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ECONOMICS-II

China — DS 440, Anti-Dumping and
Countervailing Duties on Certain Automobiles
from the United States

SUBMITTED BY: VARUN YADAV

I.D. NO.: 2107
1ST YEAR B.A. LL.B. (HONS.)
SUBMITTED ON: DECEMBER 24TH 2013

TABLE OF CONTENTS
Introduction....................................................................................................................................................... 3
DS 440, Anti-Dumping and Countervailing Duties on Certain Automobiles from the United States .......... 4
Anti-Dumping and WTO: ........................................................................................................................... 4
Background and Objections of U.S. against China: ................................................................................. 5
Analysis ......................................................................................................................................................... 7
Economical Implications: ............................................................................................................................ 9
Conclusion ...................................................................................................................................................... 11
Bibliography ................................................................................................................................................... 11

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Introduction
In the current highly liberalized, privatized and globalized trade scenario where developing countries
have opened their economies in the last two decades and competing at equal grounds with business
corporations from developed countries, trade has become global in it’s true sense. The growth in
economy of a country increases the needs of the citizens and since the means of production are limited
and they can’t satiate all their demand through domestic production, import and export comes a tool to
keep a check upon them, which in turn makes international trade an important aspect of a countries
fiscal and trade policies. Besides that, international trade also plays a key in promoting and
maintaining harmony amongst the trading partner countries.
The dispute settlement case of WTO in contention in the research paper exposes the intricacies “of an
international trade system that has to accommodate partners at different levels of economic
development, government interference and trade liberalization.”The researcher has looked into the
general role of WTO in promoting international trade and to safeguard the stakeholders against
malpractices. Anti-dumping being a practice against the laws of the international trade, WTO has
taken strict measures to curb it and protect the interest of the parties concerned to the best extent.
In the further course of the paper, the researcher has commented upon the background of the case at
hand and the objections being raised by the parties but the objections were limited to United State
America, as People’s Republic of China has kept its reports confidential for general access. Then the
researcher analyzed the relevance of dumping in the case and has looked in to the need to levy antidumping duty in the present case. The researcher in the subsequent parts of the paper has pointed out
the economical implications of the Anti Dumping and Countervailing measures adopted by China on
the United States .

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DS 440, Anti-Dumping and Countervailing Duties on Certain
Automobiles from the United States
(Case Law Analysis)
Anti-Dumping and WTO:
Once upon a time, antidumping actions were limited to the Big Four areas where there was well-

developed antidumping legislation, the United States, the European Communities, Canada and
Australia. However, there has been a dramatic change surrounding antidumping in the past decade and
half in that antidumping has proliferated not only among developed countries but also among some
developing countries. Between 1995 and 2008, the top ten WTO Members by number of antidumping
actions initiated by them are as follows: 564 actions by India, 418 by the United States, 391 by the EU,
241 by Argentina, 296 by South Africa, 197 by Australia, 161 by China, 137 by Turkey, 108 by Korea
and 95 by Mexico. The United States and the European Union are still among the big three. However,
on the top is India and the fourth is Argentina, both developing countries. It is clear that antidumping is
not a phenomenon limited to a few developed countries but has become a universal legal instrument to
deal with import issues.1”
Antidumping is a double-edged sword. On the one hand, antidumping is a measure to deal with unfair

imports. In fact the Article VI of the GATT states that dumping is to be condemned. There may be pro
and con arguments among economists as to the question of whether dumping is an unfair trade practice
or not. However the framers of the GATT 1947 decided to incorporate this provision in Article VI of
the GATT and, therefore, dumping is an unfair trade practice if it satisfies the requirements of Article
VI of the GATT e.g., (a) dumping, (b) material injury to a domestic industry in the importing country
and (c) causation between (a) and (b). At the same time it is common knowledge that antidumping can
be abused and used as a protectionist weapon to stifle import competition.

