International Predation and Anti-Dumping

Author(s): Prabhash Ranjan

Source: Economic and Political Weekly , Nov. 6-12, 2004, Vol. 39, No. 45 (Nov. 6-12,
2004), pp. 4880-4883
Published by: Economic and Political Weekly

Stable URL: http://www.jstor.com/stable/4415763

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide
range of content in a trusted digital archive. We use information technology and tools to increase productivity and
facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at
https://about.jstor.org/terms

Economic and Political Weekly is collaborating with JSTOR to digitize, preserve and extend
access to Economic and Political Weekly

This content downloaded from

115.113.198.254 on Tue, 18 Aug 2020 14:55:11 UTC
All use subject to https://about.jstor.org/terms
Bank/IMF/international consultants on the
consultative groups of the Planning Com-
mission would lead to a wider debate of
whether persons who have been working
with organisations which have vested
interests that may be opposed to the eco-
nomic interests of the country, should be
called in to occupy policy-making posi-
tions in the government of India, and
whether the government should allow such
officials to take up jobs with such
organisations/institutions after their retire- price of the same product in the exporting
ment from their government jobs. 1J country.1
If there are no sales of a like product in
Notes the ordinary course of trade in the domestic
market or if, due to a particular market
1 Globalisation and Its Discontents, Joseph situation or low volume of sales in the
Stiglitz, p 5. domestic country, a fair comparison be-
2 Ibid, p 18. tween the export price and the domestic
3 Ibid, pp 19-20.
4 Ibid, pp 207-208. price cannot be made, other pricing op-
5 The Roaring Nineties, Joseph Stiglitz, p xi. tions given in the ADA could be explored
6 Ibid, p 134. to determine the margin of dumping.2 The
price options are:
(1) the export price of a like or similar

International Predation product in the market of any third country or

(2) the cost of production in the country
of origin plus the administrative, selling

and Anti-dumping and general costs and for profits (con-

structed cost).
The ADA does not create a hierarchy
Can international predatory pricing be dealt with under the WTO between these two price options. In other
words, countries are free to choose their
framework, outside of an anti-trust regime? If predation is
own pricing option to determine the margin
taking place in the form of dumping, as understood in GATT/WTO, of dumping. The ADA creates a hierarchy
it can be tackled under the Anti-Dumping Agreement; otherwise it only between the domestic price and the
can be addressed under the safeguards agreement. two pricing options discussed above. Either
of the two pricing options are to be used
PRABHASH RANJAN international predation? Is there any other only if fair comparison of export price with
agreement in the multilateral trading system domestic price cannot be made.
T he use of law as a potent weapon that can be used to deal with international
to regulate and foster competition predation? These are some of the questions Predatory Pricing
in markets is well recognised. Law that this paper attempts to answer.
is a handy instrument in dealing with certain Theories abound on what is meant by
retrogressive and uncompetitive methodo- predatory pricing. It is pertinent to look at
Dumping in GATT/WTO
logies like predatory pricing. Predatory the two most important theories on preda-
pricing or predation is a methodology, Traditionally, countries have enacted tory pricing.
which enterprises adopt to further their anti-dumping laws at the domestic level Cost based method: The cost-based theo-
business interests in an illegitimate man- to counteract the ill effect of predatory ries of predatory pricing owe their origin
ner. Predation can take place both in the pricing. The US Act of 1916 is a classic to the work of Phillip Areeda and Donald
domestic and export market. example; it allows action against foreign Turner. According to the theory developed
This paper looks at international preda- produced goods that are sold at substan- by Areeda and Turner predation arises
tion, i e, predating in the export market. tially less prices in US. However, the only when prices are held below marginal
There is no law or treaty at the multilateral adoption of anti-dumping in the General cost. But, since it is difficult to calculate
level that deals with cross border predatory Agreement on Tariffs and Trade (GATT) marginal cost in practice, average variable
pricing. Many have argued that an anti- and the formation of WTO has expanded cost can be used instead. This test came
trust treaty or a competition agreement at the scope of the use of these provisions to be known as Areeda-Turner test.3 Thus,
the multilateral level can provide a solu- in international trade. Today, multilateral according to this theory pricing at or above a
tion to the problem of predatory pricing. and national dumping disciplines target reasonably anticipated average variable cost
Whether there should be a multilateral dumping, which includes predatory should be conclusively presumed lawful.
competition agreement or not and what itsdumping. Recoupment method: According to this
effectiveness will be is a moot and hypo- Dumping is defined in Article VI of theory a predator will predate for a signifi-
thetical question. This paper does not wishGATT. This Article states that dumping cant period of time only if there is a
to venture in that area. means the introduction of a product by a possibility for him to recoup all losses. The
The endeavour rather is to find a solution country, into the commerce of another initial intention of the predator is to drive
to the problem of predatory pricing in the country, at a price less than its normal out all competitors and then, exercise a
existing WTO framework. The ground rule value. The normal value is the comparable monopoly situation. Whether a predator is
will be to find a solution to the problem price, in the ordinary course of trade, of able to recoup his losses or not will depend
of international predation outside an anti- a similar product destined for consump- on the structure of the market, such as the
trust law or treaty. Can international tion in the domestic market of the export- kind of entry barriers that exist.
predation be dealt with in the existing WTO ing country. Thus, dumping takes place The monopoly position that a firm has
framework? Can the Anti-Dumping when a product is sold in the export acquired will enable it to recoup the losses
Agreement(ADA) be used to combat market at a price less than the domestic that it suffered during the period of

