CHAPTER 5 ANTI-DUMPING MEASURES

1. OVERVIEW OF RULES (1) Anti-Dumping Measures "Dumping" is defined as a situation in which the export price of a product is lower than its selling price in the exporting country. A bargain sale, in the sense of ordinary trade, is not dumping. Where it is demonstrated that the dumped imports are causing injury to the importing country within the meaning of the WTO Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 ("Anti-dumping Agreement"), pursuant to and by investigation under that Agreement, the importing country can impose anti-dumping measures to provide relief to domestic industries injured by imports.1 The country's imposition of an anti-dumping duty is determined by the dumping margin--the difference between the export price and the domestic selling price in the exporting country. By adding dumping margin to export price, the dumped price can be rendered a "fair" trade price. When it is impossible to obtain a comparable domestic price because there are none or low volume sales in the ordinary course of trade in the domestic market, either export prices to third countries or a "constructed value" is used in price comparison. A "constructed value" is the cost of production in the country of origin plus a reasonable amount for administrative, selling and general costs and for profits. Similarly, when the export price is found to be unreliable, the price at which the product is first resold to independent buyers, or another price according to a reasonable basis determined by the authorities may be used in price comparison. Because anti-dumping measures are an exception to the rule of most-favoured-nation treatment, the utmost care must be taken in invoking them. However, unlike safeguard measures, which are also instruments for the protection of domestic industry, the implementation of anti-dumping measures does not require the government to provide offsetting concessions or consent to countermeasures taken by the trading partner. This has increasingly led to the abuse of anti-dumping measures. For example, antidumping investigations are often commenced based on insufficient evidence, and anti-dumping duties may be retained long after the conditions for their levy have been eliminated. Some countries have applied anti-dumping measures in an arbitrary manner to restrict imports, rather than to achieve the limited, remedial objective authorized in the Agreement. In light of this situation, one of the focal points of the Uruguay Round negotiations was to establish disciplines to rein in the abuse of antidumping measures as tools for protectionism and import restriction. Although considerable progress was seen in this process, many countries still express much concern over this abuse. (2) Legal Framework

(i) International Rules The international anti-dumping rules are provided by (a) GATT Article VI and (b) the Anti-dumping Agreement under the WTO. The Tokyo Round Antidumping Code was revised to become the new Anti-dumping Agreement as a result of the Uruguay Round negotiation. Amendment of the Code was called for because the procedures for investigating prices and costs in order to measure the damage to domestic industry and calculate dumping margins were extremely technical and complex, and since the Tokyo Round Anti-dumping Code lacked sufficient detail to deal with the complexities of current international transactions. The Code's lack of detail resulted in a dearth of effective disciplines and exacerbated the tendency to abuse the Anti-dumping provisions, thus requiring a revision to the Code. The WTO holds two meetings of the Anti-dumping Committee (AD Committee) each year to provide a forum for discussion of anti-dumping measures. Among the business of the AD Committee is the review of countries' anti-dumping implementation laws for conformity to the Agreement, the hearing of reports on countries' anti-dumping measures, and the study of issues in anti-dumping policies and practice. The AD Committee is directly subordinate to the Council for Trade in Goods and reports to it each year on the implementation and administration of the AD Agreement. The AD Committee has also organized on an ad hoc basis two fora for discussions of specific points of contention. The first is the meeting of the Informal Group on Anti-circumvention. This was an issue that was referred to the AD Committee for further study because no conclusions could be reached on it during the Uruguay Round negotiations (see 1(5) below). The second is the meeting of the Ad Hoc Group on Implementation, which discusses ways to harmonize national discretion in the agreement where the interpretation is or could be vague. Having separate fora to discuss specific issues of concern has enabled the WTO to deal with anti-dumping problems on an ongoing basis. Countries have been amending their domestic anti-dumping implementation legislation to bring it into conformity with the new AD Agreement. In Japan, for instance, this took the form of amendments to Article 9 (Article 8 at present) of the Custom Tariff Law and other relevant regulations. However, it is still uncertain whether new national legislation in WTO Member countries will be administered in conformity with the new Agreement. The AD Committee is charged with reviewing national legislation, and countries are required both to notify the relevant laws to the Committee and to respond to questions from other countries about their systems. If there are any problems found, countries are obliged to bring their national laws in line with the Agreement. Japan must use these kinds of fora to ensure that the domestic laws of other countries are written and applied in conformity with the AD Agreement. Should legislation or discretion contravene the Agreement, Japan should report it

immediately to the AD Committee and other GATT/WTO fora to seek appropriate remedies. Therefore, if an anti-dumping measure is suspected of violating the GATT and/or Anti-dumping Agreement, Japan should seek resolution through the GATT/WTO in dealing with the increased abuse of anti-dumping measures by certain countries. If resolution cannot be reached through bilateral consultations, the abuses should be referred to WTO panels. In the past, there were two viewpoints: first, that panels should have broad discretion, second, that certain standards of review (both objective and impartial) should be set for panel deliberations. The reasoning for the latter view was as follows. Since many cases for resolving disputes were expected to arise due to the newly introduced automaticity in the WTO dispute settlement system, it was considered necessary to specify standards of review for anti-dumping measures. As a result of the Uruguay Round negotiations, the new Anti-dumping Agreement also introduced new standards of review for factual determinations and legal interpretations by the panel. How the standards of review are applied to procedures for resolving disputes will depend on the specific facts of the future actions and on the panelists themselves. The issue will be re-examined following the application of these standards over the first three years pursuant to a Ministerial decision adopted at Marrakesh2 , but no examination has been done so far. (ii) Major Improvements in the Anti-Dumping Agreement (a) Fair Price Comparison In principle, a determination of dumping is based on whether the export price of a good is less than the domestic price in the exporting country. This comparison must be conducted in a fair manner. So far, the determination of the normal value and/or export price is sometimes not sufficient to adjust the differences that affect price comparability. The Anti-dumping Agreement prescribes that comparison shall be made at the same level of trade, in respect of sales made at as nearly as possible the same time, that due allowance shall be made, on its merit, for differences which affect price comparability (Article 2.4), and that the authority shall make allowances for a conversion of currencies (Article 2.4.1). Also, authorities shall indicate to the parties in question what information is required for a fair comparison and shall not impose an unreasonable burden of proof on those parties (Article 2.4.2). So far, in the United States and the European Union, in cases involving more than one transaction, all export prices higher than the weighted-average domestic price were regarded to be the same as the weighted-average domestic price, and thus no credit was given for "negative" dumping margins. This practice results in artificial dumping margins, and the inflation of actual margins. Thus, in comparing domestic and export prices, the United States and

European Union compared a weighted average of all domestic prices with the export price of each individual transaction (See Figure 5-1). The Antidumping Agreement takes into account this point, prescribing that margins shall be established on the basis of a comparison of weighted average normal value with a weighted average of prices of all comparable export transactions or by a comparison of normal value and export prices on a transaction-to-transaction basis (Article 2.4.2). However, because price comparison is left to investigating authorities' discretion, we need to watch their investigation in this point. <Figure 5-1> An Example of Unfair Price Comparison Domestic Price($) Transaction 1 Transaction 2 Transaction 3 Transaction 4 Average Value 400 300 200 100 250 Export Price($) 400 300 200 100 250 Dumping Margin($) -150 -> 0 - 50 -> 0 + 50 +150 0

Note : Even though these individual prices are identical, and the overall average prices are identical, the US Government will find dumping. Specifically, the US authorities compare the domestic average value of $250 to individual export prices. Then the US authorities treat the so-called "negative dumping margins" as zero when an export price is higher than the $250 domestic average value. As shown, this methodology results in an artificial dumping margin of 20 percent despite the fact that the margin would be zero if the comparison were made between average prices or on the basic of individual transactions. 0 + 0 +50 + 150 dumping margin percent = 400 + 300 + 200 + 100 (b) Problems Involved in Determining Injury Under the Anti-dumping Agreement, imposition of an anti-dumping duty requires that the investigating authority have evidence not only to substantiate dumping, but also to prove that the dumping has resulted in injury to a competing domestic industry in the importing country. Moreover, dumping may result in benefits to consumers in the form of lower-priced ¡ß 100 = 20%

. .1-3). and . Unfortunately. the prior provisions have lent themselves to different interpretations by different countries. . i) The Agreement clarified the method used in calculating dumping margins by establishing: .4).New criteria for setting profit rate in constructed value. that there is sufficient proof of causality between dumping and injury.goods and is thus not an entirely deleterious practice.1).2. ii) The Agreement clarified investigation procedures through: . (Article 2. we must ensure that sufficient evidence is considered when determining injuries.Adjustment mechanisms for start-up costs (Article 2. The following are among the most important improvements. and that there is no potential for injury from other factors unrelated to dumping imports to be counted in with dumping injury.2.3.Establishment of strict time limits (normally 1 year with extension up to no more than 18 months after initiation)(Article 5. however.New disciplines on sample-based investigations (Article 6. (c) Other Points The Agreement contains many improvements over the Tokyo Round Antidumping Code. to develop a general quantitative standard to measure the extent of injury that has occurred.1).2). Under the terms of the GATT.1).2.10). and . It is difficult.New criteria for determining sales below cost (Article 2.10). . The Anti-dumping Agreement contains more detailed rules on determinations of injury. .New disciplines on refunds of Anti-dumping duties (Article 9.New disciplines requiring accelerated investigations of new market . If the aggregate volume of imports from all negligible countries exceeds 7 percent.2. a country can take actions against dumping only when there is a factual finding of injury to an industry in an importing country. on an individual country basis.Introduction of quantitative criteria for initiating proceedings (Article 5. .1.1. Specifically.The acceptance of cost calculation based on accepted accounting principles in the exporting country (Article 2. We must therefore be aware of the potential problems in discretion. The Tokyo Round Anti-dumping Code did not clearly set forth the conditions necessary to establish injury.8). negligibility will not apply) (Article 5.Termination of investigations upon a determination of de minimis dumping margins (less than 2 percent of the export price) or negligible import volumes (Normally import volume will be considered negligible if it is less than 3 percent of total import volumes.

iii) The Agreement introduced a sunset clause: One of the most valuable and important improvements. This change is. The United States has rarely terminated Anti-dumping duties once it imposed them. South Korea. and South Africa is a recent development worthy of note. the increase in actions brought by Brazil. (Article 11.1990. very important. the European Union. many other developing countries have recently introduced new antidumping laws.1975. <Figure 5-2> Number of Anti-Dumping Investigations. (3) Recent Trends Anti-dumping investigations have been used primarily by the United States. requiring Antidumping duties to be automatically terminated no later than five years from their imposition except in cases where investigating authorities have conducted reviews on their own initiative or upon a dutysubstantiated request made by the domestic industry.1985. therefore.Standards of review for WTO dispute panel (Article 17. Figure 5-4 shows the number of cases. and we need to keep a watch on the US administration of Anti-dumping measures. where anti-dumping duties have been imposed against Japan. However.5).entrants (Article 9. Canada. because domestic anti-dumping laws have been enacted mostly in developed countries.1980. Figures 5-2 and 5-3 show the increasing number of investigations by each country.1995. by Country 1969. and Australia.3) and . In addition.3) iv) Other changes provided in the Agreement include: . Administration of the above new regulations will need to be closely monitored to ensure that they are realized in actual application.New disciplines on cumulative assessment of injury (Article 3. It is necessary to scrutinize carefully whether proceedings and methods of such new "AD users" are consistent with the Anti-dumping Agreement.Total 1974 1979 1984 1989 1994 1998 US EU Canada Australia Japan 125 19 42 0 140 55 74 120 0 146 138 176 242 0 219 101 115 180 0 249 147 90 252 4 75 110 31 71 0 954 570 528 865 4 . by country. and determined that dumping and injury would continue or resume.6).

