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Update (July 1998)
The Anti-Dumping Authority has been abolished with the Australian Customs Service now responsible for both preliminary and final investigations. The period for a complete investigation has been reduced from 215 to 155 days while interim duties may be imposed after 60 days. A Trade Measures Review Office has been established which will review practices but not vary decisions which is the domain of the Minister.

July 2001: "My manufacturing members are going to kick in doors at the next election, because there is not a manufacturing industry in Australia that's import competitive with China...if this Government won't change the law, we will support a government that will." Bruce McAllen, chairman, Industry Task Force. Australian Financial Review 13 Jul 2001

Theory

Governments may impose anti-dumping measures to provide relief to domestic industries injured by competition from imports sold at prices lower than the selling price in the exporting country. Such goods are referred to as being "dumped," and can be described as "injurious dumping" if industry in the country of destination is "injured. The injurious effects of the dumped goods may be offset by means of anti-dumping duties levied at the time of import.

The benefit of losing access to cheaper goods (i.e.. by users as their raw materials and inputs to industry or the consequent cost to consumers) is not formally addressed in its application.

Antidumping duties may be applied to the imported goods if found to have been dumped. Dumping is defined to have occurred if the imported goods are;

  1. sold at a price below the country of export, and
  2. the Australian (manufacturing) industry has suffered material injury, and
  3. there is a causal link between the material injury suffered and the exports of dumped goods.


Comments
Normally a claim is made by a manufacturer of like goods that have closely resembling characteristics but not necessarily identical to the imported goods.

Anti-dumping also applies to where government subsidies have been used to promote exports (e.g.. loans and export incentives).

Injury is signalled by a change in market share, an effect on prices, production, forward orders, profits, employment, cash flow and investment. These signals must be significant and greater than that likely to occur in the course of normal business. Anti-dumping protection rules do not consider the fundamental competitiveness of the manufacturer seeking protection (or cost impact on users).

The discount margin on the selling price is redressed by either a dumping duty of equal value or an undertaking by the importer to desist in future. The benefit to the protected manufacturer can be substantial, 20 per cent or more of the imported price and in just one claim can involve imports from many countries. Such legislation provides a substantial measure of protection to industry. Even the presence of the legislation acts as a deterrent, so that the number of claims by industry can understate its impact in inflating the price of imported goods in the home market.

Provisional duties may be required which take the form of bank guarantees or cash payments that investigators can require importers to pay as a security part way through an investigation. If the final result of the inquiry is that the imports are dumped, penalty duties can be imposed on imports for several years and the importer forfeits the security.

Economics of Dumping

There are two components to the manufacturer's cost - a variable cost and a fixed cost.
bulletThe variable cost includes the cost of raw materials, energy and direct labour, packaging and distribution which increases approximately in proportion to each additional unit of production.
bulletThe fixed cost (or overhead cost) includes capital cost recovery, management, research and development and other costs that are incurred broadly independent of the volume of production.
There is therefore an incentive to sell if the price realised is above the variable cost so that there is a contribution to the fixed cost (or the overheads). Manufacturers commonly maximise profits by selling at one price in the home market (fully covering their fixed and variable costs of production) and at lower prices in overseas markets to (at least) cover their variable costs. The nominal profit margin per unit sold in the overseas market is lower but it contributes to the gross operating surplus (of course providing anti-dumping legislation is not incurred in the overseas market).

The chemical industry is a capital-intensive industry (i.e.. the variable cost is low when compared to the fixed cost) providing scope for significant variation in the prices of goods between markets. Therefore, while there is unused production capacity, manufacturers may create a variety of prices according to the market or region to minimise the penalty of operating at less than full capacity. Anti-dumping legislation is therefore a controversial form of assistance with arguments for and against.

Statistics of use

Claims for relief have been substantial and though a small economy, over a ten year period through to the early 1990s, Australia sought more remedial action from dumping than the European Economic Union.

