Antidumping laws can have a profound effect on both domestic and international firms and are increasingly used by nations around the world to reduce competition in domestic markets. In the United States, the International Trade Commission (ITC) is a key governmental agency which determines on whether or not to impose antidumping measures on imports and the types of measures to impose. This paper analyzes some of the key factors affecting the antidumping decisions taken by the ITC. The data were gathered in a systematic and comprehensive review of the original case and investigation ledgers of the Commission for all full case investigations conducted from 1980 to 1992. Principal findings are that large firms can use the antidumping process to obtain strategic shelter from foreign competitors even under conditions of growing markets, while smaller firms in more atomistic industries are likely to gain such shelter only in instances of market decline. In addition, current import penetration ratios appear to influence the decision process, while Japanese and other Asian origin of imports seems to have little effect on the outcome. Given the linkages identified, several strategic responses useful to managers are identified.
Antidumping laws can have a profound effect on both domestic and international firms. These laws were designed to help domestic industries which are injured by unfair competition from abroad due to products being dumped on them. Such dumping refers to the selling of goods overseas at prices lower than those prevailing in the exporter's home market or at a price below the cost of production, or both (Czinkota and Ronkainen, 1995). The dumping phenomenon and the concern about it are not new. Already early in this century, the United States and Canada enacted laws to cope with this practice. The Antidumping Duty Act of 1921 and Title VII of the Tariff Act of 1930 form the basis of U.S. antidumping laws. These laws provide for relief to threatened industries in the form of special additional duties that are intended to offset margins of dumping.
In the United States, antidumping duties are imposed when the U.S. Department of Commerce has determined that imports are being, or are likely to be, sold at less than fair value (LTFV) in the United States and when the U.S. International Trade Commission (ITC) has found that a United States industry is materially injured or threatened with material injury or that the establishment of an industry in the United States is materially retarded by reason of such imports (U.S. International Trade Commission, 1994). The Commerce Department and the ITC each conduct separate investigations in making their determinations. Only if both agencies arrive at affirmative findings, can an antidumping action take place.
The process leading to antidumping duties consists therefore of two stages. The first, directed by the Commerce Department, is designed to investigate costs, market value and unfair discrepancies. The second, conducted by the ITC turns strictly on the injury issue and the relief necessary to remedy the injury. Both stages are narrowly focused on their objectives, and, according to their legislative mandate, preclude even the consideration of broader concepts or concerns such as "comparative advantage" or "consumer impact" (U.S. International Trade Commission, 1985).
This article concentrates on the actions
undertaken by the U.S. International Trade Commission. It analyzes the
activities of the Commission based on the decision outcomes of the cases
considered. Areas addressed are the injury concept, the effects of industry
structure and type, and the degree to which Commission decisions are proactive
or reactive. In addition, the effect of the import source country are investigated,
together with the existence of trigger levels of imports.
Various types of firms are affected by antidumping actions. One group consists of the importing firms that order merchandise from abroad for firm internal use. Increased intra-firm trade and foreign direct investment may even make some importers synonymous with the foreign producers. A second group of international firms are the domestic distributors of imports. These typically are channel members such as wholesalers and distributors. A third group then consists of domestic producers and marketers of goods which are in competition with the imported merchandise considered to be dumped. A fourth group is constituted by firms abroad which are exporting from their country into the United States. All four of these groups are affected by ITC actions and are often involved in its proceedings.
Antidumping actions by governments are measures which directly affect the pricing strategies of firms and their boundaries. Since antidumping decisions taken by governments can materially change the competitive position of the firm, a better understanding of the decision process of an entity which is a key player in the determination of injury is beneficial for the international firm.
The complexity of the price dimension expands dramatically in the international realm. Several reasons account for that fact. Firms produce and sell in their home market under domestic conditions. International pricing, however, is subject to the volatility of exchange rates. The simple fact that time elapses between the signing of the contract and the delivery of products abroad, may already present a "dumping" risk if exchange rates adjust during that time. While the issue might have been a minor one in times of only small and gradual exchange rate variations, it looms large in an era when, for example, the Mexican Peso can lose 40 percent of its value in a matter of days. Directly affected by such changes are the positioning tactics developed by international marketers, particularly when long-term sourcing contracts have been agreed to. Unless a firm has an understanding of the implications of such fluctuations and is prepared to take appropriate countermeasures or develop contingency plans, carefully planned price-based market entry and penetration measures can go awry.
Irrespective of exchange rate volatility, antidumping actions also affect the pricing options which the international firm can consider. Firms often engage in price discrimination; they charge different prices to different customers for the same product. Private universities charge brilliant students less than average students by providing scholarships (Hunt 1983, p. 135). Special "sale prices" differentiate between times of year or reflect the stock levels of producers. Acceptable and even desirable as such price discrimination has become in a domestic setting, the same discrimination in the international realm meets with government scrutiny. Governments and domestic firms are highly sensitive to international price discrimination, even though buyers may benefit from such actions.
