Alternative effects of antidumping policy: should Mexican authorities be worried?

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Alternative effects of antidumping policy: should Mexican authorities be worried?

Resumen: La protección administrada no es el único resultado del uso de medidas antidumping. Aquí se sugiere un modelo de interacción repetida entre una firma doméstica y una extranjera, que compiten en precios en el mercado de importación, donde las medidas antidumping actúan como medio para alcanzar y sostener un acuerdo de colusión tácita. El resultado principal es que la distorsión de precios causada por la política antidumping es el punto de partida para alcanzar el acuerdo colusivo. Los factores de descuento de ganancias futuras de las empresas se ven alterados en relación con sus valores de libre comercio, retrasando la propensión a coludirse de la firma doméstica y acelerando la de la firma extranjera.

Palabras clave: competencia en precios, interacción repetida, colusión tácita, antidumping.

Abstract: Administered protection is not the only outcome of antidumping measures. This paper suggests a basic model of repeated interaction between a domestic and a foreign firm. Competing in prices in the importing market, antidumping action serves as the means to enforce and sustain tacit collusion between the firms. The main result is that price distortions by antidumping policy are a departure point for the achievement of the collusive outcome. Discount factors of future profits are altered relative to those observed under free trade, delaying domestic firm's propensity to collude and prompting foreign firm's.

Keywords: price competition, repeated interaction, tacit collusion, antidumping.

Introduction

According to the World Trade Organisation (WTO) dumping occurs when the price of an exported good is lower than the home market price of that good. In other words, exports are sold at unfair value in the importing country because their price is lower than the price consumers pay for the same good in the exporting country. Article VI of the General Agreement on Trade and Tariffs (GATT) allow country members to levy duties on dumped imports under three conditions to be satisfied altogether:

1) Dumping exists (dumping margin).

2) The domestic industry is suffering material injury, is threatened of material injury or its establishment is materially retarded because of imports.

3) There is a causal relationship between the two.

Although GATT's Antidumping Code was submitted in 1976, many country members already counted with their own national antidumping (AD) rules, and it was only after 1979 Tokyo Round Agreement that the increasing use of AD measures raised big concerns on the actual motives of its use. Amendments to the rules in the Tokyo Round agreement introduced sales below cost as a dumping practice and removed the need to proof material injury, which boosted AD actions from less than a dozen cases per year in the 1960's to about 250 cases per year in recent years (Prusa and Skeath, 2001).

Study of the motives of the surge in the use of AD has been developed mainly by focusing on the AD practice of "traditional users" such as the US and the EU, who together with Canada, Australia and New Zealand have been the major ...

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