Why we shouldn't dump our anti-dumping system

In this age of free trade, should a system that is designed to act as a trade barrier be abolished?

The short answer is no. The anti-dumping system is actually an important mechanism for maintaining free trade because it corrects unfair trading practices.

The WTO says that dumping occurs when a 'company exports a product at a price lower than the price it normally charges in its own home market'. Dumping is not illegal; however it is internationally accepted as a form of unfair trading. This is because it is viewed as an uncompetitive trade practice which distorts the markets.

The WTO does permit the use of anti-dumping measures to prevent trade distortion. But they must comply with the WTO's strict guidelines. For example, anti-dumping measures can only be implementedwhen it is proven thatthe dumping has caused material damage to the domestic industry.

Australia's anti-dumping system aims to remedy any harmful effects to Australian industry caused by dumped goods. Australian companies are able to lodge an application for anti-dumping duties to be placed on suspected dumped goods. If the goods are found to have been dumped, and to have caused material damage to the local industry, anti-dumping duties will be applied.

Australia recently reformed its anti-dumping system. The reforms were designed to address deficiencies, restore public confidence and relieve pressure on the system. This included establishing an Anti-Dumping Commission, an International Trade Remedies Forum, a new appeals process and time limits for ministerial decisions on anti-dumping matters.

Yet there is still debate over whether anti-dumping systems should continue to be a part of the international trade environment.

Arguments that support its removal focus on the idea that anti-dumping systems can be used as a form of protectionism. Protectionist measures are designed to protect the domestic market from competitive imports. Yet such measures cause producers to become ineffective and unproductive. Performed on a global scale, protectionism leads to market shrinkage.

It has also been argued that anti-dumping measures are ineffective at protecting industries from predatory dumping. Predatory dumping is a type of dumping that aims at eliminating competitors. Once the competition is wiped out, producers are free to set their own high prices. Because the WTO's Anti-Dumping Agreement does not compel nations to investigate the reason why an exporter is dumping, it is not designed totarget cases ofpredatory dumping.

Despite these criticisms, there are far more benefits for countries having an anti-dumping system than not having one.

One reason is that there is currently no international law that regulates international competition. Until one exists, an anti-dumping system is the only way that a country can prevent unfair trading practices from damaging domestic markets.

The Productivity Commission found in its 2009 review that Australia's anti-dumping system should be continued because the 'removal of an anti-dumping "safety valve" could make it more difficult to address remaining tariff and related reform issues'.

Also, during periods of economic recession, global trade is prone to distortion (like dumping). The world has just experienced the worst global recession since the Great Depression in the 1930s. Therefore, it is important to have a system in place that is designed to tackle trade distortion and ensure trade markets remain free and open.

However, while an anti-dumping system should be maintained in Australia it should not be considered a substitute for industrial innovation.

Due to the low margins of commodity products, it is these types of products that would be most susceptible to dumping, and be more likely to be the subject of anti-dumping cases. However, there are reasons, other than dumping, that can affect Australia's ability to produce commodity products at a competitive price. These include Australia's strong economy, high cost of production and high Aussie dollar. Subsequently, it is not always guaranteed that an industry will remain profitable, even with an anti-dumping system in place.

Instead of producing low-margin products, a market in which Australia will struggle to compete, Australian industries should be innovating and adapting to new forms of manufacturing. One new manufacturing practice that could assist Australian industry is known as "unbundling".

"Unbundling" is a process in which parts of a product is manufactured in different parts of the world, as opposed to in one factory. The benefit of this system is that each country develops the part of the product which it is the best at producing. This ensures that the overall product remains cost effective. This technique has already been successfully implemented during the construction of the Boeing 787 Dreamliner aircraft, which had parts produced in the USA, Canada, Korea and Japan.

Finally, trade is always evolving. Products that were profitable do not always continue to be this way, for reasons such as new technological developments. It is because of this that Australian industry must always strive to innovate and develop in order to remain internationally competitive.

And in times when dumping does occur, the anti-dumping system is here to level the playing field.