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Sunday, June 22, 2008 12:59 PM


Insanity Of U.S. Anti-Dumping Laws


In response to Trade Wars, Health Care, and Wal-Mart I received the following reply from "AJ" on Silicon Investor.

Mish, anti-dumping investigations have been going on for decades. There has been a recent push the past couple of years to go after Chinese firms.

All you need to start an investigation with the ITC is a petition from 3-manufacturers in the US. They are required to start an investigation once that happens.

The US is the only western country I'm aware of that has an arbitrary method for evaluating dumping. Most countries look at the cost to manufacture the product in the country its being exported from, but the US method involves evaluating what the product should cost to manufacture here, and applying the difference as a dumping duty.

For example, a mechanical politician puncher could cost $50 to manufacture in China, be exported to the US for $100, and the ITC could put anti-dumping duty on it because the petitioning companies say this product costs $200 to produce in the USA, so it is being "dumped" even though the manufacturer is making a 100% mark-up on the sale.

In Europe, dumping duty is rarely applied, and generally the product needs to be sold below the cost of the manufacturing company that is exporting the goods. In the example above, the product would likely need to be sold at export for $40 or below to be considered for dumping action.

Another ludicrous part of this law is the same product shipped from different suppliers can have varying duties. A product made in the same factory, but shipped from different trading companies could have anti-dumping duties ranging from 15% to 700%, depending on the whims of the ITC. Furthermore, the dumping duty is adjusted I believe quarterly, and it could move from 15% to 100% to 50% to 25% from the same supplier over the course of a year even if their export price did not change. Oh, when they change the anti-dumping duty, it's retroactive, so you don't know how much something costs if you import it until a year after it's been received. It's so stupid you'd think this was Zimbabwe, not the USA.

In the case you cited in your blog, it is most likely the pipes will now be shipped to Canada, where most products from China are duty free. From there they will be "magically transformed" into Canadian pipes and shipped into the USA. This is common method of circumventing anti-dumping rulings.

There was another provision in the anti-dumping law from about 1999 until around 2006 that was real amazing. I believe Rep. Jim Wright from Texas made this change as an amendment to an unrelated bill, but it had huge implications for a few companies. His amendment stated that anti-dumping duties collected by US Customs should be distributed to the petitioning companies as compensation.

This resulted in companies like Timkin receiving something like $160-Million from the US Treasury in 2006 from anti-dumping duties on imported ball bearings. It was one of the largest if not the largest source of profits for Timkin that last year the amendment was in force. It was a racket. With little burden of proof, 3-companies could band together, submit a petition to the ITC, get a dumping ruling, and kill competition while generating additional cash flow.

The dumping laws in the US are completely arbitrary, and the application of these laws ends up costing consumers in the end.
Wow!

So instead of steel pipes and fences coming straight to the US from China, they go to Canada, some middleman in Canada gets a markup, U.S. manufacturers get no relief unless they hit the jackpot as they did with ball bearings, the fence installers in the U.S. pay a marginally higher price because of indirect costs to circumvent via Canada the tariff, U.S. taxpayers pay through the nose for some bureaucrats to investigate the alleged dumping only to determine a totally biased and unfair ruling, and all it takes to initiate this wasteful process is for three manufacturers hoping to hit the jackpot to get together and accuse someone of dumping.

Is this a great system or what?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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