Fair play for state traders

Date: 22/02/1996

By Ian S. Forrester QC

FOR a group of governments and exporters to request that their exports be subject to exactly the same European anti-dumping regime as, for example, the Japanese, sounds very strange - especially since the Community's anti-dumping regime towards Japanese exports has been criticised as artificial and protectionist.

Yet equal treatment is high on the trade policy agenda of a number of state trading countries, including China, North Korea and several former-Soviet republics. Why should they aspire to being treated like US or Japanese exporters? Because capitalist exporters are entitled to be judged on the basis of their own figures, whereas those from state trading countries are not.

Like other anti-dumping agencies, the European Commission has taken the view that it would be impossible to determine, in a state trading country, the true value of elements based on the cost of production such as labour rates, locally sourced components and electricity.

In a planned economy, the argument runs, many of these costs are determined by state planners and do not correspond to the working of a normally competitive market-place.

Therefore 'normal value' (the equivalent of a domestic cost of production, below which an export price may not fairly fall) must be determined by reference to conditions in an 'analogue country', where capitalism prevails and similar products are manufactured. Having picked an analogue country, the Commission obtains details of production costs to determine whether the exports from the state trading country were unfairly cheap.

Sometimes this exercise can lead to surprising results. In the case of bicycles, the Commission determined 'normal value' for China by referring to conditions in Taiwan, where exports were also being investigated for possible dumping. The much higher wage rates and operating costs in Taiwan were attributed to bicycle factories in the People's Republic. Taiwanese exports, though dearer than Chinese ones, were found to have been dumped at 1&percent; and Chinese exports at 34&percent;.

Another case concerned fertiliser from former Soviet republics. The Commission chose Canada as the analogue country. The one cooperative producer in Canada which offered details of its costs of production to the Commission was an affiliate of the European complainant. The Commission's action was upheld as legal by the Court of First Instance.

There is a further hurdle placed in the way of exporters from state trading countries, and that is 'individual treatment'. Let us suppose that there are two exporters of cement in Albania, company A owned by the state building products manufacturing corporation and company B owned by a German investor. Company B retains a platoon of accountants, economists and lawyers to argue that it is really a capitalist venture operating in a country with a mixed economy. By contrast, the indigenous producer decides that it is not worth cooperating with an inquiry which is sure to end badly, or does not understand the significance of the very detailed Commission questionnaire, or decides that because the controversial exports of earlier years were made by a previous set of managers, the investigation need not concern the new managers.

The Commission calculates the export prices of company A by reference to the 'best evidence' available, which may be the allegations of the complainant, or calculations based on European trade statistics. At the end of this effort, company B is found to have been dumping at the rate of 5&percent;, and the indigenous company at the rate of 25&percent;.

The Commission will argue that it is inappropriate to attribute an individual dumping margin to company B, because this would give rise to a “distorted and therefore inappropriate” result. There is, according to the Commission, a risk of circumvention in that the state might use the low level of duty attributed to company B as a device to channel all exports of the product through that exporter. So a duty of, say, 18&percent; is imposed on all exporters.

The Commission argues that in a country like China, since the state can change the rules applicable to wage rates, conditions of employment, the price of utilities, and other relevant factors, it would be unreasonable to attribute different dumping margins to individual companies operating in such a controlled environment.

This may have sounded a not unreasonable, albeit rather severe, appraisal of economic conditions in the Communist world 20 years ago. However, it is clearly less plausible when applied, for example, to a newly-built factory owned by a large capitalist group which hires its own workforce, runs its own premises and sells its own output without state intervention. The Commission has been willing to consider requests for individual treatment, but has been reluctant to grant it.

As a result, the remaining former Soviet republics are demanding that they be granted the privilege of undergoing anti-dumping investigations according to their own merits, in the same way as Hungary and Poland. Particular Chinese exporters are demanding that at the very least their exports be granted individual treatment by the Commission.

This article represents the personal views of the author.