LEARNER’S INFORMATION

NAME- 1. ASEEM DESHPANDE

2. ATHARVA RAUT

CLASS- FYBSc (2022-23)

DIVISION- C

ROLL NO- 1. 5708

2. 5739

SUBJECT- MICROECONOMICS - II

SEMESTER- II

TITLE- ANALYZING LAW AND TRADE POLICY FORMULATION IN

RESPONSE TO DUMPING.

DEPT. - DEPARTMENT OF ECONOMICS.

EMAIL ID- 1. aseemdeshpande04@gmail.com

2. athuraut27@gmail.com

CONTACT- 1. 9833025302

2. 9545234748
 INDEX

TITLE PAGE NUMBER

INTRODUCTION 3-4

LITERATURE REVIEW 5-7

CASE STUDY 8 - 10

CONCLUSION 11

BIBLIOGRAPHY 12
 INTRODUCTION:

The Scottish economist, Adam Smith, introduced the concept of absolute cost
advantage in the 18th century and this theory was the foundation of international
trade. Ever since, international trade has grown far and wide and presented
complexities with each passing era. In the post-World War world, the process of
liberalization of trade began to take place and several governing bodies were brought
into place in order to ensure fair a market environment. One of the major challenges
to international trade in today’s world is dumping.

 Dumping

The practice of exporting goods to a foreign market and selling them at lower prices
than the domestically produced goods is known as dumping. Dumping allows
exporters to infiltrate foreign markets through their predatory pricing. Some
governments offer subsidies to producers to balance the losses incurred from selling
the products at a lower price. While the ethics as well as the legality of this practice
are oft debated, the General Agreement on Tariffs and Trade (GATT) and World
Trade Organization (WTO) rules state that dumping is legal unless and until the
foreign country can establish with evidence that its domestic producers are being
negatively affected.

 Anti-Dumping and Countervailing Measures

Most countries use protective tariffs and duties to protect their domestic producers
from predatory pricing practices. Tariffs are direct taxes that are imposed by
governments on goods imported from a different country, while duties are indirect
taxes imposed on the consumers on imported goods as well as domestically
produced goods. Due to the liberalization of trade, the system of tariffs has slowly
been dismantled over the course of years, and hence duties have become the
prominent tool to tax importers and protect the local producers. Anti-dumping (AD)
and Countervailing (CV) procedures, terms that we will get familiar with through the
course of this study, involve duties levied on goods whose export price has been
reduced by the other country through an export subsidy. While the purpose of AD
and CV measures is supposed to be the protection of domestic producers, there are
historical evidences that suggest that they often reflect political rather than economic
considerations.

This study aims to analyze examples of responses of countries to dumping and its
effect on the its economy, its trade relations and as well as on the rest of the world. It
also aims to contextualize the AD and CV procedures being, or not being,
implemented and the political motivations behind them.
 LITERATURE REVIEW:

In this section, we shall be discussing some of the rules governing trade and, more
specifically, dumping, laid down by the GATT and the WTO. We shall also be
summarizing articles, research papers and documents that have assisted us in the
writing of this study.

 The Anti-Dumping Agreement

The GATT (1994) set forth a number of principles applicable to trade between
members of the WTO. It required that imported products not be subject to internal
taxes or other charges in excess of those imposed on domestic goods, and that
imported goods in other respects be treated no less favorably than domestic goods
under domestic laws and regulations, and establishes rules regarding quantitative
restrictions, fees and formalities related to importation, and customs valuation.
Members of the WTO also agreed to the establishment of schedules of bound tariff
rates. Article VI of GATT 1994, also known as the Anti-Dumping Agreement, on the
other hand, explicitly authorizes the imposition of a specific anti-dumping duty on
imports from a particular source, in excess of bound rates, in cases where a nation
can show evidence of the negative impact of dumping on its domestic industries.

Under Article VI of GATT 1994, and the Anti-Dumping Agreement, WTO Members
can impose anti-dumping measures, if, after investigation in accordance with the
Agreement, a determination is made –

1. that dumping is occurring,

2. that the domestic industry producing the like product in the importing country
is suffering material injury, and
3. that there is a causal link between the two.

In addition to substantive rules governing the determination of dumping, injury, and

causal link, the Agreement sets forth detailed procedural rules for the initiation and
conduct of investigations, the imposition of measures, and the duration and review of
measures.
  Misuse of Anti-Dumping and Countervailing Procedures

A research paper titled “Anti-Dumping and Countervailing Procedures- Use or

Abuse? Implications for Developing Countries”, authored by Inge Nora Neufeld was
presented at the United Nations Conference on Trade and Development, Geneva,
2001. The paper stated that AD and CV mechanisms, designed to be a corrective
mechanism, were being hijacked for protectionist purposes. It observed a growing
trend of political motive dictating the initiation of AD and CV procedures, putting
consumer welfare at risk. The paper analyzed the distribution, duration and the
results of AD and CV procedures, and concluded that these actions have resulted in
significant reductions in trade volumes and market shares. The author divided the
investigation procedure into six levels- initiations, targets, final measures, success
ratio, duration and duty level- and gathered data to show which nations participated
the most in these activities.

