A Method for Analyzing the Effect of Competition on Restricting Imports
RestrictingImports
A Method for Analyzing the Effect of Competition on Restricting Imports
Benjamin I. Cohen 0
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A Method for Analyzing the Effect on
Competition of Restricting Imports
Benjamin L
Cohen*
I.
INTRODUCTION
The President is authorized, pursuant to Section 203 of the Trade
Act of 1974, to restrict imports of a commodity when these imports are
the principal cause of injury to United States firms producing the same
article.' In such an "escape clause" proceeding, the President is to take
into account, inter alia, "the effect of import relief on consumers...
and on competition in the domestic markets for such articles." 2
The International Trade Commission (ITC) makes an initial
determination on whether the industry is being injured by imports.3 In
making its injury determination, the ITC shall consider all "relevant"
economic factors concerning the United States industry, including idle
productive facilities, profits, employment, sales, inventories and
production.4 If the ITC finds injury, it recommends relief to the President
which may take the form of import quotas. 5
While the President considers the effect of relief on competition,6
the ITC may have made, at best, a perfunctory analysis of the effect on
competition of restricting imports. For example, the ITC in its 1979
* Ph.D., Harvard; J.D., Yale. The author is an attorney in the Division of International
Antitrust, Bureau of Competition, Federal Trade Commission. This Perspective reflects his personal
views only and does not represent the position of any government agency.
1 19 U.S.C. § 2253 (1976).
2 19 U.S.C. § 2252(c)(4) (1976).
3 "IT]he Commission shall ... determine whether an article is being imported into the
United States in such increased quantities as to be a substantial cause of serious injury, or the
threat thereof, to the domestic industry producing an article like or directly competitive with the
imported article." 19 U.S.C. § 2551(b)(1) (1976).
4 19 U.S.C. § 2251(b)(2) (1976).
5 19 U.S.C. § 2251(d)(1)(A) (1976).
6 19 U.S.C. § 2252(c) (1976).
report on whether to continue import quotas on specialty steel simply
referred to a staff report which discussed the effect on consumers, and
yet ignored the effect on competition.7 This lacuna in the ITC's report
makes it difficult for the President, who must act within sixty days of
receiving the ITC's report,' to adhere to the statutory requirement to
consider the proposed reliefs effect on competition.
The ITC's failure to assess the effect on competition may be due,
in part, to the lack of a simple method for making such an assessment.
Simplicity is important because of the limited time-six
monthswithin which the ITC must complete its investigation.9 With this in
mind, I propose a two-step procedure to be used in making injury
determinations. For the first step, I propose a simple analytical method
for making an initial assessment of the effect on competition of
restricting imports: the use of the Hirschman-Herfindahl Index (HHI). The
simplicity of this tool would ensure its use in each determination, thus
satisfying the statutory mandate that attention be paid in such
determinations to the impact on competition. Further, if the finding is within
the safe range of the HHI, such a finding would be dispositive of the
issue. If, on the other hand, the finding is not within the safe range, the
ITC would be alerted at an early stage in the proceedings that further
attention will be required. The second step, a more detailed analysis of
the effect on competition, would be mandated only when a potentially
serious problem becomes apparent through the application of the HHI.
In this brief Perspective, I will explain why the HHI would be an
appropriate tool for the first step of the determination and illustrate its
application by using public data about various types of specialty steel.1
II.
CALCULATING THE EFFECT ON COMPETITION
Restricting imports has an adverse effect on consumers, at least in
the short run, because it leads to a price increase in the domestic good
that competes with the import. 1 The price increase resulting from a
7 StainlessSteel andAiloy Tool Steel, No. TA-203-5, USITC Publication 968, Apr. 1979, at
A-65-66. The law does not specifically require the ITC to consider the effect on competition when
it considers whether to recommend the initiation of import restrictions, but the ITC shall consider
all relevant economic factors. 19 U.S.C. § 2551(b)(2) (1976).
8 19 U.S.C. § 2252(b) (1 (...truncated)