Quantifying effects of EU antidumping duty on vietnam footwear

UNIVERSITY OF ECONOMICS HO CHI MINH CITY INSTITUTE OF SOCIAL STUDIES ERASMUS UNIVERSITY ROTTERDAM VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS Quantifying Effects of EU Antidumping Duty on Vietnam Footwear By NguyễnTrườngToan A thesis submitted in partial fulfilment of the requirements for the degree of Master of Arts in Development Economics Under the Supervision of: Assoc.Prof Dr.PhamHoàngVăn and Assoc.Prof Dr.NguyễnTrongHoài HO CHI MINH CITY, April 2014 DECLARATION This is to certify that this thesis entitled “Quantifying effects of EU antidumping duty on Vietnam footwear”, which is submitted by me in fulfillment of the requirements for the degree of Master of Art in Development Economic to the Vietnam – The Netherlands Programme The thesis constitutes only my original work and due supervision and acknowledgement have been made in the text to all materials used Nguyễn Trương Toan ii ACKNOWLEDGEMENT I would never have been able to finish my dissertationwithout the help and support of people surrounding me First and foremost, I would like to express my gratitude tomy mentors Assoc Prof Dr PhamHoàngVăn, and Assoc Prof Dr NguyễnTrongHoài for the continuous support of my M.A study and research; for their patience, encouragement, erudite knowledge Their excellent guidance encouraged me in all the time of doing this study I have been strikingly lucky to have supervisors who cared so much my thesis, and answered to all my questions and queries punctually I could not have imagined having better supervisors and advisors for my research Besides my mentors, I would like to thank Dr Pham Khanh Nam and Prof Jame Riedel for their thorough comments and worthy ideas that help to enhance my thesis’s value My sincere thanks also goes toall the lecturers at the Vietnam – NetherlandsProgram for their knowledge of all the courses, during the time I studied at theprogram.I would like to offer my special thanks to Dr LêVănChơn, Dr, TrươngĐăngThuy, Dr Lorenzo pellegrini who help me significantly in the courses and thesis writing processes In addition, I would like to express my great appreciation to my friends for their motivations Last but not the least;I owe a very important debt tomy family: my parents NguyễnVănTô and Đô Thi Liễu, for giving birth to me at the first place and supporting me spiritually throughout my life Hô Chi Minh city, April 2014 NguyễnTrườngToan iii ABBREVIATIONS AD Antidumping Duties GATT General Agreement on Tariffs and Trade WTO World Trade Organization EU European Union U.S United States EC European Commission C.I.F cost.insurance freight CN8 8-digit Combined Nomenclature code HTS Harmonized Tariff Schedule F.O.B Free on Board GSO Vietnam General Statistics Office BTA Bilateral Trade Agreement USITC United States International Trade Committee EUROSTAT European Commission Statistic Office W.P.T wood and wooden, papers and textiles ABSTRACT This paper examines effect of EU antidumping on Vietnam footwear firms We find that EU AD causes a 52.8% decline of Vietnam targeted export products, at least Besides value, there is 42.2% reduction of the least affected scenario For the most impacted images, it leads to a fall of 105.6% and 107,1% for value and volume in five years after AD, respectively This paper also indicates that there is no association between AD and price of Vietnam export We find very little evidence that Vietnam footwear firm’s revenue, labor payroll and jobs have association with AD It is only small firms decline revenue, but small firms contribute only 1.65% total revenue of footwear And, there is no evidence that footwear firm discharge their employees because of AD We find the explanation for this interesting phenomenon from trade diversion story There is no evidence of product diversion of Vietnam firms to EU But, it is strongly evident that Vietnam firms significantly diverse their markets toward U.S Keywords: Antidumping, Vietnam Footwear LIST OF FIGURES Figure 2.1 Home Import Demand Figure 2.2 Foreign Export Supply Curve Figure 2.3 Impact of tariff on import price and volume Figure 2.4 Effect of tariff on social welfare in case of large country 11 Figure 2.5 Effect of tariff on Home demand in case of small country 11 Figure 2.6 Effect of export subsidy on export country 13 Figure 2.7 Infant Industry Protection 14 Figure 2.8 Impact of reciprocal dumping on welfare 18 Figure 2.9 Conceptual framework 24 Figure 3.1 Top five Vietnamese export goods exclude oil in 2004 26 Figure 3.2.Top five footwear exporters to EU 27 Figure 3.3 EU import Vietnam AD footwear and non-AD footwear 29 Figure 4.1 Difference