The data showed that nearly 40% of AD and 80% of the CV investigations between
1995 and 1999 were launched by developed countries, while developing countries
were the major targets of these investigations- 42% of all AD and 63% of all CV
investigations were directed against developing countries. The paper further showed
that the United States and the European Union were the parties most frequently
involved in the imposition of final measures, while China was the most affected by
final measures, being a target of 1/6th of all such measures. Other developing
countries such as Brazil and India were also among the most affected countries.

The paper further analyzed the impact of these actions on developing countries and
also touched upon the problems arising from the WTO agreements. The paper states
the following regarding the ambiguities of the agreements-

“Loopholes and ambiguities contained in the Agreement created additional problems

by opening the door for abuse. Imprecise regulations and ambiguous definitions of
the ADA and the Subsidies and Countervailing Measures Agreement (SCM) (which
by themselves have to be considered an interpretation of the GATT 94) led to
controversial readings at unilateral level. The “interpretation of the interpretation” in
national regulations and administrative guidelines sometimes resulted in faulty
implementation. Prominent examples for disputes arising from divergent
interpretations are the question on the applicability of the de minimis threshold to
review cases and the disagreement over the WTO compatibility of the Unites States
Anti-Dumping Act of 1916. Other controversies arose over the interpretation of Article
7 (4) ADA’s maximum duration for provisional measures.”
The paper further suggests reforms to mitigate the negative impact of the AD and CV
measures. We shall touch upon some of these later on in our study.

It is also important to note that the global relevance and size of a nation’s economy
dictates the effects of imposing such duties. Duties imposed on a single commodity
by a smaller country do not affect the rest of the domestic economy and neither do
they affect the price of that commodity in the rest of the world. While introduction of
duties and tariffs in a smaller country help to boost the domestic production of the
particular importable good, it also negatively affects the consumer welfare. On the
other hand, the imposition of AD and CV duties by larger economies affects the
prices of commodities in the entire world, and also has positive effects on the
consumer welfare as well as its terms and volumes of trade.

CASE STUDY:
As mentioned in the earlier section, the response to dumping by nations and its
effects differ based on the size of their respective economies. In this section, we shall
be studying some cases related to the response of nations to dumping and try to
observe the differences occurring with a variation in economic scenarios of the
respective countries.

 United States- Tariff Measures on Certain Goods from China.

In April 2018, China requested consultations with the United States over certain tariff
measures on Chinese goods that were implemented through sections 301 to 310 of
the US Trade Act of 1974. Through these tariff measures, a list of products of
Chinese origin were to be subject to 25% ad valorem duty, i.e., the duty charged
would be 25% of the value of the commodity. China claimed that this duty was only
applied to Chinese goods and in excess of the United States’ bound rates. The panel
found these two factors to be in violation of Article I:1 of the GATT 1994. The United
States argued that the additional duties were justified under article XX(a) of the
GATT 1994, as measures necessary to protect US public morals. The United States
maintained that China’s acts, policies and practices related to technology transfer,
intellectual property and innovation, addressed in a previous report, amounted to
“state sanctioned theft” and the additional duties were in retaliation to these findings.

The United States of America has been the lone superpower in world politics for
some time now. The rapidly developing Chinese economy offers a threat to its status
as the largest economy in the world, as well as its status of a global superpower. This
has led to an inevitable economic conflict between the two nations, often referred to
as the China-United States Trade War. The setting of tariffs and trade barriers in
2018 by the Trump administration was the starting point of the Trade War. Since the
1970’s, and even more so since 2001 when China became a member of the WTO,
the two countries had been each other’s most important trading partners, although
the US consistently imported more from China than it exported to them, with a trade
deficit rising to $375.8 billion in 2017. The Bush and Obama administrations had
previously implemented quotas and tariffs to shield American producers, accusing
China of dumping goods such as aluminum, steel and textile on numerous
occasions, the Trump administration aimed to erase this deficit, attributing it to unfair
trade practices and intellectual property theft, and thus implemented the above-
mentioned trade barriers. In retaliation, China imposed similar ad valorem tariffs on
US goods.