Equally affected may be the entire competitive strategy of the firm. In an era in which the retention and increase of market share plays a major role in the long-term outlook of international corporations, antidumping measures can negate a chosen path. As a result, not only will the activities in the market where such measures have been imposed be affected, but the entire world wide expansion plan can be threatened.
Of major concern to international firms is also the growing importance of the so-called "technical track" of trade policy (Finger, 1993). It increasingly appears that many companies no longer seek competitive victory in the fields of commerce and trade but in the halls of justice and regulators. They are assisted by governments which are exhibiting extraordinary ingenuity in devising new restrictions to buffer vulnerable industries against competition (Vernon, 1992). Antidumping actions are seen as a prime approach used by firms and governments to provide for a competitive advantage which could not be achieved with commercial strategy. For a review perspective of the issue, readers can refer to Baldwin (1985) and Finger (1993).
Some have charged, that U.S. antidumping laws have helped in developing a system of "administered protection" which has become a new avenue of industry protection (Cumby and Moran, 1994b; Rugman and Anderson, 1987). It has been posited that "the most insidious forms of trade protection no longer take the form of raising tariffs. They take the form of trade quotas or trade prohibitions that come at the end of administrative reviews. The largest and most rapidly growing form of administrative review protectionism is antidumping" (Cumby and Moran, 1994a, p. 3). Such a strategic use of antidumping provisions for purposes of competitive advantage must be of key interest to the international firm.
The increasing spread of antidumping activities by governments around the world enhances the importance of the issue. For decades, only a few OECD member countries developed and made use of antidumping provisions. Between 1980 and 1989, Australia, the United States, Canada and the European Community initiated 95 percent of the 1,456 antidumping cases reported (U.S. General Accounting Office, 1990(a) p. 3). More recently, however, a growing number of countries are getting ready to implement antidumping actions. In 1980, ten countries had antidumping laws on the books; by 1994 the number was at 40 and growing (Ritt and Berry, 1994). In early 1997 China announced the formulation of antidumping regulations to protect its domestic industries from injury. During 1992 and 1993 alone, more than 70 antidumping cases have been filed by developing nations - compared to zero prior to 1988 (Economist, 1994).
Furthermore, the passage of the Final Act
of the Uruguay Round and the 1995 formation of the Word Trade Organization
(WTO) have codified and made available new antidumping regulations to all
125 signatory organizations and governments. Even though this codification
provides for some greater degree of transparency, the agreed upon Dispute
Settlement Understanding makes it very difficult for the WTO to overturn
any dumping decisions by a government. The organization's dispute settlement
board can only determine whether a country's authorities have properly
established the facts and whether the evaluation of the facts was unbiased
and objective. If that is the case, the board cannot overturn a decision
even if it would have reached a different conclusion. (U.S. International
Trade Commission, 1995). Given such ongoing latitude for governments to
make antidumping determinations, international firms are at greater risk
of being caught in the web of this governmental regulation than ever before
Despite the statutory role of the ITC as an enforcer of fair market competition, its antidumping actions could be motivated by more political factors as well. Accurate knowledge of the factors determining ITC antidumping actions could not only help U.S. firms materially affected by foreign competition determine when and how to seek protection. It would also give international firms some managerial guidance as to the "political" constraints on viable pricing options for market share objectives and geographic (country-based) price discrimination.
Based on the existing literature on antidumping
actions in the United States, the following five issues are raised. Hypotheses
are developed and subjected to empirical investigation.
ITC Filings and Decisions: Strategic Actions or Salvage Operations
It is the mission of the ITC to remedy injury to U.S. industries. This mission has three different components to it as defined by law. First, assistance is to be accorded to an industry that is materially injured. Second, industries which are faced by the threat of material injury are to be protected. Third, non-existing domestic industries are to be given a chance for establishment if their formation is materially retarded by dumped imports. While the last situation is very difficult to ascertain and measure, the first two can be observed and investigated.
Current material injury is most clearly seen when the domestic market share of an industry and the domestic market size itself are declining. For example, in the late 1980's Cementos Mexicanos, S.A. (CEMEX) of Monterrey, Mexico, embarked on a new strategic direction by entering the U.S. market. This largest cement producer in North America established distribution facilities in the Southern United States, extending from Florida to California. Its strategy was successful, and Cemex' exports to the United States increased substantially at a time when the U.S. economy and the construction industry in particular were experiencing a downturn. To meet the competitive inroad, eight large U.S. cement producers filed an antidumping petition alleging injury by Mexican imports. The ITC ruling that Mexican imports had materially injured the U.S. industry resulted in a 58 % duty on Cemex' imports (Baron, 1995).