Number of Anti-Dumping Investigations, by Country from WTO figures to end June 1996

  1969-1974 1975-1979 1980-1984 1985-1989 1990-1994 1995-1996 Total
U.S. 125 140 146 219 249 22 901
E U 19 55 138 101 147 42 502
Canada 42 74 176 115 90 16 513
Australia - 120 242 180 252 12 806
Others 39 64 10 74 231 96 514
Total 225 453 712 689 969 188 3236
Number of Anti-Dumping Investigations since 1991
  1991 1992 1993 1994 1995 1996
U.S. 51 83 35 45 14 8
E U 17 37 21 43 32 10
Canada 11 39 24 2 14 2
Australia 66 69 58 13 5 7
Brazil 2 13 34 2 5 1
Korea * 5 6 4 4 5
South Africa * * * 15 17 20
* non-notification

It has to be noted that Australia has now one of the more open economies with a 5 per cent ceiling tariff and few if any invisible protection measures. Anti-dumping legislation therefore presents the one remaining protection measures available to industry. In an overall perspective, its impact and benefit is small.

Chemicals - largely petrochemicals, have represented nearly one-half the number of claims in Australia (one-third world-wide) though they were only one-tenth the value of imports. For comparison, China, Indonesia, Taiwan and Thailand do not have anti-dumping systems, Japan has only recently used it for the first time, and Singapore rarely uses the system (a report by the Department of Industry, Science and Technology).

Comments

Dumping has been identified as an unfair, predatory practice and an export of problems and criticised by others as increasing their costs.
Comments
Dumping is projected as a predatory pricing practice to sell surplus products at marginal prices into small markets like Australia to deliberately damage the local industry to permit future unimpeded entry.

The gold mining industry has claimed anti-dumping legislation adds $40 million per year to the cost of sodium cyanide (the Association of Mining and Exploration Companies, in Australian Mining Monthly, October 1991 page 79). Not recorded, one of the local manufacturers as a claimant for relief from dumping is said to have been exporting sodium cyanide to gold companies in Fiji at a price that would in Australia have been deemed to be dumped. Fiji in that sense, benefits from not having a sodium cyanide manufacturing industry.

Some beneficiaries of the legislation have sought to distinguish dumping from assistance as simply an issue of fair trading. The same companies often practice extreme examples of what some smaller operators have described as predatory manipulation in the Australian market place. If the Australian states were sovereign countries, they would have been subject to anti-dumping legislation.

The primary argument for anti-dumping assistance is that unregulated dumping can hinder industry development as surplus production from one industry could be (dumped) sold into a smaller market where a new industry is being established. The new industry, without the resources, the breath and depth of longer established firms, may be unable to tolerate a price reduction causing its collapse.

Some arguments against anti-dumping include;
bulletThe industry responded by diversification to small, and therefore vulnerable plants instead of more focussed and internationally competitive projects. Antidumping legislation, like other assistance measures, contributes to promote diversified and therefore high cost production (largely confined to the home market).
bulletAlthough some parts of manufacturing industry may suffer injury from marginally priced goods, like any imposed assistance remedy, it is paid for by consumers and users through higher prices. Losing access to marginally priced goods through the application of antidumping legislation also causes injury to users that is not brought to full account.

Comment
Some industries benefit as for example the New Zealand plastics industry which, because there is no local plastic resin (chemical) manufacturing industry, is able to import the plastic resins at dumped prices.

For example, "ICI goes to court against refusal to stop dumping", Australian Financial Review, July 18, 1991. The Anti-Dumping Authority found that dumping had occurred and dumping duties were imposed. The consequent increases in prices of products (sodium cyanide used by the gold mining industry), prompted a response by their association calling the court appeal a blatant bid to shore up its own interests ("Miners unite to rap ICI", Australian Financial Review, 25 July, 1991).

bulletAntidumping measures may be difficult if possible to enforce when the so called dumped price material is incorporated in an imported finished article (e.g.. plastics imported to New Zealand [with no protected local resin manufacturer] at what would be a dumped price in Australia, and then after processing, sold to Australia).
bulletDumping is a feature of the competitive environment that should have been discounted in the original decision to invest. Indeed, most export sales of Australian made chemicals and other manufactured goods, especially from protected industries, are at dumped prices (although not subject to claims of injury from the local industry as Australia's prices are above world levels and generally the export market). On the other hand, it could also be justifiably reasoned that antidumping protection was already in place at the time of investment and that any relaxation would disadvantage current industry.
bullet 
In the end however, it may well be that as Australia's manufacturing industry is becoming internationally competitive, anti-dumping legislation will assume less importance and may even perhaps become practically unused as in other developed countries.

Chemlink Pty Ltd ACN 007 034 022. Publications 1997. All contents Copyright © 1997. All rights reserved. Information in this document is subject to change without notice. Products and companies referred to are trademarks or registered trademarks of their respective companies or mark holders. URL: www.chemlink.com.au/

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