The Hindu Business Line : Resource-based products — Is anti-dumping duty justifiable?

By getting a resource-based product at a price less than its production cost, surely the importing nation is profiting. But the question is, how long will the exporting nation sell at low prices?

IN DECEMBER, a leading paper-maker tried to get anti-dumping duty levied on coated paper above 80 gsm, stating that this item was being imported at rock-bottom prices, thereby affecting the domestic industry. Ironically, Indonesia, the `Newcastle' in paper manufacture due to its vast forest resources, has levied anti-dumping duty on Indian papers ranging from 7 per cent to 40 per cent.

Every developing country has a provision to levy anti-dumping duty to prevent a flooding of cheap imports and posing a threat to its domestic industries. Therefore, every country is naturally inclined to protecting its industries lest it faces serious social upheaval. At the same time, economists argue that it is the duty of every nation to provide quality goods and services to its population, as a good standard of living is a must.

The dilemma is whether to allow domestic industries, however inefficient they may be, to supply goods and services of indifferent quality, as was the situation in India not far back, or allow quality imports?

Take the case of paper: Does India stand to lose or gain by allowing import of paper and newsprint at a price less than the domestic price or the production cost?.

Paper is a resource-based product whose manufacture requires enormous quantities of water — a tonne of paper requires potable water ranging from 75,000 to 1,75,000 litres depending on the capital equipment and technology of the mill, 17-20 fully grown trees, lots of energy, and chemicals (if untreated can cause very serious pollution problems). In short, it is conversion of timber wealth, which can be used otherwise also.

Is import, then, a viable option? If, suppose, a jeweller finds his competitor selling jewels at a price much lower than the cost of gold itself, what should he do? He can complain to the jewellers' association. Or, buy the jewels himself, so that he can take advantage of the pricing.

Likewise, the paper mills can import if they find the prices much lower than their production cost and take advantage of the situation as long as possible.

By getting a resource-based product at a price less than its production cost, surely the importing nation is profiting. But the question is, how long will the exporting nation sell at low prices?

Finding that the importing nations' paper mills have closed down because of cheaper imports, will they not raise their prices? The answer depends on:

Whether the exporting nation is trying to create a market in other countries and, therefore, ready to treat the loss incurred due to underpricing as a temporary cost like advertising;

Whether the exporting unit is being subsidised by its government so that its loss is made good?; or

Whether the cost of production is really low because of high technology.

Most companies around the globe have only a certain percentage as advertising costs, and that too it is not applicable to resource-based products such as paper, steel, cement, and so on, where the natural resources of a country are exploited. Paper mill of no country can for long sell at less than the cost of production because it involves exploitation of natural resources of one's own country. No government can give subsidy for paper exports as it is a natural resource. To stimulate exports, it can devalue its currency. Therefore, if the prices of the imported paper are lower, it should be because of the high technology adopted by paper mills in the areas of energy conservation, and the methods of manufacture. Finally, if the exporting country has none of these parameters, it must sell at a loss, which the importing country can take advantage of.

Today, more jobs are created in trade/service areas as manufacturers have to automate heavily to lower the cost of production. For citizens to have a high standard of living, they should have good quality products, and the Government should not interfere with trade.Therefore, for a country like India, anti-dumping duty may not be the answer for resource-based products; it can examine levying duty on service-based products.

(The author is Managing Director, Subramaniam Brothers, a paper trading and paper product manufacturing company in Chennai.)

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