(Reprinted from HKCER Letters, Vol. 31, March 1995)
Anti-dumping and GATT Restrictions
Joseph M. Finger
The first point I would like to make is that there has been a lot of GATT-legal protection, particularly anti-dumping protection, imposed in the last five to eight years. A lot of it has been imposed against Asian economies. South Korea, China, Hong Kong, Japan and some others are most often hit by anti-dumping actions. In the more recent past, there has been even more alarming proliferation of anti-dumping which has become a favorite policy instrument of developing countries. For example, Mexico is now, after the U.S. and Australia, the third leading anti-dumper in the world, having displaced Canada and the European Union. Not only has the use of anti-dumping increased notably geographically, the scope of what gets restricted under the general label "anti-dumping" has expanded tremendously. To illustrate the point, about half a year ago, the Deputy Minister of a small country complained to me that since Americans do not eat dark chicken meat because of cholesterol, the price of dark meat exported by the U.S. to his country was lower than the price his local farmers normally charged for chicken, and he thought that was dumping and something should be done about it.
The second point is that while the Uruguay Round has made great progress in many area, there has been virtually no improvement, no increased discipline, on the use of GATT-legal ways of imposing protection. If you look at the GATT as a document, you will find that it is about fifty pages long. It takes four and a half pages to deal with trade negotiations that liberalize trading systems. It takes another page to deal with how you apply for membership and how you withdraw, leaving about forty-two pages that describe how you go about imposing trade restrictions. The way the GATT has dealt with these trade restrictions can be illustrated by a part of the safeguard agreement that deals with the banning of voluntary export restraints (VERs). The text of the article says: "A member shall not seek, take or maintain any voluntary export restraints, or any marketing arrangements or any similar measures on the export or the import side." Another paragraph says those measures already in place have to be phased out. It sounds good, but then there is a footnote that says: "An import quota applied as a safeguard measure in conformity with the relevant provisions of GATT 1994 may by mutual agreement be administered by the exporting member." This sounds very much like VER, that is, a quota by mutual agreement administered by the exporting member.
What is different between a VER that would be legal under the new arrangement and the VER that would be outlawed? Well, what is different is entirely procedural. Until now, VERs were frequently used as a short cut to a GATT-legal restraint which would have resulted from a somewhat lengthy administrative procedure. Suppose an anti-dumping complaint is raised in the European Union or in the U.S. The administrative procedure begins to grind. In the meantime, the exporter sits down with the government of the U.S. or the European Union, agrees he is going to maintain a price no lower than a specified amount, or restrict his export volume to no more than a specific amount. In exchange for this, the administrative procedure is suspended, and the GATT-legal export restraint never comes into place. Now the procedure will have to roll to its end before negotiated restraint will be legal.
Well, what can we learn from GATT history? If you look at the way GATT dealt with GATT-legal import restrictions at the beginning, you will find that GATT used Article 19, or the safeguard clause, which provided that, under specified conditions, we might impose an import restriction. The GATT also required that if an import restriction were imposed, the country was expected to compensate the exporters of that product. The idea is to maintain a balance. Everyone understood that if you take back a bit of market access, you have to give another bit. This then was negotiated between parties, and if a negotiation did not arrive at satisfactory compensation, the exporter was recognized to have the right to retaliate. So in the past, rules have never effectively disciplined these GATT-legal means of import protection, but the idea of reciprocity has from time to time provided some discipline.
Perhaps the major concern one should have about GATT rules is that apart from abuses of the rules, the rules themselves make no economic sense. It is, simply put, a fool's game. GATT allows glossing over, and there are a long list of different articles, all of which operate on one basic concept, which is injury to domestic producers. That is, if imports displace domestic production, then a GATT-legal import restriction is allowed one form or another.
In other words, the GATT in this case accepts what we might describe as a soccer match in which there is a goal at only one end of the pitch. The interests of the industry requesting protection are represented in the procedure. If, on the other hand, the same restriction on imports brings injury to users of imports, their interests are not included in the procedure. So the protectionists have a goal in which they can make their points. The other side does not have such a goal.
At the World Bank, we tend to deal unilaterally. We do not advise Senegal, for example, as to what position to take on anti-dumping in the multilateral trade agreements. We advise Senegal as to take what actions it should take with regard to its own relationship with the World Bank, to our structural adjustment lending policy, which simply put is we will lend you money if you make certain policy changes. The approach evolving at the World Bank is to treat anti-dumping the same as tariffs. What we asked Senegal to do was revise its tariff so that the average tariff of Senegal is no more than 45 percent, and that no tariff rate be higher than 75 percent. How do we deal with anti-dumping in this context? We make sure that the contract the Senegal government writes with the World Bank is written so that it does not matter whether they call their import charges anti-dumping charges or customs duties, so long as they know that we are going to add up all the columns and they cannot come to more than 45 percent on average or 75 percent on any particular line. There is nothing inconsistent with the GATT in that approach. Tariffs are legal under the GATT, anti-dumping actions are legal under the GATT. So if it is reasonable to cap the level of customs duties, it would also be reasonable to cap the level of anti-dumping duties.
Finally, the current negotiations between China and the U.S. bring forward the possibility of China's asking an exchange for the market access. The U.S. is asking China for market access, and China is asking in return for a negotiated cap on the protection that will be imposed against China, making it clear that anti-dumping actions are included in its cap, just as customs duties or any other restrictive action would be. When you first hear this suggestion, it seems odd, to suggest negotiating over restrictions like anti-dumping restrictions which are clearly GATT-legal. At second glance, it does not seem so odd because tariffs are also GATT-legal. The main point of the GATT negotiation has been the negotiation of tariffs to lower levels. In the main, quantitative restrictions have never been GATT-legal. Quantitative restrictions in the main were negotiated more under the OECD than through negotiations under the GATT. The GATT success is the result of negotiating limits both on tariffs, which are GATT-legal, and on VERs, which are GATT-illegal. So GATT history demonstrates that the matter of legality or illegality has not really been an impediment to what the GATT has achieved.
Dr. Joseph M. Finger is leading economist in the Trade Policy and International Trade Division at the World Bank. The above is an edited version of a lunch talk he recently gave at the Centre.