in Difference Method 41 Figure 4.2 Trend of export value, quantity, price of Vietnam AD Footwear and control groups to EU 44 Figure 4.3 Some main Vietnamese export goods 55 Figure 4.4 Trend of export value, quantity, price of Vietnam Non-AD Footwearand control groups to EU 64 Figure 4.5 Trend of export value, quantity, price of Vietnam Footwear and control groups to USA .70 LIST OF TABLE Table 1.1 Merchandise exports by selected economy (USA, Canada, Mexico, Brazil, Argentina, China, Japan, India, Australia and New Zealand, South Africa, Germany, United Kingdom, France, Italia) in billion USD Table 1.2 Vietnam Merchandise Trade in percent over GDP Table 1.3 Vietnam export to EU in million USD Table 3.1 EU AD on Vietnam and People Republic China Footwear 28 Table 3.2.Vietnam AD footwear export value, volume, price to US compareto control groups .30 Table 3.3.Vietnam Non- AD footwear export value, volume, price to US compareto control groups 32 Table 3.4 Descriptive Statistics of Vietnam Firms Characteristics 33 Table 3.5.Vietnam footwear export value, volume, price to US compareto control groups 37 Table 4.1.Vietnam AD footwear export value to EU compares to control groups .46 Table 4.2.Vietnam AD footwear export volume to EU compares tocontrol groups 47 Table 4.3 Vietnam AD footwear export price to EU compare tocontrol groups .48 Table 4.4 Footwear firm’s revenue compares to Apparel over period 2004-2006 50 Table 4.5 Footwear firm’s revenue compares to Apparel over period 2003-2007 .51 Table 4.6.Footwear firm’s revenue compare to W.P.Tover period 2004-2006 52 Table 4.7.Footwear firm’s revenue compare to W.P.Tover period 2003-2007 54 Table 4.8.Footwear labor’spayrollcompare to Apparelover period 2004-2006 57 Table 4.9 Footwear labor’spayrollcompare to W.P.Tover period 2004-2006 58 Table 4.10 Footwear firm’s sizecompare to Apparelover period 2004-2006 60 Table 4.11 Footwear firm’s sizecompare to W.P.Tover period 2004-2006 61 Table 4.12.Vietnam non-AD footwear export value to EU compares to control groups 65 Table 4.13 Vietnam non-AD footwear export volume to EUcompares tocontrol groups 67 Table 4.14.Vietnam non-AD footwear export price to EU compares to control groups 68 Table 4.15 US Import value of Vietnam footwear compares tocontrol groups 72 Table 4.16.US Import volume of Vietnam footwear compares tocontrol groups .73 Table 4.17.US Import price of Vietnam compares tocontrol groups 74 Table A.1Footwear labor’spayrollcompare to Apparelover period 2003-2007 87 Table A.2 Footwear labor’s payroll compare to W.P.T over period 2003-2007 .87 Table A.3 Footwear firm’s size compare to Apparel over period 2003-2007 88 Table A.4Footwear firm’s sizecompare to W.P.Tover period 2003-2007 89 vii Contents Chapter 1: Introduction 1.1 Research context and problem statement 1.2 Research objectives 1.3 Research questions: 1.4 Research methodology, data and scope 1.5 Thesis structure Chapter 2: Literature Review 2.1 Theoretical Review 2.1.1 Market analysis in context of Trade in a single industry 2.1.2 Effect of a tariff 2.1.3 Export subsidies 12 2.1.4 Dumping 13 2.1.5 Antidumping Duties 18 2.2 Empirical Review 21 2.3 Conceptual Framework 23 Chapter 3: An overview of Vietnamese Footwear Industry 26 3.1 EU tax rising on Vietnamese footwear 26 3.2 Data Description 29 3.2.1 EU Import 8-digit (CN8) Data 29 3.2.2 Vietnam Enterprise Survey Data 33 3.2.3 US Import 10-digit (HTS10) Data 36 Chapter 4: Model Estimation and Research Findings 39 4.1 Double Difference Approach 39 4.2 Double Difference in Multiple Years 41 4.3 Estimation Impact of EU Antidumping on Vietnam Footwear Export 42 4.4 Estimation Impact of EU Antidumping on Vietnam Footwear Firms .49 4.4.1 Firm revenue 49 4.4.2 Firm size and labor payroll 56 4.5 Trade Diversion 62 4.5.1 Product Diversion 62 4.5.2 Market Diversion 68 viii Chapter 5: Discussion and Conclusion 76 5.1 Conclusion Remarks 76 5.2 Policy implications 77 5.3 Limitation and future direction 77 References 79 Appendix 83 Appendix 87 viii Chapter 1: Introduction 1.1 Research context and problem statement Trade has been growing significantly in recent decades Basic statistics given by World Trade Organization (WTO) demonstrates undoubted evidence of impressive upward trend in export and import merchandises products (Table 1.1) Consequently, international economics study is getting more and more important Some economists indicate trade as momentum of growth (Frankel & Romer, 1999; Irwin & Terviö, 2002; Wacziarg & Welch, 2008) This might be explained by some main channels Firstly, labor division could lead to efficiency gains In addition, trade growth lead to larger market; thus, firms could get more