Resist protection in all guises
Silicon, copper tubes, polyethylene structural steel and washing machines are among 40 products presently subject to dumping investigations or penalties.
Anti-dumping actions, always a tool in the protectionist armoury, are assuming increasing prominence as a result of lower tariff protection and global sourcing of products and inputs. A country may take anti-dumping action against a foreign supplier which it finds to be damaging domestic suppliers by selling below cost. Action against the foreign supplier may involve accepting assurances on price offerings for the goods in question or imposing a countervailing duty.
The theory is that a dominant overseas supplier will undercut local suppliersâ€™ prices and, once the local competition is driven out of the market, jack up its charges to recoup the profits lost in the price war. To be a rational strategy dumping also requires the predator to be able to protect its newly won gold-mine of a market from other players. These other players would doubtless be attracted by the stellar prices that the winner puts in place to restore funding reserves.
Unsurprisingly, nobody has ever documented credible evidence of a successful knock-out-and-subsequent-price-gouge predatory strategy. Sure there are occasions â€“ including with domestic newspaper industries - when firms engage in cut-throat price wars. But ratcheting up the price to earn huge profits in the aftermath of these is a pipe dream.
During the 1980s Australia was a particularly aggressive user of anti-dumping provisions. Although responsible for little more that one per cent of world trade, in some years we accounted for over a quarter of the worldâ€™s actions. The collapse of the Australian protectionist mindset heralded by the Hawke Governmentâ€™s tariff reforms brought a diminution of Australiaâ€™s anti-dumping actions. At the same time many other countries have been using them more frequently as a means of fine-tuning their own tariff reduction programs.
One curious contemporary Australian case concerns woven polypropylene primary carpet backing fabric exported from Belgium, Colombia, the Kingdom of Saudi Arabia, the United Kingdom and the United States of America. Customs determined that dumping had taken place. They failed to explain how such a varied group had been formed and could hope to hold together as a cartel to raise prices following the demise of the Australian domestic supplier. The so-called dumpers could never recoup their market activity investment and their pricing behaviour cannot possibly be predatory dumping.
Another case has involved highly specialised Canadian grinding machinery that Customs say is selling on the Australian market for a whopping 80 per cent less than in Canada. How the highly rivalrous North American market could avoid the downward price pressures said to be present in Australia is not explained.
Anti dumping measures stop the cheapest supplier from providing goods. The back-stabbing flip side of this means buyers are forced to pay more or to use a less convenient alternative. One way or another, this impacts on the buyerâ€™s costs and is reflected in its own competitiveness. It can therefore cost jobs. It may also have a direct affect on the value of consumer purchases in Australia - some current measures are targeted at goods like French brandy, pineapples and washing machines.
Unless a new approach is followed, we will see increased anti-dumping activity stemming from closer relations with China. From such a vast supplier, there will always be some products that are savaging local competition. Moreover, many parts of the Chinese market remain difficult to sell into making it easier to claim that a supplier is providing goods to Australia at below the local â€œnormalâ€ price. But China is becoming the worldâ€™s factory and Australian firms will see themselves marginalised if they avoid competing with Chinese supplies.
Dumping itself is fundamentally a mythical business strategy. Anti-dumping action is therefore little more than a highly lobby intensive form of protection. It should be abandoned as a policy tool or at the very least be subjected to scrutiny by the Productivity Commission, something the Government committed to back in 1995.