metadata: authors: 0: author: Finger, J. Michael
1: author: Fung, K.C.
2: author: DEC
docna: 0: docna: Will GATT enforcement control antidumping?
docty: Policy Research Working Paper
subtopic: Disease Control & Prevention,International Trade and Trade Rules,Trade and Services,Energy and Mining,Crime and Society
teratopic: Transport
abstracts: cdata!: The authors try to gauge why the GATT
            dispute settlement process has, to date, been so ineffective
            in disciplining the use of antidumping measures. Focusing on
            the five cases in which panels have completed their findings
            and recommendations, the authors identify the sources of
            this ineffectiveness and evaluate the likelihood that the
            process will become effective. Changing the bureaucratic
            momentum of the system is possible, they contend, but would
            not be easy. It would require greater resolve by member
            countries' GATT delegates to see that GATT rules are
            enforced - a greater willingness to stand up to domestic
            pressures to bend GATT rules to suit the demands of national
            politics. Changing the legal momentum of the system will be
            even more difficult, say the authors. Interpreting the GATT
            in a legalistic way compels one to interpret it as a
            statement of rights to impose antidumping duties. The
            substantive criteria for action are broad: the injury
            concept justifies protection for anyone to whom it is worth
            the time to ask for it. The constraints on antidumping
            actions - loopholes and procedural technicalities - are
            artificial, so legal reform means getting rid of them. Where
            do the GATT articles on trade remedies lead? The authors
            contend that if you take a legalistic view, you come to a
            protectionist conclusion.
repnme: repnme: Will GATT enforcement control antidumping?
display_title: Will GATT enforcement control antidumping
listing_relative_url: /research/1993/12/698716/gatt-enforcement-control-antidumping
topicv3: Trade m1326924 698,Trade in Services m1326928 780,Criminal Justice m1326993 1014,Injury m1327524 1428,Iron m1503514 2931
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Transport
origu: UNKNOWN
no_of_pages: 25
model_extractions: POLICY RESEARCH WORKING PAPER 1232

# Summary findings

Finger and Frung try to gauge why **the** GAI-I' dispute settlement process has to date been so ineffective in disciplining the use of antiduimpirig mfasures. Focusing on the five cases in which panels have completed their findings and recommendations, the authiors identify, thr sources of this ineffectiveness and evaluate the likelilhood that the process will becorne effective.

Clanginig the bureaucratic morentum of the systenm is possible, they contend, but wotild not be easy. It would require greater resolve by member countries' GA'IT delegates to see that GAI'T rules are enforced - a greater willingness to stand up to domestic pressures to bend **GATT** rules to suit the demands of national politics.

(.hanging the legal m(.nienttiul ot the svi(tcnli will he even morc difficult, say Fin ger and Ftung. Interpreting the G( IT in a lcg.lisktic way conipels one to interpret **it** as a statemeit ot 1-iglit to 1WSe Ciiridiiitp tip it ie. 'I'hle subsratitive criteria for action are br xaid te iiin **ii** concept justifies protectioni l'or arnvonie to) **whomln** it is worth tl.e tinme to ask for it. The tIst-raiints oll aitnidimnpinig actions -loopholes and procedutal techilicaliics - are artificial, so legal reform nmeans getting rid 'f them.

Whiere do the (.A'[-1' articles on trade remedies lead? Finger and king conternd that if y ou take a legalistic view, vonL conic to a protectio(nist onclCtisioIn.

This paper - a product of the Trade Policy Division, Policy Research Department --- is part of a larger effort in the department to understand how international constraints and processes (institurions) inflience narional trade pol ic; choices. The study was funded by the Bank's Research Support Budget under the researcht project "Antidu itiing: I oll)A -tip **ont** Newly Emerging Issues" (RPO 678-16). C )pies of this paper are available tre e frotm the World Bank, I 18 181 iStreet >W, Washington, DC 20433. Please contact Nellie Artis, room N10-() 1 3, extension 37947 (19 paiges). D)eemiher 199'3.

