Anti-dumping measures of the EAEU

Eurasian Economic Union (further - EAEU) holds establishing a customs union and common regulations as a high priority for itself. While systematic measures are being taken to ensure free trade on the internal single market, EAEU tends to hold protectionist positions when trading with other countries on the outside. Those positions often come in practice in the form of anti-dumping measures, such as increased tariffs on certain products. Namely, China is one of the biggest export partners of EAEU, having signed a trade agreement it, and was a regular target of anti-dumping regulations in different fields. This essay in particular will examine a highly unusual Decision №188 (20th of November 2018)[1] made by the Council of the Eurasian Economic Commission, and analyze it in a number of frameworks to find the most suitable explanation to the actions taken. Interest point in this decision is that it is a part of anti-dumping policy that Commission pursues; however, it eases barriers instead of putting up more of them.

Part 1. Introduction to the case.

Decision in discussion, actually, amends another one, Decision №148 (10th of November 2015)[2], adding another company, Caterpillar (Qingzhou), Ltd (further - Caterpillar) into the special list of companies whose products have to be tariffed differently. Those products, in this case, are tracked bulldozers. Decision of 2015 has already singled out four vehicle-producing companies in particular, and included a clause for “others”, specifying a duty of 44.65% on them. Three of the other four companies in the decision had significantly lesser duties, ranging between 9.65% and 13.80%. Decision of 2018 ruled that the duty for bulldozers produced by Caterpillar is also supposed to be lowered to 18.50%, and excess duty that has been paid in the period between 24th of November 2017 and 20th of November 2018 is to be returned to the payers.

This decision has been made based on an investigation presented in fifty-four page long document[3] that evaluated the advantages Caterpillar had in production process, and legitimacy of the profits made by the company. Those advantages were not found significant enough to warrant for default tariff setting of 44.65%, and therefore were changed. Investigation was started due to the additional information provided to the Commission by Caterpillar itself.

Part 2. Theorizing the case in the framework of integration with China.

As it was previously mentioned, EAEU has signed an agreement on pursuing further economic and trade cooperation with China in May 2018[4], albeit no definite action has yet entered into force. Press release on that agreement is framed in the context of Chinese initiative “One Belt, One Road” (further – OBOR), and while this initiative focuses mainly on creating infrastructure networks, its deeper goal is advancing Chinese economic interests[5]. Lowering tariffs on products that it exports is certainly in the interest of Chinese side, and so it is useful to see whether it is a general trend in anti-dumping decision-making of EAEU after the agreement.

Decision №43 (26th of March 2019)[6] introduced anti-dumping measures on aluminum alloy wheels imported from China after a lookalike investigation was conducted. Decision №200 (11th of December 2018)[7] have prolonged the anti-dumping measures on stainless steel tubes imported from China after initial period of such regulations has expired. Alike prolongation has applied to regulations on anti-friction bearings in Decision №139 (21st of August 2018)[8]. All of those decisions have been made after the agreement between EAEU and China was made. Overall, case of Caterpillar looks to be more of an exception rather than the rule.

Chinese pressure or willingness of EAEU to integrate with China more do not seem to be viable hypotheses in that context. Quite the contrary, EAEU seems to be consistent in protecting its internal market by introducing more and more regulations targeting China, and prolonging ones that are already in place. Given that, a need for another explanation that could draw upon those conclusions emerges.

Part 3. Comparisons with anti-dumping measures applied by EAEU on countries other than China.

There is a definite tendency in EAEU to prolong and adopt anti-dumping measures regardless of importing state. A multitude of decisions regarding them was made in 2018 and 2019. Let us review some of them.

Decision №34 (28th of February 2018)[9] changed tariffs on steel railway wheels imported from Ukraine from 4.75% to 34.22% due to an investigation caused by “change in circumstances”. Decision №90 (29th of May 2018)[10] introduced tariffs on herbicides imported from European Union on the basis of investigations against particular companies, as well as against the industry in general. A similar investigation was ran against India, imposing anti-dumping measures on graphite electrodes.[11]

Each of those cases, just as many others, are supported by lengthy explanations of reasoning behind the decisions that were made, often going into hundreds of pages of evidence. Such investigations must be expensive to run, due to their scope, number of specialists they require, as well as the time that they take (many of those has taken extensions before publishing results). There is no particular reason to go in such depth about those investigations if they only and exclusively are being used as red herring. It would be unreasonable to run through all that hassle if there was not genuine positive intention behind it, and so, protectionist tariffs that are imposed must have some particular ground for their existence. This ground, logically, should favor the interests of at least some states in the union.

