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Estimating US Antidumping/Countervailing Duty Enforcement Benefits

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Part of the New Frontiers in Regional Science: Asian Perspectives book series (NFRSASIPER,volume 42)

Abstract

Dumping is the unfair trade practice of a foreign firm exporting its goods at a price below the sales price in its home market or below its production cost plus markup. Dumping displaces production of similar commodities in the importing country, because its domestic producers have difficulty competing with the lower import price. Antidumping (AD) is a major Priority Trade Issue of concern to U.S. Customs and Border Protection (CBP), and its enforcement is undertaken in parallel with that of countervailing duties (CVD), tariffs on imported goods that offset subsidies for these goods in the exporting country.

We present a generalized analytical framework and then apply it to the estimation of the macroeconomic impacts on the US economy of AD/CVD enforcement. We analyze individual markets for commodities that are being dumped to estimate the direct effects, and then use the Global Trade Analysis Project (GTAP) multi-country computable general equilibrium (CGE) model to estimate the total (direct and indirect) impacts.

Our findings indicate an economic welfare gain to the US economy, measured in terms of personal income, of $182.3 million from the $508.8 million AD/CVD duties levied in fiscal year 2014. The duties themselves represent no welfare gain, as they are merely a transfer from importing companies in the USA to the federal government. However, the duties do provide a basis for estimating the macroeconomic benefits of enforcement if we divide them into the economic welfare impacts. They indicate that for every million dollars of AD/CVD duties levied, US personal income is increased by $358 thousand by way of the various direct effects of increased production of domestic substitutes displacing imported goods and the net of various indirect effects relating to resource allocation and the terms of trade.

Keywords

  • Antidumping
  • International trade
  • Macroeconomic impacts
  • Enforcement benefits
  • Computable general equilibrium analysis

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Fig. 22.1
Fig. 22.2

Notes

  1. 1.

    There are several metrics that are often used to evaluate policies and practices. Two metrics that are widely cited are gross domestic product (GDP) and employment. However, when federal government agencies evaluate the economic impacts of changes in government policies or programs, they are directed by the Office of Management and Budget (OMB) to use different measures, referred to as “economic welfare,” that better capture changes in the economic well-being of the US public. These measures are also used by agencies such as the US International Trade Commission (ITC) to evaluate the impacts of trade policies. The measures are always expressed in monetary terms, and they closely correspond to how personal income and profits change after a policy or program change. We provide more details in Sect. 22.3.

  2. 2.

    Although CBP’s major task is revenue collection, it also performs audits, inspections of cargo, processing of entry summary forms, and scrutinizing importers to identify risks or investigate cases of antidumping. All of these functions help detect violations.

  3. 3.

    Note that, aside from duties, one could also examine the impacts of any dollar value of penalties or fees, if they are significantly large, on importers and the foreign companies exporting products that are AD violations. These penalties and fees can result from negligence (for failures to exercise reasonable care), gross negligence (for cases with actual knowledge or wanton disregard), or fraud (for voluntary and intentional violation) of the importers. In the context of benefit-cost analysis, the AD duties themselves, since they are paid by US importers, would be considered a transfer payment and would not be included in the calculation of the change in economic welfare. However, any fees paid by the foreign exporter are an infusion into the USA from outside and can be considered a net gain to the economy.

  4. 4.

    Another consideration of the effect of the AD duties is the duration that the AD duties are in effect. Based on the AD/CVD data for 2014, a few of the AD/CVD orders have been in place for as long as over 30 years. On average, however, the AD/CVD orders that were active when we conducted this study have been in place for about 10 years. Many economists consider that temporary AD/CVD duties might help correct the market distortion, especially for temporary protection. However, if a foreign country subsidizes a product indefinitely, it worsens its terms of trade relative to the importing country on a long-term basis. In such cases, many economists hold reservations about the strategy of distorting the domestic market by imposing AD/CVD duties when the misallocation effect from the dumping is otherwise felt primarily in the foreign country.

  5. 5.

    We know from the literature in other contexts that the corrective mechanism does not always have the intended effects. The classic example is placing a pollution tax on the output of a monopoly. While for a competitive firm, this causes the producer to cut back output to the socially optimal level, if the producer is monopolist, the pollution tax further induces the monopolist to restrict its output to garner a higher price in the market. This could either mitigate or exacerbate the dead-weight loss depending on whether the monopolist’s private profit maximizing price was above or below the socially optimal price level accounting for the negative externality of the pollution.