_The Policy Research Working Paper Series disseminates_ **_the_** _findings ot work inl pt Ss_ t' _f ur.g' tlu_ **_Ibe 9ni_** _Y xcgehnc_ **_,IiCka asbt'ut_** _development issues. An objective oftl 'series is to get the lindoigs out qu:c kl ci_ **_en:_** _;fthc_ **_presenitations_** _sr' le/s than r/i;l p- I'sbed, li' papers carry the names of the authors and_ **_should_** _bc sd and_ **_ited s(eordingl._** _I_ **_ce_** _lndhnti'S. interpret.ations_ **_anki_** _e_ **_n luszo_** _J 'o_ **_n_** _authors'_ **_oun_** _and should not lie attributed to the World Bank._ **_its Ilxc urtii'_** _eo_ard_ ,I _lhrr. . t rs_ **_r_** _.tnv1.' u_ its **_P'107a'Wr ''11t h_** IProduced bv the Policy Research Dissnienmation Center
# Will GATT Enforcement Control Antidumping?

J. Michael Finger and K.C. Fung
# **Will GATT Enforcement Control Antidumping?**

## J. Michael Finger and K.C. Fung

## Table of Contents

|1. Increased Use of Antidumping ........................................|2|
|---|---|
|11. Antidumping Actions Taken to GATT ...................................|3|
|111. The Bureaucratic Momentum:<br>GATT Requests and National Regulations ...........<br>.........<br>..|..<br>_5_|
|IV. The Legal Ivlomentum: Trade Remedies in the GATT .........................|8|
|The GATT origins of trade remedies .................................|9|
|Substantive standards for antidumping are broad ..........................|10|
|Many possibilities for procedural error ................................|11|
|Free trade, not protection depends on the loopholes ........................|11|
|V. Conclusions: A Legalistic Approach Implies a Protectionist Answer .................|12|
|References ........................<br>..<br>............................|14|
# **Will GATT Enforcement Control Antidumping?**

## J. Michael Finger and K.C. Fung

During the 1980s antidumping measures were increasingly used to restrict imports. In consequence, a number of these actions were appealed by the victim countries to the GATT, and to 1ate GATT panels have completed their deliberations in five cases.' In each of the five the panel found the antidumping action io be in violation of the GATT or the GATT code on antidumping, but so far, not one of these improper' antidumping actions has been lifted.

We will attempt to gauge in this paper why the GATT dispute settlement process has been so ineffective to now in disciplining the use of antidumr.ping. Our objectives are to identify the sources of this ineffectiveness and to evaluate the likelihood that the process will berome effective in the future.

The following section documents the increased use of antidu . n, as an instrument of protection -- an increasing number of actions by an increasing number oil countries. Section II reviews the outcomes of recent GATT dispute settlement cases on antidumping actions, and Sections III and IV take up the why of the lack of impact of these processes on national antidumping actions. Our focus there will be on the five cases in which panels have completed their findings and recommendations. We conclude, in the final section, that GATT enforcement is not likely to provide effective discipline over national use of antidumping. Both the bureaucratic and the legal momentum of GATT dispute settlement is toward innocuous findings -- focus on procedural errors that can be corrected without lifting the antidumping order in question.

I Foimally, only the EEC anti-circumvention regulation panel was appointed by the GATT Council. The other four were appointed by the GATT Committee on Antidumping Practices and Procedures.

**2** As will be elaborated below, the findings of only one of the five have been approved as an official GATT decision. Thus when we state that an antidumping action is "improper" we do not mean that it has been found to be, strictly speaking, "illegal" under the GATT.
# **I. Increased Use of Antidumping**

Over the GATT's first thirty or so years, antidumping actions by national governments were a minor problem. Few national actions were taken and only one was challenged at the GATT as illegal. This complaint, raised by Italy against Sweden in 1954, was resolved quickly by Sweden changing the regulations that had been questioned. (Hudec 1975, p. 284)

# **Increased antidumping**

Through the early 1960s, GATT member -ountries (in total) undertook fewer than a dozen antidumping actions per year. However, by the latter half of the 1970s the United States alone averaged thirty-five cases per year, and as Table I shows, the frequency across all GATT member countries is now more than two hundred per year. Some forty countries, including a number of developing countries, have antidumping regulations in place,<sup>3</sup> and in 1991-9,;, fourteen of them were active antidumpers.