The symbol .Others Total 39 225 64 453 10 712 74 689 227 969 395 809 682 3730 Source: WTO documents Note: Figure valid as of the end of June 1998 <Figure 5-3> Number of Anti-Dumping Investigations since 1993 1993 1994 1995 1996 1997 *1998 US EU Canada Australia Brazil Korea India South Africa Indonesia Japan 33 21 24 58 34 6 24 0 45 43 2 13 2 4 7 15 1 14 32 14 5 5 4 5 17 ¡¡ 0 21 24 5 17 17 13 21 31 9 0 16 43 14 42 10 17 14 23 4 0 24 12 1 7 6 0 15 8 0 Source: WTO documents Note: Figure valid as of the end of June 1998.means nonnotification <Figure 5-4> Number of Cases where Anti-Dumping Duties were Imposed on Products Imported from Japan US EU Canada Australia Korea India Taiwan Mexico South Africa 52 7 3 2 5 2 3 1 1 Figure valid as of the end of December 1998 Note: Number includes interrupted and price undertaking cases .

the mere initiation of an anti-dumping investigation is in itself a large threat to companies. admitting selective imposition of duties in terms of country and supplier tends to lead to discriminatory trade policies. Such burdens obviously have the potential to impair ordinary business activities. since anti-dumping measures directly affect pricing. in contravention of Article 6.(4) Economic Implications Anti-dumping measures are allowed under the GATT/WTO Agreement as an exception to the general disciplines. there are also cases in which companies are forced to relinquish their right to respond because the questions are so detailed and probing that the burden of response is too great. (i) The Influence of the Initiation of Investigation The mere initiation of an anti-dumping investigation will have a vast impact on exporters. The legal costs involved are particularly high. We would also note that there are many cases in which companies simply relinquish all or part of their right to answer questions from the authorities because of the enormous burdens involved. "The authorities shall take due account . In "facts available" proceedings. which states. They must answer numerous questions from the authorities in a short period of time. This section discusses some of the serious economic implications of anti-dumping measures in cases where they are abused. But as we have noted. in their excessive zeal to collect detailed information and run rigorous investigations. the legal fees alone were $1 million a year. This reasoning supports the contention that investigations should only be initiated after evidence is sufficiently considered. Any decision to go ahead with an investigation must be made with the utmost care. Initiation of an anti-dumping investigation also places significant burdens on the companies being investigated. In addition.13 of the AD Agreement. Authorities. which is the most fundamental element of business strategy. their abuse will have a tremendous negative impact on the pattern of trade and on the overall economy. time and money to defend themselves. Such procedures are also. For example. regardless of their findings. we would note. The paradox is obvious. the authorities make calculations from whatever information they have been able to gather if the company investigated has not furnished answers or is unable to prove its contentions. This results in products becoming far less attractive to importers. in one case involving high-volume exports to the United States. However. When an anti-dumping investigation is initiated. and should naturally apply in cases in which the company was able to respond but did not for its own reasons. end up having to use "facts available" procedures instead. Thus. the potential surfaces for antidumping duties to be imposed at some point in the future. spending enormous amounts of labour. In such cases. the rule of "facts available" (sometimes called "best information available") applies. "Facts available" handling is explicitly allowed by the Agreement.

if that period is beyond the period of investigation." Since the Anti-dumping Agreement requires administering authorities to examine the accuracy and adequacy of the evidence provided in the application to determine whether there is sufficient evidence to justify the initiation of an investigation. At the start-up phase of high-tech products. as more aircrafts are built. therefore. the Anti-dumping Agreement allows the use of a "constructed value" of the exported good in the dumping margin calculation. but the costs incurred in building the aircraft drop. resulting in a high dumping margin. in part because of significant improvements in worker skills. When an anti-dumping investigation of a forward-priced product takes place early in the product cycle. (ii) Distortion of Normal Commercial Practices Anti-dumping measures also harm companies attempting to apply normal commercial strategies and practices. One example comes from the US civil aircraft industry. short-term average costs will still exceed domestic prices.).of any difficulties experienced by interested parties in supplying information requested. The provision calls for adjusting costs based on costs at the end of the start-up period or. Aircraft manufacturers. The Agreement incorporates a provision calling for adjustments to properly allocate costs during the start-up period for new products. Forward pricing is a strategy designed to reduce costs by increasing sales volumes early in a product's life cycle. The latest B-777 (which seats 350) cost about $500 billion to develop. This forward-pricing problem has been partially addressed in the Anti-dumping Agreement. it also allows companies to secure stable profits in a short period of time. These two cases are explained below together with the new Anti-dumping Agreement provisions designed to ameliorate these problems. the most recent costs that can be taken into account when determining whether products are being sold below cost. We will need to monitor closely whether countries will accurately . This practice not only enables rapid market acceptance of a product. we expect the number of frivolous cases to decrease and the number of cases based on "facts available" to decrease. This effect is illustrated in situations of "forward pricing" in advanced technology products and "business cycle" pricing in industries with high fixed costs. set sales prices far below initial costs in anticipation of these productivity gains (See Figure 5-5. and shall provide any assistance practicable. prices are set at a level below the per unit cost on the assumption that there will be a sharp reduction in such costs in the near future as production volumes increase. The theoretical "constructed value" in such cases will be composed of the unusually high shortterm average costs plus amounts for administrative costs and profits. When domestic sales are unusable. This "constructed value" is then compared to the actual export price. Domestic sales will accordingly be deemed to be "below cost" and unusable for purposes of calculating anti-dumping duties.

in view of the differences . Because of this. there could be cases in which antidumping duties are imposed on products that are in fact different from the product subject to investigation. authorities ought to investigate whether or not the new products. The European Union engages in similar practices. Since prices are also affected by the relative strength of demand and supply in the market. it is difficult to raise prices during a recession. normal practice is to set prices under the assumption that fixed costs will be recovered over the long term. the United States has not taken into account the possibility of long-term cost recovery when dealing with intermediates like steel.administer these Anti-dumping procedures and make proper adjustments for start-up costs. In the past. which results in wide swings in their ratio of fixed costs to unit production because of changes in production volumes. Care must be taken with regard to products that could or will be developed in the future so that the definition cannot be expanded beyond those products "currently" causing injury (according to the parties filing the complaint). companies frequently set prices in view of the full business cycle. We are particularly concerned about vague wording in the definition of the range of products subject to dumping investigations. <Figure 5-5> Illustration of Forward Pricing In capital-intensive materials industries. The current US practice appears to be to collect cost data for a 12-month period. only general standards for recognizing below-cost sales were included in the Antidumping Agreement. often determined that products were being sold below cost. There are cases where the definition has even been expanded to apply to future generation products not even existing at the time of the original investigation. Given the nature of the products in the cases mentioned above and the wide differences between the original and current versions of the products. However. such as steel. This practice has been criticized since 1974 for ignoring production and business cycles. Based on these new standards. therefore. and occur at prices. normal business cycle pricing practices such as these should be fully taken into consideration. These new standards restrict the recognition of below-cost sales only to situations in which such sales occur within an extended period of time. and US courts themselves have rendered verdicts critical of the use of data covering only the short period under investigation. (iii) Effects on Technology Transfers (Unnecessary Expansion of the Product Scope Subject to Anti-Dumping Duties) Anti-dumping duties are imposed on "like products" found by investigators to be dumped on domestic markets (GATT Article VI). in substantial quantities. depending on how the scope of "like products" is defined. While more specific provisions regarding business cycle pricing were discussed during the Uruguay Round negotiations. and because of this practice. It calculated fixed per unit costs based only on production volumes during the one-year period investigated. which do not provide for recovery of all costs within a reasonable time.

Anti-circumvention measures which inadequately distinguish between production shifting for legitimate commercial reasons and for circumvention purposes. (iv) Retarding Globalization of Production As the economy becomes more global in scope. they are often assumed to be attempts at circumvention. This is particularly the case in high-tech industries. are having a detrimental impact on the domestic markets initially investigated. third country circumvention and "country-hopping. when such transfers take place for products that are subject to anti-dumping levies. For these reasons. There are also other examples in which the scope of what are recognized to be "like products" has had an influence on new product development and. The Uruguay Round negotiations defined three kinds of circumvention: importing country circumvention. companies are transferring their production overseas to their export markets or to developing countries where costs are lower. and refers the issue to the AD . Unfortunately. use of Anti-dumping measures as a means of restricting imports has increased substantially in recent years. importing countries can easily resort to such practices because they can be accomplished under the guise of measures sanctioned by the GATT/WTO and the Anti-dumping Agreement. The Marrakesh Ministerial Declaration merely states the expectation that uniform rules will be applied as soon as possible. ultimately. However. (5) Anti-Circumvention Issues "Circumvention" generally refers to an attempt by parties subject to anti-dumping duties to avoid paying the duties by "formally" moving outside the range of the antidumping duties order while "substantially" engaging in the same commercial activities as before. (v) Conclusion As this discussion indicates.in technology used and markets targeted."3 Disciplines on measures to prevent these practices were also discussed. but conflicting opinions between interested countries prevented any final conclusion from being reached. We have strong expectations for more appropriate administration in this regard. technological advancement. Suffice it to note here that all such cases demonstrate the potential impediment to technological progress that comes from facile expansions of the coverage of "like products" in Anti-dumping proceedings. the economic effects of abusive anti-dumping measures can be substantial in terms of trade volume and critical to a wide range of business activities. risk not only distorting trade but also shrinking investment. There are obvious problems in expanding the application of existing anti-dumping measures without doing so. It should also be noted that often the most serious victims of abusive anti-dumping measures are the consumers and user industries in the importing country. like electronics.

which is the first item on the agenda. concerning ferro-silicon-manganese imported from China. potentially contracting and distorting both trade and investment. who are wary of introducing these measures because they could restrict even legitimate investment activities. impartial. Should there be other dumping complaints received in the future. and rigorous manner. In light of the large amounts of time already spent negotiating the issue without success. This has resulted in an agreement on the framework for future considerations (procedures and agenda). Should countries that have domestic laws on anti-circumvention take measures that depart from GATT Article VI or the AD Agreement. no uniform rules on anti-circumvention in the WTO Agreement. (6) Response to Dumping in Japan Japan has three laws and ordinances that come under the AD Agreement: Article 8 of the Customs Tariff Law. Doing this will require taking account of the benefits brought by the globalization of corporate activities and the basic principles and goals of the WTO Agreement. Japan initiated its first official anti-dumping investigation in October 1991. and a large number of other countries. unofficial discussions on what constitutes circumvention. Up to 1991. and other countries that already have anti-circumvention rules and wish to legitimize them. In January 1998. at the current time. Japan will investigate them according to international rules in a transparent. it was found that dumping had in fact caused serious injury to the domestic industry. In December 1993. they will need to be dealt with rigorously within the GATT/WTO context. There have also been substantial. This will in turn require an analysis of specific cases that illustrate how trade is conducted to seek measures that do not impair legitimate trade and investment while still strengthening the disciplines of the current AD Agreement. and strict investigation. The basic conflict over anti-circumvention is between the United States. the AD Committee began its discussions by looking at approaches that could be used to seek a resolution. The Japanese authorities conducted a transparent. The investigation began in February 1994. On the other hand.Committee. a dumping complaint was filed on imports of cotton yarn from Pakistan. a final determination to impose anti-dumping duties on Chinese exporters was made after a positive finding of dumping and injury and a causal relationship between them (two of the Chinese exporters agreed to a price undertaking with the Japanese government). South Africa. An anti-dumping duty was therefore imposed. and Norway. this measure was terminated (pursuant to the sunset clause). led by Japan. the European Union. <Column> The Discussion of Anti-dumping Measures in the WTO Working . the Cabinet Order on Anti-dumping Duties and the Guidelines on Procedures for Countervailing and Anti-dumping Duties. and after a year and a half of impartial and rigorous study. fair. only three anti-dumping cases had been filed in Japan. In January 1993. Resolving this conflict will require striking a balance between the current AD Agreement and any future anti-circumvention measures. the fact remains that there are. none of which led to an investigation.

it still has elements of unilateralism and protectionism in its trading systems. but at the working group meetings held at the end of 1998. As for the discussion on antidumping measures. the first WTO Ministerial Meeting held in Singapore in December 1996 decided to establish a working group to study issues relating to the "interaction between trade and competition policy. the United States is opposed to a review of antidumping measures and urges that the working group should focus on the discussion on competition policy. As of this writing. PROBLEMS OF TRADE POLICIES AND MEASURES IN INDIVIDUAL COUNTRIES (1) United States While the United States is one of the most open markets in the world. Japan has also urged that we need further discussion on the antidumping scheme itself and therefore these issues should continue to be addressed in the extended working group. which was held in July 1998. On the other hand. 2. Japan focused in particular on the anti-competitive effects of antidumping measures in this meeting. Since the US is opposed to further discussion of trade measures in the working group. Anti-dumping legislation is perhaps the largest source of hidden protectionism in the United States. there are two concerns. 3. This progress is among the most noteworthy achievements of the eight-year long Uruguay Round negotiations. a report from the working group to the General Council was adopted requesting an extension. and many countries have complained about its shortcomings. As pointed out that some trade measures such as antidumping measures and countervailing duties have a negative effect on competition. Notwithstanding these improvements. Japan has urged strongly that since the interaction between competition policy and trade policy is examined in the WTO regime. no clear termination point had been set for the extension. the US implementing legislation could be interpreted or applied in ways that may be inconsistent with the ." It was originally decided that the General Council would determine after two years' study how the work should proceed. in some areas. Some of these problems have been remedied in the Uruguay Round implementation legislation. namely predatory pricing. the working group put "the impact of trade policy on competition" on the agenda for its fifth meeting. it is expected that we will face conflict over the handling of the discussion of antidumping measures. we need to consider how to ensure the consistency between trade policy and competition policy.Group on the Interaction between Trade and Competition Policy On the grounds that there is a close interaction between competition policy and trade policy. First. Japan emphasized the need for review of antidumping regimes from the perspective of competition policy. Pointing out the difference in handling under competition laws compared with competition laws of an identical activity. in which the United States brought certain parts of its anti-dumping system in line with the new Anti-dumping Agreement.

