Transcript Anti-Dumping in Agriculture between Canada and U.S.: Two

Anti-Dumping in Agriculture
between Canada and U.S.:
Two Cases of Tomatoes
Rick Barichello
University of B.C.
March 8, 2002
Introduction
• During 2001, two AD cases filed re N.A. tomatoes
• U.S. Greenhouse (GH) growers against Canadian GH
tomatoes
• Canadian GH growers against US fresh field tomatoes
• Unusual: 2 similar goods facing concurrent AD
proceedings, two countries against each other
• Dumping usually seen as predatory behavior by firm w/
mkt power across borders to harm firms in importing
country
• Questions: These AD cases legitimate or protectionism?
– Does AD make sense within Ag sector where signif. international
market power not that common at commodity level?
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Legal Background I
• Definition of Dumping:
– “when products of one country introduced to commerce
of another country at less than the normal value of the
product” Art VI of GATT
– Such action condemned if “it causes or threatens to
cause material injury or materially retards establishment
of a domestic industry”
– If dumping and injury are determined to occur, and
both are necessary, an anti-dumping duty may be levied
at level less than or equal to “margin of dumping”,
which is difference between exported and normal value
of the product
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Legal Background II
• Exporting at less than normal value arises in three
situations:
1. If export p < comparable normal domestic p for like
product in exporting country, or
2. In absence of such domestic p, if export p < comparable
p of like product exported to any third country, or
3. If export p < cost of production of product in country of
origin, plus reasonable addition for selling costs and
profit
– This latter situation most common situation in agrelated AD cases
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Legal Background III -- Injury
• Consider
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Volume of imports
Price undercutting
Price depression of suppression
Must separate the price effects due to imports compaed
to other economic factors that may be relevant
– Must show convincingly a causal relationship between
imports and resulting p decline that injures dom firms
• Each country sets up its own operating procedures
for both dumping and injury determination
following these guidelines
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US Case Against Cdn GH Tomatoes
• Six issues
1. Like Product
– Needed to know comparison industry and market
– US ruled this limited to GH, not fresh field, tomatoes
– Decision based on production process, costs, pricing,
marketing, physical characteristics
– Little on consumer demand, substitution relationships
• Yet what we must know for injury is, how much will p of GH
tomatoes fall if imports of GH tomatoes increase?
– Narrow definition of product increases likelihood of
answering this question in the affirmative, very much,
hence concluding that injury IS inflicted
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US Against Cdn GH Tomatoes II
2. Export Price
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Straightforward, just observe US selling p of Cdn gds
Subtract charges, costs to arrive at ex factory p in
Canada
calculation done for all tomato categories, 20 HS #s
3. Normal Value
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Must determine domestic value in Canada
Use actual selling prices by exporting firms
US complainants requested sales-below-cost investig.
Normal value calculations revised to exclude any
domestic p < costs
Requires Cost of Production calculation to be done
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US Against Cdn GH Tomatoes III
4. CoP Analysis
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Usual procedure: add cost of materials + fabrication,
selling, general, admin, interest and packing costs
Capital costs and profit included
Done for each GH tomato exporter and for each type
of tomato
5. Margin of Dumping
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Export p – Normal Value
Done for each GH exporter, wtd ave across tom.types
CoP data used to delete any dom p data below cost
Final determination, Feb 19 2002, <2% to 18%
Dumping duties now charged at exporter-specific rates
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US Against Cdn GH Tomatoes IV
6. Injury
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Preliminary determination May 2001, awaiting final
Like product = GH tomatoes (w/ some uncertainty)
Prelim decision in favour of injury. Evidence?
