metadata: authors: 0: author: Olechowski,Andrzej
count: Poland
docna: 0: docna: Chemicals from Poland : a tempest in a teacup
docty: Policy Research Working Paper
subtopic: Primary Metals,Disease Control & Prevention,International Trade and Trade Rules,Competitiveness and Competition Policy,Crime and Society
teratopic: Water Resources
abstracts: cdata!: In the early 1980s, the Polish chemical
            industry got caught up in a battle waged by the European
            Community's chemical industry to preserve the EC market
            for itself. The Polish share of that market was very small,
            and the performance of the Polish companies did not depend
            on it, so they emerged from the battle unscathed. Perhaps
            the most striking finding of this study is what it tells us
            about the business ethics implicit in antidumping
            regulation. This ethic stresses collective behavior and the
            resolution of economic questions through political
            negotiation and compromise. The business behavior the
            antidumping rules attempt to impose on is in direct conflict
            with the antimonopoly laws - a basic part of the business
            ethics of a market system - but it fits well into the
            business ethics of a nonmarket economy. As an interface
            between the two systems, the antidumping rules teach the
            capitalists to behave like socialists, rather than teach the
            socialists how to behave as capitalists.
geo_reg_key: 517208,517190,517191
repnme: repnme: Chemicals from Poland : a tempest in a teacup
display_title: Chemicals from Poland : a tempest in
            a teacup
listing_relative_url: /research/1991/10/699857/chemicals-poland-tempest-teacup
topicv3: Trade m1326924 698,Criminal Justice m1326993 1014,Injury m1327524 1428,Antitrust m1327697 2101,Copper m1503516 2934
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Water Resources
origu: Policy Research Department
no_of_pages: 31
author_keys: 0: author_key: 772672
model_extractions: <!-- Start of picture text --> Policy, Research, and External Affairs<br><!-- End of picture text --> <!-- Start of picture text --> Trade Policy<br>WPS 784<br><!-- End of picture text --> This papera product of the Trade Policy Division, Country Economics Department - - is part of a larger elfort in PRE to understand the economics ot Ihe emergence of "faimness" as a standard for regulating international trade, its implications for the continued openness of the international trading system, and its continued functioning as an important vehicle for development. This was funded by the research project oi "cRgulations Against Unfair Imports: Effects on Developing tCountries' (RPO 6 75-52). Copies are available free from the World Bank, 1818 H Street NW, Washington DC 20433. Please contact Nellie Artis, room N I0-013, extension 37947 (26 pages). October 1991.

In the early 1 980s, the Polish chemical indtustry got caught up in a battle waged by the European Community's chemical industry to preserve the EC market for itself. The Polish share of that market was very small, and the performance of the Polish companies did not depend on it, so they emerged from the battle unscatlhcd.

But an aftertaste of the experience remained. Interviews with representatives of the companies involved indicate that their recollection of the antidumping investigations is vivid. Pressed for reasons, they said that what impressed them the most about the actions was the inconvenience associateu wiut tucin, the burden of prepanng explanations and reports for the Polish authorities, and the international aspect of the activities.

Perhaps the most striking finding of ltle study is what it tells us about the business ethics implicit in antidumping regulation. This ethic stresses collective behavior and the resolution of economic questions through political negotiation and compromise. The business behavior the antidumping rules attcmpt to impose on is in direct conflict with the antimonopoly laws - a basic patn of the business ethics of a market system - hut it fits well into the business ethics of a nonma vet economy, As an interface between the two systems, the antidumping rules - teach the capitalists to behave like socialists rather thlani to teach the socialists to behave as capitalists. No wonder the socialists came out well.

