project on dumping[1]

8/12/2019 Project on Dumping[1]

1/50

1

PTO

1.1 Introduction

The concept of dumping in international trade has a long history. Dumping, less than one

name or another has been part of the rhetoric of political economy for a long time. Jacob

Viner, the first scholar to pull together previous writings on the subject of dumping, noted a

sixteenth century English writer who charged foreigners with selling paper at a loss to

smother the infant paper industry in England. Viner also noted an instance in the seventeenth

century in which the Dutch were accused of selling at low prices in the Baltic regions in order

to drive out French merchants. He further noted statements made by Alexander Hamilton in

debates in the USA in 1791 warning about foreign country practices of underselling

competitors in oth er countries so as to frustrate the first efforts to introduce a business

into another by temporary sacrifices, recompensed, perhaps by extraordinary

indemnifications of the government of such country

Hamilton further declared that the greatest obstacle encountered by new industries in a

young country was the system of export bounties, which foreign countries maintained in

order to enable their own workmen to undersell and supplant all competitors in countries to

which these commodities are se nt.

1.2 Meaning, Definitions and Overview

Definition:-

In economics, "dumping" is a kind of predatory pricing, especially in the context

of international trade. It occurs when manufacturers export a product to another country at a

price either below the price charged in its home market, or in quantities that cannot be

explained through normal market competition.
http://en.wikipedia.org/wiki/Predatory_pricinghttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Predatory_pricing


2/50

2

PTO

The definition of dumping according to GATT is:

The sale of products for export at a price less than the normal value where normal value

means roughly the price for which those same products are sold on the home or exporting

market.

The concept of dumping seems fair because it is recognized that producers may sell their

goods in different markets at different prices and that prices of a goods are influenced by

several market forces and may vary at different times. It may be a perfectly legitimized

business activity like discounts offered by airlines to students or senior citizens etc. There

may not seem anything intrinsically unethical or illegal about dumping.

Meaning:-

Dumping is an international price discrimination in which an exporter firm sells a portion of

its output in a foreign market at a very low price and remaining output at a high price in the

home market. Haberler defines dump ing as: The sale of goods abroad at a price which is

lower than the selling price of the same goods at the same time in the same circumstances at

home, taking account of differences in transport costs. Viners definition is simple.

According to him, Dumping is price discrimination between two market s in which the

monopolist sells a portion of his produced product at a low price and the remaining part at a

high price in the domestic market, Besides, Viner explains two other types dumping. One,

reverse dumping in which foreign price is higher than the domestic price. This is done to turn

out foreign competitors from the domestic market. When the product is sold at a price lower

that cost of production in the domestic market, it is called reverse dumping. Two, when there

is no consumption of the commodity in the domestic market and it is sold in two different

foreign markets, out of which one market is charged a high price and the other market a low


3/50

3

PTO

price. But in practice, dumping means selling of a product at high price in the domestic

market and a high price in the foreign market.

Overview:-

A standard technical definition of dumping is the act of charging a lower price for a good in a

foreign market than one charge for the same good in a domestic market. This is often referred

to as selling at less than "fair value" . Under the World Trade Organization (WTO)

Agreement, dumping is condemned (but is not prohibited) if it causes or threatens to cause

material injury to a domestic industry in the importing country.

The term has a negative connotation, as advocates of competitive markets see

"dumping" as a form of protectionism. Furthermore, advocates for workers and laborers

believe that safeguarding businesses against predatory practices, such as dumping, help

alleviate some of the harsher consequences of such practices between economies at different

stages of development. The Bolkestein directive, for example, was accused in Europe of

being a form of "social dumping," as it favored competition between workers, as exemplified

by the Polish Plumber stereotype. While there are very few examples of a national scale

dumping that succeeded in producing a national-level monopoly, there are several examples

of dumping that produced a monopoly in regional markets for certain industries. Ron Chenow

points to the example of regional oil monopolies in Titan: The Life of John D. Rockefeller,

