Dumping On Free Trade: The U.S. Author: Joseph E. Stiglitz By Tomika and Terriann

What are the proper policy objectives of import trade laws? Dumping Foreign Export Subsidies Import Surges

Dumping A type of international discrimination Condones detrimental behavior Prevents behavior beneficial to affecting countries Prices are lower if domestic demand is more elastic than foreign demand

2 Reasons for policy makers to worry about dumping Predatory pricing –When a firm intentionally drives down the market price in order to force other firms out of the market –Consumer Surplus is higher during the predation period –If successful market power and prices are higher –Creates reputation for craziness and irrational behavior New trade theory effects –Suggests that there may be a limited number of cases involving some sort of nonconvexity and imperfect competition, in which protection of the home market affords a firm first mover advantages, facilitates dynamic learning effects or generates other benefits

Reasons to worry about dumping Foreign export subsidies Global welfare effects Import surges

Pre-Uruguay Round Section 232 –Regulates imports that threaten national security Section 301 –Deals with foreign trade barriers in violations of trade agreements Section 337 –Addresses unlawful marketing of imports Section 701 –Governs countervailing duties Section 731 –Antidumping statue Section 201 and 406 –Address market surges

Antidumping laws –Has two parts Dumping component: compares price in the US to a so call foreign market value Injury component: the ITC determines where the imports are causing or threatening material injury to US industries

Countervailing Duty Laws First US statute to address unfair international trade Dept of commerce determines whether imports to the US are being subsidized ITC determines whether material injury results from subsidized imports GATT allows safeguards to be imposed if unanticipated increases in imports inflict serious inury on a domestic industry Implemented by US during the Tokyo Round

Uruguay Round Improvements in the laws include –stipulations that profit calculations use actual data –Orders must be terminated after 5 yrs –That price comparison must be on a transaction to transaction or average to average basis –Evidence submitted by foreign exporters must be accepted and used –subsidides

Subsidies Divided into 3 categories –Those that are prohibited –Those that are permitted unless they cause adverse trade effects –Those that are permitted regardless of trade effects

Future: Authors view What specific reforms would improve the system? –Merge antidumping laws with predatory pricing laws –Remove some of the more egregious procedural problems by passing new laws or re-interpreting extent laws –Stricter injury test and a higher standard for establishing the existence of subsidies

Problems with antidumping Difficulties of measuring marginal cost Treatment of cost of new operations Nexus between market barriers and probability of successful predation Definition of relevant market