The PRE Workirrw Paper Series diaseinlinates tile findings of \xork under **sa \** in the Rank's R!cy. **Rewaikh.** land l xtcmal / ffairsComplex. Anobjectieol **the** series i . Ioget thscc fin(dings oul quickh. \ ecn **if presewntatilon** _di_ **_I_** _less_ **_Ih'_** o full! I l'hcId T hc **findings,** iriterprctatiorrs, and conclusions in these papeTs do not necess,ly reprcsent offli **jal lbxin** pobet P'roduced **bh** the PRE **D)is,erniliation** _Center_
Contents The Polish chemical industry 2 Polish foreign trade policies 4 Antidumping actions of the European Community 6 Reasons for antidumping complaints 7 The cases against imn,orts from Poland 12 Effects of the antidumping actions 13 A final comment 16 References 17 Notes 26
# Chemicals from Poland: A Tempest in a Teacup

# Andrzei Olechowski

The European Community (EC)<sup>initiated a barrage of antidv1mping</sup> actions against chemical imports during<sup>the early 1980s, a particularly difficult</sup> period for the West European<sup>chemical industry. Exactly how many complaints</sup> were lodged is unknown since the<sup>EC does not maintain public records of</sup> antidumping complaints; what<sup>is known is that forty-nine complaints qualified</sup> for formal investigation from<sup>1980 to 1985, for a total of 102 investigation3</sup> (most involved more than one<sup>country; see table 1). The largest share of</sup> complaints were brought against<sup>the Eastern European state trading nations--</sup> about 46 percent. Of these, 15<sup>percent were against Polish producers. Cases</sup> against industrial country producers,<sup>by comparison, constituted 37 percent of</sup> investigations.

What accounted for the large<sup>share of complaints against producers from</sup> Poland and other Eastern European<sup>countries, whose share of the EC market was</sup> a scant 3 percent? Polish producers<sup>seem to have gotten caught up in the</sup> general frenzy of the battle<sup>waged by the EC chemical industry to preserve the</sup> EC market for itself by excluding<sup>foreign competition large or small. Polish</sup> producers, like those in other<sup>Eastern European countries, were an easy</sup> target; export volume was largely<sup>a matter of th'e</sup> surplu o-ver domestic consumption and was fairly insensitive<sup>to short-run variations in export</sup> prices. So Eastern European producers<sup>could generally be counted on to accept</sup> price undertakings. The EC<sup>antidumping actions had very little effect on the</sup> -- Polish chemical industry.<sup>The affected trade--</sup> less than $7 million accounted for less than 0.1 percent<sup>of total production, less than 0.6 percent</sup> of total exports, and a little<sup>over 1 percent of exports in convertible</sup> currencies.
# **The Polish chemical industry**

The chemical industry in Poland dates back to salt mining operations south of Cracow in the fifteenth century. The beginning of the modern chemical industry can be traced back to the early 1920s, after the formation of the ncw Polish state. Under the leadership of the chemical engineer-statesman Ignacy Moscicki, the huge complex at Tarnow in southeastern Poland was completed in 1927, placing Poland among the modern industrial nations. The industry expanded rapidly during World War II, when Polish plants were used for wartime production under German occupation. The plants were heavily bombed during the war. Some of the equipment that survived was taken to Germany by retreating forces, and the rest was later removed by the Soviet Union as war reparations. As a result, the Polish chemical indu ,-r.Y had to be almost entirely rebuilt after the war.

The new plants were designed, constructed, and equipped by local engineers and workers using mostly local technology. Production was geared toward domestically available raw materials. Until the 1960s, efforts concentrated on getting the new units operating. Very little expansion occurred. Then in 1964, the first major complex was initiated at Plock. The Plock complex was followed by another at Wloclawek in the late 19608, one in Pulawy in 1970, and the modern plant at Police in the mid-1970s. (For more detail, see World Bank 1987).

After a period of rapid growth from 1970 to 1980, production stagnated, despite a chronic inability to meet domestic demand, because of shortages of materials and a slowdown in investment. The industry suffered from a high degree of product imbalance.' Too much emphasis went to inorganic chemicals and those derived from coal and not enough to organic chemicals, especially petrochemicals.2 Other problems included lack of specialization, poor financial management, weak marketing, overemployment, and high levels of pollution and worker health hazards.

