By Vanessa Bell
In 2008, the Global Financial Crisis (GFC) caused “the most brutal global recession worldwide since the Great Depression of the 1930s”. Economists note that during periods of economic recession, global trade is susceptible to distortion, with dumping being a prime example of this. Following the GFC, the Australian government identified that Australia’s anti-dumping system required reviewing. Following the release of the Productivity Commission’s 2009 report, Australia’s Anti-Dumping and Countervailing System, the government made significant changes to its anti-dumping system. The reforms aimed at addressing deficiencies, restoring public confidence and relieving pressure on Australia’s existing anti-dumping system. However, further lobbying by Australian industry resulted in the commission of a new review, chaired by the Honourable John Brumby in 2012. The review, titled Review into Anti-Dumping Arrangements (the Brumby Report),led to the implementation of further reforms designed to better address the threefold increase in anti-dumping claims that had occurred in Australia. The then Minister for Home Affairs, the Honourable Jason Clare, claimed that this increase in claims had been caused by Australia’s strong economy in a weak global economy, the high Australian dollar, and “a surplus in the number of commodities on international markets”.
As “Australia [is] a trade nation, and trade is the key to our success,” it is important to understand what impact these new reforms are having on Australia’s ability to ensure its markets remain fair and open.
Dumping in the international trade market
Dumping, in the international market, occurs when a “company exports a product at a price lower than the price it normally charges in its own home market”. While dumping practices are not illegal, it is internationally accepted that they can be a form of unfair trading. This is because it is viewed as an uncompetitive trade practice which distorts the markets. For example, dumping has a negative impact on an industry’s ability to remain competitive because it allows inefficient and ineffective producers to gain an increased share of a foreign market.
The probability of dumping occurring in the trade market increases as market growth decreases, but the level of production continues at the same rate. For example, while participating in the Brumby Report, BlueScope Steel commented that “weak global demand and overcapacity in the steel industry [had] led to large volumes of steel being off-loaded at injurious prices”. Conversely, if the need for a particular product exceeds the rate of production, then the likelihood of trade distortion occurring (and thus the risk of harm to the industry) is reduced.
There has been some academic debate whether anti-dumping systems should continue to be a part of the international trade environment. Some economists have claimed that anti-dumping systems are required to necessitate continued support, both on domestic and international levels, for free trade. For example, Jagdish Bhagwati states that “a free trade regime that does not rein in or seek to regulate artificial subventions will likely help trigger its own demise”. Arguments that support the removal of anti-dumping systems state that they are ineffective at protecting industries from predatory dumping. Predatory dumping is a type of dumping that aims to eliminate competitors. Once the competition is wiped out, producers are free to set their own high prices. Tania Voon states that anti-dumping systems are unnecessary because, in practice, predatory dumping is extremely rare. In addition, because the WTO’s Anti-Dumping Agreement does not compel nations to investigate the reason why an exporter is dumping, it is not designed to target cases of predatory dumping.
It has also been argued that anti-dumping measures can be used as a form of protectionism. Protectionism can be described as “any policy adopted by a nation to protect domestic industries against competition from imports”. Protectionist measures are designed to protect the domestic market from competitive imports. However, it causes producers to become ineffective and unproductive and, when performed on a global scale, leads to market shrinkage. Protectionism is more prevalent when countries experience an economic downturn, decrease market growth and high unemployment levels. The United States publicised that it would use anti-dumping legislation to place a tariff on imported Chinese automobile tyres. In what has been regarded as a retaliatory move, China announced two days later that it would also be launching an investigation into American chicken and car products that had been dumped into China.
The WTO’s response to international trade dumping
The WTO is a multilateral system which facilitates open and free trade. The WTO achieves this by administering trade agreements negotiated by member countries. It is the commitment of the WTO, and its members, to remove barriers to trade. However, there is also an international acceptance that nations need to be able to respond to dumping in a manner that is both appropriate and relevant to their domestic situation. Therefore, the WTO permits the use of trade remedies, in accordance with their strict guidelines, such as the anti-dumping measures. This is despite the fact that the trade remedies would normally contravene WTO member’s fundamental obligations. One such rule is the Most Favoured Nation treatment, which requires countries to treat ‘like’ products from foreign countries in the same manner as they treat products from their own country.
The WTO is not responsible for regulating the activities of companies who practice dumping; instead it focuses on governments’ reactions to dumping. States are permitted, under Article 6 of the General Agreement on Tariffs and Trade (GATT) and the WTO’s Anti-Dumping Agreement, to implement measures that neutralise the effect of dumping. However, this can only be done when it is proven that the dumped products have caused “material injury to domestic industry in that country”. This means that not all cases of dumping contravene the WTO’s policies. For example, Holden recently announced that its Holden VF Commodore will be exported to the USA to be sold as a Chevrolet for $10,000 less than the equivalent model is sold in Australia. While this is an example of dumping, under the WTO rules, this would not constitute illegal dumping. This is because the few thousand cars exported to the USA are not enough to cause serious harm to the American car industry.
