Dumping is a predatory price practice generally used only in the context of international trade law as international price discrimination, where a company exports a product at a lower price than the price it normally charges on its domestic market or at a price that is below its own costs of production. In this case, the product is considered to be a dumped product.
In general, one can define dumping as the act of selling products in a foreign market at prices below the normal value in the country of the exporter (i.e., the comparable price for the like product consumed in the exporting country or in third countries as the case may be, in the ordinary course of trade), for the purpose of injuring competitors of the importing country, thus gaining market share and securing a monopoly in this market.
Under World Trade Organization (WTO) rules VI—Anti-Dumping Agreement—of the General Agreement on Tariffs and Trade 1994 [GATT 1994]), dumping is discouraged and countries are authorized to adopt anti-dumping measures, when dumping and material injury resulting from it has occurred to the domestic industry producing the like product or one product that has mainly the same characteristics of the imported dumped product. All WTO Members have been required to bring their laws into conformity with the Anti-Dumping Agreement. In fact, one can argue that one of the major achievements of the Anti-Dumping Agreement has been the establishment of relevant rules, at the international level, governing the determination of dumping, the initiation and conduct of dumping investigations, the imposition of anti-dumping and provisional measures, and the duration and review of these measures.
Looking at dumping practices, a number of questions may arise, such as: Why do companies practice dumping? What are the effects of dumping? How can you identify dumping? When can anti-dumping measures be taken? The answer to the first question is simple. In a competitive global market where import duties are reduced, companies may intend to increase their market share, driving producers from other countries out of the market and thus securing a monopoly. Regarding the effects of dumping practice, the most relevant one is that it disturbs the market that receives dumped products and may drive local producers out of business. There is a large body of literature discussing the conditions that facilitate the practice of dumping by companies.
One identifies dumping by comparing prices in the export and the import markets. As simple as this fair comparison of prices may be at first glance, this procedure is very complex and requires an investigation conducted by the importing country to determine the normal value price at the exporting market and the appropriate price in the domestic market. For this purpose, prices are compared to those transactions that are at the same level, in general at factory level, and as close as possible to the same time of the sales transaction at stake.
Also, discriminatory price by itself is not sufficient to authorize anti-dumping measures, according to the Anti-Dumping Agreement. These measures can only be applied when dumped exported products cause or threaten damage to the domestic industry of the importing, like-product country and a material injury results therefrom. The basic requirements for determination of injury are the volume and price effects of dumped imports and the impact of dumped imports on the domestic industry.
Anti-dumping measures may take two different forms: Anti-dumping duties or price undertakings offered to exporters to avoid anti-dumping duties. Anti-dumping measures are based on a detailed investigation conducted by the import country. The investigation has to evaluate all relevant facts, not limited to economic aspects, that may prove that dumped price and material injury occurred therefrom, such as: Significant increase in dumped import products, price undercutting by dumped imports compared to the price of like product of the importing country, significant increase of volume and price effects of dumped products, actual or potential declines in sales of like products in the importing country, increase of market share by dumping producer, actual or potential effects on cash flow, inventories, employment, and wages of importing country, significant margins of dumping and other factors that may be deemed relevant. Thus, anti-dumping measures can be imposed by the importing country only after the investigation has determined that the dumping is occurring, the domestic industry is suffering material injury and, last but not least, there is a causal link between the two: Dumping price and injury.
Factors other than dumped products that may be causing injury to the domestic industry have to be excluded by the investigation in order to establish the causal link between dumping products and material injury. Provisional anti-dumping measures may be determined by the importing country as long as a preliminary determination of dumping, injury, and causality has been duly established and after initiation of the investigation.
A country’s failure to respect the requirements of the Anti-Dumping Agreement can be taken to the WTO Dispute Settlement Body and may be the basis for invalidation of such anti-dumping measures. Hence, with the WTO rules, dumping has been successfully discouraged, yet dumping practices still remain.
- Philip Bentley and Aubrey Silberston, AntiDumping and Countervailing Action: Limits Imposed by Economic and Legal Theory (Edward Elgar, 2007);
- Meredith Crowley, Cyclical Dumping and US Antidumping Protection 1980–2001 (Federal Reserve Bank of Chicago, 2007), www.chicagofed.org (cited March 2009);
- Benjamin Eden, “Inefficient Trade Patterns: Excessive Trade, Crosshauling and Dumping,” Journal of International Economics (v.73/1, 2007);
- M. Hoekman and P. Mavroidis, “Dumping, Antidumping and Antitrust,” Journal of World Trade (1996);
- Marceau, Anti-Dumping and Anti-Trust Issues in Free Trade Areas (Clarendon Press, 1994);
- Nicolaides, “The Competition Effects of Dumping,” Journal of World Trade (1990);
- Pangratis and E. Vermulst, “Injury in Anti-Dumping Proceedings: The Need to Look Beyond the Uruguay Round Results,” Journal of World Trade (1994);
- U. Petersmann, “International Competition Rules for the GATT-MTO World Trade and Legal System,” Journal of World Trade (1993).
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