Anti-dumping laws: Good or bad for LDCs?

THE FINANCIAL EXPRESS [BANGLADESH]

Dhaka, Saturday March 15 2008
M. Zakir Hossain

IN this globalized world, trade is considered to be the key for development and growth of a country's economy no matter whether it is a developing or least developed country (LDC). While countries trade in the global market, often some private firms and entities apply unfair trade practices. Such practices cause serious injury for domestic industries in a particular importing country.

Dumping of products by one country in another importing country is one of the common unfair trade practices. For example, China has been dumping television sets and furniture in the US market. The countries prominently figuring in anti-dumping investigations are China, the European Union (EU), Korea, Taiwan, Japan, USA, Singapore, Russia etc. Bangladesh probably is the only LDC that brought up more than one anti-dumping cases to the World Trade Organisation (WTO). Countries who are the members of the WTO, being regulated by their national trade-remedy policies and laws in consistent with WTO anti-dumping agreement.

The anti-dumping instrument is one of the three trade defence instruments widely used by the many developed and developing countries since 1970 against unfair trade practices. Under the anti-dumping laws, antidumping duty is imposed on the exporters or exporting countries to compensate the domestic industries for material injury.

The countries which are members of the WTO have to comply with the WTO agreement on anti-dumping. The LDCs need to have trade-remedies' laws including anti-dumping to protect their domestic industries and to gain from competition. Reasons for which the LDCs need to adopt anti-dumping laws are as explained below:

-- To protect their domestic industries from unfair trade practices through creating an institutional framework along with regulatory policies and a well-defined mechanism.

In LDCs, the governments need to establish institutions to deal with trade remedies and to control unfair competition in order to protect the local industries through ensuring a 'level playing field' for local industries. In order to control any predatory and pernicious price-cutting behaviour of importers making the local industries uncompetitive, an institution along with a set of defined polices and required human capacity must be ensured so that they can observe country's trading system and market movements closely and regularly and undertake the required investigation to identify materials injury.

-- To protect the rights of the consumers through controlling unhealthy competition, using study and research findings on the industrial sectors as good basis and wide dissemination.

Predatory pricing is harmful not only to the local competitors but to the consumers as well. The anti-trust laws prohibits this type of pricing technique as it abuses to monopolizing an industry. This practice of charging less than the marginal cost of production is done to drive competitors out of business so that the price-cutter can thereafter raise its price level and recoup its losses, which goes against the interest of the consumers.

However, anti-dumping laws can sometimes be misused by countries to protect their industries through applying the marginal cost of production concept. This could be done through local industry-biased calculation of injury. However, more and more countries including LDCs are embracing anti-dumping laws.

The LDCs, being the signatories to WTO, it is mandatory for them to adopt national trade defence policies in consistent with the WTO anti-dumping agreement. However, if a least developed country is not a member of the WTO, it may not require adopting anti-dumping laws at a certain stage. When a country is not having a certain level of industrial base, it may avoid incorporating anti-dumping laws within its jurisdiction. Because, enterprises in the LDCs with limited scale of production and inefficient operation are unable to offer quality products at a competitive price. Since the per unit production cost is higher, they may not able to compete with the cheaper imported products. On the contrary, there is welfare gain for the consumers who get quality imported products at a lower price. Such facilities may not be achieved if the anti-dumping laws are adopted in the LDCs. However, countries may need introducing the anti-dumping laws at a later stage when the local industries are competitive. Finally, there are reasons to eliminate the anti-dumping laws in LDCs and these are as follows:

-- Increased competition in the local markets bringing prices lower for the consumers

From the social welfare point of view, dumped products from foreign firms are beneficial for the dumping-recipient LDCs. These benefits arise from cheaper imports.

-- Higher national income resulting from increased efficiency in production activities

When the LDCs are having cheaper imported products, it can also increase more competition in the domestic market and the domestic producers of similar goods or services may strive hard to improve their operation scale and productivity. This results in ultimate efficiency gain in the local industries and this way, additional outputs can be achieved that contributes to higher gross domestic product (GDP) for the economy. Finally, welfare analysis suggests that anti-dumping tariffs are the least convenient trade policy for the dumping recipient country.

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The writer is Chief Executive, Young Consultants, a Dhaka-based economic research body