McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 11: Pushing Chapter 11: Pushing ExportsExports

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DumpingDumping Selling exports at a price that is “too low,” Selling exports at a price that is “too low,”

a price below “normal value” or “fair a price below “normal value” or “fair market value.”market value.”

EitherEither The export price is lower than the price The export price is lower than the price

charged for comparable domestic sales in charged for comparable domestic sales in the home market of the exporter.the home market of the exporter.

oror The export price is lower than the full unit The export price is lower than the full unit

cost (including a profit margin).cost (including a profit margin).

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Why dumping?Why dumping? Predatory dumping – temporary, to Predatory dumping – temporary, to

drive competitors out of business; then drive competitors out of business; then firm is a monopoly firm is a monopoly

Cyclical dumping – when demand is Cyclical dumping – when demand is low; price is below ATC but above AVClow; price is below ATC but above AVC

Seasonal dumping – to sell off excess Seasonal dumping – to sell off excess inventories (perishable goods, fashion inventories (perishable goods, fashion items, new items)items, new items)

Persistent dumping – a firm with Persistent dumping – a firm with market power uses price discriminationmarket power uses price discrimination Firm is a monopoly at home, but a Firm is a monopoly at home, but a

competitive firm internationallycompetitive firm internationally Price discrimination is more profitablePrice discrimination is more profitable

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Reacting to dumpingReacting to dumping With persistent dumping there is gain in With persistent dumping there is gain in

consumer surplus in the importing country consumer surplus in the importing country which exceeds the loss in producer surpluswhich exceeds the loss in producer surplus

With predatory dumping, short run gain is With predatory dumping, short run gain is outweighed by the long run lossoutweighed by the long run loss

Predatory dumping is likely to be rare in modern Predatory dumping is likely to be rare in modern markets – the short run losses are certain while markets – the short run losses are certain while the long run gains aren’tthe long run gains aren’t

With cyclical dumping, international With cyclical dumping, international recessions are shared in a way similar to the recessions are shared in a way similar to the sharing of the benefits of trade; can be sharing of the benefits of trade; can be unfair to the importing country, but usually unfair to the importing country, but usually is part of the normal working of a is part of the normal working of a competitive marketcompetitive market

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Figure 11.1 - Persistent Figure 11.1 - Persistent Dumping Dumping

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Actual antidumping policiesActual antidumping policies WTO allows countries to retaliate against WTO allows countries to retaliate against

dumping if dumping injures domestic import-dumping if dumping injures domestic import-competing producerscompeting producers

Traditional users – US, EU, Canada, AustraliaTraditional users – US, EU, Canada, Australia 1980s – 34 countries with antidumping laws; 1980s – 34 countries with antidumping laws;

traditional users accounted for 90% of casestraditional users accounted for 90% of cases 2005 – 95 countries; traditional users accounted 2005 – 95 countries; traditional users accounted

for approximately 1/3 of casesfor approximately 1/3 of cases Countries against which antidumping laws are Countries against which antidumping laws are

applied – China, South Korea, EU, US, Taiwanapplied – China, South Korea, EU, US, Taiwan Usual products – chemicals, steel, metals, Usual products – chemicals, steel, metals,

machinery, textiles, apparel, electrical productsmachinery, textiles, apparel, electrical products

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Figure 11.2 - Top Ten Figure 11.2 - Top Ten Initiators of Anti-Dumping Initiators of Anti-Dumping

Cases Cases

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Learning activityLearning activity

Carefully outline the process of Carefully outline the process of imposing antidumping laws in the USimposing antidumping laws in the US

Is there evidence of any bias in the Is there evidence of any bias in the process? Summarize the findings and process? Summarize the findings and explainexplain

Are there any losses for the US from Are there any losses for the US from its current antidumping policy?its current antidumping policy?

How does WTO handle complaints How does WTO handle complaints from the exporters?from the exporters?

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

Threat of complaint and harassment Threat of complaint and harassment effecteffect

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Proposals for reform (WTO Doha round)Proposals for reform (WTO Doha round) Limit antidumping actions to predatory Limit antidumping actions to predatory

dumping (similar to domestic competition dumping (similar to domestic competition policies)policies)

Expand the injury standard to give weight Expand the injury standard to give weight to the surplus of consumers and users of to the surplus of consumers and users of the product (focus of changes in net well-the product (focus of changes in net well-being; Canada – public interest test)being; Canada – public interest test)

Replace antidumping policy with more Replace antidumping policy with more active use of safeguard policy (temporary active use of safeguard policy (temporary protection)protection)

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Export subsidiesExport subsidies EDCEDC Effects of the subsidyEffects of the subsidy

Expands exports of the subsidized Expands exports of the subsidized productproduct

Lowers the price paid by foreign buyers Lowers the price paid by foreign buyers relative to the price paid by domestic relative to the price paid by domestic consumersconsumers

Net effect on exporting country is Net effect on exporting country is negativenegative

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Figure 11.3Figure 11.3 - - Export Export Subsidy, Small Country, Subsidy, Small Country,

Exportable Product Exportable Product

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Exportable product, Exportable product, small countrysmall country

Producers gain e+f+gProducers gain e+f+g Consumers lose e+fConsumers lose e+f Cost to government f+g+hCost to government f+g+h Net loss f+hNet loss f+h F is consumption effectF is consumption effect H is production effectH is production effect

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Figure 11.4Figure 11.4 - - Export Export Subsidy, Large Country, Subsidy, Large Country,

Exportable Product Exportable Product

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Exportable product, Exportable product, large countrylarge country

Producers gain e+f+gProducers gain e+f+g Consumers lose e+fConsumers lose e+f Government cost Government cost

f+g+h+i+j+k+I+mf+g+h+i+j+k+I+m The net loss is the shaded areaThe net loss is the shaded area

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Figure 11.5 –Figure 11.5 – An Export An Export Subsidy Turns an Subsidy Turns an

Importable Product into an Importable Product into an Export Export

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Producers gain ACFEProducers gain ACFE Consumers lose ABJEConsumers lose ABJE Net loss BJG and CHFNet loss BJG and CHF WTOs rules on subsidiesWTOs rules on subsidies

ProhibitedProhibited ActionableActionable nonactionablenonactionable

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Figure 11.6 –Figure 11.6 – A Foreign A Foreign Export Subsidy and a Export Subsidy and a Countervailing DutyCountervailing Duty

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Countervailing dutiesCountervailing duties Bad for the country imposing itBad for the country imposing it Producers gain area vProducers gain area v Consumers lose area v+w+y+zConsumers lose area v+w+y+z Government collects area yGovernment collects area y Net loss w+zNet loss w+z As compared with free trade the As compared with free trade the

imposing country is better off imposing country is better off because if collects the whole subsidybecause if collects the whole subsidy

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Figure 11.7 –Figure 11.7 – A Two-Firm A Two-Firm Rivalry Game with No Rivalry Game with No

Government Subsidies: Airbus Government Subsidies: Airbus versus Boeingversus Boeing

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Figure 11.8 –Figure 11.8 – A Two-Firm A Two-Firm Rivalry Game with Government Rivalry Game with Government

Subsidies: Airbus versus Subsidies: Airbus versus BoeingBoeing

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