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October 1, 1991
"American 'Dumping' Laws Gum Up the Game"
San Jose Mercury News

By Timothy Taylor
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TRYING TO make a competition absolutely fair can be a good way to ruin it altogether. Imagine a football game where every play would be reviewed from nine possible camera angles, by referees who would halt play to call every penalty they saw.

In enforcing America's "fair trade" laws, something similar is happening. Since the mid-1980s, the majority of the unfair trade petitions received by the U.S. government have involved allegations of "dumping." Worldwide, about 80 percent of all unfair trade accusations are dumping complaints.

But do most anti-dumping accusations benefit competition? Or are they just a convenient excuse for government to use "fairness" as a way to subsidize domestic industries indirectly, by limiting foreign competition?

Silicon Valley has played a role in the trend toward more accusations of dumping, with its decade of arguments over whether Japanese firms were dumping semiconductors in the U.S. market, and the more recent claim that liquid crystal display panels were being dumped.

The local cases have involved accusations of "cost dumping," when a foreign competitor sells in the U.S. market at below its own average cost of production. Other cases have alleged "price dumping," which is when a foreign competitor sells in the U.S. market at below the price in the firm's domestic market. In either case, the concern is that dumping is an unfair way for a firm with greater financial resources to weaken or destroy its rivals.

The usual solution is for the government to "level the playing field" by imposing duties on the imports. This offsets the effect of dumping on domestic industry by raising the price for consumers.

Growing numbers of voices have started to argue that even if dumping laws seem fair in the abstract, they have become economically destructive.

For example, the influential Economist magazine editorialized in June that "anti-dumping actions should be outlawed." At about the same time, Robert Reich wrote in the New Republic: "The anti-dumping law has no redeeming social value, and should be dumped."

Similar views are surfacing in more specialized publications. The Review of the Federal Reserve Bank of St. Louis has just published an article arguing that anti-dumping laws "can be more accurately characterized as the bedrock for protectionism rather than the bedrock for free trade."

In a recent book, a collection of essays on "Policy Implications on Anti-dumping Measures," Brian Hindley of the London School of Economics writes: "Observations by informed persons to the effect that anti-dumping policy 'has lost its moorings,' and that current anti-dumping action 'has no economic basis' are now common."

These critics make several common points. They argue that true dumping is not likely to happen often, because it is a very costly strategy for a firm to choose to suffer losses over a long period of time in an attempt to drive out competitors.

Moreover, they emphasize that even if low prices of imported semiconductors or panel displays hurt some manufacturers, they help businesses that use these imported products to stay competitive in the world market. In the increasingly global economy, more and more U.S. firms depend for their survival on guaranteed access to the highest quality and lowest cost products from abroad.

However, government investigators of dumping claims are intensively lobbied by one side: the domestic companies making the accusation of dumping. The law offers several definitions of dumping, making it possible to choose whichever one gives the desired protectionist result.

Accusations of cost dumping have a special bias. After all, most firms sometimes sell at above their average cost and sometimes below it, depending on conditions in the market and whether the product is new or established.

Between loose definitions and political pressure, almost every investigation finds evidence of dumping. An accusation of dumping thus results either in negotiated protectionism, as the foreign company tries to cut a deal, or government-imposed protectionism, when the U.S. government imposes import duties on the product.

Anti-dumping laws can also produce peculiar results. Last week, the Commerce Department limited the ability of foreign companies to file anti-dumping petitions on behalf of their subsidiaries in the United States. The key question: Is the U.S.-based firm truly a domestic producer? In an increasingly global economy, it is sometimes difficult to tell, but the Commerce ruling makes the threshold of proof very high.

Another news report last week told the story of how some Japanese firms may not make their top technology immediately available to American firms, clearly implying that this is a bad thing.

But because of anti-dumping duties imposed by the U.S. government, Toshiba and other Japanese manufacturers are planning to move production of some sophisticated lap-top computers from Southern California back to Japan. The world's leading maker of liquid crystal display screens for lap-tops, the Japanese firm Hosiden Corp., said last month that it will no longer bother trying to export the screens to the United States, making them harder for U.S. firms to acquire.

Apparently, it is bad for Japan not to export leading technology that U.S. firms can't make at the same price, because it injures U.S. firms. And it is also bad for Japan to ship leading technology that U.S. firms can't make at the same price, because that is dumping, which injures U.S. firms.

In general, the U.S. economy is best-served by encouraging competition in an environment of rough-and-tumble free trade, rather than using "fairness" as an excuse to reduce competition from abroad. If dumping laws can't be administered without a bias toward protectionism, then it may be time to unload them.

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