Continued appreciation of the dollar relative to the euro and other currencies, together with a prolonged, global industrial slump and certain other factors, could trigger a massive influx of low-priced imports into the U.S., with devastating consequences for U.S. industries and their employees (or would-be employees).
Producers in countries with weaker currencies, of course, have incentives to increase exports to the U.S.: the ability to lower prices with less adverse impact on revenue in their home currency; enhanced opportunities to undersell domestic producers and acquire U.S. market share; and offsetting anemic demand in their foreign markets, exacerbated recently by European austerity measures.
Whether the dollar’s upswing will continue, and whether there will be another exodus from euros into dollars, as happened in May following the Greek debt crisis, is anybody’s guess. But with a persistent danger of government insolvency spreading to other European countries, further dollar appreciation remains a distinct possibility. Nor would many analysts rule out an extension of the international economic downturn.
Domestic producers may naturally look to unfair trade law as a remedy or deterrent to surging imports. Unfortunately, the same favorable exchange rate that beckons foreign producers to increase shipments to the U.S. stands to undermine the effectiveness of relief under the anti-dumping statute.
Before turning to more hopeful prospects under a separate provision, it’s worth considering how the currency exchange may affect the outcome of “less-than-fair-value” investigations.
To be considered unfairly traded under the anti-dumping statute, and thus subject to duties, the price of imports sold in the U.S. must be lower than the value of comparable products in the foreign market. This is known as “normal value.” If the price of imports is lower than normal value, a duty is calculated to offset the difference. Otherwise, the case terminates.
In comparing the price of U.S. imports to foreign value, the foreign side of the equation is converted to dollars. Thus, when the dollar appreciates relative to the exporting country’s currency, “normal value” falls proportionately. In the abstract, then, the higher the dollar rises, with all other things being equal, the lower the imports may be priced without incurring a dumping duty.
Though in practice normal value computations and adjustments are complex — and sometimes counterintuitive, particularly if based on constructed value, or if exchange rates fluctuate — a large, sustained appreciation of the dollar, as we’ve seen this year, can facilitate a savvy foreign producer’s ability to reduce or eliminate dumping duties.
Indeed, a 2006 University of Washington study found that in periods following a large and sustained rise of the dollar, there were declines in the number of anti-dumping investigations initiated. Current conditions not only may thwart an effective remedy, therefore, but preclude the foreign producers’ cost of litigating in the first place, giving them another incentive to flood the U.S. market.
At the same time, a stronger dollar tends to help a domestic producer in the injury phase of anti-dumping cases, where it must show that imports are the cause of its injury. Although the price of the American-made product has no direct relevance in the assessment of dumping, it is a key factor in establishing the causal link between imports and injury. If foreign producers were taking advantage of the stronger dollar for the reasons described, underselling would likely be in evidence, making an affirmative injury determination more likely. That result is useless, however, if the case is nullified by a negative dumping determination.
If only there were a remedy for surges of imports that are technically sold at or above fair value but nonetheless cause serious injury.
In fact, there is: The Section 201 “safeguards” statute allows for temporary relief, in the form of quotas, duties or both, when increased imports cause injury, or threat thereof, to a domestic industry. Section 201 involves no investigation into whether imports are traded unfairly.
Several advantages attend the use of safeguards. First, it eliminates the problem of finding dumping with the appreciation of the dollar. Second, the aspect of the stronger dollar that helps the petitioner — price comparisons between U.S.-made products with weaker currency imports — remains a key factor in the causation analysis in a safeguards action.
Third, because there is no “fair value” investigation — the most complex and labor-intensive aspect of preparing and litigating unfair trade cases — a safeguards action is considerably less expensive than the typical anti-dumping case.
Although a successful case under Section 201 occurs in two phases — one in the U.S. International Trade Commission, the other before the president’s Trade Policy Staff Committee — both phases, unlike dumping cases, center on the same questions, and rely on facts established during a single proceeding.
Finally, a safeguards remedy is consistent with the objectives of the Obama administration to make jobs a top priority. Because a primary objective of Section 201 is to safeguard U.S. jobs, from a political and policy perspective, there’s good reason to believe the White House would implement an affirmative recommendation by the ITC.
Roger Banks is an attorney in Washington with wide-ranging experience in international trade and customs issues who served as Of Counsel in a successful safeguards action on behalf of the U.S. wheat gluten industry. Contact him at email@example.com.