WORLD TRADE
ORGANIZATIONWT/WGTCP/W/123
28 May 1999
(99-2178)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM JAPAN
The following communication, dated 16 April 1999, has been received from the Permanent
Mission of Japan with the request that it be circulated to Members.
_______________
Response to US Views on Anti-dumping
The US paper presented at this Working Group last July discussed its understanding of anti-
dumping measures.  In its view, the main objective of the anti-dumping measures is to protect
domestic industries against exports by foreign competitors which gain unfair advantages in their home
markets through government measures restricting competition and differences in national economic
systems.  This paper is a discussion paper in response to the US views.
I. HOW ANTI-DUMPING MEASURES REALLY WORK
1. Anti-dumping as protectionism
It is often said that anti-dumping measures are needed to provide a means of retaliating
against exports based on unfair foreign cartels and other unfair trade practices in home countries of
exporters.  In point of fact, however, anti-dumping measures are not suited to such purposes.
Anti-dumping measures function rather as a means of protecting uncompetitive domestic
industries from international price competition.  It is the very rare exception for anti-dumping to truly
constitute retaliation against "predatory pricing" as the term is used in competition law.
When it takes place in domestic markets, price competition is to the advantage of consumers,
and governments would be pressed to justify the protection of weaker companies.  When the context
is international markets, however, political realities give rise to calls for protectionist measures to
insulate one's national industries.  Regardless of their intention, the current WTO rules allow anti-
dumping measures to serve as protection for uncompetitive domestic industries.  The results in many
cases have been for anti-dumping measures to be used for protectionist purposes - as a means ofsatisfying protectionist demands.
As Japan explained in its paper last July, current anti-dumping rules allow anti-dumping
duties to be imposed on exports based on pricing that would not be disciplined under domestic
competition law.  The result is that economically rational price competition is impeded only because itis a foreign company that is involved.WT/WGTCP/W/123
Page 2
2. The evolution of competition law and disciplines on domestic price competition
International competition is not the only forum in which one encounters the idea of using
competition law to suppress price competition.  In the United States, the Robinson-Patman Act long
made ordinary price discrimination - not just predatory pricing - illegal.  The law was subject to broad
criticism by scholars and many others as an im pediment to healthy price competition between
domestic US businesses, but until very recently it remained operative with the basic structure
unchanged; its application may have been restrained, but it still barred a range of price discrimination
that had nothing to do with predatory pricing.  In the Brooke Group case of 1993*, the US Supreme
Court ruled that the Robinson-Patman Act was essentially the same as the Sherman Act in disciplining
predatory pricing as defined in ordinary competition law.  The Court found that the fact of price
discrimination itself would not constitute a violation of the law, and that the same criteria basically
apply to both price discrimination under the Robinson-Patman Act and predatory pricing under theSherman Act.  This improvement in US competition law only came about as the result of many years
of debate within the United States, that produced a growing recognition of the distortions to
competition engendered by excessive disciplines on price discrimination.
* Brooke Group Ltd. v. Brown & Williamson Tobacco Corp. (B & W), 113 S.
Ct. 2578 (1993).
3. The need for a WTO response
Suppressing protectionism based on the mechanism of anti-dumping measures is an important
issue that the WTO must deal with if it is to achieve the goal of international competition in whichprotectionism has been truly eradicated.  This is a difficult task, one that will not be easily
accomplished given the common political pressures that all countries face to protect weak domestic
industries from international competition.  In light of the evolution of competition law in the United
States, however, Japan sees the need for the WTO to tackle the problem of the market-distortive
effects caused by regulation of ordinary price discrimination at the international level.
As described in the report last June by the Congressional Budget Office to the US Congress,
only an extremely small number of anti-dumping measures are in fact in response to predatory
pricing.
II. WHY ANTI-DUMPING MEASURES ARE FOUND PROTECTIONIST
There are two primary reasons why we find anti-dumping measures are in fact used as a
means to protect domestic industries from international competition without rational reason for doing
so:
(a) Price competition that would not ordinarily be condemned in a domestic context is
subject to anti-dumping measures just because it happens to occur across internationalborders.
(b) Just the possibility of anti-dumping measures being invoked has a trade-limiting
effect, and this is used for protectionist purposes.