so it would be hasty to immediately conclude that these administrative changes are in violation of the agreement. to point them out. Gas Turbo-compressors cases. even in areas where the implementing legislation seems to be clear. investigations were initiated for four Japanese steel products. NEC's bid was selected for final contact negotiations for a supercomputer system to be procured by the National Centre for Atmospheric Research (NCAR). including bringing the case before the WTO. including a shortening of the period for the antidumping investigation and a alleviation of the "critical circumstances" determination. including the abuse of "best information available" procedures in calculating dumping margins. suit under the Antidumping Act of 1916 was brought against Japanese companies regarding the import of hot-rolled steel. Anomalous actions by the US Government could be seen regarding this matter as summarized below. Therefore. even though the number of complaints being filed is lower than in the 1980s and continues to decline. but the situation will require further vigilance so that the rights of the defendant companies to respond and rebut are not infringed. Sunset reviews began in July 1998 and more than 300 measures are expected to be studied. The countries subject to this investigation have pointed to numerous problems with it. Another problematic case was the complaint involving supercomputers. The Antidumping Agreement does not specify the details of administration. (i) Recent Trends First on the list of problematic dumping cases from recent year is the large number of AD cases in steel products of 1992 involving nineteen different countries. . <Column> Problems with the Procurement of Supercomputers from Japan (1) Background (i) In May 1996.Anti-dumping Agreement. and the study of hot-rolled steel in particular produced some troubling administrative changes. it will be very important to monitor closely the future administration of the US Anti-dumping law. Thus. and irregularities in the identification of injury. Second. in which the actions of the government of the United States prior to the initiation of the investigation were opaque and questionable. there are questions about the discretion of these implementing the system that point to the need for continued watchfulness. We also find the cause-and-effect relationship for damages to be questionable in Large Newspaper Printing Presses. In November 1998. and Japan will need to consider possible responses. There are doubts about the WTO-consistency of this law. In 1998. and if there exist any problems. there is a concern that actual practice under the new provisions might violate the intent of the Anti-dumping Agreement.

explaining that it had been advised that the Department of Commerce (DOC) reached the preliminary conclusion that NEC's procurement proposal was equivalent to dumping. NCAR froze negotiations with NEC. (b) Documents suggesting dumping by NEC were made available both to the press and to Cray Research (US supercomputer manufacturer having also participated in the procurement bidding) prior to the initiation of the Anti-dumping investigation (20 May 1996). if the measures taken affected imports only. The ITC's remand determination was delivered to the CIT. and in August 1997 the DOC determined that dumping had occurred. (iv) In November of that year. Cray filed a complaint alleging dumping by NEC. Japan sought an explanation from the US Government. but the Supreme Court dismissed its appeal in February 1999. During the Japan-US Supercomputer Consultation (November 1997). NEC appealed the AD investigation by the DOC as invalid. and in August 1997 decided to exclude NEC from its approved vendors. the US International Trade Commission (ITC) found that US industry had been threatened with material injury and imposed an Anti-dumping duty. urged it to . This letter was sent even though the Anti-dumping investigation had not yet been initiated (17 May 1996). which provided budgetary support for the supercomputer procurement. (2) Points of contention Actions by the US Government in that it alleged and made public the preliminary analysis that dumping had occurred prior to the initiation of the Anti-dumping investigation. In March 1999. The CIT submitted an opinion paper to the ITC in December 1998 in which it instructed the ITC to reinvestigate a part of NEC's claims. ITC remand the US industry is threatened with material injury by reason. (ii) After that. this case may be in violation of WTO rules as a potential violation of the national treatment obligation. and that the NSF would not allow budgetary support unless there was sufficient documentation to demonstrate the contrary. The CIT will render the final decision in May. sent a letter to University Corporation for Atmospheric Research (UCAR). For example. could be seen as anomalous.<Action by the United States> (a) The National Science Foundation (NSF). (iii) In July 1996. The following September. which runs NCAR. NEC and Fujitsu filed a suit with the US Court of International Trade (CIT) claiming problems in the determination of injury.

Nor are their standards of judgement for minor modifications or later developments. Initiating such an investigation just as the AD Committee is discussing anticircumvention measures would seem to be an attempt to impede the impartial . The United States conducted an anti-circumvention investigation on Korean Colour Television Sets (which was terminated without conclusion).maintain the transparency of US trade policy and measures. There are. This leaves a large amount of discretion to the investigating authorities. To determine whether products produced in the importing country (the United States) or a third country are guilty of circumvention. therefore. or similar products later developed. the relationship between exporters and importers. the nature of the production process. however. Where it departs from the WTO Agreement is in also providing for measures traditionally used by the United States to prevent the circumvention of anti-dumping duties. there is no objectivity. the investigating authorities look at the price ratio of imported parts from the country subject to anti-dumping duties in the finished product or the composition ratio of products produced from those parts. and the extent of the production facilities. it also includes measures like these for which there is no justification in the WTO Agreement. no standards of judgement for any of these items. changes in import volumes. In considering the "relationship between exporters and importers. levels of investment and research and development in the United States or third countries. These measures provide for expanded application of the original anti-dumping duty under set conditions if the companies subject to anti-dumping duties attempt to circumvent them by shifting production to factories in the importing country or third countries and selling the products from there. and sought assurances from the United States that such anomalous actions would not be repeated. and. they have to consider both value-added ratios and parts procurement ratios when they look at product composition ratios. which are worded vaguely (as we have shown above). They may also take into account patterns of trade." there is a danger of companies being judged to be "affiliates" even though there are no capital relationships as long as one of the companies is legally or operationally in a position to exercise restraint or direction over the other. but there are no numerical standards given. For example. In short. (ii) Problems Involved in Applying Anti-Circumvention Measures The revised US anti-dumping law states that anti-dumping duties will only be imposed when the investigating authorities find that dumping has caused domestic industry injury in accordance with GATT Article VI and the AD Agreement. while the United States has amended the conditions for applying its anti-dumping laws consistent with the Uruguay Round negotiations. or by directly or indirectly selling products that have been subject to only minor modifications from those covered by anti-dumping duties. and which have the potential to obstruct legitimate investment activities.

US law prescribes several factors to be considered in determining "affiliated parties. This raises the risk that parties that are not. (iii) Problems Involved in Determining Dumping The United States has restructured the basis for this price comparison. Third. Unfortunately. For this reason. First. there were cases in which comparisons of weighted average normal prices were not used.discussions of the Committee. but not to administrative reviews. in light of the fact that final determination of dumping margin is made in administrative review. The United States interpreted that this article applies only to original investigations. Although some of the products were clearly not injuring the domestic industry. Though this is one permissible interpretation." but in actual administration the authorities consider only the percentages of shares held. the new law adds a provision to deduct from the "constructed export price" (which replaces the prior "exporters sales price") an allocated portion of total profit. or individual transactions to individual transactions. The Anti-dumping Agreement contains revisions requiring in principle that export price and normal price should be compared in either way. and problematic. And during the original investigation. Second. four types of products that were not "like products" were simultaneously subject to investigation. it is desirable that the United States compare weighted averages to weighted averages. or individual transactions to individual transactions. There are three major new elements to the comparison. in the case of Japanese flat panel displays. We will therefore need to be monitored in the future. the US authorities found injury by aggregating the four products and imputing the injury on some products to other products. under the US laws in administrative reviews it is possible to compare weighted average normal price and individual export prices. in essence. The new laws state that the profit of a related importer shall be deducted from the constructed export price. For example. In addition. it is not clear how profit in the normal value shall be accounted for. (iv) Problems Involved in Determining Injury The Tokyo Round Anti-dumping Code did not clearly set forth the conditions necessary to establish injury. . it also permits exceptions to this principle under certain conditions. the new law clarifies the importance of making comparisons at comparable levels of trade and revising the provisions on level of trade adjustments. However. However. We need to monitor this point. the new laws limits the offset for indirect selling expenses to those situations where a proper level of trade comparison or level of trade adjustment cannot ensure price comparability (the ESP offset). "affiliated parties" will nonetheless be deemed to be so. the prior provisions have lent themselves to different interpretations by different countries. weighted averages to weighted averages.

which states that "injuries caused by other factors must not be attributed to the dumped imports. This period seems to be too short a time to prepare counter-arguments challenging whether injury did indeed occur or whether there was a causal relationship between dumping and injury. Just recently. In June 1993. It is also of note that AD cases brought immediately after losing out on a bid are increasing (Large Newspaper Printing Presses. Gas Turbo-compressor and Supercomputers). The numerator will be total import volume minus imports which do not compete with domestic . This determination was reached despite the fact that a VRA (voluntary restraint agreement) had been implemented on exports of these products until the end of March 1992 and the actual export volume from Japan had been continuously and rapidly declining. The denominator in this calculation will be domestic US production minus the amount used in-house by US companies.4 of the Tokyo Round Anti-dumping Code (present AD Agreement article 3. Thus. which makes it easy to overstate changes in import share. These rules will effect the way in which the United States determines the market share of the imports under investigation when producers consume significant production of the like product internally. The ITC issued a preliminary determination that the imports of hot-rolled. The case involved what amounted to half (by value) of all steel imported by the United States.5 of the Anti-dumping Agreement). Should the United States actually engage in this practice. after additional arguments by Japan on this matter. The Anti-dumping Agreement contains no provisions for aggregating the effects of dumping and subsidies ("cross-cumulation") when assessing injury." After the termination of the VRA. The enormous steel complaint of 1992 that involved nineteen countries (twenty-one when countervailing duties are included) is an example of the problems in determining causality. the ITC issued a final determination finding no injury from imports of hot-rolled and cold-rolled carbon steel products from Japan. and corrosion-resistant carbon steel flat products from Japan had injured the US industry. the ITC findings of no injury from Japanese imports of hot-rolled and cold-rolled carbon steel were upheld by the Court of International Trade. the accuracy of the ITC's preliminary determination was highly questionable at the time. Under its new Anti-dumping legislation. but still finding injury from imports of corrosion-resistant carbon steel products. It is necessary to monitor whether dumping or another factor causes the injury. the United States has adopted new rules for dealing with the so-called "captive production" situation.The US International Trade Commission ("ITC") must make its preliminary determination regarding injury within 45 days of the petition. especially in light of Article 3. it is likely to be in contravention of the stipulation against attributing to dumping damage from other factors (under Article 3. it is highly likely that anti-dumping measures became a substitute for the VRA. since anti-dumping measures relating to steel increased rapidly. coldrolled.5). and 1 percent of total US imports. but the United States maintains that this is something that should be done.

making this an area where continued monitoring of administrative practice will be required. (vii) Sunset Provision Because past US Anti-dumping laws lacked a sunset provision. but the specific requirements that would constitute this proof have never been explicitly defined. when dumping exports have ceased. and other countries. which have long been subject to Anti-dumping duties." We advocate the exercise of restraint in setting the scope for "similarity. In some sectors. At this juncture. If a country wishes to expand duties to later-developed products. . as we have already noted (see 1." we do not think the scope of duties should be improperly expanded. so we will need to monitor the behaviour of the government of the United States to comply with Antidumping Agreement. the panel on Korean DRAMs stipulated that excessive burdens of proof should not be imposed. Canada.(3)(iii) above). In this regard. however. investigators found "like products" because "even though large CPT require more advanced technology. (vi) Other issues Under US law. we think it should redo the original investigation. exporters are asked to furnish proof that they will not dump in the foreseeable future. such as that provided by the European Union." This represents an arbitrary expansion of the scope of duties to subsequently developed products. at the time of the original petition. Authorities decided that LCD televisions were also within the scope of the duties because they are "units able to receive broadcast television signals and display images. no large CPT were even being produced in the United States. there is a similarity between large and small screen sets above and beyond any technical differences. The United States maintains that there are no problems in this approach. there was no time limit on orders imposing Anti-dumping measures. In spite of this. Adjustments are thus made to both the numerator and denominator. so there was no US industry to damage. (v) Like Products Determination of "like products" is an area where problems are likely to occur because. the decision on whether to revoke antidumping measures must take into account the potential for dumping to recur in the future. A specific example of this comes from Japanese television receivers. Large CPTs require different technology than small CPTs. We would also question the finding of like products for Colour Picture Tubes (CPTs). the degree of adjustment between the two may be extremely unbalanced. Therefore. a practice of questionable soundness.products (products consumed by the importers themselves). so much is up to the discretion of authority. This places an excessive burden of proof on the exporters. Australia.

