Anti-Dumping, India, and the European Community

Paper Summary:

"Dumping", which is defined as the practice of exporting a product at a price lower than the price at which an identical product is sold by the same producers in the exporting country's domestic market, features as a prominent reason cited by many governments to raise their trade barriers. Article VI of the GATT agreements legitimizes the use of anti-dumping (AD) duties under certain unique circumstances. In November 2003, the Delegation of the European Commission to the WTO initiated a dispute settlement process with the Delegation of India over AD measures imposed by the Government of India on imports of certain products originating in the European Communities (EC). The 27 AD cases mentioned were on products with end-usage in the textile, pharmaceutical, chemical, and steel sectors, three of which concerned acrylic fiber. This paper provides an in-depth economic analysis of the trade dispute in question between India and the EU by focusing on their trade in acrylic fiber. It begins by describing the nature of the acrylic fiber industry and discusses comparative advantages in world fiber production. The paper then proceeds to build a Heckscher-Ohlin model of trade between the countries in question and illustrates welfare changes and income distributions of free trade relative to autarky. Thereafter, it examines whether the AD measures imposed by India are indeed justified. This is done by analyzing the market behavior and pricing strategies of major EC firms in this industry and by looking for evidence of injury to Indian exporters. Finally, the paper extends its previous analysis to discuss welfare implications of the imposed AD duties relative to free trade. The paper includes graphs and illustrations.

From the Paper:

"It is important to note that the EU is also well endowed in labor and can extract profits from labor-intensive industries, but the region faces a lower opportunity cost of producing one unit of a capital-intensive good such as acrylic, relative to one unit of a labor-intensive good such as cotton. The average size of acrylic fiber manufacturing plants in UK and Germany varies from 70,000 tonnes to 150,000 tonnes, whereas the average size of the plants in India range from 12,000 tonnes to 38,500 tonnes . Since the production technology for acrylic fiber requires a higher capital-to-labor ratio, this means that unit labor requirements are lower, and productivity higher in the European acrylic fiber industry than that of India. In other words, the fact that the EU is a net exporter of acrylic fiber vis-a-vis India and the rest of the world reflects its comparative and not absolute advantage in the production of this good."

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