Chapter 2
Dumping, subsidisation and
the international environment
2.1
Anti-dumping and countervailing issues are complex. There is considerable
debate over whether governments should take action to address the effects of
dumping and subsidisation. Many submissions raised concerns over the
compatibility of the bill’s amendments with Australia’s international legal
obligations, and argued that all interests, from consumer to exporter, should
be considered.
2.2
This chapter provides an introduction to dumping and subsidisation,
including statistical information on recent trends in global and Australian
anti-dumping and countervailing activities. It then explores the role of the World
Trade Organization (WTO) in enforcing international anti-dumping and
countervailing agreements, and considers their interaction with Australia's
domestic legal framework.
Dumping and subsidisation
2.3
Trade distortions can occur through a number of different mechanisms,
both through the behaviour of individual companies (dumping) and through
government intervention (subsidisation).
2.4
Dumping is defined as a 'situation of international price
discrimination, where the price of a product when sold in the importing country
is less than the price of that product in the market of the exporting country'.[1]
In other words, a product is considered dumped 'if the export price of the
product exported from one country to another is less than the comparable price,
in the ordinary course of trade, for the like product when destined for
consumption in the exporting country'.[2]
Theoretically, this will result in increased substitution by users of the good
from domestic production to imports, and translate to "unfairly"
lower prices for end-consumers.
2.5
A government may also subsidise industries by providing grants, tax
concessions, loan guarantees, equity infusions, or price support. Often, the
manifestation of subsidisation is the ability of domestic firms to export at
lower prices than otherwise would have been possible based on their costs of
production.
2.6
Whether government action should be taken against dumping is an area of
considerable debate. Some argue that where dumping has a 'disproportionate'
effect on certain industries, 'the damage borne by the affected sector can
often be very substantial and difficult to recover from, even when dumping
ceases to occur'. This effect is exacerbated when dumping occurs in regional
areas, where affected firms are often the largest employer, placing a 'heavy burden
on communities and families'.[3]
2.7
On the other hand, the merits of an anti-dumping system have been
questioned by others. While acknowledging that in instances of 'predatory'
dumping,[4]
action should be taken, it has been argued that more often than not, anti-dumping
measures imposed by countries are 'naked protectionism', harming domestic
consumers to the 'partial benefit' of domestic firms.[5]
Ultimately, dumping promotes lower prices for consumers and increases
competition in the importing market.[6]
2.8
The negative effects of anti-dumping actions on other sectors of the
economy are also contentious. For example, the Australian Steel Association
(ASA) highlighted the case of the steel sector, in which many steel imports are
produced to order and are not supplied ex stock of the overseas mill. The ASA
notes that 'the Australian users and stockists in competition to Australia's
sole upstream, vertically integrated steel producers, factually cause the goods
to be imported, and as such they have to pay for those goods'.[7]
In other words, importers may not always be able to substitute towards domestic
production. Take the example of JELD-WEN Australia. Dr Silberberg told the
committee that:
There are a number of areas of building activity where there
is a sole manufacturer of a product in Australia. That relates to steel and
glass. Imports play an important part in meeting shortfalls in domestic supply.
That is particularly the case with clear float glass. There are many small and
medium sized businesses that rely on the availability of competitively priced
imports of glass for their business.
If we look at the glass manufacturing sector, there would be
fewer than 300 people involved in the direct manufacture of glass in Australia.
JELD-WEN alone employs 4½ thousand people in the manufacture of windows and
doors and their installation, but they are not the only player. There are
thousands and thousands of people in downstream processing and fabrication.
Their voice is rarely heard in this area of anti-dumping. Typically, the most
vocal players are the local manufacturers. That is not a criticism; it is just
an observation.
...
One of the issues that we are confronted with is that, if we
were to have duties increased on some intermediate goods, where duties do not
apply to the final product there is an additional possibility of import leakage
of fully fabricated products. That is pertinent to windows. There are price
points on clear flow glass where it will be more economic to bring in fully
fabricated windows, so we have to be careful. We could bring in fully
fabricated double-glaze windows below the cost of what is being produced in
Australia today. It is a real risk.[8]
2.9
The empirical literature further suggests that anti-dumping application
behaviour in developed economies is influenced by changing macroeconomic
conditions:
First, countries that experience a significant currency
appreciation have industries that confront new competition from cheap imports
after the shock, increasingly the likelihood of injury...industries that
pursued antidumping investigations had an exchange rate whose value had
depreciated less rapidly on average (9.60% versus 23.37%) in the prior year
than non-initiating industries. Furthermore, AD-initiating industries were at
points in the business cycle in which real GDP growth had recently been slower
(3.29% versus 4.10%) than for non-initiators as well.[9]
2.10
Similarly, the role and reasoning behind the provision of subsidies by
governments is also contentious. Some agree that for developing countries, subsidies
may play an important role in the transformation of their economics from
centrally-planned to market-oriented. They allow these countries to
develop their markets to compete for a share in global trade.[10]
2.11
However, subsidisation is generally argued to have detrimental impacts
on trade, manifested in artificially lower prices. It hurts the domestic industry
in an importing country, exporters trying to compete in the subsidising
country’s domestic market and rival exporters from another country when competing
in third markets.