Since both of these points were explained in the previous Japanese submission, we do not
discuss them in detail here, while we believe it useful to further the analysis.  However, we would liketo underscore the points made in the previous paper that price discrimination can be explained as a
rational economic activity on the part of businesses, and that actions that would in no way be
problematic under domestic US competition law are nonetheless subject to anti-dumping duties.WT/WGTCP/W/123
Page 3
III. WHY ANTI-DUMPING MEASURES ARE NOT A MEANS OF RETALIATING
AGAINST UNFAIR TRADE PRACTICES
The US, in its paper, provides a detailed explanation of anti-dumping measures as a means of
retaliating against competition from companies that reap the benefits of unfair protection in theirhome markets.  As we will explain in this secti on, the US argument does not, unfortunately, provide a
rational reason why current anti-dumping measures are needed.  It is not appropriate to maintain anti-
dumping measures as retaliatory measures against unfairness, and current systems do not, at any rate,
fulfill the basic conditions required for the systems to work in line with the US argument.
1. The steel anti-dumping case
A review of recent actual cases does not show any cases of retaliation against unfair cartels.
The on-going steel anti-dumping case in the United States is an example in this regard.  As we
describe in a separate paper, steel exports from Japan grew because of the expansion in US demand.
The GM strike and some other factors caused a short-term slump in demand, and this is what led to
the anti-dumping suit.  There were, at the very least, no direct causes to be found in the Japanese
market.
2. Problems with anti-dumping regimes
The following points make clear the fact that current anti-dumping regimes are not designed
to counteract unfairness in the exporting country or differences in economic systems.  Therefore,
unfairness in exporting countries should not be us ed to justify current anti-dumping measures.
• There is no requirement for an anti-dumping authority to establish a cause and effect
relationship.  The invocation of anti-dumping measures is not conditional upon the
existence of any such problems.
• There is no economic rationality.  In other words, profits in the exporter's home
market do not result in below-cost exports.  We discussed this point in our previous
paper, but wish to reiterate it here.  Even assuming the exporter was generating unfair
profits in its home market, it would be irrational for it to export at below-cost prices if
there was no expectation of new profits from exports.  On the other hand, if profits
can be expected, it is very rational to raise funds and participate in export markets,
but this has nothing to do with whether there are unfair profits or not.
3. Unilateralism
The invocation of anti-dumping measures for protectionist purposes with the excuse that they
are retaliation against unfair cartels has more drawbacks than just the fact that it expands
protectionism everywhere.  It may also:
• Encourage unilateralism, in which a country is allowed to judge, entirely on its own,
that a trading partner is engaged in unfair activities and enact retaliatory measures
based on that judgement.
• Justify the unilateral invocation of anti-dumping measures without ever debating
whether such measures should be used to deal with various problems including thedifferences in national economic systems.WT/WGTCP/W/123
Page 4
4. The factors the United States says justify anti-dumping measures
The US paper provides several factors that it says justify anti-dumping measures: various
domestic anti-competitive measures and measures to exclude foreign competitors which are taken by
exporting country governments, and differences in national economic systems.  It is not clear whether
such measures all exist in real-life economies, but giving the US the benefit of the doubt, we canclassify the measures into the four groups shown below:
(a) Measures that have a trade-restricting effect but are legitimate under current WTO
rules.
(b) Measures that, assuming they exist, could be handled under the Subsidies Agreement
or other WTO rules other than the Anti-dumping Agreement.
(c) Differences in national economic systems.
(d) Cases of inadequate enforcement of competition law.
Since the objectives of the anti-dumping measures are to deal with predatory pricing, various
factors described in the US paper naturally do not provide appropriate reasons for the imposition of
anti-dumping measures.  The following are some additional reasons why those factors do not justify
anti-dumping measures.
(a) Measures such as tariffs that are legitimate under the WTO rules should not serve as
reasons to invoke sanctions against exporters.
(b) Government measures that can be dealt with using other disciplines besides the anti-
dumping rules should be dealt with under those rules, or the rules should be improvedso that they can be dealt with.  In other words, government subsidies and price
controls should be dealt with under the Subsidies Agreement; state trading and other
trade barriers should be dealt with under the relevant WTO rules that have been
erected for that purpose.  Government measures that attempt to reduce competition in
domestic markets (use of licenses and the like to limit the number of suppliers,preferential treatment for a number one company in each industry, fixing of market
shares and the like) do not make sense unless imports are blocked.  Trade barriers
associated with domestic measures can be addressed by GATT Article 11 and other
relevant trade related WTO rules, and if such domestic measures that attempt to
reduce competition themselves work as obstacles to imports, those measures should
be dealt with under the national treatment provisions of GATT Article III and the
disciplines of GATT Article XXIII: 1(b).
