News

Trade protection set for shake-up as economic think-tank enters the arena

24.03.2009

Daniel Moulis, Principal

On 24 March 2009 the Assistant Treasurer, Chris Bowen, and the Home Affairs Minister, Bob Debus, jointly announced that the Government has requested the Productivity Commission, Australia’s highest level economic research and advisory body, to undertake an inquiry into the “effectiveness and impact” of Australia’s anti-dumping and countervailing system.

Specifically, the Commission has been asked to:

  • report on the policy rationale for, and objectives of, Australia’s anti-dumping system and to assess the effectiveness of the current arrangements in meeting those objectives;
  • examine the economy-wide benefits and costs of the system;
  • make recommendations on the future role of an anti-dumping system with the aim of improving the performance of the economy, having regard to the interests of industry, importers and consumers;
  • report on the administration of the system and advise on ways to improve administrative efficiency and reduce compliance costs.

The Commission intends to release an issues paper, and to call for submissions from interested parties. The Commission’s report to the Government is due by 23 December 2009.

Background

This inquiry has been much deferred and intensely anticipated by all sides of the trade protection debate. The Ministers’ media release claims that the announcement of the inquiry:

delivers on a commitment made at the [July 2008] Council of Australian Governments (“COAG”)… meeting, to progress a number of priority areas for competition reform, including anti-dumping.

That may be true, however the seeds for the initiation of this inquiry extend back far longer than July 2008. In fact, in the context of national competition policy reform, the Productivity Commission has itself insisted on the need for a review as long ago as in 2005. Its call for such a review was based on COAG’s Legislative Review Program, which had been in place within COAG for many years previously. The Productivity Commission noted that there was an important interface between trade and competition policy, and referred to anti-dumping review as “unfinished business” within COAG. At that time it telegraphed its policy attitude towards anti-dumping by saying this:

Indeed, in the Commission’s view, the potential for the inappropriate application of anti-dumping arrangements to jeopardise the benefits that wider trade and competition reform have delivered, makes this one of the more important remaining trade policy issues to be addressed.

These views were opposed by Australian manufacturing industry at the time. The previous Liberal/National Party Government deflected any serious policy-based review of the system by only initiating a Departmental review of administrative arrangements, in 2006.

Rudd’s “anti-protection” message, and Labor’s pre-election position

The Australian Prime Minister, Kevin Rudd, continues to urge policy coordination amongst international leaders to stabilise financial markets and to move towards a sustained economic recovery. In an opinion piece widely reported in the world media in mid-January this year, he said this:

…co-ordination is an important defence against beggar-thy-neighbour policies. We are already beginning to see worrying early forays into protectionism. The number of anti-dumping cases rose by 40 per cent in the first half of 2008 and there has been a gradual creeping up of tariffs. Even within their World Trade Organisation commitments, there is scope for countries to raise tariffs. If all nations put up tariffs to their bound rate (the highest rate consistent with their WTO commitments), exporters from middle and high income countries could face tariffs twice as high as current levels. Then there is the remaining challenge of concluding the Doha round – where lack of progress represents a continuing failure of global political will.

The inquiry will be likely to consider proposals for reform raised in a discussion paper by Senator Joe Ludwig, of the Australian Labor Party when in opposition in late 2006. Controversially, that paper suggested that the responsibility for anti-dumping decisions be moved from Customs to the Australian Competition and Consumer Commission. Senator Ludwig explained this by saying:

Anti-dumping administration should be, I argue, perceived of not as a protectionist measure but as a competition measure that, in effect, prevents a specific form of unfair trading practice. Anti-dumping administration sits as part of Customs [and it is] a hangover of the days when Customs sat in the industry department defending a 25 per cent tariff wall. Those days are long gone. Labor wants the Australian Customs Service to develop excellence in border security, and we want excellence in competition policy.

The paper also advocated review of anti-dumping decisions by the Australian Competition Tribunal, on appeal by an affected party. The present system involves review by an officer within the Minister’s own Department, who reports to the Minister. If that officer believes the decision is flawed in some way, the Minister (the person who made the impugned decision in the first place) can decide whether or not to ask Customs (the body which made the impugned recommendations in the first place) to reconsider the matter. Not surprisingly, the review system has not inspired confidence amongst aggrieved parties.