Sr. where Rockefeller receives a message from Colonel Thompson outlining an approved

strategy where oil in one market, Cincinnati, would be sold at or below cost to drive

competition's profits down and force them to exit the market.
http://en.wikipedia.org/wiki/Fair_valuehttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/Directive_on_services_in_the_internal_markethttp://en.wikipedia.org/wiki/Polish_Plumberhttp://en.wikipedia.org/wiki/John_D._Rockefellerhttp://en.wikipedia.org/wiki/Cincinnatihttp://en.wikipedia.org/wiki/Cincinnatihttp://en.wikipedia.org/wiki/John_D._Rockefellerhttp://en.wikipedia.org/wiki/Polish_Plumberhttp://en.wikipedia.org/wiki/Directive_on_services_in_the_internal_markethttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/Fair_value


4/50

4

PTO

1.3 Objectives of Dumping :-

1. To enter into a foreign market dumping may be resorted to make an entry in a foreign

market with subsidies being provided by the government

2. To dispose of occasional surplus at a lower price in foreign markets

3. To develop a market in foreign countries by selling at a lower price in the initial

stages just as new markets van be developed in the country itself by selling at lower

prices.

4. A monopolist also resorts to dumping for the expansion of his industry. When he

expands it, he receives both internal and external economies which lead to the

application of the law of increasing returns. Consequently, the cost of production of

his commodity is reduced and by selling more quantity of his commodity at a lower

price in the foreign market, he earns larger profit

5. The monopolist practices dumping in order to develop new trade relations abroad. For

this, he sells his commodity at a low price n the new market, thereby establishing new

market relations with those countries. As a result, the monopolist increases his

production, lowers his costs and earns more profit.


5/50

5

PTO

1.4 Effects of dumping:-

On the importing country

1. Domestic industry might be affected adversely by a decline in sales and profits.

2. If dumping is continued for a longer period, survival of the domestic industry may

be threatened.

3. Dumping may create balance of payments problems for the country subjected

dumping.

On the Exporting Country

1. It must be presumed that a producer who dumps benefits from doing so,

although in the case of promotional and predatory dumping, there is an

element of risk in that the ultimate benefits, on which the loss making export

sales are premised, may not materialize.

2. Provided its home market is shielded against arbitrage or retaliation, and

consequent price drop (which would neutralize the discrimination), dumping

can have clear advantages for the individual exporter.

3. A profitable home market provides a platform which may be used to operate

in export markets at prices much lower than could have been possible without

market segregation.


6/50

6

PTO

4. The low export prices generate further sales which in turn lower the cost of

production, an advantage which benefits both export and home sales.

5. Dumping can still have beneficial effects on the dumper even in situations

where home market sales are made at a loss.

6. As long as the dumper covers fixed costs, export sales can be priced as low as

variable cost, a strategy which permits production and employment to be

maintained in a recession or enables the dumper to obtain considerable

advantages when going for economies of scale.

1.5 Advantages of Dumping:-

The main advantage of dumping is being able to sell at unfairly competitive lower price.

Generally a country will have to give the exporting businesses a huge subsidy to enable them

to sell the export below cost. The country is willing to take a loss on the product to increase

its comparable advantage in that industry. It may do this because it wants to create jobs for its

residents. It often uses dumping as an attack on the other country's industry, in the hopes of

putting that country's producers out of business, and dominating that industry.
http://useconomy.about.com/od/fiscalpolicy/tp/Subsidies.htmhttp://useconomy.about.com/od/fiscalpolicy/tp/Subsidies.htm


7/50

7

PTO

1.6 Disadvantage of Dumping:-

The main disadvantage of dumping is that it's very expensive to maintain. It can take years

for dumping to work. Meanwhile, the cost of subsidies can add to the export country's

sovereign debt. The second disadvantage is retaliation by the trade partner. This can lead to

trade restrictions and tariffs. The third is censure by international trade organizations, such as

the World Trade Organization (WTO) or the European Union (EU).

1.7 Types of dumping:-

Sporadic Dumping: Occasional sale of a commodity at below cost in order to unload

an unforeseen and temporary surplus of the commodity without having to reduce

domestic prices.

Predatory Dumping: Temporary sale of a commodity at below cost or a lower price

abroad in order to derive foreign producers out of business, after which prices are

raised to take advantage of the monopoly power abroad.

