McGraw-Hill/Irwin Copyright  2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 11: Pushing Exports

11-2 Dumping Selling exports at a price that is “ too low, ” a price below “ normal value ” or “ fair market value. ” Selling exports at a price that is “ too low, ” a price below “ normal value ” or “ fair market value. ”Either The export price is lower than the price charged for comparable domestic sales in the home market of the exporter. The export price is lower than the price charged for comparable domestic sales in the home market of the exporter.or The export price is lower than the full unit cost (including a profit margin). The export price is lower than the full unit cost (including a profit margin).

11-3 Why dumping? Why dumping? Predatory dumping – temporary, to drive competitors out of business; then firm is a monopoly Predatory dumping – temporary, to drive competitors out of business; then firm is a monopoly Cyclical dumping – when demand is low; price is below ATC but above AVC Cyclical dumping – when demand is low; price is below ATC but above AVC Seasonal dumping – to sell off excess inventories (perishable goods, fashion items, new items) Seasonal dumping – to sell off excess inventories (perishable goods, fashion items, new items) Persistent dumping – a firm with market power uses price discrimination Persistent dumping – a firm with market power uses price discrimination Firm is a monopoly at home, but a competitive firm internationally Firm is a monopoly at home, but a competitive firm internationally Price discrimination is more profitable Price discrimination is more profitable

11-4 Reacting to dumping Reacting to dumping With persistent dumping there is gain in consumer surplus in the importing country which exceeds the loss in producer surplus With persistent dumping there is gain in consumer surplus in the importing country which exceeds the loss in producer surplus With predatory dumping, short run gain is outweighed by the long run loss With predatory dumping, short run gain is outweighed by the long run loss Predatory dumping is likely to be rare in modern markets – the short run losses are certain while the long run gains aren ’ t Predatory dumping is likely to be rare in modern markets – the short run losses are certain while the long run gains aren ’ t With cyclical dumping, international recessions are shared in a way similar to the sharing of the benefits of trade; can be unfair to the importing country, but usually is part of the normal working of a competitive market With cyclical dumping, international recessions are shared in a way similar to the sharing of the benefits of trade; can be unfair to the importing country, but usually is part of the normal working of a competitive market

11-5 Figure Persistent Dumping

11-6 Actual antidumping policies Actual antidumping policies WTO allows countries to retaliate against dumping if dumping injures domestic import-competing producers WTO allows countries to retaliate against dumping if dumping injures domestic import-competing producers Traditional users – US, EU, Canada, Australia Traditional users – US, EU, Canada, Australia 1980s – 34 countries with antidumping laws; traditional users accounted for 90% of cases 1980s – 34 countries with antidumping laws; traditional users accounted for 90% of cases 2005 – 95 countries; traditional users accounted for approximately 1/3 of cases 2005 – 95 countries; traditional users accounted for approximately 1/3 of cases Countries against which antidumping laws are applied – China, South Korea, EU, US, Taiwan Countries against which antidumping laws are applied – China, South Korea, EU, US, Taiwan Usual products – chemicals, steel, metals, machinery, textiles, apparel, electrical products Usual products – chemicals, steel, metals, machinery, textiles, apparel, electrical products

11-7 Figure Top Ten Initiators of Anti-Dumping Cases

11-8 Learning activity Carefully outline the process of imposing antidumping laws in the US Carefully outline the process of imposing antidumping laws in the US Is there evidence of any bias in the process? Summarize the findings and explain Is there evidence of any bias in the process? Summarize the findings and explain Are there any losses for the US from its current antidumping policy? Are there any losses for the US from its current antidumping policy? How does WTO handle complaints from the exporters? How does WTO handle complaints from the exporters?

11-9 Antidumping policy has become a major way for import-competing producers in a growing number of countries to gain new protection against imports … (p.218) Antidumping policy has become a major way for import-competing producers in a growing number of countries to gain new protection against imports … (p.218) Threat of complaint and harassment effect Threat of complaint and harassment effect

11-10 Proposals for reform (WTO Doha round) Proposals for reform (WTO Doha round) Limit antidumping actions to predatory dumping (similar to domestic competition policies) Limit antidumping actions to predatory dumping (similar to domestic competition policies) Expand the injury standard to give weight to the surplus of consumers and users of the product (focus of changes in net well-being; Canada – public interest test) Expand the injury standard to give weight to the surplus of consumers and users of the product (focus of changes in net well-being; Canada – public interest test) Replace antidumping policy with more active use of safeguard policy (temporary protection) Replace antidumping policy with more active use of safeguard policy (temporary protection)

11-11 Export subsidies EDC EDC Effects of the subsidy Effects of the subsidy Expands exports of the subsidized product Expands exports of the subsidized product Lowers the price paid by foreign buyers relative to the price paid by domestic consumers Lowers the price paid by foreign buyers relative to the price paid by domestic consumers Net effect on exporting country is negative Net effect on exporting country is negative

11-12 Figure Export Subsidy, Small Country, Exportable Product

11-13 Exportable product, small country Producers gain e+f+g Producers gain e+f+g Consumers lose e+f Consumers lose e+f Cost to government f+g+h Cost to government f+g+h Net loss f+h Net loss f+h F is consumption effect F is consumption effect H is production effect H is production effect

11-14 Figure Export Subsidy, Large Country, Exportable Product

11-15 Exportable product, large country Producers gain e+f+g Producers gain e+f+g Consumers lose e+f Consumers lose e+f Government cost f+g+h+i+j+k+I+m Government cost f+g+h+i+j+k+I+m The net loss is the shaded area The net loss is the shaded area

11-16 Figure 11.5 – An Export Subsidy Turns an Importable Product into an Export

11-17 Producers gain ACFE Producers gain ACFE Consumers lose ABJE Consumers lose ABJE Net loss BJG and CHF Net loss BJG and CHF WTOs rules on subsidies WTOs rules on subsidies Prohibited Prohibited Actionable Actionable nonactionable nonactionable

11-18 Figure 11.6 – A Foreign Export Subsidy and a Countervailing Duty

11-19 Countervailing duties Bad for the country imposing it Bad for the country imposing it Producers gain area v Producers gain area v Consumers lose area v+w+y+z Consumers lose area v+w+y+z Government collects area y Government collects area y Net loss w+z Net loss w+z As compared with free trade the imposing country is better off because if collects the whole subsidy As compared with free trade the imposing country is better off because if collects the whole subsidy

11-20 Figure 11.7 – A Two-Firm Rivalry Game with No Government Subsidies: Airbus versus Boeing

11-21 Figure 11.8 – A Two-Firm Rivalry Game with Government Subsidies: Airbus versus Boeing

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