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Antidumping duties and price undertakings: A welfare analysis

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  • Wu, Shih-Jye
  • Chang, Yang-Ming
  • Chen, Hung-Yi

Abstract

In this paper we examine differences in welfare implications between two trade protection measures: antidumping (AD) duties and price undertakings. Based on a stylized model of duopolistic competition under an effective AD law, we first analyze the case where a foreign firm convicted of dumping is required to pay an AD duty. We then examine the case in which a convicted foreign firm has the option of (i) paying an AD duty or (ii) accepting an undertaking by raising product price to its “normal value.” Taking into account the GATT/WTO policy that an AD duty rate must not exceed the margin of dumping, we show conditions under which a foreign firm chooses to evade its AD fine by a price undertaking. We find that the welfare-maximizing AD duty rate for a dumped product depends crucially on its normal value. If the foreign product's normal value is “critically high,” the optimal AD rate is set to fully reflect the dumping margin. Otherwise, the optimal AD rate is set lower than the dumping margin. From the perspective of social welfare, these findings help to identify the economic conditions under which one policy instrument is chosen over the other against foreign dumping.

Suggested Citation

  • Wu, Shih-Jye & Chang, Yang-Ming & Chen, Hung-Yi, 2014. "Antidumping duties and price undertakings: A welfare analysis," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 97-107.
  • Handle: RePEc:eee:reveco:v:29:y:2014:i:c:p:97-107
    DOI: 10.1016/j.iref.2013.05.013
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    References listed on IDEAS

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    5. Miyagiwa, Kaz & Song, Huasheng & Vandenbussche, Hylke, 2016. "Size matters! Who is bashing whom in trade war?," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 33-45.

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    More about this item

    Keywords

    Antidumping duties; Dumping margin; Price undertakings;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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