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Chapter 11: Pushing Exports

Chapter 11: Pushing Exports. Dumping. Selling exports at a price that is “ too low, ” a price below “ normal value ” or “ fair market value. ” Either The export price is lower than the price charged for comparable domestic sales in the home market of the exporter. or

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Chapter 11: Pushing Exports

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  1. Chapter 11: Pushing Exports

  2. Dumping • Selling exports at a price that is “too low,” a price below “normal value” or “fair market value.” Either • The export price is lower than the price charged for comparable domestic sales in the home market of the exporter. or • The export price is lower than the full unit cost (including a profit margin).

  3. Why dumping? • Predatory dumping – temporary, to drive competitors out of business; then firm is a monopoly • Cyclical dumping – when demand is low; price is below ATC but above AVC • Seasonal dumping – to sell off excess inventories (perishable goods, fashion items, new items) • Persistent dumping – a firm with market power uses price discrimination • Firm is a monopoly at home, but a competitive firm internationally • Price discrimination is more profitable

  4. Reacting to dumping • With persistent dumping there is gain in consumer surplus in the importing country which exceeds the loss in producer surplus • With predatory dumping, short run gain is outweighed by the long run loss • Predatory dumping is likely to be rare in modern markets – the short run losses are certain while the long run gains aren’t • With cyclical dumping, international recessions are shared in a way similar to the sharing of the benefits of trade; can be unfair to the importing country, but usually is part of the normal working of a competitive market

  5. Figure 11.1 - Persistent Dumping

  6. Actual antidumping policies • WTO allows countries to retaliate against dumping if dumping injures domestic import-competing producers • Traditional users – US, EU, Canada, Australia • 1980s – 34 countries with antidumping laws; traditional users accounted for 90% of cases • 2005 – 95 countries; traditional users accounted for approximately 1/3 of cases • Countries against which antidumping laws are applied – China, South Korea, EU, US, Taiwan • Usual products – chemicals, steel, metals, machinery, textiles, apparel, electrical products

  7. Figure 11.2 - Top Ten Initiators of Anti-Dumping Cases

  8. Learning activity • Carefully outline the process of imposing antidumping laws in the US • Is there evidence of any bias in the process? Summarize the findings and explain • Are there any losses for the US from its current antidumping policy? • How does WTO handle complaints from the exporters?

  9. Antidumping policy has become a major way for import-competing producers in a growing number of countries to gain new protection against imports…(p.218) • Threat of complaint and harassment effect

  10. Proposals for reform (WTO Doha round) • Limit antidumping actions to predatory dumping (similar to domestic competition policies) • Expand the injury standard to give weight to the surplus of consumers and users of the product (focus of changes in net well-being; Canada – public interest test) • Replace antidumping policy with more active use of safeguard policy (temporary protection)

  11. Export subsidies • EDC • Effects of the subsidy • Expands exports of the subsidized product • Lowers the price paid by foreign buyers relative to the price paid by domestic consumers • Net effect on exporting country is negative

  12. Figure 11.3 - Export Subsidy, Small Country, Exportable Product

  13. Exportable product, small country • Producers gain e+f+g • Consumers lose e+f • Cost to government f+g+h • Net loss f+h • F is consumption effect • H is production effect

  14. Figure 11.4 - Export Subsidy, Large Country, Exportable Product

  15. Exportable product, large country • Producers gain e+f+g • Consumers lose e+f • Government cost f+g+h+i+j+k+I+m • The net loss is the shaded area

  16. Figure 11.5 –An Export Subsidy Turns an Importable Product into an Export

  17. Producers gain ACFE • Consumers lose ABJE • Net loss BJG and CHF • WTOs rules on subsidies • Prohibited • Actionable • nonactionable

  18. Figure 11.6 –A Foreign Export Subsidy and a Countervailing Duty

  19. Countervailing duties • Bad for the country imposing it • Producers gain area v • Consumers lose area v+w+y+z • Government collects area y • Net loss w+z • As compared with free trade the imposing country is better off because if collects the whole subsidy

  20. Figure 11.7 –A Two-Firm Rivalry Game with No Government Subsidies: Airbus versus Boeing

  21. Figure 11.8 –A Two-Firm Rivalry Game with Government Subsidies: Airbus versus Boeing

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