FTC Posthearing Brief Before the U.S. International Trade Commission Concerning the Importation of Certain Cameras

'.
V900041
COMMISSION AUTHORIIED
Posthurlnc Brld or the
Federal Trade Commission
on Injury In InHsticatlon TA-20J-62: Certain Cameras
On MaTch 29, 1990 the Keystone Camera Company of Clifton, New
Jersey ("Keystone") petitioned the U.S. International Trade Commission ("JTC")
to institute an investigation under Section 201 (the "escape clause") of the Trade
Act of 1974 ("the Act"), 19 U.S.c. § § 225 1 ~., as amended, to determine
whether certain cameras are being imported into the United States in such
increased Quantities as to be a substantial cause of serious injury or the threat
thereof to the domestic industry producing a like or directly competitive
product. 	55 Fed. Reg. 14488 (April 18,1990).
If the ITC determines that the product in Question is being imported into
the United States in such increased Quantities as to be a substantial cause of
serious injury or the threat thereof to the domestic industry, it must recommend
a remedy and report both its findings and recommendations to the President. 19
V.S.c. § 2252(e)(f). The President, in determining what import relief, if any, to
grant, is directed by the statute to take into account ·other factors related to the
national economic interest of the United States, including, but not limited to .
.. the effect of the implementation of actions under this section on consumers
and on competition in domestic markets for articles ....• 19 U.S.C. § 2253(a)(F).
Section 334 of the Tariff Act of 1930, as amended, provides that the
Federal Trade Commission ("FTC") "shall cooperate fully with the [International
Trade) commission for the purposes of aiding and assisting in its work." 	19
U.S.c. 	§ 	1334. 	The 	FTC 	enforces 	various 	statutes 	aimed 	It 	promoting
competition 	in 	United 	States' commerce 	to 	the 	benefit 	of 	United States'
consumers. 	15 U.S.C. § § 4 I-59. 	Consistent with Section 334 Ind t~e FTC's

experience in promoting competition and protecting United States consumers,
the Federal Trade Commission is filing this posthearing brief.
Earlier Submission
In its brief to the ITC in Carbon and Certain Alloy Steel Products,1 the
FTC staff presented a framework for evaluating various potential causes of
injury to a domestic industry. 	This framework relies on a basic supply and
demand modcl to assess the extent to which changes in output of a domestic
industry are caused by changes in (I) the demand for its output, (2) the supply
of the domestic producers or (3) the supply of imports that compete with the
domestic industry. The model assumes that imports and domestic production are
perfect substitutes in demand. The model permits measurement of the separate
Quantitative effects of the three factors noted above affecting the output of the
domestic industry. 	It is believed such Quantification can help determine the
potcntial 	causes of 	injury 	and 	their 	magnitudes, and 	to 	help 	fashion 	an
appropriate remedy.
The Present Jn vestig:ltjQn
Cameras, the subject product of this investigation, are not a commodity
item, such as carbon steel or copper. 	Rather, they are trademarked products
with significant differences and features, ~ven among the different models
made by a single firm. 	We believe that it may be useful to consider the camera
market as one consisting of heterogenous products, where consumers perceive
differences among the outputs of different firins, 	rather than as a market for
a homogeneous product where the outputs of different firms are considered
perfect substitutes in demand.
Therefore. our staff has revised the model contained in our previous
submission hopefully to account for the heterogeneous nature of the product at
issue here. 	This modification assumes that there are four rather than three
,
1 Investigation TA·201·51 (1984).
2

potential sources of change in 	the output of a domestic industry: (I) a change
in demand for 	its output, (2) I change in demand for imports, (3) a change in
the supply of the domestic producers, or (4) a change in the supply of imports.
This modification can be important because a conceivable source of
change in domestic output is a change in consumer preferences for the output
of foreign producers. 	Such a change in preferences could be the result of a
failure of the domestic industry to make the changes and improvements to its
products necessary to keep them competitive with foreign producers. A change
in 	consumer 	preferences 	for 	imported 	products 	relative 	to 	domestically
produccd products can ca use a change in domestic output and an increase in
the quantity of imports, even if the conditions affecting import supply do not
change. 	This modification can be helpful in the lTC's assessment of injury to
the domestic industry.
