Financial Daily from THE HINDU group of publications
Thursday, Feb 09, 2006
Columns - Books of Account
Rhetoric of anti-dumping
Anti-dumping is a happening area, though DGAD's site does not seem to reflect the same. For instance, on January 22, India initiated anti-dumping investigations against imports of bus and truck tyres from China and Thailand, on the basis of a complaint filed by industry body ATMA (Automotive Tyre Manufacturers Association). And, based on SPIC's application, an anti-dumping probe has begun on all penicillin-G imports from China. Pen-G, as the product is called, finds use in the manufacture of antibiotics such as ampicillin, amoxycillin and cloxacillin.
Meanwhile, http://news.xinhuanet.com reports that the European Union (EU) has imposed definitive anti-dumping measures on Norwegian farmed salmon. "Argentina opens anti-dumping probe on Brazil transformers," says Business Online, UK. These actions can greatly impact trade. For instance, the Performance Budget (2005-06) of our Ministry of Commerce notes that anti-dumping procedure initiated by the US Government caused a 20 per cent decline in Indian shrimp exports to the US; and antibiotic residue in samples drawn from the consignment sent to Europe and the Japanese buyers' concerns on muddy and mouldy smell in farmed shrimp resulted in lesser intake of goods from India. Funds released during 2003-2004 as `assistance to the Seafood Exporters Association of India for defending anti-dumping suit in the US' amounted to almost Rs 2 crore.
Topical, therefore, is a new publication from Academic Foundation (www.academicfoundation.com): Uses and Misuses of Anti-Dumping Provisions in World Trade: A cross-country perspective, edited by Bibek Debroy and Debashis Chakraborty.
"The origins of anti-dumping legislation can be traced back to the 19th century, when the European sugar industries appealed to their respective governments for protection," notes the intro. "Canada adopted the first anti-dumping law in 1904."
The first essay in the collection is by K. D. Raju who insists that it's not the duty of the government to protect the monopolies in the country. "India initiated 48 per cent of its total cases against petrochemicals, chemicals and other products. The second category (16 per cent) is plastics and rubber products."
Brink Lindsey and Daniel Ikenson study `the rhetoric and reality of US anti-dumping law' and find that the current use of the law "routinely punishes normal competitive business practices". Fredrik Erixon comments that the EU has been prone to use anti-dumping measures to protect its producers from fair competition. And Yuefen Li wonders why China is `the world's number one anti-dumping target'.
From 1979 to 2002, "33 countries initiated 544 anti-dumping and safeguard cases and measures against Chinese exports, affecting more than 4,000 products with a value of around $16 billion. However, this amounted to only 5 per cent of China's total exports, and was not extensive enough to cripple the economy." The book concludes with an exhortation that the anti-dumping provisions need to be cleansed of the articles that are `misused' to the detriment of the developing countries.
How to be a prince among commoners
JUST as in the land of the blind, the one-eyed is the king, so too, "in a landscape scarred by low yields, the institutional investor skilled in identifying appropriate derivative, structured or hybrid instruments that enhance returns without raising risk, is a prince among commoners," declares Asiamoney in Structured Products Handbook 2005, distributed by Bharat Book Bureau (www.bharatbook.com).
Along with an increase in the investor base in Asia, there is innovation of products, "engineered in the workshops of the world's banks". Thus, the first essay declares, "Hybrid derivatives come of age," and discusses examples such as of a company entering into "an oil/rate range accrual swap that allows it to be compensated for the current high in fuel prices, and expected rise in interest rates."
Do you know that `autocall' is one of the most popular structures in Asia? "It takes the value from its underlying, which is typically a single stock, index, or the worst performing single stock/index out of a certain basket. These products have automatic call features on pre-prescribed dates."
On the commodity side, the book is of the view that "years of under-investment and increased demand have driven up prices at a fast pace in recent years." No wonder, therefore, "Oil, natural gas, base metals and precious metals are now assets of choice for many portfolio managers seeking to hedge macroeconomic risk, decrease portfolio volatility and enhance returns."
With CDO (collateralised debt obligation) and CPPI (constant proportional portfolio insurance) credit, "investors can better control their allocation of risk between risk of default and sensitivity to a credit spread widening," educates the book.
"Two engines driving CPPI credit performance are the gearing and the decade down guarantee."
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