Undertakings and Antidumping Jumping FDI in Europe

This paper studies the effects of EU antidumping policy when foreign firms have the possibility to 'jump' antidumping measures by engaging in foreign direct investment (FDI) in the EU. Using a multi-stage framework, we study the EU administration's choice between an antidumping duty and a price-undertaking, taking into account the effect of these measures on the location decision of the foreign firm and the subsequent price competition between local and foreign firms. Our findings suggest that the EU administration acting purely in the EU industry's interest prefers a price-undertaking to a duty, if the latter leads to 'duty jumping' FDI. FDI toughens price competition in the EU market and leaves local firms worse off. Antidumping jumping FDI will only occur if the EU administration has broader objectives than just protecting the profitability of EU industry, if fixed costs of FDI are not too high, and if the cost advantage of foreign firms are, at least partially, firm-specific and transferable abroad. If foreign firms are able to act strategically taking into account EU antidumping policy, the presence of antidumping law can also discourage FDI that would have taken place under free trade conditions.