Policy Perspectives: Antidumping Support Threatens U.S. Free Trade

By Daniel Ikenson

Daniel Ikenson is associate director of the Cato Institute's Center for Trade Policy Studies.

December 12, 2006

So far this year the U.S. government has initiated just three antidumping cases on behalf of domestic industries. In all of 2005, only 12 cases were initiated--well below the recent 11-year average of 33 initiations per year. Antidumping use is on the decline in the United States, and that trend is mirrored globally.

The recent decline in antidumping initiations can be attributed to a few positive developments. First, the U.S. economy has been growing steadily since the recession of 2001. In a healthy economic environment, it is more difficult to make the case that a domestic industry is materially injured. That relates to the second reason for the decline: today, the U.S. steel industry, which has accounted for the preponderance of antidumping activity in the past (58% of the 208 cases over the past 11 years), is arguably healthier than it has ever been.

The third explanation for declining antidumping use is that as the world economy has expanded and new markets have developed, producers have many more sales opportunities in many different markets relative to even the recent past. Fewer wish to compete on price in the United States, while more are cultivating their presence in rapidly growing developing markets.

A fourth reason for the decline is that as globalization has progressed, foreign direct investment has flourished and supply chains have gone international. The once clear definition of a domestic industry has been blurred by the fact that production of a final product often takes place in multiple countries. Antidumping actions nowadays are more likely to penalize suppliers that are related to prospective U.S. petitioners.

However, although antidumping initiations have declined in recent years and structural changes in the world economy should curtail the conditions that traditionally have inspired antidumping cases, efforts are underway to make the law more accessible and more attractive to protection-seeking U.S. industries.

In Congress, the antidumping law enjoys broad bipartisan support. Most lawmakers consider antidumping rules a legitimate response to "unfair" trade. Against this backdrop, Rep. Phil English (R-PA) introduced in May the Trade Law Reform Act of 2006, which would, among other things, lower the already minimal evidentiary requirements necessary to impose antidumping measures. And, it would change calculation methodologies in a way that would generate higher penalties. Many aspects of the bill would baldly violate U.S. WTO obligations.

For those who might believe that U.S. obligations will ensure that Congress does not knowingly contravene those commitments, the U.S. track record regarding its responsiveness to adverse findings against its antidumping practices and procedures suggests otherwise. The long-running softwood lumber dispute with Canada finally ended in a settlement. But, the United States essentially left the Canadians no choice but to settle because after losing time and again on its injury and dumping findings, exhausting its appeals, U.S. authorities refused to abide by those rulings.

Repeal of the Byrd Amendment, which was a provision that funneled antidumping duties collected by the Customs Service into the coffers of companies that brought and supported the respective antidumping petitions, has inspired "creative lawyering" to keep antidumping attractive to domestic industries. In a recent antidumping case involving shrimp from hundreds of companies in six countries, lawyers representing the domestic shrimp industry approached the foreign exporters with a deal: in exchange for 2 to 3 percent of each company's revenue on U.S. sales, the petitioner's would abandon their efforts to have the duty rates increased. Many of the foreign companies, preferring not to risk higher duty penalties, paid the cash and accepted the deal.

If legislation like the Trade Law Reform Act of 2006 becomes law, it will change the analysis industries conduct when considering trade actions, weighing more heavily in favor of bringing more antidumping suits. And with the "successful" shrimp settlements as a model, antidumping will be marketable as a revenue-generating scheme and pitched to industries otherwise disinclined to bring such actions. Although the antidumping front has been relatively quiet in recent years, signs point to increasing use in the future.

This article appeared in the World Trade Magazine on December 12, 2006 and was excerpted from a Cato Institute Free Trade Bulletin by the same author titled All Quiet on the Antidumping Front? Take a Closer Look, September 14, 2006.