Anti-Dumping: The Ripple Effect Across Global Markets
6 min read
2024-11-18
Bregt Natens
Counsel, Baker McKenzie

executive summary

  • Anti-dumping actions can severely impact global businesses by imposing high duties (averaging 30% in the EU) that last over a decade, drastically reducing exports (by on average 85% in the EU), and potentially shutting companies out of key markets.  
  • The "oil-stain theory" warns that an anti-dumping investigation in one country can trigger similar actions elsewhere, rapidly excluding businesses from multiple markets.
  • Companies should balance the risks and opportunities of anti-dumping measures by coordinating globally—to ensure strategic decisions in one market don't harm their global presence.

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Anti-dumping actions can severely impact global businesses. The “oil-stain theory” warns that an anti-dumping action in one country can trigger a domino effect in others, rapidly shutting businesses out of key markets. With duties in, for instance, the EU averaging 30% and lasting over a decade, failing to act could cost 85% of a company’s exports. To prevent such hazard, companies must be proactive and adopt a global strategy, ensuring that strategic decisions in one market do not jeopardize their presence worldwide.

In one sentence

What are anti-dumping investigations in one sentence?

Bregt: Anti-dumping investigations are actions that governments can take to protect local businesses from foreign imports being sold at unfairly low prices.  

Severe consequences

Why do companies need to take anti-dumping investigations seriously? And what is the “oil stain theory”?

Bregt: Companies need to take the prospect of anti-dumping investigations seriously because such investigations can lead to the imposition of high duties that increase export costs and reduce competitiveness—possibly even shutting them out of the market.

The “oil stain theory” escalates the problem. The theory suggests that if an anti-dumping investigation occurs in one jurisdiction, it often soon leads to investigations in other jurisdictions.

Let’s say the EU finds there has been dumping of biodiesel by Indonesian importers and imposes very high tariffs against these importers. It then becomes economically unfeasible for Indonesian companies to export biodiesel to the EU. Suddenly, Indonesian suppliers have, say, a million tonnes of biodiesel they need to sell elsewhere. That biodiesel might be routed to the U.S. As imports to the U.S. increase, the U.S. biodiesel industry might say, “Look, the Indonesians are shipping more biodiesel and undercutting us.” This triggers another anti-dumping investigation, this time in the U.S.

If you are not prepared and do not defend yourself effectively, you could quickly be excluded from three or four key markets globally. Especially for industries dependent on high capacity utilization of production assets, the impact can be devastating.

How high can anti-dumping duties be, and what is their effect?

Bregt: In the EU, anti-dumping investigations typically result in the imposition of duties, with an average rate of 30%. These duties generally reduce targeted imports by 85%. Although they are initially imposed for five years, they often remain in effect for about 12 years. This means that, if you cannot successfully defend yourself, you may lose, on average, 85% of your exports to the EU market for over a decade.  

Explainer Sheet: Anti-Dumping Proceedings

What do businesses commonly misunderstand about anti-dumping proceedings?

Many companies view anti-dumping investigations as a purely technical matter, something the lawyers will deal with. But these investigations have a huge impact on businesses.

Bregt: A “successful” anti-dumping investigation can dramatically affect market share, asset utilization, and ultimately, global prices.  

For those companies targeted, who we call respondents , the effect of anti-dumping proceedings can be devastating.

For those companies on the other side of the aisle, the complainants , they want to understand what an anti-dumping investigation in one market does to global prices and their position in the global market. They also want to understand the risk of retaliation.

Speaking of draconian consequences, how quickly can they occur?

Bregt: Many are not aware of the domino effects of anti-dumping investigations.

In recent years, we’ve seen these cases spread faster than before. You could be shut out of three or four key markets within a year or two.

Global strategy

Why do companies facing anti-dumping investigations need a global strategy?

Bregt: A company may be a complainant in one country and a respondent in another. The goal of a global anti-dumping strategy is to ensure you maximise opportunities but minimise risk. For instance, you want prevent one part of the group from making opportunistic decisions that harm another part.

Take European steelmakers as an example. In Europe, steel manufacturer X is a key complainant in nearly every anti-dumping investigation involving steel imports. The steel industry has been one of the most targeted sectors in anti-dumping cases, and many believe that the European steel industry might not have survived without these measures.

At the same time, steel manufacturer X exports steel globally. In Brazil, a competitor might request an investigation into imports from European steelmakers, accusing steel manufacturer X of dumping. As a result, steel manufacturer X might be an initiator or supporter of an investigation in the EU while having to defend itself against the same alleged dumping in another jurisdictions, like Brazil. To balance the risks and opportunities, a coordinated global strategy is crucial.

Examples of Recent Anti-dumping Measures: EU and U.S.

When should domestic businesses consider filing or joining a complaint?