The increased use of antidumping measures has raised questions about them. Three widely accepted conclusions are particularly troubling:<sup>4</sup>

1. National regulations allow antidumping action in a broad range of circumstances. The point is stated by different authors in different ways, e.g., that such regulations are biased toward finding dumping and toward

## 3 GATT Secretariat estimate.

4 The increased use of antidumping has occasioned a wave of research, focused more or less on learning how (administratively) the instrument work-s and of judging the appropriateness of the resulting actions. The findings of this research are surveyed in Finger (1993a) especially chapters 2 and 3, and in Finger (1993b). The conclusions reported in the text are substantiated in those surveys.

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overstating dumping margins (Bierwagen 1991; Litan and Boltuck 199 i) or that antidumping is just ordinary protection with a good public relations program (Finger 1993a).

2. The investigation process itseif tends to curb imports. This is because exporters bear significant legal and administrative costs, importers face the uncertainty of having to pay, once an investigation is completed, backdated antidumping duties. (Finger 1981; Steiger and Wolak 1993) 3. As a consequence of these traits, almost half of antidumping actions are superseded by negotiated export restrictions before they come to a formal, legal, ending (Finger and Murray 1990).5

# **II. Antidumping Actions Taken to GATT**

The increased use and apparent misuse of antidumping led exporters to complain tc their governments, these governments, in turn, took up the actions against their exporters with the governments who had taken the antidumping actions. Since 1989, fifteen national antidumping actionr have become the subject of GATT dispute settlement procedures.<sup>6</sup> (The cases are listed in Table 2.) Of the panels appointed by the GATT or the Antidumping Committee to examine I The larger the case (the greater the value of imports covered) the higher the likelihood that it will be superseded by a negotiated restraint.

**6** The most recent four cases are requests for consultation with the United States on recent US antidumping duties on steel imports. The strategy of the US steel industry in the early 1980s was to use antidumping petitions to force exporters to negotiate voluntary export restraints. These restraints, against every significant exporter except Sweden, who refused and was hit by antidumping actions, were put in place in 1985. When their initial five-year life came to an end, President Bush negotiated extensions for two and a half years. Before these extensions expired the US industry was preparing to petition for the antidumping actions that have recently been appealed to GATT.

3
antidumping actions, five have completed their findings and recofmmendations. In summary form, the outcomes and results of these five cases have been as follows:

- (1) In each of the five the panel found the antidumping action in question to be in violation of the GATT or the GATT antidumping code.

- (2) As of this writing (July, 1993) each of the five antidumping actions is still in place.

- (3) Only one panel report has been adopted as an "official" GATT or Antidumping Committee conc'usion and recommendation.'

- (4) The last two panels have come to conclusions-recommnendationdi **s** tinctly different from those of the first three. The first three concluded that the antidumpng duty in question should be removed. The last two have come to the conclus;ion that the antidumping action in question involved a violatiol. of the GA T T or the Antidumping Code, but their recommendations allow for the possibility that the antidumping need not be removed.

- _(5)_ Failure of the panel's report to be adopted is in one instance because the

_winner_ is not satisfied with the decision. (This relates to point 4, above.) If the system is gravitating toward the sort of innocuous finding described in point (4) above-procedural error that can be fixed without removing the antidumping duty then the GATT dispute settlement process is not likely to check the increased incidence of ar.2idumping restrictions. We will however argue that this pessimistic outcome is the most likely one, that the institutional dynamics of the system is toward this sort of decision. The central tendency of GATT's decisions on antidumping I Traditionally the GATT and the Antidumping Commnittee reach decisions by consensus, hence one country can block a panel's report from being adopted as the decision of the institution. This is often, but not always, the country fuund by the panel to be in the wrong.

