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Subsidy-induced Dumping


  • We are grateful for valuable comments from two anonymous referees and from discussions with S. L. Clausen and L.-B. Larsen, Danish Enterprise and Construction Authority; S. Gospage and L. H. Jorgensen, DG Trade, European Commission; B. Servais and R. Luff, Van Bael & Bellis; F. Leerkotte, CEPIFINE; H. Boner, Sappi; D. Morris, European Man-Made Fibres Association; and E. Vermulst, Vermulst Verhaeghe Graafsma & Bronkers. We are also grateful for valuable comments from Professors H. Vandenbussche, S. Evenett, and M. Zanardi, and participants at the 7th Danish International Economics Workshop, and at the ETSG 2011 Copenhagen. All errors and misunderstandings in this paper are our own.


More than two-thirds of all anti-subsidy investigations in the EU are paired with an anti-dumping investigation against the same non-EU producers. The outcome may be a two-component duty where one duty addresses the ‘unfairness’ of the subsidy and the other the dumping behaviour. The philosophy behind this practice is that, at least to some extent, the observed dumping has been induced by the subsidy, and as the GATT Treaty, Article VI commits the claimant not to impose double remedies for the same ‘misbehaviour’, it is necessary to make an assessment of the hypothetical dumping without the subsidy. The EU quantification of the hypothetical dumping margin assumes that an export subsidy translates fully to the dumping margin, while a domestic subsidy leaves the dumping margin unchanged. Using an oligopoly model, we show in this paper that in case of an export subsidy, the EU anti-dumping duty is lower than the predicted hypothetical dumping margin from the oligopoly model. For a domestic subsidy, the results are ambiguous, and the difference between the size of the duty following the EU procedure and the model predictions is relatively small.