This article is written by Nikita Hora, a final year student at O.P Jindal Global Law School. She is also working as Reporter and Communication Manager at LiveLaw and an Assistant Editor for iPleaders Blog.
Competition law and Anti dumping law are considered to the law for the protection of the domestic market and to promote and sustain in markets. When both the laws are implemented together it faces unique challenges. This paper revolves about explaining the relationship, overlap and conflicts between competition law and anti- dumping. The main purpose of the paper is to prove that antidumping is the most inefficient and competition law is the most appropriate way to protect the global competition
COMPETITION LAW AND TRADE POLICY
Competition laws are largely based on domestic legal principles intended to maximize economic efficiencies. Trade laws, by contrast, are aimed at public behaviour, whereby governments create anti-dumping measures, tariff and non-tariff market barriers, thereby protecting domestic producers at the expense of foreign competitors. Unlike competition laws, trade policy is aimed at opening markets to exporters and protecting domestic industries, not at optimizing marketplace efficiencies and consumer benefits.[1]
The competition law and trade policy is as considered enemies. Traditionally, competition laws are aimed is mostly based on domestic legal principles intended to maximize economic efficiencies and sanctions business conduct that is considered harmful to the competitive process, such as collusive or exclusionary agreements, anticompetitive mergers and abuse of dominance. Competition laws are enforced in courts, and the principles of diplomacy often present during trade negotiations are replaced with a winner-take-all aspect[2].
With trade laws, by contrast, governments generally impose specific limitations in the form of tariff and non-tariff market barriers, which protects domestic producers at the expense of foreign competitors. Unlike competition laws, trade policy is aimed at opening markets to exporters and protecting domestic industries, not at optimizing economic efficiencies and consumer benefits[3]. Trade laws and policy often involve negotiated solutions, and comprise of representatives of governments who are engaged in continuous bilateral and multilateral relationships and who will need to interact with one another after a dispute is resolved.[4]
The aims of trade and competition regulation are complimentary however the implantation of these tools has remained distinct. Trade regulation is aimed inter alia at reducing barriers to trade in goods and services. [5]The World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT) have formed the cornerstone of these international endeavors. This supranational system is backed by binding treaties that utilize transparency and non-discrimination as tools to achieve its objectives.
Trade liberalization opens up new markets and opportunities for the goods and services of commercial actors. The increased competition from international goods and services creates greater efficiency in the domestic market that in turn benefits consumers. However, these benefits will not accrue if domestic firms are able to stifle new entrants through anti-competitive practices. Therefore, it can be said that trade regulation is ineffective without facilitative competition disciplines.[6]
In 1997, a working group was established within the WTO to analyze the link between competition and trade policies. The prominent role played by competition law in the European common market led the European Communities (EC) to champion the addition of competition law during the Singapore and Doha Ministerial Meeting In 2001.[7]
An issue that arises from the absence of substantive competition norms within the WTO is the use of existing WTO disciplines to try and deal with anticompetitive practices by governments and private firms.[8] The Telmex case is a good example.[9] In this case it was alleged that the arrangement was in conflict with Mexico’s commitments under the General Agreement on Trade in Services (GATS), the GATS Telecommunications Annex, and the accompanying Reference Paper to prevent Mexico’s dominant carrier from engaging in anti-competitive practices.[10] It has been lamented by WTO scholars that this precompetitive outcome did not become a precedent but has remained rather anomalous.
A less effective means of using trade disciplines to restrain anticompetitive practices is in the sphere of trade remedies.[11] As eluded to above, the concept that the eradication of trade barriers will lead to efficient outcomes is prefaced on the assumption that firms will behave competitively, this notion is seldom realistic however and some form of government intervention is often necessary.[12]
The absence of clear competition disciplines within the multilateral trading system has contributed to the proliferation of anti-dumping measures. Where foreign based enterprises abuse their market dominance through predatory pricing for instance, the territorial nature of competition law makes it an inadequate tool to deal with the transgression.[13] This has led governments to use antidumping as an alternative to competition disciplines.[14]
ANTI DUMPING MEASURES
In antidumping law, dumping is said to occur when a manufacturer exports its product at a price (i.e. the ‘export price’) which is below the price at which the product is sold for in the market of origin (i.e. the ‘normal value’).[15] In the application of antidumping law, injury to domestic market is synonymous with injury to domestic producers. To establish a breach under antidumping law, therefore, the authority needs to demonstrate injury only to domestic producers. Accordingly, enforcing antidumping law safeguards the welfare of domestic producers and not necessarily that of consumers[16].