Commission also does not seem to differentiate its measures based on actors, going against interests of European Union, China, India or Ukraine all in very similar ways. It must suggest that there is not enough pressure to stop EAEU from imposing such measures from either of these actors, and, likely, any others, too. While lobbying often takes part in regulatory policy, it seems to be inefficient in persuading Commission against anti-dumping; possibly, it is due to actors lobbying being foreigners and lacking direct pressure on the members of the Commission, unlike EAEU member states. If that is true, it also further disproves the point about China pressuring EAEU into easing regulations from the previous part. Then, those measures must at least primarily take EAEU’s interests into account, no matter if they are efficient on practice or not.

By extension of this logic, easing the regulations must also come from the wish to improve state of affairs in EAEU on some metric. With lowering anti-dumping measures being such a rare case, however, there must be a non-trivial reason for this decision. Next part is going to analyze what specific fields are supplied with bulldozers, and what about those fields can be different from others to allow for such changes.

Part 4. Theorizing the case in framework of pressure from sanctions and attempts on self-sustainability.

While anti-dumping measures are “protectionist”, it does not necessarily translate into them being good for the countries that impose them. Higher tariffs mean that it is harder for citizens, or, in this particular case with bulldozers, farmers and businesses to purchase needed products, and it makes the whole chain of production that involves those products more expensive[12]. While Russia has notorious heavy-duty vehicle producers (such as KAMAZ), supply that they provide does not necessarily cover all of the needs of construction and agriculture. This is especially relevant after heavy sanctions and counter-sanctions that were imposed on Russia by Western states in the aftermath of Crimea annexation in 2014. Self-sustainability policies in agrarian sector pursued by Russia after that[13] might have taken a toll on its ability to provide enough cheap vehicles.

Another factor that comes at play with regulations that maximize fairness is competition. It is very easy for EAEU companies to compete against artificially overpriced foreign products, but that can bring a lot of unintended harm. Low level of competition decreases incentives for local companies to improve their products, in either quality[14] or pricing, and these things are undesirable, as better local products can help production chains as much as cheap products that were exported. It is not far-fetched to say that Russia, as an important part of the union, is interested in research and development on its own production, in general and under the same umbrella of self-sustainability. Other member states, who do not produce as much vehicles, are unlikely to be opposed to having more choice for their local industry as well.

It is important to note, though, that tariffs were lowered only on one producer’s bulldozers. That might suggest a couple of things in this framework. On one hand, that may be because other producers that might be unfairly treated just have not provided evidence, unlike Caterpillar. It is unlikely that EAEU Commission has enough resources or access to evaluate every individual heavy-duty vehicle producer in China, but they might be willing to make changes to their general stance at request. On the other, in critical approach, that might suggest the minority of the issue, and that it is not something to draw far-fetched conclusions from. That stance can be supported by the fact that so many regulations against China still hold strong, and protectionism still seems to be EAEU’s favorite strategy.

To defend this framework, it is important to note that this particular case is relevant exactly to the sectors that were hit by sanctions, unlike examples brought in Part 2. While sanctions are not a necessary condition for general logic of supply and demand or fair competition to work, they help to deal with uncertainty that is brought by selective easing of anti-dumping measures. There must be a reason to stop protecting local industry, and those additional pressures in sectors that rely on bulldozers might be them. It could be said that herbicides from Part 3 are also related to agriculture; however, mere relevance to the field does not mean there is lack of local supply. Herbicides are easier to produce and require less infrastructure than complex machinery, and so situation with them may be different.

Another criticism of this analysis can come in form of focusing it too much on Russia and its interests. Belarus, for example, owns one of the world’s biggest heavy-duty vehicle producing enterprises, “Minsk Tractor Works” (further - MTZ), which claims to have produced approximately 10% of the world’s tractors[15]. It has models that directly compete with Caterpillar’s SEM series based on being tracked bulldozers under 250-horse power[16], and it might not be advantageous for them to have additional challenge in price. However, if Russia actually faces problems presented above, it is easy to imagine it silencing Belorussian actors due to its immense economic and political advantage especially given that MTZ is a state-owned enterprise. Around 59% of Belarus imports come from Russia[17], while this figure is only 5% for Russian imports in respect to Belarus[18].

