Academic journal article Economic Inquiry

Cumulation and ITC Decision-Making: The Sum of the Parts Is Greater Than the Whole

Academic journal article Economic Inquiry

Cumulation and ITC Decision-Making: The Sum of the Parts Is Greater Than the Whole

Article excerpt

I. INTRODUCTION

In recent decades, the rise in international competition has led many U.S. firms to seek protection from foreign imports. Particularly noteworthy in the 1980s was the increased use of the U.S. "unfair" trade laws. Two popular trade statutes, the antidumping law and the countervailing duty law, allow U.S. firms or industries to seek protection from alleged unfair trade practices, namely dumping and subsidization.

Under these laws, U.S. firms or industries apply simultaneously to the Department of Commerce and the U.S. International Trade Commission (ITC); these agencies have the authority granted by Congress to determine, respectively, whether or not an unfair practice has occurred and whether or not the unfair practice has caused injury to the U.S. industry. Affirmative decisions by both of these bodies generally result in the imposition of higher tariffs designed to counter the alleged unfair practice.

Since 1974, the U.S. Congress has made a number of major changes to the antidumping and countervailing duty laws, largely in response to domestic industry pressures. These amendments were intended to either increase the applicability of the laws or to make the unfair practice and injury requirements easier to satisfy. Although Hansen [1990], Moore [1992], and Baldwin and Steagall [1994] have all analyzed the decision-making process of the ITC, none have incorporated the fact that Congress often amends the rules that define how decisions are to be made. There is no empirical evidence of the impact of the changes in the statutes on trade policy. Authors such as Bello and Holmer [1985], Lande and VanGrasstek [1986], and Horlick and Oliver [1989] who do discuss the amendments tend to focus on legal issues and only offer conjectures as to the consequences of the revisions. Although some observers cite the increased incidence of affirmative antidumping and countervailing duty decisions as de facto evidence of the effect of the amendments, this type of casual empiricism is not reliable. Many possible explanations for changes in ITC behavior - macroeconomic slowdown, election year political pressures, etc. - have nothing to do with the changes in the statutes. Without careful econometric analysis, attributing observed changes in protection to statutory changes will almost surely misrepresent the true effect of the amendments.

The main purposes of this paper are to provide such an econometric analysis and to quantify the protective effect of perhaps the most important amendment to the antidumping and countervailing duty statutes during the 1980s: mandatory cumulation. Enacted in the Trade and Tariff Act of 1984, this provision requires the ITC to cumulate imports when a trade dispute involves imports from multiple sources. Without cumulation, imports are evaluated on a country-by-country basis; when cumulation is applied, the ITC aggregates all "like" imports from all countries under investigation and assesses the combined impact upon the domestic industry. Without cumulation, the volume from any one country is less likely to comprise a significant share of the domestic market and therefore is less likely to cause injury. On the other hand, if the imports from individual foreign competitors are aggregated, the impact of foreign competition will be more significant, making it more likely that the ITC will decide that the domestic industry has suffered material injury by reason of unfairly traded imports.

In order to measure the impact, if any, of the cumulation provision we must control for any other economic and political factors that also explain ITC decision making. Therefore, in addition to empirically analyzing the impact of cumulation, we offer a broad characterization of the factors that determine antidumping and countervailing duty outcomes. Thus, our results have general implications for evaluating the efficacy of the ITC's decision making. For example, our estimates allow us to compare the importance of statutorily mandated requirements, such as economic measures of injury, with unofficial influences, such as political pressure from members of Congress who have a vested interest in seeing an industry receive a favorable ITC decision. …

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