FTC Staff Comment Before the United States International Trade Commission Concerning Antidumping and Countervailing Duty Orders and Suspension Agreements

COMMISSION AU1HORlZEO
V940019
BEFORE UNITED STATES
INTERNATIONAL TRADE COMMISSION
Investigation No. 332-344
The Economic Effects of
Antidumping and Countervailing Duty Orders
and Suspension Agreements
ECONOMIC EFFECTS OF DUMPED AND SUBSIDIZED IMPORTS
ON DOMESTIC INDUSTRIES, 1980-1988
STAFF OF THE BUREAU OF ECONOMICS,
FEDERAL TRADE COMMISSION"
September 30, 1994
" The views expressed in this st~.tement and in the accompanying Bureau of Economics
Report are those of the staff of the Bureau of Economics, and are not necessarily those of the
Federal Trade Commission or any Commissioner.

The staff of the Bureau of Economics of ;l1e FeJeral Tradt Commission ("FTC") are
pleased to share with the LTC today an amll:.sis W~ have Jevdoped about the impact of unfairly
traded imports. Our analysis may he rek\ :lnt to ;his investigation of the economic effects of
antidumping and countervailing duty orders. The views expressed in this statement and in the
accompanying Bureau of Economics Report are those of the staff of the Bureau of Economics,
and are not necessarily those of the Federal Trade Commission or any Commissioner.
Earlier this year, the staff of the Bur'lu of Economics released a report, Effects of Unfair
Impons on Domestic Industries. 1 This staff study represents an economic estimate of the effects
of dumped and subsidized imports on the revenues of domestic industries. It does not, however,
address the implications of those estimates under the statutory framework that governs ITC
determinations. At the request of Chairman Watson, we are submitting that report to you today,
and the authors of the report are here tv present its findings.
The staff surveyed all final ITC decisions from 1980 to 1983 and estimated injury from
available data for 179 of the 221 antidumping or subsidy c~ ~es during that period. 2 The staff
measured injury to each domestic industry from unfair imports by the percent decrease in
domestic industry revenue. The report found some decrease in industry revenue in nearly every
case studied. The amount of the decrease varied from case to case:
I Morris E. Morlere and Kenneth H. Kelly (1994), Effects of Unfair Impons on Domestic
Industries: U.S. Antidumping and Countervailing Duty Cases, 	1980 to 1988. Report of the
Bureau of Economics to the Federal Trade Commission, Washington, D. C.
2 It was not possible to estimate injury for the remaining 42 cases because data needed to
calculate the estimates were confidential.
2

(1) about one-third of the cases (32 perc~nt) involved revenue decreases greater than 5
per-.:ent, and
(2) about one-eighth of the cases (12 per _..:nt) involved revenue decreases greater than
10 percent.
We believe our estimates of injury are upper bounds on the amount of actual injury from
unfairly traded imports. The estimates are based 0n assumptions that would tend to cause the
economic model that we used to overstate the like! y decrease in revenue. Our estimates do not
measure net soc\ill welfare effects. 	The study anempted to identify decreases in domestic
industry 	revenues 	due to unfair imports, 	and did 	not attempt to estimate any benefit to
downstream industries or ultimate consumers from lower prices on imports and competing
domestic products that result from dumped or subsidized imports. Nor did the study attempt to
measure injury to the domestic industry in other terms, such as loss of employment.
MethodoloKY
The methodology that the staff used to estimate injury is explained in Chapter 3 and
Appendix B of the report. Some of the essential features of that methodology are:
Isolating the effect of unfair imports. The methodology was designed to isolate and
estimate the effects of dumped and subsidized imports on domestic industries. Of course, the
performance of domestic industries may also be affected by domestic factors, such as the general
state of economic 	conditions, 	changes 	in the 	prices 	of labor 	and 	other 	key 	inputs, 	or
technological changes. International factors other than dumped and subsidized imports can also
affect domestic industries. Fur example, appreciation of the dollar or shifts in comparative
3

advantage between nations - 	unless blocked by restrictions on trade - 	could increase imports
and deL:rease domestic industry revenues. Our In ; hod was designed to identify just the effect
of unfairly traded imports, and not the effects tij 	:lese other factors.
Counterfactual analysis. In our analysis, the actual performance of a domestic industry
in the reference period was compared with our "counterfactual" estimate of what the domestic
industry's performance would have been in the ahsence of the unfair dumping and subsidies. The
reference period was generally the most recent c\)mplete year during the period of the lTC's
investigation. (This period included the period for which dumping or subsidy margins would
have been computed.) Because we assumed that imports and domestic products were, to some
extent, substitutes, domestic revenues would have been greater in the absence of the dumping
or subsidies. We measured the magnitude of injury as the percentage by which actual industry
revenue fell short of the industry's estimated, counterfactual performance.
Differentiated products. For each industry, our estimate of counterfactual performance
was obtained using a computable partial equilibrium model. 	In our model, 	the domestic
industry's product was assumed to be a close, 	but not perfect, substitute for the unfairly
imported product. This assumption accords with the view, generally held among students of
international trade, that domestic consumers are not completely indifferent between domestic and
imported products (except, possibly, for certain standardized products such as crude oil and
sugar).3 If total imports exceed unfair imports, the difference is "fair imports." We extended
product differentiation to fair imports. 	That is, 	~hey are treated as close but not perfect
substitutes for either the domestic or the unfairly imported products.
3 The sources are cited at p. 35, n. 49 of our report.
4