benefit from economy of scale Also, contract with foreign partners could import modern technology while competition creates more motivations to enhance skills and performance Trade openness could bring capital investment to low-capital countries as well Why trade expands? Causes of trade openness were examined by (Baier & Bergstrand, 2001; P Krugman, Cooper, & Srinivasan, 1995).They points out technology improvements, leading to cutting transportation cost and communication cost, are one of reason for trade enhancement Furthermore, governments has been changing policies which aims to more integrated instead of bounded off; for example, joining bilateral trade agreement and multilateral trade agreement; boost international trade Although, general trend of policies target to more opened for trade Nations exercise more temporary barriers such as Antidumping (AD) or technology barriers to bring up domestic producers in short-term Table 1.1 Merchandise exports by selected economy (USA, Canada, Mexico, Brazil, Argentina, China, Japan, India, Australia and New Zealand, South Africa, Germany, United Kingdom, France, Italia) in billion USD 1948 1953 1963 1973 1983 58.5 83.82 156.77 578.79 1837.563 3675.596 7376.506 17816.37 62.25 85.06 163.6 593.71 1881.53 1993 2003 2011 3785.863 7694.738 15076.52 5.2 Policy implications There might have several policy implications given by this study First, EU AD causes a collapse of Vietnam targeted products export to EU in both quantity and value AD is imposed if Home countries accept two condition; less than fair value and material injury The first is the crucial reason Thus, policies from export countries that help firms to avoid AD are desirable For instance, governments can sign a bilateral agreement with main partners to restrict using of antidumping The case of Vietnam saw lower tax rate compare to another antidumping cases It is because the Vietnam footwear enterprises have active approach to collaborate with EU trade commission The margin price was calculated closer than other cases Looking into the “named” categories products, we can see that products have better growth rates were imposed tax while the others were not In general, AD had negative impact on Vietnam export Therefore, the policies to increase domestic sales might be necessary When an AD occurs, Foreign government should give policies to encourage their firms diversify products to avoid AD Diversion of market is also good solution to keep growth of firms As we can see in this paper, Vietnam footwear firms have very excellent diversion toward US market Then, they seems to be unaffected by EU AD However, they might forget that beside market diversion, product diversion is also a good measurement It is noticed that protectionist measure from one market can have adverse effect on another market This paper illustrates an example of EU AD on Vietnam footwear affect US market Thus, EU AD is not only story of targeted countries but also story of countries which import similar products to host country of AD This is important since it suggests that protectionist trade policy in one end market could pressure other end markets to enact similar policies US might have motivation to rise AD on Vietnam Footwear to prevent the loss of their local producers 5.3 Limitation and future direction This thesis has several limitations which might be improved in futures researches First, Difference in Difference approach has been employed Then, researchers might claims on the control variables Although, this paper try to choose control group which has as much common as treatment group as possible And authors tried to use several group to guarantee the objective views The method can still cultivate by the way combine with matching techniques, for instance, propensity score to find closer control groups Besides that, we also can improve the creditability of the research by the way employ triple different method Second, we not have data of export destination at firm-level The research bypasses this point by using product line- items data to verify effect of EU AD on US market It is clearly that if we can utilize firm-level data of export destination, the results might be more precise In addition, there are some lack of firm characteristics control due to lack of data might lead to biases of estimation in section 4.4.2 In general, although there are several limitations, this research is still expected to contribute extremely to collection of empirical studies related to impact of antidumping Duties on angles of trade and economics References 384/96, C R E N Commission Regulation (EC) No 384/96, Official Journal of the European Union, European Commission, 22 December 1995 461/2004, C R E N Commission Regulation (EC) No 461/2004, Official Journal of the European Union, European Commission, 8.March.2004 553/2006, C R E N Commission Regulation (EC) No 553/2006, Official Journal of the European Union, European Commission, 23.March.2006 553/2006, C R E N Commission Regulation (EC) No 553/2006, Official Journal of the European Union, European Commission, 6.4.2006 Abowd, J M., Kramarz, F., & Margolis, D N (1999) High wage workers and high wage firms Econometrica, 67(2), 251-333 Akerlof, G A., & Yellen, J L (1986) Efficiency wage models of the labor market: Cambridge University Press Anderson, S P., Schmitt, N., & Thisse, J.