Disputes over dumping -- selling raw materials or finished goods overseas at prices below the cost of production or for less that what they're sold for at home -- are a major thorn in the side of companies wanting to do business internationally. The United States enacted the antidumping law to protect U.S. companies from "unfair" imports, but the real impact of the law is to bankrupt legitimate U.S. companies, eliminate entire industries and destroy U.S. jobs.
People may argue that the antidumping law is protecting U.S. industries from unfairly dumped imports. To win an antidumping case, a U.S. industry -- which can be a single company -- needs to convince the U.S. Commerce Department of dumping, and show the U.S. International Trade Commission (ITC) that the practice has injured U.S. industry.
But the Commerce Department finds dumping in 95% of cases. With 30 years of work in this area since 1980, first in the government and later in private practice, I can count on one hand the number of times Commerce has made a no dumping determination and stopped the case. Commerce has defined dumping in such a way that any U.S. company that imports a product - especially from China -- is considered to be dumping.
Here's the problem: The real damage of antidumping is not to Chinese companies, but to U.S. companies - importers, distributors and downstream producers. Chinese companies do not pay antidumping duties. U.S. import companies by law are liable for antidumping duties, and the importers can be retroactively liable if those antidumping duties go up in subsequent review investigations.
The Chinese company, never mind the U.S. importer, simply cannot know whether it is dumping because Commerce does not use China's actual prices and costs to determine whether the Chinese company is dumping.
To fix these problems, three points should be considered by Congress and the U.S. government.
First, the U.S. government should declare China a market economy under the U.S. antidumping law -- not to help Chinese companies, but to help U.S. companies. Under the U.S.-China-World Trade Organization agreement, Commerce must make China a market economy country by 2016. If China becomes a market economy country, Commerce will use actual prices and costs in China to calculate dumping rates for Chinese companies.
Then, not only Chinese companies but U.S. companies as well will know whether the Chinese companies are truly dumping. Moreover, if Commerce uses actual prices and costs in China, Chinese companies can monitor their U.S. prices and make sure that they are not dumping. Monitoring, however, is useless, if Commerce uses arbitrary surrogate values in a third country, such as India, to create a cost structure for Chinese companies.
Second, the United States should follow the rest of the world and make antidumping duties prospective, not retroactive. Only the United States has retroactive liability; U.S. importers cannot know whether the Chinese companies are dumping because of these surrogate values. In a purely prospective duty system such as in Canada, it is generally understood that once the investigation is complete and the measure is imposed, antidumping duties are assessed at the time of entry with no potential liability in the future. In the rest of the world, but not the United States, importers then can import under an antidumping order with no fear of substantial additional liability in the future.
But there is a more important problem. Antidumping cases do not work. They do not help U.S. companies injured by imports. As ITC Commissioner Pearson recently stated in the December 2010 ITC determination in the Furniture from China Sunset case, "In this particular investigation, additional costs and distortions have been added by the use of the administrative review and settlement process, with little evidence that these distortions have yielded any benefits to the industry overall, the U.S. consumer, or the U.S. taxpayer."
At the same time, estimates are that U.S. furniture importers have paid more than $500 million in retroactive antidumping duties because of this case. One $60 million company in North Carolina was wiped out because it imported wooden bedroom furniture from China under an antidumping order. Another client went bankrupt because it imported ironing tables from a company found to have been dumping -- a ruling that cost the company millions of dollars in liability and the U.S. jobs associated with that company.
But if dumping/unfair trade cases do not help the U.S. industry, what does work? That brings me to my third point.
One program truly helps companies injured by imports is Trade Adjustment Assistance for Firms (TAAF). This $16 million dollar federal program in the Northwest has been able to save 80% of the companies that entered the program since 1984. If the company is saved, then the jobs in that company are saved.
The poster child for the TAAF program is Cascade Coil Drapery in Portland, Ore. In 1982, an antidumping case was filed against Fireplace Mesh Panels of Taiwan. Cascade Coil Drapery was one of about 10 companies in that U.S. industry. By the time the case was finished, only a few U.S. companies were left standing. One of those companies was Cascade Coil -- not because of the antidumping order, but because of the TAAF program.
TAAF works because it does not restrict imports in any way. Instead it works with the company at the individual level to design a program so that the company can adjust to import competition.
In Cascade Coil's situation, the TAAF program was able to identify architectural mesh as a made-to-order product, not a commodity product vulnerable to import competition. Although architectural mesh was only three percent of Cascade Coil's business, that is where it moved. Today, Cascade Coil Drapery has discovered that this same architectural mesh is an antiterrorism tool because it can be used to block flying glass and other objects in the event of a bomb blast and yet let the light in. Recently certified by the Department of Defense, Cascade's Guardian Coil product is now being exported to countries around the World.
Although the amount of federal assistance for each company is limited to $75,000 -- which the company must match -- the TAAF program offers strategic planning and access to industry experts. This is the way for U.S. companies to adjust to import competition, not through antidumping cases that distort the U.S. market and destroy U.S. importers and downstream industries.
William E. Perry is an international trade law partner at the firm of Dorsey & Whitney's Seattle office. From 1980 to 1987, Perry was an attorney in the Office of General Counsel, U.S. International Trade Commission, and in the Office of Chief Counsel and Office of Antidumping Investigations, U.S. Commerce Department. Perry is also on the board of directors of the Northwest Trade Adjustment Assistance Center.