Persistent Dumping: Continuous tendency of a domestic monopolist to maximize total

profits by selling the commodity at a higher price in the domestic market than

internationally (to meet the competition of foreign rivals). For international price

discrimination to take place, conditions must be met:

o Domestic and foreign markets must be separated.

o Demand elasticity of the product must be different in two markets. The good

can be sold with a lower price where the demand elasticity is high; and with a

higher price where demand elasticity is low.
http://useconomy.about.com/od/worldeconomy/p/Sovereign-Debt.htmhttp://useconomy.about.com/od/glossary/g/tariff.htmhttp://useconomy.about.com/od/wtofaq/f/What_is_WTO.htmhttp://useconomy.about.com/od/worldeconomy/p/european_union.htmhttp://useconomy.about.com/od/worldeconomy/p/european_union.htmhttp://useconomy.about.com/od/wtofaq/f/What_is_WTO.htmhttp://useconomy.about.com/od/glossary/g/tariff.htmhttp://useconomy.about.com/od/worldeconomy/p/Sovereign-Debt.htm


8/50

8

PTO

1.8 Historical Dumping Country wise

Dumping by Germany:-

There is general agreement that before 1914, export dumping was more widespread and more

systematically practiced in Germany than any other country. The resort to export dumping by

Germany seems to have been facilitated by the high tariffs and by the complete organization

of large scale industry into cartels or industrial selling and buying combinations. These two

factors monitored price competition in the domestic market. Cartels monitored price

competition from outside Germany and the combinations monitored the German producers

themselves. In concert, they made it possible for many of the cartels to adopt as a definite

price policy the maintenance of domestic prices at the foreign level plus the full amount of

the German import duties and the sale for exports at best prices obtainable, even if these

should be substantially below domestic prices. It is obvious that systematic and continued

dumping is not likely to arise if the dumping concern must share the higher domestic prices

with the competitors and must bear by itself the cost of the export dumping.

The cartel method in Germany provided the machinery whereby, without the loss of

individuality of the separate concerns, the benefits and burdens of export dumping could be

equitably distributed among the domestic producers. The effects of the protective tariff were

such that foreign competitors were prevented from sharing in the high domestic prices

resulting from the price fixing activities of the cartels. However, export dumping by German

industries and especially by the iron and steel trade began in the nineteenth century, long

before the establishment of cartels. Since 1914, writers have always made the charge hostile


9/50

9

PTO

to Germany and all her works that much of the German dumping was actuated by predatory

motives. Some writers have gone so far as finding a manifestation of a deep laid conspiracy

between the German government and industry to destroy the competing industries of foreign

countries.

Dumping in the United States of America:-

Since the late eighties of the nineteenth century, export dumping on a continued and

systematic scale has been a common practice of American manufacturers. There is according

to Viner, immeasurable evidence available both in official and nonofficial sources, which is

conclusive in this respect, and which further demonstrates beyond doubt that a substantial

fraction of the American export trade in manufactured commodities had, before 1914, been

developed and maintained on the basis of sale at dumping prices. The abundance of evidence

is more significant and convincing because American exporters who resorted to dumping

generally endeavored to conceal their export prices from the general public. Export price lists

and quotations were carefully kept out of domestic circulation. In 1902, a Committee of the

Democratic Party seeking campaign material succeeded in obtaining from a foreign

subscriber a copy of the discount sheet of an American journal, which contained the lowest

export prices. A New York Tariff Reform pamphlet, published in 1890, presented many

instances of dumping. What followed was a buildup of evidence of the prevalence of

dumping.25 In the USA, the systematic and continued practice of dumping appears to have

been largely either confined to the dominant concerns (trusts) of the staple industries or to

manufacturers of specialties. In other countries, and especially Germany, even the smallest


10/50

10

PTO

concerns participated in exportation at reduced prices through their membership in cartels or

producers combi nations and through the use of export bounties.

CHAPTER 2:

Antidumping and Its purpose on International trade (For Reference):

Dumping is said to occur when the goods are exported by a country to another country at a

price lower than its normal value. This is an unfair trade practice which can have a distortive

effect on international trade. Anti dumping is a measure to rectify the situation arising out of

the dumping of goods and its trade distortive effect. Thus, the purpose of anti dumping duty

is to rectify the trade distortive effect of dumping and re-establish fair trade. The use of anti

dumping measure as an instrument of fair competition is permitted by the WTO. In fact, anti

dumping is an instrument for ensuring fair trade and is not a measure of protection per se for

the domestic industry. It provides relief to the domestic industry against the injury caused by

dumping.

