Antidumping duties and price undertakings: A welfare analysis

Shih-Jye Wu, Yang-Ming Chang and Hung-Yi Chen

International Review of Economics & Finance, 2014, vol. 29, issue C, 97-107

Abstract: In this paper we examine differences in welfare implications between two trade protection measures: antidumping (AD) duties and price undertakings. Based on a stylized model of duopolistic competition under an effective AD law, we first analyze the case where a foreign firm convicted of dumping is required to pay an AD duty. We then examine the case in which a convicted foreign firm has the option of (i) paying an AD duty or (ii) accepting an undertaking by raising product price to its “normal value.” Taking into account the GATT/WTO policy that an AD duty rate must not exceed the margin of dumping, we show conditions under which a foreign firm chooses to evade its AD fine by a price undertaking. We find that the welfare-maximizing AD duty rate for a dumped product depends crucially on its normal value. If the foreign product's normal value is “critically high,” the optimal AD rate is set to fully reflect the dumping margin. Otherwise, the optimal AD rate is set lower than the dumping margin. From the perspective of social welfare, these findings help to identify the economic conditions under which one policy instrument is chosen over the other against foreign dumping.

Keywords: Antidumping duties; Dumping margin; Price undertakings (search for similar items in EconPapers)
JEL-codes: F12 F13 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:29:y:2014:i:c:p:97-107

DOI: 10.1016/j.iref.2013.05.013

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