Immediate reactions

The peak body representing domestic industries, the Australian Industry Group, has been quick to voice its members’ concerns, with its Chief Executive reported as saying that:

Global economic circumstances make it more likely that dumping will be attempted in the Australian market which is already under pressure as a result of weakening economic demand. Any watering down of our anti-dumping system will only add to this pressure on Australian industry. It is critical that Australia still retains the core principle that anti-dumping cases be determined only on the evidence provided by the specific parties involved.

The latter part of this quote signals the very real fear of industry groups that the Productivity Commission will recommend that the “national interest” should be a central consideration in deciding whether to impose dumping duties. This would give a bigger say to consumers and user industries, and might lead to decisions not to impose duties despite all other elements (exports at below home market prices, and material injury to a competing Australian industry) being properly established.

Existing concerns of foreign exporters and of local importers

Moulis Legal is heavily involved in the representation of client interests in anti-dumping and countervailing investigations, in Australia and in overseas countries. In the past two years we have participated in cases involving products as diverse as dried processed currants, toilet paper, steel, herbicide, battery chemicals and polyethylene.

The key concerns of participants in these investigations are the technical “tilts” which are perceived to unfairly influence dumping calculation outcomes; the degree of “materiality” of injury said to have been suffered; and the reasonableness of causal analysis (ie the required link between dumping and injury). In each of these areas, exporting interests (ie exporters to Australia) and their local importers perceive that they are treated more harshly than domestic industry.

Exporters who price their products in the same way in their home and their export markets, and do not knowingly engage in price discrimination between the two markets, can be “caught out” by calculation adjustments which generate dumping margins. If the export price is merely 2% (or more) lower than the home market price, a dumping duty can be imposed. And the duty itself is only part of the problem: trade is inhibited and even prevented by an administrative system for the collection of duties which exporters to Australia see as obstructive and expensive to deal with. Some choose to sit out the five year duration of duties, in the hope that they will not be continued after that time.

The Australian Customs and Border Protection Service conducts investigations and makes recommendations to the Minister. Up until 1999, Customs’ reports were filtered through a review process, conducted by a separate body, known as the Anti-Dumping Authority. Its fate was sealed by what some considered to be an overly inquisitive and too-robust examination of preliminary conclusions arrived at by Customs. Famously, one of its executives was quoted as saying that “blood on the factory floor” was needed to establish that financial damage suffered by an Australian industry was material enough to justify the imposition of duties against competitive imports.

Another view maintained by exporters caught up in such investigations is that competing causes of injury, including competition between Australian industry members themselves, are not given enough weight in deciding whether or not dumping has been a cause of injury which can itself be said to be “material”. Supporting this perception is the fact that terminations of investigations based on a finding of “no material injury” are infrequent, and have been running at an average of only one a year this decade.

Each of these concerns will be taken up in the Productivity Commission’s consideration, in a manner which will be informed by the Commission’s perspective on the policy rationale of the anti-dumping system. The scope of the inquiry is very wide ranging, and includes the need for the Commission to have regard to recent developments in WTO law.

Competition policy and the national interest

However the strong new message being communicated by the Government, in the terms of reference for this inquiry, is that the system must come up with recommendations which are directed towards “improving the performance of the economy, having regard to the interests of industry, importers and consumers”. This places the issue of the wider national interest on the policy table, making this review quite different to the last substantive review of the system. That review, known as the 1996 Willet Review, was firmly framed within “the Government’s stated policy objective to improve procedures to ensure Australian producers are not disadvantaged”.

The policy mood in Australia, it seems, is now different.

National interest considerations are not alien to anti-dumping policy by any means. In the European Union, “community interest” is an institutionalised consideration. In Canada, an inquiry may be initiated to consider whether the imposition of duties is in the public interest, and interested persons have the right to make submissions to such an inquiry. In other jurisdictions a more heavily discretionary approach is taken at the final decision making stage, involving significant inter-agency input and debate about the wider issues involved in any proposed act of trade protection.

The injection of competition policy and national welfare into the anti-dumping debate will challenge all stakeholders. Those stakeholders are not only the companies who are directly affected by anti-dumping and countervailing duties. They include the lawyers and consultants who represent them; the administrators who have the difficult task of collecting evidence and of formulating recommendations; and the politicians who will want to ensure the best economic outcomes for Australia, but cannot ignore their own re-election prospects.

This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.