4880 Economic and Political Weekly November 6, 2004

This content downloaded from

115.113.198.254 on Tue, 18 Aug 2020 14:55:11 UTC
All use subject to https://about.jstor.org/terms
predation. After the elimination of compe- Indian competition law follows the ECJ units (Table 1). In such a case the producer
titors, if the firm is not able to increase approach and thus does not recognise the is selling his product in the international
its prices because of the ease with which ability of the predator to recoup losses market at a price less than the cost of
the eliminated competitors can re-enter, during predation period as one of the criteria production (90<100) and thus predating in
the entire motive of indulging in predation to identify whether predation is taking the international market. However, he is
will be defeated. Thus, according to this place or not. For the purpose of this paper, not predating in the domestic market, as
theory it is not just pricing below cost of predatory pricing will be understood in the his domestic price is greater than his cost
production with the intent of eliminating sense in which it has been defined by the of production (110>100). In such a situ-
competitors that constitutes predatory ECJ and the Indian competition law. ation the margin of dumping will be de-
pricing, but also the distinct possibility of termined by comparing the export price
recouping losses for the predator. Predation and Undervalued with domestic price (which is more than
Tests developed by courts to establish Imports the cost of production: (110>100)). This
predatory pricing: Different legal systems is a clear case of dumping where a com-
have interpreted and defined predatory An important step in unravelling the parison is made with the first price option
pricing differently. This difference could
mystery of international predation is to given in Article 2.1 of the ADA.
be a result of different market and eco- examine the nature of predated imports. The important point to note is that, in
nomic situations. The US Supreme Court Predatory imports can be looked at in dif- the example given in Table 1, predatory
in the famous Matsushita case4 stated that
ferent ways. One way of looking at inter- imports will be targeted with the aim to
a predator would predate only if he expects
national predation is to view them as under- remedy dumping, but such a remedy will
valued imports. Here it is important to
that the same market will eventually bring also take care of predatory pricing.
in all lost profits and investments caused understand that, irrespective of the intent to Predatory intent: The most difficult thing
by predation. reduce or eliminate competition, exporting in proving predatory pricing is to establish
In the important Brooke Group case5 it products at prices less than their cost of predatory intent. However, in the above
was held that a pricing policy in order to production is a case of undervalued ex- example, since the predatory imports are
be qualified as predatory must satisfy a ports.9 Hence, dealing with international being 'dumped', they will be treated as
two-part test: (1) the alleged predatory predation primarily means dealing with dumped imports and thus targeted under
price must be below an appropriate mea- undervalued exports. the ADA. Targeting imports under the
sure of cost; and (2) there must be a The ADA in the WTO provides a remedy ADA does not require proof of predatory
dangerous probability that the alleged pre- for undervalued imports, however, not all intent. The AB in United States - Anti
dator will be able to recoup its losses undervalued imports are actionable. Only Dumping Act of 191612 stated that the
through monopoly prices once its rivals those undervalued exports, that are dumped requirement of intent to destroy, injure, or
exit the market. This test, laid down by the and which cause 'material injury' to the prevent the establishment of an industry
US Supreme Court, treats the ability of the domestic industry of the importing country or to restrain or monopolise any part of
alleged predator to recoup losses as the can be subjected to action under ADA. trade does not affect the applicability of
essential element in predatory pricing Hence, for the purposes of this paper anti-dumping, if other constituent elements
offences. undervalued imports (predatory imports) of dumping are present.
If we turn our attention to the European are classified in two categories: (1) those
approach to predatory pricing we find that that constitute dumping. (2) those that do
Predatory Imports that Do Not
the European Court of Justice (ECJ) has not constitute dumping.
evolved a different test from the Brooke A distinction also needs to be made
Constitute Dumping
Group test. The ECJ defined predatory between those producers who may predate If predation takes place both in the
pricing in AKZO Chemie vs Commission6 both in their domestic and international domestic and international market, it will
as charging prices below average variable markets10 (this kind of predator is dis- not constitute dumping. Let us under-
cost. The ECJ test for predatory pricing cussed later) and those producers whostand this with the help of an example.
also talks of predatory intent and states that predate only in the international market.1Assume thut the predator has a cost of
predatory prices are implemented only to production = 100 units, export price = 95
eliminate or reduce competition. The ECJ units, and domestic price = 90 units
Predatory Imports that
test does not recognise the recoupment (Table 2). If predator sells below his
Constitute Dumping
test, i e, the ability to recoup losses in the cost of production in both the markets
future, as one of the grounds to identify Predated imports can be targeted under
predatory pricing. The ECJ also held that Table 1: Predating in International Market
the ADA provided they are dumped in the
(Predated Imports that are Dumped)
prices that fall between average variable sense in which dumping is understood in
costs and average total costs may also be the ADA. To determine whether predated Export Price Cost of Production Domestic Price
held to be predatory pricing in case they imports are being dumped or not, the first
90 units 100 units 110 units
are part of a larger plan to exclude a comparable price is the price in the pre-
competitor.7 dator's domestic market.
Table 2: Predating in Internat
According to the new Indian competi- Let us first examine the case of the and Domestic Market
tion law8 predatory pricing means: (1) sale predator who predates only in the inter- (Predated Imports that are Not Dumped)
of goods below cost of production and (2) national market. Assume that the predatorExport Price Cost of Production Domestic Price
with the view to reduce competition or has a cost of production = 100 units, export
95 units 100 units 90 units
eliminate competitors. price = 90 units and domestic price = 110