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In order to keep

antidumping in harmony with the liberal trade order, there have been various attempts to discipline the
operation of antidumping legislation exercised by major trading nations. An antidumping agreement
was first drafted at the Kennedy Round of Trade Negotiations (1957) and the Tokyo Round replaced
this agreement Antidumping Agreement (1979). The period that followed the conclusion of the Tokyo
Round Negotiation (between 1980 and the establishment of the WTO in 1995) witnessed a surge of
trade remedy actions by major trading nations such as the United States, the European Communities,”
1

Report on Compliance by Major Trading Partners with Trade Agreements (2010) − WTO, FTAS/EPAS AND BITS, INDUSTRIAL
STRUCTURE COUNCIL, MINISTRY OF ECONOMY, TRADE AND INDUSTRY, JAPAN.
2

Cazko J et.al., A Hand-Book on Anti-Dumping, WORLD TRADE ORGANIZATION, Cambridge Press Edn.(2003).

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Canada and Australia on exports from Japan, Korea, Taiwan, China and some others. Exporting

countries complained that such trade remedy laws were abused and constituted legal protectionism. In
the Uruguay Round of Trade Negotiations that lasted from 1986 to 1993, trade remedy issues,
especially antidumping and safeguards, were an important and controversial part of the negotiation. As
a result of the Uruguay Round a new antidumping agreement came into being and this is the current
antidumping agreement in the WTO.3”
DS 440 is the latest case taken up by the United States of America to continue to hold China responsible
to its W.T.O. obligations. “In the two earlier cases, U.S. challenged duties that China had imposed to
restrict imports of certain steel products and chicken products from U.S. United States also brought
actions against China’s export restraints on several industrial raw materials including rare earths,
China’s restrictions on electronic payment services and subsidies to China’s power equipment sector. In
each of these matters, the key principle at stake is that China must play by the rules to which it agreed to
when it joined W.T.O. These commitments includes maintain open markets on a non-discriminatory
basis and following internationally agreed procedures in a transparent way.”

Background and Objections of U.S. against China:
After the imposition of safeguard measures by Obama administration in September 2009 against tire

imports form China, the Ministry of Commerce of China declared that it would start investigations
under Anti-Dumping and Countervailing measures against United States imports of American-made
cars and sport-utility vehicles (SUVs). The Ministry of Commerce of China [Hereinafter MOFCOM]
issued final determinations in May 2011 and the findings were that the imported American vehicles
have been sold at “less than fair value (i.e. dumped)” into the Chinese markets and had also been aided
by subsidies from the US government. WTO rules and regulations permit a country where goods are
being dumped to impose a duty on the imports of that good, if the imports are detrimental to the
domestic industry. Nevertheless, China, at that time, deferred the duty imposition. “
Consequently, China imposed both anti-dumping and countervailing duties on the imported American
manufactured automobiles. The anti-dumping duties ranges from “2.0 percent to 8.9 percent with an
“all others” rate of 21.5 percent”, and the countervailing duties ranging from “6.2 percent to 12.9
percent with an “all others” rate of 12.9 percent. The automobiles specifically affected with the
imposition were cars and SUVs having engine capacity above than 2.5 liter. Moreover, US expected
imports worth more than $3 Billion to China in automobiles.

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G.C. Hufbauer et.al Trade Disputes Between China and United States: Growing Pains so Far, Worse Ahead? PETERSON
INSTITUTE FOR INTERNATIONAL ECONOMICS available at
http://chongbanphagia.vn/files/Trade%20Disputes%20between%20China%20and%20the%20US%20%20Growing%20Pains%20so%20Far,%20Worse%20Ahead.pdf (Last accessed on December 9 th, 2013).

