RC#51: The Dumpsters

published in Eastern Economist #437, June 18, 2002

Dumping is not a pretty word. Among its many not-too-graceful meanings is the idea of someone eliminating undesirable or ultra-cheap products on unwitting trading partners.

            This meaning has been been around for some time. Most baby-boomers had their first exposure to international “dumping” back in the seventies.

            At the time, the US Food and Drug Administration had declared a well-known infant milk formula unfit for American babies. The big-name manufacturer, Nestlé, turned around and distributed tens of thousands of tons of the now worthless, unhealthy formula in third world countries. No doubt it got a huge tax write-off, while poor Indian and African mothers gratefully fed the stuff to their babies.

            This kind of dumping kept coming up over and over again with US companies. Mostly when one of them wanted to salvage costs on a product that had gone bad. Most dumped products were health-related, from birth control devices (including the lethal Dalkon Shield) to personal care products.

            Whenever it came to light, this raised a hue and cry in America. “What business do we have selling off or giving to poor countries, products we ourselves wouldn’t touch with a 10-foot pole?” people asked themselves.

            Gradually, the brouhaha would die down, however, and most Americans went on with their usual business.

            Over the decades, as a variety of free trade associations were set up and GATT turned into the WTO, the meaning of “dumping” shifted. Now, Americans began accusing second and third world countries of doing it to the US!

            The more the US insisted that its neighbors and partners remove barriers with the US, the more the US itself began to accuse neighbors, partners and underdeveloped countries of “subsidizing” trade in key commodities. Soon countries in Europe and elsewhere were playing copycat.

            It got really bad when the Soviet Union fell apart. Suddenly, the closed circle of soviet industry was opening itself to outside markets. Russians began pumping out oil and gas. Ukrainians began rolling out steel.

            The difference was, countries like Ukraine weren’t dumping a bad product. Judging from the hue and cry, American companies were more than happy and willing to buy the product.

            Of course, Ukrainian steelworkers were lucky if they got $25 a week, let alone $25 an hour. So the Ukrainians were able to sell a standard product at below standard prices.

            That’s what got the American steel lobby’s goat.

            “Foul!” they cried. “Ukrainians are dumping steel on our doorstep.”

            The truth was, the US steel industry was in a mess. It’s been that way since the 1970s when the mini steelmills began taking business from the Bethlehems and the US Steels. The Big Boys refused to see the writing on the wall and were struggling to survive.

            Of course, their extravagantly paid unionized workers were fighting change just as much as management was.

            And elected officials backed them all the way. Back in May 1997, Sonny Callahan, a Republican congressman from Alabama, accused Ukraine of being “the Nº1 violator” of dumping laws in the US market. “This must cease, and cease now.” Of course, his posturing had the support of a great southern politician by the name of Jesse Helms.

            Over the years, hundreds of anti-dumping suits were launched against Ukraine and other countries. Time and again, exhorbitant tarriffs were slapped on steel and other commodities. Essentially, it’s a means of levelling the price – and continuing to pay US subsidies to those same inefficient domestic industries.

            In an era of Free Trade Agreements with every possible combination of regional neighbors, the concept of “dumping” in the sense that it is now being used makes little sense. It’s mostly protectionism in another guise: “Your products undercut ours because you’re not at our standard of living, so we won’t trade with you.”

            Meanwhile, the “anti-dumping” tarriffs the US keeps slapping on cost countries like Ukraine amounts in real lost business similar to what the US claims is lost to pirated CDs every year. Except that Ukraine has a microscopic GDP compared the US. Who should be crying “Foul!” in this instance?

            The Economist has long been very critcal of US protectionism in steel and farming. It wrote in late May, that, since February, the big US steel firms “are returning to profitability with unseemly haste.” Yet the latest customs duty raised in March was “only third or fourth” among factors behind this turnaround.

            In fact, having cut off cheap exports, the US is now facing an apparent shortage of 8.5mn t of steel!

            In the meantime, countries like Malaysia and Peru have begun suing Ukraine, too.

            Imagine what would have happened in the western world had anti-dumping laws been applied to Taiwan, Japan or Korea in the 50s, 60s and 70s?

            There would be no Asian tigers today. (I can just hear Rep. Callahan howling, “Darn tootin’, that’s exactly my point!”)

            Had anti-dumping been a popular trade weapon then, America would not have enjoyed the prosperity of the 1950s and 1960s, which cheaper consumer good spurred. The Asian tigers would never have materialized to spur radical improvements in the electronics and car markets we all benefit from today. Asia would never have become the formidable consumer market that the West benefits from today.

            That’s why today, it’s equally important for things made in Ukraine, Russia and even Turmenistan to be welcomed in rich markets. The US and Europe have nothing to lose – except their badly run, highly protected corporate and union crybabies. •

–from the duty-free notebooks of Pan O.

FYI: A statistical factoid. EE Daily had 3 items on steel from June 2001 to February 2002. Since Mar. 4, it has had 26.