Of the fifteen reviews toward Japan that have been initiated. nine antidumping measures will be revoked on 1 January 2000. The US steel industry responded to this by filing . Of the 52 products still subject to Anti-dumping duties levied since 1970.) The introduction of sunset reviews for antidumping measures was one of the results of the Uruguay Round negotiations. and we need to monitor the more than three hundred reviews waiting administered and conducted in an appropriate manner. This led to the inclusion of a sunset clause in the new US Anti-dumping law. (See Figure 5-6). steel demand was robust in the United States. and its steel industry was unable to supply its needs. Anti-dumping duties automatically expire at the end of five years unless the duties are reviewed and found to have a positive impact on both dumping and injury. Note that for one product (titanium sponges). <Figure 5-6> Lifting or Continuance of Anti-dumping Duties (1970present. Because of this. leading to sharp increases in steel imports from Japan and other countries. 26 have been subject to duties for over ten years. products imported from Japan) 19701979 Duties in Effect US EU Canada 13 0 0 1980-1998 Duties Total Duties in Cases Lifted Effect 54 32 15 15 24 12 39 8 3 Years in effect 10 years and more 12 4 2 Less 5-10 than years 5 years 14 3 0 26 1 1 note) Figure valid as of the end of December 1998 (viii) Actions by the United States Steel Industry In 1998. all Anti-dumping measures imposed prior to 1 January 1995 will be reviewed in order beginning July 1998 (Sunset Reviews). US antidumping law has been given new sunset provisions. The remaining five products are in either simplified review or full review.Consequently. Anti-dumping duties tend to remain in force much longer in the United States than in other importing countries. (As of this writing in December 1998. and all antidumping measures that took effect prior to 1 January 1995 have been up for review in a process that began in July 1998 (sunset reviews). the antidumping measure has been already revoked by the ITC changed circumstance review separately.3). Under the law. The AD Agreement provides for a "sunset clause" for the first time ever (Article 11.

Similarly. specifically by shortening the investigation period and by alleviation and accelerating the "critical circumstances" determination. corrosion-resistant steel) in 1998 alone. the Wheeling-Pittsburgh Steel Corporation of the United States brought suit at the Federal District Court of Ohio under the Antidumping Act of 1916. including three Japanese trading houses. and if left intact it has the potential to nullify the entire antidumping framework that has been erected. Japan therefore considers this statute to be highly likely to be inconsistent with the WTO Agreement. there are also moves to resort to suits under Article 201 of the Trade Act (steel wire rod). The EU has also brought the case before the WTO because US steel manufacturers have filed suits at federal district courts against European steel importers in the United States under the 1916 Antidumping Act. had engaged in dumping with the intent to harm the US steel industry and itself.four antidumping and anti-circumvention suits against Japanese steel products (stainless steel round wires. and Japan has expressed its intent to participate as a third party. We consider this to be one of the major successes of the Uruguay Round negotiations. regarding abuse in this area which seems to have become common practice. However. We will need to monitor this situation closely because of the protectionism aspects that it entails. (ix) Problems with the US Antidumping Act of 1916 In November 1998. and even under the Antidumping Act of 1916 (see the column for further details). the administration of the antidumping investigation for hot-rolled sheet steel. and the Department of Commerce caved in to this pressure by changing. (2) European Union Anti-dumping is an area of hidden protectionism in the European Union. in October 1998. there are legitimate concerns that abuse may continue where discretion is allowed even if the EU implementing legislation do not seem to violate the Agreement. This is especially the case in the European Union because authorities have greater discretionary powers than they do in the United States. Besides the antidumping suits. alleging that nine importers. and it . but the situation will require further vigilance so that the rights of the defendant companies to respond and rebut are not infringed. the initiation of the investigation was not according to the procedures in the WTO Antidumping Agreement. A panel was established for the EU-USA case in February 1999. It would be hasty to immediately conclude that these administrative changes are in violation of the agreement. stainless sheet strip in coils. Recent EU legislation contained amendments to bring European practice into line with the new anti-dumping Agreement. hot-rolled steel. The industry has put pressure on the US administration and Congress as well. Japan sought consultations at the WTO with the United States over the matter because the 1916 statute provides for compensation for damages and criminal penalties as relief measures rather than tariffs.

The conditions are: 1) there has been a change in trading patterns that cannot be adequately explained by legitimate reasons or economic justifications other than the circumvention of Anti-dumping duties. an Anti-circumvention investigation was initiated against Japanese television camera systems though there is no rationale under the WTO for doing so. consumers). new anti-circumvention rules have been drafted based on the panel findings from the parts dumping case and the opinions voiced in the Uruguay Round negotiations. two investigations were initiated. (i) Recent Trends The number of complaints being filed is down from what it was in the 1980s and more measures are being eliminated. in 1997. The EU has also added numerical criteria to its standards for determining traditional . therefore. (The EU terminated the investigation without imposing antidumping duties. However. for example. (iii) Problems Involved in Applying Anti-Circumvention Measures The EU anti-dumping rules also contain anti-circumvention measures. We believe it will be worthwhile for the European Commission to study them.(The investigation was terminated in February 1999) Vice-President Sir Leon Brittan of the European Commission proposed in July 1997 that anti-dumping procedures be improved and that "community interest" be defined. which are different from those of the United States. The new rules define two conditions to be met and allow various measures to be taken that cannot be counteracted with traditional circumvention (importing country or third-country circumvention). These proposals were based on criticisms of the anti-dumping procedures. Japan welcomes these proposals and the improvements they will bring to the impartiality and transparency of anti-dumping procedures. The older rules only contained the importing country circumvention and the third-country circumvention taking advantage of EU rules of origin. and the definition of "community interest" for emphasizing the producers to the exclusion of other interested parties (for example. it appeared that unfair price comparisons were made between export price and normal value (Personal Fax Machines) and product categories appeared to have been defined arbitrarily (Laser Optical Reading System for use in motor vehicles). It will. and that steps be taken to foster greater understanding of procedures in non-EU countries.is still too early to tell whether past administrative practices will really be corrected. However. There are two cases for which we will need to continue to monitor how Anti-dumping provisions are administered. that antidumping investigation procedures be made more efficient.) In June 1998. Sir Leon proposed that "community interest" be clearly defined. There is great concern on these cases on various points. and 2) the effectiveness of the relief provided by Anti-dumping duties has been impaired and there is evidence of dumping in comparison with past normal prices. be necessary to monitor the administration of the new EU Antidumping provisions for conformity to the Anti-dumping Agreement.

could obstruct or impair legitimate investment activities. and we will need to continue to monitor this investigation initiation standards and procedures for conformity to the Anti-dumping Agreement. the EU rules do not consider the relationship between assemblers and companies subject to Anti-dumping duties. and these rules. Another troubling trend is the proposal to investigate the origin of third-country products. but they do include assemblers that began operations immediately before the initiation of investigations to be part of circumvention investigations. these measures could also be applied against other forms of circumvention like country hopping.5-inch floppy disks from Taiwan and China. However. We would note that there is no rationale in the WTO Agreement for anti-circumvention rules at all. there is nothing in the WTO that justifies current anti-circumvention measures (including circumvention investigations). by registering imported products and issuing non-circumvention certificates. The scope of the measures is not only broad. depending upon how they are administered. the EU terminated its investigation in February 1999. and for electronic scales from Japan and Singapore. Anti-circumvention investigations have also been initiated for 3. and the imposition of duties from a circumvention investigation on bicycle parts from China all appear to be attempts to influence the discussions of anticircumvention currently taking place at the WTO.25 percent of value added or 60 percent of parts procurement. Duties have been imposed on Chinese bicycle parts already. The EU also initiated an antidumping investigation of Japanese television camera system parts at the same time. As a result. an anti-circumvention investigation was initiated for Japanese television camera systems. and imposes the same anti-dumping duties as are imposed in imports from X country on the third country's products as well. and on bicycle parts from China. without a dumping investigation. where the European Union is imposing an anti-dumping duty to X country's products. There are other problems too. and arguing that the investigations are therefore illegal. <Reference> Findings of the Parts and Components Panel . if the third-country products are found to be "X country's" under the EC's rules of origin. much like the United States is also trying to do. In finding importing country or third-country circumvention. but omits new investigations of dumping and injury. Disregarding for a moment the many problems in EC rules of origin. on electronic scales from Japan and Singapore.5-inch floppy disks from Taiwan and China. we would note the violation of the AD Agreement involved in imposing anti-dumping duties on third-country products just because of the way the rules of origin are administered and without engaging in ordinary dumping investigations. In June 1998. It has taken administrative steps to strengthen its anti-circumvention measures as well.circumvention . The initiation of circumvention investigations for 3. Japan has protested this to the EU.

This leads to an overstatement of domestic prices. Japan maintained that the methods used to calculate dumping were counter to the Tokyo Round Anti-dumping Code. Still we need to monitor how the new regulations will be administered. This problem affects every determination of dumping in cases involving affiliated importers. in October 1992. (iii) Problems Involved in Determining Dumping Under EU practice. The ubiquitousness of this problem makes it especially serious. the degree of the problem being the only variable in any particular case. the European Union levied Anti-dumping duties on Japanese audio cassettes. For domestic prices. anti-circumvention measures were applied to four parts for Japanese Copying Machines and so on. The report found the "asymmetrical price comparisons*1" used by the European Union in comparing normal (domestic) prices and export prices to be in violation of the Tokyo Round Anti-dumping Code. render a ruling on whether the anti-circumvention rules themselves conformed to the GATT. the European Union deducts only direct selling expenses. After that. however. The panel found that the EU anticircumvention duty was applied to products manufactured within the region and therefore was a domestic tax rather than an import duty. which makes it easy to artificially create and expand dumping margins (See Figure 5-7). The report was not adopted because of opposition by the European Union. The European Union. With respect to a case involving anti-dumping duties on Japanese audio cassette tapes. Japan brought the measures to a panel. while for export prices the European Union deducts direct and indirect selling expenses as well as profits. and. <Figure 5-7> Asymmetrical Comparison of Normal Value and Export Price in the European Union <Reference> Panel on Anti-dumping Duties Levied by the European Union on Japanese Audio Cassettes In May 1991. a panel was established under the provisions of the Code. a panel was established in October 1992. however. The panel reported in April 1995.In 1987. The panel did not. It then found the fact that this tax was imposed only on Japanese companies to be a violation of GATT Article III:2 (national treatment with regard to domestic taxation). this point was amended in the EU legislation. The panel reported in April 1995 and found EU price comparison methods and related rules to be in violation of the Anti-dumping Agreement. revised its AD regulations in December 1996 partly in response to the panel's recommendation. It advised the European Union to review its decision to impose Anti-dumping duties and to . considering them a violation of the GATT. when a company employs an affiliated importer in the export market. the EU applies asymmetrical rules to adjust the prices.

The panel found that the aggregation of dumped imports was not in violation of the Agreement because the Agreement did not require evaluation of competitive conditions for dumped imports from individual import sources. That particular panel was established under the Tokyo Round Anti-dumping Code and. while from the export price it deducted full direct and indirect selling costs for affiliate companies and also the profits of affiliate companies. the panel report was left unadopted due to the opposition of the European Union. Second. Based on this judgement. and that any differences affecting price comparability must be adjusted for. The European Union found injury even though there was only a slight increase in the absolute volume of imports from Japan and no declines in relative volumes of EU consumption or production nor any price undercutting. in determining injury. the European Union aggregated imports from Japan and Korea. It therefore judged these provisions in the EU's basic rules to be "mandatory provisions in contravention to the Agreement. the vote of all members was required for its adoption. it did not render an individual ruling on related problems regarding imports . This case is nonetheless significant because it made the European Union correct its legislation regarding the asymmetrical comparison which the panel report condemned. Since the transitional period for disputes brought under the old Code expired at the end of 1996. It marks the second case in which the unfair practices of Japan's trade partners were rectified based on GATT/WTO rules. However. comparisons between export prices and domestic prices must be fair. what the European Union did was to only allow direct selling costs to be deducted from the domestic price. the panel report can no longer be adopted. the EU's method of calculating dumping margins did not necessarily expand the dumping margin and cannot be considered a violation of the Agreement. As a result. Asymmetrical price comparisons: The Agreement stipulates that when calculating dumping margins. determine that "zeroing*2" and "injury findings*3" were not necessarily in violation of the Code. Therefore." *2. (It did. *3. however. This overstated the domestic price and resulted in the creation and expansion of the dumping margin.) Although the panel report was supported not only by Japan but also by many other Members.bring its Anti-dumping rules into conformity with the Code. *1. did not come under the current dispute settlement procedure. therefore. Injury findings: First. Zeroing (See Figure 5-1): The panel maintained that calculations of dumping margins are based on the idea that Anti-dumping duties should be imposed to the extent that the export price in individual transactions is below the domestic selling price. (See Figure 5-7) The panel found the European Union to be in violation of the Agreement because it did not make appropriate adjustments in comparisons of export prices and normal value even though the difference in indirect sales costs and profits was that to influence price comparisons.

