2020 October-November Analysis Featured

Anti-dumping law – discrimination against imports, or a lifeline for local production?

Anti-dumping mechanisms, found controversial by some economists, can be difficult to enact due to the resources needed to determine what constitutes the act of dumping. But many Georgian producers and experts say that without one, the economy remains vulnerable to dumping practices from neighboring manufacturers.

Georgia is making new moves to protect its domestic producers, responding to pleas for help from many sectors of Georgia’s beleaguered manufacturing industry and moving in line with international trade laws.

The country has passed an anti-dumping law after seven years of deliberation and lengthy discussions due to strongly divided opinions over the possible consequences of enacting such a mechanism. The law goes into effect on January 1, 2021.

Preceding this move and several competition laws brought in last year to protect domestic markets, Georgia’s legal framework for trade was described in a 2018 OECD report as ‘seriously undeveloped.’

However, the report did note the Georgian Competition Agency (GCA) is highly regarded in EU circles because of its ‘track record’, which suggested ‘it would make good and responsible use of the proper tools if it had them.’

Now that it does – how will the anti-dumping mechanism be used?

Between January 1 and June 1, 2021 a new department will be created in the Georgian Competition Agency, which will receive and consider appeals on possible dumping activities.

Head of the Competition Agency Irakli Lekvinadze explains how the department will function: “We will look into a case only if more than 50% of the representatives of the local industry will put this problem on the agenda. However, their combined market share must not be less than 25%. We will then study the issue raised, and determine if the case is one of dumping. Finally, we will prepare a report, which we will send to the government for a response.”

An anti-dumping measure may then be passed by the government if the GCA finds that the product is sold to Georgia at below market value of the same product in the country in which it is produced, and if the practice is harming the local industry. A second condition that needs to be filled is that the share of the volume of dumped products exceed 5% of sales on the local market.

The point of the anti-dumping legislation is not to protect the country from cheap imports, but it is intended to stop foreign producers from selling their products at below cost price, in order to harm local companies and grab market share. In this way, it is a branch of competition policy, like anti-monopoly legislation.

Deputy Minister of Economy and Sustainable Development Genadi Arveladze notes that the law is in full compliance with the norms of the World Trade Organization and international standards, and that the law had been reached by consensus with all stakeholders, including businesses, and that it will not play a restrictive role in international trade.

Who stands to benefit

“In the absence of an anti-dumping legal framework, [it has been possible] to import products from foreign countries at dumping prices. In some cases, dumped imports hinder the development of local production and reduce the number of employees. The law will protect local production from dumped imports and promote the development of local production,” said Deputy Minister of Economy and Sustainable Development Genadi Arveladze.

Professor Vakhtang Charaia, head of the Tbilisi State University Center for Analysis and Forecasting, says the anti-dumping law will protect local businesses from the unfair practices of foreign manufacturers, and lists a number of the potential benefits:

“If we are able to protect local producers with an anti-dumping law – and here we only intend fair support – then we will have to import less as well. This will also help us solve the trade balance problem. Less foreign currency will leave the country. The national currency will be more stable. Local enterprises employ more people than importing products and pays more taxes to the budget. In short, the anti-dumping law creates a series of positive events”, Charaia said.

Dumping has caused problems for Heidelberg Cement, one of the largest producers of cement and concrete in Georgia. Company lawyer Ketevan Tsereteli told Investor.ge that there are often cases of state-subsidised products coming in from Iran, Azerbaijan and Turkey – countries that, unlike Georgia, effectively protect themselves from such imports, and as a result, much of the pressure falls on Georgia and local production.

“The local industry is in a difficult situation due to unfair trade conditions imposed by foreign producers. Such trade conditions are imposed by importers unfairly to gain significant market share, often with the help of state subsidies. Jobs are lost, and the country loses existing and potential investors. Then, the consumer becomes dependent on the importer, who raises the price after the competition has been eliminated. In addition, there are numerous restrictions imposed by neighboring countries on the borders, which make it almost impossible to export Georgian products,” said Tsereteli.

Levan Silagava, the head of the Georgian Producers’ Federation, confirms that dumping has been an issue for local production for a long time. The federation unites about 150 companies and was created to protect local producers and to some extent to combat dumping.

Silagava says there has been resistance to the idea of an anti-dumping law because of an opinion that if the opportunity to buy a product disappears at the dumping price, then it is consumers who will suffer in the end. In his opinion, this argument doesn’t hold much water: “Those who operate at dumping prices will eventually increase prices and hurt consumers after eliminating competitors and establishing a monopoly.” This, he says, will damage the consumer and the local manufacturer goes out of business.

The law has been constructed with a balanced approach, Silagava says, given that almost all business associations interested in this issue were involved in the discussion of the anti-dumping law.

“A balance has been struck here so that there is a common vision between importers and local producers on how the anti-dumping law will work. There are many checks and balances that have been placed in the law that will protect importers from harm, because the process of filing an anti-dumping appeal, launching a case and making a conclusion are not easy processes. Both importers and local producers have their own protection mechanisms,” Silagava said.

Opponents

Not everyone agrees with Silagava, and many fear the anti-dumping law will increase prices, make the activities of importers more difficult, and increase prices for consumers.

Economist Irakli Makalatia says the anti-dumping law will place local producers in a ‘greenhouse environment’ and afford them too much protection. He notes Georgia is an import-dependent country (the share of imports in the total trade turnover is 71%), and that the solution to such a problem is promoting competition amongst imports, not stifling them. In creating artificial price barriers, this competition is hurt, and so is the consumer’s ability to buy products at a lower price.

Makalatia points out that every coin has two sides – trade barriers could lead to the formation of undesirable externalities, such as local monopolies, and a rise in the share of smuggling and the black market.

Giorgi Papava, a leading economist at the ISET Policy Institute, also believes that the adoption of the anti-dumping law is premature and misguided. He says Georgia is trying to develop economically, promote free trade agreements and create a healthy business atmosphere. Thus, he says, the timing of the anti-dumping law at this time is ‘eyebrow raising.’

Papava says the risk of creating additional trade barriers is too high, and though he concedes an anti-dumping law may give local businesses the opportunity to enter international competition at some point, it would be better for the competitiveness of local production to be increased by other means.

“It is very difficult to determine what constitutes dumping. Whether Georgia has the relevant research resources is also a separate issue. It is important that such a law support local production, but not ultimately increase its competitiveness,” Papava said.

According to Papava, despite the fact that a number of EU countries have anti-dumping laws, Georgia has no international obligation to adopt this law.

Therefore, he says, even without this law, there will be no serious problems in Georgia’s expansion of international trade.

On the contrary – in his opinion, if Georgia actively starts applying the anti-dumping law, its image as a free trade-oriented country may be significantly damaged, which could in turn negatively impact the country’s economic development prospects.

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