Patrick Messerlin

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					Rules on Contingent Protection
    Revisited Once Again...

                          Patrick A. Messerlin
              Director, Groupe d’Economie Mondiale at Sciences Po
                       Professor of Economics, Sciences Po

                               Conference on
     European Competitiveness and Antidumping Policy
 in the Era of Globalization and Fragmented Supply Chains

              ECIPE and Kommerskollegium
                                   Brussels
                               October 2, 2007




                      Groupe d'Economie Mondiale
                     http://www.gem.sciences-po.fr
Overview
 A quick look at the past
 Recent antidumping activity (support
  for reforms?)
 The Doha Round
 The practitioners’ view
 The economists’ view
 Suggestions for reforms

              Groupe d'Economie Mondiale
             http://www.gem.sciences-po.fr
A quick look at the past
   Contingent protection tends to be a late issue in a Round
    because it is (was?) of second order of importance for:
       Protectionist-minded WTO Members: focus on keeping their
        protection rather than eliminating these barriers
       Offensive-minded WTO Members: focus on new markets
        because contingent protection induces these countries to look
        for new markets and for new products
   The US dilemma, and to a lesser extent, the EC dilemma
   Paragraph 28 of the Doha mandate: “creative ambiguity” at
    its best (worst?):
       “clarifying” while “preserving”...
       plus “needs of developing and least-developed participants”
       a basic flaw: nothing on safeguard
   A caveat: the paper focuses on antidumping
       Anti-subsidy: a sleeping bomb?


                         Groupe d'Economie Mondiale
                        http://www.gem.sciences-po.fr
Recent Antidumping Activity (1)
 Major antidumping initiators
   12 countries (5 industrial + 7 developing) all of them
     “large” countries are the source of 82% AD cases (vs.
     65% world trade)
 Major antidumping enforcers: same features, even
  more marked
 “Productivity” in antidumping activity
   productivity = (measures in force/initiations)
   world ratios: 64% (longer run) 95% (shorter run) =>
     reveal serious biases in the WTO rules
   ratios by major user: reveal serious biases in national
     rules
 Major antidumping targets
   Major users are targets in only 50% AD cases

                     Groupe d'Economie Mondiale
                    http://www.gem.sciences-po.fr
Recent Antidumping Activity (2)
 Table 1. The main antidumping users: number of cases, 1995-2006
                  Nbr of initiations   Measures in force        "Productivity" [a]   Measures in force     Case
                    1995-        2002- in 2006 taken by           1995-      2000-    in 2006 against    balance
                     2006         2006      Nbr          %         2006        2006       Nbr         %       [b]
                         1           2        3           4            5           6        7          8       9
 India                448          196      323       17.2          72.1      102.2        69        3.7    4.68
 United States        366          110      236       12.6          64.5      101.7       100        5.3    2.36
 EC [c]               345           99      224       11.9          64.9      140.9       103        5.5    2.17
 Argentina            209           44      149         7.9         71.3      129.6        13        0.7   11.46
 South Africa         199           43      116         6.2         58.3      165.7        34        1.8    3.41
 Australia            188           49       69         3.7         36.7        79.3        8        0.4    8.63
 Canada               138           36       84         4.5         60.9      102.4        12        0.6    7.00
 China, P.R.          126          106       83         4.4         65.9        65.9      353      18.8     0.24
 Brazil               125           29       66         3.5         52.8      115.8        69        3.7    0.96
 Turkey               106           71       97         5.2         91.5      104.3        22        1.2    4.41
 Mexico                89           40       82         4.4         92.1      160.8        25        1.3    3.28
 Korea                 82           35       47         2.5         57.3      114.6       132        7.0    0.36
 Total               2938         1045    1875        84.1          63.8        95.2     1875      50.1     1.00
 Source: WTO Secretariat, 2007. Author's calculations.
 Notes:        [a] Ratios of measures in force in 2006 to initiations (over 1995-2006 and 2000-2006).
               [b] Ratio of measures taken by the country to measures taken against the country.
               [c] EC= European Community. Source for column 7: European Commission, November 2006.



