Academic journal article Economic Inquiry

One Lump or Two: Unitary versus Bifurcated Measures of Injury at the USITC

Academic journal article Economic Inquiry

One Lump or Two: Unitary versus Bifurcated Measures of Injury at the USITC

Article excerpt

I. INTRODUCTION

Firms that face competition frequently have a number of legal avenues to limit such competition. When such competition comes from overseas competitors, they might avail themselves of laws to limit imports. In the major industrialized countries, laws to limit competition from imports fall into two broad categories: safeguards and laws against unfairly traded imports.

Safeguards, also known as escape clause procedures, allow a World Trade Organization (WTO) member state to temporarily restrict imports when a product is imported to its territory in such increased quantities as to cause or threaten serious injury to competing domestic producers. These temporary restrictions (quotas or tariffs) can either allow the domestic industry to become more competitive or allow an orderly transfer of resources from the industry.

Unfairly traded imports are imports that are subsidized and/or dumped, that is, sold at less than fair value. Fair value can be the price that the imports are sold for in their home market, the price that the imports are sold for in a third country, or the estimated cost of production including a profit. In accordance with international agreements, U.S. law requires that remedial duties (antidumping duties or countervailing duties) can only be imposed on unfairly traded imports if these imports have caused (or threaten to cause) material injury to competing domestic producers.

The U.S. International Trade Commission (USITC) is responsible for investigating and determining whether unfairly traded imports have caused material injury to a domestic industry. The USITC is also responsible for investigating and determining whether a domestic industry that petitions for relief in a safeguard proceeding has suffered serious injury because of increased imports.

USITC commissioners have adopted a variety of approaches to determining whether dumped or subsidized imports have caused material injury to competing domestic producers. An important one that has been used by several commissioners is the unitary approach. This approach uses production and prices for the unfairly traded imports, the domestic industry, and fairly traded imports (if any), estimates of demand and supply elasticities, and dumping or subsidy margins to calculate what the performance of the domestic industry would have been had it not had to compete with unfairly traded imports.

An alternative approach that has been adopted by more commissioners is the bifurcated approach. This approach first asks if the domestic industry has suffered material injury and then asks whether unfairly traded imports contributed to this injury. By separating the injury determination into two separate questions, the presence of injury and the causation of injury, the bifurcated approach is similar to the sort of inquiry that the USITC conducts in its safeguards investigations.

Commissioners who used the unitary approach relied on an explicit economic model to compare actual domestic industry performance with what the performance would have been absent competition from unfairly traded imports. In contrast, commissioners who used the bifurcated approach rejected formal economic analysis; in fact, many of them were openly hostile to the use of economic analysis. Because of these different attitudes toward quantitative economics, the unitary approach has also been called the economic approach.

We adapt an economic model developed to measure the causes of injury in USITC safeguard investigations to measure the effect of unfairly traded imports to domestic industry performance, that is, the second question under the bifurcated approach. We apply this methodology to all USITC unfairly traded import investigations for a time period between two major changes in the law; during this period there were commissioners who used the unitary approach and commissioners who used the bifurcated approach. …

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