Economic and Political Weekly November 6, 2004 4881

This content downloaded from

115.113.198.254 on Tue, 18 Aug 2020 14:55:11 UTC
All use subject to https://about.jstor.org/terms
(95, 90 <100) he is predating in both the a large margin. Some have argued that this
whether non-dumped predatory imports
markets. However his export price is more can even hurt genuine competitive
be targeted under the safeguards agree-
than his domestic price (95 > 90), which practices. ment. According to Article 2.1 of the safe-
means no dumping is taking place. Predat- An important implication of the above guards agreement, safeguard measures are
ing in both the markets is economically discussion is that whenever cost of pro- imposed if there is a surge in the imports
difficult but nevertheless possible, espe- duction (constructed cost) is used as the flowing into a country and there is a causal
cially for those producers with deep and comparable price in determining dump- link between surge in imports and 'serious
big pockets.13 In such a situation no ing, countries can be sure of targeting injury' to the domestic industry of the
dumping is taking place, though predation predatory pricing. Thus, the question is importing country. Imposition of anti-
is present. As there is no dumping, anti- how to target those predatory imports that dumping or safeguards measures has the
dumping duties cannot be imposed. cannot be targeted under the dumping same impact and, i e, of reducing or elimi-
However, the situation described in disciplines. It is important to recall that nating the import of a product that causes
Table 2 can be addressed under the ADA predated imports are undervalued imports material/serious injury.
if domestic price is not used and cost and
of apart from ADA, the Agreement on Notwithstanding the same effect, it is
production (constructed cost) is made the
Subsidies and Countervailing Measures interesting to observe that the use of anti-
comparable price. In the above example,(ASCM) and the Agreement on Safeguards dumping measures has been much more
can be used to deal with them.
since the cost of production is greater than frequent than the use of safeguard mea-
sures.14 Countries have found it easier to
the export price (100 > 95), dumping is The ASCM deals with those imports that
taking place. However, the comparable slap anti-dumping duties because the
have been subsidised by the exporting
price of the cost of production (constructed
country. These products are subsidised by
standard of injury for imposition of anti-
cost) can be more than the actual value the
of respective national governments and
dumping duties is lower than the standard
the cost of production in some cases.there is no role of the producers in it. of injury for imposition of safeguard
According to Article 2.2 of ADA, aTherefore, undervalued imports resulting measures. In other words, standards
reasonable amount of administrative, sell-
because of a price technique like preda-
for proving 'serious injury' are more
ing and general costs and profits have to
tory pricing cannot be targeted under stringent than that for 'material injury'. In
be added to the cost of production to ASCM, as there is no subsidisation by the
US - Lamb,15 the Appellate Body (AB)
determine the margin of dumping. This government. described 'serious injury', given in
will certainly inflate the cost of produc-
International predation and safeguards Article 4.1 (a) of the Safeguards agreement,
agreement:
tion and quality for predatory pricing with An important questionasisa very high standard of injury, meaning

