A Case for an Antidumping Law in Georgia?

The ISET Economist, a blog about economics in Georgia and the South Caucasus by the International School of Economics at TSU (ISET) 

By Gigla Mikautadze

Protectionism and any kind of import restrictions have supporters in every country, and Georgia is no exception. Recently, I attended a lunch meeting on the need for an antidumping law, organized by Georgian Lawyers for Independent Professions, Governing for Growth (G4G), and the Society of Free Individuals. Participants from different sectors and institutions presented their views on the possible economic consequences of antidumping regulations currently being discussed by the Georgian government. From an economist’s perspective, I believe there are number of factors to be considered and analyzed before the final decision to adopt the law is made. The rationale behind anti-dumping duties is to save domestic jobs, but they can also lead to higher prices for domestic consumers and reduce competitiveness of domestic companies on international markets.

According to the Government of Georgia, a draft law on antidumping is now complete, but the Ministry of Economy is still considering the risks of the new regulation. “The Antidumping Law is elaborated in accordance with the WTO regulations. However, everyone should realize that this law is not a panacea,” said Dimitry Kumsishvili, Vice Prime Minister of Georgia. The stated purpose of the draft law is to help ensure competition by imposing protective measures on imported goods that the government believes are sold below “normal value,” defined as the market price in the exporting country.

The idea of antidumping finds its roots in the United States, where the Antidumping Act was enacted by the US Congress under the heading of "Unfair Competition" in 1916. Once antidumping was effectively applied in a number of cases involving troublesome imports, and local producers benefited from it, supporters of this type of regulation started to grow, especially after wide scale trade liberalization which put competing domestic industries under bigger pressure.

It is also interesting to analyze the sectors involved in antidumping investigations. The main appeals happen in traditional capital-intensive industry sectors, such as metallurgy, chemicals, machinery etc., due to the inflexibility and high fixed costs of these industries. Usually, these sectors are also quite labor intensive, hence very sensitive from a social policy perspective. 

Sectors involved in antidumping investigations in 2014 (source: http://www.antidumpingpublishing.com)

Governments usually impose antidumping duties based on investigations. An antidumping investigation occurs when the proper state agency, upon a valid complaint from a local industry, tries to determine whether imported goods are being sold at below-the-price in the producer country, i.e. being 'dumped'. These investigations require significant human and institutional resources in order to gather solid evidence of antidumping against suspected importers.

Recently, Georgia itself became a suspect in an antidumping case when, in 2015, the EU Commission initiated an antidumping proceeding concerning imports of certain manganese oxides originating in Georgia. In the absence of reliable data on domestic prices, export prices from Georgia in the EU were compared to the prices in the United States of America and to the constructed normal value which takes into account the estimated manufacturing costs, sales, general and administrative costs, and profit in Georgia. At the end of 2016, the complainant had to withdraw their claim, since the investigation had not brought to light any evidence of dumping, and the case was closed.

Going back to the need for an antidumping law in Georgia, in evaluating the threats of dumping, we have to take into account the size of the local market and the insignificant role of the country on the world market in all industries. It is very doubtful that Georgia faces a genuine threat of dumping from its trade partners. During the last 25 years, there has been no evidence of dumping, aside from the cheap import of various products which are never welcomed by local producers, but which do benefit consumers and producers who use the imports as inputs to their own production.

Supporters of antidumping usually question whether the pricing practices of foreign firms are fair, which, in my opinion, is the wrong question to ask. Before enacting any antidumping law, we should be asking whether it is in the national interest to provide protection for domestic producers. Even if importers’ prices are “unfair,” that does not necessarily mean that protection is in the national interest.

In addition, while thinking of antidumping regulation, we must not forget its impact on bureaucracy. As mentioned above, antidumping actions are based on comprehensive investigations, requiring well trained staff and a strong institutional set-up. “Antidumping is a bureaucratic, not a legal process,” says Finger in Antidumping: How it Works and who Gets Hurt, and it will definitely increase compliance costs and the risk of corruption. The main goal of Georgia at this moment is to improve the business environment in order to promote foreign direct investments and economic growth. Therefore, any kind of new regulation must be considered carefully.

To summarize, lawmakers should analyze not only the benefits created for particular interested groups, but also the costs and losses for other players on the market. Procedures should be clear about the costs of the requested protection, and the identities of the persons or groups who will bear those costs. For instance, if the targeted imports are needed materials, more expensive import means higher costs for producers, and will possibly effect domestic jobs. It is obvious that the government will always be under pressure from local producers, interested groups, and lobby organizations demanding import limitations, but before imposing any restrictions they must review such potential issues in detail and decide whether they deserve relief from the liberalization policy.