Bregt: Domestic businesses should consider three key factors:

  1. Are they facing competition from imports in their domestic market?
  2. Are they losing domestic market share to imports?
  3. Is this affecting their profitability?

If the answer is yes to all three, it is a strong indicator that the company should consider using anti-dumping measures for protection.

To make this concrete, imagine your sales director saying, "We’re losing sales to imports from Turkey because Turkish competitors are undercutting our offers. As a result, we’re losing market share in the EU for this specific product." When you review the EBIT (Earnings Before Interest and Taxes) for that product, it is declining to unsustainable levels. In this scenario, filing a case could be justified. If duties are imposed on Turkish imports, their prices would rise, levelling the playing field.

Being a complainant

How to initiate a dumping complaint?

Bregt: The business should first conduct an internal assessment. While the business team may quickly flag concerns about losing sales or market share due to low-priced imports, these concerns must be verified with data from the controlling team. This involves reviewing key financial indicators to ensure the case is strong and free of red flags.  

If the financial impact is still unclear, it may be better to wait. For instance, if profitability remains high despite the imports, the complaint is less likely to succeed. But as it takes a long time to get protective duties in place, you also don't want to wait longer than necessary.

Once the internal assessment is completed for one market, the company should evaluate potential risks in other markets. This ensures that action in one jurisdiction is not going to harm the company’s position elsewhere.

If the findings support a complaint, the business and legal teams work together to prepare it.

The complaint is submitted to the authority responsible for anti-dumping proceedings. In the EU, this would be the European Commission (EC). In the U.S., it is the Department of Commerce (DOC) and the International Trade Commission (ITC) .

The regulator will review the case and request additional information and data. Responding to these requests can be resource-intensive for both the business and the legal team.  

Likelihood of success

What are the chances of success?  

Bregt: Complaints are often successful, and when they are, the company can secure up to 12 years of protection from “unfair” competition. Overall, it is a worthwhile effort.  

Number of Anti-dumping Investigations by Year

Can anti-dumping complaints be brought in all industries?  

Bregt: Yes, they can. It is a common misconception that only stable or mature industries like steel are suitable. Dynamic sectors like electric vehicles, as well as cyclical ones like shipbuilding and semiconductors, are also eligible.

The EC, for example, allows flexibility in selecting specific time periods to demonstrate loss of profitability and reduction in market share, such as the last four full quarters or the previous three years. This flexibility increases the likelihood of a successful complaint, even in cyclical or dynamic industries.

A key requirement is that the product must be manufactured in the jurisdiction where the complaint is filed. Simple assembly of imported components may not qualify, but substantial transformation of input products does. Assessing whether the product qualifies as "EU origin" under trade rules is a good rule of thumb to determine eligibility.

Anti-dumping vs Anti-subsidy

There are also anti-subsidy proceedings, like the recent investigation by the EU into electric vehicles manufactured in China. How do I know which type of case to bring if I am concerned about cheap imports?

Comparison: Anti-dumping and Anti-subsidy Proceedings

Bregt: From a business perspective, the difference between anti-dumping and anti-subsidy cases is minimal. Both require demonstrating the same basic elements: declining sales, market share, and profitability.

The key difference lies in the unfair trade practice being challenged. In an anti-dumping case, the goods are sold in the EU below their fair value. In an anti-subsidy case, the low price is due to subsidies in the country of origin. Often, both practices may be at play.

Dumping cases are easier to pursue than subsidy cases. While the rules are quite technical in both, proving dumping is often simpler than proving significant subsidies.

The main challenge with subsidy cases is finding clear evidence that a company benefited from government subsidies. Public data might show subsidy programs, but not which companies benefited from them. Annual reports may mention grants or tax breaks, but the most impactful subsidies, like receiving resources at very low prices, are harder to prove.

Key takeaway

What is the most important takeaway for our readers?

Bregt: As a potential respondent, the goal is to protect your company from these draconian measures. If you’re a manufacturer selling goods to jurisdictions where your competitors make competing goods locally, you should consider whether you're vulnerable to anti-dumping investigations.  

Also keep in mind that you may not know that you are dumping: a dumping calculation is a technical construct, and you don't need to be selling at a loss to be found to be dumping.

This places demands on the compliance function. Anti-dumping risks must be integrated into your compliance catalogue, alongside sanctions, export control, anti-money laundering, and counter-terrorist financing. Anti-dumping compliance should not be reactive, as by then it is often too late, but rather proactive.

As a potential complainant, be actively aware – and make your business team aware – of the possibility to get protection in the form of anti-dumping duties. As soon as you start losing sales to imported goods in the market where you produce, think about whether it's helpful or necessary to ask for protective duties.

Bregt Natens is a counsel in the International Commercial & Trade Practice Group of Baker & McKenzie.

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