PC News - March 2016
Developments in Anti-dumping Arrangements
A new Productivity Commission Research Paper finds that changes to Australia's anti-dumping system in recent years have increased its protectionist impact and so increased its net costs for the community as a whole. It notes that there has been little effort to consider and track the costs of the system and suggests, overall, that the basis for retention of such a system is weak.
The paper provides an economic stocktake of recent anti-dumping activity and the changes to Australia's anti-dumping system since the Commission's 2009 inquiry1.
In the wake of the Global Financial Crisis, the cyclical upswing in usage of the system that typically occurs during softer economic conditions has again been evident in both Australia and overseas. Australia is a substantial user of anti-dumping measures, ranking tenth on a global scale.
While cyclical pressures explain part of the recent increase in anti-dumping activity, other factors have also been at play. In particular, a global supply glut in the steel industry has seen the Australian steel industry increasingly seeking relief from intense price competition through the anti-dumping system.
Recent changes to Australia's system to make protection more accessible for its clients are also likely to have contributed to the increase in usage.
Like other countries, system activity is concentrated in a handful of industries producing mainly intermediate products, including metals, paper, and plastics. This appears to reflect factors such as system criteria and the capital intensive nature of production in these industries. The former means that the system is, in practice, easier for some industries to access than others. The latter means both that the pricing concepts underpinning the anti-dumping system may conflict with commonly employed pricing approaches in such industries, and that during times of excess supply, price competition can be particularly intense.
Australia's anti-dumping system and recent changes
Australia's anti-dumping and countervailing system provides Australian firms with protection in addition to that available through the general tariff regime. Companies may apply to the Anti-Dumping Commission for protection - which usually takes the form of special customs duties on the imported goods - when:
- either the export price of a good to Australia is lower than the price (or deemed 'normal' price) in the supplier's home market; or
- the supplier has received any of a specified group of subsidies from its government, and
- the 'dumped' or subsidised imports cause, or threaten to cause, 'material injury' to a local producer of 'like goods'.
Once instituted, anti-dumping measures generally remain in place for at least five years, with some persisting for decades.
Recent changes to Australia's anti-dumping system have collectively increased the likelihood that firms can obtain support, and the likely level of those measures:
- a broadening of the material injury test
- widening of the scope to use proxy or constructed normal values in dumping cases. Typically, these methodologies will be more likely to lead to a finding of dumping than the previous default methodology based on prices in the exporter's home market
- weakening of the lesser duty rule (which provides for reduced levels of protection when this would be sufficient to remediate injury for a local industry)
- introduction of a new anti-circumvention framework, which will almost inevitably lead to some unwarranted extension of measures - as well as unduly constraining importers' pricing flexibility.
One firm has recently achieved anti-dumping coverage of 75 per cent of its product base after advising its shareholders in 2014 that it would explore the feasibility of applying for additional anti-dumping measures on top of its then already significant coverage levels (65 per cent).
Growth in anti-dumping activity has been concentrated in the steel sector
A notable feature of Australia's anti-dumping activity in recent years is the predominance of the steel sector. Steel products accounted for 86 per cent of anti dumping and countervailing investigations and 60 per cent of all the measures imposed in 2014-15. Moreover, the rapid rise in the number of measures on steel products accounts for the bulk of the total increase in Australian measures in recent years. Measures on steel products currently make up 60 per cent of all measures in force. Most of the steel measures were on products from Asia.
While soft economic conditions coupled with a global supply glut have contributed to the recent growth in the steel sector's recourse to the anti-dumping system, such supply gluts have been endemic in this sector. And, like other smaller global steel producers, Australian producers have been facing longer-term competitive pressures associated with the emergence of China as a major global steel producer. These factors suggest that greater use of anti-dumping measures by Australian and other traditional steel producers has also been a means to counter natural structural pressures, eg efficient foreign producers.
The majority of measures are imposed on exports from emerging and developing countries, particularly, from Asia. In the ten years to 2014-15, 84 per cent of all measures imposed were against products from Asia. Measures on Asian products accounted for 86 per cent of all measures in force as at January 2016, with almost one third of those measures applying to products from China.
How much protection is provided?
In Australia, the average dumping duty imposed between 2009 and 2015 in percentage terms was 17 per cent, which is more than three times Australia's maximum scheduled tariff rate of 5 per cent. The median duty was 11 per cent.
The value of protection available to local industries is a function of the duration of measures as well as their magnitude. The available data suggest that a significant proportion of measures are extended beyond their initial term of five years. For example, of the 29 measures that were eligible for renewal between 2008-09 and 2014-15, 60 per cent were continued. In a few cases, protection has been provided for very long periods - 15 years or longer.
Anti-dumping activity has increased since the Global Financial Crisis
Australian anti-dumping and countervailing activity 1990-91 to 2014-15
System activity is concentrated in a handful of industries
Australian anti-dumping and countervailing initiations and measures imposed by industry, 2014-15
The costs of imposing measures exceed the benefits
Anti-dumping protection - like other forms of trade protection - reduces the competitiveness of the imports concerned and thereby helps to support activity, employment and investment in recipient local industries and their suppliers. But there are offsetting activity, employment and investment effects - including for locally-based importers and for downstream industries using the goods concerned. Anti-dumping measures also result in higher prices for consumers, whether felt directly as a tax on imports purchased, or indirectly via higher input costs for some goods and services, or the higher price levels permitted by reduced competition.
By increasing access to, and the scope of, protection offered to eligible industries, the recent changes to the anti-dumping system almost certainly have increased, or will increase when they come into full effect, the net cost of the anti-dumping system for the Australian community.
The harm arising from Australia's anti-dumping policy is, at present, largely ignored in deliberations as to whether measures should be imposed and in current policy development processes. Indeed, the current environment is one in which policy is being driven by the interests of a small group of local industries rather than the interests of the community as a whole.
Reducing the detriment caused by the anti-dumping system
Australia ostensibly has an anti-dumping system because WTO rules allow it. However there is no compelling economic rationale for doing so and it is clear that current anti-dumping arrangements are making Australia, on a national welfare basis, worse off.
The Commission paper calls for a rethink of anti-dumping policy, based on a balanced consideration of the costs as well as the benefits of the system. It suggests measures that could significantly reduce the detriment caused by the system, including increasing the thresholds for accepting anti-dumping and countervailing applications, instituting provisions that would allow measures to not be applied if they would be disproportionately costly for the community, and putting a finite limit on the duration of measures.
However, the paper emphasizes that such a 'harm minimisation' approach would have drawbacks and risks, and that even with significant modification the system would still be detrimental. It therefore concludes that a review of policy in this area should give serious consideration to whether it is in Australia's interests to retain an anti-dumping system at all.
Developments in Anti-Dumping Arrangements
- Read the Commission Research Paper released February 2016