The Australian anti-dumping and countervailing experience in an
international context
2.12
Some governments have established administrative systems designed to
protect domestic industries from injury caused by dumping and subsidisation.
Anti-dumping measures imposed under these systems generally take the form
of import duties that are imposed by anti-dumping authorities on foreign
exporters of the dumped goods. A related concept is countervailing measures,
which are duties imposed on imports that benefit from any of a specified group
of government subsidies and which cause or threaten material injury to a local
industry producing like goods.[11]
This inflates the price to a level comparable to the price in the importing
country so that the export of the goods is no longer injurious to the domestic
industry.
2.13
While Australia is historically one of the most systemic and prolific users
of the anti-dumping and countervailing system, its share of anti-dumping
measures in recent years has decreased, with the number of new anti-dumping
measures falling from an average of 14 per year in the 1990s to around five a
year over the past decade (Figure 2.1).
Figure 2.1: Australia's
anti-dumping and countervailing activity
Source: Productivity Commission, Australia's Anti-Dumping
and Countervailing System, Report no.48, 2009, p. 27.
2.14
There are a number of factors, both local and global, that have
contributed to the declining use of the anti-dumping and countervailing
system. A critical factor has been shifting trade patterns and the changing
composition of industries traditionally at the centre of anti-dumping initiations
and measures.
2.15
The changing composition of Australian manufacturing, for example, has
resulted in many of the industries that used the system previously ceasing
local production.[12]
Compounding this trend is the more liberalised trade environment, and increased
globalisation, which have encouraged greater importation of goods to complement
local manufacturing, discouraging the resort to anti-dumping measures.[13]
2.16
In particular, the increased shift towards manufacturing products in
Asia has led to increased anti-dumping initiations against countries in that
region. The majority of Australia's anti-dumping and countervailing
measures are aimed at Asian exporters, particularly China, which alone has attracted
12 anti-dumping measures over the past 15 years (Figure 2.2). China's
emergence as a major export-oriented economy is reflected in its prevalence in
anti-dumping measures imposed and the upward trend in anti-dumping initiations
against China amid falling global initiations (Figure 2.3).
Figure 2.2: Australia's anti-dumping initiations and
measures
(January 1995–June 2010)
Source: WTO, 'Statistics
on Anti-Dumping', 2011 http://www.wto.org/english/tratop_e/adp_e/adp_e.htm (accessed:
18 April 2011) .
Figure 2.3: Number of anti-dumping measures and
initiations:
China versus rest of world
Source: WTO, 'Statistics
on Anti-Dumping', 2011 http://www.wto.org/english/tratop_e/adp_e/adp_e.htm(accessed: 18 April 2011).
2.17
The 2009 Productivity Commission report, however, revealed that this
absolute decline in anti-dumping measures and new investigations over the
period masks:
(a) a higher success rate for anti-dumping duty applications, with nearly
50 per cent of cases initiated over the last decade leading to measures
being taken, compared to one third of cases in the preceding decade; and
(b) an increasing proportion of measures being extended, with the average
duration of measures increasing from 4 years and 7 months to 5 years and 2
months between 2002 and 2009.[14]
2.18
Countervailing measures tend to be imposed at a lower frequency than
anti-dumping measures. Australia has only imposed 11 countervailing
measures over the period January 1995–June 2010, with the majority directed at
China (three measures), European countries (six measures), South
Africa (one measure) and the US (one measure).
2.19
This mirrors the international experience. Over the January 1995–June
2010 period, countervailing measures imposed by members of the WTO totalled 143 measures
compared to 3752 anti-dumping measures over the same period. Measures were
primarily directed at minerals and base metal products, and agricultural
products, with approximately 70 per cent of these countervailing duties
directed at products from developing countries (with China and India accounting
for 36 per cent of these duties).