Anti dumping laws have been adopted by many countries (USA, Australia, Canada and EU are the main users of such laws, whereas less developed countries are usually defendants), and anti-dumping actions have been taken with increasing frequency over the last years.[17]
Article. 6 of the GATT [18]establish that anti-dumping actions are legitimate when two conditions are verified. The first is that export prices are below their normal value; the second, that exports cause or threaten material injury to the domestic industry of the importing country (or retard the development of such an industry). The GATT provisions on anti-dumping are quite general and ambiguous, and indeed have been applied in quite different ways in the countries which have adopted anti-dumping legislation. This was perceived as a problem even during the Uruguay Round of negotiations, but the final agreement has not significantly improved the situation.[19]
“The trade certified by GATT is like the fox put in charge of the hen house. The fox is clever enough not only to eat the hens, but also to convince the farmer that it is the way things ought to be. Anti-dumping is ordinary protection with grand public relations program.“[20]
Originally antidumping was designed as a weapon against predatory and powerful companies; anti- dumping measures have often been used against efficient enterprises, especially from developing countries. Their role has shifted from ensuring fair competition to protecting inefficient competitors.[21]
The application or abuse of lax anti- dumping rules penalizes foreign producers who enjoy comparative advantages, to the benefit of inefficient domestic producers. It also increases uncertainty in international trade, thus acting as a deterrent against potential foreign competitors. Even if some anti-dumping legislations require consideration of the views of inefficient, the theory of political economy tells us that it is unlikely for these diverse groups to be as vociferous as the concentrated producers of an industry in lobbying activities.
The scenario of anti-dumping measures were designed to combat- predatory pricing by powerful companies to force out existing competitors so as to raise prices later and still be able to keep new competitors from entering the market- is less plausible. [22]
The absence of clear competition disciplines within the multilateral trading system has contributed to the proliferation of anti-dumping measures. Where foreign-based enterprises abuse their market dominance through predatory pricing for instance, the territorial nature of competition law makes it an inadequate tool to deal with the transgression.[23] This has led governments to use antidumping as an alternative to competition disciplines.[24]
Predatory pricing or predation is a methodology, which enterprises adopt to further their business interests in an illegitimate manner. Predation can take place both in the domestic and export market. There is no law or treaty at the multilateral level that deals with cross border predatory pricing. [25]This matter endeavor to WTO then General Agreement of Tariffs and Trade (GATT) expanded the scope of the use of anti-dumping in the rules of international trade. Thus multilateral and national dumping disciples target dumping that include predatory dumping. [26]
Predatory Imports Constitute Dumping: Predated imports can be targeted under the ADA provided they are dumped in the Predating sense in which dumping is understood in the ADA. To determine whether predated imports are being dumped or not, the first comparable price is the price in the predator’s domestic market. The most difficult thing proving predatory pricing is to establish intent. However predatory imports are being, they will be treated as dumped imports and thus targeted under ADA. Targeting import under ADA does not require proof of predatory intent. The AB in United States- Anti Dumping Act of 1916 [27]stated that the requirement destroy, injure, or prevent the establishment of an industry or to restrain or monopolise any part of trade does not affect the applicability of anti-dumping if, other constituent element of dumping are present.
Countries have found it easier to slap anti-dumping duties because the standard of injury or imposition of anti- dumping duties is lower than the standard of injury for imposition of safeguard measures. In other words, standards for proving ‘serious injury’ are more stringent than that for ‘material injury’. In US – Lamb[28],15th Appellate Body (AB) described ‘serious injury’, given in Article4.1(a)of the Safeguard agreement, as a very high standard of injury ,meaning significant overall impairment of domestic industry.
