The most insidious and damaging form of protectionism in Australia is the target of a new report by the Productivity Commission, which concludes anti-dumping measures — imposing additional tariffs on goods deemed to have been imported below cost — is so dumb an idea, and so damaging to the economy, that Australia should walk away from it entirely.
Australia, like many countries, operates an anti-dumping system in which affected industries can complain to a regulator, the Anti-Dumping Commission, that a foreign competitor is importing products below cost. The commission can impose punitive tariffs to drive the price of the imports up. Earlier this month, to protect local canner SPC Ardmona, Italian tomato imports were slapped with additional tariffs after the ADC found they were being dumped in Australia.
But the PC says there’s no policy basis for anti-dumping measures, they’re even less efficient than traditional protectionism, the use of them is increasing, and the current system harms Australia.
The traditional rationales for anti-dumping measures are predatory pricing and fairness. The PC argues that the predatory argument is absurd — in a globalised trading system it’s ridiculous to suggest another country’s industry could impose higher prices subsequent to having forced an Australian industry to shut down via price competition.
That leaves the argument that it’s simply “unfair” to Australian industries. But unfair to whom? Consumers and other industries that use dumped goods as inputs benefit from dumping. And the “fairness” argument applies as much to non-dumped imports as dumped products. If another country is dumb enough to subsidise the price of its exports so that Australian consumers and business pay less for them, that’s a benefit for Australia, and certainly not a basis for Australia to punish itself by making them more expensive.
And in any event, most of the countries targeted by our anti-dumping protections are poorer than Australia — so on an international level, the fairness argument is reversed.
Use of anti-dumping is also on the rise, the PC says. Changes by the Rudd government in 2009 made it easier for local industries to apply for protection, the formula for calculating what amounted to “dumping” was changed and softer economic conditions in the wake of the financial crisis encouraged them. And the world-wide glut of steel has meant that industry has become the epicentre of anti-dumping complaints in Australia (86% of all investigations in 2014-15). Worse, last year the government committed to “further strengthen our anti-dumping and countervailing system”.
Anti-dumping processes also come with significant bureaucracy. The “highly technical, applications-based nature of the system means that the administrative and compliance costs are proportionately greater than for tariff protection,” the PC says. It also lacks transparency. “Neither the ADC, nor the Department of Industry, Innovation and Science, routinely publish consolidated reports on system usage trends (number of measures in force, new cases initiated, new measures imposed). Likewise, there is no consolidated summary of the degree of support provided through extant measures, or on their industry or country coverage. Rather, as the Commission has done, this sort of information must be assembled from the status reports …”
But worst of all, the current system hurts Australia. Consumers have to pay more for imported goods. Businesses face higher costs because they are unable to take advantage of lower prices offered by importers. These costs flow through the economy, distorting markets. Sectors like the steel industry come to rely on anti-dumping actions as a core part of their business model, rather than competing more effectively against imports. But because these costs are diffused across the economy, while the “benefits” of anti-dumping are concentrated in one sector or company, they’re disguised from the public and policymakers.
What to do? The PC recommends a set of changes to make the current anti-dumping system significantly harder to use against imports, including lifting the threshold at which actions can be brought, or providing a mechanism by which the overall public interest could be assessed and used as the basis for an exemption from anti-dumping measures. It also suggests providing a limit on how long anti-dumping measures can be in place — some measures have been in place for 15 to 20 years or more. But ultimately, this is putting lipstick on a policy pig.
“[While these proposals] could significantly reduce the costs of Australia’s anti–dumping system, without its almost complete emasculation, those costs would still almost certainly exceed the benefits. In essence, once the very limited scope of any system preservation benefits is recognised, there is little in principle to distinguish anti-dumping protection from conventional trade protection.”
The biggest problem the PC is grappling with, however, isn’t really a policy problem, but one of presentation. The paper notes how the terminology around dumping is highly loaded — the word itself is negative, and it comes with notions of “unfairness” that obscure the economic consequences of what is actually happening. It notes that there are other ways of looking at dumping — such as how anti-dumping measures in effect “convict a foreign firm for not making enough economic profit from a country’s consumers”. In the end it will be a question of getting it into the heads of politicians that anti-dumping costs Australians far more than dumping does.