specifies that start-up costs should be adjusted when they influence costs. The Anti-dumping Agreement contains criteria for determining whether there are below-cost sales (Article 2.1) that require consideration of whether costs can be recovered in a reasonable period of time.2). The Anti-dumping Agreement contains revisions requiring in principle that countries compare weighted averages to weighted averages or individual transactions to individual transactions (See 1. The EU rules state that comparison of weighted-average normal prices to individual export prices will be permitted if it is determined that the principle method of price comparison does not reflect the full degree of dumping. but the conditions for invoking the exceptions are open to different interpretation than those in the new Anti-dumping Agreement. and it will be necessary to monitor administration of the EU rules to ensure that they do not depart from the intentions of the Agreement. The investigation again found dumping. it also contains exceptions to this principle that.(2)(ii)(a)). had increased 9. It is not clear how the European Union will determine what "the full degree of dumping" is. Obviously. permit comparisons between individual export prices and weighted-average normal prices. but in fact total sales volumes in the common market.8 percent by volume. but EU injury findings contain much that is of doubtful conformity to this rule. but appeal to the Court of First Instance overturned this ruling in May 1995 because of problems with evidence used to find injury. the European Commission maintained that dumped imports had increased 2.5 percent and sales in the common market by common market producers had increased 14.) This was the first verdict involving Japanese firms since the Court of . The new rules of the European Union require adjustments when the determination of below-cost sales is influenced by new investments in production capacity or low production efficiency. however.7 percent in volume terms. The new EU rules incorporate these exceptions.4. including imports. However. and arbitrary administration of this provision is of concern.2. under certain conditions (Article 2.from Japan. (iv) Problems Involved in Determining Injury Invocation of Anti-dumping measures requires that dumping causes injury to the domestic industry of the importing country. The Agreement. The principal reason for the nullification of the Commission's finding was that neither the Commission nor the Council of Ministers had proved that there was injury or threat of injury (As a specific example. it should only be used under the exceptional circumstances stipulated in the Agreement. One example comes from the review investigation for the Anti-dumping duties levied by the EU Commission on Japanese ball bearings (in excess of 30-mm external diameter) in September 1992.

but we will need to continue to monitor to ensure that any future investigations are conducted with fair and rigorous similar products definitions. During the review. the European Union cumulated the effects of imports from Japan and Korea in making its evaluation. there are problems stemming from the way in which constructed export prices are calculated. the panel has refused to rule on Japanspecific issues. however. products that were clearly not "like products" and that include the components that were not the subject of the complaint. The price used to determine the existence of dumping is reduced by the amount of anti-dumping duties already paid (in calculating constructed export prices for the purpose of refunds. however. the amount of tax is deducted from the resale price along with sales and administrative expenses and profits). they had been heard only by the European Court of Justice. (v) Like Products We have already considered problems in the identification of "like" products (see 1. the EU included products such as highspeed copy machines and high-performance television camera systems that were not part of the original anti-dumping investigation. this appeal was rejected by the European Court of Justice. In addition.(4)(iii) above). The investigation was terminated without finding any injury and causation. the European Union will not make a full refund of an anti-dumping duty unless the resale price is raised by at least twice the amount of the dumping margin (See Figure 5-8). In effect. <Reference> Deduction of Anti-dumping Duties as Costs Under the EU policies governing refunds. when a request for a refund of antidumping duties is made and the import transaction is carried out by an affiliate of the exporter. The EU Council of Ministers was dissatisfied with the verdict and has appealed it to the European Court of Justice. It is a verdict that we are pleased with because of the court's willingness to examine the facts in detail. and it ultimately expanded the scope of the products on which duties were imposed. in February 1998. The anti-dumping Agreement. In spite of this. As a result. There is also the case of Japanese audio cassettes that was disputed in a panel. and it will be necessary to monitor future administration for compliance with these criteria in injury findings. and the panel ruled that this was not in violation of the Agreement.First Instance began hearing anti-dumping cases in March 1994 (previous to that time. The investigation into Laser Optical Reading System (presumed primarily to consist of car CD decks) that was initiated in October 1997 also used an extremely broad definition that tries to encompass products that the parties filing the complaint were not even producing. the new EU rules allow the impact of past dumping to be considered in injury findings. contains criteria to be used in cumulative evaluations of injury.). This same problem has also been seen in reviews of anti-dumping measures . These practices are questionable in terms of the Agreement's provision that damage from other factors not be attributed to dumping.

Where there are insufficient sales in the exporter's domestic markets.3. where the exporter does not sell in the ordinary course of trade in the home market. Either constructed normal value or third country export price would be based on information for the particular exporter under investigation. if conclusive evidence is provided (Article 9. however. as mentioned above. In injury findings. Canadian law allows the selling prices of other sellers in the export market to be used to determine appropriate pricing. A better approach would be establishing constructed normal value or using price exported to an appropriate third country as normal value. Canada also allows cross-cumulation of the effects of dumping and subsidies imports. It is doubtful whether this conforms to the Agreement. <Figure 5-8> "Duty as a Cost" Rule in the European Union (3) Australia It could be considered as a principle of the Anti-dumping Agreement that home market sales of individual exporters in the ordinary course of trade is the proper object of comparison. An individual exporter has no control over the prices of other exporters. (4) Canada The provision concerning the determination of normal value in Canada's new antidumping legislation is similar to Australia's. The Anti-dumping Agreement stipulates that no deduction for anti-dumping duties paid should be applied in determining the amount of duties to be refunded. The rule seeks to counteract such opaque dealings on the part of the exporters. The Australian anti-dumping laws.3). The issue arose because there are cases in which the anti-dumping duty that is supposed to be reflected in the export price is not reflected adequately because of the mediation of affiliated importers. and it is doubtful whether the interpretation of the Australian government is consistent with the Anti-dumping Agreement. However.(the case of Japanese bearings). the principle of the Anti-dumping Agreement is that anti-dumping duties are levied on sales of individual exporters. the domestic price by those companies could be used as the basis for normal value used for the comparison. The Agreement allows the authorities to assess the cumulative effects of dumping by multiple countries. The EU amended its Directive 11 (10) to bring it in line with these provisions. as the general rule in the Anti-dumping Agreement is to determine dumping margins for each product for individual exporters. but it does not contain any provision for . It is unfair to penalize a company that is itself fully in compliance with the norms of the Antidumping Agreement by using the prices set by other companies to determine normal value. permit comparison between the domestic price of other exporters or sellers and the export price. The Australian Government insists that as long as any products by any of the other exporters or sellers are sold in the ordinary course of trade.

Treasury. This is a problem that was discussed earlier in this chapter. Unlike customs unions. (e) Exporting products subject to anti-dumping duties from third countries ("countryhopping"). however. did not define dumping specifically but instead referred to unfair competition. Venezuela. where only a single domestic industry is recognized (Article 4 of the AD Agreement). The U. And Malaysia may introduce anti-circumvention measures as well. in free trade agreements. However. which puts these provisions in a doubtful light. 1 "Injury" includes three cases: material injury to a domestic industry. Dumping Dumping is an important global pricing strategy issue. (d) Exporting the parts for products subject to anti-dumping duties to a third country and assembling them there (third country circumvention). European Union and others (Mexico. which mandates non-discriminatory duty collection. When agreements stipulate that members of free trade agreements that are not customs unions will not invoke antidumping duties against each other.) have already gone ahead and introduced anti-circumvention provisions. Iceland.cumulation of dumping and subsidies. it would likely be a violation of Article 9 of the AD Agreement. (c) Exporting the parts for products subject to anti-dumping duties to the importing country and assembling them there (importing country circumvention).S." 3 Below are the basic kinds of circumvention discussed by most countries: (a) Falsified customs declarations and other clear illegalities. the United States. Congress has defined dumping as an unfair trade . specify that injury from other factors shall not be attributed to dumping. GATT‟s 1979 Antidumping Code defined dumping as the sale of an imported product at a price lower than that nominally charged in a domestic market or country of origin in addition. Antidumping Act of 1921. many countries have their own policies and procedures for protecting national companies from dumping. It does.S. the industry of each constituent member is considered a separate domestic industry. 2 "The standard of review in paragraph 6 of Article 17 of the Agreement on Implementation of Article of GATT 1994 shall be reviewed after a period of three years with a view to considering the question of whether it is capable of general application. threat of material injury to a domestic industry. which is enforced by the U. (5) Others Countries In spite of the fact that neither the GATT nor the Anti-dumping Agreement contains any rationale for anti-circumvention provisions and is slated for discussion in the Anti-dumping Committee. or material retardation of the establishment of such an industry. (b) Switching to exports of products that have only minor differences with those subject to anti-dumping duties (slightly modified product).

in part because the Commerce Department historically almost always ruled in favor of a U.S. system of antidumping laws. One U. EU. inclusion of such sales would have the effect of exerting downward pressure on the fair price. In other nations. Many countries disapproved of the U. Smith Corona Corporation of New . The US negotiators hoped to improve the ability of US. Standards by prohibiting governments from penalizing differences between home-market and export-market prices of less than 2 percent As the nature of these issues and regulations suggests. continuous dumping rarely occurs. the United States. the sale of agricultural products at international prices. There were also a number of procedural and methodological changes. For example. in calculating fair price for a given product.12 The leading countries bringing suit were South Africa. dumping occurs when imports sold in the U. Instead. Australia. one of the most significant changes between the agreement and the 1979 code is the addition of a standard of review that makes it harder to dispute US. there has been a shift in the countries bringing charges of dumping. In some instances. it may hurt domestic enterprise. company filing a complaint. However. or prevention of the establishment of American industry. Dumping was a major issue in the Uruguay Round of GATT negotiations. with fanners receiving subsidized higher prices. Another issue was the fact that U. From the US point of view. these have the effect of bringing regulations more in line with U. Nearly 20 percent of the cases were brought against the EU or member countries followed by China and Korea. Few economists would object to long run or continuous dumping. Antidumping determinations. In 1998. Companies to defend their interests and understand the bases for rulings. it would be an opportunity for a country to take advantage of a low-cost source of a particular good and to specialize in other areas. exporters were often targeted in antidumping investigations in countries with few formal rules for due process. any sales of the product at below cost prices in the exporting country are not included in the calculations. company.S. the European Union and Brazil. a device for limiting foreign competition in a market. India. is an example of continuous dumping. and Canada brought approximately one third or 225 of the cases opened. the United States.S. This is down significantly from the late 1980s when these same countries accounted for four fifths of all cases.” Under this definition. law.S. Recently. If this were done.practice that results in “injury. they represent protectionism. The type of dumping practiced by most companies is sporadic and unpredictable and does not provide a reliable basis for national economic planning.S. The agreement also brought GATT standards into line with US.S. The rationale for dumping legislation is that dumping is harmful to the orderly development of enterprise within an economy. some countries use dumping legislation as a legitimate device to protect local enterprise from predatory pricing practices by foreign companies. market are priced either at levels that represent less than the cost of production plus an 8 percent profit margin or at levels below those prevailing in the producing country. The result of the GATT negotiations was an Agreement on Interpretation of Article VI. destruction.

One way to find a solution involves destroying excess supplies. However. filed an antidumping complaint against Brother Industries of Japan in 1974 and was involved in dumping-related litigation until the day it declared bankruptcy. as in the example of Asian farmers dumping small chickens in the sea or burning them. the duties only applied to typewriters. One approach is to differentiate the product sold from that sold in the home market. and the company also acquired immunity from antidumping laws because the package was not comparable to competing goods in the target LESSON 27: DUMPING AND COUNTERTRADE 256 11. Because this new product was no longer classified as a typewriter-rather. and reverse. Brother used both product innovation and a new sourcing strategy. both price discrimination and injury must be demonstrated. Finally. Brother responded by designing new products with chip-based memory functions. An example of this is. To preserve its competitive position at home. Types of Dumping There are several types of dumping: sporadic. Connecticut. The excess supply is dumped abroad in a market where tee product is normally not sold. thereby changing the accessory to a tool. persistent. predatory. it was a word processor-Brother effectively sidestepped the duties. plant as evidence that it was the true U. in an ironic twist. This example shows to what lengths a company will go to get around dumping regulations. For example. credit can be extended and essentially have the same effect as a price reduction. ordering a 48. For a positive proof of dumping to occur in the United States.S. Smith Corona had to retile its original complaint. producer. the manufacturer must avoid starting a price war that could harm its home market.Canaan. Brother turned the tables on Smith Corona by accusing the latter of dumping.S. the ITC finally found in its favor in 1980.625. Brother pointed to its own U. The Contrarian Views of James Bovard . Brother also began assembling typewriters and word processors from imported parts in a plant in Tennessee. Sporadic dumping occurs when a manufacturer with unsold inventories warts to get rid of distressed and excess merchandise. One of the lessons from this saga is that it can take years to get relief from the International Trade Commission (ITC). The rationale: Many of Smith Corona‟s typewriters are imported from a plant in Singapore. Companies concerned with running afoul of antidumping legislation have developed a number of approaches for avoiding the dumping laws. Another way to solve the problem is to cut losses by selling for any price that can be realized.2 © Copy Right: Rai University INTERNATIONAL MARKETING market. Another approach is to make non-price-competitive adjustments in arrangements with affiliates and distributors. The tariff rate in the export market happened to be lower on tools. The existence of either one without the other is an insufficient condition to constitute dumping. An auto accessory that one company packaged with a wrench and an instruction book.7 percent duty on imports of portable typewriters.