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In 1987, the Polish chemical industry consisted of some 600 enterprises employing about 300,000 workers and producing goods worth about $10 billion. Parts of the industry operated at world-class levels of efficier.cy, while others lagged behind, struggling with antiquated plants and obsolete technology. The top twenty-five enterprises, employing about 116,000 workers, had combined sale2 of some $5.8 billion in 1985. To put this productivity figure in perspective, consider that Dow Chemical of the United States had sales of $11.1 billion in 1986 produced by 51,300 employees, while the large Dutch chemical and energy company DSM was even more productive, with 28,000 workers and sales of $10 billion in 1986. Although these figures are not strictly comparable, they are an indication of the low output per worker in the Polish chemical industry.

Despite these shortcomings, the industry had a significant impact on the national economy. In 1985, it accounted for 9 percent of total industrial sales and 6 percent of employment (table 2). It contributed just under 4 percent of national income and absorbed just over 3 percent of national investment. Its contribution to trade was especially important, accounting for some 13 percent of imports and 10 percent of exports -- 12 percent of hard currency exports.

Unlike several other industries in Poland, such as food processing, miring; and leather and textiles, the chemical industry received no special government assistance in the 1980s. Rather, it simply experienced both the advantages and disadvantages of the centrally commanded economy: insulation from the world market, central allocation and control of prices of inputs and output, and central approval of growth and development plans and central allocation of the necessary resources.

Chemical prices, like those of other products, were of three types: administered, regulated, or contractual. Administered prices were fixed by Parliament on the recommendation of the Council of Ministers at a uniform level for a given commodity. Regulated prices were fixed at a nonuniform level set according to a cost-based formula for each producer. Contractual prices

-3-
were determined by negotiation between seller and buyer. Where administered prices would cause losses, enterprises were compensated for the difference between the price and the actual cost of production.

Tablr 3 gives some idea of price levels in Poland for a number of chemicals in 1985. At the official exchange rate, domestic prices for these products were in general close to their respective economic prices, with the exception of caustic soda, melamine, MDI, polypropylene, and viscose pulp, whose domestic prices were about two-thirds of their economic prices. But if prices are calculated at an indicative rate of 400 zloty (ZL) to the U.S. dollar, which ia between the official rate of ZL 240/US$l in 1987 and the free market rate of ZL 1,000/US$i, not one of these prodttcts would be priced close to it economic cost.

# Polish foreign trade policies

Until 1982, producing enterprises in Poland could not ergage in export or import transactions on their own, but had to use the services or foreign trade organizations. The foreign trade organization actually took title to the goods and resold them on world markets. The trade organizations paid producers for their goods in domestic currency and received hard currency for their export sales.

Under the reform of 1982, enterprises with qualified staff and with exports worth over ZL 1 billion or accounting for at least 25 percent of total sales could obtain a foreign trade license.3 The reform also allowed producers more freedom in selecting a foreign trad- organization. This liberalization had little effect in the chemical sector, however, si.;ce only one trade organization (Ciech) specialized in services for chemicals (Parkola and Rapacki 1986, 13). But chemical producers did gain greater influence over export activities through another provision of the reform that permitted foreign trade organizations to form joint stock companies, and industrial and foreign companies to become shareholders. Ciech was transformed into a joint

-4
stock company, which gave producers some influence<sup>over its strategy and</sup> operations.

Licenses were need to export or import a<sup>product. The objective of</sup> export licer..3ing was to protect supply for the domestic market and to avoid "cutthroat price competition amo.ag Polish enterprises in export markets" (Soldaczuk 1984, 11). Exports were allowed<sup>only when the licensing authorities</sup> (the ministry of foreign trade and the planining commission) were assured that domestic needs were adequately covered. Gives. this system and Poland's low share in international trade (less than 1 percent<sup>of total world exports, and</sup> about 0.5 percent of world chemical exports),<sup>and thus the large, elastic</sup> demand for Polish goods, foreign trade<sup>organizations</sup> were constantly searching for products to sell abroad. Import licenses<sup>(open, general, and specific)</sup> were retained for balance of payments reasons.

