In this post, I'm going to talk about an assumption that I think is held by many people (in the U.S. and elsewhere): AD/CVDs are a good way to respond to unfair/non-market/protectionist practices in other countries. I'm going to call that assumption into question and suggest that WTO complaints would be a better approach (and yes, to state the obvious, restoring a functioning WTO dispute settlement system is a condition for making this work!).
To start with, let me ask this basic question: What is the purpose of AD/CVDs? I think most supporters of trade remedies would say the primary goal is to "level the playing field" by imposing tariffs on imports. The duties are thought to neutralize the impact of the unfair foreign government/company behavior by taking away the advantage provided by that unfair behavior in the domestic market.
In addition to this primary goal, another possible goal of AD/CVDs is to change foreign government policies. This goal is most obviously present with CVDs, as they counter foreign government subsidies. And it is even possible that it exists in relation to dumping too, if you assume that foreign governments' unfair/non-market/protectionist practices are a cause of dumping, which has been suggested at times. Thus, by imposing a penalty on the unfairly traded goods, AD/CVD supporters may hope to induce policy changes in the foreign country, with the unfair/non-market/protectionist practices removed or modified.
To what extent are people thinking about this second goal when they use AD/CVDs? Is this an important consideration, an afterthought, or something rarely envisioned? I'm not sure, and it probably varies by person. But people should be thinking about it, because a situation in which the unfair/non-market/protectionist practices and the AD/CVDs both continue indefinitely does not seem ideal, so it makes sense to consider what is the best approach to eliminating the practices.
Turning to the main point of this post, in my view, a problem with AD/CVDs is that they don't do much to stop these practices. AD/CVDs are unilateral determinations that are often seen as protectionist and biased, and therefore they do not, generally speaking, induce any change in policy relating to the underlying subsidies or other practices.
For those who may be skeptical that these measures are perceived in the targeted countries as biased, here is some evidence from a discussion at a recent House Ways and Means trade subcommittee hearing. This was a question from Rep. Adrian Smith (R-NE) for Ambassador Gregg Doud (who is now President and CEO of the National Milk Producers Federation) about some CVDs being imposed on U.S. milk powder by Colombia (starts at about 56:50 of the video):
I'm glad to say that I led a letter last year regarding Colombia's countervailing duty investigation into U.S. milk powder exports. Unfortunately, as you know, the Colombians moved ahead by imposing preliminary tariffs with an announcement on the final ruling expected soon. I'm concerned that Colombia's use of politically motivated countervailing duty investigations across commodities, including dairy and ethanol, will actually have copycat effects in other markets. Ambassador Doud, what actions do you think we should take to push back and certainly send a message that would prevent other markets from trying to make similar moves that again undermine the entire process?
Here is Doud's reply:
Mr. Chairman, we share your concerns and we haven't heard yet what's coming out of Colombia. Completely agree with you that this is 100% political, driving a domestic situation down there in Colombia. We just have to see what they're going to decide to do and whether common sense will prevail in this kind of conversation. But for goodness sakes, we have a free trade agreement with Colombia. This is a situation from an enforcement perspective, I think the US government has been very aggressive, but I think we need to continue to be very aggressive with our trading partners throughout the Western Hemisphere here to help folks understand that you don't solve domestic political issues on the backs of U.S. ag. exports, and that's exactly what's going on.
The point I think people should take from this is that the perception in the U.S. that Colombia's countervailing duty investigation is "political" is exactly the perception that people in other countries have about U.S. AD/CVDs. And as a result of this perception, you don't often see U.S. AD/CVDs changing foreign government policies and practices abroad.
In contrast to the limitations of AD/CVDs, consider the possibility of a WTO complaint against these policies and practices. In this regard, the SCM Agreement adverse effects provisions have the potential to be more effective than CVDs in addressing subsidies, in several ways:
- Multiple Members can bring the complaint simultaneously, allowing them to pool their resources in formulating the case, and to address the harms of the subsidies to different Members in a coordinated effort.
- Adverse effects cases can look broadly at the impact of the subsidies on competition in third country markets.
- These cases allow for a broader set of remedies than just tariffs on imports.
- AD/CVD cases involve significant legal fees for affected companies (a recent Economist article notes: "Brad Muller of Charlotte Pipe and Foundry, a pipe maker, reckons that his firm and its peers have spent more than $6m over the past few years on antidumping cases and petitions over the evasion of duties.")
- WTO complaints involve neutral adjudication, resulting in a decision that will be perceived as more objective and unbiased.
With regard to dumping, if one of the theories about the causes of dumping is that unfair/non-market/protectionist practices lead to dumping, then those practices can be challenged in WTO dispute settlement. Thus, instead of focusing on anti-dumping complaints, the affected industries could identify the practices in question and convince their government to bring a WTO complaint.
Summing all this up, there is a common assumption in political circles that AD/CVDs are the tough and effective way of addressing unfair/non-market/protectionist practices. In my view, it's worth taking another look at this assumption, thinking about why that may not always be the case, and considering the alternative of WTO disputes to better address the underlying issues.