In contrast, the threat of injury may well exist even when both market size and the domestic industrys market share are still growing. For example, Wyatt Technology is a firm that sought help from the ITC. The firm produces laser light-scatter instruments. The total US demand for such instruments is estimated at less than 50 units per year, but is increasing rapidly. Wyatt could not afford to get into a head-to-head price war with Japan's larger Otsuka Electronics Co., especially if Otsuka was willing to sell products for less than what it actually cost to make them (Lytle, 1990). ITC actions taken in the first instance would merely be reactive, while actions responding to the existence of a future threat would be proactive in nature.
While legislation mandates the ITC to investigate injury in both instances, it would appear possible that due to the greater ease of evaluation, most ITC cases in which positive findings of injury are made, focus on those industries in a shrinking domestic market and those losing their market share to imports. If that is the case, the ITC mainly plays the role of a salvage operation. However, if the ITC produces affirmative findings in many instances where the threat is only perceived, i.e. where the industrys market is still stable or growing as is the industrys market share, then the institution takes on more of a strategic, industrial policy role, responsive to firms which cry wolf to keep the foreign competition at bay.
Operationally, the current level of market penetration by imports and the pace at which imports have increased over time are considered two important measures of the competitive strengths of imports over domestic products. For example, the escape clause Article XIX of the General Agreement on Tariffs and Trade specifically refers to "increased quantities" of imports as a trigger factor for countries to suspend GATT obligations (GATT, 1947). In GATT practice, an increase in either the absolute volume or the market share of imports serves as an important indicator for the invocations of the escape clause (Sykes, 1990). Without an indisputable means of determining whether injury to domestic industry has occurred as a result of dumping, the ITC is likely to use import penetration ratio and import growth rate as surrogate measures of possible injury. Therefore, we present three hypotheses:
H1: Dumping cases will be filed with the ITC not only by industries with declining markets but also by industries with stable or growing markets.
H2: The ITC is more likely to issue positive
findings of injury, the higher the import penetration ratio is.
H3: The ITC is more likely to issue positive
findings of injury, the faster the import growth rate is.
ITC Beneficiaries: Corporate Bullies
or Competitive Underdogs?
Closely linked to the issue of injury is the question as to who is likely to achieve beneficial ITC decisions. Is it the small, helpless firm under siege, or the industry-leading corporate giant in search of another competitive edge?
Some powerful arguments speak in favor of the large firms with substantial influence in their industry, such as the eight large U.S. cement producers cited earlier. Large firms tend to emphasize the use of non-price strategies and have the wherewithal and the corporate vision to exploit government regulation for their own competitive advantage (White 1983). Even though government is open to all, the interventionist power of oligopolistic firms can successfully induce government to limit imports by introducing quotas, tariffs or trigger prices, irrespective of industry market conditions (Etzioni, 1985). Firms that do have special access will have an incentive to exploit it. Developing an antidumping action is also very resource intensive. Within a corporation, accountants and sales personnel need to spend time to gather information of product cost and import activities, while management focuses on developing and guiding the petition. In addition, external resources are required in the form of economic consultants and legal fees, easily requiring the expenditure of $ 500,000 and above. Therefore, one can argue that only large firms in a leading industry position may be able to muster the wherewithal to file an antidumping action and the clout to see it through successfully.
Alternatively, the argument can also be made that large firms have the resources to focus on a competitive, market-based response. Smaller domestic firms, particularly in atomistic industries may effectively be frozen out from this option and can therefore only seek administrative protection as an effective means of counterattack (Salorio, 1993). In conducting an antidumping investigation, the ITC assigns a team of five staff members (the case investigator, an economist, a financial analyst, an industry analyst and an attorney) to work on each case full-time for approximately 20-25 working days. In addition, questionnaires are sent to U.S. producers, importers and sometimes also to purchasers. The Commission also makes field trips, and invites firms to meet with staff. These actions can be seen as important investigative support for a petition. This level of support can encourage small firms in atomistic industries to file for antidumping protection. Even though they may possess little economic power, they can generate interventionist power by forming groups (Etzioni 1985). These groups will then be assisted by a government in favor of the underdog. An example is provided by the filing of the U.S. beekeepers. The members of this industry - many of whom are part-time hobbyists - filed a market disruption case against imports of honey from China, alleging that these import were increasing rapidly and disrupting the US industry by suppressing prices in the US honey market. After a stinging loss in their administrative filing -- the case was rejected due to a huge gap between US production of approximately 200 million pounds and consumption of around 300 million pounds-- the beekeepers filed an antidumping petition against Chinese imports with the ITC (Griffith and Phipps, 1996). The "small firm" argument is supported by research which was unable to establish that concentrated industries are more likely to gain favorable decisions from the ITC (Finger, Hall, and Nelson, 1982; Rehbein and Lenway, 1993). To investigate these alternatives, we formulate:
H4a: The ITC is more likely to issue positive
findings of injury for industries which are dominated by a few firms, irrespective
of market growth rate.