Market strategy, pricing, and actual<sup>trade transactions</sup> were the responsibility of the foreign trade organization,<sup>and in the transactions it</sup> handled, there was no direct connection between<sup>buyer and seller in a</sup> financial or commercial sense. Foreign trade<sup>organizations set export prices</sup> at the level needed to make a sale. Although<sup>they tried to get the best prices</sup> they could, they had a tendency to unidercut the market to gain entrance -- a normal trading practice given Poland's minor position<sup>inmost markets. As in</sup> Aompst4c sales. producers were paid<sup>administered, regulated, or contractual</sup> prices. Administered and regulated prices applied<sup>to raw materials and</sup> semifinished products and accounted for some<sup>40 to 45 percer.t</sup> of exports and imports. An equalization account was established<sup>to collect taxes on products</sup> for which the administered import prices were lower<sup>than domestic prices and</sup> to pay subsidies on products for which administered<sup>export prices were lower</sup> than the domestic prices.

Another important reform in 1982 gave exporters<sup>(initially traders,</sup> later producers as well) "retention quotas"! or entitlements to purchase foreign exchange up to a fixed percentage of<sup>their past export earnings. This</sup> right to repurchase -- and later<sup>to retain--</sup> a part of export earnings proved

-5-
to be an effective export incentive. Imports fiLanced from firms' own foreign exchange accounts inoreased rapidly from 3 percent in 1982 to 15 percent in **1985** and more than 50 percent in 1989, when the system expired with the introduction of limited convertibility for the zloty. Exporting producers were also eligible for reductions in income and "excess wage" taxes. (The excess wage tax was part of the government's effort to control the growth of wages, particularly in the late 1980s.) A system of special export bonuses was also established. Bonuses, granted by the ministry of foreign trade, were exempt from income and wage taxes and were available only to producers that did not benefit from government subsidies, that is, those whose export prices were "effective" -- higher than cost and higher than corresponding domestic prices.

Foreign exchange for imports was centrally allocated at the o.ficial exchange rate, although allocation became less important once retention quotas were introduced. The planning commission or, after 1984, the ministry of foreign trade reviewed import plans and requests to purchase foreign currency. All transactions were carried out at the official exchange rate, set periodically by the Xa:ional Bank of Poland (central bank). The reform plan provided for a "submarginal" exchange rate, a rate that would secure the profitability of 75-85 percent of hard currency exports. But only on one or two occasions did the actual rate conform with this target. Because of the fear of increasing inflation, the zloty was kept overvalued throughout the 1980s, except for two short periods following devaluations in 1982 and 1986.

# **Antidumping** actions of the European Community

In the 19809, the European Community (EC) initiated a series of antidumping actions against chemical imports. The Conseil Europeen des Federation de l'Industrie Chimique (CEFIC), "one of Europe's most effective industrial lobby groups" (Cookson 1990), acting "on behalf of Community producers representing" either "the whole" or "the bulk of Community production of the product in question" introduced a number of complaints

**-6-**
against chemical imports.4 Exactly how many, we do not know. EC procedures (see Eymann and Schuknecht, PRE WPS, forthcoming) require that member states be consulted before a formal investigation is initiated, and there is no published record of complaints that do not pass this political test. What we do know is that in the period 1980-85, forty-nine complaints against narrowly defined chemical imports qualified for formal investigation (table 1).' Almost all of these petitions alleged dumping by exporters from more than one country; overall, 102 investigations were initiated. Of these, 53 concerned organic chemicals, 27 inorganic chemicals, 12 plastic materials, and 10 other types of chemical products. The greatest number of complaints for a single country were lodged against U.S. firms (17 cases), particularly for organic chemical exports. As a group, the Eastern European state trading nations were subject to the greatest number of complaints. Eastern European firms were named in 48 ceaes: of these, 21 concerned organic chemicals (40 percent of all organic chemical cases), 14 inorganic chemicals (52 percent), and 9 plastics (75 percent). Industrial country exporters were cited in 36 cases, and developing country exporters (including China and Yugoslavia) in 18.

