Transcript Figure 11.1 - Persistent Dumping

Chapter 11: Pushing Exports
McGraw-Hill/Irwin
Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Dumping
Selling exports at a price that is “too low,” a price below
“normal value” or “fair market value.”
Either
 The export price is lower than the price charged for
comparable domestic sales in the home market of the
exporter.
or
 The export price is lower than the full unit cost
(including a profit margin).
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Why dumping?
Predatory dumping – temporary, to drive
competitors out of business; then firm is a
monopoly
 Cyclical dumping – when demand is low;
price is below ATC but above AVC
 Seasonal dumping – to sell off excess
inventories (perishable goods, fashion items,
new items)
 Persistent dumping – a firm with market
power uses price discrimination

Firm is a monopoly at home, but a competitive
firm internationally
 Price discrimination is more profitable
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Reacting to dumping
With persistent dumping there is gain in consumer
surplus in the importing country which exceeds the
loss in producer surplus
 With predatory dumping, short run gain is
outweighed by the long run loss
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Predatory dumping is likely to be rare in modern markets
– the short run losses are certain while the long run gains
aren’t
With cyclical dumping, international recessions are
shared in a way similar to the sharing of the benefits
of trade; can be unfair to the importing country, but
usually is part of the normal working of a
competitive market
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Figure 11.1 - Persistent Dumping
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Actual antidumping policies
WTO allows countries to retaliate against dumping if
dumping injures domestic import-competing producers
 Traditional users – US, EU, Canada, Australia
 1980s – 34 countries with antidumping laws; traditional
users accounted for 90% of cases
 2005 – 95 countries; traditional users accounted for
approximately 1/3 of cases
 Countries against which antidumping laws are applied –
China, South Korea, EU, US, Taiwan
 Usual products – chemicals, steel, metals, machinery,
textiles, apparel, electrical products
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Figure 11.2 - Top Ten Initiators of
Anti-Dumping Cases
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Learning activity
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Carefully outline the process of imposing
antidumping laws in the US
Is there evidence of any bias in the process?
Summarize the findings and explain
Are there any losses for the US from its current
antidumping policy?
How does WTO handle complaints from the
exporters?
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Antidumping policy has become a major way for
import-competing producers in a growing
number of countries to gain new protection
against imports…(p.218)
Threat of complaint and harassment effect
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Proposals for reform (WTO Doha round)
Limit antidumping actions to predatory dumping
(similar to domestic competition policies)
 Expand the injury standard to give weight to the
surplus of consumers and users of the product (focus
of changes in net well-being; Canada – public interest
test)
 Replace antidumping policy with more active use of
safeguard policy (temporary protection)
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Export subsidies
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EDC
Effects of the subsidy
Expands exports of the subsidized product
 Lowers the price paid by foreign buyers relative to
the price paid by domestic consumers
 Net effect on exporting country is negative
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Figure 11.3 - Export Subsidy, Small
Country, Exportable Product
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Exportable product, small
country
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Producers gain e+f+g
Consumers lose e+f
Cost to government f+g+h
Net loss f+h
F is consumption effect
H is production effect
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Figure 11.4 - Export Subsidy, Large
Country, Exportable Product
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Exportable product, large country
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Producers gain e+f+g
Consumers lose e+f
Government cost f+g+h+i+j+k+I+m
The net loss is the shaded area
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Figure 11.5 – An Export Subsidy
Turns an Importable Product into an
Export
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Producers gain ACFE
Consumers lose ABJE
Net loss BJG and CHF
WTOs rules on subsidies
Prohibited
 Actionable
 nonactionable
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Figure 11.6 – A Foreign Export
Subsidy and a Countervailing Duty
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Countervailing duties
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Bad for the country imposing it
Producers gain area v
Consumers lose area v+w+y+z
Government collects area y
Net loss w+z
As compared with free trade the imposing
country is better off because if collects the
whole subsidy
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Figure 11.7 – A Two-Firm Rivalry Game
with No Government Subsidies: Airbus
versus Boeing
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Figure 11.8 – A Two-Firm Rivalry Game
with Government Subsidies: Airbus
versus Boeing
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