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. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Thursday, February 03, 2005

Anti-Dumping Policies, Canadian Style

In response to my earlier posting about U.S. anti-dumping policies, BrianF wrote to remind me about Canada's use of anti-dumping policies to protect Heinz baby foods from competition by Gerber. It is a fascinating yet sickening tale:

Back in the late 1990s the Canadian baby food market was served by two companies - Heinz Canada and Gerber. Gerber had closed its Canadian operation in 1990 and supplied the Canadian market from its US plants. In 1998, as a result of a complaint from Heinz Canada, the Canadian International Trade Tribunal [CITT], brought down an anti-dumping ruling on the grounds that Gerber was selling baby food in Canada at lower price than it sold it for in the US.

The CITT slapped a tariff on Gerber, basically ordering it to raise its prices in Canada by 60%. the CITT ruled that Gerber's presence had done material harm to Heinz by preventing it from raising its prices. The CITT noted that while other factors had contibuted to the shrinking of the baby food market, and while Heinz had been able to maintain its market share during the period of the alleged dumping, it had done so only by keeping its prices down. Heinz submitted that, prior to 1995, it had been able to increase list prices by an average of 3 to 4 percent per year, but that its ability to continue this practice, in 1995 and the years following, was constrained by the dumping. (Reasons NQ-97-002 op cit pg. 23). Pg. 24" "...the Tribunal is of the view that, to a large extent, the inability of Heinz to increase its net prices beyond 1995 levels was due to it having to deal back some of the benefits of these price increases to its consumers to counter the effect of low pricing, with dumped goods, by Gerber."

Gerber decided that it couldn't compete under those conditions, and announced that it was pulling out of the Canadian market. That left Heinz Canada with a monopoly.

The CITT then decided that that wasn't quite what it had intended to do, and announced that it would hold another hearing to decide whether the recommended tariffs should be lowered. Heinz put out a statement saying that this would threaten Heinz's operations in Leamington Ont. and also threaten "a way of life for Canadians in southwestern Ontario".

The second hearing recommended a reduction in the tariffs, but Gerber stayed out of the Canadian market. Just to add to the oddities, the Competition bureau took the whole business to a NAFTA tribunal, so that one arm of the Canadian government was appealing to a NAFTA tribunal over a decision of another arm of the Canadian government. The NAFTA tribunal ruled that there had been no errors of law made in the original CITT decision.

Shortly after all of this, the price of baby food started to rise. Heinz denied that this had anything to do with it exercising its monopoly power, but rather that it was correcting for the fact that prices had been held down to an inappropriately low level due to dumping by Gerber.

The tariffs have since expired.

Apparently the CITT eventually decided that any harm Heinz Canada would suffer if Gerber were to re-enter the Canadian market would be due to the erosion of its monopoly profits, and that that could not be a dumping-related injury. (See the Tepperman and Trebilcock piece in the CdnCompetitionRecord link .

Ain't Government wonderful?

[Here is a graph of the prices over time that Brian sent]

Canadian Baby Food Prices

I've got to admit, until I dug that stuff up yesterday I hadn't fully appreciated the concept of "doing material harm" - I'd vaguely thought it meant Heinz had lost market share. Which is a bad enough reason for a tariff, but when it turns out that the material harm was that Heinz hadn't been able to raise its prices as planned ...............

In an earlier Econoclast post (and comments), you raised the issue of the difference between pro-business and pro-market. This case sets it out pretty clearly. pro-market means letting markets work and being willing to let businesses fail, pro-business means propping them up. So I told my intro micro students that the National Post is pro-market and the Toronto Star, though it would deny it, is as often as not Pro-business. Adam Smith, of course, was pro-market because that was the best way to be pro-consumer.

Brian also pointed me to a Reason article on this mess.

My only comment (besides Thanks, Brian!) is that Brian misspelled "gubmnt".
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