WORLD TRADE
ORGANIZATIONWT/WGTCP/W/88
28 August 1998
(98-3331)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM THE UNITED STATES
The following communication, dated 27 July 1998, has been received from the Permanent
Mission of the United States with the request that it be circulated to Members.
_______________
Observations on the Distinctions between Competition Laws and Antidumping Rules
Preface
The United States generally has been gratified by the seriousness of the work undertaken in
this Working Group and by the active interest which Members have shown in those new issues which
the Working Group was established to study, particularly  the basis and benefits of competition policy
and competition laws and their supportive interaction with trade liberalization to create a favorable
climate for global growth and development.  However, throughout the Working Group's pastdiscussions, the United States has noted the tendency of certain Members to question the legitimacy
of trade remedies, principally by asking how the antidumping rules can be rationalized with an
economic regulatory regime found in approximately one-third of Member countries, namely,
competition laws (used here in the antitrust sense).  These Members typically refer to the alleged
"anti-competitive effects" of the antidumping rules, ostensibly out of concern for the welfare of
consumers in countries where the antidumping authorities legitimately enforce the antidumping rules
against unfairly priced imports.  At times, these Members suggest that the antidumping rules shouldbe repealed and replaced with competition laws.  Other times, it is suggested that the antidumping
rules at least should be modified to make them more consistent with competition policy principles.
In the view of the United States, this Group cannot gain from any inquiry into the alleged
"anti-competitive effects" of the antidumping rules.  As many Members have acknowledged, there isno reasonable foundation for replacing the antidumping rules with competition laws or modifying
them in a way that would make them reflect competition policy principles.  Stated simply, the
antidumping rules and competition laws have different objectives and are founded on different
principles, and they seek to remedy different problems.  If the antidumping rules were eliminated in
favor of competition laws or modified to be consistent with competition policy principles, theproblems which the antidumping rules seek to remedy would go unaddressed.
The United States would suggest that one productive inquiry for this Working Group would
be to examine the sources of some of the market distortions that enable injurious dumping to occur in
the first place.  A particularly  useful focus would be on the market-distortive government industrial
policies and government economic practices discussed in this paper, including, for example, the
absence of meaningful, soundly enforced national competition laws.  Dumping is a symptom that can
result from such policies and practices; antidumping measures intended to offset dumping do not
cause or create these policies or practices.WT/WGTCP/W/88
Page 2
Nevertheless, from an educational perspective, there may be some value in exploring the
distinctions between competition laws and the anti dumping rules.  From statements made by some
Members in earlier meetings of this Working Group, and particularly from much of the literature
emanating from the field of competition policy, it appears that there are opponents of the antidumping
rules who may not appreciate the complex interplay of economic, social and political considerationswhich gave rise to those rules.
The United States would like to make clear its view that to discuss this topic beyond the
limited task of recalling the underpinnings of the antidumping rules would be beyond the Working
Group's mandate.  The antidumping rules, as now set forth in the WTO Antidumping Agreement,
reflect a broad consensus among Members, developed and refined over many years of work in the
GATT and WTO Antidumping Committees and in succes sive negotiations, most recently the Uruguay
Round.  This consensus was difficult to achieve, and the resulting agreement has only been in force
since 1995.  Indeed, a number of Members have not even completed implementation.  Consequently,
in the view of the United States, any substantive discussions aimed at the antidumping rules in this
context not only would be misguided and premature, but also, more fundamentally, inconsistent with
the consensus reached by Members during the Uruguay Round.
Introduction
Contrary to the assumptions of some economists, the antidumping rules are not intended as a
remedy for the predatory pricing practices of firms or as a remedy for any other private anti-competitive practices typically condemned by competition laws.  Rather, the antidumping rules are a
trade remedy which WTO Members have agreed is necessary to the maintenance of the multilateral
trading system.  Without this and other trade remedies, there could have been no agreement on
broader GATT and later WTO packages of market-opening agreements, especially given the
imperfections which remain in the multilateral trading system.
As a trade remedy, the antidumping rules are triggered only in response to the practice of
"dumping",  i.e., a situation where an exporter sells its product abroad at lower prices than it does at
home or at prices that are below cost, which causes "material injury" to producers of the product in
the importing country.  Once these facts are established, the investigating authorities may impose
duties to offset prospectively the injurious dumping.
The relatively straightforward nature of the test for injurious dumping contrasts with the
complexities of the imperfections in the multilateral trading system which give rise to the need for the
antidumping rules in the first place.  Although some dumping may be due to business advantages and
market segmentation which have arisen in response to commercial forces, more typically it is a
government's industrial policies or key aspects of the national economic system which a governmenthas created, promoted or tolerated that enables injurious dumping to take place.
Principally of concern in this regard are certain government industrial policies or practices
which in most instances are not directly or fully subject to any type of WTO prohibitions or
disciplines.  In other instances, these policies or practices may not fully conform to WTO disciplinesor, even if they do, may not leave all Members on an equal footing because of differences in starting
levels of openness and transparency among Members.  These policies still are objectionable because
they distort market structures or processes and, as a result, provide artificial advantages to home
market producers (often at the expense of home ma rket consumers).  These artificial advantages
generally translate into increased profits for these producers in their home market, which makepossible and, for various reasons, may encourage these producers to engage in injurious dumping
abroad.