The dispute was presented to a panel of the Dispute Settlement Board (DSB) of the
WTO. While the Panel granted that the “standards of rights and wrongs” invoked by
the United States could be covered by the concept of “public morals” in Article XX(a),
it asked them to explain how the tariff measures it had implemented contributed to
the public morals objective invoked. The Panel found that the United States had not
provided an explanation that highlighted the relation between the measures imposed
and the public morals concerns. In 2020, the Panel encouraged the two parties to
continue to work towards a mutually agreed solution to the dispute.

In November 2018, a United Nations report stated that the conflict was hurting both
the nations. In the US, higher costs of manufacture, higher prices for consumers and
financial difficulties for farmers were observed. China saw a decline in the rate of
economic and industrial output growth. While it harmed economies of other countries
as well, some countries benefitted from increased manufacturing as production
shifted to them. The conflict also led to stock market instability.

This conflict highlighted the feeling expressed by Neufeld in her research paper
mentioned in the previous section; that the AD and CV procedures were being
hijacked for protectionist purposes, and were being directed by political motives
rather than economic ones. While in this case AD and CV measures were not the
tools used to tax the imports, the tariffs were used in a similar manner to what the
author spoke of. It also corresponded with the findings that most proceedings were
initiated by developed countries and targeted developing countries. This showed that
the pattern observed nearly 20 years ago still remains applicable in today’s world,
and at an even magnified proportion due the massive economic growth of countries
such as China and India. A trade conflict such as this one, involving two of the largest
economies in the world, poses a threat to the world economy like no other.

 India- Measures Concerning Sugar and Sugarcane

In February and March of 2019, several nations such as the United States, the
European Union, Brazil, Australia, Guatemala, etc. requested consultations with India
concerning support allegedly provided by India in favor of producers of sugarcane
and sugar (domestic support measures), as well as all export subsidies that India
allegedly provides for sugar and sugarcane (export subsidy measures). The
complainants challenged India’s mandatory minimum prices for sugarcane, as well
as other payments and polices in favor of sugarcane producers, as market price
support and non-exempt direct payments and policies respectively, within the
meaning of the Agreement on Agriculture. It also challenged three assistance
schemes to be WTO-inconsistent export subsidies.

The investigating Panel found that for five consecutive seasons, from 2014-15 to
2018-19, India provided non-exempt product specific domestic support to sugarcane
producers in excess of the permissible limit of 10%. The Panel also found India to be
providing market price support and export subsidies that violated multiple articles of
the Agreement on Agriculture. Through the use of these malpractices, India was
found to be dumping sugar and sugarcane in violation of the WTO and GATT
agreements.

For a long period of time, Brazil was the largest producer as well as exporter of
sugarcane in the world. In October 2022, India overtook Brazil as the largest
producers, while maintaining the second spot in the exporter rankings. This suggests
a competitive atmosphere between the two countries in this particular market. This is
also reflected in the fact that Brazil is one of the leading complainants in this
investigation. It should also be noted that Australia, Guatemala and the European
Union, who are also complainants in this investigation, are the fourth, sixth and
seventh biggest exporters of sugarcane respectively. The competitive nature of the
field results in all major exporters trying to obtain a larger share of the market, thus
leading to the use of unfair means by one exporter, in this case India, to gain
advantage, followed by the AD and CV procedures being initiated in retaliation.

CONCLUSION:
The competitive nature of the world economy means that more often than not, some
nations will be making the use of loopholes and ambiguities in trade laws to gain
advantages. There must be more clarity in the trade laws in order to ensure fair and
free tree trade.

The turbulent political climate in today’s world has made it inevitable that the use of
Anti-Dumping and Countervailing Measures is being directed by political motives.
The struggle for power in the global political scenario results in nations trying to
reduce competition through the use of such tools; creating a paradox of sorts since
the objective of these measures is to stimulate and encourage fair competition.

Countries with greater political clout and economies engaging in economic conflicts
with each other puts the financial stability of the entire world at risk. Trade sanctions
being used to harm other nations creates an atmosphere of political tension and the
possibility of military conflict heightens in such scenarios. It is essential that such
situations be dealt with without escalation and ensure that the risk to the economic
and political state of the world be reduced or even averted.

BIBLIOGRAPHY:
 “Wealth of Nations”- Adam Smith.
 “International Economics”- M.L. Jhingan.
 “Anti-Dumping and Countervailing Procedures- Use or Abuse? Implications
for Developing Countries”- Inge Nora Neufeld, presented at the United
Nations Conference on Trade and Development, Geneva, 2001.
 Technical Information on Anti-Dumping, World Trade Organization (wto.org).
 Chronological List of Dispute Cases- DS543, DS579, DS580, DS581 World
Trade Organization (wto.org).
 United Nations Food and Agriculture Organization (fao.org).
 Press Information Bureau, Government of India (pib.gov.in).