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Booming world trade creates new rules of engagement.

World trade is booming. Having grown by more than 100% annually for the past 20 years, it now amounts to over $3 trillion--equivalent to the gross national product of Japan, or $12,000 per capita for every man, woman and child in the United States today. All regions of the world have participated in this growth: industrialized, developing, oil-exporting and non-oil-exporting nations.

However, warns Ronald Whitfield, vice president at Chalres River Assoc., Inc. (CRA) in Boston, in this glow of trade growth lurks the danger of fair trade disputes. Unsuspecting firms should be aware of the threates to them of trade globalization. While the overall trend towards worldwide markets seems firmly entrenched, a counterbalancing force is becoming evident. "Fair trade" and domestic content legislation as well as an increase in the use of GATT (general agreement on trade and tarifffs) sanctioned trade remedies, primarily anti-dumping and countervailing duties, are on the rise.

Here are some of the most interesting trends.

* The number of trade cases is rising. Nearly 2500 trade cases were filed between 1980 and 1989. There appears to be some "countercyclicality" to the data, since, more trade cases are filed when domestic prices are weak, such as during recessionary periods.

* During the 1980s, more trade cases were filed in the United States than in any other major trading partner. However, relative to the size of its economy, Australia filed by far the most trade cases.

* In a large majority of cases, the petitioning domestic industry receives a favorable ruling. In the United States, for example, complaints against Korean imports have been successful 86% of the time, and even those against Japan have won 69% of the time.

* The economic value to the petitioning industry of filing a trade case is on the rise. In the early 1980s, for example, anti-dumping duties were in the range of 5-10%. A few years later, these duties amounted to between 10 and 20%. Then the trend greatly accelerated, with duties often jumping in the late 1980s to 75-120%. For the petitioning industry, the benefits of high duties generally persist for at least five years.

* U.S. trade remedies are invoked most often in the metals markets, such as steel, copper and brass, and secondarily in the chemical and allied products markets. Complaints against U.S. exporters occur most frequently in the chemical market.

Researchers at CRA have reached some startling conclusions based on their data analyses. First, very few major firms have recognized the risks in the international arena. These few are becoming much more sophisticated in defending their perceived market positions. Second, although world trade will continue to grow, unsuspecting firms will have unpleasant surprises for failing to understand the new "rules of engagement." And finally, firms that recognize these risks in advance can develop strategies to avoid, or at least to mitigate, the costs of the new international trade order.
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Title Annotation:Management Matters
Author:Burrows, James
Publication:Modern Casting
Article Type:Column
Date:Nov 1, 1991
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