A memo prepared by the company urged U. He argues that antidumping laws help preserve America’s manufacturing and technology base. Once the competition is gone or the market established.Although the Uruguay Round of GATT negotiations resulted in some changes addressing Bovard’s specific concerns. the united states threatened Japan with section 301 on the grounds that Motorola had not been granted a large enough geographic selling area. Japanese’s cellular phone exports to the united states are designed for U. This could lead to market share losses.S.S. An earlier regulation section 301 of the Trade Act of 1974 allowed the U. Should America’s antidumping laws be repealed? Not according to Don E. his positions and opinions on two trade issues. along with a sampling of response. trade practices over the past 20 years to supports his claim. for example. foreign producers who are sheltered form import competitions in their home markets (e. Bovard cautions that other nations may copy America’s antidumping regulations. He is a tireless advocate of unrestricted trade and a vocal critic of U. the myth of Fair Trade. companies. is higher prices for U.S trade laws are hypocritical because they reduce rather than encourage competition.S. he asserts. Super 301 was a 1998 trade provision that allowed the united states to single out individual nations as unfair traders and impose 100 percent tariffs on exports forms those nations unless U. the company uses its monopoly position to increase price. Moreover. even though the united states imposes its own complicated regulations on Canadian beer imports. demands were granted. Japanese companies) can use excess profits from domestic sales to subsidize low cost exports to America.S. frequencies. even though the dollar can experience double-digit fluctuations relative to other world currencies.James Bovard might be considered the Ralph Nader of global marketing. long after an offense has occurred. and in numerous articles and essays. Some critics question the allegation that predatory dumping is harmful by pointing out that if price is subsequently raised by the firm that does the dumping. cash flow reductions. citing numerous examples of U.S trade policy who campaigns to influence the views of policy makers and the general public. government to investigate and retaliate against unfair trade barriers in other nations.Dumping: Bovard believes America antidumping laws should be repealed. to the ultimate detriment of U. the company initially exported cellular phones designed for American frequencies. Bovard argues that U. commerce Department can convict a company of dumping on the basis of dumping margins (price differences) as small as one half of 1 percent.S. In 1989. former competitors can rejoin the market when it becomes more profitable again. in 1990 the united states initiated a case against Canada for limiting American beer imports. Bovard ascribed Motorola’s sales problems in Japan to a simple lack of product adaptation.S consumers. Predatory Dumping is more permanent than sporadic dumping. the result.S.. Newquist.g. Hitachi was accused of employing predatory pricing for its EPROM (electrically programmable read-only memory) chips. This strategy involves selling at a loss to gain access to a market and perhaps to drive out competition. dumping and super 301 are summarized next. Bovard’s specific complaint about president Clinton action was that both 301 provisions have been ineffective and that threats of retaliation have brought results in only a handful of casesBovard has also frequently argued that the united states is hypocritical when it comes to trade policy. and even plant closing in the United States. In his recent book. a dumping conviction can restrict a company’s market access for 15 years. the broader issue is still open.S. Calling dumping laws a relic of the fixed exchange rate era. He warns that without the laws. former chairman of the international Trade commission.Super 301 and section 301 -In march 1994 Bovard blasted the Clinton administration decision to reinstate super 301 to punish Japan for unfair trade practices. he notes that the U. distributors to .

Based on this perception. Persistent dumping is the most permanent type of dumping. Zenith has long accused Japanese television manufacturers of using predatory dumping. conspired to set low. But it is more than willing to lower prices in the U. because it has no foreign competition there. After sixteen years of legal maneuvering. It is possible.S. have dumping laws that set a minimum price or a floor on prices that can be charged in the market. This practice may be the result of a firm‟s recognition that markets are different in terms of overhead costs and demand characteristics.625. requiring a consistent selling at lower prices in one market than in others.S. Japan. a firm may assume that demand abroad is more elastic than it is at home. © Copy Right: Rai University 11. Any dumping will thus be done in the manufacturer‟s home market by selling locally at a lower price.S market . however. especially for consumer electronics. Switzerland has no specific antidumping laws. market with the purpose of driving U. It charged in its antitrust suit that major Japanese manufacturers. Most countries. to have the opposite tactic-reverse dumping. the defendants‟ cooperation was the result of a compliance with the Japanese government‟s export policy. governments defended the Japanese firms‟ cooperation on the grounds of “sovereign compulsion. when Hitachi wins. Japanese consumers.in order to gain or maintain market share. In order to have such a case. is able to keep prices-high at home. For example.” The Justice Department. The Treasury . Legal Aspect of Dumping Whether dumping is illegal or not depends on whether the practice is tolerated in a particular country. and the market will tolerate a higher price. Illegal dumping occurs when the price charged drops below a specified level. through false billing and secret rebates. must “Sacrifice by paying higher prices for Japanese products that are priced much lower in other markets. after a year along investigation. What are the unfair or illegal price level.“quote 10 percent below competition (until) the bidding stops. predatory prices on TV sets in the U. however. Activity 1: Two students should give a real life case study presentation on dumping and WTO decision on it. This practice benefits foreign consumers. Both the Japanese and U. the overseas demand must be less elastic.2 257 INTERNATIONAL MARKETING The three kinds of dumping just discussed have one characteristic in common: each involves charging lower prices abroad than at home.S. firms out of business in order to gain a monopoly. the Supreme Court dismissed the conspiracy theory but ordered a trial concerning the dumping charge. dropped the probe because it found that there was insufficient evidence to prosecute. the firm may decide to use incremental or marginalcost pricing abroad while using full-cost pricing to cover fixed costs at home. and what kind of evidence is needed to substantiate a charge of dumping? The case of Melex golf carts from Poland illustrates the difficulty in determining a fair price.” In other words. The success of Melex in the United States led to an accusation of dumping. for example. as a result. but it works to the disadvantage of local consumers.

trigger price. Another example of dumping evidence is a product sold at a price below its borne-market price or production cost. Mexico and Spain were chosen because they were considered to be similar to Poland in terms of their level of economic development. made a final determination that imports of certain small-business telephone systems and subassemblies from Japan and Taiwan were being sold in America at less than fair value.S. and the Commerce Department‟s 1992 review imposed a duty of $599. when necessary.S. does not let market forces fully dictate the costs of factors of production. International Trade Commission made final determinations and found injury to industries in the United States from such imports. some 40 percent of all imports at one time were priced below the trigger price. For this reason. only to see the Canadian firm stop making golf carts.Department was unable to ascertain whether Melex‟s U. To determine fair costs. In the case of steel. The cost of production was unsuitable for determining its fair price.51 plus interest. According to the General Accounting Office. as a socialist economy. the trigger price sets a minimum price on imported steel that is pegged to the cost of producing steel in Japan. Subsequently. The United States relies on the official U. they were used anyway to determine what their production costs would be if they produced such a product. The American producers still wanted Melex to pay the dumping charges for the years 1979 to 1980.S. After much review and discussion. One item of evidence of dumping occurs when a product is sold at less than fair value. and the Soviet Union empire.‟ and will find ways to conceal the practice. price was lower than prices at home in Poland because Poland has no golf courses and no demand for such a product. administrations. How to Dump (Legally and Illegally) Dumping is a widespread practice. the ruling was that the “constructed” value did not differ appreciably from Melex‟s actual price. which has outlasted five U. Poland. Also. The Commerce Department. Mitsui . One can „team from the Mitsui case. the Treasury began to use a small Canadian manufacturer‟s costs as reference prices. To provide relief. Even though Mexico and Spain do not produce golf carts. The Commission‟s injury finding led to antidumping duties being placed on imported products to offset their price advantage. Poland‟s martial law. the Antidumping Act requires the Department of Commerce to impose duties equal to the dumping margin. The 1980 ruling did not end the matter. which is designed to curb dumping by giving an early signal of an unacceptable import price. Exporters and their importers insist on its use. The Treasury‟s next step was to rely on reference prices of a comparable product from free-market countries. The antidumping duty is based on the amount by which the foreign market value or constructed value exceeds the purchase price or an exporter‟s sale price.S. Poland protested that the Canadian firm‟s production costs were too high and unsuitable for comparison. for example. the U. the 1974 Trade Act does not allow production costs in a communist/socialist country to be used for comparison purpose. Melex has continued to fight the case.053.

625. customers a rebate equal to. But American chip makers asserted that the Japanese violated the trade agreement by dumping chips in Hong Kong. Thus. It submitted false documents to conceal the true merchandise value and backdated invoices to avoid trigger prices. This option has become necessary for Japanese manufacturers. The problem was that these chips could find their way to the U. rather than its importation is carried out in the host country. the difference between the nominal exchange rate and the actual exchange rate. To avoid customs penalties on low-priced Japanese sets whose prices were below Japanese market prices.676 for damaged Korean wire nails without investigating or reporting these losses to its insurance company. Another method used to circumvent dumping laws is to provide financing terms that can have the same effect as a price reduction.S.was responsible for generating the largest dumping case and pleaded guilty to all twenty-one counts involving kickbacks and the falsifying of documents to customs officials in order to sell steel below trigger prices. Sears certified the purchase prices to be higher than what was actually paid. One method that can help avoid charges of dumping is to differentiate the exported item from the item being sold in the home market. $1. there is no home-market price that can be used as a basis for price comparison.S.S. and the calculations were made after product entry. and Singapore and by selling chips to Korean users at fair market value but with rebate.. in addition to the payment of large financial penalties. it gave its U. semiconductor 258 11. It hid the origin of the Japanese steel products by disguising them as U. Mitsui honored false claims that goods were damaged during shipment and granted credits of $22. wire rope imported to Houston). Taiwan. dumping is a risky practice that can cause a great deal of embarrassment. Without doubt. This may be one reason why Japanese automakers market their automobiles under new or different names in the United States. To prevent Japanese firms from dumping their EPROM chips in the U. Furthermore.3 million between 1978 and 1981.66 million and Sanyo‟s prices by $7 million.S. By deliberately making the home product and its overseas version not comparable.2 © Copy Right: Rai University INTERNATIONAL MARKETING customers might move their manufacturing operations to these other markets to take advantage of lower chip prices. Sears overstated Toshiba‟s price by $1. market or that U. Mitsui was exposed and paid heavy fines for dumping and fraud. a preferable strategy is to use other means to legally overcome dumping laws. Mitsui attempted to conceal its dumping activities through several means. For two of those seven years. made (e. Sears was similarly indicted for conspiring with Sanyo and Toshiba to file false customs invoices involving the-importation of Japanese TV sets between 1968 and 1975. who have no desire to lower prices in Japan . The dumping problem can also be overcome if the production of a product.S.g. Another deceptive method involved the use of damage claims. These illegal rebates totaled. In spite of these ingenious methods. the United States and Japan have established “fair market values” or minimum prices for these chips. market.