The objectionable government industrial policies fall into several categories.  First, and
perhaps most commonly, a government may seek to protect and bolster a domestic industry byWT/WGTCP/W/88
Page 3
combining significant limits on domestic competition with any of a host of market access barriers
protecting against foreign competition.  These same forms of protection can arise from the absence of
meaningful, soundly enforced national competition laws.  Or, a government may achieve the same
results through the use of price controls that, for example, establish an inflated domestic price for a
product in a protected market, or perhaps create an artificially low domestic price for an input.  Agovernment also may achieve the same results by subsidizing or directing support to the domestic
industry, or it may employ arrangements which enable the domestic industry to sell at elevated prices
to a state trading company, but often result in low export pricing by the state trading company.
The antidumping rules are a practical, albeit indirect, response to these trade-distorting
policies.  The antidumping rules allow Members to respond through the imposition of offsetting duties
when confronted with one harmful result of these policies, namely, injurious dumping in exportmarkets by the producers that benefit from these policies.  From this perspective, the antidumping
rules represent an effort to maintain a "level playing field" among producers in different countries.
Antidumping duties are designed to offset, quantitatively, the artificial advantages realized by the
exporting country's producers so that producers in the importing country may compete, at least in the
importing country's market, on equal footing with the exporting country's producers.
The antidumping rules also help to neutralize inequities that may arise from differences in
national economic systems, even as international trade liberalizes.  For example, differing social and
legal arrangements for employment and under-employment, or differing debt-equity structures and
debt burdens, often made possible by indirect government intervention in the banking system, canfavor the exporting country's producers over the importing country's producers and lead to injurious
dumping.  Other circumstances that can lead to injurious dumping can include certain competition-
inhibiting private conduct, cross-subsidization that can result from the legal organization and
operation of foreign business groupings and, in the case of non-market economies or some economies
in transition, export directives and prices and costs not entirely based on market principles.
Notably, whether dumping results from market-distortive government industrial policies or
the interaction of different national economic systems, or both, antidumping laws administered in
strict conformity with the Antidumping Agreement actually assist governments in their efforts to
continue trade-liberalizing measures by providing relief to domestic industries injured by foreign
firms that engage in unfair trade practices, even  as international trade liberalizes.  From this
perspective, the antidumping rules are a critical factor in obtaining and sustaining necessary publicsupport for the shared multilateral goal of trade liberalization.
Competition laws, in contrast, do not address the underlying problems at which the
antidumping rules are directed, and it is for this reason that competition laws are not an appropriate
substitute for antidumping rules.  Competition laws remedy private pricing practices which, inthemselves, are objectionable because they are anti-competitive in an antitrust sense.  While it is true
that the antidumping rules address certain private pricing practices, it is not because these pricing
practices - that is, dumping practices - are anti-competitive in an antitrust sense.  The antidumping
rules provide a remedy against injurious dumping as an indirect response to a foreign government's
market-distortive industrial policies or differences in national economic systems.  As a result,although dumping by foreign producers can, for example, send false signals to the importing country's
market that distort investment patterns, dumping practices will not normally qualify as "anti-
competitive" when analyzed under the distinct rules of most national competition laws.
The antidumping rules do not address whether the importing country's overall economic
welfare would be enhanced or reduced by their use.  Although many countries' competition laws may
take that approach, the antidumping rules simply seek to remove unfairness and create a "level
playing field" for producers and workers.  It therefore may be more appropriate to view theWT/WGTCP/W/88
Page 4
antidumping rules as a judgment by the importing country that it will not accept low-priced or below-
cost imports - even if its immediate overall economic  welfare would be enhanced - to the extent that
acceptance means forcing its producers and workers to compete against, and be injured by, foreign
producers receiving unfair advantages from government policies or actions which lead to significant
differences in economic systems.
Consequently, competition laws and the competition policy principles on which they are
based are not relevant to an analysis of the antidumping  rules.  This does not mean, however, that no
linkage at all exists between trade policy and competition policy in this context.  There is an important
linkage.  Specifically, competition laws have an impact on the problem of injurious  dumping , in that
the absence of, or the lack of adequate enforcement of, meaningful competition laws is one of the
circumstances that may enable producers that profit from non-competitive domestic markets toengage in injurious dumping in the first place, as is discussed more fully below.
An examination of the major regional trade agreements around the world, meanwhile,
supports these conclusions.  These agreements show, first of all, that it is quite unusual for countries
to agree not to apply their antidumping laws to imports from other countries participating in theregional trade agreement.   For those that have done so, e.g., the European Union (EU) and Australia
and New Zealand, the participating countries have found it necessary, as a starting point, for there to
be strong similarities in their national economic systems before considering elimination of their
antidumping laws vis-à-vis one another.  In addition, in an effort to achieve the fullest possible
integration of their economies, the participating countries have adopted far-reaching measures, suchas the free movement of goods, labour and capital and the freedom to provide services.  Equally
essential is the adoption of rules to remove substantially market-distortive government industrial
policies that the antidumping laws indirectly address - from, for example, restrictions on domestic
competition to market access barriers to domestic price controls to government subsidization - with
regard to trade among the participating countries .  The existence of meaningful national competition
laws is another one of the several prerequisites for eliminating the problem of injurious dumping.
