Under the Cover of Antidumping: Does Administered Protection Facilitate Domestic Collusion?

The US Justice Department investigation resulted in a 1995 plea agreement with one firm (Elkem Metals) and a 1997 conviction of another firm and one of its senior officials (SKW Metals and Alloys). In light of these criminal activities, the US International Trade Commission rescinded the antidumping order in 1999.

In this case, an official from one firm pleaded guilty to price fixing charges that covered a period as early as September 1999 and as late as 2001, while an official from another firm was eventually acquitted of similar charges. The International Trade Commission did not find the evidence of price fixing to be compelling enough to review the antidumping case.

Antidumping is certainly not the only legal procedure that could be used to encourage anticompetitive behavior. Klein (2011) conducts a general analysis of “sham litigation,” or lawsuits brought solely to gain a competitive advantage in violation of antitrust laws.

For example, in 1999 Cheminor Drugs filed suit against Ethyl Corporation claiming that Ethyl’s antidumping petition against Cheminor (which Ethyl withdrew prior to a final determination) was baseless, and filed solely for anticompetitive reasons in violation of the antitrust laws. A court of appeals rejected Cheminor’s case, citing the fact that the International Trade Commission made a preliminary affirmative injury determination in the case. Similar allegations were made against Prestini Musical Instruments Corp. for their antidumping filings against Italian producers of musical instrument parts in 1983. The court also rejected this case.

Stegemann (1990) studies a similar class of antidumping cases in which the government reaches an out-of-court settlement with the foreign industry, in which the foreign industry officially agrees to raise prices (a price undertaking) rather than face antidumping duties. Based on his sample of EU cases, Stegemann concludes that while these price undertakings are a legal substitute for illegal price fixing at some level, there is no public evidence that firms are using these undertakings to engage in collusion with their foreign counterparts in excess of that allowed for under antidumping law.

Although the basic principles of US and European antidumping law are the same, there are some notable differences: For example, European antidumping petitions more often result in undertakings, in which the foreign firms agree to raise their prices. European antidumping law also specifies that the government must weigh the total welfare effects of the antidumping duties, explicitly taking into account the interests of consumers as well as producers.

An antidumping petition is deemed to have been filed on behalf of the domestic industry if domestic producers and workers who support the petition account for (1) 25 % of the total production of the product and (2) 50 % of the production of those who both support and oppose the petition.

Petitions often request that antidumping duties be imposed on more than one country, and the ITA and the ITC officially launch a separate investigation for each country that is targeted in the petition. Thus these 545 petitions resulted in 1,200 antidumping investigations, of which 44 % resulted in the imposition of antidumping duties, and 10 % were withdrawn prior to the government’s making a determination.

This is admittedly a non-trivial assumption. Corts (1999) demonstrates that conduct parameter methods can result in severe mis-measurement if the underlying firm behavior is not the result of a conjectural variations equilibrium.

US DRAM producers included Advanced Micro Devices (AMD), AT&T Technology, Fujitsu, Hitachi, IBM, Mitsubishi, Mostek, NEC Electronics, Texas Instruments, and Toshiba. Three additional firms had just recently ceased production of DRAMS, including Intel, Motorola, and National Semiconductor.

Other US EPROM producers at this time included Fujitsu, Mostek (a division of United Technologies until 1985, at which time it was acquired by Thomson SA), Motorola, Rockwell International, SEEQ Technology, and Texas Instruments.

The agreement also included provisions for Japan to provide sales assistance to US companies that were trying to export to Japan, with the goal of US producers achieving a 20 % market share within five years (Tyson 1992).

Micron again asked for antidumping protection from foreign producers of semiconductors: antidumping duties were imposed against Korean producers of DRAMS on May 10, 1993, and against Taiwanese producers of static random access memory (SRAM) chips on April 16, 1998. These duties were revoked on October 5, 2000, and January 14, 2002, respectively.

Because the semiconductor industry already had a long history of cooperation to prior to 1985, one may not expect to see a structural break in their level of competition due solely to their coordination on this trade relief petition.

Tyson (1992) reports that there is some evidence, including pricing rules and a restraint on investment, that the Agreement may have led to cooperative behavior (or collusion) among Japanese firms in 1988 and 1989.

In 2002, the US Department of Justice began investigating price fixing claims in the semiconductor industry, specifically against five producers of DRAMS, including Micron, which allegedly took place between the end of 2001 and mid-2002. Several of these firms eventually pled guilty to price fixing charges. This period of uncompetitive behavior could explain the increase in market power exhibited by Micron toward the end of the sample period.

This result contradicts the results in Nieberding (1999), who found that Timkin experienced an increase in the market power statistic in the period after antidumping protection (between January 1988 and December 1992). I was unable to replicate Nieberding’s (1999) results even after restricting my sample to the same time period and including a single break in January 1988. This may be due to the vastly different market share values that are used in the analysis. As is noted in the “Appendix”, I calculated market share using two different denominators: the sum of sales that are reported in Compustat by the five public firms at the time of the antidumping petition that produced the product under investigation and the average quarterly sales in the ball bearing industry as calculated using the data from the US Census Bureau’s Annual Survey of Manufacturers. Although the results presented here use the former definition, results from the latter were qualitatively similar. Neither market share definition replicates those reported in Nieberding’s (1999) summary statistics, and the author did not report how he calculated the denominator of his market share statistic.