H4b: The ITC is more likely to issue positive
findings of injury for atomistic industries if their markets are declining.
Does the Type of Filing Influence the
ITC actions are to be based on findings of injury. In this context the question arises whether the overall industry behavior and attitudes have an influence on the outcome of the ITC's decisions. For example, one could surmise that if only one or two firms in an atomistic industry file for antidumping protection, the ITC might not find an assertion of injury to the industry as credible.
If, on the other extreme, all firms of an industry join in such a petition, prima facie evidence would indicate that the industry is suffering. Alternatively, a filing by industry groups or trade associations would also indicate that the pain of injury is wide spread. It has been suggested that larger coalitions in antidumping investigations may be interpreted by the ITC commissioners as a signal that greater material injury has taken place (Herander and Pupp, 1991).
There is also the question of opposition to a filing. Any antidumping measure will impose a cost on the beneficiary (i.e., customers) of the dumped product, and increase the price of merchandise. As a result, it can be expected that some parties will be opposed to the imposition of surcharges (i.e., penalty duties to be added to the current level of import tariffs on the dumped product upon positive finding by the ITC). Such opposition will be stronger, the higher the existing level of import tariffs. If surcharges are imposed, customers will be penalized doubly by high tariff rates and an additional punitive dumping surcharge. Therefore, if the current import tariff rates are high, the ITC may be reluctant to side with the petitioner.
The next question is how effective such opposition will be. This issue can be analyzed best by differentiating ITC filings into consumer and industrial products. When prices of industrial products are threatened to be increased, opposition is likely to be organized and resourceful, since it benefits from the support of interested firms. However when consumer product prices are increased, opposition is likely to be much less vocal and strong, due to the mostly widely scattered effects of such increases on the individual, and the resulting decrease in likelihood of organized opposition. The appropriate hypotheses for this investigation are therefore:
H5: Filings by large numbers of firms are
more likely to result in positive ITC decisions.
H6: The higher the current import tariff
rates, the less likely the ITC is to make positive antidumping decisions.
H7: Consumer goods filings are more likely
than industrial product filings to receive positive ITC decisions.
Does the Country of Origin of Competition
A favorable dumping finding can be driven both by economic and political reasons. Both of these reasons can emerge on a country or region specific basis due, for example, to a country's political orientation or economic system. It has been shown, that of the European Community's total of 229 antidumping cases for the period 1981-1985, 108 or 47% focused on centrally planned economies (Hirsch, 1988). Other researchers claim that the increased emergence of antidumping cases Western Europe which oppose producers in the Far East should be viewed as the latest attempt by the Europeans to solve what is perceived as "The Japan Problem" (Norall, 1986), since many of the claims made do not have demonstrable validity (Hindley, 1988).
In the ITC, a similar bias might be at work. On the political front, Japan has had increasingly acrimonious relations with the United States since the l970's and 80's. Critics have decried the economic dangers that Japan poses to world trade and have accused her of striving for world dominance. Highly public accusations ricochet across the Pacific, many going far beyond economic analysis, pandering to fear (Czinkota and Kotabe, 1992). It could be possible that this political perception of danger and injury influences ITC decisions.
On the economic side, Japan could be a preferred target as well. Real dumping is closely interconnected with a lack of access to the market of the "dumper". Dumping may only become possible, if a sheltered domestic market allows the firm to charge high prices at home in order to provide it sufficient subsidy for low prices abroad. Without a protected domestic market, a dumping firm will find its home market invaded by lower priced foreign products. As Japan has been accused of maintaining highly restricted market access at home, again the prima facie evidence of unfair pricing may be easier to rationalize. Since Japanese firms have invested widely across Asia, such rationalization can also be expanded to other Asian nations as well. To test for such bias, the following hypothesis is formulated:
H8: The ITC is more likely to issue positive
findings of injury for industries where Japan and/or Asian Tigers are accused
of dumping than otherwise.
Does the Pre-Petition Process Affect
It could be argued that ITC actions will always be too late, since trade flows will have already adjusted by the time the decision is made. It has been postulated that the mere filing of a petition can be beneficial for the petitioner. Exporters may price more cautiously or otherwise be less aggressive, uncertainty may be created in the minds of domestic users of imports, and prices may even register a small but perceptible uptick (Salorio, 1993).
Perhaps the same could be said for the pre-petition filing stage. Typically, antidumping petitions do not happen overnight. Allies are sought, alternatives are explored, and documentation must be collected before such a filing takes place. Many trading partners already know the heavy burden that investigations can place on respondents. Antidumping investigations commonly involve requests that foreign exporters and domestic importers fill out detailed questionnaires, which can be as long as 200 pages. Questionnaires must be completed, translated as necessary, and returned to the investigation authority within about 35 days (U.S. General Accounting Office, 1990(b) p. 16). For example, the recent steel cases against Japan are said to have cost Japanese steelmakers more than 120 million dollars in personnel expenses and attorneys fees (Matsumoto, 1993). These requirements are likely to be a key deterrent for firms which contemplate dumping. Therefore, a long pre-petition process may discourage foreign exporters and domestic importers from continuing their dumping practices. As a result, the ITC eventually may not need to issue positive injury findings.