While permitted by the WTO, General Agreement on Tariffs and Trade (GATT)

(Article VI) allows countries the option of taking action against dumping. The Anti-Dumping

Agreement clarifies and expands Article VI, and the two operate together. They allow

countries to act in a way that would normally break the GATT principles of binding a tariff

and not discriminating between trading partners typically anti-dumping action means

charging extra import duty on the particular product from the particular exporting country in
http://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Tradehttp://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Trade


11/50

11

PTO

order to bring its price closer to the normal value or to remove the injury to domestic

industry in the importing country.

There are many different ways of calculating whether a particular product is being

dumped heavily or only lightly. The agreement narrows down the range of possible options.

It provides three methods to calculate a products normal value. The main one is based on

the price in the exporters domestic market. When this cannot be used, two alternatives are

available the price charged by the exporter in another country, or a calculation based on the

combination of the exporters producti on costs, other expenses and normal profit margins and

the agreement also specifies how a fair comparison can be made between the export price and

what would be a normal price.

Procedures in investigation and litigation:-

Detailed procedures are set out on how anti-dumping cases are to be initiated, how the

investigations are to be conducted, and the conditions for ensuring that all interested parties

are given an opportunity to present evidence. Anti-dumping measures must expire five years

after the date of imposition, unless a review shows that ending the measure would lead to

injury.

Generally speaking, an anti-dumping investigation usually develops along the following

steps: domestic producers make a request to the relevant authority to initiate an anti-dumping

investigation. Then investigation to the foreign producer is conducted to determine if the

allegation is valid. It uses questionnaires completed by the interested parties to compare the

foreign producer's (or producers') export price to the normal value (the price in the exporters

domestic market, the price charged by the exporter in another country, or a calculation based


12/50

12

PTO

on the combination of the exporters production costs, other expenses and normal profit

margins). If the foreign producer's export price is lower than the normal price and the

investigating body proves a causal link between the alleged dumping and the injury suffered

by the domestic industry, it comes to a conclusion that the foreign producer is dumping its

products. According to Article VI of GATT, dumping investigations shall, except in special

circumstances, be concluded within one year and in no case more than 18 months after

initiation. Anti-dumping measures must expire five years after the date of imposition, unless

a review shows that ending the measure would lead to injury.

Anti-dumping investigations are to end immediately in cases where the authorities

determine that the margin of dumping is, de minimis, or insignificantly small (defined as less

than 2% of the export price of the product). Other conditions are also set. For example, the

investigations also have to end if the volume of dumped imports is negligible (i.e., if the

volume from one country is less than 3% of total imports of that product although

investigations can proceed if several countries, each supplying less than 3% of the imports,

together account for 7% or more of total imports).

The agreement says member countries must inform the Committee on Anti-Dumping

Practices about all preliminary and final anti-dumping actions, promptly and in detail. They

must also report on all investigations twice a year. When differences arise, members are

encouraged to consult each other. They can also use the WTOs dispute settlement procedure.
http://en.wikipedia.org/wiki/Importshttp://en.wikipedia.org/wiki/Imports


13/50

13

PTO

2.1 Measures of Antidumping:-

Dumping must be distinguished from simple practices of low-price sales resulting from lower

costs or greater productivity. The key criterion in this respect is not, in fact, the relationship

between the price of the exported product and that on the market of the country of import, but

the relationship between the price of the exported product and its normal value. A product is

therefore considered to be dumped if its export price to the European Union (EU) is less than

the comparable price for a like product established in the ordinary course of trade within the

exporting country.

The normal value to be taken into account to determine if there is dumping is usually

based on the prices paid or payable, in the ordinary course of trade, by independent customers

in the exporting country.

However, where the exporter in the exporting country does not produce or does not sell a

like product, the normal value may be established on the basis of prices of other sellers or

producers. In addition, when there are no or insufficient sales of the like product in the

ordinary course of trade (for example, sales by a company with a monopoly) or where

because of the particular market situation such sales do not permit a proper comparison, the

normal value may be calculated on the basis of the cost of production in the country of origin.

In the case of imports from non-market economy countries, the normal value is

determined on the basis of the price or constructed value in a market economy third country,


14/50

14

PTO

or the price from this country to other countries, or where those are not possible, on any other

reasonable basis.

