-- John Kemp is a Reuters columnist. The views expressed are his own --
By John Kemp
LONDON, March 16 (Reuters) - If past recessions are a guide, the current downturn will spawn an upsurge in complaints about unfair trade and a related increase in antidumping and counter-subsidy actions. But beyond the headlines, there is little risk of a return to the trade wars of the 1930s.
At worst antidumping cases will be an additional irritant in international economic relations, part of the usual theatre by which politicians appease protectionist sentiment during a business cycle downturn.
If antidumping actions threaten to become a real problem, it is more likely in emerging markets, which have embraced antidumping laws for the first time in recent years, and are now using them with all the zeal of recent converts.
The rules governing world trade are set out in 1994 Agreement Establishing the World Trade Organisation (WTO) and its voluminous annexes and schedules (which amounted to more than 26,000 pages when the Uruguay Round was completed in 1994).
While the detail is complicated, the basic structure is simple. The WTO agreements consist of a series of short and simple texts setting out general obligations, as well as institutional provisions and procedures for settling disputes. The bulk of the page count consists of long lists of all the "concessions" made by each member during successive rounds of multilateral trade negotiations.
Each WTO member has a schedule of concessions. At the heart of the schedule is a set of tariff "bindings". These are the maximum tariffs each member is entitled to apply to each commodity or manufactured item listed in its tariff schedule.
WTO members are free to apply a lower rate than the bound one, but cannot apply a higher one. The bound rate therefore acts as a ceiling on applied rates.
Trade rounds such as the Uruguay Round (1986-1994) and the Doha Round (launched in 2001) consist of detailed line-by-line negotiations in which countries offer to cut bound rates for specific items in their tariff schedule in return for reductions in bound rates by their trading partners.
The bound rate is a maximum; the rate actually applied may be substantially below this.
Developed countries typically have tariff bindings covering all their imports. Tariffs are bound at relatively low levels though there may be much higher rates on a few isolated items (peaks). Applied rates are generally low and close to the maximum.
Developing countries have generally agreed to bind far fewer of their tariff rates. Even for tariffs where they have made commitments, bindings are generally much higher, and often far exceed the rate actually being levied.
TRADE REMEDIES
Developing countries have considerable scope for protecting industries struggling during a downturn by raising applied rates up towards the much higher bound rate ceilings. But for developed countries, where bindings are lower and applied rates are usually at or close to them already, the only real source of protection comes in the form of "trade remedies".
WTO rules permit members to raise their tariffs above bound rates in three specific circumstances:
(1) Where a product has been "dumped" onto the market of a WTO member below its cost of production (including transport), or below the price at which it sells in the producer's home country or comparable third countries, and where such dumping threatens or causes "material injury" to domestic producers, a WTO member may (but need not) impose an equalising antidumping (AD) tariff to prevent the injury. Tariffs may be raised to offset the "dumping margin" but may not exceed it.
(2) Where a product has benefited from subsidies, tax credits, export-related rebates or other special measures designed to benefit exporters specifically, the importing country may (but need not) impose a countervailing duty (CVD) to offset this benefit and establish a level playing field.
(3) Where there is a sudden and unforeseen surge in imports that causes or threatens "serious injury" to domestic producers of similar or competing products, a country may impose special safeguards (including tariffs and quotas) for a limited time to give domestic producers time to restructure and adjust.
Use of trade remedies is controversial.
U.S. officials have always argued they must retain the ability to raise tariffs in specific cases of hardship or unfair competition to sustain popular support for trade liberalisation in general. Remedies play the role of a "safety valve" -- enabling policymakers to deflect political pressures that might otherwise undermine support for an open, rules-based multilateral trading system.
In contrast, developing countries and newly industrialising economies relying on export growth see remedies as hypocritical measures deployed by developed countries against their own exporters. As soon as a developing country's industries become successful enough to compete, they are hit with a barrage of antidumping duties designed to keep the economies of developed countries closed to low-cost competitors.
POLITICAL IMPERATIVES
Past experience suggests trade remedies are indeed manipulated for political reasons. Until recently, the vast majority of antidumping and countervailing duty actions were brought by just a handful of countries (the United States, the European Union, Canada, South Africa and Australia) and disproportionately targeted imports from aggressive exporters (Japan, South Korea and Taiwan) or developing countries (Russia, China, Malaysia and Brazil).
Of the 1,093 AD measures in force and notified to the WTO's Antidumping Committee in 1999, developed countries had imposed 780 (71 percent) while developing countries were responsible for just 313 (29 percent).
Complaints tend to be heavily concentrated in certain cyclical industries (such as steel) as well as low-value added manufacturers (textiles and basic chemicals) where manufacturers find it hard to develop pricing power by building brand loyalty or differentiating their products.
AD and CVD actions show a clear relation to the business cycle. In the United States, complaints about unfair trade have peaked shortly after the onset of each of the last three recessions (1982, 1992 and 2001) before falling back (https://customers.reuters.com/d/graphics/USTITLEVII.pdf).
The current recession will almost certainly see an upsurge in trade complaints and AD/CVD actions. U.S. steel producers have already been gathering evidence to file against China's exporters, and have threatened to file a complaint in April, as soon as prices have been low enough long enough to make out a credible case they have been "materially" injured.
Antidumping cases provide one of the few intelligible insights into the operation of the international trading system for a general audience. With sensational headlines about industrial injury and accompanying talk about retaliation, descent into protectionism and return to the trade wars of the 1930s, dumping cases make good stories.
But it is important not to overstate their importance. Dumping cases affect only a tiny minority of international trade. Even in the worst year (1982), U.S. companies filed complaints against imported items amounting to just 1.9 percent of all imports that year and complaints were actually upheld against just 1.1 percent. In recent years, complaints have declined, so any upsurge will come from a low base, and past experience suggests it will be temporary.
The real problem associated with an upsurge in antidumping and CVD actions is likely to come in emerging markets, as developing economies impose antidumping duties against one another.
Reversing their historical opposition, developing countries have taken up trade remedies with enthusiasm. In 2004, developing countries opened more AD investigations than their developed counterparts for the first time. In 2005 the number of AD measures being enforced by developing countries overtook those in the developed world (http://customers.reuters.com/d/graphics/ADTRENDS.pdf and https://customers.reuters.com/d/graphics/ANTIDUMPING.pdf).
The expected upsurge in antidumping actions over the next 12-18 months will not plunge the world back into a 1930s-style trade war, and only affect a tiny percentage of international trade. But it will be one more high-profile irritant in international relations, especially between the United States and China, which will need to be managed to avoid wider fallout.