To investigate whether such a pre-filing effect exists, the following hypothesis is developed:
H9: A longer pre-petition process is likely
to result in negative ITC decisions.
The data for this study were gathered through a systematic and comprehensive review of the original ITC case and investigation ledgers (U.S. ITC Collection, 1980-1992). The time period covered was from January 1980 through March 1992. For this period, every final antidumping case decided by the ITC was scrutinized.
Several reasons accounted for this choice of time frame. First was the restructuring of the anti-dumping process in the United States. In late 1979, the U.S. began to adapt the new GATT Anti-dumping Code which had been enshrined in the Trade Agreements Act of 1979. Concurrently, the investigation activity regarding the less than fair value determination had shifted from the U.S. Treasury to the U.S. Department of Commerce. In addition, the twelve year period captured the holding of office by a republican Administration. Since political orientation may affect the administration of trade remedy laws, the time period chosen provides for relative stability on this dimension.
Only those cases which underwent a full ITC review were included. As a result, all the cases which were withdrawn before an investigation was initiated and those where the investigation was suspended were not included in this analysis. During the period we investigated, 22 percent of cases were terminated or suspended (U.S. International Trade Commission, 1995). Reasons for such actions are negligible imports (where imports from the country subject to investigation account for less than 3 percent of the volume of all such merchandise imported into the United States in the most recent 12 month period preceding the filing of the petition); insufficient information provided by the petitioner; agreement between the U.S. and a foreign government. The rationale for this decision lay in the fact that for all of these cases no information beyond the ITC case number was available.
Apart from these deletions, all ITC antidumping decisions during this time period were analyzed. The analysis included all cases which dealt with the same industry or even product, but which the commission had separated by country. The data were collected from the investigative reports compiled by ITC staff contained in the original ITC reports as published. With help of these reports, the following information (by volume and value) was either found or calculated for the five years preceding the case: Import quantity, U.S. apparent consumption, and import penetration. In addition information was gathered on the industry, the overall market, the competition and the ITC process and decision.
As with any empirical data set, not all values were easily ascertainable. Some data had been suppressed in order to protect proprietary information, other data had not been collected for every case, and some data apparently were simply not available to ITC staff during the time available for research. In such instances, additional efforts were made to locate the information from outside sources, such as governmental economic data or other investigative proceedings.
Overall, 310 cases were analyzed. Yet,
due to missing values which could not be obtained, 32 cases were deleted
from further analysis. Therefore, our analyses were based on a sample size
of 278 cases. The variables used for this study, their operationalization
and their summary statistics are presented in Table 1.
The first hypothesis was examined by testing the proportional distribution of cases. For the rest of the hypotheses (2-9), a logit model (SAS package on the mainframe computer) was employed to account for the likelihood of the ITC issuing positive findings of dumping injury. The results of these analyses are presented in Tables 2 and 3, respectively. In order to check for longitudinal variations, we conducted a split half analysis of the data and compared the time periods 1980-1986 and 1986-1992. All the signs remained the same and no observable differences emerged. For the sake of parsimoniousness, we therefore combined the data over the entire time period.
This hypothesis addressed whether or not
the ITC plays a dual role both as a defender of declining industries against
the dumping of foreign marketers and as a protector of firms in stable
and/or growth industries that are beginning to feel a threat from foreign
competition due to dumping. Table 2 shows that in only 97 cases, or some
35%, of the 278 antidumping cases decided by the ITC were firms in declining
industries which experienced a loss in domestic sales. A proportion test
with H0 : p (declining) = 1 (i.e. 100%) yielded a Z score of
12.2, with p < . 0001. Thus H0 is rejected since obviously,
dumping cases are filed with the ITC not only by industries in declining
markets but also by those in stable or growing markets. Therefore, this
hypothesis is supported.
Our interest lies in assessing the impact of the predictor variables on the likelihood (probability) that the ITC will decide in favor of dumping injury findings. Thus, in our logit model, the criterion variable is the logarithm of the odds for positive findings by the ITC. The predictor variables are import penetration ratio, import growth rate, industry concentration ratio, market growth rate, an interaction term between market growth rate and industry concentration, number of petitioners, import tariff rate, type of product, target country, and pre-petition process.
Initially, there was some concern about multicollinearity between industry concentration and number of petitioners. In general, the more concentrated the industry, the smaller the number of companies in the industry. However, there is no a priori reason that more companies will file an antidumping charge with the ITC, the more atomistic industry it is. As suspected, these two predictor variables are somewhat correlated (r = .33, p < .05). Therefore, a preliminary logit model was run both with and without the number of petitioners. The results were essentially identical in both model specifications. Therefore, the full logit model is presented in Table 3. The model is highly significant (p < .0001) and accounts for 54.2% of the variation in the probability of the ITC finding dumping injury in an industrys favor.