Only then, after the satisfaction of all of these prerequisites, have the participating countries been
willing to conclude that injurious dumping no longer was likely and, for that reason, been willing to
agree to eliminate their antidumping laws vis-à-vis one another.  Neither the EU nor Australia and
New Zealand, however, have eliminated their an tidumping laws vis-à-vis the outside world.
These agreements plainly do not support the proposition that the mere existence of
meaningful national competition laws can serve as a substitute for antidumping laws.  Instead, the
existence of competition laws was only one of numerous economic integration steps that both the EU
and ANZCERTA required before agreeing to eliminate the antidumping laws internally.
Finally, it should be noted that the antidumping mechanism itself is not perfect.  While it does
serve an important equalizing function, as discussed above, it is not the most efficient means to deal
with a frequent cause of injurious dumping, namely, market-distortive government industrial policies.
Antidumping measures may not induce government s to change objectionable policies.  Any
shortcomings of the antidumping mechanism in this context, however, arise from the fact that the
antidumping rules can only remedy the injurious effe cts of the objectionable policies rather than the
policies themselves.  It would, of course, be preferable to address those policies directly.  To that end,
the United States is vigorously working to open fo reign markets, to foster a culture of competition
where needed, to discipline subsidies and generally to liberalize trade.  In time, these efforts will help
to reduce the possibilities for injurious dumping.WT/WGTCP/W/88
Page 5
Discussion
1. The antidumping rules are a mechanism wh ich WTO Members have agreed is necessary
to the maintenance of the multilateral trading system.
The WTO embodies multiple and diverse objectives, which must be viewed and assessed
collectively.  These objectives reflect the desire to extend and improve the multilateral trading system
and to increase the benefits gained from trade libe ralization.  At the same time, they also reflect the
need to preserve and maintain domestic support for that system, which is built entirely on the
voluntary participation of nations. The tension between the desire to expand trade and improve the
system and the need to maintain a balance of interests and domestic support for the system produces a
necessary set of concessions that is inherent in any process involving sovereign nations withcompeting interests and which differ in size, tastes, culture, priorities, perspectives and outlook. The
existence of these concessions means that no single component can be analyzed in isolation; instead,
the package must be viewed as a whole.
For example, mandatory customs clearance procedures, sanitary and phytosanitary measures
and product testing, safety and labeling requirements by their very nature necessarily restrict, or
increase the cost of, market access and trade.  From an economic efficiency perspective, one could
view these restraints on trade as unnecessary concessi ons and argue that countries would be better off
if these procedures, measures and requirements, instead of being mandatory, were made voluntary.
Consumers then could choose the goods that they wanted, i.e., the higher-priced goods that are
customs-cleared, inspected and tested or the lower-priced goods that are not.  But this is not, in
general, what countries do.  Instead, countries individually and collectively have decided that certain
minimum mandatory procedures and requirements, e.g., certain health and safety measures, are
desirable even though they increase transaction costs.  Thus, a narrow focus on economic efficiency
ignores the fact that these types of concessions, among others, are precisely what makes possible themarket access concessions on which the multilateral trading system is based.  The entire set of
concessions must, therefore, be viewed together.  Members of the multilateral trading system tolerate
certain deviations from economic efficiency because they appreciate the net long-term gains which
trade liberalization assures.
As explained below, the antidumping rules protect against adverse trade effects that can arise
from market-distortive government industrial policies, not directly or fully prohibited or disciplinedby multilateral rules, or simply the interaction of different economic systems.  Although Members
have maintained various levels and forms of trade barriers following negotiating rounds, the fact that
these continued trade barriers may not be directly prohibited or disciplined by the negotiated
agreements does not necessarily mean that they are condoned or judged to be "fair" by Members or
otherwise considered WTO- or GATT-sanctioned.  Rather, the continued existence of these tradebarriers is best viewed as the product of a negotiated political equilibrium, which, in the case of the
WTO Agreement, and previously the GATT, includes numerous annexed agreements addressing a
variety of subjects.  The overall understanding embodied in these agreements - which do not directly
address numerous problematic trade matters - was achieved only because Members, particularly those
with relatively open markets, were able to negotiate mechanisms like the Antidumping Agreement.
2. The antidumping rules are not intended as a remedy for predatory pricing or any other
private anti-competitive practices with which competition laws are concerned.
A review of antidumping laws and their history prior  to GATT 1947, when antidumping
remedies were made part of the multilateral trading system, suggests, at the rhetorical level, some link
with a concern over the predatory pricing practices of large foreign monopolies.  However, a closer
examination of the antidumping legislation actually enacted, shows that the true motive for the earlyWT/WGTCP/W/88
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antidumping laws was not a concern that foreign "trusts or combines" might monopolize the domestic
market.  Rather, it was a general - but undefined - concern for "fairness" when domestic firms had to
face competition from foreign firms and, more particularly, a response to manufacturing interests
seeking to maintain or increase the levels of tariff protection and/or ensure the market "normalcy" to
which they had become accustomed.
Nevertheless, the anti-monopoly rhetoric commonly used when the first antidumping laws
were being enacted - Canada in 1904, Australia in 1906, the Union of South Africa in 1914 and the
United States in 1921 - was perhaps the best way to promote political acceptance of the antidumping
legislation.  Domestic antitrust laws recently had been enacted and, at least in the United States,
enjoyed wide, popular support.  Without much anal ysis, the proposed antidumping laws could be, and
were, characterized as necessary to protect domestic producers against foreign monopolies.
