Anti-dumping Legislation:The Enemy of Free Trade

When Canada was negotiating the U.S. Free Trade Agreement and later the NAFTA (North American Free Trade Agreement), one of the goals hoped for (even promised by some supporters of the treaties) was that the U.S. would stop using its anti-dumping legislation to erect barriers to trade with Canada. This goal has largely remained unmet.

"The antidumping law, perhaps the most arbitrary and disruptive U.S. trade barrier, is defended as a means of ensuring “fair” trade and maintaining a “level playing field” for domestic producers. Tough antidumping rules, its defenders claim, facilitate freer trade by providing assurances that “unfair” trade will be punished and thus deterred.

But that dubious justification is a smokescreen, pure and simple. The fact is that the antidumping law is protectionist, contradictory and unfair. Its overzealous application routinely punishes U.S. importers and foreign exporters who transact fairly, and ultimately undermines the administration’s broader trade agenda.

In Canada producers have run afoul of these laws in softwood lumber, especially, but other industries as well.

Dumping is said to occur when an exporter’s prices in the United States are lower than those it charges for similar merchandise in its home market. Procedures for determining these price differences are not straightforward. They are subject to curious conditions and indefensible calculations, which are strictly the domain of the Import
Administration."

And here is the real kick in the teeth:

"In virtually every case, all of the exporter’s U.S. sales are compared to only a higher-priced subset of its home-market sales (sales in its own country). Home-market sales priced below the average cost of production are simply disregarded. If an exporter sells five widgets in both the U.S. and the home-markets at prices of $1, $2, $3, $4, and $5, the average price in both markets is $3. No dumping, right? Wrong! If it costs $2.50 to produce these widgets, the home-market sales at $1 and $2 are dropped, causing the average home-market price to rise to $4 and generating a dumping margin of $1, or 33 percent. A tax of 33 percent would be slapped on future U.S. sales from that exporter. This procedure alone accounts for a significant portion of most dumping margins “calculated” by IA across industries, across countries, and over time. Yet, not a single antidumping defender could reasonably justify this so-called “cost test.”

The above quotations are from Daniel Ikenson of the Cato Institute. Ben Muse has a number of recent postings about trade and the WTO, all of which are worth a look.

What costs are being used to calculate that $2.5o figure? ATC? AVC? LRMC? SRMC?

UPDATE: Will the U.S. gubmnt impose anti-dumping duties on French wine after these subsidies are given to French Vintners?
[Thanks to BrianF for the link]