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An Economic View on EU Trade Defence – Policy, Practice and Impact

This presentation provides examples and economic analysis of trade defence measures in the EU, including antidumping measures, their impacts, and their role in promoting fair competition in the global context.

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An Economic View on EU Trade Defence – Policy, Practice and Impact

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  1. An Economic View on EU Trade Defence–Policy, Practice and Impact Patrik Svensson Copenhagen Economics ApS Sofia, 9 November2005

  2. Purpose of the presentation • To provide concrete examples of how and why trade defence measures are imposed • To explain the economic impacts of trade defence measures in practice • To help you understand how trade defence measures might affect you

  3. Copenhagen Economics • Nordic economics consultancy based in Copenhagen • Specialised in quantitative economic analysis to support clients facing complex decisions • Example of clients: The World Bank, European Commission (DG Trade, DG Internal Market, DG Competition, DG Enterprise), European governments, private firms • Three main business areas • Impact assessments and trade policy analysis • Competition policy • Regional economics

  4. Agenda • The motivation for trade defence measures • Antidumping in practice • Impacts of antidumping measures • EU trade defence in a global context

  5. EU trade defence measures • The objective is to ensure fair trade and counteract “unfair” practices • The European Union uses a number of trade defence measures • Anti-dumping measures • Anti-subsidy measures • Safeguard measures • Anti-dumping measures are the most frequently used • 23 out of 25 new investigations in 2005 were antidumping investigations • The link to competition policy is non-trivial • Trade defence measures are supposed to ensure competition in the long run • Competition may be restricted in the short run

  6. Dumping What is dumping? • To sell goods abroad at a lower price than at home, orto sell goods in foreign markets below “cost” • Dumping does not necessarily imply any government intervention Dumping can be a natural phenomenon • Prices may differ across markets due to price discrimination When is dumping harmful from an economic perspective? • Predatory dumping: selling at artificially low prices to eliminate competitors and achieve monopoly powers and ability to raise prices

  7. Agenda • The motivation for trade defence measures • Antidumping in practice • Impacts of antidumping measures • EU trade defence in a global context

  8. Antidumping investigations The four steps Determination of Community interest Determination of antidumping duty Determination of dumping Determination of injury What do they mean in practice?

  9. Dumping Dumping is… To sell goods abroad at a lower price than at home or to sell goods in a foreign market below “cost”.

  10. Example of dumping Price on home market Price on export market Average production cost Dumping? €10 €9 €8 Yes €10 €10 €11 Yes €10 €11 €9 No

  11. Injury Injury in practice: The imports have caused damage to the Community industry, such as loss of market share, reduced prices for producers and resulting pressure on production, sales, profits, productivity etc.

  12. Example of injury – 1 Case: PET from Australia, China and Pakistan, 2004 Trends in imports Volume of imports from the countries concerned Prices of imports from the countries concerned tonnes Price undercutting ranging from 10% to 17%

  13. Imposition of anti-dumping measures for a number of other countries Example of injury – 1 Case: PET from Australia, China and Pakistan, 2004 Community industry development Price development Lost market shares Other factors Deterioration of profitability 2001 7,6 % IP 0,9 % Community producers’ market share

  14. Example of injury – 2 Case: Bicycles from China and Vietnam, 2004 Trends in imports Volume of imports from the countries concerned Prices of imports from the countries concerned 1000 bicycles index

  15. Example of injury – 2 Case: Bicycles from China and Vietnam, 2004 Community industry development Price development Lost market shares Other factors Profit has remained at low levels (still around 4 %) Community producers’ market share

  16. Community interest The Community interest in practice: • The costs for the Community of taking measures must not be disproportionate to the benefits when considering effects on individual interested parties.

  17. Community interest • In practice, Community interest deliberations constitute a relatively small part of most investigations • Deliberations are case-specific assessments of costs and benefits for • Producers • Suppliers • Importers • Users • Consumers

  18. Antidumping duty Antidumping duty in practice • The absolute maximum is the dumping margin. • Minimum is whatever is needed to eliminate the injury. • Normally, individual injury margins are computed for each co-operating exporter.

  19. Examples of AD duties Product Originating from Level of antidumping duty Cotton-type bed linen Pakistan 13,1 % Okoumé plywood China 6,5 - 66,7 % Rainbow trout Norway Faeroe Islands 19,9 % 30 - 54,4 % Paracresol China 10,8 - 40,7 % Silicon metal Russia 22,7 - 23,6 %

  20. Agenda • The motivation for trade defence measures • Antidumping in practice • Impacts of antidumping measures • EU trade defence in a global context

  21. Targeted exporters Suppliers User industries Community producers The direct impacts of an antidumping duty Negative Lose customers due to more expensive products Positive Healthier customers Positive Protected against competition from low-cost imports Negative Must adapt sourcing to possibly include more expensive inputs

  22. Targeted exporters The European Community Third countries Effects on trade flows Volume of dumped imports will decrease Imports are replaced by domestic production and/or Imports from countries with anti-dumping duties are replaced by imports from other countries

  23. Targeted exporters Foreign Direct Investment The European Community Third countries Underlying actions by exporters • Foreign Direct Investment • Circumvention • To formally move outside the targeted region, while substantially continue doing the same

  24. Agenda • The motivation for trade defence measures • Antidumping in practice • Impacts of antidumping measures • EU trade defence in a global context

  25. The global leaders (WTO statistics) • China (47) • Republic of Korea (24) • Chinese Taipei (21) • United States (14) • Japan (9)Thailand (9) Top five countries/regions accused of antidumping (2004) Top five countries/regions initiating antidumping investigations (2004) • European Community (30) • China (27) • United States (26) • Turkey (25) • India (21)

  26. The bottom line • EU trade defence measures can protect European firms from “unfair” foreign competition • But they can also create sourcing problems for importers, retailers and users of the targeted product • And EU exporters can be hurt by trade defence measures in foreign markets

  27. Thank you!

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