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Are there Positive Impacts for Adopting Lesser Duty Rule in Anti-dumping Investigations

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  • Noura Abdelwahab

Abstract

The implementation of Article VI of the GATT (1994) Agreement defines dumping as “the introduction of products of one country into the commerce of another at less than normal value of the products”. It describes “less than normal value” as: a- Less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country, or, b- In the absence of such domestic price, is less than either (i) The highest comparable price for the like product for export to any third country in the ordinary course of trade, or (ii) The cost of production of the product in the country of origin plus a reasonable addition for selling and administration cost plus reasonable profit margin. If such dumping causes or threatens to cause ‘material injury’ to the industries in the importing country, then that country is authorized following an investigation, to impose an (appropriate) Anti-dumping (AD) duty on the dumping companies in the specific countries that are subject to the investigation and are found to have dumped those products ( Vermulst, 1994). To the same end Article 9.1 of the AD Agreement urges investigating authorities to impose AD duties less than the full AD margin if such lesser duty would be adequate to remove the injury to the domestic industry. However, in practice only few jurisdictions apply the full AD margin such as Egypt and the US while other jurisdictions apply a mandatory Lesser Duty Rule (LDR) in their AD investigations such as the EU. Thus, the amount of the AD duty does not exceed the lesser of the margin of dumping or the injury margin, which is defined as the difference between the import prices of the dumped product exported from the exporting Member to the importing Member (“the import price”) and the non-injurious price (“the NIP”). The jurisdictions which apply Lesser Duty Rule believe that AD measures should not exceed the injury margin suffered by the domestic industry to protect consumers from the increase in prices. As after the imposition of AD duties, usually domestic producers raise their prices (World Trade Organization, 1998). The realization of the negative consequences of AD duties that resulted from the imposition of AD duties urged developed countries, mainly Japan and Korea in Uruguay Round to call for disciplines for the use of AD duties. However, the Round ended with only procedural changes in the Agreement, the matter which resulted in a huge surge of AD duties, mainly imposed by new Users (India, Brazil, China, Argentina, Egypt and South Africa). Therefore, Japan and India as well as the Group of Friends of AD (Brazil; Chile; Costa Rica; Hong Kong, China; Israel; Japan; Korea, Norway; Singapore; Switzerland; the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu; and Thailand) have been calling for the adoption of the LDR proposal i.e. AD duties should not be higher than the calculated injury margin (injury suffered by the domestic industry in the named country), in the current Rules Negotiations in the context of the Doha Round Negotiations. The adoption of such a proposal would lead to the imposition of a lower AD duties, the matter which would result in a lesser consistency in the country's trade policy and the net loss of the national interest would even be less( World Trade Organization, 2004 & 2005). Many economists analyzed the impacts that resulted from the imposition of AD duties or the impacts that result from initiation of AD investigation. Among which were Deardorff and Stern (1990), who used the Michigan model (a CGE model) of world production and trade to calculate the effects on trade and employment of a variety of AD scenarios. Leamer (1990) also used a general equilibrium model to estimate the effects of tariff and non-tariff barriers on trade using cross-section data for 1983 on fourteen industrial countries. Anderson (1992) analysed the effects of AD laws on U.S. trade as well as their economic costs. Prusa (1999) relied on disaggregated trade data from the United States in estimating an econometric model to quantify the effect of filing an AD petition on trade from named and non-named countries . Vandenbussche and Zanardi (2006) quantified the worldwide effects AD laws on aggregate trade flows. They estimated worldwide trade flows using a gravity equation spanning 21 years (1980-2000) of annual observations and used trade flows for 121 exporting countries and 58 importing countries. Based on this background, this paper seeks answering the following questions: • To what extent would the adoption of the LDR result in positive impacts on the Egyptian Economy? • What is the impact of such adoption on household’s welfare? The study uses a partial equilibrium model; the TAPES model that is developed by Sherman Robinson , in 2006 which captures the welfare impacts that result if the Egyptian authorities adopt LDR in the Tires AD investigations. The model specifies five trade partners for Egypt comprising the New Users Group, which are India, Brazil, China, Argentina, and South Africa. The model comprises data for 72 manufacturing sectors. It uses Egypt's production and trade data for the year 2014 Published by the Central Agency for Public Mobilization and Statistics and 2014 tariffs data published by the ministry of Trade and Industry. The TAPES model is built around supply and demand curves for exports and demand curves for imports. Consumer welfare are measured using consumer and producer surpluses. Imports valued at domestic prices gives total import demand or apparent import consumption. Demand curves for imports are defined for each imported good and each regional source of imports has a supply curve specified. The composition of imports from different regional sources of supply is treated as an imperfect substitute and is governed by a variable elasticity of substitution related to the Armington elasticities. Two different scenarios are simulated in this study as follows: 1) Simulation 1: Application of full AD margin for the Tires cases. 2) Simulation 2: Using LDR for the application of AD margins for the Tires cases. This study analyses the impact of adopting full AD margins in AD investigation on the Egyptian Economy, versus the impact that would result if the Egyptian Investigating Authorities adopted LDR in AD investigations for policy makers that enable them to better address these challenges. Based on the applied model, data and policy scenarios, the study will provide policy recommendation on the welfare impacts that result from Appling full AD margins in AD investigations.it shall also provide policy recommendations on the way forward to adopt LDR in AD investigations.

Suggested Citation

  • Noura Abdelwahab, 2016. "Are there Positive Impacts for Adopting Lesser Duty Rule in Anti-dumping Investigations," EcoMod2016 9599, EcoMod.
  • Handle: RePEc:ekd:009007:9599
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    Keywords

    Egypt; Impact and scenario analysis; Trade issues;

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