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US Trade Remedies and the Adjustment Process2.4 Antidumping and Countervailing Duties
Safeguards and TAA assist firms and workers adversely affected by imports or, in the case of TAA, the relocation abroad of US plants, regardless of whether the tradeimpact is associated with “unfair” behavior of foreign competitors. The provisions discussed above mostly tend to offset rather than reinforce the market pressure for resources to leave a sector that experiences declining comparative advantage. However, the statutory limit on the duration of a safeguard and TAA’s provisions on retraining, relocation, job search, and wage insurance can be seen as implicit or explicit efforts to promote adjustment.
In contrast, antidumping and countervailing duty laws begin from the premise that the
pressure to adjust is itself unfair, i.e., that competing goods are being sold in the US market at “less than fair value.” Hence, the intent of these laws is to eliminate the need for US firms to adjust. In practice, the frequent use of antidumping by the steel industry in particular suggests that these laws strengthen the ability of industries to postpone adjustment indefinitely. The link of antidumping activity to exchange-rate appreciation and cyclical downswings (Knetter and Prusa 2003, Irwin 2004) may imply their use also as a means to counter reversible declines in profitability and thus retain resources in sectors where the average return would not otherwise be adequate to compensate for the volatility of profits. In a competitive industry with high fixed costs and substantial volatility in demand, one would expect to see all firms selling at marginal cost, thus making losses (price below full average cost) during business downturns but earning
above-average profits during upturns; average profitability over time should be sufficient to compensate for year-to-year volatility. However, this behavior pattern on the part of foreign firms exporting to the United States would trigger dumping complaints. Thus, one effect of antidumping is to shift more of the adjustment burden in cyclical industries to foreign suppliers.
Notwithstanding the intended role of antidumping as a means of preventing damage to the US economy due to unfair practices of foreign firms, most international economists view the law as offering domestic firms an easy alternative to adjustment. The ease of obtaining protection through this route is attributable in part to a shift in 1980 of the responsibility of determining whether imports were sold at “less than fair value” from the free-trade-oriented Treasury Department to the Department of Commerce. Irwin (2004) shows that Commerce was far more likely to find evidence of dumping, a necessary condition for antidumping action to protect the domestic industry. A second reason for the relative ease of obtaining sector-specific protection through this route is that Commerce can choose among four calculation methods, including “facts available” method based on the petitioners’ data that accounts for affirmative decisions with an average dumping margin of nearly 96 per cent (Irwin 2002). Moreover, antidumping enforcement appears to target exporting nations that have recently gained competitiveness in the relevant industry, and especially smaller countries lacking the capacity to retaliate in kind (Blonigen and Bown 2003).
Given the intent of antidumping and countervailing duties to neutralize the impact on domestic firms of “unfair” import pricing, it is not surprising that the US Tariff Act of 1930 makes no explicit mention of adjustment in the import-competing sector. However, the provisions regarding “sunset reviews” implicitly address industry adjustment. Five years after an AD/CVD has been imposed, the DOC and the ITC must “conduct a review to determine […] whether revocation of the countervailing or antidumping duty order or termination of the [suspension agreement]… would be likely to lead to continuation or recurrence of dumping or a countervailable subsidy (as the case may be) and of material injury.” If the affected industry does make a successful “adjustment” by becoming competitive and thus eliminates risk of future material injury from foreign competition, the industry will lose its protection through the removal of duties. This provision appears to further weaken the already weak incentives for speedy adjustment by offering continued protection only for industries that are still endangered by imports.
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