1. Trade Remedy Measures

2. Line Up Antidumping – what is it & why is it used?
Impact of Antidumping –
Costs and Benefits
Trade Impacts
Canada’s Experience
Empirical Evidence
Case Study – Vitamin C
Reconciling with theory

3. FORM OF REMEDY MEASURES
The WTO framework allows “protection” in specific
cases using trade remedy measures
Anti-Dumping
Countervailing
Safeguards
9/19/2018
Nisha Malhotra

4. ANTIDUMPING
To remedy the effect of imports ‘dumped’ in a country by imposing a tariff equivalent to the ‘dumping’ margin

5. The WTO framework allows Antidumping measures
Reason: Antidumping was set up to prevent predatory pricing.
Predatory pricing is considered anti-competitive.
If a firm practises predatory pricing, it charges a much lower price for its products or services than its competitors in order to force them out of the market. After having driven away the competition they would raise prices.
Praditry
9/19/2018
Nisha Malhotra

6. Dumping is defined as
When an exporter sells a product to an importing country at a price below cost. OR
When an exporter sells a product to an importing country at a price lower than the price at which the same product is sold-
in its own domestic market
a third county market
‘Dumping’ = Price discrimination between national markets
9/19/2018
Nisha Malhotra

7. Conditions for Antidumping
Injury to the domestic industry
Relation between dumping and injury to the domestic injury
9/19/2018
Nisha Malhotra

8. Some Facts Historical Origins-First AD case
Canada (1904) : to protect against steel dumped in Canada by US firms
United States (1916): to protect against post WW1 dumping from Europe
India-national law on anti-dumping in place since 1985.
However, first case initiated in 1992
9/19/2018
Nisha Malhotra

9. IMPACT OF AD Small Country -Welfare Analysis Impacts on Trade
Large Country

10. Cost and Benefit of an AD Duty in a Small Importing Country
Price, P
Quantity, Q S
consumer loss (B+E+F+G)
producer gain (B)
government revenue gain (F)
WELFARE LOSS: E+G A B C F E D G D
Price with AD duty D2 S2
Price without
AD duty S1 D1
Imports after duty
Imports before duty

11. Costs and Benefits of AD
A tariff raises the price of a good in the importing country.
As a result of these price changes:
Consumers lose in the importing country
Producers gain in the importing country
Government imposing the tariff gains revenue

12. Trade Effects of an AD Duty in a Small Importing Country
Price, P
Quantity, Q S
Trade Before Duty: D1-S1
Trade After Duty: D2-S2
Trade Restriction:
(D1-D2)+(S2-S1) D
Price with AD duty D2 S2
Price without
AD duty S1 D1
Imports after duty
Imports before duty

13. Costs and Benefits of an AD duty for the large Importing Country
Price, P
Quantity, Q S D
= consumer loss (a + b + c + d)
= producer gain (a)
= government revenue gain (c + e)
Welfare change=e-(b+d) PT a D2 S2 b c d PW S1 D1 e
P*T QT

14. Costs and Benefits of an AD
Efficiency Loss: The areas of the two triangles b and d measure the loss to the nation as a whole.
arises because a tariff distorts incentives to consume and produce.
Producers and consumers act as if imports were more expensive than they actually are.
Triangle b is the production distortion loss and triangle d is the consumption distortion loss.
Terms of Trade Gain: area of the rectangle e measures an offsetting gain
The terms of trade gain arises because a tariff lowers foreign export prices (or Home import prices).
If the terms of trade gain is greater than the efficiency loss, the tariff increases welfare for the importing country.

15. Trade Effects of an AD duty for the large Importing Country
Price, P
Quantity, Q S
Trade Before Duty: D1-S1
Trade After Duty: D2-S2
Trade Restriction:
(D1-D2)+(S2-S1) D PT D2 S2 PW S1 D1
P*T QT

16. CANADA’S EXPERIENCE

18. Canada-Antidumping law
If an industry in Canada believes that it is being injured by unfair competition through dumping- it may request the imposition of antidumping
Canada Customs and Revenue Agency (CCRA)
Canada's anti-dumping and countervailing law is contained in the Special Import Measures Act (SIMA).
The Canada Customs and Revenue Agency (CCRA) and the Canadian International Trade Tribunal (Tribunal) are jointly responsible for administering SIMA
9/19/2018
Nisha Malhotra

20. Some Examples

22. Empirical Evidence
Trade Impacts of AD

23. Empirical Evidence
Several empirical studies analyze the trade impacts of ANTIDUMPING : US, EU, Mexico and more recently for a few other developing countries.
However, the results are not consistent across these studies for various countries.

24. Empirical Evidence Prusa(2001): Vandenbussche et al.(2001):
(50%) import restriction
evidence of trade diversion.
Vandenbussche et al.(2001):
comparable imports restrictions of 67%.
No Trade Diversion
Malhotra & Rus (2008):
Import restricted 54%
No diversion

25. CASE STUDY : Case of Trade Diversion
India: Antidumping case against imports of Vitamin C

27. Import Patterns: Vitamin C

28. Reconciling with theory

29. Trade Diversion in a Small Importing Country
Trade Before Duty: D1-S1
Expected trade After Duty: D2-S2
Trade Restriction:
(D1-S1)- (D2-S2)
(D1-D3)+(S3-S1)
Price, P
Quantity, Q S D
P(china/Japan) + AD
Trade Diversion:
(D3-S3)
– instead of coming
from china/Japan
– now comes from
Russia/EU D2 S2
P(Russia/EU) S3 D3
P(china/Japan) S1 D1
Imports –would ‘ve been
Imports after duty

30. Cost and Benefit of an AD Duty in a Small Importing Country
Price, P
Quantity, Q S
consumer loss (B+E+F+G)
producer gain (B)
revenue gain (F)
WELFARE LOSS:F+ E+G D
P(china/Japan) + AD
P(Russia/EU) D2 S2 B F E G
P(china/Japan) S1 D1
These higher domestic prices also attract new foreign countries or import sources that did not find it profitable to export to India previously.
Imports after duty
Imports before duty

31. Antidumping Used to restrict trade
However, trade might be diverted to other countries
Bigger welfare loss to the importing country

33. The End
China Daily ( )

34. CASE: Aramid Fibre World Market, two producers
Petitioner=Sole producer
ADD imposed on imports from Netherlands
Bertrand Competition (price competition)
Division of the international market between the two producers
“ Strong demand has caused both producers to allocate aramid fiber among various customers”
“ Both (the firms) negotitate with customers individually to price their products…”
Usitc publication No. 3394, feb 2001
There are only two producers of Aramid fibre in the world market.
The domestic petitioner is the sole producer of the good in the US
The petition was approved and a duty was imposed on the imports from Netherlands
However, in a two firm game one either expects Cournot competition between the firms or Bertrand competition.
In this market, the price cutting behavior was nothing but bertrand competition where both the firms compete in prices.
Restriction of imports in this case led to a division of the world maket between the two producers.
The quotes from the ITC reports, sums up the conclusion very well.
(E.I. Dupont & Akzo/Teijin Twaron.