Down in the Dumps

When most people hear the words “illegal dumping,” they probably think of someone using somebody else's trash dumpster without permission.  However, in the international trade policy arena, the phrase means something else entirely.  According to the World Trade Organization (WTO), “if a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be 'dumping' the product.”  That is, the company is seen to be deliberately underselling its foreign competitors.  According to WTO rules, this form of “illegal dumping” constitutes a predatory effort by one firm to eat into a rival's customer base by pricing goods at artificially low levels. <?xml:namespace prefix = u1 /><?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />


When a particular company believes its competitors are dumping products in its home market, it will often demand its home government retaliate through “anti-dumping” measures—usually the imposition of extra taxes or fines on the alleged offenders.  One common criticism of anti-dumping actions is that they are often anti-competitive in intent.  That is, one company's claim of products being dumped is often just a way to stave off competition.


It's not fun to be on the receiving end of an anti-dumping action.  Just ask <?xml:namespace prefix = st1 ns = “urn:schemas-microsoft-com:office:smarttags” />Thailand's shrimp exporters.  American shrimp farmers claim that the Thais are dumping seafood on the U.S. market, and they want Washington to hike tariffs on Thai shrimp as a response. The Thai government calls the charges “empty.”


Thai shrimpers say that the contemplated anti-dumping action will cost them US$760 million in lost exports, as they lose their price advantage over their U.S. counterparts.  From the Thais' perspective, they are being punished for the “crime” of supplying shrimp at a low cost to American consumers.


Politicians and bureaucrats around the world seem to love opening anti-dumping investigations, which are becoming more frequent.  According to economist Meredith Crowley, from 1987 to 1991, “733 antidumping investigations were conducted worldwide.”  From 1992 to 1997, “the number increased to 1,463.”  From 1998 to 2002, “1,581 antidumping investigations were filed.”  The short-term benefits of anti-dumping investigations to politicos are clear.  They can boast of their readiness to stand up for “home team” businesses against “unfair” foreign competition.


But the long-term consequences of the mania for anti-dumping actions should give those politicos pause. The United States is just as vulnerable as any other country to specious anti-dumping actions.


A new book about the global trade in motion pictures, sound recordings, and other cultural products outlines one example of U.S. vulnerability.  In Blockbusters and Trade Wars: Popular Culture in a Globalized World, authors Peter S. Grant and Chris Wood discuss the world-beating market power enjoyed by American producers of cultural products such as movies and TV shows.  Grant and Wood use a survey from Variety, the Hollywood trade paper, to show that “the prices charged [by U.S. companies] for [TV] broadcast rights in various countries bear no relationship whatever to the original cost of the [TV] program.  Rights to programs costing $2 million to make in the United States are sold for prices ranging from $10,000 to $75,000.”


Grant and Wood note, “This looks like dumping—selling a product for export at a price below what is charged for it in the home market.”  But, as Tom O'Regan has noted, “this complaint is none other than the recognition of the huge economies of scale available to [U.S. cultural producers].”  It is not proof of anything underhanded.


Still, I already noted the rising popularity of anti-dumping actions.  If their use continues to escalate, the day might come when a foreign government, stung by American anti-dumping measures, might slap U.S. culture producers with a retaliatory anti-dumping attack.  If the attack spreads to other “copyright industries,” up to $90 billion in U.S. exports could face anti-dumping pressure.


America's long-term trade strategy is to maximize global market liberalization.  It is therefore surprising that Washington is a frequent initiator of anti-dumping actions.  Such actions legitimize a form of government intervention in the economy that, if widely adopted abroad, will tend to limit U.S. access to overseas markets.  U.S. policymakers need to correct this hypocrisy.  Otherwise, their frequent resort to anti-dumping measures today will plant the seeds for tomorrow's bitter trade wars.