• Dumping penalties: Give to Caesar what you owe to Caesar

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    US President Trump has issued a new executive order focusing on international cheaters, who do not pay their debts due to dumping penalties. The order targets the problem of unpaid special customs duties known as “countervailing duties” (CVD), levied on products from companies found guilty by an “anti-dumping” investigation.

    First to the jargon: “Dumping” refers to a type of predatory trade practice. In its simplest form, it amounts to a company selling a product in a foreign market for less than it costs to make it. In theory, the goal of “dumping” is to drive down the price, and in doing so, muscle out smaller, weaker competition in order to later establish a monopoly status on that market. Under the rules of the World Trade Organization, dumping is a prohibited practice, and countries are permitted to levy special taxes on goods found to be unfairly dumped in their market in order to rebalance the price level. These tariffs are called “Countervailing Duties”, abbreviated as CVD.

    The US currently has filed 379 AD/CVD cases. The largest number deal with various steel products, as well as agricultural and manufactured goods. Of the culprits, China is in the lead with 142 pending cases. At issue in the executive order is a problem brought to light by a 2016 report from the Government Accountability Office. The GAO report noted that only about 30 percent of the duties assessed and owed are ultimately paid, resulting in approximately $2.8 billion in unpaid levies. The report notes the majority of these are owed by the largest importers, and some 90 percent of the unpaid duties are owed by Chinese companies.

    The facts seem to support President Trump’s views on trade. These companies are “cheaters” who take advantage of the US market, but don’t comply with its rules. They deserve to be punished, since by selling to a country which offers them vast business protections, and then flaunting its laws they add insult to injury.

    We also need to keep this order in context. The order requires Customs and Border Patrol to enact stricter and higher bonding requirements on imports. Companies owing duties must “post higher bail” at the border to import their goods. There will be results. Yet, it is also important to bear in mind the scale of the evasion, which is only about one half of one percent of the overall trade deficit. Yet, as behooves good business practices – every bit counts.

    The symbolism of this order may be more important than the substance. After all, if a domestic firm were to engage in “dumping” or sell their goods below cost, we would call it a “sale” benefiting the customer. The timing of the order is also noteworthy – only a week ahead of an official visit by Chinese President Xi Jinping. This order may have been posturing ahead of their meeting, as President Trump aimed to extract concessions from the Chinese. Every bit counts!

    Professor Michael Czinkota
    McDonough School of Business
    Georgetown University, Washington D.C.
    University of Kent, Canterbury, UK
    czinkotm@georgetown.edu

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    1 Comment

    1. MARIANO PATALINJUG on

      Yonkers, New York
      15 April 2017

      This is a classic case of the kettle “Trump” calling the “pot” [the “international cheaters”] black.

      So-called President Donald J.Trump has not an iota of CREDIBILITY whatsoever, and stands on shaky moral ground issuing that Executive Order “focusing on international cheaters.”

      Trump is himself a confirmed and brazen TAX CHEAT!

      He maneuvered to avoid paying US income taxes for 18 years, boasting that that was “smart” of him!

      Up until now since he was a candidate for President, he has adamantly refused to make public his Income Tax Returns for those 18 years, lamely and criminally claiming that his income tax returns for those years are STILL UNDER audit by the IRS.

      The fact, however, is that there are no legal barriers for one to make public his/her income tax returns which are under audit by the IRS.

      More likely than not tax-cheat Trump refuses to do so because if he does he will be opening a huge Pandora’s box of smelly worms!

      MARIANO PATALINJUG
      MPatalinjug@hotmail.com