Authors: Dr. Nisha Malhotra

    Lecturer

    University of British Columbia,

    997-1873 East Mall, Vancouver,

    BC, V6T 1Z1, Canada.

    Email: nisha@interchange.ubc.ca

    Horatiu A. Rus

    PhD Candidate

    University of British Columbia

    997-1873 East Mall

    Vancouver,B.C., V6T 1Z1, Canada

    Email: horatiu@interchange.ubc.ca

    Shinan Kassam

    PhD Candidate

    University of British Columbia

    # 336- 2357 Main Mall

    Vancouver, B.C. V6T 1Z4, Canada

    Email: skassam@telus.net

Abstract

In this article we analyze whether U.S. antidumping (AD) duties in the agricultural sector are effective in restricting trade. More specifically, does the imposition of an antidumping duty restrict imports of the named commodity, or is there a diversion in the supply of imports from countries named in the antidumping petition to countries not named in the petition?

This question is important given the significance granted to agricultural liberalization in the recent rounds of trade negotiations conducted under the World Trade Organization (WTO). On these occasions, developing countries have been seeking freer trade in the Agricultural sector (Anania 2005). The main issues on the table are the elimination of all forms of export subsidies, a progressive reduction of tariffs and reduction in domestic support or production subsidies. However, it is often observed that, rather than translating into a uniform transition to free trade, trade liberalization often involved moving from one set of distortions to another. More specifically, it is observed that in the case of trade liberalization in manufacturing, countries have increasingly complemented lower tariffs with antidumping duties. Feinberg and Olson (2005) empirically show that countries which agreed to larger tariff reductions under the Uruguay Round are more likely to use antidumping statutes to protect their domestic industries. Thus, coming to our particular topic, if the use of antidumping duties in the agriculture sector is also effective as a trade barrier (i.e. if there is little trade diversion), then this needs to be pointed out. In this article we investigate whether antidumping duties are effective in the agriculture sector.

In case of a regular tariff measure such as a MFN tariff, all foreign firms are restricted access to the domestic market, and the gains from higher prices accrue only to the domestic producers. This is however not the case for an AD duty. If all foreign firms (or countries) were named in an affirmative-decision antidumping case, the ‘spoils’ would be distributed among domestic producers via a price that is higher than what previously prevailed. However, one distinctive feature of the antidumping legislation is that usually only a subset of exporting countries or foreign firms are identified as ‘guilty’ of dumping. Where some countries or firms are excluded from antidumping petitions, it is quite conceivable for these excluded or ‘non named’ foreign entities to reap these spoils in conjunction with, or to the exclusion of domestic producers. The latter circumstance can occur due to trade diversion to these non named countries.

There exists a fairly substantial literature, both theoretical and empirical, devoted to the effectiveness (and ramifications) of antidumping investigations upon trading patterns for an importing country, concerned mostly with testing for trade diversion effects. Staiger and Wolack (1994), Prusa (1997), Vandenbussche et al (1999), Malhotra and Rus (2008) and Prusa (2001) are some of these works to which our article is closest in spirit. Prusa (1997) set forth to present evidence on the effectiveness of antidumping actions in the United States while Vandenbussche et al (1999) attempted to measure the effects of European antidumping measures on import flows and contrast their results with Prusa (1997). We add to this literature by concentrating solely upon trade diversion in agricultural products and focus entirely upon the effectiveness of U.S. antidumping investigations in agricultural products.

Previous studies have sought to measure the effectiveness of antidumping legislation by aggregating over all commodities, industrial and agricultural. While the conclusions and insights have been noteworthy, concentrating on agriculture by excluding industrial goods might yield different results due to the different nature of commodities in the two sectors, such as (i) aspects of seasonality, (ii) perishability, (iii) identification by genetic code and (iv) an outlet for surplus product.

Seasonality is an important aspect in the trade of fresh agricultural products and the effectiveness of ‘non named’ countries to capture the benefits of trade diversion depends very much upon the marketing window. This is in contrast to industrial commodities that may be stocked and shipped at any time of the year without being susceptible to perishability.

Moreover, in order for antidumping legislation to be effective in its protection, a necessary condition is that the foreign entity alleged to be dumping should be restricted from shipping its product via a third country in order to circumvent the antidumping duty. In the case of an industrial commodity, identification of origin may, at times, prove to be difficult. Rubber tires made in China may be indistinguishable from rubber tires made in Pakistan, particularly if the raw rubber in both countries was imported from a common source such as Malaysia. Agricultural products, however, are identifiable through genetic codes, and routing through third countries may be quickly identifiable. Thus it may be less likely to find such a disguised type of trade diversion in the agriculture sector.

Lastly, fresh agricultural products present the advantage of the easy availability of an alternative outlet in the event that an antidumping petition is allowed to proceed. For the manufacturing sector, sizing conventions (metric v. standard) and voltage differences, as well as other product characteristics complicate the finding of markets alternative to the U.S., and thus a foreign firm is likely to bear the burden of higher duties to still serve the U.S markets. A restriction of imports would probably be observed once the AD duties have had an impact on the production of the good, if any. Fresh agricultural products, on the other hand, have the option of available alternate markets (barring health or sanitary regulations) and where none exists, the processing sector may absorb the surplus product. This characteristic of the agricultural goods makes it more likely for foreign firms to bypass the U.S market and look for alternate processing sectors. Thus, if antidumping duties are restrictive, we are likely to observe an earlier impact on imports for the agriculture sector than for the manufacturing sector.

We find, as expected, that antidumping duties have a significant impact on the imports of agricultural commodities from countries named in a petition. However, our results also indicate that there was little trade diversion towards countries not named within in the antidumping petition. In contrast to previous studies such as Prusa (1997), we find little change in trade flows of agricultural goods from countries named in the petition when there was a negative determination for antidumping, i.e. the so-called ‘investigation effect.’ It seems that AD is an effective protectionist trade policy that can compensate for the lower overall tariffs sought through the international talks on trade in agricultural products. Our results imply that it might be useful to bring AD into the next round of agricultural negotiations.

Utilizing U.S. data, Prusa (1997) concluded that (i) antidumping duties substantially restrict the volume of trade from countries named in the petition and particularly for those cases where relatively ‘high’ duties were imposed and (ii) substantial trade diversion exists from named to non-named countries, with the diversion being larger the greater the duty. Accordingly, for the U.S. data, antidumping laws have the side effect of benefiting countries and firms that were not named in the investigation through substantial price increases and volumes. In contrast, Vandenbussche et al (1999) find that little or no trade diversion exists in the European Union data. Their conjectures regarding this difference include (i) differences in concentration levels, (ii) the nature of antidumping legislation as well as the differences in the calculation of penalties and (iii) the lack of transparency and the extent of uncertainty with respect to protection offered in Europe. Our results for the agriculture sector are similar to Prusa’s study as far as trade restriction is concerned but we find no evidence of trade diversion.

Our article is organized into following sections. Section two provides a characterization of U.S. antidumping investigations. Section three gives details about the data and provides a brief background in the area of trade diversion with the help of data. Section four formalizes our econometric model and provide the results of our analysis, and section five concludes.