THE DUMPING, NOT THE RESPONSE, IS THE ISSUE

THE DUMPING, NOT THE RESPONSE, IS THE ISSUE

As intensive talks continue in preparation for the upcoming World Trade Organization summit in Seattle, environmental and labor considerations have made headlines. The most difficult issue in the talks, however, involves a seemingly arcane trade law aimed at stopping the practice of dumping - selling imports at less than their price in their home market or at less than their cost of production.

A group of countries has been pressing the United States to include negotiations on its antidumping laws on the agenda. U.S. negotiators have refused.At first blush, it may seem the U.S. position is unreasonable; after all, shouldn't we expect our trading partners to raise issues important to them?

Unfortunately, this simple view is simply wrong. The United States should oppose any attempts to weaken its antidumping laws until the many trade distortions that cause dumping are eliminated.

There are numerous critics of U.S. antidumping laws. Many foreign governments, most notably Japan, whose companies are most often found to be dumping, and a number of laissez-faire free traders oppose antidumping laws. Critics attack the laws as just another example of protectionism and decry U.S. administrators of the laws as biased in favor of domestic interests.

These critics, however, are wrong on many specifics and, more fundamentally, miss the central purpose of antidumping laws. And, as to the fairness of the administrators, one need only consider two statistics: First, U.S. authorities reject the majority of cases brought by U.S. petitioners; second, less than one-half of 1 percent of U.S. imports pay antidumping duties.

Beyond that, the focus should be the problem of dumping, not antidumping duties. The case of the Japanese steel industry is typical. Japanese steel companies have frequently been cited for dumping, and they were subject to new U.S. duties earlier this year.

These duties are not the result of accounting errors or poor administration. They are imposed because much of the steel Japan exports to the United States is dumped. Third-party pricing data indicates that Japanese domestic prices for many steel products are as much as several hundred dollars per ton more than the export price for the same steel.

The Japanese steel industry dumps not to provide a bargain to foreign customers, but as a way of building market share in the world steel market. The domestic Japanese steel market is heavily cartelized; the market shares of Japan's major steel companies have not changed in decades, and imports are held to about 10 percent of the market.

The cartel allows Japanese companies to charge high prices and build profits in the protected home market and use them to effectively subsidize sales to the United States. In bad economic times - as during the recent worldwide crisis in the steel market - Japanese companies use this dumping strategy to effectively export unemployment to the United States.

Unfortunately, the problem is not limited to Japanese steel. A less well-known example involves imports of cement from Mexico, which have been subject to antidumping duties since 1990. As in the case of Japanese steel, the Mexican cement industry is cartelized. A a single company, CEMEX, controls almost two-thirds of the market.

Through collusion, imports are virtually excluded from the Mexican market, and Mexican consumers are forced to pay almost twice as much as U.S. importers for the very same cement. Again, Mexican companies use these domestic profits to finance dumping in order to secure competitive advantages over U.S. companies.

Although they are not widely known, there are literally dozens of cases in which a protected, subsidized, or cartelized foreign company uses its market advantages to dump in the U.S. market. Often, this dumping causes serious injury to U.S. firms and puts U.S. workers out of their jobs. Stories like that of the Japanese steel industry and the Mexican cement industry are the real dumping issue, the topic that should be discussed in trade negotiations.

In the last major round of international trade negotiations, a major new global agreement was struck on antidumping regimes. Parts of it are still being implemented, and it is certainly too early to judge the results. Still, countries like Japan, Korea, and Brazil demand new negotiations.

Despite their protests, they do this not because they fear the abuse of antidumping laws, but because they fear the proper use of antidumping laws by the United States.

The appropriate topic for trade negotiations, however, is distortions, such as trade barriers and cartels, in their markets that make dumping possible. If those underlying problems were addressed, antidumping duties would cease to be a problem.