Dumping is a classic example of international price discrimination where a producer firm sells its products at different prices in the domestic and export market. When the producer firm exports its goods at price less than at which it sells the same goods in domestic market, it is said to cause dumping of goods in the export market.[29]
Price discrimination, so long as it is not anti-competitive is recognized as a legal measure under competition law whereas, the same is unlawful in terms of the anti-dumping rules.[30]
The dumping of goods primarily leads to gradual eradication of firms operating in export market as the consumers increasingly tend to buy dumped goods. In the short run consumers, though, may benefit with goods at lower prices as the consumer surplus increases; the same does not hold true in the long run. In the long run, the firms in the export market gradually leave the industry due to losses and the exporter captures the entire demand in the export market. Eventually, the export would raise its prices at monopolist level when there are no competitors left in the market. The anti-dumping measure not only creates a level playing field for the domestic producers in the economy where goods are dumped but it also promotes efficiency in the economy that is the source of dumping[31] Beyond this antidumping rules have another discriminatory component, as they impose requirements to foreign producers that are not applicable to domestic firms. [32]
According the existing multilateral rules, antidumping actions are applied on a discriminatory basis and require no formal compensation to the affected parties, as they are under the blame of unfair behavior. Thus, antidumping rules generate unnecessary tensions among trading partners, because there is no clear record of the costs and benefits involved in each case, nor any transparent recognition of winners and losers.
Antidumping can provide stimulating illustrations for an endless list of economic concepts, such as capture, rent-seeking, moral hazard, adverse selection, contingent protection, imperfect competition, cartel behavior, transaction costs, optimal tariffs, comparative advantage, regional integration, and so on. [33]
Regrettably, however, antidumping for the most part is not being used to address abuse of market power. Antidumping procedures are defined under the assumption that a domestic competitive industry is facing a foreign monopolist or an international cartel, but this assumption is not supposed to be tested during the investigation. The consensus among trade economists is that the use of anti-dumping has become a tool to finance the inefficiency of special interests.[34]
Empirical analyses have shown the anti-competitive effect of anti-dumping. Further, they have confirmed the theoretical suspicion that anti-dumping laws have a negative effect even when they do not result in final duties. The mere threat of anti-dumping sanctions can be enough to induce foreign competitors to be less aggressive, and very often investigations end up with a suspension decision, in exchange for the promise of the foreign firms to stop “dumping” their goods.[35]
If anti-dumping duties do not certainly find their rationale in fostering economic efficiency, the only explanation for their existence is that they aim at punishing an unfair business practice. However, independently of the specific ways in which anti-dumping is calculated by the different national laws and regulations, it should be emphasized that there is little economies ration ale for considering the difference between the home price and the export price as an “unfair practice”.[36]
Michael Finger who is known for his seminal work on anti- dumping opines that
“Antidumping is a trouble-making diplomacy, stupid economics and unprincipled law”.[37]
COMPETITON LAW AND ANTI DUMPING
Anti-dumping laws and competitions laws aim at remedying “transnational price predation” and public interest. The trade (including foreign investment) and competition policies, support, complement and reinforce each other, facilitating market discipline and competitive behavior by both domestic and foreign companies.
With change in times, the two policies have evolved with different objectives in sight, which (in some cases) have led to conflicting situations. The aim of competition policy is to promote consumer welfare and productive efficiency, which in part depend upon market contestability, wherein import competition often plays a key role. On the other hand, the anti-dumping law is a trade remedy that addresses issues of industries injured due to import competition/ trading across national borders.
Antidumping rules allow practices such as price undertakings and quantitative trade restrictions that are forbidden under competition law. On the contrary anti-dumping rules penalize certain types of price differentiation that may be justifiable under the competition laws
India’s decision to impose anti-dumping duty on imports of polypropylene from Saudi Arabia and Oman is being alleged to be a protectionist measure that will artificially reduce competition[38]
The application of anti-dumping duty on polypropylene by the Indian government is intended to protect Indian petro-chemical companies from global competition there are many sources and factors that suggest that the support provided to these large industries will be at the expense of Indian downstream industries, importers and average consumers. Such an increase in the dominant position of the Indian polypropylene producers will unilaterally disadvantage wide range of crucial Indian downstream industries that use polypropylene in production and will make these industries less competitive both in domestic and global markets. Higher costs incurred by the downstream industries will also lead to higher prices for average Indian consumers. Exporting countries have also cautioned that the economies of India and the Gulf are inextricably linked through networks of trade. Hence, putting up protectionist fences and impeding the flows of goods and services will unnecessarily increase frictions and reduce economic growth in these regions in the long term.