2.20
One of the potential reasons for the significantly lower incidence of
countervailing measures being imposed is the inherent difficulty in proving
that subsidising is occurring, let alone causing material injury to the
domestic industry:
Senator XENOPHON: ...in terms of the ACTU, you make reference
to the... [the fact that] the granting of subsidies by foreign governments does
not receive proper examination, as the focus is on dumping.
Mr Fetter: Yes...our system does have a primary focus on
dumping, whereas, if you look at the distortionary and unfair trade practices
of some of our trade competitors, it would seem that as much if not more of the
damage is done through the provision of subsidies... Complaints are not often
brought in Australia on that basis, ...[one] response... is that it is much
more difficult to establish that the subsidies are improper. Indeed, for
instance, Australia subsidises primary, secondary and tertiary education, and
we would not want foreign governments saying that is an unfair subsidy
improving the quality of our workforce. So, for whatever reason, the law or
maybe even the parties in Australia have not been as vigorous in tackling
unfair subsidies as have other parties overseas, and we think that those subtle
forms of trade distortion are probably as important as dumping is in terms of
adverse effects in Australia...
What I am saying is that the existence of subsidies,
particularly in countries like China, is often hidden and it would be an almost
impossible exercise for a complainant company or even a complainant trade union
in Australia to prove they did exist, particularly if there is a high
evidentiary bar with an onus on the complainant to prove on the balance of
probabilities that the subsidies were there and were unfair and illegal and
were the cause of the low cost of the product. Again, there is an informational
asymmetry here and my suspicion...it is the difficulty in gathering evidence of
subsidies that means that you do not often see challenges to foreign subsidies
under Australia's countervailing duties regime.[15]
International Rules—the role of the WTO
Options for recourse under WTO
agreements
2.21
The General Agreement on Tariffs and Trade (GATT), negotiated by member
countries sets out arrangements directed to the substantial reduction of
tariffs and other barriers to trade, and to the elimination of discriminatory
treatment in international commerce. As a signatory to the GATT, Australia is
bound to ensure that its own laws do not breach its obligations under the agreement.
2.22
To ensure fair trade, the GATT makes provisions to allow member
countries to take action against products that are demonstrated in terms of
both the WTO agreements and domestic legislation to be dumped or subsidised. There
are two WTO agreements that have been negotiated specifically for the purposes
of providing members with options for recourse against dumping and
subsidisation. These are:
- the Agreement on Implementation of Article VI of the General
Agreement on Tariffs and Trade 1994 (Anti-Dumping Agreement, or AD Agreement);
and
- the Agreement on Subsidies and Countervailing Measures (SCM
Agreement).
2.23
The AD and SCM Agreements establish the rules and procedures that signatory
members, such as Australia, must follow to both investigate allegations of
dumping and/or subsidisation and the measures that can be imposed against them.
2.24
Under these agreements, investigating authorities have a 'fact finding'
role, and must base their decisions on 'facts available'. They can only make a
finding of injury caused by dumping or subsidisation based on 'positive
evidence'. For example, in the case of dumping, investigative authorities must
positively establish that (a) dumping is occurring and (b) dumping is
causing 'sufficient' injury to the domestic industry. Investigative authorities
can only determine causation after examining all relevant evidence before them,
including other known factors that are causing injury to the industry.[16]
2.25
The agreements prescribe the methodology and calculations required to
determine variable factors (such as normal value, export price and dumping
margins). They also include detailed provisions on what factors should be
considered during this determination, constraints on overall timeframes of
investigation, and requirements related to the implementation and revocation of
measures, consultation and public notification, and judicial review.
2.26
Despite these constraints, there is considerable flexibility afforded under
the agreements. This accounts for the difficulties in collecting information to
ascertain the variable factors, as well as the different economic frameworks of
WTO members, particularly between developing and developed economies. This
flexibility has resulted in important differences in the administrative
approach adopted by international jurisdictions, which are discussed in more
detail in chapter 3.
2.27
In addition, there are important distinctions between the two agreements
due to the nature of the issues they are addressing. Dumping is an action taken
by a company, which the WTO does not have jurisdiction over. As such, the
AD Agreement is concerned with government actions against dumping.
2.28
In contrast, subsidies are based on government policies which are
subject to the WTO’s agreements. The SCM Agreement disciplines both the use of
subsidies by governments and the recourse that other governments can take.[17]
Under the agreement, a member country could either initiate its own
investigation and charge a ‘countervailing duty’ on subsidised imports found to
be injurious to domestic producers; or they could use the WTO's dispute
settlement procedure to seek the withdrawal of the subsidy or the removal of
its adverse effects.
