Effectiveness of the Canadian Antidumping Regime: Is Trade Restricted? Nisha Malhotra and Horatiu Rus WE would like to thank TARGET (UBC) for funding the above project

Motivation The large and growing use of antidumping throughout the world: an interesting phenomenon, theoretically and empirically. Do antidumping duties amount to trade protection for domestic producers? Unambiguously yes, when all foreign firms would be restricted access to the domestic market, but Unclear when only certain firms/countries singled out Antidumping - by its nature discriminatory among exporters Also relevant from a policy point of view: AD duties - higher prices: penalize industries that use these protected goods and hurt final consumers.

Importance A significant amount of work, theoretical and empirical, to study effectiveness and ramifications of AD investigations for an importing country: There have been quite a few empirical studies carried out analyzing the trade effect of ANTIDUMPING investigations for various countries: US, EU, Mexico and more recently for a few other developing countries. However, the results are not consistent across these studies for the various countries; thus one can not infer the effect of AD in Canada from these studies Research on the use or the effect of the Canadian AD law is quite scarce.

Literature There is no consensus Prusa (1997) : trade effects of US antidumping actions Prusa (1997) : trade effects of US antidumping actions antidumping duties restrict trade named countries. antidumping duties restrict trade named countries. Trade diversion to the ‘non-named’ countries Trade diversion to the ‘non-named’ countries Vandenbussche et all (1999): case of European Union. Vandenbussche et all (1999): case of European Union. antidumping duties restrict trade ‘named’ countries antidumping duties restrict trade ‘named’ countries No trade diversion to the ‘non-named’ countries No trade diversion to the ‘non-named’ countries Niels (2003) shows that for Mexico there isn’t significant trade diversion after AD duty is imposed on the named countries. Niels (2003) shows that for Mexico there isn’t significant trade diversion after AD duty is imposed on the named countries. Does not help infer - trade effects of AD policy in Canada Does not help infer - trade effects of AD policy in Canada

Importance of AD in Canada Number of Properly documented cases

Canada-Antidumping law Canada's anti-dumping and countervailing law is contained in the Special Import Measures Act (SIMA). Canada's anti-dumping and countervailing law is contained in the Special Import Measures Act (SIMA). (CCRA) and the Canadian International Trade Tribunal (Tribunal) are jointly responsible for administering SIMA Canada Border Services Agency (CBSA) formerly - Revenue Canada (CCRA) and the Canadian International Trade Tribunal (Tribunal) are jointly responsible for administering SIMA If an industry in Canada believes that it is being injured by unfair competition through dumping, it may request the imposition of antidumping duties by filing a petition with CBSA. If an industry in Canada believes that it is being injured by unfair competition through dumping, it may request the imposition of antidumping duties by filing a petition with CBSA.

Canada-Antidumping law Steps undertaken in an AD investigation Steps undertaken in an AD investigation Petition filed by the firm/firms on behalf of the industry (petitioners must represent at least 25% of domestic production )Petition filed by the firm/firms on behalf of the industry (petitioners must represent at least 25% of domestic production ) CBSA starts an investigation and decides whether to begin a formal investigation or drop the case (Sends a copy to the Tribunal)CBSA starts an investigation and decides whether to begin a formal investigation or drop the case (Sends a copy to the Tribunal) Tribunal’s preliminary Injury findingTribunal’s preliminary Injury finding CBSA preliminary dumping findingCBSA preliminary dumping finding CBSA final dumping findingCBSA final dumping finding Tribunal’s final injury findingTribunal’s final injury finding

Difference in ANTIDUMPING legislation WTO ADA: harmonization of ground principles (normal values, need to prove injury etc.), still allows for national/regional regulatory variation ‘two-track’ AD determination, like the US, unlike the EU prospective system, unlike the US (retrospective) no lesser duty rule: “full duty rule” - unlike the EU regime, but similar the US (more protectionist?) the cumulation principle repeatedly maintained (pool exporters to determine injury) the 2% de minimis principle rarely used, at country level (expect lower diversion if C.A. national) Some results may be interpreted from the perspective of these institutional and procedural differences in AD legislation.

Question Trade effects of AD policy in the manufacturing Industry in Canada. Are antidumping duties effective in restricting trade from Countries named in the ANTIDUMPING petition? Is there any trade diversion to other non-named countries thus making AD ineffective as a protectionist tool.

Question-Why? imports might be diverted away from the alleged source country to the non-alleged countries rendering AD law ineffective in benefiting the domestic Industry. imports might be diverted away from the alleged source country to the non-alleged countries rendering AD law ineffective in benefiting the domestic Industry. beneficiary of AD duties is not the domestic industry, but exporters to whom trade is divertedbeneficiary of AD duties is not the domestic industry, but exporters to whom trade is diverted These questions are also relevant from a policy point of view; AD duties like any other tariff translate into higher prices. These questions are also relevant from a policy point of view; AD duties like any other tariff translate into higher prices. These higher prices penalize industries that use these protected goods and also hurt final consumers These higher prices penalize industries that use these protected goods and also hurt final consumers

DATA Data : Level of Imports: Detailed 10-digit HS-level import data was obtained from Statistics Canada. Antidumping Data: Canadian antidumping measures was constructed using the report from the Canadian Border Services Agency’s Historical Listing of Antidumping Cases. confirmed from WTO Antidumping Gateway and complemented from Statistics Canada’s directory of HS codes ( The ANTIDUMPING data is available from the authors. )

Empirical Specification lnm: Log Imports lnm: Log Imports a: affirmative a: affirmative n: negative n: negative u: Undertaking u: Undertaking t(1-3): Years after AD is filed; t1: one year after petition is filed t(1-3): Years after AD is filed; t1: one year after petition is filed Interaction terms Interaction terms Include year dummies Include year dummiesModels: Ordinary Least Square Regressions Ordinary Least Square Regressions Fixed Effect Models Fixed Effect Models

Results Sizeable trade restriction effects: strong evidence of substantial (76%) trade restriction from named countries, one period after the imposition of duties a time-effective protectionist tool: initial drop not followed by subsequent import decreases in later periods no strong indication of an “investigation”/“harassment” effect of Canadian AD: a negative dumping determination has no significant trade effects for both named and non- named sources (transparency, prospective AD?) Canadian Antidumping - timely and effective as a protectionist instrument

Comparing the results Prusa(2001): substantial (50%) import drop from the named sources in the first period Vandenbussche et al.(2001): comparable imports restrictions of 67% determination

Canadian AD = timely and effective as protectionist tool: significant reduction in imports from named sources, concentrated in the period immediately after the imposition of duties little to no evidence of imports being diverted toward non-named countries or firms Possible refinements: does product homogeneity/heterogeneity matter? Why no effect for undertakings? Conclusion