Wednesday, July 12, 2006

By Guillermo Erasmus & Keith Hendry
South African industry was historically protected from import competition through various types of trade barriers. During the 1990’s South Africa again became part of the international community and started opening up its economy. This introduced the domestic industry to vast international competition by way of imports. One of the measures available to the local industry to protect itself against imports are anti-dumping measures.
Given the historical lack of competition and the protection enjoyed, some local producers have become, not only dominant, but also uncompetitive. As these protections fell away, some local producers have battled to adjust and to compete with import competition. As was stated by the Minister of Trade and Industry in his forward to the International Trade Administration Commission’s (ITAC) 2004/2005 Annual Report, “our current competitiveness problems can be traced to the poor economic policy choices that were taken decades ago. These policies of erecting protective barriers led to our manufacturing industry becoming uncompetitive.”
The Minister also cautioned that “ITAC indeed needs to be wary of neo-protectionist tendencies in the form of anti-competitive, unfounded, or factitious (sic) anti-dumping and other trade remedy petitions from industry, the injudicious imposition of which would stifle our progress and precipitate non-competitiveness.”
Anti-dumping measures are legitimate measures permitted under Article VI of the General Agreement on Tariffs and Trade (GATT) and the Agreement on Implementation of Article VI of GATT (the Anti-Dumping Agreement) under the World Trade Organisation (WTO). This allows an industry to protect itself against “unfairly” low priced imports.  South Africa promulgated anti-dumping regulations which are largely based upon the WTO rules and, in particular, GATT.
In order to justify anti-dumping measures it has to be established that (1) dumping, which (2) caused (3) injury has taken place. An application needs to be supported by 25% of the local producers by domestic production volume.  Those producers expressing a view on the application must also constitute at least 50% of all producers expressing either support or opposition to the application. However, it is only required that a prima facie case of dumping, injury and a causal link between the two is made out, for an investigation to be initiated.
The notion of dumping is superficially simple.  Dumping exists where an exporter’s domestic price is greater than its export price for the like product.  The difference is the dumped amount.  However, actually determining the extent of dumping by reference to normal value and export price is extremely complicated.  
Injury is determined in a less complex fashion.  Material injury is determined by considering whether there has been a significant depression and/or suppression of the local industry’s prices.  In addition, it must considered whether there have been significant changes in the domestic performance of the local industry, in respect of various potential injury factors, which include sales volume, profit and loss, output, market share, productivity, return on investments, capacity utilisation, cash flow, inventories, employment, wages, growth, ability to raise capital or investments, and any other relevant factors.
A causal link between the dumped imports and injury also needs to be established.  This is ordinarily done by reference to trends in quantities and prices of the dumped imports and price undercutting or price suppression and depression. All relevant factors other than dumping that may have caused the injury must be considered.  
In some instances it has been found that imports, although cheaper than those produced locally, do not satisfy all the requirements for anti-dumping measures to be imposed. It is often easy for local industries to show that they have suffered injury. However, when ITAC conducts its investigation it sometimes finds that the cheaper imports are not being dumped, i.e. the domestic price of the exporter is not greater than its export price, and the investigation is terminated. 
Increasingly dumping investigations are also being terminated because of a lack of a causal link between imports and the injury being suffered by the local industry. In most of these instances it is found that factors other than imports are causing the injury, therefore detracting from the causal link between the dumping and the material injury. As stated above, all relevant factors other than dumping that may have caused the injury must be considered. Such factors may include the volume and prices of imports not sold at dumped prices, contraction in demand or changes in the patterns of consumption, trade restrictive trade practices of and competition between the foreign and local producers, developments in technology, other factors affecting the local prices, the industry’s export performance, and the productivity of the local industry.
ITAC, who investigates complaints of dumping, is increasingly aware of complaints being brought by especially dominant market players as a means of protecting its market position. As a result of this, a lot of investigations have been terminated and no anti-dumping measures imposed. It was stated by The Chief Commissioner of ITAC in her forward to ITAC’s 2004/2005 Annual Report: 
“In the sphere of trade remedy investigations, we have displayed vigilance not to revert to past inward-looking strategies, encouraging anti-competitive behaviour. The trade remedy instruments will be viewed as a means to provide necessary protection against proven injurious unfair trade. We consider it critical that the approach to trade remedy investigations, in particular the methodology for considering the injury effects and establishing causality between injury and dumping, does not compromise principles of competitiveness and of economic growth and development in the guise of providing remedial assistance.”
Local industry should therefore be aware that ITAC will thoroughly investigate applications for trade remedy protection (including for anti-dumping measures) and will not allow any form of trade protection to be abused as a mere means of protecting uncompetitiveness. If however, there is a legitimate case to be made; this should not deter local producers from successfully bringing such an application.