Indeed, both the structure and the administrative design of the enacted laws reveal a different
intent.  The laws were not even nominally structured to counter predatory practices.  The antidumping
remedy was not limited to goods sold by firms w ith monopoly power or even the potential to acquire
it.  In the earliest of these laws, moreover, there was an artificial cap of 15 percent  ad valorem  placed
on the antidumping duty, and there was no inquiry into the existence of any injury to a domestic
industry as a precondition to the imposition of a duty.  Although by 1921 the United States had
included an injury inquiry in its law, it still did no t require predatory intent or injury that threatened
the viability of a domestic firm or industry.  The administration of these laws in some countries,
meanwhile, further suggests a divergence from antitrust concepts.  In the United States, for example,the antidumping law was not treated as an additional antitrust remedy which courts could apply to
remedy monopolization by foreign firms.  Rather, the power to impose antidumping duties was
entrusted to an Executive Branch official, the Secretary of the Treasury.
Following the enactment of these early laws, economists - beginning with Jacob Viner in
1923 - sought to analyze how and in what circumstances antidumping laws might be justified solely
on the basis of "economic efficiency."  Focusing on the perspective of national welfare in the
importing country, these economists identified various situations which, in their view, justify the
antidumping remedy, such as "short-run dumping," which gives rise to harmful false market signals,
the theory of the "optimal tariff," which comes into play when a tariff concession has resulted in a
tariff set below its optimal level for the extraction of monopsony rents, and the "strategic trade"
paradigm, which recognizes that antidumping duties can enhance national welfare in certain types ofindustries by inducing foreign firms to locate within the national boundaries of the importing country.
At the same time, the economists also identified a number of other circumstances in which the
antidumping laws do not promote "economic efficiency".
With GATT 1947 and the introduction of the antidum ping rules into the multilateral trading
system, the antidumping rules plainly took on the role of a trade remedy mechanism necessary to the
maintenance of the multilateral trading system.
GATT 1947 itself was agreed to during negotiations which paralleled the negotiations for a
proposed larger agreement, the Havana Charter for an International Trade Organization.  The HavanaCharter contained one article addressing antidumping and several separate articles addressing private
anti-competitive practices, among other matters.  GATT 1947 was agreed to first and was intended to
be an interim agreement until the Havana Charter could be finalized, although, as is well known, it
never was.  In any event, GATT 1947 incorporated verbatim, in Article VI, the article on antidumping
that had been negotiated as part of the Havana Charter.  GATT 1947 did not, however, incorporateany of the Havana Charter articles addressing private anti-competitive practices.
These events and circumstances support the conclusion that Article VI of GATT 1947 is not
concerned with remedying the private anti-competitive pricing practices with which competition laws
are concerned.  The subsequent history of GATT 1947, moreover, further illustrates this point.  InWT/WGTCP/W/88
Page 7
particular, in 1958, the Contracting Parties decided to appoint a group of experts "to study and make
recommendations with regard to whether, and to what extent if at all, and how the Contracting Parties
should undertake to deal with restrictive business practices in international trade".  Resolution of 5
November 1958 on "Restrictive Business Practices  - Appointment of Gr oup of Experts", 7S/29.
3. The nature of the antidumping remedy
Dumping typically involves international price discrimination, where a producer sells its
product at a lower price in export markets than it does in its home country, but dumping also may
involve below-cost pricing.  The antidumping rule s promote free, but "fair", trade insofar as they
provide a remedy for domestic producers and workers against injury from dumping by foreign
producers.
In the international context, where the antidum ping rules apply, "fairness" means a level
playing field, with similarly situated producers being treated similarity.  In other words, "fair" trade
envisions that producers will use only natural comp arative advantages, such as natural resources, a
favorable climate, advanced technology, skilled workers, greater efficiency or lower labor costs, andnot any artificial advantages.
Normally, the ability to engage in injurious dumping can be traced to artificial advantages
resulting from either (or both) of two situations, i.e., market-distortive government industrial policies
and/or differences in national economic systems.  It is these situations that principally give rise to theneed for the antidumping rules.
(a) The antidumping rules as a remedy for market-distortive government industrial
policies
The ability to engage in injurious dumping often arises from government industrial policies or
practices that distort domestic market structures or processes with regard to a particular product.
Although these policies take on many different forms, they provide similar artificial advantages to the
benefiting producers.  Specifically, these policies enable the benefiting producers to charge higher
than competitive prices in their home market - what can be thought of as a "sanctuary market" - and,
as a result, to realize increased profits.  If the go vernment's policies have the effect of lowering the
producers' unit costs, the producers may benefit even when they maintain current home market prices.For example, the producers' unit costs could be lowered simply by being able to make increased sales
of their products to a captive home market, or it could be as a result of more direct measures.  Here,
the producers can realize increased profits to the extent that they do not pass on their cost savings to
home market consumers.  The producers also may realize similar benefits simply as a result of
government financial support.  Overall, these benefits make possible and, for various reasons, mayencourage these producers to engage in injurious dum ping abroad.  Absent intervention by their own
government, competing producers in export markets are at a disadvantage and often suffer injury,
such as lost market share, because they cannot match the low pricing from producers in the home
market.