-F (1995) Who benefits from antidumping legislation? 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Staiger, R W., & Wolak, F A (1994) Measuring industry specific protection: Antidumping in the United States: National Bureau of Economic Research Viner, J (1966) Dumping: A problem in international trade New York: AM Kelley Wacziarg, R., & Welch, K H (2008) Trade liberalization and growth: New evidence the world bank economic review, 22(2), 187-231 Appendix No Referen ces (Pierce, Objectives Data Impact of antidumping on US firm level data in Using in Antidumping drives price go up that 2011) Home firms productivity manufacturing industries for the years 1987, 1992, 1997 Difference Method Treatment group includes all firms in industries that received government protection Control group includes firms that similar to treatment but don’t receive protection leads to revenue productivity of Home firm increase However, physical performance of Home firm declines Data is published by IMF over period 19482001 at country level; including GDP, bilateral trade export volumes OLS regression relies on gravity model and Difference Effects of AD on world trade volume and welfare are very little However, authors argue that this result should not be seen as reason to consider or neglect AD Authors compiled dataset from reports submitted to WTO of its members over period 1980-2002 Applying Poisson regression model East Asian is region suffers highest number of AD cases Also, time trend of this region is positive while the others are negative Using mathematic formula in combination of reciprocal dumping model and Game theory Author give proofs for both Cournot and Bertrand cases There are two main results (1) if government focuses only on domestic welfare: consumer surplus producer surplus, it will be expected to have no AD (2) Firms have trend to lobby government to rises AD law since they have more benefit and behaviors (Egger & Nelson, 2011) Investigate effect of antidumping on effect on world trade volume and welfare (Prusa, 2006) Investigate the east Asian’s problems with AD Prove two things (1) suffer extreme number of AD cases, (2) account for a significant contingent of growth of increase AD (Anders on et al., 1995) Investigate the motivation of government to raise AD and who gains from them Methodology Difference Key conclusions in Difference (Prusa, 2003) Impact of AD on Foreign export, and Home countries might be addicted in using AD US data is employed, the case of AD, year of filings, outcome are getting from USITC and previous studies Compare results of (1) panel fixed effects regression and (2) Instrument variable (IV) regression with lagged value is chosen as When countries used AD as protection solution, it is difficult to stop using it (2) AD causes a substantial declines in import from “named” country, around 30%-50% (Hansen & Prusa, 1995) Prove the widespread of using AD under article VII of WTO Author collection from USITC annual report information related to AD cases Meta-analysis in combination with some mathematics formulas (1)Provide a framework to understand phenomenon of extraordinary rising of usage article VII, (2) appearance of article VII seem not matter to US producers under EU protection Compare before and after article V2 Compensation reduces 21% before and 17% after, total employment declines 22% before and 18% after (Blonige n & Prusa, 2001 survey & classify previous study on AD Collect previous studies from well-known journal Meta-analysis Give an very worthy summary of previous study related to AD (Herander & Schwartz, 1984) Inspect impact of intimidation of US to establish AD on partners Collect from USITC & US Census Bureau over period 1976-1981 Most of estimation used data at 3-digit SIC industry level, however, evaluation of foreign firm pricing behavior used firm level data Two-stage OLS with Instrument variable is used Foreign firms adjust their behaviors if they recognize that