CALL FOR CONTRIBUTION OF CASE STUDIES/PAPERS/PAPER ABSTRACTS

Centre for People's Forestry

Announces a National Conference on

DALIT CONCERNS IN FORESTRY

On 14-16 December 2004 Venue: Hyderabad

The importance of forests in the lives of the Dalits calls for changes in existing forest policies as well as prac
Joint Forest Management and Community Forest Management. Recognizing the need for focused discussions and
on Dalits and their stakes in forestry, this conference attempts to document experiences and initiate discussion
together all concerned to discuss and develop a plan of action towards mainstreaming the Dalit Concerns i
Themes
The conference would address four broad themes encompassing several aspects related to forest dependent Dalits, their liv
and rights
* Joint Forest Management/Community Forest Management - Dalits' Participation
* Status of Livelihoods of Forest Dependent Dalits
* Forest Policies and Dalits
* Forest Management - A Dalit Perspective
The Conference aims to bring out two publications: 1) Pre-conference publication consisting of Status Reports on
in Forestry from various states, Case studies, Papers and Paper Abstracts and 2) Conference proceedings.
Request for participation registration along with case studies/papers/paper abstracts should r
20 November 2004 either by email or by post:
ncdcf@cpf-india.org. OR National Conference on DALIT CONCERNS IN FORESTRY,
CENTRE FOR PEOPLE'S FORESTRY,
12-13-445, Street No-1, Tarnaka,
Secunderabad - 500 017, A.P. India
Travel and accommodation will be provided for all participants. For further information visit www.cpf-india.org.
Centre for People's Forestry (CPF) is a national organization working for livelihood rights of marginalized section
Dalit and other resource poor) through forestry.
Co-organizers: Centre for World Solidarity and National Dalit Forum