                                       Groupe d'Economie Mondiale
                                      http://www.gem.sciences-po.fr
Recent Antidumping Activity (3)
 Measuring antidumping activity per trade
  flows (US$ billions)
   Developing countries as the most active
    countries
     Combined with high antidumping measures
      suggests high welfare costs
   The case of Australia
 Balance “source vs. target”
   All major users vs. China and Korea (and Japan)
   The case(s) of the US (and Brazil)

                  Groupe d'Economie Mondiale
                 http://www.gem.sciences-po.fr
Recent Antidumping Activity (4)
   Table 2. The main antidumping users: number of cases per
   US$ billion of trade, 2000-2006
                            Nbr of  Measures in force             Case
                       initiations     in 2006 taken            balance
                     2002-2006             by      against           [a]
                                 1          2            3        4=2/3
   India                    0.307       0.507        0.143        3.552
   Argentina                0.286       0.970        0.057       17.133
   South Africa             0.136       0.367        0.121        3.042
   Turkey                   0.126       0.173        0.061        2.832
   Australia                0.073       0.103        0.014        7.446
   Brazil                   0.065       0.147        0.115        1.275
   China, P.R.              0.033       0.026        0.099        0.264
   Mexico                   0.028       0.058        0.019        3.026
   Korea                    0.025       0.033        0.086        0.385
   Canada                   0.019       0.044        0.006        7.799
   EC b]                    0.012       0.027        0.013        2.037
   United States            0.011       0.023        0.021        1.087
   Total                    0.023       0.042        0.043        0.956
   Source: WTO Secretariat, 2007. Author's calculations.
   Notes: [a] Ratio of measures taken by the country to those taken
   against the country. [b] See note [c], Table 1.



                        Groupe d'Economie Mondiale
                       http://www.gem.sciences-po.fr
Activity in the Doha Negotiations

                              Documents on antidumping in the Doha Negotiations, 2002-2007

                        100
                        90
  Number of documents




                        80
                        70
                        60
                        50
                        40
                        30
                        20
                        10
                         0
                              2002        2003         2004            2005         2006     2007
                                                               Years

                                                   Serie W    Serie GEN   Serie M




                                              Groupe d'Economie Mondiale
                                             http://www.gem.sciences-po.fr
A Practitioners’ View
 Table 3. Major legal problems according to practitioners, selected countries
                                       Industrialized countries                            Emerging countries                    All countries
                              AUS        EC      KOR USA          All     BRA CHN         IND    INO      MEX SAF         All    Nbr       %
 Determination of dumping margins
     Constructed values
          reasonable profits    1         1        1       1       4               1                                1      2      6       9.2
          sales below costs     1         1        1               3               1                                       1      4       6.2
     Related parties
          export sales          1         1                        2               1                                       1      3       4.6
          export prices         1         1        1       1       4                                                              4       6.2
     NME status                           1        1       1       3        1               1                       1      3      6       9.2
     Total                      5         7        6       4      22        3      5        1      0        0       2     11     33      50.8
 Determination of injury margins (lesser duty rule)
     Target prices                                                          1               1      1        1       1      5      5       7.7
     Total                      0         2        1       0       3        3      0        2      2        2       1     10     13      20.0
 Common issues in determining dumping and injury margins
     PCNs                                 1        1               2        1               1      1        1              4      6       9.2
     All other rates                                                               1        1               1       1      4      4       6.2
     Disclosure                 1         1        1               3        1      1        1      1        1       1      6      9      13.8
     Total                      1         2        1       0       4        3      2        2      2        3       3     15     19      29.2
 Shares in Grand total
     Dumping margins          83.3      63.6     75.0 100.0 75.9           33.3  71.4    20.0     0.0      0.0     33.3   30.6   50.8      --
     Injury margins            0.0      18.2     12.5     0.0    10.3      33.3   0.0    40.0    50.0     40.0     16.7   27.8   20.0      --
     Dumping/injury margins 16.7        18.2     12.5     0.0    13.8      33.3  28.6    40.0    50.0     60.0     50.0   41.7   29.2      --
 Source: E. Vermulst and G. Horlick, 2007. Special Issue. Global Trade and Customs Journal. Volume 2, Issue I, 2007