_Reasons for antidumping complaints_ Why the rash of complaints against chemical imports in the earlv 1980s? To begin with, 1980-82 was a difficult time for the Western European chemical industry. Output stagnated in 1980 and 1981 and dropped in 1982,6 domestic prices were weak (CEFIC), and debt in the industry was high. Large European companies, many in business since the nineteenth century and joined in close but informal relationships that "would today be regarded as an illegal cartel" (Cookson 1990), competed fiercely with foreign producers. They used antidumping procedures to keep out suppliers who threatened their marketsharing and price-setting practices.

This motive is well documented in Messerlin's investigation (1989) of the relationship between antidumping and antitrust cases in the EC. In the

-7-
antitrust cases againct chemical firms, the EC Cormission found that industry agreements existed that had "as their object or effect the prevention, restriction, or distortion of competition within the common market" (Article 851 of the EC Treaty). Many cther EC industries that were accused of antitrust activities were involved in the antidumping compl.ints as well. Examples include EC producers of low-density polyethylene (antidumping cases were brought against Czechoslovakia, East Germany, Poland, and the Soviet Union, among others), polyvinyl chloride (Czechoslovakia, East Germany, Hungary, and Romania were among the accused), and soda ash (Bulgaria, East Germany, Poland, Romania, and the Soviet Union). Collusion could have been involved among EC producer of other products as well, for which antitrust investigations had not yet been launched.

Messerlin (1989, 12) and other studies (UNCTAD 1982) also show that EC producers might have tried to use antidumping complaints to temporarily affe(prices. The announcement of an investigation has a "freezing" effect on falling prices (as in the case of low-density polyethylene and polyvinyl chloride). The prices remain stable for the period of investigation and then increase sharply if the case is "positively" resolved and protective measures are imposed. Several empirical studies of antidumping measures have documented their more frequent use in combating low-price imports than lower-export-thanhome-price imports.7 These two motives well explain the large number of complaints lodged overall by the EC chemical industry, as well as a number of cases against its largest competitor, the U.S. industry. In their struggle against low-price imnorta. Rutropean companies used all the weapons at their disposal, including antidumping complaints. But what explains the large number of complaints against producers from Eastern Europe, which accounted for a very small percentage of the E- iarket and did not exercise any significant competitive pressures?8 The answer is straightforward: because it was easyl It is easy -- both politically and technically -- to make a case against a socialist country.

-8-
And, for both ethical and venal reasons, socialist exporters will be inclined to go along rather than to strenuously resist.

As to the political dimension, it was easy to get the EC Commission to act against exporters from state trading countries. These are communist countries, and who likes communists?

In cases suca as these, characterized by little threat that higher export priceo wqould bring forward a significant increase of exports, the EC tends to offer a minimum price agreement (an "undertaking") as remedy. Against more dynamic exporters, particularly Japan and Korea, the EC has come increasingly to refuse price underta:ings and to impose antidumping duties instead.9 A price undertaking is a money-making outcome for the exporter, particularly one for whom the alternative of larger volume at lower prices is not available.

On a technical level, antidumping cases against socialist countries certainly beer out a premise stated in the preface: dumping is whatever you can get the government to act against under the antidumping laws. An important feature of the EC trade regime is that it distinguishes between different import sectors: different product categories and different origins of imports and, in some cases, different importing regions. Imports from state trading countries and China constitute a special case and are subject to separate **leaolQatlon.** Several of these countries are not members of the GATT. For those that are, the terms of accession provide for gradual elimination of (numerous) bilateral restrictions. In conflict with the GATT, the EC continues to maintain a large number of such restrictions, which explains the existence of separate regulations. Procedures in EC (and in other countries') antidumping cases offer a special methodology for establishing dumping in the case of nonmarket economies, where costs and prices are massively distorted.