H2 and H3: These hypotheses examine whether or not the import penetration ratio and import growth rate are used by the ITC as two major operational indicators of the severity of dumping. As shown in Table 3, as expected, both coefficients have a positive sign. However, while the import penetration ratio is found to have a modest level of positive impact on the likelihood of ITC finding dumping injury (p < .10), import growth rate does not appear to have any significant impact. Obviously, a condition of high import penetration ratio, rather than its rate of change over time, is a better predictor of favorable ITC actions. Therefore, the findings give modest support to H2, but reject H3.
H4a and H4b: These hypotheses addressed the political issue of whether firms could influence the ITC decision-making process. Dominant firms in oligopolistic or monopolistic industry are expected to intervene in and influence the ITC process to increase the odds of obtaining a dumping injury decision in the industrys favor. Industry concentration, market growth rate, and their interaction term are all found to be significant (p < .05). As shown in the Note section of Table 3, the findings indicate that the impact of the market growth rate on the probability of an ITC decision in favor of dumping injury is higher, the more concentrated the industry is. This means that in antidumping investigations conducted under conditions of growing markets, positive findings mainly occur if the complaining industry is concentrated in the hands of a few large firms. The findings also support the classic role of the ITC in that if the market is in a decline stage and the industry is atomistic in nature, the ITC tends to decide in favor of dumping injury. Therefore, both H4a and H4b are supported.
H5-H7: These three hypotheses dealt with the impact that the number of companies filing a dumping charge, the current import tariff rates, and the type of product have on the ITC decision outcome. The number of petitioners was expected to have a positive impact on the ITCs injury finding as it represents political clout that may encourage the ITC to make a decision in favor of the industry. However, insignificant results (with an opposite coefficient sign than expected; p > .40) fail to support H5. Similarly, while the import tariff rate has a negative sign as expected, it is not at all significant (p > .70), therefore rejecting H6.
With regards to the type of product in H7, consumer products were expected to be more likely to receive a favorable ITC decision than industrial products. However, contrary to our expectation, results show that industrial products are significantly more likely to receive a favorable ITC decision than consumer products (p < .05). Therefore, no support is found for H7.
H8: Here, we expected that Japan and the Asian Tigers were more likely to be the target of U.S. dumping charges. However, the results are surprisingly the opposite of the hypothesis. That is, the ITC was statistically more likely to decide in favor of the petitioners dumping charges (p < .05) when countries other than Japan and the Asian Tigers were under dumping investigation.
H9: This hypothesis addressed the
salutary effect that a lengthy and burdensome pre-petition process may
have on dumping in the United States. The lengthier the process is, the
more costly it is to international marketers and the more likely it deters
their future engagement in dumping. Therefore, our expectation was that
once an ITC petition was envisioned, international marketers would correct
their dumping behavior, thus requiring fewer ITC dumping injury decisions.
However, the results fail to support H9 (p > .20).
ITC decisions on antidumping charges seem to be systematically affected by a few key situational variables. The most salient industry factors are industry concentration ratio and market growth rate. The findings unequivocally suggest that the ITC tends to support with an antidumping charge not only those atomistic (fragmented) industries with a declining market but also more concentrated industries with a stable or even growing market. Irrespective of the number of petitioners, firms from oligopolistic industries appear to have enough market power to exploit government regulations by mustering ITC support for their dumping accusation against international marketers even if domestic markets are growing. This finding is consistent with White's (1983) market power thesis and indicates that for large U.S. firms antidumping regulations may be useful as a strategic competitive tool. If commercial adversaries are very successful and come from abroad, the seeking of firm-external strategic shelter through administrative action may well represent an alternative to the development of a firm-internal response.
Smaller sized firms in more atomistic industries are much less likely to be successful with such a strategy, except in instances when markets are already shrinking. The ITC therefore appears to fulfill a dual role: For large firms it may be the source of an arrow in the quiver of the tools of competition. For smaller firms it is mainly the provider of shelter. In order to make better use of ITC actions, both types of firms will need to concentrate increased resources in the market research area both at home and abroad, in order to learn early on about actual and even potential import penetration and to prepare for precautionary analytical activities.
From the international firm's point of view, the ITC's dual role raises a cause for concern about the "politicization" of international competition. Many international firms are attracted to growth markets in the United States. However, if these growth markets are dominated by a few large companies, successful international firms are likely to be threatened by potential dumping charges that may not only tarnish their corporate reputation in the U.S. market, but may also prove to be costly to the firms and their customers, as a positive ITC finding and a subsequently imposed dumping surcharge drives up prices. In consequence, international firms that are entering such growth markets in concentrated industries need to be especially careful in designing their pricing and market penetration strategies. The issue will be of particular importance in growth markets characterized by high technology and high levels of research and development expenditures. In light of the growing need of industries which develop new products faced with uncertain demand to employ forward pricing methods, disputes about cost allocation and market penetration strategies are likely to be increasingly affected by the specter of anti-dumping proceedings.
