Network: Diskettes: how cheap is too cheap?: Andrew Marshall in Brussels reports on European Commission inquiries that could lead to a price rise

THE PRICE of 3.5-inch computer diskettes could be about to rise by up to 30 per cent as a result of European trade policy. European Commission officials in Brussels are investigating claims that exporters from the United States, Malaysia and Mexico have harmed European producers by 'dumping' the 3.5-inch diskettes. If the officials conclude they have, high duties may be imposed on Kodak, Sony and 3M diskettes.

European law defines a company as dumping either when it charges less in Europe than at home, or (if this cannot be proved) when its European prices are below its actual costs plus what the officials decide should be a 'normal' profit. The legislation allows 'anti-dumping' duties to be imposed when European firms can show that dumping has taken place, and that they have been harmed by it.

The harm is easier to prove than the dumping itself. Diskma, the trade association of European disk manufacturers, says exports from the three countries rose by 93 per cent between 1990 and 1993, to 293 million disks - and prices have fallen by 20-30 per cent since mid-1993. In a growing market, the three countries alleged to have dumped disks increased their share of sales from 34 to 37 per cent. Diskma claims that the combination of falling prices and rising penetration by exporters threatens its members with lower profits and, ultimately, extinction.

Some lawyers believe that the calculations used by the Brussels officials to decide whether the exporters' low prices are fair or constitute dumping are open to question. The calculations involve assumptions about research and development costs and capital overheads. One London lawyer says that anti-dumping policy is so flexible, 'it's almost impossible to import anything without being accused of dumping'.

Mexican officials say that their country's exports of floppies cannot be considered as dumping under new Gatt international trade rules, because they account for only about 2 per cent of the European market. They are also worried about the longer-term impact on Mexico's economy if, as soon as it moves into a high-technology sector, it gets hit.

Malaysian officials are sceptical about the way the EU has done its homework. Of the five companies from Malaysia named in the complaint, one is Indonesian and another does not produce diskettes, they say.

EU officials reply that it is often difficult to say where companies in Asia are really based. And they say they have encountered examples where companies have created fake offices to conceal their activities or location.

The rationale behind the imposition of anti-dumping duties is that low prices can be illusory. If foreign producers are dumping, prices will rise as soon as they have driven out local manufacturers, and the lack of competition will hurt employment and the industry.

If the EU decides to impose duties on the three countries now being investigated, it will be implicitly claiming that most of the world's big producers of diskettes are dumping in the European market.

If the Commission's anti-dumping unit upholds the Diskma complaint later this year, the EU may impose provisional duties - which in previous cases have ranged from about 5 to 30 per cent of the import price. Exporters are supposed to add these duties to their prices, and can be penalised again if they simply reduce their profit margins. A final decision will probably not be made for another year.

If the duties are imposed, it will be consumers who pay the cost of EU protection in the short run. Jean-Paul Pritchard of BEUC, the European consumer lobby group, says that consumer bodies have little access to information and little leverage over the EU's decision-making. Under European law, consumers are not considered 'interested parties' in dumping investigations.