The same injurious dumping also can arise in a less direct manner when a producer benefiting
from the market-distortive government industrial policies has multiple product lines.  Here, the
producer can use the artificial advantage, i.e., increased profits, realized with regard to the product
line targeted by one of these policies, to finance low-priced exports in another product line.  This
practice is sometimes referred to as "cross-subsidization."
Four different categories of market-distortive government industrial policies are described
below.WT/WGTCP/W/88
Page 8
(i) Government industrial policies which combine limits on domestic
competition with market access barriers that keep out foreign
competitors
The ability of a country's producers to engage in injurious dumping can arise from a
combination of two types of government industri al policies.  First, the government may pursue
measures designed to result in limited (or no) domestic competition for these producers.  Second, it
may adopt measures that substantially protect these producers from foreign competition, either
through high tariffs or any of a host of possible non-tariff barriers.
The existence of only limited domestic competition  may be due to many different types of
industrial policies falling under the umbrella of government actions intended to influence the structure
of the home market with the aim of affecting the number or type of producers.  Examples of these
policies include:
- Government policies limiting the number of producers in a particular industry, such
as through the restrictive award of licenses;
- State monopolies;- Government policies favoring a "national champion" firm within an industry;- Government policies which divide up and stabilize market shares;  and- Any of a variety of other government policies which regulate commerce by creating,
promoting or tolerating monopolies or oligopolies or by favoring some domesticcompetitors over other domestic (and foreign) competitors.
Protection against foreign competition, meanwhile, may be due to either high tariffs  or any
number of non-tariff barriers .  Examples of possible non-tariff barriers include:
- Import charges, quantitative restrictions, import licensing and customs barriers;
- Standards, testing, labeling and certification, including, for example, the acquiescence
of a government in unwarranted regulations sought by industry, a government's
unnecessarily restrictive application of sanitary and phytosanitary standards, and a
government's refusal to accept foreign manufacturers' self-certification of
conformance to home market product standards;
- Investment barriers, such as limitations on foreign equity participation and on access
to government-funded research and development programs, local content and export
performance requirements, and restrictions on transferring earnings and capital;
- State trading rights;
- Services barriers, such as limits on the range of financial services offered by home
market financial institutions, regulation of international data flows and restrictions on
the use of foreign data processing;
- Lack of intellectual property protection, including inadequate patent, copyright and
trademark regimes;
- Government procurement practices such as closed bidding;  andWT/WGTCP/W/88
Page 9
- Bribery and corruption.
In addition, the ability of a country's producers to engage in injurious dumping can arise from
the absence of, or the lack of adequate enforcement of, meaningful national competition laws.   In
these circumstances, government inaction or acquiescence may effectively tolerate, or even foster,private anti-competitive conduct that limits both domestic competitors and potential domestic
entrants, while it also can simultaneously deny or impede market access for foreign competitors.
Examples of this type of conduct can include bid-rigging, market allocation and other horizontal
arrangements among competitors, vertical restraints, such as distribution arrangements, monopolistic
and other predatory practices, cartels, and anti-competitive mergers.
When government policies, like those described above, result in limits on domestic
competition and market access barriers excluding foreign competitors, the benefiting producers, when
exporting, enjoy an advantage over producers in the importing market that is not due to greater
efficiency or any other natural comparative advantage.  Rather, they enjoy increased profits in their
domestic operations because their government has substantially removed competition, from both
domestic and foreign sources, in their home market.  Injurious dumping is then possible.
(ii) Domestic price controls
Another category of market-distortive government industrial policies which can lead to
injurious dumping involves domestic price controls, which governments can use in a number of waysto support domestic industries.
One scenario, which has many variations, is where a government sets the domestic price of a
product at an artificially high level, while it uses prohibitively high tariffs to prevent foreign
producers from undercutting this price.  Here, even though the domestic producers of the product maybe inefficient and have relatively high costs, the domestic price is often set high enough for them to
reap super-competitive profits.  The domestic producers can use this artificial advantage to leverage
exports at low prices.
Even where the preferential tariffs are set at a level to approximate the artificially high
domestic price, the effect is often the same.  Unless quality is an issue, it can be very difficult for
producers located in other countries to break into the domestic market, given historical patterns, anabsence of name recognition and an inability to compete for market share on price terms.
Consequently, these foreign producers often are not similarly able to reap any of the super-
competitive profits made possible by the price control policy.  The domestic producers' advantage
over them can be used to leverage exports at low prices.
A similar scenario can develop when an artificially low price is set domestically for a product
that is an input for one or more finished products.  Here, the domestic producers of the finished
products receive the artificial advantage of paying a below-market price for an input.  This same
advantage is not available to producers of the finished products located in other countries because the
input producers, when exporting the input, do not face any price controls, and therefore can sell at acompetitive price.  Thus, the domestic producers of the finished products can use this advantage over
producers of the finished products located in other countries to leverage exports at low prices.
(iii) Government subsidization
Injurious dumping also may arise as a result of government subsidization, particularly where
market forces do not drive the subsidy recipients to pass on the subsidy benefits to consumers in order
to remain competitive in their home market.  The go vernment subsidies create an artificial advantageWT/WGTCP/W/88
Page 10
for the recipient domestic producers that is not enjoyed by producers located in other countries, to the
extent that they do not receive similar subsidies from  their governments.  In these circumstances, the
government subsidization enables the recipient domestic producers, when exporting, to engage in the
low pricing that constitutes dumping.