To establish normal values for sales from these markets, a similar country is selected as a reference market for cost and other data. The choice of a reference market, while nominally based on similarity with the home market of accused firms, is to a large extent arbitrary and open to influence

- 9 -
by the petitioner (Messerlin 1989, 17-20). In the low-density polyethylene and polyviniyl chloride antidumping cases, Sweden was selected as the reference market even though the antitrust cases had found the cartels to be particularly powerful in Sweden and Swedish prices to be "the highest possible prices of reference." Similarly, in the sodium carbonate case, Austria was selected despite objections by accused exporters that Austria was a highly protected market that was monopolized by the Belgian compar' Solvay, the main petitioner in the antidumping case. The EC Commission acknowledged these reservations in its review of the case in 1989, admitting that Austria was not a proper reference country because "its only producer was protected by price controls and a system of import licensing which kept prices on the domestic market high" _(Official Journal of the European Communities_ 1989, L 131).

And finally, the defense put up by Eastern European producers could be counted on to be of deplorable quality -- and so to be unconvincing. True to form, the presentations made by the Polish producers in the cases reviewed for this paper were weak in both form and substance (particularly where knowledge of market conditions and rules was necessary). Indicative of their quality is the following excerpt from a _pro memoria_ sent by a Polish chemical producer to the EC Commission: Summing up the above, we must state that Poland - despite the relatively low costs of production of [the product] -- has never conducted the selling policy which -- according to Article VI GATT -- would be considered as dumping and causing injury to the producers in EC area. The Article VI says that the subject of dumping is the product sold in another country at lower value than its normal one. That is why we would suggest to;

1. cancel a provisional antidumping duty imposed on [the product) originating in Poland;

2. repay the duty covered by us; 3. in order to eliminate unnecessary competition, causing losses to the producers in EC area and Poland, we engage

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ourselves to sell [the product) to EC market at prices not lower than those quoted in the undertaking attached hereto. It is no wonder that the EC investigators were inclined to share the petitioners' arguments -- they were more elegant, better documented, and in understandable English.

The eagerness of EasFern European exporters to accept price undertakings came in part, but only in part, from their unfamiliarity with antidumping procedures. At least as important were the business ethic of socialist managers and the system of accountability within which they worked, which motivated them toward the outcome that the antidumping system generates.

The first dimension of control of enterprise managers -- and therefore their first concern -- is their accountability to higher authorities: not their profit and loss statement. In a socialist economy the _planning process,_ not the interaction of market forces, determines what will be done and who will do it. The responsibility of managars is to carry out the plan as smoothly as possible. An antidumping action -- particularly one that ended with a penalty duty -- would be interpreted as poor execution. (Because of the political sensitivity of trade with the West, diplomatic conduct would be a particularly important dimension.) In the commercial ethic of the socialist system, the appropriate way to resolve a problem created when one enterprise attempts to move into another's market is to negotiate, to find a way to accommodate all interests. The system functions through economic adjustments decided through political mechanisms, not through market forces. Within this system, an antidumping duty would be interpreted as a failure to negotiate an o4tcoma that accommodates all interests. An uLLdeL Lakiteg, on Lhe orher hand, is compatible with the commercial ethic of the system. It is also compatible with socialist procedures for determining what economic adjustments will be made. It is the way of doing business in a managed, nonmarket economy.

Whatever the motives for the petitions, their success rate was high. Of the total of 102 cases initiated, only 20 resulted in findings of no injury or no dumping. Duties were imposed in 33 cases and price undertakings were _ 11 -
accepted in 49 cases. Success came even easier in the cases involving the state trading countries (including China) -- 85 percent of cases ended with a finding of dumping and injury, and 60 percent were resolved through price undertakings. 'nd the duties imposed were quite hefty, averaging 15.8 percent. The ad valorem equivalent of the price undertakings was probably close to that rate as well.