4882 Economic and Political Weekly November 6, 2004

This content downloaded from

115.113.198.254 on Tue, 18 Aug 2020 14:55:11 UTC
All use subject to https://about.jstor.org/terms
significant overall impairment of domes-
tic industry.
It was also held in US-Lamb and Argen-
tina Footwear16 that products on which
safeguard measures are imposed should be
extraordinary in nature. In other words,
imposition of safeguard measures requires
the existence of extraordinary circum-
stances. It is submitted that predatory
imports represent extraordinary circum-
stances, as they are notj ust cheap or dumped
imports but they also destroy or reduce
competition.
Predation and Surging Imports
For the imposition of safeguard measures,
predation should lead to the surge of
imports. Now, when a predator introduces
goods in an economy at a price less than
his cost of production, he is selling goods
at a very cheap rate. This may lead to a
situation where the demand for this parti-
cular product increases because of its cheap
price and thus results in surging imports.
This can cause 'serious injury' to the
domestic industry, making the imposition
of safeguard measures possible. Tackling
predatory imports under the safeguards
agreement does not require the proof of
any predatory intent as the presence or
absence of such intent is immaterial, once
paper. The author remains responsible for the one particular product in the international
views and any errors.] market, but not predating that very product in
the national market.
1 SeeArticle VIofGATTandArticle2.1 ofthe ADA.
12 AB report on US - Anti-Dumping Act of 1916,
2 See Article 2.2 of the ADA.
WT/DS136/AB/R and WT/DS162/AB/R.
3 This test first appeared in 1975 in Harvard
13 Some may argue that such a situation may arise
Law Review.
only when the predator expects a global
4 Matsushita vs Zenith (1986), US 116.
monopoly with which he can recoup his
5 Brooke Group Ltd vs Brown and Williamson
sacrifice. This is possible only if there are very
Tobacco Corp (1993) 509, US 209. high barriers to entry all over the world. But
6 1991 ECR 1-3359, 5 CMLR 215 (1993).
nevertheless this is possible for predators who
7 In Wanadoo vs Commission, 2003 CAT 5,
are few in number at the global level and who
1007/2/3/02, it was held by the ECJ that in
have already developed a global monopoly to
those cases where price is more than the average a large extent. They can predate both in the
variable cost but less than average total cost, domestic and export market (the latter does
prima facie it will not be considered to be not mean all export markets, it may be few
predatory pricing, but if this pricing is being or even one). There can be a situation where
deliberately followed to avoid any legal a predator wants to capture only one particular
consequence and in reality constitutes a part of
export market, after having captured others.
a larger plan to eliminate or exclude a compe- In such a case, the captured export markets
titor, it would be considered predatory pricing.
will provide profits to the predator to sustain
8 See Explanation (b) of Section 4 of the losses in one or few export markets.
Competition Act, 2002 and also Section 4.14 The number of safeguard cases that have been
9 If cost of production were taken to be the initiated from 1995 to 2002 are 230, whereas
minimal worth of a particular product, then the total number of anti-dumping initiations,
exporting the product at a price less than its from 1995 to the first half of 2003, by a
cost of production is certainly a case of reporting country were 2284.
undervalued exports. 15 The AB report on 'US - Safeguards Measures
10 It would be rare to find such predators, but on Imports of Fresh, Chilled or Frozen Lamb
nevertheless a priori the possibility does exist. Meat from New Zealand and Australia', WT/
11 For both the classification refers to same goods, DS177/AB/R and WT/DS178/AB/R.
i e 'like goods'. For example, a predator could16 Report of the AB on 'Argentina - Safeguards
be predating 'the same kind of car' in both Measures on Imports of Footwear', WT/DS
international and domestic markets or predating 121 'AB' R.
BUSH TRIUMPHS

Religion, Politics
serious injury and causal link are proven.
A related question can arise about what
happens when the demand for the preda-

and Disenchantment
tory imports does not increase. In such a
scenario, economic prudence shall prevail
and the predator will stop predating. Thus,
those predated imports that are not The November 2 election made clear that the US is deeply,
dumped (Table 2) can be targeted under
profoundly divided, not so much between Republicans and
the safeguards agreement.
Democrats, but between the religious and the secular. The electio
Conclusion were about "values" and "morals", according to interviews with
voters. But whose values? Whose morals?
This paper has endeavoured to show that
KEVIN W MOORE
international predation can be comprehen- retreated from public life either into the
sively dealt with under the WTO frame-
transcendental realm of mystic life or into
work, outside of an anti-trust regime. Now the Lord is the spirit, and where the the brotherliness of direct and personal
Predatory pricing can be tackled under the
spirit of the Lord is, there lies freedom. human relations". Only in intimate per-
ADA and also under the safeguards agree- - 2 Corinthians 3:17 sonal relations, "in pianissimo", does one
ment. If predation is taking place in the find that "pulsating" energy or "prophetic
form of dumping, as understood in GATT/
t has been almost 100 years since the pneuma, which in former times swept
WTO, it can be addressed under the ADA;German sociologist Max Weber wrote
through the great communities like a fire-
otherwise it can be tackled under the that for those who could not bear the brand, welding them together". For Weber,
safeguard agreement. BI fate of the times, the "doors of the old the historical interpenetration of politics
churches" stood open to welcome them. and religion, action and faith, formed the
Notes The "disenchantment of the world" was core of his pursuit of meaning, and the
an unalterable fact; meaning had retreated answer to the "only question important for
[The author expresses his deepest gratitude to
Aditya Bhattacharjea and Krista Lucenti for their from public, political life. As he put it at us: 'What shall we do and how shall we
comments on an earlier draft and to Nitya Nandathe end of Science as a Vocation, "Precisely live?"'. But he also believed that when
for providing the preliminary concept to write this the ultimate and most sublime values have religion infiltrated the political realm, the

Economic and Political Weekly November 6, 2004 4883

This content downloaded from

115.113.198.254 on Tue, 18 Aug 2020 14:55:11 UTC
All use subject to https://about.jstor.org/terms