Meanwhile, the same results can occur even when government subsidies finance failing
domestic producers.  Here, even though the recipient domestic producers may not become more
competitive vis-à-vis non-subsidized producers located in other countries, excess capacity in the
domestic industry still can be created, and dumping abroad often results.
(iv) State trading arrangements
State trading arrangements, typically involving commodity products such as agricultural
products, also can lead directly to injurious dumping.  Although more common in planned economies,
state trading arrangements also can be found in market economies.
A common scenario involves domestic producers which are not internationally competitive
because their cost of production is higher than the world market price for their goods.  Here, the
domestic producers are allowed to sell goods to a state trading company at prices equal to their costs,
and then the state trading company dumps the goods abroad at whatever prices it can obtain.
Normally, this price will be the lower world market price, and over time this world market price may
even decline if the state trading arrangement induces significant excess production of the goods.
Another scenario involves internationally competitive domestic producers which produce
goods whose price on the world market can fluctuate significantly from year to year.  Here, in order to
insulate them from harmful price downturns, the domestic producers are allowed to sell their goods to
a state trading company at a predetermined price, which in a particular year may be well above orbelow the world market price.  Dumping takes place in years that the predetermined price is above the
world market price if the state trading company subsequently sells the goods abroad at the world
market price.
(b) The antidumping rules as a remedy for producers disadvantaged by key
differences in national economic systems
Another type of injurious dumping can arise concurrently with, or independently of, the
injurious dumping that arises from the market-distortive government industrial policies discussed
above.  This type of injurious dumping manifests it self through low, often below-cost export pricing
brought on by differences in the economic environments found in the exporting and importing
countries.
In many situations, the differences between two national economic systems result not just
from the prevailing business climate or culture.  Instead, these differences also are attributable, in
large part, to the role which the government chooses to play in how business is conducted.
For example, injurious dumping can arise when social and legal arrangements for
employment and under-employment differ between countries, with labor being more of a fixed cost in
one country and more of a variable cost in another country.  Particularly where the traded product is
fungible and there is a single world market price for it, this difference in the nature of the labor cost
can result in the industry in one country (where labo r is more of a fixed cost) being more willing to
sell below the cost of production than the industry in the other country.  The country whose industry is
less able to lay off workers in periods of slack demand because of social and legal constraints will sell
below-cost and, essentially, export its unemployment to the other country's industry.WT/WGTCP/W/88
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Injurious dumping also can arise where the business climates in the exporting and importing
countries give rise to differing debt-equity structures and debt burdens.  Here, one country may have
poorly developed equity markets, with the result that its producers, facilitated by soft-lending
practices of its banks, rely heavily on debt, particularly short-term debt, to maintain or increase
production capacity.  Often, the high debt structure of companies is made possible by indirectgovernment intervention in the banking system.  Another country may have fully developed equity
markets from which its producers obtain financing, with proportionately less reliance on debt
financing.  Especially, but not exclusively, during periods of slack demand, it is the producers from
the country with the poorly developed equity market s that will have a greater incentive to sell abroad
at whatever price they can obtain above short-term marginal cost, given the need to satisfy their debt
obligations.
Another example is where government-tolerated relationships among businesses
fundamentally vary between the exporting and importing countries.  This can arise, in particular,
where there are business groupings in one country with substantial horizontal and vertical
relationships that have led to widespread competition-inhibiting private conduct.  The economic reach
of these business groupings can be extremely broad, and the adverse effects are felt not only bypotential domestic entrants which do not belong to one of these business groupings, but also by
foreign competitors in terms of denied market access.  As a result, these business groupings may
benefit from increased profits in connection with operations in their home market.  They also benefit
from favorable, non-commercial access to financing because lending institutions typically are among
the members of a business grouping.  These benefits provide producers from these business groupingswith an advantage over producers in countries where the economy is more open and the government
does not tolerate the same types of relationships among businesses, with the result that producers in
countries that tolerate or abet these business groupings may be placed in a position which enables
them to engage in low export pricing.
Another example can be found in countries where the government has a standing practice of
adopting market-stabilization measures and tolerating collusive behaviour among domestic producers
once a product market becomes mature, with the result that market shares among domestic producers
become stagnant and price competition is eliminated.  Here, rivalry among domestic producers, in the
sense of price competition, is intense when a new product line is being developed, typically as a result
of joint research and development sponsored by the government.  The firms that participated in the
research and development effort - usually members of established conglomerates - race to buildmassive production capacity which may or may not bear some correlation to market demand, and then
a period of fierce price competition follows as these firms fight for domestic market shares before the
government steps in and stabilizes the market.  One significant by-product of this type of activity is a
large number of exports, often at low or dumped prices, as the manufacturers of the new product line
seek outlets for their new capacity abroad.
Still another example can be found by looking at economies that make use of state planning.
Commonly, in these economies, unlike in market economies, the government will issue directives to
producers to achieve a certain level of exports.  Not faced with hard budget constraints, the affected
producers in these circumstances willingly export at whatever prices they can obtain, and often theseexports are made at dumped prices, well below cost.
4. What is the linkage between trade and competition policy in the antidumping context?
(a) Competition laws are not a substitute for the antidumping rules
As the above discussion shows, competition laws cannot substitute for the antidumping rules.
