Stifling competition in the supercomputer industry.

• Author: Dumler, Christopher M.

On May 17, 1996, the U.S. government flirted with history. For the first time, a Federally funded agency decided to buy a supercomputer made by a non-U.S. company. An agency of the University Corporation for Atmospheric Research (UCAR) in Boulder, Colo., awarded a $35,000,000, five-year leasing contract for a weather-simulating supercomputer to a subsidiary of NEC of Japan.

Thanks to perverse U.S. trade laws, however, history was put on hold. HNSX Supercomputing, the U.S.-based subsidiary of NEC, had outbid two other finalists for the contract -- Fujitsu U.S., another Japanese-owned subsidiary, and Cray Research of Eagan, Minn. -- to supply a supercomputer to UCAR's National Center for Atmospheric Research (NCAR) for modeling weather patterns. Two months later, Cray officially cried foul.

In a July 29, 1996, petition to the International Trade Administration (ITA). a division of the U.S. Commerce Department, the American company claimed that it had been the victim of "dumping." Cray argued that HNSX had used its parent company's "deep pockets" to sell the weather supercomputer for less than one-fifth the cost, thus undercutting Cray's bid by dumping HNSX's system on the U.S. market.

Predictably, the ITA upheld the dumping charge, as it does in the overwhelming majority of cases. On Sept. 26, 1997, a second American agency, the International Trade Commission (ITC), made the dumping charge final with its determination that Cray Research had suffered "material injury." The U.S. government will impose punitive tariffs of between 173% and 454% on all supercomputers imported from Japan, a barrier so high it effectively bars them from the market.

The Cray-NEC supercomputer case demonstrates everything wrong with U.S. anti-dumping law. Throughout it, importing firms confronted a hostile agency operating under rules that virtually guarantee 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.

In theory, anti-dumping laws are supposed to protect consumers from foreign companies that try to comer the U.S. market by selling products at an artificially low price. The argument behind the law is that, although consumers benefit in the short run, dumped goods could drive American competitors out of the market, leaving the dumper free to use its newly gained monopoly power to charge artificially high prices.

In practice, use of predatory pricing to gain a monopoly position virtually never succeeds. As soon as a company seeks to raise its prices above those that would prevail in a competitive market, other firms have an incentive to enter or re-enter the market. Competition in an open, global trading system keeps prices from rising above the market price. The real purpose of the anti-dumping laws is to block imports in selected industries. Originally intended to safeguard competition, those laws have become the weapon of choice for U.S. companies seeking relief from rivalry.

Cray's competitors for the UCAR contract faced a stacked deck from the beginning. Even before the NCAR announced the winning bid, Cray had convinced two sympathetic Congressmen, David Obey (D.-Wis.) and Martin Olav Sabo (D.-Minn.), to press the Commerce Department to investigate its competitors. The ITA obliged, warning in a May 20, 1996, letter that the contract which had been awarded three days earlier could be in violation of anti-dumping laws. Essentially, the ITA collected evidence on behalf of Cray and then signaled the probable success of the case -- sparing Cray the expense and uncertainty of initiating the case itself.

The ITA supposedly acts as "gatekeeper" for anti-dumping 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% of cases filed (804 of 837 petitions).

That high rate should not be surprising, since the ITA also is charged with "helping U.S. businesses compete in the global...