Similarly, India’s decision to impose antidumping duty on phosphoric acid from countries across the globe (including China, Korea, Israel, Taiwan etc) are means adopted by the monopoly holding Indian industries to systematically eradicate any kind of competition within the domestic Industry; in order to sustain their market power and continuously increase prices of their product. The provisions of anti-dumping laws have been blatantly abused, which if examined under the principles of competition law may not be found to be justifiable and sustainable at all.[39]
In the recent times, the trend of approaching anti-dumping authorities for creating trade barriers and restricting competition (from foreign exporters) is on increase. Anti-dumping statistics clearly establish that Indian companies have been among the top users of antidumping laws and have been abusing the provisions to maintain/sustain their dominant positions in their respective markets/industries. In 2008, India led the chart by initiating 54 anti-dumping investigations, followed by Brazil with 23 anti-dumping investigations. Since 1995-2005, India had initiated 564 antidumping investigations[40].
It may not be entirely wrong to say that anti-dumping rules have undergone sequential change since their initiation and have also begun to deviate substantially from the commonly accepted norms and standards of competition policy and law.[41]It is now widely believed that “anti-dumping is a trouble making diplomacy, stupid economics and unprincipled law”[42]
Antidumping is likely to be abandoned because it neither ensures free function of the market nor provides an acceptable safety valve for domestic firm facing sudden, intense pressure from imports. According to WTO competition law and policy is better able to achieve the most efficient allocation of world resources.[43]
CONCLUSION
There has been an uncomfortable conclusion that anti-dumping is out of control, competition policy is out of immediate sight and safe ground policy is out of use.
[1] MAGDALEEN VAN WYK & MARUMO NKOMO,competition and trade policy,Enforcement & Exemptions Division at the Competition Commission
[2] The Other Side of Harmony: Can Trade and Competition Laws Work Together in the International Marketplace? Julian Epstein, American University International Law Review, Volume 17, Issue 2, 2002
[3] Competition Policy and international trade distortions, Alden F. Abbott and Shanker Singham at p 23.
[4] The Other Side of Harmony: Can Trade and Competition Laws Work Together in the International Marketplace? Julian Epstein, American University International Law Review, Page 362, Volume 17, Issue 2, 2002
[5] Preamble to the Marrakesh Agreement Establishing the World Trade Organization 1994
[6]Bernard Hoekman, “Economic Development, Competition Policy and the WTO”, at: http://econ.worldbank.org/external/default/main?pagePK=64165259&theSitePK=469382&piPK=64165421&m enuPK=64166322&entityID=000094946_02111404425138, accessed August 2014
[7] Ibid at 1
[8] Alden F. Abbott and Shanker Singham, “Competition Policy and International Trade Distortions”, at: http://ilreports.blogspot.com/2013/03/new-volume-european-yearbook-of.html, accessed August 2014
[9] Report of the Panel, WT/DS44/R, Japan – Measures Affecting Consumer Photographic Film and Paper.
[10] The approach in the Reference Paper followed some principles of competition and regulation for participants to consider binding in their basic telecommunications commitments, to protect and promote competition by requiring that, appropriate measures be maintained in order to ensure the elimination of anti- competitive practices. The US and Mexico had both committed themselves to the Reference Paper, which establishes disciplines on competition safeguards in the telecoms sector. Such safeguards include interconnection guarantees, transparent licensing, independence of regulators from telecoms operators, and fair allocation of resources such as frequencies, numbers, and rights of way.
[11]Here, the government is permitted to exact increased tariffs on the goods of entities that through “unfair” trade practices have caused injury to the domestic industry.
[12] MAGDALEEN VAN WYK & MARUMO NKOMO,competition and trade policy,Enforcement & Exemptions Division at the Competition Commission
[13] Ian Wooton and Maurizio Zanardi “Trade and Competition Policy: Anti-Dumping versus Anti Trust”, at: http://www.gla.ac.uk/media/media_22263_en.pdf, accessed August 2014
[14] The Other Side of Harmony: Can Trade and Competition Laws Work Together in the International Marketplace? Julian Epstein, American University International Law Review, Volume 17, Issue 2, 2002
[15] The use of the term “value” in antitrust law differs significantly from how the term is used in economics. To be clear, what is described as “normal value” by antidumping law is simply the price of the good in the country in which production occurs. In economics, the value of a product to a consumer refers to the maximum price that the consumer would be willing to pay to acquire a product whereas the price refers to the money that the consumer actually pays. Although consumers may pay the same price for a good, its value to each consumer may differ substantially. Notwithstanding, a rational consumer will purchase a product only if its price does not exceed its value to him.