The focus of the antidumping rules is not competition within a national market, and it is not consumerWT/WGTCP/W/88
Page 12
welfare or allocative efficiency.  Rather, consistent with other WTO agreements, the Antidumping
Agreement implicitly recognizes that there is an  accepted norm for the behaviour of governments in
the broad multilateral trade context, i.e., a government should not pursue industrial policies which
distort market structures or processes and thereby provide artificial advantages to domestic producers
to the detriment of producers in other countries.  The Antidumping Agreement also recognizes thatthere should be a remedy for certain harms caused when different economic systems interact.
Competition laws appropriately do not take these matters into consideration.  With competition laws
substituted for the antidumping rules, or with the antidumping rules modified to reflect competition
policy principles, the injurious effects of the numerous unfair situations described above would go
unremedied.
(b) The absence of meaningful, soundly enforced national competition laws can be
relevant to the problem of injurious dumping
The linkage between trade and competition policy, as discussed above, is not found in any
relationship between competition laws and the antidumping rules.  Rather, the linkage flows from the
fact that the absence of meaningful, soundly enforced national competition laws is one of thecontributing circumstances that can give rise to injurious dumping.  Thus, by promoting a true culture
of competition, including the adoption and enforcement of meaningful national competition laws in
countries that do not have them, the WTO can help to eliminate one of the contributing causes
underlying injurious dumping.  Of course, the adoption and enforcement of meaningful national
competition laws is only one part of the equation.  As the above analysis shows, there are numerousother causes of injurious dumping ranging from market-distortive government industrial policies to
the interaction of differing economic systems.
5. Regional trade agreements
Generally, countries coming together in regional trade agreements have shown great
reluctance to eliminate their antidumping laws via-à-vis one another.  Only in unique circumstances
and through extraordinary measures have participating countries been willing to do so.
One important prerequisite is that strong similarities exist among the economic systems of the
countries in the regional groupings where the antidumping laws have been successfully eliminated,
e.g., the EU and the Australia - New Zealand Closer Economic Relations Trade Agreement
(ANZCERTA).  Countries participating in these regional trade groups have adopted far-reaching
measures, such as the free movement of goods, labour and capital and the freedom to provide
services, in order to obtain and solidify the full in tegration of their economies.  In the case of the EU,
convergence occurred over an extended period of time and culminated in what is, for most purposes, a
single market, including current plans to issue a single currency.  In the case of ANZCERTA, aunique, shared heritage, complementary economies, and similar business climates fostered  an
extensive economic integration of these two countries.
Beyond that, the participating countries uniformly have addressed directly the myriad of
market-distortive government industrial policies, the consequences of which the antidumping lawshistorically had addressed.  They also have required that each participating country have in place
meaningful national competition laws.
This paper also includes a short discussion of the somewhat aberrational, but unique,
circumstances surrounding the recent trade agreement between Canada and Chile, where theparticipating countries agreed, subject to certain caveats, to the eventual removal of their antidumping
laws without many of the above conditions being satisfied.
Finally, it should be pointed out that this paper discusses these regional trade agreements only
to highlight the highly unique circumstances that led to the elimination of the internal application ofWT/WGTCP/W/88
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antidumping laws.  Certainly, there is no inherent requirement or necessity that antidumping laws be
eliminated within a regional grouping.  In instances where it has happened, e.g., the EU and
ANZCERTA, it was merely a decision made by the participating countries in recognition of the far-
reaching economic integration that characterized their relationship.
(a) European agreements
The first of several relevant European agreements is the one creating the European Economic
Community (EEC), now the EU.  Wh ile the EU member countries agreed to discontinue application
of antidumping laws vis-à-vis trade with one another, there were numerous preconditions.
The EEC agreement grew out of the Treaty of Rome, which dates from 1957.  It led
eventually to the creation of a "Single Market" among  the participating European countries, enshrined
in the Single European Act which entered into force in 1987.  The Single Market is based around the
four main freedoms which the original Treaty guarantees, i.e., the free movement of goods, capital
and labour and the freedom to provide services.  In pursuit of these freedoms, the EU took several
steps. It set out to eliminate tariffs and non-tariff barriers and to dismantle the myriad of bordercontrols and other similar restrictive measures.  It also imposed common disciplines on member
countries with regard to regulatory policies that affect trade between member countries, including
such areas as state aids, or subsidies, state monopolies, government procurement practices and
competition policy, with both supranational and national bodies enforcing these disciplines.  In
addition, it enacted a great deal of legislation regarding EU-wide standards, harmonization of nationallaws and mutual recognition agreements.
Article 91 of the Treaty of Rome is the provision which initially called for a phased-in
elimination of antidumping laws for intra-EU trade.  It states that antidumping laws do not have a
place in a Single Market like that of the EU.
The EEC agreement, meanwhile, does not specify whether all or only some of the above-
described conditions were necessary for the intra-EU elimination of antidumping laws contemplated
by Article 91.  However, the EU's relationship with the European Free Trade Association (EFTA)
countries illustrates that the EU has not been willing to abolish antidumping measures with respect to
outside countries even in the face of the EFTA countries' commitment to adopt and enforce common
or similar disciplines in areas such as state aids, state monopolies and competition policy.  Rather, theEU's sine qua non  for elimination of the application of antidumping measures is full adoption of its
Single Market rules.