Settling disputes—the Dispute Settlement
Body
2.29
Under the Dispute Settlement Understanding Agreement, WTO members
can settle trade disputes through the Dispute Settlement Body (DSB). The dispute
settlement process begins with consultations between the governments concerned.
If consultation fails, a panel is established that assists the DSB make rulings
or recommendations. The panel’s findings have to be based on the relevant agreements.
Both the complainant country/countries and the respondent have an opportunity
to appeal the panel’s decision. The DSB can either accept or reject the appeals
report within 30 days, but rejection is only possible by consensus.
2.30
There are a number of disputes involving Australia as both a complainant
and a respondent that are currently being settled under the Dispute Settlement
Body. There are currently seven cases where Australia is the complainant,
opposed to ten cases where Australia is the respondent to dumping complaints.
2.31
The DSB also monitors how adopted rulings are implemented. Any outstanding
case remains on its agenda until the issue is resolved. The dispute settlement agreement stresses that 'prompt
compliance with recommendations or rulings of the DSB is essential in order to
ensure effective resolution of disputes to the benefit of all Members'.[18]
2.32
Failure to comply within specified timeframes with WTO rulings and
recommendations could result in the complaining country or countries requesting
permission from the DSB to impose limited trade sanctions in the same sector as
the dispute to minimise the chances of actions spilling over to unrelated
sectors. Otherwise, it could also result in the defending country entering into
negotiation with the complainant to determine a 'mutually acceptable' form of
compensation.
The WTO agreements: mere guidelines or legally binding agreements?
2.33
There are strong incentives for Australia to comply with its WTO
obligations. Fundamentally, the AD and SCM Agreements are a product of intense
negotiations and agreement between WTO members, many of whom are Australia's
main trading partners. Discounting the importance of the WTO agreements would,
in effect, divert Australia from international best practice. It would also
serve to limit Australia's influence in changes to WTO jurisdiction and trade
agreements as part of the Doha Round of negotiations or any subsequent
negotiations. Indeed, the literature points to the problem of 'dirty hands',
where:
...one country is afoul of the same legal provision that it
accuses another of violating—which complicates the state's ability to get
others to settle trade disputes on favourable terms.[19]
2.34
This reaffirms the multilateral nature of WTO dispute settlements, and
the costliness of trade disputes, which often involve third parties and require
countries to exhaust all avenues for consultation before proceeding to
sanctions. As Busch et al. (2008) explain:
Yet another deterrent to an unmerited AD award is the
prospect of having to mount a legal defence in the WTO judicial process, which
involves nontrivial costs and staff time, especially because litigation
commonly draws the participation of other interested parties (i.e., "third
party" governments) in the dispute (Busch and Reinhardt 2006), and often
entails successive rounds of appeal, compliance assessments, and arbitration.[20]
2.35
Assuming that non-conforming amendments are passed, and anti-dumping
measures were imposed on the grounds established by the amendments, then WTO
members representing the exported goods under question could raise a dispute
with Australia over the imposition of these measures through the DSB. Supposing
that the DSB finds in favour of the complainants, Australia would be obligated
to amend its practices to conform to its WTO obligations. Failure to comply
could result in the DSB paving the way for complainant parties[21]
to impose sanctions on not only the direct industry involved, but potentially
other industries, as well as the removal of any negotiated trade concessions. An
empirical study that collated data on the level of compliance by WTO members
with adverse DSB rulings found that:
The generally positive record of Members in complying with
adverse rulings ... has been an important factor in the success of the WTO dispute
settlement system to date. In approximately 90 percent of the adopted reports,
one or more violations of WTO obligations have been found by panels and/or the
Appellate Body. In virtually all of these cases the WTO Member found to be in
violation has indicated its intention to bring itself into compliance and the
record indicates that in most cases has already done so. It is noticeable, if
not unsurprising, that compliance has been more rapid where the WTO violations
can be corrected through administrative action as opposed to legislative action...As
a final note, the overall positive record of Members in complying with adverse
WTO rulings is reflected in, and confirmed by, the low number of cases where
Members have sought and received authorization to impose retaliatory measures.[22]
2.36
Indeed, while many submissions praised what they perceived as a more
lenient interpretation of the WTO laws adopted by the EU and the US, these
jurisdictions account for approximately half of all adverse WTO rulings.[23]
Importantly, following adverse WTO rulings, the US and the EU have largely
brought their practices in conformity with the rulings, even when the decisions
would have been unpopular domestically.
