Opinion & Commentary
Dump anti-dumping rules to protect consumers
The Australian Workers Union has launched a campaign to strengthen Australia's anti-dumping regime, claiming that predatory foreign producers are harming Australian firms and jobs. In fact, it is anti-dumping measures that have the greater potential to harm the majority of Australian consumers and producers alike.
The AWU has dressed up its anti-dumping campaign in the language of free trade and adherence to World Trade Organisation rules. But there is nothing in the WTO rules that prohibits dumping and WTO members are not required to maintain an anti-dumping system.
The purpose of the WTO anti-dumping rules, like the GATT rules before them, is to regulate the imposition of anti-dumping measures so they do not become a surrogate for protection of the type that the AWU is seeking for a small number of local producers.
Dumping is said to occur when goods are exported to Australia at a price below the normal value of the goods in their country of origin. Before anti-dumping measures can be imposed, dumping must be found to have caused, or threatened to cause, material injury to the Australian industry that is producing like goods.
Both normal value and material injury are slippery concepts and little effort is made to define them precisely.
Dumping is a simple case of international price discrimination. A foreign firm's profit-maximising or loss-minimising strategy may well involve exporting at a price lower than that found in the domestic market or below the total cost of production.
If foreign producers were to offer us goods for free, few would argue that we could be anything other than better off by taking advantage of their generosity. Yet the same logic applies when foreign producers offer us goods at lower prices than those available from domestic producers.
Lower import prices improve Australia's terms of trade just as surely as higher export prices and represent an increase in the international purchasing power of domestic production.
Where Australia is a net importer of a good, the gains to consumers from lower prices will generally offset losses to domestic producers. In theory, it is possible to identify situations in which the loss to domestic producers exceeds the gain to domestic consumers, but it is difficult to identify these situations in practice and even more difficult still to tailor anti-dumping measures specifically to deal with them.
Calls for enhanced anti-dumping measures are usually based on claims that foreign producers are engaged in predatory pricing. The argument is made that foreign producers seek to drive domestic producers out of business so they can dominate the local market.
But predatory pricing is asserted far more often than it is demonstrated.
In competitive international markets, there are few foreign producers who do not face competition from producers either in their own or other countries.
In the early 1990s, one of two Australian producers of low-density polyethylene sought anti-dumping measures against imports from no less than 80 foreign companies operating in 16 countries. It was the domestic producers who were a threat to competition. Strengthening Australia's anti-dumping regime could see a return to such abuses by domestic producers.
It is far more likely that Australian consumers and producers will end up paying more because of misplaced fears about foreign predation than due to the acquisition of international monopoly power by foreign producers.
Anti-dumping measures bring about the very outcome they are designed to prevent.
It is often claimed that dumping is unfair, but international price discrimination is no more unfair than domestic price discrimination. Foreign producers often benefit from government subsidies and other distortions, but these are costs foreign governments impose on their own economies and a benefit they unwittingly confer on us.
Fairness is relevant in the context of a game, but not in trade. The purpose of international trade is to obtain goods at lower prices than would otherwise be possible. To impose anti-dumping measures because foreign producers offer us exceptional prices is to reject the foundational principle of free trade. It is little wonder that anti-dumping measures have been described as protection with better public relations.
The Productivity Commission has recommended the introduction of a public interest test, which would improve the operation of our anti-dumping system by allowing greater consideration of the economy-wide implications of dumping.
But a simpler reform that would have greater benefits for Australian consumers and the majority of producers would be for Australia to dump its anti-dumping system. This was one of the recommendations of the 1989 Garnaut Report. It shows just how little progress has been made in this area that we have still not acted on Garnaut's recommendation two decades later.
Dr Stephen Kirchner is a Research Fellow at the Centre for Independent Studies and a senior lecturer in Economics at the University of Technology Sydney
