Dumping on free trade

Many factors have been cited behind Ford Australia’s decision to cease production. While some government policies have supported the local car industry to the tune of billions of dollars, other government policies have directly undermined the industry’s competitiveness.

Australia’s anti-dumping system is a case in point. Anti-dumping duties on imports of Chinese-made alloy wheels and the threat of duties on steel imports in response to complaints from BlueScope Steel have directly hurt the local car industry.

There is a certain irony in the government’s subsidies to the car industry being undermined by its anti-dumping system, which is notionally intended to help industry, but in reality hurts the majority of Australian producers and consumers.

The government is establishing a new Anti-Dumping Commission from July this year, and has committed extra resources to the task of identifying and imposing additional duties on imports deemed too cheap under Australia’s anti-dumping laws.

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.

Dumping is not illegal under World Trade Organization rules, nor does the WTO require Australia to have an anti-dumping system.

The Productivity Commission argues, “the highest priority for reform of Australia’s anti-dumping system is to introduce consideration of the broader public interest.” The commission (under its previous names) has been arguing for this position since at least 1985. This multi-decade failure to incorporate public interest considerations into Australian anti-dumping and countervailing law suggests the system is unlikely ever to serve the public rather than private producer interests.

The government’s rejection of the commission’s proposal for even a bounded public interest test ensures that Australia’s anti-dumping system will continue to serve the interests of a small number of Australian producers at the expense of other Australian businesses and consumers. The “reforms” implemented by the federal government and supported by the federal opposition set the stage for creeping protectionism via anti-dumping actions that will impose growing costs on the Australian economy.

This is part of a broader trend on the part of the federal government to extend assistance to Australian industry at the expense of consumers and taxpayers, and to stand in the way of a structural adjustment in the Australian economy.

The public interest will be best served by repealing the anti-dumping and countervailing provisions in Australian law, and dismantling the associated bureaucracy within Customs. This was a recommendation of the 1989 Garnaut review and one that remains unimplemented nearly a quarter of a century later. Doing so would send a powerful signal to Australian industry that it must adapt to the structural changes in the world and domestic economies rather than going cap-in-hand to the federal government for assistance at the expense of consumers and taxpayers.

Australia can also set a powerful example on the world stage as a country that prospers because it has abandoned recourse to these protectionist measures. The government should also remove potentially countervailable assistance to Australian industry to avoid provoking protectionist responses from foreign governments. For example, as a recipient of $275 million in federal subsidies, GM Holden’s exports of the VF Commodore to the United States for $10,000 less than a similar model with a smaller engine sold in Australia are potentially vulnerable to the imposition of countervailing duties.

Even if Australia retains an anti-dumping and countervailing system in law, future ministers should use their discretion under existing law to refuse anti-dumping and countervailing measures applications on public interest grounds, highlighting the benefits of cheaper imports for Australian consumers and the economy as a whole, and thus building community support for free trade.