Firm Participation in Steel Industry Lobbying

By Herander, Mark G.; Pupp, Roger L. | Economic Inquiry, January 1991 | Go to article overview

Firm Participation in Steel Industry Lobbying


Herander, Mark G., Pupp, Roger L., Economic Inquiry


FIRM PARTICIPATION IN STEEL INDUSTRY LOBBYING

I. INTRODUCTION

What are the causes of recent protectionist pressure exerted by U.S. import-competing firms? Studies by Coughlin, Terza and Khalifah [1989!, Feigenbaum and Willett [1985! and Takacs [1981! examine the empirical relationship between macroeconomic conditions and the aggregate frequency of escape clause petitions file by U.S. manufacturing firms. Although the results are mixed as to whether international macroeconomic performance influences the demand for protection, the studies indicate that domestic macroeconomic conditions significantly influence the frequency of escape clause petitions. (1)

As important as these are to understanding the underlying sources of protectionist pressure, they do not address another, equally important, aspect of protectionist pressure: the determinants of a single industry's demand for protection. The fact that most protectionist pressure results from actions taken by individual industries underscores the importance of understanding the determinants of industry pressure. Indeed, most trade legislation is designed to respond to the "problems" of individuals sectors of the economy.

In this paper, we empirically examine the microeconomic determinants of the protectionist pressure exerted by the U.S. steel industry in antidumping and countervailing duty cases from 1982 (after the trigger price mechanism was abolished) to 1986. The steel industry is a particularly attractive subject for empirical analysis since no other industry pushed more aggressively for protection during the 1980s.

In recognizing that the degree of pressure exerted by an industry is the aggregate result of decisions made by individual firms to contribute to a collective action, the microeconomic approach offers two advantages over previous studies. (2) First, to explain industry pressure we model the decision of the representative firm taking into account the incentives that a firm faces in a collective setting. For example, we recognize that the benefits of antidumping and countervailing duties have characteristics of a public good, so that individual firms may have an incentive to free-ride a proposition supported by the empirical results. SEcond, we specify microeconomic variables that reflect the economic conditions facing the representative firm in the steel industry rather than macroeconomic variables which may not accurately measure the economic performance of specific industries or the international pressures they face. In contrast to previous studies which found a significant relationship between macroeconomic performance and aggregate pressure, we do not find that the steel industry's economic performance influences the degree of industry pressure.

Our second objective is to examine the policy implications of free riding by testing the relationship between the effectiveness of a coalition of firms and the degree of protection actually received. If an effective coalition of firms can influence the policy outcome, then antidumping and countervailing duties are more likely to be provided to segments of the steel industry that can minimize the free rider problem. Since these segments are not necessarily those that absorb the greatest injury, U.S. trade policy may not be meeting its goal of providing greater relief to firms most injured by dumped or subsidized imports. The results confirm the proposition that segments of the steel industry which are injured by dumped or subsidized imports and which can organize an effective coalition do, in fact, receive greater protection than those segments that are merely injured.

II. THE REPRESENTATIVE FIRM'S DECISION

TO CONTRIBUTE TO A LESS THAN FAIR

VALUE ACTION

To obtain protection from alleged "less than fair value" (LFV) imports--imports that are either dumped by foreign firms or subsidized by foreign governments--firms representing a domestic industry must file a complaint of foreign dumping or export subsidization with the International Trade Administration (ITA) which then determines the magniture of dumping or subsidization. …

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