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Dumping, Anti-Dumping

By: EconomyWatch Date: 30 June 2010

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When a country floods the market of another country with products that are sold at very low prices, it is called as ‘dumping.’ Dumping benefits the buyers but impacts a country in other ways.

What is Dumping?

To understand its exact meaning, refer to Article VI of the GATT (General Agreement on Tariffs and Trade) 1994. It defines ‘dumping’ as ‘when the export price is less than the normal value.’

The normal value is adjudged as:

Comparable domestic price,

Export price to a third country, or

Cost of production plus a reasonable addition for selling cost and profit.

Free market advocates support the practice of dumping as it offers low price products but a larger section of economists believe that such trade practices hamper domestic industry. It is also seen as a means to economic colonization of developing countries by powerful, industrial nations.

Nations dump products to eliminate competition, secure monopolies and increase their share of international exports. Subsidies (in the exporting country) can lead to aggressive dumping, since goods can be sold profitably at a price that is cheaper than the cost of manufacture. History also sheds light on the numerous manufacturers that have used dumping to sell off products that were banned in their domestic market.

Implications of Dumping

Dumping results in the following:

Hurts a country’s domestic industry and producers.

Impacts the sales volume.

Hurts the market shares.

Triggers decline in profitability.

Leads to job losses.

Due to the abovementioned reasons, countries have incorporated strict anti-dumping measures. The very purpose of antidumping measures is to prop up domestic producers.

Its advantages are:

Re-establishes fair trade and fair competition.

Provides protection to the domestic producers and the industry.

Rectifies unfair trade practices pertaining to dumping.

WTO Anti-Dumping Agreement

The WTO’s Uruguay round of trade negotiations resolved ‘anti-dumping agreement.’ Its provisions define dumping, offers tips on how to measure its impact on a country’s domestic industry and how to report and investigate any case that involves dumping. The WTO Dispute Settlement Body has the authority to undertake dumping cases and rule out a decree in this regard.

Dumping is quite common, which is why most countries have formulated antidumping policies. The European Union, US, Canada and Japan have been the pioneers in formulating domestic anti-dumping laws to curb dumping practices in international trade, although they too stand accused of supporting dumping from time to time.