_The cases against imports from Poland_ Seven cases involved chemical exports from Poland, which also constituted a major part of all EC antidumping actions against Poland in the 1980s.10 Six cases resulted in a finding of dumping and injury; five of them -- ended in price undertakings. The seven cases involved nine Polish companies seven producing enterprises and two foreign trade organizations (the affected products are in parentheses):

- Zaklady Chemiczne Oswiecim (trichloretylene), the third largest chemical enterprise in Poland with 7,370 employees and sales in 1985 of about $238 million.

- Mazowieckie Zaklady Rafineryjne i Petrochemiczne "Plock" (polyethylene), the largest chemical producer in Poland with 8,500 employees and sales in 1985 of more than _$2_ billion.

- Huta Miedzi Legnica (copper sulphate), a copper mining company.

- Zaklady Chemiczne Tarnowskie Gory (copper sulphate), a chemical producer with 824 employees and sales in 1985 of about $20 million.

- Fabryka Materialow i Wyrobow Sciernych (silicon carbide and artificial corundum), a producer of abrasives.

- Inowroclawskie Zaklady Chemiczne im. B. Ruminskiego (sodium carbonate), with 2,520 employees and sales in 1985 of about $50 million.

- Janikowskie Zaklady Sodowe (sodium carbonate), a medium-size enterprise with 1,990 employees and sales of about $50 million in 1985.

- Inter-Vis (silicon carbide and artificial corundum), a foreign trade organization.

12 -

-
a Ciech Import and Export of Chemicals<sup>Ltd (remaining products), a foreign</sup> trade organization established in 1945<sup>in Warsaw. The second large.</sup> Polish foreign trader, it had 1,100 employees<sup>in 1986 and turnover was</sup> about $7 billion, of which exports to<sup>the West amounted to about $700</sup> million and imports from the West $1.3 billion.

# Effects of the antidumping actions

Taking into account the conditions under<sup>which Polish producers and</sup> exporters of chemical products operated<sup>in the 1980s, three possible</sup> conclusions about the effects of the antidumping<sup>actions emerge:</sup>

* The export policies of producing enterprises<sup>could not have been</sup> affected because they did not exist.<sup>Polish production enterprises had no</sup> control over the direction or prices<sup>of their exports. Until about 1985, they</sup> were only moderately interested in exporting<sup>because the quality requirements</sup> were high and benefits were modest. That<sup>attitude changed when eligibility for</sup> the retention of foreign exchange earnings<sup>was widened and the rules governing</sup> their use were relaxed.

* Production (and incomes) could have<sup>suffered, but only in the case of</sup> enterprises that exported a significant<sup>share of their production to EC</sup> markets and that faced low domestic<sup>demand. Most enterprises should have had</sup> no difficulty finding customers on short notice<sup>for shipments that suddenly</sup> became available, given the small value<sup>of exports affected, their small share</sup> in total industry sales (about 15 percent,<sup>less than half of it directed to EC</sup> marKets), and persisLeLiL :shuL **_La6_** , _uctrs_ ,.tr pr'o.c vCta) in the economy.

* For the same reasons, the foreign trade<sup>organizations should have had</sup> no difficulty finding alternative markets,<sup>although they might have suffered</sup> short-term drops in exports. Obviously,<sup>exports to the EC would have been</sup> permanently damaged.

- 13 -
Information and comments obtained from company representatives appear to confirm these conclusions. Before presenting that information, however, it is necessary to warn the reader about its low quality. Polish companies keep poor records, and company memories were seriously disrupted by the recent radical changes in management. No data were obtained from Oswiecim (producer of trichloretylene), and the information from other companies was often incomplete. There were no other sources of data to fill in the gaps.

