An analysis of strategic behavior and the U.S. 'unfair' trade statutes

The 1980s witnessed a dramatic increase in allegations of "unfair" trade practices against U.S. trading partners. In particular, the use of U.S. antidumping and countervailing duty statutes increased significantly during that decade. It is important, therefore, that we understand how these statutes are used by U.S. industry. While research concerning dumping has been widespread following breakthroughs in modelling imperfect competition and trade, corresponding research on subsidized imports and countervailing duties remains in its infancy. This thesis is designed to bridge this gap.; The Trade Act of 1979 introduced the requirement that U.S. industry be materially injured due to subsidized imports before a countervailing duty can be imposed on the subsidized imports. This clause made the countervailing duty statute comparable to the antidumping law.; The main theoretical chapter focuses on how the material injury clause alters the behavior of U.S. and foreign firms under imperfectly competitive conditions. The insight is as follows. When a material injury clause exists, the probability of a U.S. firm succeeding in its quest for import relief should be inversely related to U.S. industry's performance. Therefore, a U.S. firm's first-order optimizing condition includes a term summarizing the effect that the choice of this period's output level has on expected profits next period. As a result U.S. firms are willing to sacrifice part of maximum present profits by reducing current output in exchange for higher expected profits in the future. Foreign firms may play a similar game, using their choice of current exports to decrease the probability of a countervailing duty being levied.; The empirical chapters of the thesis utilize data obtained by the U.S. International Trade Commission in its material injury determinations. Regression analysis identifies the choice variables of U.S. petitioners for import relief that are important in the outcome of I.T.C. investigations. Having established the empirically relevant variables, further analysis finds support for the hypothesis that U.S. firms actually treat those variables differently in periods in which those variables affect the I.T.C. determination, in accordance with the theory discussed above.