Essays on dumping and the effects of antidumping laws
Date
1994
Authors
Oh, Sang myon
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The dissertation addresses various issues related to dumping and antidumping laws
(ADL). It consists of five independent essays including one chapter of literature survey.
Chapter 2 provides a literature survey on dumping and the effects of ADL. We analyse
the results of previous studies and illustrate that excessive AD actions, rather than
dumping itself, cause problems in international trade. We argue that such trade-chilling
practices should be constrained through changes in the current AD system and
international cooperation on AD matters. In chapter 3, we examine the effects of ADL
on firm reaction. We illustrate various potential outcomes including the cases where the
exporter specialises in a more profitable market and when the exporter relocates its
export facility to the export market. In a two-period context we analyse the factors that
affect the degree of reactions of frrms under ADL. We argue that the popular argument
for a strict AD measure which generates tariff revenues may become less convincing in a
two-period model. We also address the problems associated with the loose injury
criteria in ADL. We show that, when the injury criteria are seen to be manipulable by
firms, firms may exhibit perverse reactions to create future protection. In chapter 4 we
analyse the effect of ADL in an industry with a learning-by-doing effect. Interestingly,
while ADL is detrimental to the social welfare of the ADL-enforcing country when
below-cost dumping occurs, it may be welfare-improving when below-cost dumping
does not occur. This is so because ADL changes the rule of competition between frrms.
But, such gains under ADL may be dissipated by the 'normal profit' provision in ADL.
By introducing uncertainty into the model, we show that uncertainty rather than unfair
trade practices by the foreign country (closed market) may have caused the soft entry of
the foreign firm into the home market. In addition to the problems arising from the
asymmetric application of competition rule under ADL, this result casts doubts on the
legitimacy of the US trade policy on semi-conductor trade with Japan. In chapter 5, we
address the problems associated with the frequently observed AD actions by domestic
input producers. It is well known that the imposition of AD duties on imported inputs will generate conflict with national interest because final good producers will lose
competitiveness due to the higher input price. Using the results of vertical equilibrium in
successive oligopolistic markets, we analyse the strategic aspect of the threat of vertical
integration in detennining AD actions by input producers. It turns out that the possibility
of vertical integration working as a deterrent to AD actions is limited to cases where the
market share of imports and/or the AD tariff rates are low. However the social cost of
AD actions arising from the imposition of AD duties may be reduced through an
increase in the number of vertically integrated firms if the cost of vertical integration is
not too high. Therefore, there exists conflict between ADL and antitrust laws when
vertical integration becomes difficult due to the high cost of vertical integration (strict
antitrust laws). Finally, in chapter 6, we ask why ADL is preferred to free trade as a
trade policy among countries. The nature of the political support function (whether the
government is impartial or extreme protectionist) and/or the size of transportation cost
are the critical factors which detennine the choice of trade policy of governments. Our
results suggest that, given the prevalence of AD actions across industries regardless of
the size of transportation cost, political pressure by industries seems to be the driving
force which detennines the choice of trade policy. Surprisingly, countries are always
made better off by an AD war due to the reduction of waste (transportation cost). Also,
we find that the cooperative Nash equilibrium AD duty rates are always lower than the
non-cooperative Nash equilibrium AD duty rates. This result suggests that countries can
improve social welfare through negotiations on AD matters.
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