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Bargain Prices From Abroad: International Unfair Trade or Market Realities?

Spring 1999

The precipitous decline of the economies of some of America’s major trading partners has led to many difficulties for U.S. companies. Although lost foreign sales for American exporters provide few domestic benefits, the strengthened U.S. dollar and the weakened foreign economies have had a more complicated impact for importers of foreign commodities and their domestic competitors. The ability of foreign competitors to lower significantly their costs for labor and supplies in conjunction with a strengthened U.S. dollar has permitted many foreign manufacturers to sell their products in the United States at drastically cheaper prices than their U.S. based counterparts. Although cheaper prices for foreign manufacturers’ goods have been a windfall for U.S. consumers, importers and those in their distribution system, some U.S. manufacturers and their workers have asserted that they are suffering significant losses due to unfair trade practices by foreign manufacturers that are in violation of international trade law. Unfortunately, assertions of illegality are sometimes based on a misreading or unfamiliarity with international trade law. This article is intended to provide a foundation for those contemplating the use of U.S. international trade law as a remedy for foreign trade injuries.

U.S. international trade law can be divided into three categories:

- unfair trade practices;
- import injury protection; and
- retaliation for unfair trade practices injuring U.S. exporters and other non-domestic sellers in a foreign country.

Both (1) and (2) are consonant with the GATT (General Agreement on Tariffs and Trade) and WTO (World Trade Organization). However, (3) is unsupported by the GATT and WTO and has been the subject of claims that it is in violation of our GATT and WTO obligations.*

Dumping and Subsidies.
The primary unfair trade practice allegations relate to “dumping,” subsidies and abuse of intellectual property. Dumping involves selling a commodity in or destined for an importing country at a price that is less than the price charged in the country of export (“home” country). The major concern is that competitors and labor in the importing country will be unfairly injured if, due to the discrepancy in prices, the imported commodities will displace domestically produced commodities. The unfairness is especially troubling when the producer of the imported commodity can protect its home market and thereby make significant profits at home to support its lower prices abroad. The fear is that eventually the importer will destroy its domestic competitor and then be able to exploit in various ways the import market for its goods. It also allows the foreign government to assure fuller home country employment at the cost of workers in the country of import. Dumping is measured by reducing the gross price through a series of deductions that will return the price to as close as possible to a net selling price. If, after these adjustments, the price is still lower in the importing country, and it is found that the domestic industry has suffered a significant injury due to the “dumping,” an “anti-dumping duty” will be added to the customs duty on the goods unless the price for the foreign goods is raised to the level of the amount of dumping found. Proof of sales below cost is neither necessary nor relevant. In dumping cases, the sole question about pricing is whether the net prices for the imported goods are above or below those in the home market. In contrast, the issue in an antitrust case claiming that one competitor is using predatory pricing to try to drive another out of business is whether prices are below cost.

Subsidies (economic assistance such as tax rebates or holidays, low interest loans, grants of aid) are almost always provided by a government, unlike dumping which almost always involves a decision by a private company. Consequently, international trade law is much more tolerant of subsidies. In fact, in some situations a subsidy may provide an internal benefit to a country without harming a foreign country. Still, the provision of governmental economic assistance for the export of goods (or to encourage domestic purchasers to favor domestic producers) can be an unfair trade practice.

Both dumping and subsidy cases follow the same governmental examination and review. First, a complaint by an interested party is submitted to the International Trade Administration (ITA) of the U.S. Department of Commerce. The complaint must allege not only the unfair practice but also that the domestic industry is being or will be substantially harmed by it. If it meets these requirements, the complaint will be sent to the U.S. International Trade Commission (ITC), which will assess preliminarily whether there has been a significant injury to the domestic industry because of unfairly traded imported goods. If such an injury is found, then the ITA will determine whether there has been dumping or an illegal subsidy. If the ITC and ITA find that there has been a violation, a preliminary duty assessment will be levied. Even if the importer posts a bond to cover the preliminary duty or the price of the goods is raised by the amount of the duty, the ITA and ITC may re-examine their findings and issue a final duty assessment that may be more, less or the same as the preliminary duty. However, ordinarily the actual pursuit of the alleged unfair practice will be terminated after the preliminary assessment due to an increase in the price of the imported goods to meet the assessment level or the withdrawal of the goods from the U.S. market.