The United States accused Japanese manufacturers of continuing to dump their products elsewhere. Acting on Smith Corona’s complaint. Contending that Japan exported unemployment to the United State by dumping its chips. the United States was successful in forcing Japan to sign a five-year semiconductor trade agreement in 1986.. The Strange World of Dumping In 1974.S. IBM Corp. market.3 percent on Brother’s imports of portable word processors. Case Study Pricing for (No) Profit? U. a great deal of pressure from Japanese competitors.S. it could not prevent gray-market dealers and brokers who came to Japan and left with suitcases full of chips.because they do not have to contend with foreign competitors. they gained 78 percent of the U. The products singled . In its defense. firm.87 against Japanese products. work to the disadvantage of Japanese manufacturers because it is easy to prove that they are engaged in dumping in the U. began assembling typewriters in Tennessee. trade law alleging that Smith Corona dumped its Singapore-made portable electric typewriter products in the United States by selling below costs and cutting the price from $120 per unit in early 1989 to $82. a wholly owned Japanese subsidiary.S. importer of such typewriters. Smith Corona moved most of its manufacturing to Singapore and switched from being America’s largest manufacturer of portable electric typewriters to being the largest U. dismissed Brother Industries (USA) Inc’s complaint.S. Tariffs of 100 percent were imposed on a minimum of $135 million and up to $300 million of Japanese goods. prices.S. Japanese chips were „available at low. firms pioneered the semiconductor industry but soon found them under. primarily manufactures them for internal use. Brother later filed charges under U. Also. DRAM makers out of business. the Department imposed duties of 58. The high prices at home. The Department did not view Brother as a U. plant performed only the final assembly of portable electric typewriters with mostly Japanese-made components. firm. The Commerce Department’s International Trade administration. market. was a U. however. a Britishcontrolled company with mostly U.S. American firms felt. and those chips found their way to the U. market and.S. Japan explained that it could not control all but major manufacturers.that the Japanese market was closed to them while they were undercut at home and elsewhere by Japanese firms‟ unfair and below the-cost prices Whatever the reason. market. operations.99 by late 1990. random-access memory chips). claimed that rival Japanese manufacturers unfairly dumped typewriters at below-cost prices in the U.S. Subsequently. million over two years. Ironically. Because of the Japanese firms‟ dumping of DRAMs (dynamic.S. American firms lost some $500. Smith Corona Corp. firm since its U.S. On the other hand. The historic agreement soon turned sour.S. The violation of the trade agreement led the United States to impose penalties in 19. In the meantime. Micron and Texas Instruments are the only two American firms that sill manufacture DRAMs domestically. the Department ruled a month earlier that Smith Corona Corp. In third countries such as Singapore.S. seeing no proof of injury to a U.S. drove eleven of fourteen U. Brother Industries USA Inc. The gray marketers‟ clients included American consumer-product manufacturers. The agreement required Japan to stop selling semiconductors at prices below cost. In the 1 990s. in the process.

automobile tape players. was selling DRAMs at 52 percent below cost.30). Counter trade in Russia may proliferate because.S.625. prices for DRAMs surged by as much as 20 percent on the spot © Copy Right: Rai University 11.S. Initially. it is difficult to arrange traditional export financing . The number one DRAM-maker in the world. likewise. In addition to the phenomenal rise in the value of the yen. The U. The additional penalty duties resulting from the semiconductor violation worsened the situation even more. Should semiconductors be considered products or commodities? How does the classification affect the pricing of semiconductors? 3. cash registers. Since. In the early 1990s.S. Goldstar Co. Korean firms‟ aggressive pricing enabled them to capture 20 percent of the worldwide market for DRAMs. Because of the dumping charge£ and subsequent agreement. government required them to post bonds and face duties ranging from 6 percent to 87 percent. refrigerators. Samsung Electronic Co.e. Perhaps. Thus. while Hyundai Electronics Co. selling a $10 chip for only $1. Commerce ruled that Korean firms were illegally selling semiconductors for a fraction of their manufacturing cost. blank tape.1 percent duty on Korean imports. computers. it was South Korean firms‟ turn to be accused of dumping memory chips in the United States. Department of.out for sanction included all black-and-white and some color television sets.. Japanese electronics companies seemed to face more hurdles than other Japanese companies. The U. Japanese electronics firms did not fare well and exports dropped a record II percent in 1986. with the Russian banking system in disarray. the strong ones have become leaner and stronger. Questions 1. A day after the Commerce Department‟s preliminary finding. had a dumping margin of 6 percent. Department of Commerce.S. which made exports difficult. the 8lhgle most important contributing factor is LDCs‟ decreasing ability to finance their import needs through bank loans. then. its officials have estimated that 90 percent or more of the transactions having to do with “critical imports” involve reciprocal trade exchanges. A month earlier.. Not surprisingly. and communications satellites. I Regarding Russia. government‟s action to force up the prices of semiconductors serve a useful purpose? 2. How should Japanese electronics companies react to quotas and duties? What should be their pricing and other strategies? Countertrade Counter trade constitutes an estimated 5 to 30 percent of total world trade. the Japanese firms had to agree to export products at prices mandated by the U. In reality it was inevitable that consumers had to pay more for Japanese electronics goods.S. government claimed that there should be no major price increases because the targeted products could be obtained from non-Japanese manufacturers. the European Community also imposed a 10. Counter trade greatly proliferated in the 1980s. the U.2 259 INTERNATIONAL MARKETING market. Does the U. was found to be selling its chips at 87 percent below cost (i. the electronics industry had other problems.

because of the distortion that exists between profit incentive and centrally planned prices. Cultural Dimension 1 Price DistortionPrice controls are a common practice in communist and socialist countries that have state planning. Unlike monetary trade. In short. As a result the plants may choose to stop producing inexpensive. a goods-for-goods deal is counter trade. The experiment was later extended to 6. some plants to produce such high-priced goods as washing machines watches bicycles and sewing machines even though these goods are too costly for consumers to purchase and are stored in warehouses that are already full of this kind of merchandise. China has experimented with the free market method. There are three primary reasons for counter trade: (1) counter trade provides a trade financing alternative to those countries that have international debt and liquidity problems. Which emphasizes material incentive free enterprise market oriented prices profits and bonuses.. is a government mandate to pay for goods and services with something other than cash. It is a practice. The result of this experiment was that output almost doubled. Therefore. and (3) counter trade fits well conceptually with . which requires a seller as a condition of sale. Counter trade may involve several products. Certain factories have been permitted to keep a portion of their profits for reinvestment in new capital equipment or distribution to workers. suppliers are required to take customers‟ products for their use or for resale. one of the oldest forms of trade.In an attempt to solve the problem. State enterprises have been allowed to function as independent companies in determining profit and production. to commit contractually to reciprocate and undertake certain business initiatives that compensate and benefit the buyer. there are multiple deals that are separate yet related. letter of credit). Monetary payments‟ may or may not be part of the deal. and a contract links these separable transactions. a poorly managed factory can show a hefty profit.(e. Prices of unsold durables should fall whereas the prices of popular but unavailable refrigerators for example should increase. Realistic prices should help market excess or unpopular items as well as goods that are in short supply. Its price system in the final analysis causes a distortion in the operation of the market. Counter trade. and such products may move at different points in time while involving several countries.g. Once the quota is filled the companies can diversify into new products or market the surplus directly and managers can reward and punish workers.600 factories in various large cities. These price distortions encourage. everyday items because Of low profit margins. In several cases production plants are trapped between artificially high prices for material inputs and artificially low prices for factory outputs. Farmers were allowed to plant crops on private plots and sell their surplus in. (2) counter trade relationships may provide LDCs and MNCs with access to new markets. In most cases. The state deliberately keeps the price of coal and other raw materials low while pricing some consumer durables well above the true market value. at least on paper. China is a typical example. a “free market” at market prices for profit.

one product for another). The cash-tight buyer that lacks hard currency is able to use any cash received for other operating purposes. In these cases. A supplier sells a facility or product at a set price and orders unrelated or non-resultant products to offset the cost to the initial buyer. too. Under a separate . Types of Counter trade There are several types of counter trade. and pricing. each paid in cash. price is only implicit at best in the case of barter. factories. Iraq persuaded the New Zealand Meat Board to sell $200 million worth of frozen lamb for a purchase of the same value of crude oil.Barter.2 © Copy Right: Rai University INTERNATIONAL MARKETING 2.S. the buyer pays with hard currency. steel. and farm products to oilproducing countries from which it buys oil in return. the two contracts in a compensation trade are highly related.. Brazil exports vehicles. The advantages of counter trade cluster around three subjects: market access. By removing money as a medium of exchange barter makes it possible for cash-tight countries to buy and sell. the seller is able to sell the product at full price and can convert the inventory to an account receivable. Counter trade offers several advantages.Counter purchase occurs when there are two contracts or a set of parallel cash sales agreements. counter purchase. switch trading. 260 11. a counter purchase involves two separate transactions-each with its own cash value. Therefore money does not need to change hands. Counter purchase (Parallel Barter). or technology and to buy products made from this machinery over an agreed-on period. including barter. Although price must be considered in any counter trade. The seller gains other benefits. Unlike counter purchase. the agreement dealt with how many tons of coal was to be given by China and Poland rather than the actual monetary value of the construction project or concerts. possibly the simplest of the many types of counter trade. Thus. It moves inventory for both a buyer and a seller. foreign exchange. compensation trade. and Polish coal was exchanged for concerts given by a Swedish band in Poland. 1. is a onetime direct and simultaneous exchange of products of equal value (i. corporations engage in some form of barter primarily within the local markets of the United States. whereas the supplier agrees to buy certain products within a specified period. In effect. Compensation Trade (Buyback)-A compensation trade requires a company‟ to provide machinery. Other than the tax advantage. offsets and clearing agreements. It is estimated that about half of the U. the practice allows the original buyer to earn back the currency. Unlike barter which is a single transaction with an exchange price only implied. Barter. which involves two unrelated products. Chinese coal was exchanged for the construction of a seaport by the Dutch.the resurgence of bilateral trade agreements‟ between governments. GE won a contract worth $300‟million to build aircraft engines for Sweden‟s JAS fighters for cash only after agreeing to buy Swedish industrial products over a period of time in the same amount through a counter purchase deal.625. For example. 3.e.

Offsets are often found in purchases of aircraft and military equipment. The third party pays hard currency for the unwanted merchandise at a considerable discount. and much of Eastern Europe demand reciprocity in order to impose a discipline on their balance of payments. Such countries as Sweden. a Japanese company sold sewing machines to China and received payment in the form of 300. the former Soviet Union‟s rationing of hard currency limited imports and payment of copiers. clearing units in practice can be sold at a discount to trading specialists who use them to buy salable products.000 pairs „of pajamas. imports must be offset by exports. from the buying country are not easily usable or salable. Spain. Indonesia links government import requirements in contracts . The price differential or margin is accepted as being necessary to cover the costs of doing business this way. it may be necessary to bring in a third party to dispose of the merchandise. Russia welcomes buyback. ratio of exchange.A clearing agreement is clearing account barter with no currency transaction required. Indonesia. the trade in this case is continuous. Problems and Opportunities Although counter trade is a common and growing practice. Australia. Offset. A hypothetical example could involve Italy having a credit of $4 million for Austria‟s hams. 5. which are freely convertible to dollars. Any imbalances after the end of the year were settled by credit into the next year. 6. a supplier agrees to buy part of the plant‟s output for a number of years. counter trade is considered by some as a form of protectionism that poses a new threat to world trade. all or part. With a line of credit being established in the central banks of the two countries. Although nonconvertible in theory.In an offset. 4. When goods. payment of penalty. For example. Switch Trading-Switch trading involves a triangular rather than bilateral trade agreement. The company can „then sell the acquired hams to Switzerland for Swiss francs. In effect. it has been criticized on several fronts. In other words. A thirdparty company may decide to sell Italy some desired merchandise worth $3 million for a claim on the Austrian hams. One study found that more than half of the companies counter trading with the Middle East were in the defense industry and that the most common type of counter trade was offset.agreement to the sale of plant or equipment. Clearing Agreement.” For example. or hard currency payment. and time length for completion. the supplier has to manufacture at a location that may not be optimal from an economic standpoint. Brazil.4 These companies felt that counter trade was a required element in order to enter these markets. Rank Xerox decided to circumvent the problem by making copiers in India for sale to the Soviets under the country‟s “clearing” agreement with India. a foreign supplier is required to manufacture/assemble the product locally and/or purchase local components as an exchange for the right to sell its products locally. The contract set forth goods. First. and the exchange of products between two governments is designed to achieve an agreed-on value or volume of trade tabulated or calculated in nonconvertible “clearing account units. which Italy cannot use. acceptance of unwanted goods.

As a result. counter trade is alleged to increase overhead costs and ultj. As explained by Fitzgerald.000 jobs by stepping up production of unrelated electronic goods within its Austrian plants. 500 million to the export of Indonesian products. in an equivalent amount to the foreign-exchange value of the contract. VW de Mexico had to purchase and export Mexican coffee.S.n1ately the price of a product. in the end. McDonnell Douglas was able to secure a contract to sell 250 planes to former Yugoslavia only after agreeing to market such Yugoslav goods as hams and . other than oil and natural gas.S. These cost cannot be passed into the international market but must be borne within the country imposing the requirements. Nissan Mexicana agreed to accept coffee. Related to this charge of increasing costs is the problem of marketing unwanted merchandise that may remain unsold? A company may have to take on the added job of marketing its customer‟s goods if it does not want to lose business to rivals who are willing to do so. it would appear that many products that U.” It is believed that barter transactions are responsible for reducing Russia‟s revenues by 500 billion rubles. Despite this charge.625. Mexico took a hard line in 1981 against foreign automakers by ordering them to earn back hard currency if they wanted to stay in business with Mexico. counter trade is alleged to be nothing but “covert dumping. Because of these expenses. Third. market. exports always greatly exceeding the value of imports. there is evidence that counter trade does not necessarily restrict the overall trade volume. GE lost a major sale of CAT scanners to Austrian hospitals after Siemens agreed to preserve 4. and honey. If the counter trading country discounts directly by selling its goods itself in another market instead of through a foreign firm. Counter trade activity actually results in U. dumping would clearly occur. Thus. a counter trading country frequently trades its products away at a discount. Counter trade involves time. a selling company has to raise. the practice does not seem to be harmful to the United States. The fact that the goods are saleable—either for other goods or. increase the cost of doing business.” To compensate any supplying partners for the nuisance of taking another-product as payment. But according to an International Trade Commission study. firms agree to take from their customers for overseas marketing are not dumped back in the U. Second.S.the price of the original order to compensate for such expenses as well as for the risk of taking another product in return as payment. and expenses in selling a customer‟s product-often at © Copy Right: Rai University 11. horsemeat. like any trade restrictions. If another middleman is used to dispose of the product a commission must also be paid. Brazil enacted a similar requirement and was able to extract agreements from foreign-owned automobile and truck makers to export nearly $21 billion worth of vehicles and other products in return for the right to import duty-free parts for their Brazilian plants.worth more than Rp. personnel. “Counter trade requirements.2 261 INTERNATIONAL MARKETING a discount. chickpeas. for cash somewhere else means that additional and probably unnecessary costs must be incurred.