Import penetration ratio, which measures the current market share held by imports, also appears to affect ITC decisions modestly. As in traditional antitrust litigation, the market share held by imports is obviously an easy and ready-to-use quantitative measure available to determine the vulnerability of domestic industry to imports. Neither import growth rate nor import tariff rate seems to have any measurable value as the ITCs decision criteria. In other words, it is the level of current import penetration ratio, rather than its changer over time or the current tariff protection, that has some bearing on ITC decisions. However, in light of the ITC's definition of negligible imports as 3 percent or below in a 12 month period, firms importing from abroad may be able to use this limitation to carry out selective and limited market tests, without running the risk of incurring the wrath of the ITC.
An empirical question remains as to the levels of import penetration ratio at which the ITC tends to be called to action and to issue positive dumping findings. It is a futile attempt to simply pinpoint a "trigger" level of import penetration ratio, since other factors are additional or even dominant causes. It suffices to report that the mean import penetration ratio for cases investigated by the ITC was 14 percent. For those cases in which the ITC issued positive findings, the import penetration ratio exceeded 20 percent. At least, international firms have to be aware of the possibility of governmental administrative action and subsequent market disruption at these levels of import penetration. Both firms abroad and the domestic firms sourcing imports, should be cognizant of the potential impact of an import penetration threshold, and should therefore see their activities not just in the isolation of their transactions, but within the context of total industry trade sensitivity.
Contrary to our expectation, the ITC has a higher probability of issuing positive findings for industrial goods cases than for consumer goods cases. We initially speculated that when prices of industrial products were threatened to be increased, opposition would be more likely to be organized by industry being affected than by consumers facing higher prices. Obviously, different forces seem to be at work.
Two plausible alternative explanations can be offered. First, the ITC may recognize that industrial products being affected by dumping, both actual and forecasted, may have a broader impact on U.S. industry than their industry category suggests, particularly when those products are used by a number of different industries. This is primarily the case because technology is blurring the boundaries between industries previously considered unrelated (Dussauge, Hart, and Ramanantsoa, 1992; Ela and Irwin, 1983). This technological convergence leads to previously unrelated industries finding themselves equally affected by ITC decisions (Capon and Glazer, 1987; Kodama, 1992). For example, measure taken against copper imports may quickly affect the automotive industry. Second, it could be that consumer welfare considerations do play a role after all. Dumping essentially lowers prices to the consumer. While dumping may affect the domestic industry negatively, it remains beneficial to consumers as long as international firms accused of dumping would not charge monopoly prices once domestic competition is driven out (Kreinin, 1987). In spite of their mandate, ITC commissioners may be somewhat reluctant to issue positive findings in support of an industry due to implicit consideration of consumer welfare. Overall, the ITC appears to support industrial goods industries with antidumping findings more than consumer goods industries.
Another unexpected finding is that Japan and the Asian Tigers are not necessarily the targets of U.S. protectionistic sentiment expressed through the ITC. First, only about a third of the dumping filings with the ITC are targeted at Japan and/or the Asian Tigers. Second, the ITC is less likely to issue positive findings against imports from these Asian countries than from other countries (most of which are European). Conceivably, it is because of the very protectionistic sentiment widely recognized throughout the world that the ITC takes a cautious approach to examining dumping charges against the Asian countries and may even be somewhat reluctant to press dumping charges against them unless the preponderance of evidence of dumping injury to domestic industry is ascertained. Other than has been claimed to take place in Europe, the U.S. administrative antidumping decision process for cases involving Japan and the Asian Tigers appears to be quite fair and non-prejudicial judging by the activities of the ITC. This finding should give heart to marketers abroad and may even lead to their preference of the U.S. market over other - particularly European market opportunities.
Despite the expectation that the onerousness of the pre-petition process required of international firms accused of dumping could both deter them from engaging in dumping and discourage them from continuing their dumping practices in case they are currently dumping, such an effect does not seem to be present. Importing firms seem to continue their pricing behavior in spite of the initiation of an anti-dumping petition. The clear implication of that fact is that the threat value of the invocation of anti-dumping procedures seems to be limited. Any company or industry which intends to go that route must be aware of the need to see the process through to the end if relief is to be accomplished.
In sum, all of our hypotheses were derived
from common perceptions widely discussed in the literature. While we did
not necessarily fully subscribe to all the statements made in the literature,
we used this existing and reported stock of knowledge to generate our hypotheses.
Since our study rigorously tested the empirical outcome of ITC antidumping
actions, a substantial number of surprises and deviations from commonly
held perceptions could be expected and indeed, resulted here.
