A Response to Mark Wu by Scott Kennedy

[Scott Kennedy, associate professor of Political Science and East Asian Languages & Cultures and director of the Research Center for Chinese Politics & Business at Indiana University, responds to Mark Wu, Antidumping in Asia’s Emerging Giants. This post is part of the Third Harvard International Law Journal/Opinio Juris Symposium.]

Antidumping: Less Change than Meets the Eye

Mark Wu’s article, “Antidumping in Asia’s Emerging Giants,” is an impressive piece of scholarship and deserves widespread attention. He analyzes how an already controversial element of the trading system, the antidumping regime, has become more problematic because of the growing use this tool by India and China. And he does so by assembling a comprehensive data set of antidumping cases at the national, industry, and product level for both countries.

Wu is clearly a strong critic of antidumping no matter who uses it. He shows how the standards for initiating and proving antidumping have declined over time, and that rather than ensuring fair trade, antidumping is essentially an illegitimate protectionist tool of those who want to avoid foreign competition. Wu argues that the antidumping regime is becoming a more widely abused tool because India and China have joined traditional users in wielding this weapon. If antidumping reforms are not enacted, the likely consequence will be an explosion of cases by India and China, further distorting international trade patterns and leading to welfare losses. Hence, he encourages the United States and European Union to alter their stance in the Doha Round and embrace reforms before the system they created turns decisively against them.

I fully sympathize with Wu’s antipathy toward the antidumping regime: it is driven by a group of international trade ambulance-chasing law firms who are interested in collecting large legal fees more than promoting genuinely fair competition. Although first invented in 1904, antidumping took its modern form in the 1960’s through the US steel industry, and has become a widely used tool to block imports. That India and China have gravitated toward it is regrettable, and I concur that the regime should be reformed if only to make such disputes fairer and less likely to distort trade flows.

Although a substantial contribution, Wu’s paper paints an overly negative picture of the consequences of greater Indian and Chinese cases and also leaves a variety of questions unanswered.

Although the number of antidumping initiators has jumped since the late 1990’s, the number of annually initiated antidumping cases has not. According to the WTO, there was a substantial rise in cases during 1999-2002, in the wake of the burst of the US’s dotcom bubble and the Asian financial crisis. Yet antidumping cases have fallen steadily since, from a high of 372 in 2002 to only 170 in 2010. Countries did not rush to antidumping during the global financial crisis like one would have expected. Similarly, less than 1% of global trade is directly affected by antidumping. These cases are very important to the companies and their sub-sectors, but they are of little consequence to global macro-economic patterns.

More central to Wu’s argument is his analysis of the reasons for Indian and Chinese antidumping. He tests two theories – antidumping as a safety valve in the wake of lowered tariffs and tit-for-tat retaliation – and finds only modest support for either. Tariff drops did precede the rise of AD cases, but since most cases are brought in the chemical industry in both India and China, it’s unclear why others in the same economic positions have not also followed suit. He suggests, I think correctly, that the high concentration of the chemical industry in both countries explains this difference. But since concentration is a serious barrier, he should expect limited expansion to other sectors because industry concentration in both countries is generally quite low, particularly in China. My interviews in China show widespread knowledge about antidumping, but high difficulty in mobilizing because of low industry concentration and weak industry associations.

The discussion of retaliation is less satisfying. His definition – whether India or China brought a case against someone who brought a case against them within a year’s time – has intuitive appeal – but is inherently flawed. It means that many cases against traditional users such as the US and European Union are much more likely to be counted as retaliation as compared to cases against other countries simply because those other cases exist. This method is likely to identify both false positives and miss actual retaliation cases when retaliation is in response to other protectionist tools. Real proof beyond timing is needed to establish motivation. The finding in the discussion about safety valves that most cases are concentrated in a few sectors, which is attributed to the motivations of firms in those sectors, also conflicts with this latter discussion about retaliation, which he says is motivated by governments. In sum, there is still no clear explanation for these cases, and finding the answer likely requires more case studies and interviews with participating firms, lawyers, and government officials.

Although Wu finds some modest differences between India and China – there is more evidence of the retaliation motive by India than by China – I am struck by the stark differences in the way the two countries’ antidumping regimes operate. Based on data I have recently collected (but not yet published), in India over 90% of initiated cases result in penalties. In China, the “success rate” is somewhat lower, at only 81%. The overall antidumping tariffs for China are lower than those enacted by India, although in cases where both India and China accused companies making the same product from the same country set almost identical average tariffs of around 35%. Interviews with lawyers and industry associations indicate substantial qualitative differences; foreign respondents have almost no hope of a fair hearing in India; in China, procedures are not ideal but noticeably more reasonable. India’s system may be more corrosive of international trade rules than that of China. I believe that because Chinese industry is more internationally competitive and embedded in transnational business ties than their Indian counterparts, China is less prone to abusing the system. Relatedly, my data shows that in most Chinese antidumping cases, trade penalties do lead to a reduction in imports from the sanctioned countries, but these are usually replaced by imports from elsewhere, not by greater production from the domestic initiators of cases. It may be this lack of success of antidumping that may also inhibit the rapid expansion of antidumping usage across Chinese industries.

In sum, I concur that the antidumping regime should be reformed, but the problem is not the growth in usage of antidumping, but the inherent weaknesses in the regime itself, regardless of the users. Instead of resorting to scaring the US and EU into accepting reforms because the system could be turned against them, I would keep the focus on the problems of the system writ large because the data just does not show this is this case. But if we are going to distinguish across countries, not all new users are alike. I am more sanguine about China’s engagement of the antidumping regime than India. I think it is unlikely that China’s supposed “restraint” will be lifted any time soon. China’s behavior is likely to be as fair or unfair, depending on your perspective, as that of the traditional users.