Market structure. In our study, the dom..': ic product and fail imports (where present)
were assumed to be produced by competitive indl: . 	ICS. The price of unfairly traded imports was
generally treated as exogenous, except that, f·; 	:umping cases in which the Department of
Commerce found 	price discrimination, 	unfair
foreign firms that possessed market power. 4
ports '",'ere treated as though produced by
Upper bound injury estimates. 	Our injury estimates ate upper bound estimates. To
implement our model, several demand and SUprl\ elasticities were needed. For most cases we
lacked sufficient information about at least one uf these elasticities. In these cases, we selected
extreme elasticity values that would tend to 0\crestimate injury. 	In other cases, 	we used
elasticity values consistent with the values that the ITC staff has used.
Diagram of model. A diagram illustrating the model used to estimate the effects of unfair
imports is shown in Figure 1, attached at the end of this statement. 5 Panel A is for the domestic
product, panel B for unfair imports, and panel C for fair imports.
The unfair practice, 	whether dumping or sub<;idy, 	lowers the pnce of the unfairly
imported product from PI to Pu (panel B). U.S. consumers accordingly substitute in favor of
unfair imports and against the domestic product and fair imports. 	This 	is shown by 	the
contraction in demand for domestic product from D to D / (panel A), and by the contraction in
demand for fair imports from d to d' (panel C).
4 Specifically, if there is only one foreign firm it is treated as a monopolist. If there are
several firms, they are treated as a foreign cartel.
5 Figure 1 is based on Figure 3.1 in our report.
5

Injl'oy' to the domestic industry from unfair imports is illustrated in panel A. Without the
unfair practice, domestic industry revenue is }..1 I~i. With [he unfair practice, domestic industry
revenue declines to P"Q". Thus. the percent Jt:(! ine in domestic industry revenue caused by
Summary of Injury Estimates
Between 1980 and 1988, the ITC reached final decisions in 221 cases. 6 For 179 cases
it was possible either to estimate injury using our model (174 cases) or, from other infonnation
about the case, to detennine directly that injury ,vas either very large (three cases) or negligible
(two cases).
The principal findings of the report are that in about one-third of the 179 cases the
decline in domestic industry revenues was greater than 5 percent; in about one-eighth of the 179
cases, it was greater than 10 percent. Estimated injury exceeded 10 percent in 21 cases, which
involved products from canned hams and photo albums to EPROMS and teflon. All but two of
these 21 highest . 'jury cases inv ~ved dumping. In 15 of tile 21 cases the subsidy or dumping
margin was relatively high, greater than 30 percent. 7 In three of the 21 cases, which involved
offshore platfonn jackets, the domestic industry was judged to have maximum injury, as sales
by domestic finns were zero. 8
6 For 42 cases there was insufficient infonnation to estimate injury. The missing infonnation
was typically the market share of unfair imports.
7 Thus, for the unfairly imported products investigated in these cases to be "fair," 	U.S.
importers would have to pay prices at least 30 percent higher for these products.
8 In these cases domestic and foreign companies bid for contracts to construct offshore
platfonn jackets. 	During the period of investigation U.S. 	companies were unsuccessful in
obtaining contracts.
6

In all of the 174 cases modeled. we found that (he domestic industry suffered some
measure of injury from unfairly dumped or sur,<:Jized imports. In many cases. the estimated
decline in industry revenues was quite small. hut in others It was substantial.
We would be happy to answer questions about our report.
7

FIGURE 1
EFFECTS OF UNFAIR IMPORTS
paneL.C--- 	I
.Fair imports	Unfair Imports
fiwd.A
Domestic Product
------_-...:.------------------------- -.-._-._------
Certain foreign firms price unfairly (as s\.:, forth in U.S. law) by selling their product in the U.S.
markei at price p. instead of at the fair price Pr 	(Panel B). 	This causes U.S. conSUlllers to
~tibstltute in favor of unfair Imports and curtaU purchases of the domestic product and other
{"fair") Imports. 	There are consequent decllpes in the demand ror the domestic product ( D to D' in
Panel A) and In the demand for fair impo'.ls ( II to 	sl: In Panel C). 	The declines in prices of
domestic product (~to p.) and fair Imports (Il r to IIJ have feedback effects on unfair lUlPO rts,
and cause their demand to decUne (d to d' in Panel B).
----------------
findJi
s
1
a. ': ,,- - -p- ---~c
Pf 	".
" . 	/
P.tg-/f, 	/'
" 	. 	D" .	'1 	,
I 	d: 	D 	~	e . 	I
· 	n r	
0 ..
---
Prj -h'~ ---~ ~.~~
-- ..... -- 	...... .
P..1 -k ----. ----:- -. ----j~: ~-- 	d' d
______________.1. 	...1 ._.
s
------------- .... _ 	11 /
~ 1oi':' --: ~-~-/~:~~ 	II
g, 	i --//-~- -- _-I. 	51'
..
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