Commentary: Anti-dumping enforcement bad for consumers

"What's in a name? That which we call a rose by any other name would smell as sweet."

This profound statement from William Shakespeare was made in a matter concerning the affairs of the heart, but its relevance extends to global economic affairs as well.

Competition policy reflects a country's attitude towards economic trade. Two important components of competition policy are competition law and international trade law. Competition law outlines the rules under which goods are traded within domestic borders whilst international trade governs trade across borders.

A glaring problem facing competition policy is its inconsistent regulation of a common commercial conduct.

Competition law defines price discrimination as the practice of charging different groups of consumers different prices for the same good. International trade law defines dumping as the practice in which a manufacturer exports a product at a price lower than the price it normally charges in its home market. Two things must be made clear at this point.

First, both definitions allude to differences in only the price of goods sold to different consumer groups as all other relevant characteristics of the product are assumed to be comparable across consumer groupings. In other words, when a manufacturer is accused of dumping in Jamaica, it does not mean that the manufacturer is supplying Jamaica with substandard products. Second, and more importantly, dumping is an example of the more general pricing strategy described as price discrimination.

Price discrimination is typically accommodated in competition law.

In general, non-uniform pricing schedules are offered by suppliers based on time; consumer demographics - age, gender, nationality, occupation, education, affiliation, etc; or location. In practice, price discrimination is observed in, among other places, commercial airlines, where cheaper fares are offered to economy class passengers; barber shops, where patrons are charged lower rates on Tuesdays; and supermarkets, where shoppers are offered lower unit prices for items purchased in bulk quantities.

Competition law enforcement authorities typically accommodate this price discrimination because it enhances consumer welfare. For example, many individuals who currently utilise air travel services would no longer be able to afford doing so if airlines were prevented from charging significantly higher prices to business class passengers.

Dumping is typically challenged in international trade law.

Allegations of injurious dumping are typically investigated in Jamaica by the Anti-Dumping and Subsidies Commission (ADSC). During the period 2000-2010, the ADSC investigated seven allegations of injurious dumping or increase in imports. Six instances concerned the importation of cement while the other dealt with importation of fertiliser. In all but one case, the ADSC recommended measures to discontinue importation of the product in question. Unsurprisingly, therefore, anti-dumping enforcement decisions have typically discouraged dumping - read cross border price discrimination.

 

Resolving the conflict

We, therefore, have an untenable position whereby two important components of competition policy maintain opposing views on the legitimacy of the same conduct.

If this internal inconsistency is to be resolved in the favour of consumers, it would be useful to measure its effect on consumers. Developments in the cement industry within the last decade provide a unique opportunity for us to do so scientifically.

We can assess the effect of dumping on consumer welfare by measuring the performance of the market when a JADSC recommendation was enforced, and compare this to the performance of the market when the recommended decision was not enforcedour proxy for the counterfactual market.

The key developments in the cement industry are described as follows:

• In 2004, the ADSC recommended that a tariff of 25.83 per cent be imposed for four years on cement originating from Argentina, China, Egypt and Russia. This was in addition to the existing CARICOM Common External Tariff regime of 15 per cent.

• In November 2004, based on recommendation of the ADSC, the Government granted approval for tariffs on cement to be raised to 40 per cent.

• Independent investigation by the FTC concluded that the conduct was unlikely to have placed the domestic producer at any competitive disadvantage or cause any harm to consumers; this means that the conduct would not have been prohibited under competition law.

• In March 2006, the Government waived the duties associated with the safeguard measures after it became evident that the sole domestic producer of cement would not satisfy domestic demand.

The cement industry performed unsatisfactorily during the period when the anti-dumping safeguard measures were imposed. The measures resulted in an acute shortage of cement, which, in turn, resulted in the temporary loss of as many as 30,000 jobs in the construction sector.

Waiving the safeguard measures resulted in a three per cent reduction in prices, relative to what prices would have been if safeguard measures were still imposed; and an estimated $694 million in consumer savings during the period March 2006 through June 2008.

The anti-dumping enforcement decision adversely affected the market because it neutralised the only competitive constraint on the behaviour of the sole domestic producer.

In the absence of competition, prices increased and output decreased, relative to what would have prevailed if competition was present.

The conduct known as dumping has been given an unfortunate descriptor by international trade law because in the everyday usage of the word, individuals dump only those things which they perceive to be of little or no further redeemable value.

The public must look beyond the name, however, and recognise that dumping typically enhances consumer welfare and, therefore, anti-dumping enforcement in Jamaica is likely to be inimical to the interest of consumers.

 

Dr Kevin Harriott is the Competition Bureau Chief at the Fair Trading Commission. The views expressed are those of the author and not necessarily that of the commission.

kharriott@jftc.com