  6. 6.

    We thank an anonymous reviewer for helping us clarify and rename these effects.

  7. 7.

    CGE models are usually thought of as measuring indirect, or general equilibrium, effects. However, given their microeconomic foundations of production and utility functions, they can also be used to estimate direct effects.

  8. 8.

    Data on CBP detections of violations could be used to check the modeling results in terms of the extent of displaced US domestically produced counterparts generated by the tariff simulation. Any significant difference would necessitate the recalibration of some major production or consumption function parameters.

  9. 9.

    Various other strategic effects relating to expectations of AD policies in relation to importer pricing policies are beyond the scope of this study. Note that these behaviors relate not only to pricing but also to product quality and quantity strategies (see, e.g., Blonigen and Prusa 2015).

  10. 10.

    Terms of trade effects simply represent a transfer from one country to another and have zero net impact on world welfare.

  11. 11.

    The sector known as (imputed value of) owner-occupied dwellings was combined with other services to facilitate CGE simulation accuracy. Since this sector does not have import goods and the associated transport margins are all equal to zero, running the model with this sector included separately causes the “division by zero” error.

  12. 12.

    CVD duties compose 23.3 percent of this total.

  13. 13.

    The data on AD/CVD cash deposits were collected at the 10-digit HTS commodity level. We then aggregated the AD/CVD cash deposits to the GTAP-sector level and calculated the AD/CVD tariff rate (in percentage terms) by dividing the total AD/CVD cash deposits of that sector (presented in the second column of Table 22.1) by the sector import volume (in dollar terms) (presented in the last column of Table 22.1). The electronic equipment sector is a typical example of the difference between the calculated AD/CVD tariff rate at the GTAP-sector level and the 10-digit HTS commodity level. In Table 22.1, the AD/CVD tariff rate of the electronic equipment sector is 0.0374%. There are four 10-digit HTS commodities in the electronic equipment sector that were subject to AD/CVD in 2014. The majority of the AD/CVD duty in this sector was imposed on one commodity – HTS 8541406020 Solar Cells Assembled into Modules or Panels – with an implicit AD/CVD tariff rate of 2.763%. Although this is much higher than the weighted average AD/CVD tariff rate (0.0374%) calculated for the electronic equipment sector, it is still a moderate tariff level for the specific commodity. For the other three commodities, the implicit AD/CVD tariff rate is similar to or even lower than the sectoral weighted average level. Our weighting procedure to obtain the sectoral-level AD/CVD tariff rate is likely to ensure the correct terms of trade effect but may fail to capture properly the dead-weight burden of the resource misallocation. However, for future studies, splitting out commodities in the GTAP model that have relatively high AD/CVD tariff rates will help improve the accuracy of the analysis.

  14. 14.

    Note that the data reference year of the latest GTAP Model is of 2011. We apply the GDP deflator to transform the data to 2014 values to calculate the AD/CVD tariff rate.

  15. 15.

    From here on we will simply refer to the combination of AD/CVD duties as “AD” for short.

  16. 16.

    An inspection of the simulations for the electronic equipment, chemicals, and metal products sectors individually and the three sectors combined shows that the results are almost perfectly additive, indicating the results are essentially linear. This is not surprising given the small changes in AD duties we are simulating.

  17. 17.

    After including the economic gains from the collection of $72.46 million of recovered revenues from CBP VA reviews, the total economic welfare gain in terms of personal income is $204.6 million.

  18. 18.

    In FY 2014, it is estimated that 129 full-time equivalent (FTE) CBP employees were dedicated to the enforcement activities of AD/CVD regulations. This translates to an increase in personal income of $1.4 million dollars per CBP FTE staff member. Furthermore, the per FTE total personal income gain of AD/CVD enforcement corresponding to the full administrative cost of one CBP staff member, on average, is a ratio of $11.4:1 (see Rose et al. 2016 for additional details).

  19. 19.

    We also performed an analysis of imports of honey and of coat hangers from China that indicate that AD duties have in fact protected these two relatively smaller US industries from unfair trade practices that might have caused their demise (see Rose et al. 2016).

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Rose, A., Chen, Z., Wei, D. (2020). Estimating US Antidumping/Countervailing Duty Enforcement Benefits. In: Chen, Z., Bowen, W., Whittington, D. (eds) Development Studies in Regional Science. New Frontiers in Regional Science: Asian Perspectives, vol 42. Springer, Singapore. https://doi.org/10.1007/978-981-15-1435-7_22

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