The Appendix describes the staff's model as so modified. Estimates rely
on 	data on domestic production, imports, domestic prices and import prices
usually collected by the ITC staff as well as estimates of demand and supply
elasticities to decompose the change in domestic output into changes in domestic
demand, import demand, domestic supply and import supply.
Respectfully submitted,
iL 	f 	(Z- 	::--:=="
John L. Peterman
/Director
Burea u of Economics
~~~Kenneth Kelly 	~
Economist
Division of Economic Policy Analysis
Bureau of Economics
,
3

Appendix
by
Dr. 	Kenneth Kelly
Bureau of Economics
rederal Trade Commission
This 	Appendix describes 	how 	information on prices, 	quantities 	and
elasticities can be used to make 	inferences about 	the causes of changes
in 	the 	output 	of 	a 	domestic 	industry 	faced 	with 	import 	competition.
when consumers 	perceive 	a 	significant difference 	between the 	output 	of
domestic producers and that of foreign producers. 1
A linear 	Dodel 	of 	supply 	and 	demand 	for 	differentiated 	domestic
imported goods can be written as:
Dd 	a 1 + b1P d + c1P ID ,
D 	- a 2 + b 2 Pd + c 2 PID .	ID
Sd - 	d1 + f1P d.
S 	- 	d 2 + f 2 PJrj'	ID
where 	Dd 	is 	the 	demand 	in 	the 	United 	States 	for 	the 	U.S. 	produced
product, 	D. 	is 	the 	demand 	for 	imported 	products, 	Sd 	is 	the 	domestic
supply 	of 	the 	product, 	SID 	is 	import 	supply, 	Pd 	is 	the 	price 	of 	the
domestic 	product, 	p. 	is 	the 	price 	of 	the 	imported 	product, 	~ 	is 	the
quantity 	of 	domestic 	output 	and 	Q. 	is 	the 	quantity 	of 	imports. 	The
b'., 	c's 	and 	f'. 	are 	behavioral 	parameters 	that 	are 	assumed 	to 	remain
1 The 	analysis 	presented here 	is 	based upon 	Kelly, 	-The 	Analysis
of 	Causality 	in 	Escape 	Clause 	C.... ,.. 	37 	The 	Journal 	of, Jndunr1al
Economics 187, 	December, 	1988.
1

constant 	over 	the 	period 	of 	investigation, 	while 	the 	a's 	and 	the 	d's
are 	the shift parameters of the model, 	which we expect will 	change Over
the 	time 	as 	the 	exogenous 	variables 	that 	determine 	them, 	auch 	as
technology, 	input prices and consumer tastes, 	change.
There 	are 	four 	possible 	sources 	of 	changes 	in 	the 	output 	of 	the
domestic 	industry 	in this model: 	a 	change 	in domestic 	demand, 	a 	change
in 	import 	demand, 	a 	change 	in 	domestic 	supply 	or 	a 	change 	in 	import
supply.