**4**
actions is to find a technical error that<sup>does not mandate the antidumping duty be rei.loved. Both the</sup> bureauc,dtic and the legal dynamics<sup>of the system push in this direction.</sup>

# **III. The Bureaucratic Momentun: GATT Requests and National Regulations**

What happens when the GATT Council<sup>or Antidumping Commit*ee concludes that a national</sup> antidumping action violates the GATT<sup>or the Antidumping Code? In practical terms, the answers it</sup> the United States and in the European<sup>Community are sirnilar, though the presence of legal detail</sup> makes the US case easier to ex9lain<sup>**8**</sup> The structure of US antidumping law, like<sup>that of other US trade remedies laws is as follows.</sup> Under specified circumstances the administering<sup>agency in the US government will initiat, an</sup> antidumping investigation. If, through<sup>that investigation the named administering agency determines</sup> that certain conditions exist (durnping<sup>and consequent injury to a domestic industry; and how to</sup> determine each of these is specified in<sup>scores of pages of law and hundreds of pages of administrative</sup> regulations), then an antidumping order<sup>is put in place (i.e., an antidumping duty is imposed on</sup> specified imports.) Similarly, if other<sup>specified investigations determine other specified conditions to</sup> exist, the antidumping order is lifted.

To say much the same in a different way,<sup>the US Constitution gives to the US Congress the</sup> authority to regulate US foreign trade,<sup>and the Congress has delegated to the Executive the authority</sup> _in certain circumstances_ to change<sup>such regulations. But a GATT or Antidumping Committee</sup> conclusion or request is not one of the<sup>circumstances in which Congress has given the Executive the</sup>

**8** Jackson, Louis and Matsushita (1984)<sup>analyze how GATT and the GATT codes fit into national</sup> l1gal systems.

5
authority to act. Such a conclusion or recommendation is not one of the conditions that lifts an antidumping order -- or even justifies the opening of a review.

Thus the straightforward answer to "What happens?" is that nothing happens. In US law, nothing follows automatically from a GATT conclusion that a US antidumping acLion was taken inconsistently with US obligations under the GATT or the Antidumping Code. Likewise for EEC antidumping regulations.

Though a GATT finding that a US action was in violation has no legal impact in the United States,<sup>9</sup> it will bring pressure on the Executive branch to bring the United States into compliance. For one thing, the finding would be an embarrassment. An international organization of which the United States is a founding member (and in which Fxecutive branch officials represent the United States government) has formally found the United States to be in violation of the organization's rules. And as a practical matter, the situation weakens the position of the US government to press a foreign country likewise in violation to remove a restriction that might be of commercial interest to the United States.

Pressure from the US Congress would be in the other direction. The authority of the GATT over US trade law has been a hotly contested battlefield in the ongoing struggle between the Executive and the Congress over the shape of US trade policy. For example, the Congress in the 1979 trade act made a good faith effort to make the changes that the US Executive had negotiated at the Tokyo Round, **but** the Congress stated explicitly in the act that if any conflict of interpretation were to occur, the trade act and not the GATT or codec was the authority. A change of US policy triggered by a GATT finding would be a victory for the Executive in this struggle.

9 Likewise in the EEC and in many other jurisdictions.

6
The Congressional politics of trade policy also comes to bear. The antidumping law has been constructed amendment by amendment in response to pressures from particular interest groups."<sup>0</sup> Constituent service is the lifeblood of Congressional politics, and fixing a powerful constituent's trade probiem by adding to the definition of injury or of dumping is an important part of this politics. In this context, the Congress woild not be charitably disposed toward interference from a GATT panel decision -- particularly one based on a technicality suL.h as the US investigation having verified the staneing of the petitioner during the investigation rather than before initiating the investigation. That was the basis for the panel's finding against the US antidumping duty on imports of stainless steel tubes from Sweden.

Another important consideration is that, as '. M. Destler (1992) has pointed out, antidumping and the other trade remedies laws provide "protection for Congress" -- protection from havirg to deal with the specifics of deciding which industries rec-ive protection and how much. With the trade remedies in place, a member of Congress pressed by a constituent industry for protection can refer the industry to the administering trade remedies agencies. Or if the constituent is powerful and has gone through the trade remedies process without success, advise the constituent to develop an appropriate trade remedies amendment and submit it the next time a trade bill is in the works. Thus the trade remedies not only create a vehicle for constituent service, they provide members of Congress a system for managing the delivery of that service.

