Anti-dumping measures, another crude attempt to resist efficiency?

Australia has decided to put an import tax (a tariff) on Italian canned tomatoes. Their argument that the Italians are pricing their product unfairly.

The one producer of canned tomatoes in Australia, SPC Ardmona, owned by Coca-cola Amatil, claim the Italian tomatoes are being 'dumped' on the Australian market.

The test Australia has applied is that Italian producers sell their product for less in Australia than they do at home. While this definition is seen a lot dumping is actually selling a good at less than the cost of production. Dumping is legal under World Trade Organization rules unless the foreign country can reliably show the negative effects of the exporting firm on the domestic producers.

It seems very unlikely that the Italians are making a loss. Italy's economy is in a perilous state and taking a long term loss just isn't an option.

So what might be the motive? A clue might come from one of the supporters of the move, 'The Australian Campaign'. This group argue that we should all buy Australian products in order to keep jobs in Australia. Never mind the quality or price.

In the short term such a strategy may work. However in the long run this policy would allow inefficient and uncompetitive firms to survive. Consumers will be much worse off as they pay higher prices and exports would dwindle as firms, protected from competition, could lose world market share. 

It is much better for jobs and prosperity to buy the most competitive goods, force domestic firms to compete or die and so allocate resources efficiently. It is very sad that protectionism continues to be given any credibility by such 'anti-dumping' actions,

In fact most anti-dumping tariffs last less than two years. They are withdrawn before the WTO can rule them as bogus.

The effect of the measure will raise profits and sales at SPC. The diagram shows this.

At present tomatoes sell for 60c a can. Total sales are 0Q2 with Q2 - Q1 being imported. Australian firms only produce 0Q1.

After the tariff the price rises to $1.40 a can and sales fall to 0Q4. Imports fall and domestic output rises to 0Q3. 

The problem is that the consumers lose out.The whole coloured area is lost consumer surplus. The green area represents inefficient production costs and the red area consumer surplus transferred to domestic producers (SPC).

The Sydney Morning Herald covers the story here

This article is directly relevant to VCE Unit 4 on policy goals and example of trade policy. IB students will study this is Unit 3 on international trade. The diagram shows how to apply theory to a real life example.

Update: Rather good article here,published on 16th Feb.
The Drum article is here