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The U.S in July 2012 requested consultations with China to impose anti-dumping and countervailing

measures on certain automobiles from the U.S.. Than a consultation meeting was held in subsequent
month, which did not result in resolving the charges being brought against China. In September 2012,
U.S. requested for establishment of a panel with an objection faced from China with regard to panel
establishment. U.S. resubmitted it’s request for panel establishment, which was then created, and
Columbia, The European Union, India, Japan, Korea, Oman, Saudi Arabia and Turkey reserved their
party rights. 5”
The U.S. believed that China started the investigation without sufficient evidences against the U.S.

imports. China failed to examine the evidences objectively and made uncorroborated findings of the
injury to the China domestic industry. China also failed to divulge the “essential facts” fundamental to
its conclusions and there were inherent shortcomings in its explanation of the conclusion. U.S. also
objected that the investigative procedure adopted by China was fallacious and China was futile in
requiring the non-confidential summations of Chinese domestic industry submissions.6 “

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US Car Exportes Get Hit Hard By China’s New Tarrifs, CHINA BRIEFING. December 2011 available at http://www.chinabriefing.com/news/2011/12/16/u-s-car-exporters-get-hit-by-chinas-new-tariffs.html (Last Accessed on December 10th, 2013).
5

Obama Administration Challenges China’s Imposition of Duties on American-Made Automobiles, Press Release July 2012,
OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE available at http://www.ustr.gov/about-us/press-office/pressreleases/2012/july/obama-administration-challenges-chinas-unfair-duties-american-made-cars (Last accessed on December 9th,
2013).
6
Id.

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Analysis
MOFCOM “acted inconsistently with Articles 3.17 and 3.28 of the AD Agreement and Articles 15.19

and 15.210 of the SCM Agreement because its price effects finding was not based on positive evidence
and did not involve an objective examination. Specifically, MOFCOM’s finding of parallel pricing was
contradicted by record evidence and, in any event, MOFCOM failed to explain the relevance of parallel
pricing. MOFCOM failed to address evidence that subject imports oversold the domestic like product
during the period in which MOFCOM identified price depression. MOFCOM failed to make needed
adjustments to average unit values that it used in its price effects analysis. MOFCOM failed to consider
or address evidence that the market share of domestic products increased along with that of subject
imports. “

In its final determination, MOFCOM concluded that the domestic industry in China producing certain

automobiles was materially injured by reason of dumped and subsidized imports of such automobiles
from the United States (subject imports). Due to three critical shortcomings, MOFCOM’s investigation
to establish Anti-Dumping Duty and Countervailing measure is inconsistent with a number of
provisions of the AD and SCM Agreements. “
First, MOFCOM narrowly defined the domestic industry for the purpose of its injury investigation,

such that the domestic industry that MOFCOM examined included only a fraction China – AntiDumping and Countervailing Duty Measures on Certain Automobiles from the United States (DS440)
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Art. 3.1- A determination of injury for purposes of Article VI of GATT 1994 shall be based on positive evidence and involve an
objective examination of both (a) the volume of the dumped imports and the effect of the dumped imports on prices in the
domestic market for like products, and (b) the consequent impact of these imports on domestic producers of such products.
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Art. 3.2 - With regard to the volume of the dumped imports, the investigating authorities shall consider whether there has been a
significant increase in dumped imports, either in absolute terms or relative to production or consumption in the
importing Member. With regard to the effect of the dumped imports on prices, the investigating authorities shall consider whether
there has been a significant price undercutting by the dumped imports as compared with the price of a like product of the
importing Member, or whether the effect of such imports is otherwise to depress prices to a significant degree or prevent price
increases, which otherwise would have occurred, to a significant degree. No one or several of these factors can necessarily give
decisive guidance.
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Art. 15.1- A determination of injury for purposes of Article VI of GATT 1994 shall be based on positive evidence and involve
an objective examination of both (a) the volume of the subsidized imports and the effect of the subsidized imports on prices in the
domestic market for like products(46) and (b) the consequent impact of these imports on the domestic producers of such products.
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Art. 15.2- With regard to the volume of the subsidized imports, the investigating authorities shall consider whether there has
been a significant increase in subsidized imports, either in absolute terms or relative to production or consumption in the
importing Member. With regard to the effect of the subsidized imports on prices, the investigating authorities shall consider
whether there has been a significant price undercutting by the subsidized imports as compared with the price of a like product of
the importing Member, or whether the effect of such imports is otherwise to depress prices to a significant degree or to prevent
price increases, which otherwise would have occurred, to a significant degree. No one or several of these factors can necessarily
give decisive guidance.