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US industry market share constant
Volume of Canadian imports increased rapidly since 1998
Non-Canadian imports declined by amount of Canadian mkt
share growth
Price Effects
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Limited ability of GH industry to set own p: perishability, etc
Some evidence of CDN imports underselling US domestic
producers prices
Prices fell, 98-99, then rose 99-00, but 2000 p > 1998 p
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US Against Cdn GH Tomatoes V
6. Injury (cont): Conclusions
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CDN GH tomatoes had p-depressing effects on US
domestic GH prices
US domestic firms in financial difficulties; profits flat
or declining
Therefore reasonable indication of injury,
notwithstanding mixed evidence
Final decision April 2002
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Cdn Case Against US Fresh Tomatoes
•
Complaint filed Sep 28 2001; injury period Oct 1,
2000 – Sep 30, 2001
CCRA initiated AD investigation Nov 9 2001
Preliminary dumping determination: Mar 2002
Injury: preliminary inquiry underway
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1. Like Goods/Subject Goods
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More emphasis on substitution between GH and field
tomatoes
Initial determination: US fresh field tomatoes are
subject goods, in contrast to US case
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Canada Against US Fresh Tomatoes 2
2. Export Price
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Used complainant supplied data, corroborated by
customs declaration data
3. Normal Value/Domestic Price
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Complaint showed “reasonable evidence” that US
selling p below cost
CoP study must be done
4. Normal Value/Cost of Production
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CoP studies obtained for CA and FL, based on older
univ. studies, adjusted to current year by price index
Cash costs, non-cash overhead costs incl capital, local
distribution and freight, mktg, selling costs; no profit
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Canada Against US Fresh Tomatoes 3
5. Margin of Dumping
• Reasonable evidence of dumping
• Margins ranged from 14 to 76% of normal value
6. Injury
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Cdn industry argues they are p-takers, CDN selling p
of GH tomatoes determined by selling p of US
tomatoes in Canada
Loss estimated at $20 million/yr:
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reduced incomes, reduced incentives to expand, upgrade
facilities, reduced investment, employment, market share
From evidence of Cdn and US industries, CITT judged
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Subject goods are US fresh tomatoes, like GH tomatoes
Reasonable indication of injury
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Economics of Dumping in Tomatoes
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General critique of AD measures, procedures in
economics literature since early 1900s
It only penalizes p-discrimination in trade; not illegal in
domestic commerce, nor rare
Consumer benefits > cost to producers
Exception: predatory pricing: foreign firm w/ market
power dumping to lower domestic firms´ prices, drive
them out of business, raise p later; actually not common
Legislation ignores this issue; efforts to make AD rules
follow anti-trust, competition policy have failed
AD abuse widely recognized; on agenda for trade reform
in Doha Round
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Agricultural Sector Issues in AD 1
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Dumping and Injury easier to prove in terms of
legislation for cases in Ag sector
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Basic p-discrimination between domestic and export
market (often more competition in export mkt; firm w/
any market power in domestic mkt will price product
higher at home than in competitive export mkt)
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Increasingly common with more identity preservation in food
products, increasing product differentiation
Relating CoP to normal value in Ag, easy to show
Dumping
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Declining real producer prices over time in all ag commods
Due to improvements in technology, incr productivity
Firms slow to adopt face cost-price squeeze, poor finances
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Agricultural Sector Issues in AD 2
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Result: Much greater likelihood of finding losses
in industry data
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With lags in getting updated cost and yield data, yet
more immediate evidence on prices, this alone
increases likelihood of finding costs > revenues
Price cycles also common in Ag sector
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Any time prices are cycling below trend, costs likely to be
greater than revenues
Conclusion: Dumping v. easy to “prove” in Ag cases
Injury: also easy to prove for domestic industry
in importing country
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Subject to same p cycles, same downward real p trends
so injury likely to be present regardless of imports
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Looking at Tomato Industry Data 1
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Market demand growing at 13%/yr
US productn, capacity growing at 12.3, 12.6%/yr
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This is unusually rapid; sign of profitability
US market share being maintained
All indicators: very healthy industry in aggregate
Pricing and market power
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Structure of exporters suggests competition, same with pricing
arrangements, especially with strong influence of fresh field
tomatoes on GH tomato prices
Canadian GH expts acct for 1/3 all GH tomatoes, which offers
only modest market power, but only 5% of all fresh tomatoes
Suggests ability to affect US GH tomato prices is small indeed
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Looking at Tomato Industry Data 2
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Real prices falling significantly in this market
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USDA annual US p data for fresh tomatoes, 89-2000,
deflated with CPI, regressed against time trend
Rate of change: -3.3%/yr
Relatively rapid rate of decline even in ag sector
Under these conditions, injury quite easy to “prove”
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But, reviewing relevant economic data, US GH
tomato industry does not appear injured; any
financial stress not due to Canadian imports
CDN case: every indication same comments apply
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Dumping and injury will be proven, but economics
indicate otherwise: no dumping, and injury due to
falling real prices
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Conclusions 1
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Both cases following established procedures
But these procedures + characteristics of Ag sector
mean dumping decisions and duties are very likely
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Conditions that pre-dispose these cases to dumping are
combination of p cycles, negative real price trends, plus
more general issue of p-discrimination
Neither case indicates “economic” dumping
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No monopoly power, no evidence of predatory pricing
Both cases, export firms dumping by selling below cost
in their export mkts AND in domestic markets
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How can it be that large number of firms, in both countries, with
all indications of competition and market growth, are hurting
themselves by selling below costs in both their markets?!
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Conclusions 2
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Both cases indistinguishable from normal
competition in international markets
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Some firms have acquired competitive advantage, from
improved technology or favourable exchange rates
movements and who seek to exploit these advantages
No injury except for those who have less advantage or
for whatever reason are having trouble keeping up with
their competition
•
End result, however: increased likelihood of extra
duties imposed, retreat from freer trade, and a
reversion to greater protection in Ag markets
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