Quite frequently an anti-subsidy investigation in the EU is paired with an anti-dumping investigation against the same non-EU producers. The final outcome may be a two-component duty where one duty addresses the ‘unfairness’ of the subsidy and the other the dumping behavior. The procedure may be a surprise, as the same total level of protection may be obtained by using the anti-dumping procedure exclusively. When calculating the two duties in the EU the outcome depends on whether the subsidies are export subsidies or domestic subsidies and this may also cause surprise. This paper addresses these puzzles in a theoretical analysis based on a duopoly model for a horizontally differentiated product. We argue that the procedures of two investigations leading to a two-component duty may be rational because it provides an incentive for the offending country and companies to terminate their ‘unfair’ competition completely and because a parallel investigation may increase the probability of a successful outcome for the petitioners. In contrast, we find that the different assumptions about the effect of export subsidies and domestic production subsidies on the dumping margin in the EU dual anti-subsidy and anti-dumping procedures have no rational foundation in economic theory.
Anti-subsidy, anti-dumping; EU; export subsidies, domestic production subsidies; duopoly model.
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Seventh Danish International Economics Workshop, 2011