A shabby bit of legislation currently before the Senate could be a double whammy for exporters as they deal with the rising currency. It will also end up
being a back door tax on households. Worse still, if passed, it could upset one of our main trading partners, cause a loss of exports and even invite retaliation.
The Customs Legislation Amendment Bill (No. 2) 2002 changes Australia's anti-dumping laws. Before going into specifics, it is worth reviewing what anti-dumping
If a foreign country sells goods to Australia cheaper than it sells the goods on its local market, that is "dumping". If this dumping causes material injury to Australian producers, an anti-dumping duty (tax) can be imposed on the imported good and the locally-affected industry is protected. All of this is legal under WTO rules.
There are two problems here. One administrative, the other economic.
The administrative problem is that a "normal value" has to be established for the goods when sold in the country of origin. The dumping test, then, is simply
"is the imported good being sold at less than its normal value?"
For open-market economies that is easy enough. But for an economy in transition, like China, it can be tough going. Hence, the concept of whether a foreign government
can "control" the price in assessing "normal value". The legislation before the Senate changes this measure to the more nebulous concept of whether
a foreign government can "influence" the price. Basically, with "price influence" as the measure, it will be easier to find dumping.
What's wrong with that? Surely dumping is bad for Australia. Well, mostly it is not. This highlights the more serious second problem: anti-dumping legislation
is lousy economic policy. It is a dreadful piece of legislation, long overdue for reform in the national interest. Let's see why.
When a foreign country "dumps" goods in Australia, there are two effects. One is the cost to a local manufacturer having to compete with the now
cheaper imports. It may "injure" the local producer's sales, causing it to lay off workers, and that has negative ripple effects through the economy.
The second effect from dumping is the benefit to consumers. Consumers, either households or other firms, now have access to cheaper goods. That saving allows
them to spend their money elsewhere. That, too, has ripple effects, only this time, they are positive, such as generating jobs elsewhere.
When all direct and ripple effects are properly measured, if the benefits exceed the costs, dumping is in Australia's national interest. You would be forgiven for thinking that is what the government assesses. Not so. The anti-dumping legislation considers only the costs. It does not consider the benefits to consumers or the economy. The reviews are biased, by law, to find in favour of just one stakeholder
- the local manufacturer. Consumers and the national interest do not get a look in. Little wonder that anti-dumping is the new protectionism.
When our currency appreciates, so our exporters and local manufacturers have to adjust. If local manufacturers are shielded from this by a rise in protection,
exporters will be doubly hit. Not only will their costs be higher, but they will be at a disadvantage internationally. Alan Mitchell (AFR, January 2003) put this succinctly: "[The Australian government] can't stop competing suppliers to our export markets buying their inputs at 'dumped' prices."
An unfortunate result of the recent currency appreciation, if it persists, is that the pleas for protection will rise and it will be through anti-dumping
claims. The most likely be target will be China. No wonder the Chinese are concerned, saying that bilateral trade relations are at risk. (Remember, China is the country
that recently purchased $25 billion of LNG from Australia.)
None of this is new but the bad policy prevails due to the "exports good: imports bad" fallacy that is so ingrained in the public's mind.
Australia's legislation on anti-dumping needs changing - but not in the way proposed. Giving just two days for public submissions on the proposed change is just going through the motions - it is poor governance. We need to straighten
these anti-dumping laws out, otherwise the rising currency could really leave us worse off. The way to straighten this out is to send an inquiry to the Productivity Commission. Now that would be good governance.