There is some evidence that these variables can help exporters identify those countries. An examination of counter trade literature found that an overwhelming number of the published articles were theoretical rather than empirical. buyback and counter purchase are substitutes .S. commodity terms of trade. The company had a difficult time selling the $5 million worth of hams and finally did so to its own employees and suppliers. When a company is unable or does not want to be concerned with disposing of the product taken from its customer. the U. becomes more complicated in the case of counter trade this is especially true when the sale of one product is contingent on the purchase of an unrelated product in return. There are a few empirical studies. Third. rationed foreign exchange. each counter trade type seems to have its own separate motivation. Barter -allows exchange without the use of money and explicit prices.S. leather goods. and (3) a creditors‟ monitoring of imports. and (3) firms that trade with countries that have inappropriate exchange rates. Understandably. have these characteristics: declining foreign exchange reserves. First the relationship between a country‟s credit rating and its propensity to counter trade is not as strong as commonly believed. however. According to one model. which are likely to be counter traders. The intermediaries may agree to dispose of the merchandise for a commission or they may agree to buy the goods outright. the best the company could do was to offer the trips as incentives to employees. there is a surprisingly large volume of counter trade between developing countries themselves. and importers inexperienced in assessing technology or in export marketing. With Regard to the Yugoslavian tours. complex products. In contrast firms whose characteristics are the opposite of those just enumerated are likely to encounter significant barriers to counter trade operations and to receive few benefits. textiles. Barter is therefore useful in order to bypass: (1) exchange controls.other foods. import restrictions. developing countries. and balance of trade and increasing debt-service ratios. beer. In general. Those firms that tend to benefit from counter trade are the following: (1) large firms that have extensive trade operations from large. mineral water. Financing. Fourth. government is opposed to governmentmandated countertrade. it can turn to companies that act as intermediaries. and tours. banks may hesitate to provide credit for such a deal because of their concern that the exporter may not be able to profitably dispose of the product given to the exporter as payment. recognizing that counter trade is a fact of life. The Mediators is one such middleman organization that operates a $500 million a year business globally. wine. (2) public or private price controls. government has maintained a hands-off policy toward counter trade arrangements that do . that have shed some light on the practice of counter trade. Second. the U. (2) vertically integrated firms that can accommodate counter trade take backs. However. which impose counter trade. The results of one study dispel some widely held views about counter trade. essential in virtually all types of conventional transactions.to foreign direct investment.

to promote “creative” trade transactions that circumvent the normal exchange medium of modern markets. markets shun cumbersome and inefficient barter-type transactions. international liquidity 262 11. The indivisibility of goods made barter inefficient. Counter trade contributes to market distortions that lead to inappropriate economic planning.S. Much like other trade practices. But the U. One need only remember that in the final analysis all goods can be converted into cash. the expansion of world trade during the last half of the twentieth century has been the emergence of a few widely accepted currencies.not have government intervention or those American exporters choose to pursue. which permitted transactions to incorporate divisibility as well as time shifting. The irony is that the Russian government. The shortcomings of counter trade include the following: 1. which have conceptually been gathered together under the rubric “counter trade. Problems can be overcome.S. 2.” have gained renewed stature in international trade. The opportunity for more convenient (i. Yet a firm is unwise not to consider it. especially the U.S. firms can take advantage of marketing opportunities in the former Soviet Union. There is no question that counter trade is a cumbersome process. counter trade presents both problems and opportunities. Inefficiency In Transactions Costs The underlying weakness of counter trade as a mechanism of trade and exchange is its inefficiency. It does not oppose participation by American firms in counter trade transactions when they do not have a negative impact on national security.S. Counter trade limits competitive markets. dollar. for example. Where readily acceptable forms of money exchange and viable credit facilities are available. Counter trade has a high inherent transaction cost. efficient). seeking hard currency earnings. multiparty trade became a reality. as settlement currencies .625.e. More often than not. as well as industrial countries. Interestingly. problems of counter trade are more psychological rather than real obstacles. policy prohibits federal agencies from promoting counter trade in their business and official contacts. A major factor in. This has occurred despite the fact that international money and credit markets have attained unparalleled levels of sophistication. But. the U. government itself has published a guide on counter trade practices so that U. Still. Case Study Countertrade: Counterproductive? In modern times barter and its numerous derivations. Barter gave way to goods/ services-for-money exchange. now appears to prefer cash transactions and has begun to discourage counter trade transactions of marketable commodities. 3.. those Russian products that do not have a ready market probably will still require some form of counter trade.2 © Copy Right: Rai University INTERNATIONAL MARKETING problems and government restrictions on the operation of markets have prompted many less-developed countries (LDCs) and non market economies (NMEs). and forced those involved with such trade to search for a better way.

or limited access. it is not correct to assume that there are no financing costs associated with a counter trade transaction. Alternatively. Not every seller firm is willing or able to engage in counter trade thus. The lack of access. As a result they often find it difficult to break into international markets with goods and services that are nontraditional for their economy. Market Distortions and False Signals Developing countries may not have well-developed international marketing facilities. A key characteristic of this type of market is that the channels of communication and exchange are well defined and relatively simple. The seller may absorb this cost in the form of accepting the obligation to buy. Counter trade limits the potential number of sellers in the market. or price. though hidden. such markets are efficient. In fact. The development of international credit markets to support trade depended on the fact that transactions could be entered into without undue concern by the parties involved as to the delivery of the specific quantity and quality of goods and the timeliness of payment. As a consequence of this clarity and simplicity. or use or resell goods it otherwise would not accept (thus reducing its return on the transaction). placed as a condition for specific new lending by the International Monetary Fund (IMF) or foreign commercial banks. The inefficiency cost must be borne by one or more of the parties involved. the direct and indirect costs involved in the process of exchange account for a relatively small portion of the total cost of the transaction. the cost is higher than if the LDC has had access to those credit markets.for international transactions. Moreover. because of the complexity associated with carrying out a counter trade transaction. „Whereas it is correct that counter trade may mean that the international financial markets may not have to be tapped. Limiting Competition There is another implicit cost when counter trade is required by the LDC or non-market economy (NME) buyer as a condition of the transaction. Such efficiency is not present in the conditional transactions that make up counter trade. an LDC or NME buyer that insists on counter trade as part of a trade package limits its potential for obtaining a competitive product. The finance costs are there. In other cases an LDC or NME may choose to develop a new . to the credit markets may be due to restrictions on the country. In counter trade the costs of financing are shifted. Specifically. They become implicit rather than explicit. counter trade may end up subverting the capital and austerity restrictions that in some cases are a part of an IMF/LDC lending agreement. In this environment counter trade is sometimes viewed by an LDC government as a means of engaging in trade without the cost of entering the international finance markets. service. the seller may build the transaction‟s finance costs into the price the buyer must pay. Many counter trade transactions are entered into because the importing country is unable to obtain financing in the international markets and is short of hard-currency reserves. The fact is that engaging in counter trade costs the LDC or NME economy more in terms of real resources than a straight commercial transaction.

more efficient (but possibly from a world supply view. 2. and financial markets. your potential customers lack hard currency and have asked you to consider counter trade. However. Discuss the pros and cons of counter trade as a form of trade. capital. Counter trade in a modern world economy with highly developed goods. as a tool to restrict trade alternatives. and financial markets appears on its face to be an incongruous development.domestic industry by buying the technology and plan from abroad. the secondary consequences of counter trade transactions are not benign. inefficient. Further. redundant) plant with the expectation of placing the marginal production on the international market.2 263 INTERNATIONAL MARKETING Summing Up Counter trade is a significant factor in modern international trade. Counter trade is a costly. they may opt for a larger. Questions 1. . Under such conditions counter purchase or buyback agreements may be sought by the LDC or NME to finance the importation” of plant and equipment for a new industry (as in a buyback agreement) or general imports (as in a counter purchase agreement). Domestic demand may not be adequate for an efficient plant size. Moreover. In its different forms it is used as a marketing tool. capital. The difficulty with this approach is that counter trade may be used to get goods onto the international market that would not “make it” under usual conditions and will not be competitive once the buyback agreement expires. In response. the industrial country firm that accepted the counter traded goods may dump them. © Copy Right: Rai University 11. The result may be that the LDC or NME producer may falsely interpret the signals and overestimate the real market demand for the dumped goods as being stronger than a longer-. Are you willing to engage in counter trade? Why or why not? . which would be disruptive to international markets. these bureaucracies have a vested interest in maintaining the economic distortions that under gird the growth in counter trade.625. and disruptive anomaly. you are interested in taking advantage of the Eastern European markets‟ movement toward market-oriented economies.term. As a manufacturing firm located in a developed country. unsubsidized. In turn. Yet observers of international trade suggest that the volume of counter trade is growing. and as a tool to tie the trade of one country to another country. market can bear. as a competitive tool. The LDC or NME also may be seeking a more knowledgeable partner to handle the international marketing of goods for which it does not have the expertise. The inefficiencies of counter tradethe false-price signals that result in the building of redundant plant and equipment-tend to promote the establishment of bureaucracies within governments and private firms that have “bought into” counter trade. Counter trade takes place in a world of imperfection where the political and economic policies of government and industry distort the relationships between and within the goods.

the seller places goods at the disposal of the buyer at the time specified in the contract. but the buyer‟s responsibility ends there. 6. The seller is responsible under this contract for getting the import license if one is required. “goods must be loaded on board. 7. Under this contract.The simplest type of export sale is ex-works (manufacturer‟s location). In this contract. 8. Following are some of the steps involved in moving goods from a factory to a buyer‟s warehouse: 1.Obtaining marine insurance and certificate of the policy. Under this type of contract. Arranging for ocean freight and preparation. Every commercial transaction is based on a contract of sale. Preparing a land bill of lading. including duty and local transportation to his or her warehouse. 5. including duties.The following two terms are acceptable Incoterms for all modes of transportation:Exworks. there are many expenses that accrue to the goods as they move from the place of manufacture to the buyer‟s warehouse. the seller must place goods alongside. 4. The internationally accepted terms of trade are known as Incoterms. At the other extreme. Preparing customs or consular invoices as required by the country of destination. FOB means. the buyer‟s only responsibility is to obtain an import license if one is needed and to pass the customs entry at the seller‟s expense. and buyer pays . 3. the seller assists the buyer in obtaining an export license.In an FOB contract.Delivered Duty Paid. and the trade terms used in that contract have the important function of naming the exact point at which the ownership of merchandise is transferred from the seller to the buyer. the seller undertakes to deliver the goods to the buyer at the place he or she names in the country of import with all costs. the easiest terms of sale for the buyer are Delivered Duty Paid (named place of destination). or available to. the responsibility and liability of the seller does not end until the goods have actually been placed aboard a ship. The seller‟s legal responsibility ends once he or she has obtained a clean wharfage receipt. some of the major terms are defined. 9.” The term FOB is frequently misused in international sales. Transporting the goods to the place of departure (this would normally involve transport by truck or rail to a seaport or airport). Obtaining an export license if required (in the United States. Terms should preferably be “FOB ship (name port).The following are acceptable Incoterms for sea and inland waterway transportation only:FAS (Free Alongside Ship) Named Port of ShipmentUnder this contract.FOB (Free on Board). Under this contract. 2. Obtaining a currency permit if required. nonstrategic goods are exported under a general license that requires no specific permit).Who carries out these steps? It depends on the terms of the sale. the vessel or other mode of transportation and pay all charges up to that point. In the following paragraphs. paid.Trade Terms A number of terms covering the condition of the delivery are commonly used in international trade. Between these two terms. Packing the goods for export. Completing necessary customs export papers. The buyer takes delivery at the premises of the seller and bears all risks and expenses from that point on.

the buyer pays twice. including the expense of insurance. rail shipments.freight. as in the FOB contract.The terminology is the same as CIF except the seller is not responsible for risk or loss at any point outside the factory. or seller‟s factory). and multinational shipments:FCA (Free Carrier) Named Place.Seller fulfills obligations when he or she hands over goods cleared for exports to the carrier named by the buyer at the named place or point (e. airport.Under this contract.g.The following Incoterm is acceptable for air. rail siding.CFR (Cost and Freight). . Insurance. in essence. the risk of loss or damage to goods is transferred to the buyer once the goods have passed the ship‟s rail. However.CIF (Cost. Freight) Named Port of Importations. a double payment is made. the seller has to pay the expense of transportation for the goods up to the port of destination.” Since freight charges generally include loading the goods.

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