Antidumping Laws Trash Supercomputer Competition

by Christopher M. Dumler

Mr. Dumler is an international economist in Washington, D.C., specializing in high-technology trade issues. His article is based on a policy paper written for the Cato Institute in Washington, D.C.

October 14, 1997

In the market for a supercomputer? You'd like to simulate weather patterns? No problem. Here's a Japanese model that meets your specs. It's available on a five-year lease for $35 million. And by the way, don't forget to add the antidumping tax of 454 percent.

That's the raw deal confronting American supercomputer consumers thanks to the U.S. government's decision, made final last week, to impose antidumping duties on superfast computers imported from Japan. The decision erects an insurmountable wall of protection for the complaining U.S. company, Cray Research of Eagan, Minnesota, against the wares of NEC and Fujitsu of Japan.

On May 17, 1996, the University Corporation for Atmospheric Research in Boulder, Colo., became the first federally funded agency to agree to buy a supercomputer made by a non-U.S. company, awarding a $35 million, five-year leasing contract for a weather-simulating supercomputer to a subsidiary of NEC of Japan. Three days later, prompted by complaints from Reps. David Obey (D-Wis.) and Martin Olav Sabo (D-Minn.), the Commerce Department warned the contract price may be in violation of U.S. anti-dumping laws. Two months later, Cray filed a formal complaint with DOC.

The Cray-NEC supercomputer case demonstrates everything wrong with U.S. antidumping law. Since DOC's first letter of warning, the importing firms confronted a hostile U.S. Commerce Department operating under rules that virtually guaranteed a hostile ruling, with the end result that overseas competitors have been forced out of the U.S. supercomputer market in the name of defending competition.

Cray's competitors for the UCAR bid faced a stacked deck from the beginning. The International Trade Administration supposedly acts as a "gatekeeper" for antidumping actions by evaluating initial claims of dumping and supposedly dismissing spurious petitions. Unfortunately for consumers, the ITA tends to keep the gates open wide. From 1980 to 1997, the agency found foreign firms guilty of dumping in 96 percent of cases filed (804 times out of 837 petitions).

Such a high passing rate should not be surprising, since the ITA is also charged with "helping U.S. businesses compete in the global marketplace." As a result, the agency that is responsible for investigating dumping claims also acts as an advocate for the complainants through the antidumping process. Adding to the bias, the ITA must, by law, disregard some high-priced sales in the U.S. market when calculating the dumping margin -- the percentage difference between an average "fair value" and actual individual sales. This method virtually guarantees a finding of dumping.

Because NEC eschewed the formal investigation in favor of an ultimately unsuccessful court challenge, the ITA relied heavily on data supplied by Cray to determine the dumping margin. As a result, the ITA concluded that NEC had priced its bid more than 80 percent below market cost.

Far from being a victim, Cray Research is the preeminent global producer of high-end supercomputers. In 1996, over 25 percent of the 500 fastest computer installations in the world were Cray machines (131 of the 500), while NEC and Fujitsu, combined, had approximately 10 percent of the installations (59 of the 500). Cray's sales in 1995 were $676 million, with $437 million in backlogged (i.e. unfilled) orders.

According to the NCAR's director, the computer that Cray proposed for its bid could pass only one of several tests devised to examine the computer's speed at calculating the weather simulations. The NCAR concluded after the tests that Cray's bid involved "an unacceptable technical risk" and could not meet the NCAR's needs.

The entire high-end supercomputer market now faces reduced competition and higher prices. While Cray can promise restraint, the market is a better enforcement mechanism. For without the market as a check, industrial users and government agencies like UCAR must spend more money for less computing power, hurting the ability of U.S. researchers to stay at the top of their field. If international competition is good for the Japanese supercomputer market, where U.S. manufacturers have captured a 30 percent market share, then why is it not good for the U.S. market?

The damage from this case spreads beyond the supercomputer industry to the government procurement process. Interference from politicians and government agencies is not conducive to an open, fair bidding process. In the Uruguay Round of the GATT, the United States pushed hard and successfully to have government procurement added to the list of negotiated issues. And yet, when a government-funded agency decided to buy from a foreign manufacturer, the competing American firm merely needed to complain to its congressional representatives to stop the sale.

Given the dynamism and competitiveness of the computer industry, the worst policy prescription is to reduce competition and keep prices paid by consumers and taxpayers alike artificially high. The injustice of this latest abuse of U.S. trade law makes it more clear than ever that we must dump the whole U.S. antidumping code.