The benefit of focusing on the nations’ response to dumping, as opposed to regulating the activities of companies who practice it, is that it gives member countries the flexibility to respond to dumping in a manner that is both appropriate and relevant to their domestic situation. Therefore, nations’ approaches to anti-dumping can differ in a variety of areas, including which agencies administer the anti-dumping system, the time in which it takes to process the claim, the type of appeals process that is in place and whether a public interest test is included in the system. For example, while the investigating authority in Australia was the Australian Customs and Border Protection Service (and now the Department of Industry), this authority is with the Ministry of Economic Development in New Zealand, the European Commission in the European Union and the United States Department of Commerce in the USA. The target investigation timeframe can differ between nations: 155 days in Australia and 365 in the European Union and India. Also, the decision-maker on anti-dumping matters in Australia and New Zealand is the minister, while in the USA it is the United States Trade Commission.
The wide variety of approaches to anti-dumping led to a perception, particularly in Australia’s manufacturing industry, that Australia’s more liberal approach offered little protection to the domestic market from dumping.As reflected in the Brumby Report, Australian industry perceived that Australia had become a target for dumping by companies attempting to avoid countries with more conservative measures in place. However, despite the variations allowed under the Anti-Dumping Agreement, it does specify a number of minimum standards in order to prevent anti-dumping systems being abused. For example, there are rules surrounding the calculation of anti-dumping duty rates to prevent nations implementing excessive rates on foreign products. Also, when illegal dumping has occurred, countries should only impose measures to the point at which any dumping, and its associated injury caused by the dumping, is mitigated.
Australia’s recent anti-dumping reforms
The aim of Australia’s anti-dumping system is to correct any harmful effects to Australian industry caused by dumped goods. Members of Australian industry are able to lodge an application for anti-dumping duties to be placed on goods, which they believe have been ‘dumped’ into the domestic market. If it is found that the dumped goods have caused significant damage to the local industry, anti-dumping duties will be applied.
Australia’s anti-dumping system was highlighted as an area that needed to be reviewed in 2008, by the Council of Australian Governments. The Productivity Commission was assigned to investigate the effectiveness of Australia’s anti-dumping systems and the costs and benefits of the system to Australia’s economy. The Productivity Commission released its report, Inquiry Report No. 48, Australia’s Anti-Dumping and Countervailing system, in 2009. The Commission found that Australia should maintain an anti-dumping system because the “removal of an anti-dumping ‘safety valve’ could make it more difficult to address remaining tariff and related reform issues”. However, it recommended that changes would need to be made to address deficiencies in the system, which had the potential to be costly for the community. Specifically, it highlighted that the system did not take into consideration the broader economic impacts caused by anti-dumping measures and that the system lacked transparency.
Of the recommendations made by the Productivity Commission, fifteen of twenty were implemented (in part or whole) by the government in 2011. This included improving the domestic industry’s access to the anti-dumping system and increasing the level of compliance to anti-dumping measures. The reforms also reduced the length of the process by increasing the number of human resources by forty-five per cent and leveraging specialist knowledge, such as forensic accountants. The Commission also suggested that, like Canada and the European Union, Australia’s anti-dumping measures should be subjected to a public interest test. It concluded that the test was necessary because “wider impacts and the public interest [are] currently ignored, at potential cost to the economy and community”. However, the government decided not to implement this measure.
Despite the government’s implementation of the majority of the Productivity Commission’s recommendations in 2011, some Australian industry groups continued to lobby the government for further reform to the anti-dumping system. This led to the Brumby Review in 2012, which was commissioned to “examine the current arrangements for assessing and investigating anti-dumping matters and consider the feasibility of a Commonwealth Anti-Dumping Agency”. The review found that, despite the recent anti-dumping reforms, there was still a lack of public confidence in the system. The anti-dumping system was also found to be under pressure from increasing workloads. In order to restore confidence and relieve pressure to the system, the Brumby Review presented thirteen recommendations. This included the establishment of the Anti-Dumping Commission. The new reforms were implemented in six stages, beginning from late 2012. The reforms included “imposing a time limit on ministerial decision making in anti-dumping and countervailing cases, establishing the International Trade Remedies Forum in legislation [and] establishing a new appeals process for anti-dumping matters”. The government also agreed to establish an Anti-Dumping Commission, which was launched on 10 July 2013.
The Honourable John Brumby also discussed the idea of a public interest test in his report. The Productivity Commission commented that Australia would benefit from a public interest test because “measures would no longer be imposed if they would be ineffectual in removing injury or otherwise disproportionately or unreasonably costly for downstream entities”. However, Brumby commented that public interest tests generally favour the importer. This disadvantages local manufacturers because it leaves them “without a remedy for injurious dumping”. The Brumby Report did not recommend that a public interest test was necessary. Furthermore, under current Australian law, the Minister is able to refuse an anti-dumping measure being implemented, if it is felt that is in the best interest of the public.