In the early 1970s, the EU and the EFTA countries first entered into free trade agreements.
Despite the free trade provisions in these agreements, and despite the fact that the EFTA countriesadopted competition policies that were similar to t hose of the EU, the EU was unwilling to give up the
right to enforce its antidumping laws against exporters from the EFTA countries.  Subsequently, in
1992, the European Economic Area (EEA) was established by agreement between the EU and the
EFTA countries (except Switzerland).  Under this framework, the EFTA countries conform to the vast
majority of existing EU Single Market rules (with the agricultural and fisheries sectors as the mostnotable exceptions).  Consequently, Article 26 of  the EEA agreement eliminated the application of
antidumping laws for trade between the EU and EEA countries.  At the same time, however, Article
26 excludes agriculture because the EFTA countries had not fully adopted the existing EU Single
Market rules in the agricultural sector.
Meanwhile, since the early 1990s, the EU has been negotiating free trade agreements with
Central and East European countries.  In these ag reements, known as the "Europe Agreements," the
Central and East European countries have agreed to the free movement of goods and the freedom toWT/WGTCP/W/88
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provide services within a set period of years, and they also have committed to adopt the EU's rules on
state aids and competition policy.  However, the EU has not been willing to eliminate the application
of antidumping laws vis-à-vis these countries.  At first, the EU explained that it was necessary to
maintain the antidumping laws because it still was unclear to what extent these countries had
completed the transition to market economies.  La ter, the EU clarified that the elimination of
antidumping measures was conditioned upon the satisfactory implementation of rules on state aids
and competition policy, together with the adoption of all of the other Single Market rules.
The EU has taken a similar approach in deal ing with Mediterranean countries.  Under
agreements now being finalized, the Mediterranean countries are committing to the free movement of
goods, to discipline state aids in a manner cons istent with EU rules and to abide by the EU's
competition policy rules.  The agreements do not, however, address other areas, such as the freedomto provide services or government procurement practices.  They are, therefore, less inclusive than the
Europe Agreements and, consequently, do not involve the elimination of antidumping laws.
(b) ANZCERTA
In its earlier Working Group paper, WT/WGTCP/W/47, New Zealand explained the
conditions that made it feasible for Australia and New Zealand, through ANZCERTA, to abolish the
enforcement of their antidumping laws vis-à-vis trade with one another.  It stated that the agreement
first came into force in 1983 in the face of growing economic integration in trade and investment
between Australia and New Zealand.  At this time , the agreement included commitments to eliminate
tariffs on most goods within five years, to liberalize progressively import quotas, and to work toward
the elimination of industrial policies and export subsidies that could affect trade between Australia
and New Zealand.  Over time, Australia and New Zealand took significant further steps to integrate
their markets.  They achieved full free trade in g oods, and they agreed to a right of establishment for
investors, the free movement of labour and, with relatively minor exceptions, the freedom to provideservices.  They also agreed to eliminate export subsidies and adopted subsidies disciplines which were
stronger than those found in the WTO Agreement on Subsidies and Countervailing Measures by
prohibiting all industry-specific subsidies.  Furthermore, New Zealand substantially re-wrote its
national competition laws so that they are very similar to those of Australia, and the two countries
agreed upon unprecedented cooperation in an effort to police anti-competitive conduct in trade
between them, including the enforcement of each ot hers' competition laws in the courts of either
country.  By 1990, with these various steps having been taken, Australia and New Zealand declaredthemselves ready to eliminate the application of their antidumping laws against each other.
For Australia and New Zealand, there were several unique factors which contributed to their
ability to integrate their markets so extensively.  The two countries had similar cultural backgrounds,
they were in geographic proximity, their economies were complementary and at similarly advancedstages of development, they both made a push for re gulatory reform at about the same time, they had
a long history of both formal and informal intergovernmental dialogue, and they had a shared legal
heritage and similar judicial systems.
(c) Canada-Chile FTA
Canada and Chile concluded a free trade agreement in 1996.  In their agreement, Canada and
Chile committed to the elimination of antidumping measures vis-à-vis one another without addressing
many of the conditions which other regional groupings, such as the EU and ANZCERTA, had
addressed.  Canada and Chile tied the effective date for the elimination of antidumping measures tothe abolition of most tariffs and non-tariff barriers, which they sought to accomplish on a product-by-
product basis.  However, they agreed that antidumping measures would be eliminated for all product
categories by 2003, regardless of the status of tariffs or non-tariff barriers with regard to particular
products.  At the same time, they made no attempt to impose any special disciplines on, for example,WT/WGTCP/W/88
Page 15
subsidies (other than agricultural export subsidies), government procurement practices or state
monopolies.  They did make efforts to liberalize services and the movement of labour and capital,
although significant work was left undone in these areas.  Finally, in the area of competition policy,
they did not pursue harmonization or common rules, but instead merely required each other to adopt
or maintain national competition laws.
Canada and Chile envisioned this agreement as a bridge to an expanded and revised North
America Free Trade Agreement (NAFTA), which would add Chile to existing NAFTA members
Canada, Mexico and the United States.  As of 1996, when the agreement was negotiated, neither
country had ever imposed an antidumping measure against the other.  Canada and Chile also had no
reasonable expectation that antidumping would be an issue in the future, given that trade between
them had been, and continues to be, largely complementary rather than competitive.
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