(c) Clearly, international economic rules do not in any way allow the invocation of
sanctions because of differences in national economic systems.  If one wishes to take
issue with employment systems, for example, then companies clearly have a major
advantage if they come from countries where it is easy to lay off workers and the
government provides generous unemployment benefits.  Low tax scales provideanother advantage to companies.  Enormous budgets for defense-related technology
development also have indirect effects that give significant benefits.  Obviously, trade
measures cannot be used to offset any of these advantages.  In the US paper,
differences that justify anti-dumping measures include high debt structure, the
formation of business groups and other elements that may apply to many companiesin different countries.  These characteri stics differentiate companies rather than
countries, and the US paper does not explain why such characteristics justifyWT/WGTCP/W/123
Page 5
restriction of international competition.  The US paper talks about something called
"market stabilization measures," but the meaning of this phrase is unclear.  If it means
market divisions or price fixing organize d by the government, it would obviously not
provide a reason for anti-dumping measures as explained above.
(d) Possible inadequacy in enforcement of competition law should not be unilaterally
retaliated by anti-dumping measures since judging necessity in enforcement activities
is a complicated, technically difficult task and should be left to the discretion of
competition authorities.
Some of the measures the US alludes to exist would serve as government support for
domestically oriented companies that lack inte rnational competitiveness and would therefore be
entirely irrelevant to the justification of retaliatory measures against low-priced exports.  It should be
noted that some of these measures may in fact be implemented by governments for domesticcompanies without international competitiveness while they may be used to explain the need for anti-
dumping measures.
IV. THE POINT ARGUED BY THE UNITED STATES
The US paper appeals to several different reasons in its attempts to justify anti-dumping
measures.  Expressed more concisely, we understand the main point of the paper to be this:
"The realities of the world economy are such that opaque trade barriers and anti-competitive
practices exist and governments sometimes turn a blind eye to them.  There are limits to what current
WTO mechanisms are able to do to remedy this, and countries require a means of providing someform of protection to domestic industries.  Though it is a fact that such protection has the potential to
be abused, it is also a fact that, absent such protection, the inadequacies of the WTO are such that it
would lose domestic support, potentially undermining the entire framework.  Therefore, the existence
of anti-dumping measures is unavoidable in light of political realities and the imperfections of the
WTO."
We have several points to make regarding this.(a) We would not deny the fact that political realities at one point made anti-dumping
provisions an important means of securing domestic support for the WTO.  However,
WTO negotiations by their nature demand that all countries work to contain domestic
political dissatisfaction.
(b) While there may be some imperfections in the current WTO rules, it is doubtful
whether such imperfections in fact cause damages to the industries that ask for
protection through anti-dumping measures.  The idea that anti-dumping provisions
help to cover the inadequacies of WTO mechanisms may initially sound convincing,
but the reality is that virtually all anti-dumping measures are used for protectionistpurposes, and the magnitude of the market-distortive effects brought by these
protectionist abuses argues against maintaining the status quo.
(c) If, for the sake of argument, we grant that some sort of supplementary measure is
needed for political reasons to cover the imperfections of the WTO, then we should
naturally minimize the trade-distortive effects of any such measure.  Thus, it isessential to seriously consider the attachment of strict conditions on the invocation of
anti-dumping measures so that they do not distort ordinary price competition.WT/WGTCP/W/123
Page 6
V. CONCLUSION
Anti-dumping measures, as they are currently used, constitute a system for protecting a broad
spectrum of domestic industry from price competition.  This is, in reality, a result of political pressure
and is counter to their essential objectives of competition policy.  No one would argue that the currentWTO system is perfect, but we would note that improvements to the system come as the result of
unflagging efforts by member countries within the WTO context.  The unfortunate reality, however, is
that the imperfections of the WTO are being used to  justify the existence of highly protectionist anti-
dumping regimes.
It is encouraging to note the growing awareness of the importance of competition policy and
the progress that is being made in enacting co mpetition laws, in strengthening enforcement by
competition authorities, and in reflecting the concer ns of competition policy in government regulatory
systems.  On the other hand, the expanded use of anti-dumping measures is making their trade-
distortive effects more serious as well.  Therefore, WTO members must, in light of arguments from
the perspective of competition policy, make every effort to resist political pressure to protect domestic
industries, and must work to reduce the trade-distortive effects engendered by anti-dumping regimes.
__________