From July this year, a new federal bureaucracy will be working hard to raise the prices of imported goods for Australian consumers and producers. The government has established the Anti-Dumping Commission and committed extra resources to the task of identifying and imposing extra duties on imports deemed too cheap under Australia’s anti-dumping laws.
Dumping is a legal rather than an economic concept. Dumping is said to occur when foreign producers export goods at prices below ‘normal value’ in the country of origin.
‘Normal value’ is usually based on the price paid for like goods in the ordinary course of trade for home consumption in the country of export.
Dumping is not an exception to the general case in which a country that is a net importer of a good benefits from lower prices. The gain to Australian consumers (including Australian businesses that consume the dumped good) from lower prices is larger than the loss to Australian producers of the dumped good.
Despite its pejorative connotations, Australia’s economic welfare is enhanced as a result of ‘dumping’ by foreign producers. Dumping is no different to an improvement in Australia’s terms of trade (the ratio of export prices to import prices), allowing increased domestic consumption out of the same amount of domestic production.
Similarly, imports that have been subsidised by foreign governments are a gift from foreign taxpayers to Australian consumers.
Dumping is not illegal under World Trade Organisation rules. Nor does the WTO require Australia to have an anti-dumping system.
In economic terms, dumping is an example of international price discrimination. Price discrimination involves selling the same good at different prices in different markets.
Price discrimination is a legitimate practice that may have a wide variety of motivations and need not be anti-competitive or predatory in intent. On the contrary, international price discrimination is often indicative of a domestic market that is more competitive than the home market of the foreign producer.
Selling goods at a price below their average total cost of production is consistent with profit-maximisation (or loss-minimisation) in the short-run.
If dumping is not inconsistent with free trade, then it follows that anti-dumping laws and measures are protectionist.
Australia’s anti-dumping system does not require an assessment of the economy-wide implications of dumping or anti-dumping measures.
Dumping may be a net benefit to the economy and anti-dumping measures may impose net costs, but this does not count against the imposition of anti-dumping measures.
The 2012 Brumby review noted a "steady increase" in anti-dumping activity. Anti-dumping applications nearly tripled between 2010-11 and 2011-12.
This upward trend is partly due to the June 2011 ‘enhancements’ to the anti-dumping system, which included the creation of an International Trade Remedies Advisory Service attached to industry lobbyists, the Australian Industry Group.
The role of the ITRA is to identify and facilitate potential anti-dumping applications. As the Brumby review noted, "none of these potential applications would have come to light without third party assistance" from ITRA.
ITRA plans a national awareness campaign to drum-up additional anti-dumping activity. Taxpayers are paying for the government to lobby itself for more protection.
ITRA can be seen as part of a growing trend to embed industry policy bureaucrats in Australian industry and increase business dependence on government.
Home Affairs Minister Jason Clare has declared that "dumping is cheating", but this assertion is meaningless from both a legal and economic standpoint.
Our anti-dumping system undermines support for free trade by giving legal authority and sanction to the mistaken view that the economy is harmed by low prices for imported goods.
Australia should dump rather than enhance its anti-dumping system.
Even if Australia retains an anti-dumping system, future ministers should use their discretion under the existing law to refuse anti-dumping and countervailing measures applications on public interest grounds.
They should highlight the benefits of cheaper imports for Australian consumers and the economy as a whole, building community support for free trade.
Dr Stephen Kirchner is a research fellow at the Centre for Independent Studies and author of ‘Time to Dump Australia’s Anti-Dumping System’, released this week.