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U.S. First Written Submission of domestic producers, limited to members of CAAM, the petitioner in

““

the AD and CVD investigations. MOFCOM’s limited definition did not include enterprises representing
a major proportion of the total domestic production of the like product, within the meaning of Article
4.1 11 of the AD Agreement and Article 16.1 12 of the SCM Agreement. MOFCOM’s domestic
industry““definition was not based on positive evidence, nor did it involve an objective examination of
the evidence before MOFCOM, as required by Article 3.1 of the AD Agreement and Article 15.1 of the
SCM Agreement. “
Second, in its price effects analysis, MOFCOM found that subject imports depressed prices for the

domestic like product during interim 2009 (the only part of the period of investigation in which
MOFCOM found adverse price effects). However, among other things, MOFCOM failed to establish
how a modest (3.17 percent) decline in the average price of subject imports could have resulted in a
much larger (10.13 percent) decline in the average price of the domestic like product, especially given
the fact that the imports were selling at a much higher price than the domestic like product during this
period. Ultimately, for these and other reasons, MOFCOM’s consideration of the effect of U.S. imports
on the price of the Chinese domestic like product was not based on positive evidence, nor did it involve
an objective examination of the evidence, as required by Articles 3.1 and 3.2 of the AD Agreement and
Articles 15.1 and 15.2 of the SCM Agreement. “
Third, MOFCOM’s causation determination (i.e., its ultimate finding that U.S. imports caused material

injury to the Chinese industry) likewise was not based on positive evidence, nor did it involve an
objective examination of the evidence. MOFCOM also failed to examine all relevant evidence and any
known factors other than U.S. imports that were causing injury to the Chinese domestic industry. In
particular, aside from the fact that MOFCOM’s causal link finding relies heavily on and is tainted by

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For the purposes of this Agreement, the term “domestic industry” shall be interpreted as referring to the domestic producers as a
whole of the like products or to those of them whose collective output of the products constitutes a major proportion of the total
domestic production of those products, except that:
(i)
when producers are related to the exporters or importers or are themselves importers of the allegedly dumped
product, the term “domestic industry” may be interpreted as referring to the rest of the producers;
(ii)
in exceptional circumstances the territory of a Member may, for the production in question, be divided into two or
more competitive markets and the producers within each market may be regarded as a separate industry if (a) the
producers within such market sell all or almost all of their production of the product in question in that market,
and (b)the demand in that market is not to any substantial degree supplied by producers of the product in question
located elsewhere in the territory. In such circumstances, injury may be found to exist even where a major portion of
the total domestic industry is not injured, provided there is a concentration of dumped imports into such an isolated
market and provided further that the dumped imports are causing injury to the producers of all or almost all of the
production within such market.
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For the purposes of this Agreement, the term “domestic industry” shall, except as provided in paragraph 2, be interpreted as
referring to the domestic producers as a whole of the like products or to those of them whose collective output of the products
constitutes a major proportion of the total domestic production of those products, except that when producers are related to the
exporters or importers or are themselves importers of the allegedly subsidized product or a like product from other countries, the
term “domestic industry” may be interpreted as referring to the rest of the producers.

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MOFCOM’s flawed domestic industry definition and price effects analysis, MOFCOM failed to

““

address key evidence. Specifically, MOFCOM failed to address evidence that subject imports and the
domestic like product were sold largely in different categories – for the most part, imports were in the
premium and luxury categories, while the domestic like product consisted of lower-priced entry and mid
models – and thus competition between them was limited. MOFCOM failed to take into account that the
Chinese domestic industry suffered from a sharp drop in productivity and demand during interim 2009.
For these and other reasons, MOFCOM’s causation determination is inconsistent with Articles 3.1 and
3.5 of the AD Agreement and Articles 15.1 and 15.5 of the SCM Agreement. “

