Effectiveness of the Canadian Antidumping Regime: Is Trade Restricted?

1. Effectiveness of the Canadian Antidumping Regime: Is Trade Restricted? Nisha Malhotra and Horatiu Rus WE would like to thank TARGET (UBC) for funding the above project

2. Motivation • The large and growing use of antidumping throughout the world: an interesting phenomenon, theoretically and empirically. • Do antidumping duties amount to trade protection for domestic producers? • Unambiguously yes, when all foreign firms would be restricted access to the domestic market, but Unclear when only certain firms/countries singled out • Antidumping - by its nature discriminatory among exporters • Also relevant from a policy point of view: AD duties - higher prices: penalize industries that use these protected goods and hurt final consumers.

3. Importance • A significant amount of work, theoretical and empirical, to study effectiveness and ramifications of AD investigations for an importing country: • There have been quite a few empirical studies carried out analyzing the trade effect of ANTIDUMPING investigations for various countries: US, EU, Mexico and more recently for a few other developing countries. • However, the results are not consistent across these studies for the various countries; thus one can not infer the effect of AD in Canada from these studies • Research on the use or the effect of the Canadian AD law is quite scarce.

4. Literature There is no consensus • Prusa (1997) : trade effects of US antidumping actions • antidumping duties restrict trade named countries. • Trade diversion to the ‘non-named’ countries • Vandenbussche et all (1999): case of European Union. • antidumping duties restrict trade ‘named’ countries • No trade diversion to the ‘non-named’ countries • Niels (2003) shows that for Mexico there isn’t significant trade diversion after AD duty is imposed on the named countries. Does not help infer - trade effects of AD policy in Canada

5. Importance of AD in CanadaNumber of Properly documented cases

8. Canada-Antidumping law • Canada's anti-dumping and countervailing law is contained in the Special Import Measures Act (SIMA). • Canada Border Services Agency (CBSA) formerly - Revenue Canada (CCRA) and the Canadian International Trade Tribunal (Tribunal) are jointly responsible for administering SIMA • If an industry in Canada believes that it is being injured by unfair competition through dumping, it may request the imposition of antidumping duties by filing a petition with CBSA.

9. Canada-Antidumping law • Steps undertaken in an AD investigation • Petition filed by the firm/firms on behalf of the industry (petitioners must represent at least 25% of domestic production ) • CBSA starts an investigation and decides whether to begin a formal investigation or drop the case (Sends a copy to the Tribunal) • Tribunal’s preliminary Injury finding • CBSA preliminary dumping finding • CBSA final dumping finding • Tribunal’s final injury finding

10. Difference in ANTIDUMPING legislation WTO ADA: harmonization of ground principles (normal values, need to prove injury etc.), still allows for national/regional regulatory variation • ‘two-track’ AD determination, like the US, unlike the EU prospective system, unlike the US (retrospective) • no lesser duty rule: “full duty rule” - unlike the EU regime, but similar the US (more protectionist?) • the cumulation principle repeatedly maintained (pool exporters to determine injury) • the 2% de minimis principle rarely used, at country level (expect lower diversion if C.A. national) • Some results may be interpreted from the perspective of these institutional and procedural differences in AD legislation.

11. Question • Trade effects of AD policy in the manufacturing Industry in Canada. • Are antidumping duties effective in restricting trade from Countries named in the ANTIDUMPING petition? • Is there any trade diversion to other non-named countries thus making AD ineffective as a protectionist tool.

12. Question-Why? • imports might be diverted away from the alleged source country to the non-alleged countries rendering AD law ineffective in benefiting the domestic Industry. • beneficiary of AD duties is not the domestic industry, but exporters to whom trade is diverted • These questions are also relevant from a policy point of view; AD duties like any other tariff translate into higher prices. • These higher prices penalize industries that use these protected goods and also hurt final consumers

14. DATA Data : 1990 - 2000 • Level of Imports: Detailed 10-digit HS-level import data was obtained from Statistics Canada. • Antidumping Data: Canadian antidumping measures was constructed using the report from the Canadian Border Services Agency’s Historical Listing of Antidumping Cases. • confirmed from WTO Antidumping Gateway and complemented from Statistics Canada’s directory of HS codes (The ANTIDUMPING data is available from the authors. nisha@interchange.ubc.ca/ horatiu@interchange.ubc.ca)

15. lnm: Log Imports a: affirmative n: negative u: Undertaking t(1-3): Years after AD is filed; t1: one year after petition is filed Interaction terms Include year dummies Models: Ordinary Least Square Regressions Fixed Effect Models Empirical Specification

16. Results • Sizeable trade restriction effects: strong evidence of substantial (76%) trade restriction from named countries, one period after the imposition of duties • a time-effective protectionist tool: initial drop not followed by subsequent import decreases in later periods • no strong indication of an “investigation”/“harassment” effect of Canadian AD: a negative dumping determination has no significant trade effects for both named and non-named sources (transparency, prospective AD?) • Canadian Antidumping - timely and effective as a protectionist instrument

18. Comparing the results • Prusa(2001): substantial (50%) import drop from the named sources in the first period • Vandenbussche et al.(2001): comparable imports restrictions of 67% determination

20. Conclusion • Canadian AD = timely and effective as protectionist tool: • significant reduction in imports from named sources, concentrated in the period immediately after the imposition of duties • little to no evidence of imports being diverted toward non-named countries or firms • Possible refinements: does product homogeneity/heterogeneity matter? Why no effect for undertakings?