."
Another problem, economists say, is that the government typically puts all the firms and countries together and decides a case collectively -- even though different firms sell at different prices, shrimp from one country may have a dramatically different price structure than another, or even be a different product. In the shrimp case, for example, India is arguing that its principal shrimp export is a different species and not comparable to U.S. shrimp.
"The great thing about anti-dumping is it's really hard to argue you are for unfair trade -- you will be lambasted," Prusa said. "The hard part for economists is that in theory, the law is not really egregious, it's the way we've chosen to implement it."
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