,A request from a GATT panel to remove an antidumping duty conflicts with that system. As U.S. law is written, removing the duty would require a specific vo-e of the Congress. but for the several reasons just reviewed, the U.S. Congress is not likely to respond.

l ,e Executive would be in a much better situation if the Antidumping Committee pointed out procedural shortcomings and made the amorphous request that the United States "bring its measure '0 This point is elaborated and documented in Finger (1992).

7
into conformity." To understand the situation the U.S. Executive would then face, suppose this request -- the United States bring its measures into conformity -- had been in the case of stainless steel tubes from Sweden. In this case the panel found the United States at odds with the GATT rules on the matter of when the US investigators verified that the petition had in fact been made "by or on behalf of" a domestic industry. The U.S. investigators had done so _during_ their investigation rather than _before_ they began it.

The GATT request could then be corn ted by a pro-forma reconsideration, in which the investigators carefully and for the record considered the evidence that the petition had been made by or on behalf of a domestic industry, then formally initiated the investigation. By virtue of this reconsideration, the U.S. measure would be in conformity with the panel's conclus;on, the antidumping duty would still be in place, and Executive branch officials would have avoided a confrontation with Congress.

# IV. **The Legal Momentun: Trade Remedies** in **the GATT**

A panel outcome that can be accommodated without removing the antidumping duty that has been found in violation is not just the easy way out. The legal momentum of the system likewise presses toward findings that hinge on procedural issues without seriously questioning that imports have been dumped and the industry injured. This is because the conditions under which antidumping rules allow import protection are broad. Because the substantive dimension is broad, imposing procedural detail is the only way to limit antidumping actions. But because the substance of the rules justifies widespread restrictions, the procedural details that limit antidumping action will seem arbitrary -- in conflict with the basic thrust of the rules.

8
# **The GATT orivins of trade remedies**

To understand the logic of the trade remedies in the GATT, one must go back to GATT's beginning. The post-World War II deliberat;-.rns on institutional arrangements for the world economy were successful in establishing the International Monetary Fund and the World Bank. However, the proposed Iriternational Trade Organization which would regulate international trade was not to be. There was a reluctance among governments to accept institutionalized restrictions onl the conduct of countries' national trade policies.

At the same time the ITO negotiations over the "rules" of the trading system were unsuccessful the community of nations reached agreement on a significant package of reciprocal tariff reductions. The document or contract that gave legal effect to this agreed exchange of market access (tariff cuts) was the General Agreement on Tariffs and Trade. It is important to remember that, functionally speaking, the GATT was not the "agreement," it was the paperwork to put that agreement intc place.

The first functional part of the agreement delivered the goods, the agreed exchange of tariff cuts. The legal mechanics of doing so was a commitment by each participating country to allow other participants access to its market at least as favorable as the schedule of its import restrictions that the country arnexed to the agreement. When agreement involved reductions of tariffs, the negotiated reductions were reflected in this schedule. Each schedule, the parties agreed, would be subject to MFN treatment within the gioup.

The second finctional part of the contract (lefined the circumstances under which a country might go back on the access it had guaranteed to its trad.ng partners in the first part, e.g., restrictions to safeguard the balance of payments, antidumping and countervailing duties. The third functional part deals with dispute settlement or restitution -- what a country can do when it senses that some benefits to it under the contract have been compromised.

9
Note please the structure of the "trade remedies" provisions of the GATT:

- they state explicitly that a country may impose new inport restrictions,

- they attempt to limit application of this permission by specifying the circumstances in and procedures by which a country may impose new restrictions.

# **Substantive standards for antidumping are broad**

The basic concept underlying the trade remedies is injury to competing domestic producers from import competition. This is, in economics, a close parallel to comparative disadvantage, hence allowing for import restrictions wherever there is injury is a broad allowance.

GATT article VI, that allows antidumping duties, requires more than injury, it also required that the imports that cause injury are being priced unfairly, or dumped. But national politics has added so many new dimensions to what may be considered dumping that virtually any international transaction can be found to be dumped. (Boltuck-Litan, 1991, provide extensive documentation.) These national changes have been added in large part to the international code. The 1979 Tokyo Round antidumping code provides broader scope for restrictions than did the 1968 Kennedy Round code, the Uruguay Round draft would broaden the present code even more.'" While anti-trust law is constrained by economic logic, antidumping law is not. Ronald A. Cass (1993), a prominent legal scholar and former Chairman of the U.S. International Trade Commission, has madle the following observation: In putting flesh on the statutory bones of antitrust constraints on predation and price discrimination, both courts and the relevant enforcement agencies ... have been influenced by the substantial body of positive economic writings on these subjects.