EAEU can be partially described as an “issue network”[19] due to its marked inequality in resources, power and influence shared by member states. This fact allows the strongest actor to use its influence in order to impose decisions that benefit it the most at least in some cases, and given immense economic crisis in Russia, it has considerable incentives to do so. The fact that states or companies outside of the union cannot lobby Commission of the EAEU does not mean states in the union also cannot do it; in fact, it is reasonable to expect that. This body is controlled by national representatives, and in the lack of checks and balances in internal political systems of most EAEU members, their independence is at least questionable. If national governments can pressure each other, then so they can pressure their representatives. It must not happen in cases when Commission is adopting decisions that benefit the union in general, or at least does not majorly harm powerful actors, but it may happen in other cases. In case when Russia favors a particular decision, it could viably make its own representatives in the Commission act as it wants, as well as coerce other states into doing the same, applying proxy pressure.

Part 5. Results and conclusion.

This paper presented three perspectives on the anti-dumping measures in EAEU. While two of them were not able to provide conclusions on the reasons why EAEU could ease those measures, they paved a way to understand the processes that shape decision-making better. Ultimately, a hypothesis including sanctions was fleshed out, and while it may be too bold to claim that it is the only possible reason for actions in Decision №188, it provides a unique lens to debate the issue through. Agricultural sector is amongst top priorities of Russia, and because of its partial inability and partial unwillingness to trade in it, as well as increased demand for agricultural tools on internal market, there is no other option but to let local producers get the cheapest instruments to bolster efficiency. Lowering prices on importing Chinese bulldozers fit in this explanation well.

There are two levels to this analysis. First of it, introduced in Part 3, relies on good intentions of the Commission, and explains why it seems to be incentivized to make efficient decisions to satisfy actors inside of EAEU. Continuing in Part 4, it is supported by general reasons why fair competition is helpful to the economic growth and development. It is possible to finish the logical link here by just accepting simple strive for the economic efficiency as a final goal and true course of Commission’s actions. On practice, however, we can see that at least some EAEU states are incentivized to introduce protectionism measures, overall or in their strategic fields[20], and those are not always efficient. Given that Commission is likely not to be a fully independent, and given that agriculture and machine industries are indeed strategic fields, a second layer of analysis in terms of sanctions emerges.

In the end, while Caterpillar is not the only brand on the market, applying fair conditions to its import can still bring significant benefits to everyone but specialized vehicle producers. Given the disparity[21] that exists between the size of vehicle production agricultural sector and related fields in Russia, it is reasonable for it to take sides in the specific way it did.

[1] https://docs.eaeunion.org/docs/ru-ru/01420004/clcd_23112018_188

[2] https://docs.eaeunion.org/docs/en-us/0148899/clcd_12112015_148

[3] http://www.eurasiancommission.org/ru/act/trade/podm/investigations/PublicDocuments/AD17R1_report_final.pdf

[4] http://www.eurasiancommission.org/en/nae/news/Pages/17-05-2018-5.aspx

[5] Hong Yu (2017) Motivation behind China’s ‘One Belt, One Road’ Initiatives and

Establishment of the Asian Infrastructure Investment Bank, Journal of Contemporary China, 26:105,

353-368, DOI: 10.1080/10670564.2016.1245894

[6] https://docs.eaeunion.org/docs/ru-ru/01421306/clcd_29032019_43

[7] https://docs.eaeunion.org/docs/ru-ru/01420258/clcd_14122018_200

[8] https://docs.eaeunion.org/docs/ru-ru/01418676/clcd_24082018_139

[9] https://docs.eaeunion.org/docs/ru-ru/01417145/clcd_06032018_34

[10] https://docs.eaeunion.org/docs/ru-ru/01417910/clcd_31052018_90

[11] https://docs.eaeunion.org/docs/en-us/01418954/oa_28092018

[12] Mankiw, N. G., & Swagel, P. L. (2005). Antidumping: The third rail of trade policy. Foreign Aff., 84, 107. http://nrs.harvard.edu/urn-3:HUL.InstRepos:2961701

[13] Lubos, S., Jindrich, S., Natalia, I., & Richard, S. (2016). Agrarian import ban and its impact on the Russian and European Union agrarian trade performance. Agricultural Economics, 62(11), 493-506.

[14] Aghion, P., Harris, C., Howitt, P., & Vickers, J. (2001). Competition, imitation and growth with step-by-step innovation. The Review of Economic Studies, 68(3), 467-492.

[15] http://www.belarus-tractor.com

[16] http://www.belarus-tractor.com/catalog/tractors/belarus-1502/

[17] http://mfa.gov.by/en/foreign_trade/

[18] https://tradingeconomics.com/russia/imports

[19] Ian Bache, Simon Bulmer, Stephen George, Owen Parker (2011). Politics in the European Union, Oxford University Press.

[20] Pomeranz, W. E. (2010). Russian protectionism and the strategic sectors law. Am. U. Int'l L. Rev., 25, 213.

[21] https://atlas.media.mit.edu/en/profile/country/rus/