Study On China's Anti-dumping Mechanism Based On Vertical Market Structure

With the development of world economic and trade, anti-dumping has gradually become the main tool to protect a country's domestic industry although it was originally designed to maintain fair trade among WTO members as a legal protective tool under WTO rules. Recently, world anti-dumping investigation cases have been increasing continuously, among which anti-dumping cases filed by developing countries keep a steady growth rate. As a newcomer of WTO and a learner of WTO rules, China has been involved in anti-dumping cases frequently, both as a defendant and as a plaintiff. Thus, to study the rules of anti-dumping and establish China's anti-dumping mechanism is very important.Since the first anti-dumping investigation against newspaper paper import from Canada, the U.S. and South Korea, China has launched 45 anti-dumping investigations against dumped imports from more than 20 countries and areas by March, 2006. Most of these 45 investigated import products are intermediate goods or the inputs and raw materials of related downstream industry. This characteristic of China's anti-dumping cases require that China should establish a special anti-dumping mechanism, which is based on vertical market structure and taking consideration of the interests of both upstream and downstream industries and consumers. This research's structure follows the order of the filing and ruling procedures, which include industry's filing, investigation and ruling by government bureau. With the help of game theory and microeconomics theory and under the equilibrium of upstream and downstream industry, this dissertation establishes an anti-dumping mechanism with three dimensions, which consists of anti-dumping filing mechanism, anti-dumping industry ruling mechanism and optimal anti-dumping duty deciding mechanism. After the theoretical study, the dissertation takes anti-dumping cases against dumped chemical imports which cover two-thirds of China's anti-dumping cases as an example, to conduct an empirical analysis. With the help of statistics and econometrics theories, this dissertation conducts an empirical study to prove the cascading contingent protective effect and trade diversion effect of China's anti-dumping cases.The main research work and achievements of this dissertation are summed up as follows:1. The dissertation conducts a comparative analysis among anti-dumping practices from different countries. It also lists and sums up all the anti-dumping theoretical and empirical researches by both domestic and foreign researchers. On the basis of former analysis, the dissertation points out that researches about developing countries'anti-dumping cases need to be improved, especially an anti-dumping mechanism which serve China's anti-dumping cases characteristics should be established. It is also the key goal of this research.2. It finds out the key factors which influence the anti-dumping filing decisions of upstream and downstream industry by means of economics theory and game theory. It points out that when the upstream firm makes the decision to file an anti-dumping suit, even if it wants to maximize its own profit, it should analyze the international market situation of the dumped goods and also do a thorough investigation of its downstream industry to see the possibility of downstream industry's cascading anti-dumping. Only when the downstream firm anticipates its anti-dumping suits will be achieved positive ruling by the government, it will not resist its upstream firm's anti-dumping filing from the very beginning. Furthermore, when the downstream firm anticipates that once it launches an anti-dumping investigation, the final ruled anti-dumping duty for final product will be much higher than that imposed on intermediate goods by comparing the import price and its normal value, there will be much bigger chance for downstream firm to launch an anti-dumping investigation.3. The dissertation introduces the following related knowledge systematically: relevant regulations about industry injury ruling, legal concepts of industry injury and its role in the anti-dumping procedure, different kinds of industry injury and its current ruling mechanism, investigation and analysis modes of industry injury and the form of industry injury report. It stresses the importance of Common Interest Rule in industry injury ruling and analyzes the different approaches of Common Interest Rule, based on which the dissertation points out that China does not employ the Common Interest Rule effectively during its anti-dumping practices. Chinese government only pays attention to a particular industry's interest, which will not be beneficial to the whole country's industry interest.4. The dissertation employs economics theory, game theory and counter-fact induction method to establish an industry injury ruling model, into which substitute coefficient of upstream product and dumping margin are introduced. The result shows that for upstream product with weak substitute and high degree of differentiation, even if it competes with dumped imports, the whole interests of both upstream and downstream domestic industry will increase and from the perspective of common interest of up- and down-stream industry, industry injury should not be ruled and anti-dumping measures should not be taken. For upstream product with strong substitute and low degree of differentiation, the whole industry chain injury of both upstream and downstream caused by dumped imports should be ruled according to the dumping margin; thus whether to take anti-dunping measures is finally decided.5. This dissertation establishes a model to decide optimal anti-dumping duty for both upstream and downstream industry under the circumstance of occurrence of cascading contingent anti-dumping with the help of welfare economics theory on the basis of maximization of country's whole social welfare. Based on the above assumption, the dissertation concludes that the optimal anti-dumping duties for upstream and downstream industry are affected by the cost structure of the domestic intermediate goods, cost difference of upstream and downstream industry between domestic and foreign country, and domestic market size of intermediate goods. The above research results add to the reasons why some experts claim that there are some shortcomings about current anti-dumping duty imposion rule only on the basis of dumping margin according to WTO rules and provide partial theoretical evidence for the reformation of current WTO rules related to anti-dumping rules.6. By means of case analysis, the dissertation firstly proves that trade diversion and cascading contingent protection effects of anti-dumping exist in Chinese chemical industy. Then, through econometric model, the dissertation further proves the above two effects by OLS with some panel data about anti-dumping cases against dumped chemical imports.7. The dissertation finally concludes that the government should pay much attention to the common interest during the anti-dumping investigation process and the industy should make its filing decision in collaboration with the industry association. Besides, the industry should be innovative to increase its competitive advantage, which can offset the injury to the whole industry chain caused by dumped imports.Dumping and anti-dumping is a worldwide focused research subject for years. Scholars from home and abroad have developed profound research related to one single product or one single industry. However, this dissertation establishes the study of anti-dumping mechanism under the vertical market structure. The following are the innovative aspects of this dissertation:1. The research overcomes the limitation of past research which based its analysis on a certain product or a certain industry. The author introduces the premise of vertical market structure and creates a mechanism of anti-dumping filing, injury determination and anti-dumping duty optimization for both upstream and downstream industry chain based on several economic principals.2. The research builds an advanced theoretical model to determine the injury to the target industry while also carefully examine the synergy injury occurs to the upstream and downstream industry. This dissertation provides a sound base to determine the injury of related industry and illustrates theoretical determinants for the legal arbitrage toward anti-dumping against foreign imports. 3. The author proves that it is unreasonable to determine the anti-dumping duty only on the basis of dumping margin. Other factors should also be considered like the mutual influence of upstream and downstream industry, the cost difference between home and abroad related industry, the capacity of the global market and the possibility of cascading protection effect. This dissertation provides some theoretical foundation to promote the anti-dumping reform in the next round WTO negotiation.4. With chemical industry, the worst affected industry under anti-dumping rule, as the research object, the author cites six anti-dumping cases with below aspects in common: clear match between upstream and downstream industry with relatively complete data and less downstream industry customers reflect to the upstream industry. With the help of econometrics models and the OLS on the time series panel data, the author reaches a conclusion that there is Trade Diversion effect in the anti-dumping investigation and the anti-dumping measure on the uptream industry does influence the profit of downstream industry, and may also result in cascading protection effect. This dissertation substantiates the empirical study of anti-dumping effect on Chinese industry.