This point is documented Finger-Dhar (1993).

10
If decisions do not always conform to mainstream commentators' views on how predation should be identified or when price discrimination is anticompetitive, there is ample attention to issues economic theory suggests are central to the analytical task. International trade law, in contrast, has been strikingly impervious to even the most elementary aspects of economic analysis. Antidumping law is exemplary. (pp. 880-1)

# **Many possibilities for procedural error**

The legal basis for an investigation of dumping duty is a detailed examination of price data, involving literally hundred of choices as to how to adjust for one factor or another: differences in product characteristics between the export and the home market sales, differences in credit terms, in dealing through a distributor versus selling directly to users, exchange rate variations, etc. Likewise, an investigation of injury involves many such considerations, and administrators, in order to avoid being drowned in detail, must depend on rules of thumb."2 An antiduniping investigation is thus a long sequence of technical adjustments, not guided by any overarching economic or legal sense of objective. Furthermore, the GATT code has significant "transparency" requirements: if an investigation specifies what it did in each instance in which an adjustment is made, it runs the risk of being at odds with what the panel concludes is the relevant detail in the code. And if the investigation is vague about these adjustments, it risks violating the transparency requirements.

# **Free trade, not protection depends on the loopholes**

While it is instinctive to presume that those seeking import restrictions have been winning by deceit and trickery, cynically exploiting loopholes and pressing vulnerable members of Congress to

> **12** Hudec, Kennedy and Sgarbossa (1993) provide documentation.

11
introduce new ones, the opposite is more nearly true. Free trade, not protection depends on the loopholes and technicalities. We will present here a pair of examples."3 The loopholes on which the Executive branch used to depend on were not subtle. Before 1974, there was no time limit for completing a countervailing duty investigation. The U.S. Treasury Department, then the administering agency, often used this loophole, defeating requests for an import restriction by never completing the investigation. In 1974 Congress imposed deadlines, the GATT antidumping code of 1979 provides for them.

The Congress has broadened the meaning of dumping and of injur ii,zny ways, most of which make sense if one accepts the basic premise of the law. The treatme '"<umulation" is an example. Some years back, a U.S. industry losing sales to a vigorous Korea. _.nd_ *try could establish that it was injured and gain import relief. But the same U.S. industry, if being nibbled to death by the combined effects of fifty competitors, could not gain relief. Injury from each of the fifty would be considered separately, and not one would be significant enough to reach the threshold of "material" injury needed to gain import relief. Eventually Congress amended the antidumping law to make "cumulation" necessary, i.e., to provide the same relief for a U.S. industry beset by a school of piranhas as was already available to an industry disabled by one shark. Cumulation is now provided for in the antidumping code.

# 'I. **Conclusions: A Legalistic Approach Implies a Protectionist Answer**

The conclusion is obvious --and ominous. The GATT dispute settlement process seems unlikely to provide discipline against the increasing number of antidumping restrictions against imports. Both the bureaucratic and the legal momentum of GATT dispute settlement are toward 3 A more detailed treatment is provided in Finger (1992).

12
innocuous findings of procedural error that can be corrected without lifting the antidumping order in question.

Changing the bureaucratic momentum of the system is possible, but it would not be easy. It would require greater resolve on the part of member countries' GATT delegates to see that GATT rules are enforced -- a greater willingness to stand up to domestic pressures to bend GATT rules into accord with the demands of national politics.

Changing the legal momentum of the system will be even more difficul. Interpreting the GATT in a legalistic way compels one to interpret it as a statement of rights to impose antidumping duties. The substantive criteria for action are broad -- the injury concept justifies protection for anyone to whom it is worth the time to ask for it. The constraints on antidumping actions are artificial -- loophoies and procedural technicalities -- so legal reform means getting rid of them.

In sum, where do !he GATT articles on trade remedies lead us? If you take a legalistic view, you come to a protectionist conclusion.

13