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Case of Pasta Overload Has Everybody Boiling

Trade: U.S. protests Italian and Turkish 'dumping' of pricey noodles onto the market. Result is consumers will pay more.

August 08, 1996|PAUL BLUSTEIN | THE WASHINGTON POST

Many supermarket shoppers are familiar with De Cecco pasta, the Italian import sold in royal blue boxes with a picture of a peasant woman holding bundles of wheat. Those who have compared pasta prices know that De Cecco, at $1.79 to $2.35 a pound, costs up to twice as much as other brands.

So it may come as a surprise to learn that De Cecco's expensive macaroni is being "dumped" in the American market--that is, sold at unfairly low prices that take a severe competitive toll on domestic pasta makers.

The source for this assertion is the U.S. government. The International Trade Commission ruled in July that the Italian and Turkish pasta industries were causing "material injury" to the U.S. industry by selling at prices the Commerce Department had earlier determined to be "lower than fair-market value."

The rulings hit De Cecco, the best-selling import, particularly hard. Commerce fixed the company's "dumping margin" at 47%, which means it has to pay duties of about that percentage on the value of the pasta it ships to the United States. Duties for most Italian firms are in the 12% range.

The rulings represent a huge win for U.S. pasta manufacturers in a long-running battle with their Italian rivals, a battle waged not with secret spaghetti formulas or clever marketing campaigns, but with thick legal briefs and bureaucratic maneuvers.

It's not a pretty fight: The American side, which controls 83% of the $1.5-billion domestic market, whines that the Italians compete unfairly, and the Italians sniff that their pasta is so superior that it can hardly be said to be competing with American noodles at all.

The upshot is almost certain to be higher prices--the exact amount is impossible to say--as the Italians pass on to consumers the cost of their dumping duties and the domestic brands take advantage of the opportunity to charge a few extra cents per package.

Potatoes, anyone?

The government rulings are evoking huzzahs in places like the Hershey, Pa., headquarters of Hershey Foods Corp., which makes San Giorgio, Ronzoni and other brands.

"The American pasta industry is pleased that the playing field is now leveled," said C. Mickey Skinner, the head of Hershey's pasta operation, which brought the dumping case along with Borden Inc., maker of Prince and Creamette, and the Gooch Foods division of Archer Daniels Midland Co., maker of the La Rosa and Martha Gooch brands.

The Italians, meanwhile, are expressing their disappointment with the understated reserve for which their nation is famous.

"Dump gallons and gallons of Coca-Cola and Gatorade into rivers," thundered La Repubblica, Italy's second-largest newspaper, in an article attacking the U.S. rulings. "Throw tons of McDonald's hamburgers and Mars bars into the sea."

Italian pasta makers are hardly the first foreigners to feel aggrieved by their treatment under U.S. dumping law, an arcane field in which America's traditional consumer-first, free-market philosophy tends to get turned on its head.

Economists generally hold the rules in low esteem. "As administered by U.S. authorities, the law basically works in a protectionist direction," said Robert Litan, a Brookings Institution scholar who edited a book on the subject. "There are lots of rules which, if we applied them to domestic companies, would never result in punishment.

"But in dumping cases, because foreign companies are involved, they get treated differently. I'm not saying other countries are any better, but they've tended to copy us in drafting their dumping procedures. We're the world's leader in dumping [law] technology."

A foreign firm can be found guilty of dumping, for example, if its prices in the U.S. market fall below its costs of production--a sensible-sounding rule, but the method of determining costs is far stricter in dumping cases than it is in predatory-pricing cases involving domestic firms.

And where foreign companies can really get hung out to dry is if they fail to provide the Commerce Department with sufficiently responsive and timely answers to the department's myriad questions.

This is how De Cecco ended up getting socked with such a huge dumping margin: The department found that because De Cecco's data weren't properly submitted, weren't consistent and couldn't be easily verified, the department's analysts were legally obliged to use the information submitted by the U.S. industry--which, of course, alleged that De Cecco was dumping like mad.

"They gave us 12,000 questions. We answered all of them. We produced 60 kilograms of documents," protested Filippo Antonio De Cecco, the company's president, speaking through an interpreter in a telephone interview from Italy. "They gave more importance to the form, to the fact that maybe one or two questions were not answered right. But the substance of what we submitted was right."

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