[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

International Perspective
SURROGATE COUNTRIES AND CANADIAN GOLF CARTS
Question: How, if Canada did not produce golf carts, could the
cost of Canadian golf carts be used to accuse Poland of dumping?
Answer: The United States sometimes achieves wonders
when its markets are at stake.
The standard criterion for judging whether a country is
dumping is whether it is selling commodities on the U.S. market
at prices below those for which it sells them at home or elsewhere,
or at prices below the costs of production. For nonmarket
economies, the Department of Commerce formulated a
special criterion: Is the price below what it would have cost to
produce the good in a “comparable” (or “surrogate”) country?
The Department of Commerce, which is responsible for
implementing the law, knows no shame. In a famous case involving
Polish golf carts, it decided that the country most like
Poland was Canada—at a time when Poland’s per capita income
was a fraction of Canada’s, and when Canada did not make
comparable golf carts. Thus, the Commerce Department faced
the question: What would it have cost for Canada to produce
these golf carts, had it chosen to do so? Not surprisingly, the
resulting cost estimate was higher than the price the real golf
carts were being sold for in the United States, and Poland was
found guilty of dumping.
Similar charges have been made on similar grounds against
Russian sales of natural resources. For years, Western countries
had preached to the Soviet Union and the other socialist
countries the virtues of the market. Beginning in 1989, with the
demise of communism, former iron-curtain countries sought to
transform their economies into market economies. Under the
old regime, these countries had traded mainly with themselves,
and generally engaged in barter. In the new era, they sought to
enter international markets, like any other market economy.
Though the design and production quality of many of its
manufactured goods made them unsuitable for Western markets,
Russia had a wealth of natural resources—including uranium
and aluminum—that it could produce on a competitive
basis. Moreover, with the reduction of defense expenditures—
good news from virtually every perspective—Russia’s demand
for many of these raw materials was greatly reduced.
American producers attempted to discourage Russian
exports by filing, or threatening to file, dumping charges.
Though Russia was probably not selling these commodities
at prices below those prevailing at home or elsewhere, or at
prices below the cost of production, the “surrogate” country
criterion made the dumping charges a very real threat. Russia
agreed to a cutback in aluminum production in 1994, to be
matched by cutbacks in other countries.
To the Commerce and State Departments, this may have
seemed a reasonable way to avoid trade conflict. But consumers
paid dearly, in higher prices for aluminum and products
using aluminum.
Antidumping Laws Dumping refers to the sale of products overseas at
prices that are not only lower than those in the home country but below cost.
Normally, consumers greet discounted sales with enthusiasm. If Russia is willing
to sell aluminum to the United States at low prices, why should we complain? One
possible concern is that by selling below cost, the foreign companies hope to drive
American firms out of business. Once they have established a monopoly position,
438 ∂ CHAPTER 19 INTERNATIONAL TRADE AND TRADE POLICY