                                                Groupe d'Economie Mondiale
                                               http://www.gem.sciences-po.fr
The Economists’ View (1)
 Continue to raise the same fundamental systemic
  questions
 Consensus on antidumping
   AD is protectionist
   Dumping
         based on acceptable market behavior (price discrimination)
         or unlikely when based on unacceptable practice (predatory
          pricing)
         or inconsistent with the observed pattern of AD cases
          (strategic dumping implies that small countries, NOT large
          countries, should be the most frequent source of AD cases)
    Antidumping
         has nothing to do with competition: “like-product” vs.
          “relevant market”
         has a lot to do with collusion (market segmentation at the
          world level)
         does not grasp “modern industrial organization”

                        Groupe d'Economie Mondiale
                       http://www.gem.sciences-po.fr
The Economists’ View (2)
                  Step 1                      Step 2                   Step 3            Steps 1 to 3      Step 4
                 Research                  Manufacturing         Post-manufacturing                        Retail
                Development                                       (logistics, sales)           percent
                   euros                          euros                 euros          euros value added

Cheap women shoes manufactured in China
EU made           0,95                            0,27                  1,23           2,45      54,8
Foreign made      0,05                            4,15                                 4,20      45,2       (*3)
Price to retail                                                                        6,65                19,95
Value added                                       -2,18                                4,47

Medium-high boots
EU made           1,29                             0,20                 8,08            9,57     58,1
Foreign made      0,05                            20,41                                20,46     41,9       (*3)
Price to retail                                                                        30,03               90,09
Value added                                       -13,56                               16,47

High quality shoes
EU made              24,5                          0,27                15,69           40,46     79,7
Foreign made          1,5                         35,83                                37,33     20,3       (*2)
Price to retail                                                                        77,79               155,58
Value added                                       -27,00                               50,79

Source: Kommerskollegium, 2007 (www.kommers.se)


                                                     Groupe d'Economie Mondiale
                                                    http://www.gem.sciences-po.fr
The Economists’ View (3)
 Consensus on anti-subsidy
   transfer from the subsidizing country to the
    importing country
   raises the adjustment problem => more
    appropriate policies than anti-subsidy measures
 Consensus on safeguard as the solution in
  principle
   shift the burden on the domestic firms
   but many problems for defining adequate
    procedures

                  Groupe d'Economie Mondiale
                 http://www.gem.sciences-po.fr
The Economists’ View (4)
 Focus on determining injury and causal
  relation
     the   “trend” approach
     the   “decomposition” approach
     the   “modeling” approach (CADIC, COMPAS)
     the   “econometric” approach
 Focus on estimating the costs of contingent
  protection
   generally very high (square of protection level)
   but, very few estimates of the “pro-cartel” effect
    of contingent protection

                    Groupe d'Economie Mondiale
                   http://www.gem.sciences-po.fr
Conclusion: suggestions
 Skeptical on WTO-based legal “clarifications”. If
  something can be done, then focus on:
      everything to be measured in terms of domestic consumption, not of imports
      consumers (households and firms) to be more involved, and earlier
 Domestic reforms: provide more information allowing to
  make the cases more challengeable
      pre-measure market structure of the investigated case,
      market shares (complainants, defendants),
      ownership relations, technological links (patents),
      assessing the risks on “non-competitive” (collusive) behavior after the measures
 Systemic reforms: allow other institutions to be involved
  in the analysis of the markets under contingent
  protection
      the case against contingent protection to be won “in the street”
      failure of the Competition authorities
      decisive role of independent public agencies (such as the Swedish Kommerskollegium or
       the Australian Productivity Commission) and independent think-tanks => make a “world
       coalition”?




                               Groupe d'Economie Mondiale
                              http://www.gem.sciences-po.fr
Thank you for your attention!



               Groupe          A Culture
          d'Economie       of Evaluation
          Mondiale    in an Open World




           Groupe d'Economie Mondiale
          http://www.gem.sciences-po.fr

				
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