Intellectual Property.
Intellectual property (governmentally created patent, trademark and copyright rights) is also protected from international unfair trade practices. Unlike dumping and subsidy claims, proof of injury to a domestic industry is not required in intellectual property infringement cases. Determination of violations of intellectual property rights and the recommendation of remedies to the President for such violations are the exclusive province of the ITC.

Import Injury Relief.
Unlike dumping and subsidies, the request for protection from injury due to imports need not allege unfair trade practices. The request merely must state and show that a domestic industry is being or will be seriously injured by competing foreign goods. First, the ITC makes the injury determination. Next, whatever the ITC finds, the President, Secretary of Commerce or Secretary of Labor may authorize temporary protective relief for the domestic industry to allow it to recover its competitive stance or provide adjustment assistance for the company and/or its workers. The focus of the assistance is to allow the industry and its workers to find new avenues of business and work, not to fight back at the harmful but not unfair imports. Interestingly, one of the most successful import injury relief proceedings arose in Milwaukee. Harley-Davidson, Inc. was suffering significant losses in the early 1980s due to a flood of low-priced motorcycles manufactured abroad. As the only U.S. motorcycle manufacturer, Harley-Davidson was the industry. Harley-Davidson showed the serious injury to the industry from the cheaper imports and obtained tariff and quota relief. After five years, Harley-Davidson had recovered its competitive strength and requested that the temporary relief be lifted.

Finally, when a domestic exporter or U.S.-based company has experienced unfair trade practices by a foreign government or private companies within that country, or an abuse of U.S.-based companies’ intellectual property rights, the United States Trade Representative (USTR) can bring these practices to the attention of Congress. Based on these activities, the President may impose various retaliatory measures to force the foreign government or companies to relent. Although Congress let this law lapse in 1997, the President has just revived it by Executive Order.

Addressing Unfair Trade Practices.
Before embarking on an effort to redress alleged unfair trade practices or obtain temporary relief from foreign competition, a party must weigh the financial and other costs of the proceedings and the likelihood of success. An unfair trade case (dumping and/or improper subsidies from a foreign government) require large amounts of internal company time as well as significant dollar expenditures for lawyers, accountants and economists to establish both that there was substantial economic injury to the domestic industry and that the unfair trade practice occurred. In addition to the time and money costs, an even greater problem may be the reticence of competitors to provide the business information necessary to establish injury to the industry due to secrecy concerns and potential vulnerability under the antitrust laws.

In contrast, an industry trade association can serve as a reasonable and effective alternative that can protect secrecy and guard against antitrust exposure. Unlike an individual private party or group, a trade association can assert the unfair trade practice claim and safely collect and analyze industry data. Further, because international trade cases can be highly political, especially those which have the final determination in the hands of the President and the USTR, a trade association is an effective medium for the allocation of costs (including lobbying costs) to the entire industry. As the tides of international trade continue to rise, American importers and their distributors and those who compete with the manufacturers and sellers of foreign goods must be familiar with the legal standards and governmental procedures for addressing international unfair trade practices. Selecting the appropriate legal course can avoid financial waste and, where appropriate, provide effective relief.

* The GATT is an international agreement among many nations to reduce national barriers to trade. Beginning with the goal of reduced tariffs and the elimination of quotas on certain goods, countries have spent the past half-century slowly, but inexorably, further reducing protectionist walls to international trade through a series of sub-agreements called “rounds.” The latest round, entitled the “Uruguay Round,” developed the “WTO,” an international organization to oversee compliance with the GATT rules. In addition, the Uruguay Round began the expansion of the application of the GATT rules to services, intellectual property and agriculture. U.S. international trade law is expected to conform with our obligations under GATT.

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