[16]Kevin Harriott, ANTIDUMPING and COMPETITION LAW in CONFLICT, 2010Competition Bureau Chief (2010).
[17] Trebilcock- Howse (1995)
[18] https://www.wto.org/english/docs_e/legal_e/gatt47_01_e.htm
[19] Massimo Motta & Fabrizio Onida, TRADE POLICY and COMPETITION POLICY, 56 Giornale Degli Economisti E Annali Di Economia (1997)
[20] J. Michael Finger, Editor, Anti-Dumping: How it Works and Who gets Hurt; Part I Chapter 2 (The Origin and Evolution of Anti-Dumping Regulation) The University of Michigan Press (1993)
[21] Xiaohua Zhu, Anti-Dumping Measures: Time to Roll Them Back, 32 Economic & Pol. Wkly., May 9, 1997 at (1997).
[22] Xiaohua Zhu, Anti-Dumping Measures: Time to Roll Them Back, 32 Economic & Pol. Wkly., May 9, 1997 at (1997).
[23] Ian Wooton and Maurizio Zanardi “Trade and Competition Policy: Anti-Dumping versus Anti Trust”, at: Trust”, at: http://www.gla.ac.uk/media/media_22263_en.pdf, accessed August 2014, at 1. 19 .
[24] The Other Side of Harmony: Can Trade and Competition Laws Work Together in the International Marketplace? Julian Epstein, American University International Law Review, Volume 17, Issue 2, 2002
[25] Prabhash Ranjan, International Predation and Anti-Dumping, 45 Economic & Pol. Wkly., May 9, 2004 at (2004).
[26] Prabhash Ranjan, International Predation and Anti-Dumping, 45 Economic & Pol. Wkly., May 9, 2004 at (2004).
[27] AB reporton US – Anti-DumpingAct of 1916, WT/DS136/AB/R and WT/DS162/AB/R.
[28] The AB report on ‘US- Safeguards Measures on Importsof Fresh,Chilledor Frozen Lamb Meat from New Zealand and Australia ‘,WT/ DS177/AB/R and WT/DS178/AB/R.
[29] Anti-dumping Measure: Effect on Competition in Exporting Economy
[30] Rahul Goel is Partner at Seth Dua & Associates, Antidumping And Competition Policy: Total Strangers Or Soul Mates?
[31] ibid at 29
[32] José Tavares de Araujo Jr., Legal and Economic Interfaces Between Antidumping and Competition Policy, December 2001
[33] Blonigen and Prusa (2001) in José Tavares de Araujo Jr., Legal and Economic Interfaces Between Antidumping and Competition Policy, December 2001
[34] United Nations, Economic Commission for Latin America and the Caribbean, Division of International Trade and Integration Trade Unit (ECLAC),”Legal and economic interfaces between antidumping and competition policy” (2001), at: http://www.cepal.org/publicaciones/xml/0/9040/lcl1685i.pdf, accessed August 2014.
[35] See Staiger – Wolak (1994).
[36] Massimo Motta and Fabrizio Onida, Trade Policy and Competition Policy, Gironale degli Economisti e Annali di Economia, Vol. 36, Febrary 1997.
[37] Michael J. Finger “Antidumping: How it Works and who Gets Hurt”, ed., Studies in International Trade Policy, The University of Michigan Press, Ann Arbor (1993) at
[38] Jose‚ Tavares de Araujo Jr., Legal and Economic Interfaces Between Antidumping and Competition Policy
[39] Anti-dumping Statistics at http://www.antidumpingpublishing.com/info/free-resources/ anti-dumping-statistics.aspx viewed on April 11, 2012
[40] ibid at 39
[41] Antidumping rules v Competition rules Andreas Knorr Alfons Lemper, Axel Sell, Karl Wohlmuth (Hrsg.): Materialien des Wissenschaftsschwerpunktes “Globalisierung der Weltwirtschaft”, Bd. 31, Juni 2004, ISSN 0948-3837
[42] J. Michael Finger, Editor, Anti-Dumping: How it Works and Who gets Hurt; Part I Chapter 2 (The Origin and Evolution of Anti-Dumping Regulation) The University of Michigan Press (1993)
[43] Patrick A Messerlin, Competition Policy and Antidumping reform: An exercise in Transition, Institute of International Economics