there is a threat of usage AD from USITC on their pricing behaviors In other words, less than fair value is striking concern of firm while material injury is contribute very little to firm’s decision (Sabry, 2000) Association between acceptance of imposing AD and reason leading to the investigation, and determinants of rising tariff US data over duration 1986-1992 at four-digit SIC level, 360 industries were collected Data of AD was collected from USITC Probability success of agreement of AD and is estimated by univariate and a bivariate probit model Tariff imposition is calculate by tobit model Market share of Foreign exporters, tariff margin calculated by DOC and space utilization subject to the result of claims 10 (Prusa, 1994) Investigate impact of AD duties on foreign and domestic firm’s pricing behaviors in initial investigation period Establish two –stage Initial investigations of AD cases duopoly model have extreme effects even there is Starting with profit no tariff imposition after this period maximization (1) Foreign firms have trend to assumption and profit increase price to lower tariff that function in they might face with in period (2) combination with Effects on Domestic firm decision game theory ( Nash are quite complex It might lead to equilibrium is increase in price of Domestic in employed ) plus case of there are no strategies to aim mathematics models at getting material injury requirements However, in some case Domestic firms might lower their price to low profit in this period so 11 (Cuyvers & Dumont, 2005) 12 (Brambill a et al., 2012) 13 14 that government will accept “material injury” condition Evaluate impact of EU AD against ASEAN on trade flows between the two Long panel data over period 1980-2004 are conducted by OECD International Trade by Commodities Statistics The data is available at 6digit of Standard International Trade Classification (SITC) level and level Besides that data from EU trade statistic are employed at 10-digit Combined Nomenclature (CN) classification First difference Generalized Method of Moment (GMM) is employed Lagged values are used as Instrument variables Authors also control for year fixed effects and countries fixed effects A 10% AD imposition of EU leads to 1.6% reduction in import from “named” ASEAN countries in year right after tariff and 2.7% in next year Including fixed effects to model those numbers are 2% and 3.3% respectively It also found that there is a phenomenon of trade diversion toward non-named countries as well Evaluate impact of US AD on income of catfish (Tra&Basa fish) household in Mekong delta of Vietnam And Investigate how catfish household change their income activities to adapt with AD duty Panel data of two years 2004-2006 of Vietnam Household Living Standard Survey (VHLSS) This survey is collected by Vietnam General Statistics Office (GSO) with technical support and partial fund from world bank Data is available at household level Using Difference in Difference model with treatment group are catfish household and control group are households which not contains catfish in income activities Authors have adjustment to includes households fixed effects and control for time-variant households characteristics For robustness, authors change control group and function forms In Four provinces of Mekong Delta (An Giang, Can Tho, Dong Thap, and Vinh Long), AD causes a 12.8% decline of total household income for households contains 5.5% of catfish in their income activities The effects on household which contain 11.2% and over 20% of catfish in their income activities are -22.9% and -33.8%, respectively This paper also indicates that household have trend to adjust their behavior to reduce investment in catfish activities (Brenton, 2001) Estimate the impact of EU AD on the trade diversion from named countries to intra-EU and extra-EU nonnamed countries Industry level data from Eurostat and USITC data Meta-analysis with graphs To reinforce results, authors used simple OLS regression model Imported from targeted countries decreased even tariff is not applied Import from intra-EU non-named countries promote but less than outside EU non-named countries (Ganguli, 2008) Investigate impact of India AD to bilateral trade flows of India with targeted countries in named industries Inspect effect of AD on diversion toward nonnamed countries Several sources of data: (1) authors collect 4-digit, 6-digit, 8-digit level of Harmonized System (HS) Codes of 285 India AD cases (2) Import trade data was collected from United Nations’ Commodity Trade Statistics Database (Comtrade) Import information are deflated by using consumer price index (CPI) (1987 