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Anti-Dumping Laws

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ANTI-DUMPING LAWS have been with us since the early decades of the 20th century. Ostensibly aimed at preventing unfair trade practices, they have in recent decades been used mostly to punish foreign producers for offering their products to domestic consumers at low prices. Rather than being used to protect the public (from low prices), they have been used to protect inefficient domestic producers from foreign competition at the expense of the general public. They are a classic example of special-interest legislation, what economists would call rent seeking.

Launching an anti-dumping investigation is not difficult. In many countries, all that is necessary is to petition the government to launch an investigation. Before the 1970s, anti-dumping laws were invoked rarely, but since then they have become more prevalent. Their use was mostly confined to the United States and a few other countries. But now, with the advent of the World Trade Organization, they are likely to become a key part of the trade policy of more than 120 countries. And since tariffs and quotas are being eliminated or reduced, the anti-dumping laws are becoming the protectionist tool of choice to prevent foreign producers from competing in domestic markets. Thus, the WTO is rapidly becoming a force for protectionism rather than free trade.

Nearly all of the articles that have been written about antidumping laws either look at technical aspects of the anti-dumping laws or discuss specific cases. Ethical issues are totally ignored. Those few articles that do discuss ethical issues limit themselves to utilitarian ethics, the ethical system that the vast majority of economists have adopted. But while applying utilitarian ethics to anti-dumping laws does furnish some insight concerning their justification, it provides an incomplete and even incorrect picture.

Since economists and many lawyers are utilitarians, perhaps a few words should be said about how utilitarian ethics can be applied to the anti-dumping laws. Utilitarian ethics basically states that a policy is good if the majority benefit, even if someones rights are violated along the way. The greatest good for the greatest number is the phrase often used.

A number of studies have been conducted to determine whether the good outweighs the bad in the case of anti-dumping laws. These studies, including a major study by the United States International Trade Commission, one of the organizations involved in prosecuting companies for anti-dumping violations in the United States, concluded that the anti-dumping laws result in a deadweight loss. In other words, the losses exceed the gains. Domestic producers gain something but domestic consumers and foreign producers lose more than the domestic producers gain because of the introduction of inefficiencies and transaction costs. No study to the authors knowledge has ever found that anti-dumping laws produce a net gain.

While the utilitarian ethical system makes an attempt to determine whether particular policies are good or bad, it is a flawed system because it totally ignores property rights. According to a utilitarian, it is perfectly acceptable to violate someones property rights as long as there is a net gain to society.

A better ethical system to apply to the morality of anti-dumping laws is one that takes account of property rights. Under the property-rights approach, a policy is automatically bad if someones property rights are violated. If no ones property rights are violated, an action still may be ethical or unethical, depending on the particular case, but it should not be illegal.

For example, prostitution may be immoral but it does not follow that the activity should be illegal, since no ones rights are violated. Similar arguments have been made for legalizing homosexuality, gambling, dwarf tossing, polygamy, and numerous other victimless crimes. All of these activities have been illegal at one time or another because of the perception on the part of some people that they are immoral and should therefore be banned. Acts between (or among) consenting adults that do not result in the violation of anyones rights should not be illegal. Perpetrators should not be punished just for engaging in acts that some people find offensive. It is a perversion of the law to force someones ethical views down the throats of the general public in cases where no ones rights are violated.

Lets apply the property-rights approach to the anti-dumping laws. Whose rights are being violated by dumping? Domestic producers rights are not violated because there is no right to sell something to consumers who choose to buy from someone else. Consumers have a right to choose. Certainly, domestic producers stand to be harmed if a foreign producer is permitted to sell in the domestic market. But being harmed is not the same as ones rights being violated.

On the other hand, if the government comes to the aid of domestic producers and makes it more costly or impossible for consumers to purchase foreign goods, then the rights of consumers are being violated. Thus, anti-dumping laws violate the rights of consumers because they prevent willing buyers and willing sellers from exchanging what they have for what they want. Anti-dumping laws also violate the rights of foreign producers for the same reason.

The argument has been made that the anti-dumping laws should be reformed to prevent abuses. The problem with this solution is that all anti-dumping laws make it impossible or more costly for consumers to choose. Anti-dumping laws are inherently abusive. The conclusion is clear. Anti-dumping laws violate property rights and the right to contract. Reform is not enough. Anti-dumping laws must be abolished.

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    Dr. McGee is a professor at Barry University in Miami.