This 	model 	can be 	solved 	for 	expressions 	of 	Pd ' 	p., 	~ and 	Qc as
functions 	of the parameters:
(d 1 • 	a 1 )(c 2 • 	f 2 ) 	• 	c 1 (d 2 • 	a 2 )
(b 1 • 	f 1 ) (c2 • 	f 2 ) 	• 	b 2c 1
(b 1 • 	f 1 ) (d 2 • 	a2 ) 	• 	b 2 (d 1 • 	a 1 )
(b 1 • 	f 1 ) (c 2 • 	f 2 ) 	• 	b 2 c 1
f 1 (d 1 • 	a 1 ) (c 2 • 	f 2 ) 	• 	f 1 c 1 (d 2 • 	&2)
(b 1 • 	f 1 ) (c2 • 	f 2 ) 	• 	b 2 c 1
f 2 (b 1 • 	f 1 ) (d 2 • 	a2) 	• 	f 2b 2 (d 1 • 	a 1 )
(b 1 • 	f 1 ) (c2 • 	f 2 ) 	• 	b 2c 1
The 	changes 	in 	the 	observed 	prices 	and 	quantities 	can 	be 	written 	in
matrix form as
Ao - 	Dt.s
where 	Ao 	- 	[A~, 	AQ., 	APd • 	AP.]' 	is 	the 	4xl 	vector 	of 	changes 	in 	the
observed 	variables, 	As 	- 	[Aa 1 , 	Aa 2 • 	Ad 1 , 	t.d 2 ]' 	is 	the 	4xl 	vector 	of
changes 	in 	the 	shift 	parameters 	and 	D 	is 	the 	4x4 	matrix 	of 	the
derivatives 	of 	the 	observed 	variables 	with 	respect 	to 	the 	shift
parameters:
,
2

D - 	-L
den
b 2 	fl-b l
where den - 	(b 1 -f 1 )(c z -f 2 ) 	- 	b Zc 1 0
-b 2
This 	system 	of 	equations 	can 	then 	be 	solved 	for 	the 	change 	in
domestic 	production, 	decomposed 	into 	the 	change 	as 	the 	result 	of 	each
shift parameter:
+
-f l (C 2 	- 	fz) (ll~ - blllP d - clllP.)
(b l 	- 	f 1 ) (c2 - 	f 2 ) 	- 	b 2 c 1
flcl(b~ - b z6P d - 	c2 6P.)
+
This can be
+
+
(b l 	- 	f 1 ) (c z - 	f 2 ) 	- 	bZc l
[(c z - 	fz)b l 	- 	bzcd [ll~ - 	f 16P d ]
(b 1 - 	f 1 ) (c z - 	f 2 ) 	- 	b Zc 1
flc l (ll~ - 	f z6P.)
(b 1 - 	f 1 ) (c 2 - 	fz) 	- bZc l
rewritten using elasticities as:
- '7d ('. - 	'7.)( '6~ - 	, d'6Pd • 	, .'llP.)
('d 	- 	'1d)('. - '1.) 	- 	'.'.s
'1d,.(,6Oe - 	'.s'6P d - 	,.'llP.)
(cd 	- 	'1d)( '. - '1.) 	- 	,.c.s
[('. - 	'1.)'d - 	c.c.s]('ll~ - 	'7d'6P d)
('d 	- '1d)('. - 	'7.) 	- 	f.'.s
(Cd - 	'7d)(c. - '7.) 	- 	'.'.s
where 	Cd 	is 	the 	elasticity 	of 	demand 	for 	the 	domestic 	product, 	c. 	is
the 	elasticity 	of 	demand 	for 	the 	imported 	product, 	c. 	18, the 	cross
3

price 	elasticity 	of d••and 	for 	the 	domestic 	product with 	respect 	to 	a
change 	in 	price 	of 	the 	imported 	product, 	'lid 	15 	the 	cross 	price
elasticity of demand for 	the 	imported product with respect 	to a 	change
in the 	price 	of the 	domestic product, 	~d is 	the 	elasticity of domestic
.upply and ~. is 	the elasticity of import aupply.2
The 	above 	formula 	decomposes. the 	total 	change 	in 	domestic
production 	over 	a 	period 	of 	time 	into 	the 	changes 	brought 	about 	by
changes 	in 	the 	underlying 	supply 	and 	demand 	equations. 	These 	changes
are 	seen 	to 	depend 	upon 	the 	changes 	in 	domestic 	production, 	imports.
and the prices of domestic and imported prices, 	and upon the demand and
supply elasticities. 	All of this 	information is 	routinely collected by
the ITC staff in an escape clause 	investigation. 	The 	formula 	therefore
provides 	the 	ITC vith • 	tool which may help 	it determine 	the 	causes 	of
injury to 	the domestic 	industry.
2 These 	elasticities 	are 	those 	.easured 	at 	the 	initial
equilibrium. 	The elasticity of a 	linear supply or demand function does
not remain constant, 	but changes as 	the price changes. 	•
4

'trIm,,!, or Senler
July 2. 1990
I certify that. on the date specified above. a copy of the foreaoina
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-Z~Kenneth H~KetJY
,