dollars) (3) data of AD filings were collected by submitted report to WTO of India to construct panel data from 1992 to 2002 Author used generalized method of moments (GMM) followed Arellano and Bond, lagged values are employed as Instrument variable (IV) AD leads to 7.4% decrease of targeted group right after initiation investigation, in year after in initiation period import value collapses 11.8% After imposition of AD, there is 13.2% decrease In total, AD causes 29% declines of import from targeted group Besides that, non-named countries increase export to India 11.25% after two years of AD 15 Quantify effects of China AD on trade depressing and trade diversion Data at 8-digit of Harmonized System (HS) of industry level Time series data over period 1997-2004 was employed Generalized method of moments (GMM) is applied relied on Arellano and Bond; lagged values are employed as Instrument variable (IV) Authors compare result of firstdifference-gmm , system-gmm and fixed effects for robustness result 10% AD duty caused 10.7% drop of import in first year for fixed effect estimation System-gmm recorded a 14.7% decline in import while firstdifference gmm saw 11.0% fall in first year Import share of targeted countries fall 9.3% in first year if fixed estimation is employed When author uses system-gmm, it is (Park, 2009) 15.3% drop 16 (Krupp & Pollard, 1996) Estimate effect of antidumping duties on import Try to find evidence of difference behavior between named countries and non-named countries through several phases of AD Data is collected at product level Authors constructed long-panel of monthly data over period 1976-1988 of US chemical product Raw data are collected from USITC Panel fixed effects regression and metaanalysis Author found evidence that AD did impact import cases of total 19 saw a decline of import for the cases of investigation ends without duty rising However, for the case of apply duty, there are some, but not general, evidences of increase in import Dumped margin has negative influence on named import but positive impact on non-named import 17 (Prusa, 1996) Explore effectiveness of usage of AD in case of United States Author constructed a panel data from 248 AD cases over period 19801988 Line-items data at 7-digit and 5-digit Tariff Schedule of U.S.A codes was employed OLS regression for targeted import, nontargeted import, and total import were illustrated (1)AD caused an extreme drop of import from targeted countries (2) AD have negative impact on import from targeted countries in investigation duration even in case of rejected tariff (3) non-named countries increases their market share; thus, overall import still grow (4) because of tradediversion, there is occurrence 18 (Konings & Vandenbu ssche, 2005) Check influence of AD on market-power of Domestic firms Two sources of data: (1) AD cases were collected from official EU journal; (2) sample of 4000 EU producers from 1992 to 2000,which was sold by AMADEUS OLS regression base on model that Roeger (1995) indicated in his paper : “Can imperfect competition explain the difference between primal and dual productivity measures? Estimates from US manufacturing” (1)In average, AD cause a 26% increase of Domestic markups if there is now trade diversion toward non-named countries (2) diversion toward non-named countries dwindle increase of Domestic markup 19 (Konings et al., 2001) Explore trade diversion phenomenon caused by AD Line-items products data at 8-digit Harmonized System (HS) codes over period 1985-1990 was employed There are 246 observations in which, 105 cases have tariff imposition after investigation period (42%), 61 cases of priceundertaking (25%) and 80 cases rejected tariff (33%) In principle, authors apply Difference in Difference method with some adjustments There is a limitation appearance of trade diversion story created by EU AD Appendix Table A.1Footwear labor’s payroll compare to Apparel over period 2003-2007 Variables Small Fw ddFw Large (1) (2) (3) (4) -.064 118 -.204 -.093 (-0.35) (0.47) (-0.34) (-0.18) -.0547 -.044 -.002 (-0.51) (-0.42) (-0.03) LnL Lnk LnFemale Constant Medium (5) (6) 058 149 -.048 (0.64) (1.29) (-0.45) -.381* -.625* -.719* (-6.85) (-16.00) (-6.76) 019 017 -.105 (0.48) (0.52) (-0.85) -.001 080 -.078 (-0.02) (1.01) (-0.59) 2.379* 3.464* 2.495* 5.525* 2.645* 8.724* (49.06) (8.11) (24.74) (12.78) (71.57) (6.53) Year FE Yes Yes Yes Yes Yes Yes Firm FE Yes Yes Yes Yes Yes Yes 0.0000 0.0000 0.0000 0.0000 0.0001 0.0000 3203 3203 2637 2637 935 935 0.0487 0.1919 0.0506 0.3154 0.0638 0.3749 Prob(F-test) No.Obs R-Square Note: *, **, *** indicate 1%, 5%, and 10% significance level, respectively (* p