What Do You Think Monsieur Bastiat?

picture: ConstructionDealMkting

Monsieur Bastiat would be surprised how close to reality is his well-known essay “Petition of the Manufacturers of Candles…” In this paper manufacturers of candles and everything connected with lighting have complained, via a petition, of the intolerable and predatory competition of the Sun. In which they claim to inundate the national market with the light at an unbelievable low price and from their point of view this ruins a whole industry. They require the Members of the Chamber of Deputies to close up access to natural light and create a demand for an artificial one. Right at the beginning of the paper is written: “Gentlemen, you are on the right road. You reject abstract theories, and have little consideration for cheapness and plenty. Your chief care is the interest of the producer. You desire to protect him from foreign competition and preserve the domestic market for national industry.” It seems that European producers of candles, tapers and the like have been inspired by this essay. But instead of the Sun, China is, in this case, the locus of the great interest. Furthermore, the institutions of the European Union seem to encourage the idea of protecting European market from “unfair” competition and forget about cheapness and plenty.

picture: ConstructionDealMkting

On 3rd January 2008 a complaint about the predatory low prices of certain candles, tapers and the like, imported from China was lodged by European producers whose production creates around 60 % of Community production. As a result China faces provisional antidumping duties from the side of the European Union. This measure is based on the report presented by EC antidumping investigators in which is claimed that the rise in imports from China during the period 2004/2007 is responsible for a drop in Community industry sales and profitability at the same period. However, there is some evidence opposing this claim which deserves great attention. Firstly, it is not import from China which has caused the decline in sales and profitability of European producers but the rise in the purchase prices of the materials used in the production of candles. Why did the input prices increase? Because of the existence of European paraffin-wax cartel, this was exposed and fined by the Competition Directorate for illegal price fixing which was in this case at a very high level. It happened just prior to the imposition of duties on China were imposed. However, this very important information was not taken into account in the report relating to the China case. In the report there is a passage where it is written that “…the increase in the raw material costs and the cartel could not have had a material impact on the economic situation of the Community industry.” Secondly, there was not any drop in the sales of candles. Actually, the total export of candles produced in Europe increased by 10 % during the considered period. So there is no reason to think that European producers of candles were in any way injured by Chinese imports. It is true that China as a low production cost economy is able to produce and sell particular products below the price which prevails on the world market but it should be perceived as a competitive advantage and not as an effort to sell products at dumping prices. The institutions of European Union thus defend the special interest of pressure groups rather than the “Public interest”.

A more recent case connected with the production of light products can be mentioned. In 2009 the regulation of the European Commission number 244/2009 came into force and requires the gradual withdrawal of standard bulbs and halogen bulbs from the market. Until 2012 all standard bulbs should be withdrawn from the market and replaced by fluorescent lamps (saving bulbs). In the case of halogen bulbs of energy class C, they can be sold until 2016. Since 2016 only halogen bulbs of energy class B could be sold with some exception including light source of energy class C. The European Union is following the general trend, after Brazil, Australia and Cuba to expand the group of states that require the use of fluorescent saving bulbs. The approval of this regulation was, according to Petr Mach, the chairman of The Free Citizens party, vehemently encouraged by interest group of European producers of fluorescent lamps represented by OSRAM, Philips or General Electric. They want European citizens to buy their expensive fluorescent bulbs in order to reap hefty profits.

The European Union justifies the replacement of standard bulbs by energy saving ones. Can the replacement really bring energy savings as the European Union claims? It is well known that there are many problems connected with fluorescent bulbs. On one hand, fluorescent bulbs save energy when being used but on the other hand much more energy is used in their production process. But if one considers that the bulbs would be more likely produced behind the EU borders, it would mean the EU does not need to care about the energy used in the bulbs production and gets closer to the given goal: namely the decrease of energy consumption by 20 % by 2020.

Moreover, fluorescent bulbs achieve the full light power only very slowly and in reality their lifetime period is significantly lower than the producers state. The fluorescent bulbs, unlike the standard bulbs, represent non-ecological waste. They contain argon, barium, strontium and quicksilver. The disposal of such waste is more energy demanding. From this point of view it is very controversial that the energy saving bulbs ensure energy savings as the EU stated. Maybe the fluorescent bulbs are really more energy favorable but people should decide rather than the decision of European bureaucrats taken under pressure of interest groups.

As in the case of candles, China as the world biggest producer of fluorescent bulbs (85 % market share) could soon become the object of great interest by European producers. The cheaper bulbs from China force the European producers to decrease their prices and hence their profits to stay competitive. It will not take them a long time to accuse China of predatory low prices and persuade the European Union about the need of imposing some provisional duties.

According to some economists interest groups are an inherent part of the modern democracy and their power is unstoppable. If we realize that they were able to persuade the EU to order half a billion of people to use saving bulbs and to make candles and other products like that more expensive for them. In the future it would not be surprising if the EU issues a regulation forbidding an access to natural light.

Note: Author studies at Faculty of Economics (University of Economics, Prague).