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Economic Statecraft: United States Antidumping and Countervailing Duty Policy

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Economic Statecraft: United States Antidumping and Countervailing Duty Policy ECONOMIC STATECRAFT: UNITED STATES ANTIDUMPING AND COUNTERVAILING DUTY POLICY Submitted by Karen Philippa Malmgren for a Ph.D in International Relations at The London School of Economics and Political Science, University of London, July 1991. 1 UMI Number: U039704 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U039704 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 Ti-hF S F 2 ABSTRACT: Economic Statecraft: United States Antidumping and Countervailing Duty Policy. Ph.D submitted by Karen Philippa Malmgren in the Department of International Relations, The London School of Economics and Political Science. The Antidumping and Countervailing Duty laws are competition policy instru­ ments with which the United States ostensibly seeks to promote the role of market forces, enhance competition and thereby uphold the post-war international economic order. However, through a combination of administrative pragmatism and statutory emendation, these trade laws have evolved into instruments with which the United States impedes market forces and insulates its domestic economy from the very competition these laws supposedly aim to encourage. This is a paradox. Important political issues arise from this paradox which are obscured by the traditional methods of examining trade policy. This dissertation demonstrates that the political aspects can be made apparent if the laws are thought of as instruments of economic statecraft. Through an original application of the theoretical framework David Baldwin has developed in Economic Statecraft, it is argued that the trade remedy laws utilize state power for the purpose of changing the behaviour, beliefs, policies and propensities to act of foreign governments or firms. By examining the detail inherent in the two statutes it is demonstrated that far from compelling foreigners to abide by market forces and undertake competitive trade practices, the US penalizes them for doing so. On the pretext that foreigners' trade practices are "unfair", the US is compelling them to engage in genuinely anticompetitive practices. Competition is the central mechanism of the post-war international trade system. Therefore, the United States is undermining that order with its use of these instruments of statecraft. Further, remedy policy is generating political conflict between the US and its major trading partners because there is fundamental disagreement as to the normal and appropriate role for governments and firms to play in a modern market economy. Differences of opinion about what is "unfair" in this context arise, as is demonstrated, on political grounds rather than economic ones. 3 TABLE OF CONTENTS SECTION ONE: THE THEORETICAL AND ANALYTICAL ISSUES — Pages 7-80 Chapter One: Trade Remedy Policy: Economic Statecraft -- Page 8 The Problem - - Page 8 Purpose -- Page 11 Methodology -- Page 13 Structure -- Page 16 Endnotes -- Page 17 Chapter Two: Trade Remedy Policy -- Page 18 What is Trade Remedy Policy? -- Page 18 The Purpose of Remedy Policy - - Page 20 The Arguments -- Page 24 Free Trade Versus Protection -- Page 25 Intervention versus Non-Intervention -- Page 29 Dead Ends -- Page 31 An Alternative Framework: Economic Statecraft -- Page 32 Return to Non-Tariff Barriers and Non-Tariff Distortions -- Page 39 Elusive Solutions - - Page 43 Endnotes -- Pages 44-49 Chapter Three: The Post-War International Economic Order -- Page 50 The International Trade System - - Page 50 General Agreement on Tariffs and Trade -- Page 54 Safeguards -- Page 58 Domestic Policymaking -- Page 62 The Congress - - Page 64 The Executive -- Page 68 The Judiciary -- Page 69 Firms and Special Interests -- Page 71 The United States: The Paradox -- Page 73 Endnotes -- Pages 76-80 SECTION TWO: ANTIDUMPINGPOLICY AS ECONOMIC STATECRAFT - Page 81-161 Chapter Four: Antidumping Policy: Economic Statecraft -- Page 82 What is Dumping? -- Page 85 A Brief History of the Statute -- Page 85 Endnotes -- Pages 94-96 Chapter Five: Operative Terms -- Page 97 Dumping as Sales at Less Than Fair Value -- Page 97 Dumping as Sales Below Cost - - Page 111 Dumping Margins and Underselling -- Page 119 Injury -- Page 120 Domestic Industry and a Like Product -- Page 123 Standing -- Page 128 Against Whom is the Allegation Levied? -- Page 129 Causality -- Page 131 Cumulation -- Page 134 Conclusion -- Page 135 Endnotes -- Pages 136-144 4 Chapter Six: Remedies -- Page 145 Duties -- Page 147 Settlements -- Page 151 Conclusion -- Page 156 Endnotes -- Pages 160-161 SECTION THREE: COUNTERVAILING DUTY POLICY AS ECONOMIC STATECRAFT — Pages 162-257 Chapter Seven: Countervailing Duty Law -- Page 163 What is a Subsidy? -- Page 167 A Brief History of the Statute -- Page 170 Export Subsidies -- Page 175 A Statute Subverted -- Page 180 The Intervention versus Non-Intervention Approach -- Page 182 Orthodox Trade Theory -- Page 183 Efficiency Only -- Page 185 Injury Only -- Page 186 The Failure of the Efficiency-Only and Injury-Only Schools -Page 188 Governmentsand Markets -- Page 189 The Analytical Problems - - Page 193 Differing Macroeconomic Goals- - Page 195 Endnotes -- Pages 199-203 Chapter Eight: Countervailing Duty Policy: A Better Approach - - Page 204 How Subsidies are Defined in Practice -- Page 204 The Line - - Page 205 Normal Subsidies -- Page 207 The Pliant Line -- Page 214 Domestic Subsidies -- Page 219 The Specificity Test -- Page 222 Upstream Subsidies -- Page 226 What is the Value of a Subsidy? -- Page 229 The Calculation Methodology: A Question of Costs -- Page 231 ’'Normal” Costs - - Page 233 "Subsidized" Costs - - Page 235 Allocating Duties -- Page 237 De Facto versus De Jure - - Page 242 Injury, Domestic Industry -- Page 242 Conclusion -- Page 243 Endnotes -- Pages 244-248 Chapter Nine: Countervailing Remedies - - Page 249 Settlements - - Page 250 Competition Policy: Anticompetitive Ends -- Page 252 Conclusion - - Page 256 Endnotes -- Page 257 SECTION FOUR: ILLEGITIMATE STATECRAFT -- Pages 258-275 Chapter Ten: Economic Statecraft and International Relations -- Page 259 Endnotes -- Pages 273-275 BIBLIOGRAPHY-- Pages 276-288 5 PREFACE I would like to thank my father in particular for providing me with the means to embark upon and finish this dissertation. His intellectual guidance and moral support throughout have inspired me to think harder and better than I would have been able to without him. My mother too gets my thanks for being an unerring support to me during the course of this project. Without her, this dissertation would have been much less easy to read. To Susan Strange I owe a great debt. Without the Politics of the World Economy program she created at the London School of Economics I would undoubtedly have struggled indefinitely to draw the links between economics and politics. She taught me to always consider the assumptions behind arguments, patterns of thinking and policy. As my first supervisor she levelled deserving criticism at my ideas and work which inspired me to cast off dogma and explore beyond the "official" borders of social science disciplines. That is how I have come to write a thesis which covers economics, law, politics and international relations. I would also like to thank Michael Hodges for supervising my work. And, finally, I owe a very great debt of thanks to James Mayall who guided me to completion. The care he took in reading and criticizing my work was invaluable to me. Without his encouragement I would no doubt have taken longer to complete this dissertation. I must also thank the members of the International Political Economy Seminar, all Doctoral candidates, whose rigour and wide knowledge and constant encouragement helped me to hone my own ideas and envisage the wider field of international political economy. Outside the University of London there are others who were especially helpful to me in the course of researching and writing this thesis. Gary Horlick was extremely encouraging. He helped to confirm that the path on which I was travelling was accurate. I thank him for his advice. Rodney Grey too talked with me at length and guided me through the thorny field of trade policy. I am endlessly grateful to both of them. Others, those in government, law and the diplomatic corp, who gave me assistance, guidance and advice, also deserve my warmest thanks. Of course, the work that follows, and any errors of fact or logic in it, are my own, alone. Philippa Malmgren July 1991 6 7 CHAPTER ONE — TRADE REMEDY POLICY: ECONOMIC STATECRAFT THE PROBLEM It is common knowledge that the United States has played an active part supporting the post-War (WWII) international trade system. In this system, competition, rather than colonial claims, for example, is the central mechanism by which the gains from international trade are distributed internationally. In addition to enforcing and abiding by the General Agreement on Tariffs and Trade (GATT),the international agreement which sets out the rules that support competition, the United States government employs its own trade measures to enforce
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