Economical Implications:
AD protection allows countries to levy a duty on foreign firms when it is determined that these firms

are selling their goods in the country at an unfair price and this is causing material injury to the
country’s domestic firms that compete in the same market or selling in an export market below the fair
value of the product. “
An important rationale for the WTO to allow AD protection is that unfair trade practices could

undermine and distort competitive and well-functioning markets, leading to inefficiencies. Putting in
place a system by which countries can punish such activity with duties to counteract these unfair trade
practices, similar to allowing countervailing duties on export subsidies, seems reasonable. “
Under WTO rules, affirmative AD determinations with resulting AD duties require a finding of not

only dumping, but also material injury (or threat of injury) to the domestic firm due to import
competition. Of course, saying that having a foreign competitor in the marketplace is injurious to a
domestic firm is like saying that water is wet. Competition reduces current firms’ profitability, which is
an indication of efficient markets. The criterion of material injury only raises the bar slightly by ruling
out trivially small competitors.13 With that said, the criterion in practice is to examine whether there
have been substantial increases in import competition that correlate with declines in domestic firms’
profitability.14While this proves to be a tougher hurdle to cross. The Economic consequences of Antidumping duties are well known. They leads to a higher price in the importing country that creates gains
for the domestic producers at the expense of consumers, while the government collects duties revenues
and can then redistribute to the general population.15 If the importing country is large enough that its

13

R.D. Willig, Economic Effects of Anti Dumping Policy, BROOKING TRADE FORUM, 57 63 (1998).
A. Sykes, The Economics of WTO rules on Subsidies and Contravailing Measures (Working Paper No. 186, The Law School,
The University of Chicago, 2003).
15
B. Blonigen et.al. The Cost of Anti Dumping: The Devil is in the Detail 6(4) POLICY REVIEW 233 242 (2003).
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duties (and accompanying reduced world demand) reduces the price, it can experience a terms-of-trade

““

gain that may counteract these losses and become a net gain.16 “
Subsidies may be wasteful, but even when they are the economic loss is generally borne by the

taxpayers in the nation that bestows the subsidy. China importing the lower-priced, subsidized
merchandise is a net economic beneficiary for the same reasons that any reduction in the price of things
they buy from US is a benefit. When nations respond to subsidies with countervailing duties, therefore,
they tend to reduce their economic well being, other things being equal. The suspicion thus arises that
countervailing duties result when well-organized protectionist interest groups use the fortuity of
"subsidization" to secure protection from import competition that they might not secure otherwise. “ The
mere threat to use countervailing duties may also be harmful, as it may become the basis for

government-to-government "settlement" negotiations that raise prices and achieve effects similar to a
cartel.17 “
The prospect of protection imposes additional costs on the domestic economy and on the international

trading community. The concept of strategic decision-making must be broadened in order to capture the
ability of firms to influence potential government decisions. Changes in sales strategies (e.g. pricing and
production) and in resource allocation decisions (e.g. employment and capacity) can dramatically
change the likelihood of AD protection. What this means is that AD may be imposing costs in sectors
that are unencumbered by duties. “

Interested firms influence traditional trading policies via lobbying, logrolling efforts, and general rent-

seeking activity. There should be no debate, however, that the channels of influence are much more
explicit under administered protection laws. An advantageously timed plant closing (signaling injury) or
plant opening (signaling vulnerability to imports), worker layoff and/or reduction in hours, excess
inventory build-up, etc. can all improve a domestic industry’s chance of winning protection. However,
decisions by foreign firms to maximize short-run profits, say, by naively pricing-to-market or perhaps
bidding for a larger than normal export contract, can have disastrous long-run consequences if such
actions result in the imposition of AD duties. For the U.S., there are political expectations to confront
unfair Chinese trade practices. Moreover, the U.S. auto industry is greatly protected by unions and
lobbies, further pressuring the U.S. take action against China given the industry at stake. Combating
these duties is also viewed as protecting jobs and growing the economy.” “Difference in structure can
arise for several reasons. For example, due to scarcity of labor and high relative wages in a country like
the U. S., one might expect to find U. S. industries employing more capital-intensive techniques of
16

A.Deardorff Economic Perspectives in Anti Dumping Law 10 (Working Paper No. 7, Ford School of Public Policy, University
of Michigan, 1989).
17
H. Marvel et.al. Countervailing Duties 105(3) ECONOMICS JOURNAL 105 113 (1995).