First, company statistics do not indicate that intentional dumping occurred. As a rule, export prices were higher than domestic prices. There were three exceptions. One was sodium carbonate; export prices received by Jarikowo in 1984 were some 19 percent lower than those received for domestic sales, while for Inowroclaw in the period 1982-85, the difference averaged about 33 percent (note, however, that the antidumping case was initiated in 1982). According to both producers, the price differential resulted because of the low, regulated COMECON prices. The losses were made good through subsidies. For Janikowo, subsidies amounted to almost 56 percent of export revenue; for Inowroclaw, they amounted to 5.3 percent in 1982, 14.7 percent in 1983, 13.3 percent in 1984, and 8.9 percent in 1985. The second case is that of copper sulphate, for which export prices were below domestic prices in 1984. In the third case, silicon carbide, export prices were lower than domestic prices in 1985 and 1986. In neither case did producers receive subsidies to cover any of their losses.

Second, all the producing companies claimed that the EC actions had no significant impact on their performance either at the time the actions were taken or later and. therefore, that they made no adjustments in production and price policies or structure. This claim is supported by data on production output in the year of initiation of the action and in the three preceding and three following years for four companies that provided full information (table 4). In all four enterprises, output was larger in each of the years following the year of initiation than in the year of initiation or in the preceding period. Clearly, the antidumping actions did not disrupt total production,

- 14 _
which grew steadily during the investigations and after the imposition of import-restricting measures.

Similarly, the volume of total exports was not affected (table 5). Only the drop in the total volume of trichloretylene and sodium carbonate exports in the year of initiation and of trichloretylene in the first year following initiation could have resulted from the EC antidumping actions. In all other cases, exports do not appear to have been affected by the antidumping actions. As would be expected, however, the volume of exports to the EC suffered considerably (table 6). On average they declined some 32 percent in the year of the initiation, falling another 20 percent in the following year. The initial drop was due mostly to a very large decrease in sodium carbonate exports; the decline in the following year (that is, the first year in which the import-restricting measures had their full impact) affected all exports. The import-restricting measures imposed on three products proved to be relatively soft, since export volumes returned to their previous levels and continued to grow. In the case of artificial corundum and polyethylene, however, damage was more severe, and export volumes continued to fall into the third year after the initiation.

Finally, the prices producers received for their exports may have been affected by the antidumping actions. The export prices of products for which price undertakings were accepted increased and kept on growing in the following years (table 7). In the case of sodium carbonate (Inowroclaw), however, on which an antidumping duty was imposed, the prices received by producers fell and stayed at a lower level than before the antidumping action. This difference may indicate that antidumping actions _nad_ some intLuence on export price -- foreign trade organizations might have raised their prices for exports to other markets (including the COMECON countries, where prices were negotiated on the basis of "world" prices) up to the EC levels. However, the importance of the antidumping actions in this process could not have been large, since world chemical prices increased quite strongly in the first half of the 1980s. For example, they increased by more than 50 percent in Denmark,

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Italy, and Sweden; by 32 percent in Australia; by 22 percent in Germary (the largest export market for Polish producers); and by 16 percent in the United States (CEFIC).

In conclusion, the EC antidumping actions seem to have had very little effect on the Polish chemical industry. They did not affect the performance of the industry as a whole or that of individual producing enterprises. They did not have any impact on total exports of the products involved, but they might have affected export prices to some degree. Only in the geographic composition of exports was the impact statistically significant: faced with new obstacles to the EC market, exporting companies had to find alternative customers -- and they did so in a very short time (apparently in the Middle and Far East markets). Since the value of trade involved in these cases was so small, the importance of this alteration for Polish trade relations with the EC was negligible.

# A **final comment**

All in all, a tempest in a teacup? Apparently so. The Polish chemical industry got caught up in a battle waged by the EC chemical industry to preserve the EC market for itself. Since the Polish share of that market was very small, and since the performance of the Polish companies did not depend on it, they emerged for the battle unscathed. However, an aftertaste of the experience remained: interviews with representatives of the companies involved indicate that their recollection of the antidumping investigations is very vivid. Wnen pressed for reasons, they say that what impressed them the most about these actions was the inconvenience associated with them, the burden of preparing explanations and reports for the Polish authorities, and the international aspect of the activities.

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