2.37
An illustrative example of the enforceability of WTO rulings is the recent
dispute surrounding the "Byrd Amendment". In 2000, the United States enacted
the Continued Dumping and Subsidy Offset Act of 2000, commonly referred
to as the 'Byrd Amendment', which allowed for the redistribution of
anti-dumping and countervailing duties to the petitioning industry. This
amendment was challenged by eleven WTO members, including Australia, and was
found by the DSB in 2003 to have violated WTO rules. The US did not repeal the
amendment by the WTO deadline. Subsequently, Brazil, Canada, Chile, the EU,
India, Japan, Mexico and South Korea requested and were granted authorisation
from the WTO to suspend tariff concessions and other obligations against the
US. Some of these retaliations were quite significant, with US exports subject
to additional 15 per cent duties in the EU and Canada on 18 and 8 products
respectively. Mexico and Japan soon followed, with duties imposed ranging from
5 to 30 per cent. In February 2006, the US repealed the Byrd Amendment, leading
to countries such as Canada and Mexico ceasing retaliatory tariffs. Other
retaliatory tariffs remain, however.[24]
2.38
This case demonstrates that amendments to domestic legislation which
breach international agreements can have serious consequences and involve
retributions that may remain in force for a prolonged duration, even well after
rectifying actions are taken. What begins as a measure to enhance the system
could result in damage to other non-petitioning industries and in effect,
costly to the wider economy. For Australia, this issue is magnified given its
economy is more heavily reliant on trade than the United States (see Table 2.1).[25]
Table 2.1: Trade indicators and trade policy
(2007–2009)
|
I.
International Trade Comparisons
|
| |
Trade per
capita (US$)
2007-2009
|
Trade to GDP
ratio (%)
2007-2009
|
Import duties
collected to total imports (%)
2005-2007
|
|
Australia
|
19,463
|
44.4
|
2.3
|
|
Canada
|
27,888
|
65.5
|
0.7
|
|
United States
|
12,849
|
27.6
|
1.2
|
|
United Kingdom
|
23,573
|
56.9
|
n/a
|
|
II.
Australian Trade Statistics
|
|
Exports
|
%
|
Imports
|
%
|
|
Share of world exports
|
1.23
|
Share of world imports
|
1.3
|
|
Breakdown of Australia's
total exports
|
Breakdown of Australia's
total imports
|
|
(i) By main commodity group
|
|
(i) By main commodity group
|
|
Agricultural
products
|
15.2
|
Agricultural
products
|
6.2
|
Fuels
and mining products
|
56.8
|
Fuels
and mining products
|
13.9
|
Manufactures
|
14.9
|
Manufactures
|
72.2
|
|
(ii) By main destination
|
|
(ii) By main origin
|
|
China
|
21.7
|
European
Union
|
19.7
|
Japan
|
19.5
|
China
|
17.8
|
European
Union
|
8.7
|
United
States
|
11.3
|
Republic
of Korea
|
8.0
|
Japan
|
8.3
|
India
|
7.4
|
Thailand
|
5.8
|
|
|
|
|
|
|
|
Source: WTO, 'WTO
Statistics', 2011, http://stat.wto.org (accessed: 14 May 2011)
2.39
The effects on trade that anti-dumping and countervailing applications
can have are also well-documented. As the ASA told the committee:
...the very chilling effect of an initiated antidumping
action, let alone the imposition of interim and periodic measures, is the
lessening of competition in the Australia market for the goods concerned... We
will just give a fairly recent example of one of our members down in Canberra a
few weeks ago. Just with some of the [anti-dumping] rhetoric that has been
understandably in play in recent times, their overseas supplier chose not to
offer to supply them for that quarter. They said, 'We're not exactly sure
what's happening and we don't want to pick a fight, so we'll just withdraw
until we get a better understanding.' What does that mean for that business? He
needs to deal with that. He either does not have material to value-add to—he
has paint lines; it is a 50-year-old Australian business—or otherwise he
counters that by holding increased working capital. That is a cost to his
business which ultimately lessens his competitiveness.[26]
2.40
In particular, the threat of retaliatory action could have a substantial
impact on investor confidence, as highlighted by a recent study which looked at
the impact of EU retaliatory threats on the share market following the 2002
imposition of US steel safeguards. The study found that after announcements had
been made that signalled to investors an increased likelihood of retaliation by
the EU:
...firms within targeted industries experienced negative
abnormal returns ranging from approximately -2% to -4%, with the
largest wealth losses being suffered by firms threatened with the maximum 100%
retaliatory tariff. Shareholders also generally responded positively to the
early cancellation of the safeguards, which removed the risk of retaliation.[27]
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