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production than are used by their counterparts abroad. 18 This would give U. S. firms a higher

““

proportion of fixed costs than their foreign competitors, and might lead U. S. firms to appear to
be dumping abroad in times of slack world demand. “
China is currently the U.S.’s second-largest trading partner, its third-largest export market, and its

biggest source of imports. General Motors has invested heavily in China, having sold more cars in
China than in the U.S. from 2010 to 2012, despite having been the most heavily penalized automaker
(12.9% CVD and 8.9% AD). “ Taking a more aggressive stance against China over its trade policies
could induce it to retaliate against U.S. exports to China. Since having joined the WTO, China has been
the target of 29 WTO disputes initiated by its trading partners. If current trends continue, this could raise
important systemic issues for the WTO and its existing rules in coping with the challenges posed by
large trading countries, such as China.

Conclusion
China has issued laws and regulations bringing its legal regime in the AD area largely into compliance

with WTO rules, although China still needs to issue additional procedural guidance such as rules
governing expiry reviews. More significantly, China needs to improve its commitment to the
transparency and procedural fairness requirements embodied in WTO rules, as the WTO found in a
WTO case brought by the United States. In addition, China needs to eliminate its apparent use of trade
remedy investigations as a retaliatory tool against exports of other countries. “
In the end, the researcher would like to conclude, “Dumping is actually fair. The thing is this question
was put wrong at the beginning and the beginning was long time ago. Looking back through time, the
first antidumping law was meant to remedy unfair trade, namely dumping, but it has become clearer
over time that there is nothing wrong with dumping. It benefits people in lower income countries by
offering lower prices and choices in consumer basket. Despite its evil name, dumping does a good job.
If the world is looking for freer trade, accepting international price discrimination is one step to be
taken. “

Bibliography
1. Report on Compliance by Major Trading Partners with Trade Agreements (2010) − WTO,
FTAS/EPAS AND BITS, INDUSTRIAL STRUCTURE COUNCIL, MINISTRY OF ECONOMY, TRADE AND
INDUSTRY, JAPAN
18

China and America: Repelling Borders, THE ECONOMIST, (April 8th, 2010) available at
http://www.economist.com/node/15871895 (Last accessed on December 18th, 2013).

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2. Cazko J et.al., A Hand-Book on Anti-Dumping, WORLD TRADE ORGANIZATION, Cambridge Press
Edn.(2003)
3. G.C. Hufbauer et.al Trade Disputes Between China and United States: Growing Pains so Far, Worse
Ahead? PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS available at
http://chongbanphagia.vn/files/Trade%20Disputes%20between%20China%20and%20the%20US%2
0-%20Growing%20Pains%20so%20Far,%20Worse%20Ahead.pdf
4. US Car Exportes Get Hit Hard By China’s New Tarrifs, CHINA BRIEFING. December 2011 available
at http://www.china-briefing.com/news/2011/12/16/u-s-car-exporters-get-hit-by-chinas-newtariffs.html
5. Obama Administration Challenges China’s Imposition of Duties on American-Made Automobiles,
Press Release July 2012, OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE available at
http://www.ustr.gov/about-us/press-office/press-releases/2012/july/obama-administrationchallenges-chinas-unfair-duties-american-made-cars

6. R.D. Willig, Economic Effects of Anti Dumping Policy, BROOKING TRADE FORUM, (1998).
7. A. Sykes, The Economics of WTO rules on Subsidies and Contravailing Measures (Working Paper
No. 186, The Law School, The University of Chicago, 2003)

8. B. Blonigen et.al. The Cost of Anti Dumping: The Devil is in the Detail 6(4) POLICY REVIEW (2003)
9. A.Deardorff Economic Perspectives in Anti Dumping Law 10 (Working Paper No. 7, Ford School of
Public Policy, University of Michigan, (1989)

10. H. Marvel et.al. Countervailing Duties 105(3) ECONOMICS JOURNAL (1995)
11. China and America: Repelling Borders, THE ECONOMIST, (April 8th, 2010) available at
http://www.economist.com/node/15871895

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