This research investigated the links between the ITC decision process and outcome with market and industry factors, and has drawn several important conclusions for international marketers. However, the results must be viewed with proper caution. The data set analyzed here has only dealt with ITC decisions which have actually run their full course. It may well be worth investigating those cases which have been abandoned, withdrawn or terminated. Though there are not too many data for these cases, even anecdotal research focusing on these issues could yield interesting findings.
This research was confined to industries which are actually in existence in the United States. If one were able to develop some useful measurement criteria, it might be interesting to investigate how the ITC encourages the establishment of future industries - which after all, is part of its congressionally defined mission.
This research has covered a twelve year time period and therefore provides a reasonably longitudinal perspective of the ITC decision process. Nevertheless, it must be kept in mind that the process can change over time. Changes in Administration can result in new perspectives regarding international trade. A change in commissioners can gradually introduce new interpretations of evidence and therefore result in new voting patterns. Alterations in the overall U.S. trade position or concern about specific trade relations, e.g. persistent Japanese trade surpluses with the United States, may, over time, affect the ITC process and decisions.
One could also investigate the decision process which leads up to an industry's decision to file an anti-dumping complaint. It may well be that firm-internal strategic considerations influence this process substantially. For example, established supplier relationships or planned market entry abroad may well sway a firm's participation in a petition. Understanding these linkages is important if one is to have a comprehensive picture of the administrative and corporate strategic process.
Additional research can sharpen the insights presented here. However this work has established that the ITC decision process has two major implications for international firms. For those firms exposed to competition from abroad, it has been clarified how the use of the International Trade Commission can and cannot help them with their domestic market position. For those firms exercising the competition, this clarification has shed light on an important dimension of their marketing strategy. In consequence, both types of firms have been strengthened in their capability for international competitiveness.
Mean Std. Dev.
|ITC Decision||Positive (1), Negative (0)||63.3% of the cases for positive findings|
|Market Growth Rate(1)||Declining (1), Stable (2), Growing (3)||1.83||.71|
|Import Penetration Ratio||Import Value/U.S. Consumption Value (%)||21.1||16.2|
|Import Growth Rate||(Import Penetration Ratiot - Import Penetration Ratiot-1) /Import Penetration Ratiot-1, where t = current year (%)||39.9||188.0|
|Industry Concentration||Monopolistic (1), Oligopolistic (2), Atomistic (3)||2.43||.57|
|Number of Petitioners||Actual number||2.94||2.67|
|Import Tariff Rate||Actual rate in fraction (%)||5.72||4.27|
|Type of Product||Consumer Goods (1), Industrial Goods (0)||89.4% consumer goods|
|Target Country||Japan or Asian Tigers (1), Other (0)||32.3% Japan or Tigers|
|Pre-Petition Process||Number of days from filing a petition to an ITC action||283.2||125.8|
Note: The International Trade Commission collects
antidumping data based on the above operational definition of the variables,
except for type of product and target country which were aggregated by
the authors from more detailed information.
|Domestic Market Size|
|No. of ITC filings||97 (34.9%)||123 (44.2%)||58 (20.9%)||278|
Note: For H0: p(declining) = 1, Z = 12.2, p
Logit Model for ITC Antidumping Action
|Import Penetration Ratio||1.52||.80||3.59||.06|
|Import Growth Rate||.002||.001||1.57||.21|
|Market Growth Rate||1.51||.78||3.74||.05|
|Industry Concentration x Market Growth Rate||- .63||.31||4.01||.04|
|Number of Petitioners||- .05||.06||.67||.41|
|Import Tariff Rate||-1.23||3.57||.12||.73|
|Type of Product (Consumer=1, Industial=0)||-1.05||.54||3.75||.05|
|Target Country (Japan or Asian Tigers=1, Others=0)||- .66||.30||5.03||.02|
|Pre-Petition Process||- .001||.001||1.17||.28|
|2 likelihood ratio = 329.35, d.f. = 233, p
R2 = 2 / (n + 2) = 54.2%
D/MG = 1.51 - .63*IC > 0 if IC < 2.4
D/ IC = 1.16 - .63*MG > 0 if MG < 1.8
In other words, the first derivative implies that the impact of market growth rate on the ITC decision is boosted proportionately more, the more concentrated the industry is. If the industry is atomistic (IC = 3), the impact of market growth rate on the probability of ITC decision in favor of industry becomes negative (i.e., the ITC is less likely to decide in favor of dumping injury).
Similarly, the second derivative indicates that the impact of industry concentration (IC) on the probability of ITC decision in favor of industry increases proportionately more if the market growth is rated either stable or declining (MG = 2). In other words, if the market is stable or in a decline stage and the industry is of atomistic nature, the ITC tends to decide in favor of dumping injury.
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1. Market growth rate was measured based on the change in U.S. apparent consumption (total domestic shipments - exports + imports) over the past five year period.