Australia’s anti-dumping reforms are intended to be compliant with the WTO. Despite the recent changes, Australia’s anti-dumping system still determines whether anti-dumping measures should be imposed on a product based on whether it has caused significant harm to Australian industry. In determining whether a product has been dumped, products must be determined to be ‘like products’ (meaning they are identical or extremely similar products that are produced in Australia). This narrow interpretation of dumping is consistent with the WTO’s Anti-Dumping Agreement.
Striking the right balance: Supporting local industry while promoting trade liberalisation
The new anti-dumping reforms have been designed to address deficiencies in Australia’s anti-dumping system, as a way of restoring local industry’s confidence that the system is strong and robust. For example, when industry stakeholders were engaged during the review process for the Brumby Report, it was found that the location of the anti-dumping administrators in Canberra was not ideal for engaging with the domestic industry. Informed with this knowledge, the reforms were designed to improve engagement with industry and entice people with the appropriate knowledge and expertise to the new Anti-Dumping Commission. One way of achieving this was locating the Commission in Melbourne was so that it would be “close to a high concentration of Australian industry”.
The new anti-dumping reforms are also a genuine attempt to build local industry’s confidence that the system will protect it from unfair trading while ensuring that the system is not a smokescreen for protectionism. For example, the establishment of “a new appeals process for anti-dumping matters”, attempts to build both international and domestic stakeholders’ confidence that the system is fair and transparent. The reforms that improve the impartiality of the review process will also reassure interested parties that the system has integrity. The system will now provide local industry with increased certainty with the introduction of new time limits that states that Ministers have 20 days to decide on anti-dumping matters. In the past this process could last months.
However, to ensure that Australia’s anti-dumping system remains effective, it needs to continue to be seen as credible by both the domestic and international stakeholders. Therefore, it is important that the new anti-dumping legislation is monitored to ensure that both local and international stakeholders continue to maintain confidence in the system. It cannot be, or be seen to be, unfairly protecting the local industry. Australia’s anti-dumping system, particularly its relocation to the industry portfolio, should be monitored to ensure that, both in perception and in practice, it is not protectionist in nature. Future reviews of the anti-dumping system would also continue to benefit from consultation with international stakeholders to ensure the system remains open and fair to international trade.
Furthermore, as the Anti-Dumping Commission is in the early stages of implementation, it needs to be monitored to ensure that it meeting its objectives. If the Commission is not performing as expected, then it should be reviewed to ascertain why it is underperforming and whether any amendments to the policies should be undertaken to rectify it. It is important to ensure the Commission is regularly reviewed in light of Australia’s previous attempt at an anti-dumping system, the Anti-Dumping Authority. The Authority, implemented in 1988, actually made it more difficult for dumping claims to be successful and was dismantled five years after it was implemented.
Finally, in addition to Australia’s anti-dumping system being in line with the WTO’s Anti-Dumping Agreement, Australia has also demonstrated its commitment to trade liberalisation by entering into a number of Free Trade Agreements (FTAs). According to the Department of Foreign Affairs and Trade, there are seven FTAs that currently involve Australia. These include FTAs with New Zealand, the USA, Chile, Malaysia, Singapore, Thailand and the Association of South East Asian Nations (with New Zealand). Australia is also currently negotiating five bilateral FTAs (with Japan, Korea, Indonesia, India and China) as well as four plurilateral FTAs, including the Trans-Pacific Partnership Agreement. These measures promote trade liberalisation because it reduces and eliminates tariffs. They also benefit Australian exporters because it allows them to gain “access to new markets and expand trade in existing markets”.
It has been established that dumping is an issue that all countries face, especially in times of economic downturn. The 2009 and 2012 reports into Australia’s anti-dumping system assessed its effectiveness to deal with dumping in the Australian context. Likewise, the recommendations that came out of the reports were based on what was best for Australia to be able to manage its anti-dumping claims. Both reports extensively listened to Australian industry to understand why there was a lack of confidence in the system and made recommendations that took into account domestic stakeholders. The location of Australia’s new anti-dumping system to be placed in Melbourne is evidence of this. Australia has also met its international obligations, as outlined by the WTO, because the reforms still comply with the WTO’s guidelines. At the same time, Australia further supports the WTO’s goal of free and open trade through its participation in a number of FTAs. Australia’s anti-dumping reforms have been an essential part in ensuring that Australia’s anti-dumping system strikes the right balance between the needs of the domestic market and Australia’s international obligations. However, as the trade market and trade practices are consistently evolving, it is important to that Australia continues to monitor its anti-dumping system in order to ensure that it continues to maintain this balance.
Vanessa Bell, 26, is a Bachelor of Arts (Honours) student at The University of Southern Queensland. She was a Global Voices delegate to the World Trade Organization Ministerial Conference in Bali in December 2013. Vanessa was awarded the Dean’s Prize for International Relations in 2012.
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