High end products are the solution to Australia’s manufacturing woes, not more anti-dumping reforms

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18 May 2012

The Federal Government’s new legislation to strengthen the anti-dumping system, and Manufacturing Australia’s calls for reform, are misguided. The changes will have minimal effect on Chinese imports, which are the main target of anti-dumping applications in Australia.

The Government reforms stem from recommendations made in 2009 by the Productivity Commission[1]. They aim to benefit Australian industries with a system that the Australian Workers’ Union says is “clearer, fairer and in line with our global counterparts”.

While the ‘fairer system’ intention is noble, it is unlikely to offer any practical remedies for Australian manufacturers competing with imports from our largest trading partner - China.

There are two reasons for this. Firstly, Australia, unlike the US and EU, recognises China as a ‘full market economy’. This recognition dates back to 2005, when as a precondition to negotiations on a free trade agreement, the Australian Government moved to acknowledge China as a full market economy.

This shift in status necessarily changed the approach to determine whether Chinese exports to Australia were being dumped.

Dumping occurs when the export price of goods exported to, say, Australia from China are less than the domestic selling price of like goods in China, with the difference being the margin of dumping.

Because Australia recognises China as having a ‘full market economy’, Australia accepts domestic selling prices in China and assessments are made on information from Chinese manufacturers that Australia verifies as complete and accurate.

In contrast, the USA, Canada and the EU, which have not given China market status, assess the cost of production on information from other, so-called surrogate, countries.

The different methods often cause dumping margins calculated on the same goods to vary significantly between countries resulting in large differences in anti-dumping measures imposed.  In one such example, Canada and the USA imposed a tariff of more than 30% on aluminium extrusions from China whereas Australian anti-dumping measures were less than 10% for the same products.

The difference in tariffs is often wrongly attributed to countries, particularly China, not abiding by World Trade Organisation (WTO) rules.  As any examination of disputes before the WTO Dispute Settlement Body will reveal, countries other than China are more likely not to comply with WTO rules.

Moreover, there is little evidence available to show whether anti-dumping and/or countervailing duties actually protect Australian industries.  As yet, there has not been an Australian study on this issue.  Anecdotally, the evidence is that they do not.  Also, there has been no public study of what costs are imposed on the economy through the imposition of anti-dumping measures – that is, through increased prices for locally produced and imported products.

The second, and often forgotten, reason that anti-dumping reforms are unlikely to benefit some Australian manufacturers relates to low-margin commodity products.

By their very nature, commodity products can be sourced from a wide variety of countries at a globally competitive price. Examples include clear float glass, aluminium extrusions, polyvinyl chloride homoploymer resin, various paper products, ammonium nitrate and white goods such as washing machines and refrigerators.

Imposing measures on a commodity product from one country at a level that are actually effective, simply results in that product being sourced from another country at a similar price. However the product may not be assessed as ‘dumped’ by the alternative supplier because of different market conditions in that supplier’s country.

In those cases anti-dumping measures divert trade from one country to another with little or no benefit to Australian industry.

It is hard to imagine how Australia, with its relatively small market and higher costs of production could compete in this area with low-cost countries, particularly in Asia - a situation exacerbated by the strength of the Australian dollar.  Further, manufacturing plants in other countries tend to be significantly larger than similar plants in Australia, mainly due to the larger markets that they service, and, therefore, possess economies of scale Australian manufacturers cannot match however efficient they are.

Calls for reform of anti-dumping measures are by no means novel: in the past members of Customs’ International Trade Remedies Forum, such as AiGroup, Capral, CSR, OneSteel, AWU, CFMEU and the ACTU, have all called for reforms to the system and improved resourcing of enforcement.

Manufacturing Australia’s recent communiqué argues that reform is needed because “Australia’s manufacturers cannot continue to withstand unfair trade that leads directly to the loss of jobs, loss of Australian capability and vulnerability to price increases”. 

However a better solution may be to move away from trying to compete with commodity products towards manufacturing value-added products that command higher margins. 

Nufarm has already done that. In 2008[2] 40% of its revenue came from weed killer, a commodity product of formulated glyphosate.  By last year the weed killer only accounted for 20% of Nufarm’s revenue because the company had made a strategic decision to reduce its exposure to commodity products and expand into other high value products with greater margins. In its latest results presentation, CSR also will be exiting the manufacture of uneconomic, low margin commodity glass products.

 


[1] Australia’s Anti-dumping and Countervailing System. Report No. 48, December 18, 2009. Australian Productivity Commission.
[2] Nufarm briefing to fund managers on half yearly results to 31 January 2011




The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.


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