The second basis of comparison, the relationship with the normal value in the country of

origin which determines the dumping margin, is the export price. This is the price actually

paid or payable for the product when sold for export to the EU.

In cases where there is no export price or where the price is set under an association or a

compensatory arrangement between the exporter and the importer or a third party, any

reference to the export price becomes impossible. It may therefore be constructed on the basis

of the price at which the imported products are first resold to an independent buyer, or, if the

products are not resold to an independent buyer, or are not resold in the condition in which

they were imported, on any reasonable basis. In these cases, adjustments are made to take

account of all costs incurred between importation and resale as well as for profits accruing.

2.2India tops list of Final anti-dumping measures: WTO

India initiated the largest number of fresh anti-dumping investigations and final measures

while there has been a sharp drop worldwide in the number of new probes during January and

June 2007, a WTO report has said.

Among the 150 WTO members, India tops the chart of applications of final anti-dumping

measures with 16 cases, which is exactly the double of eight new measures it reported during

the corresponding period in 2006, the WTO report said.
http://www.expressindia.com/latest-news/india-tops-list-of-final-antidumping-measures-wto/234827/http://www.expressindia.com/latest-news/india-tops-list-of-final-antidumping-measures-wto/234827/


15/50

15

PTO

Even in the case of new initiations of investigations, India reported with the maximum

number with 13, followed by New Zealand (6), South Korea (5) and Brazil, China and Japan

(4 each).

However, the total number of new initiations declined for all these countries. China is far

below India in terms of imposing final measures with five cases.

In the developed world, EU reported six such cases and the US three. "Products exported

from China remained the most frequent subject of new measures accounting for 22 of the 57

new measures reported for the first half of 2007 compared with 15 new measures on products

from China during the corresponding period of 2006," the report said.

Anti-dumping measures are resorted to by a nation when it finds that an country is dumping

its goods at a price that is much less than a fair price and could be injurious to the domestic

industry.

India, Indonesia, Korea, and Thailand each were subjected to three new measures during the

first half of 2007.

Sector-wise, products in the chemicals sector are the most frequent subject of fresh measures

accounting for 12 of the 57. Products in the textiles sector are in second place, with 11 new

measures. The base metals sector was in third place, with nine new measures .Of the 12 new

measures on products in the chemicals sector, India applied eight, China three and the US

one. Reflecting a drop in the anti-dumping measures, 13 WTO members reported initiating

49 new investigations, compared with 92 initiations in the corresponding period of 2006.

A total of 16 members applied 57 new final anti-dumping measures during the first half of

current calendar yeast compared to 71 new measures reported by 15 members a year ago


16/50

16

PTO

CHAPTER 3 Case Study, Questionnaires and Answers

Through this project, the researcher plans to bring to light the two sides of dumping and

answer the following question:

1: An economic analysis on dumping: Why do firms dump products? What are the benefits of

dumping?

2: A legal perspective on anti-dumping: Why are Anti-dumping laws enacted and what is the

reasoning behind the legislations of the WTO/GATT to curb predatory pricing and dumping?

3: The concluding chapter shall deal with the EC Bed Linen Case: A case of anti-dumping

filed by the EU against India. Here, all the legal loopholes and economic issues that this

landmark case has raised in the Anti-dumping agreement under GATT and how does it affect

the Indian producers shall be questioned and answered.


17/50

17

PTO

3.1: An economic analysis on dumping: Why do firms dump products?

What are the benefits of dumping?

Answer: -

The rhetoric of anti-dumping is that it disciplines unfair trade practices. The

agreement specifies that price discrimination is an unfair trade practice if it causes injury

to domestic industry. However, economists argue that without showing predatory intent,

price discrimination cannot be held to be an unfair trade practice. Since there is no such

pre-requisite of anti-dumping use, it itself is an unfair trade practice that blocks fair

competition.

Benefits of dumping on the exporting country:-

1. It finds market for its surplus production

2. By exporting more, it is able to strengthen its balance of payments position

3. Consumers in the importing country benefit as they have to pay lower prices for

whatever they purchase of the commodity dumped.


18/50

18

PTO

4. Dumping benefits the consumers in the importing country who can buy the products at

cheaper rates. The losers are the consumers in the exporting country.

5. Dumping may also be caused by what is known as transitional dumping. It occurs

when an exporter needs to price below marginal cost in order to maximize sales and

expand market share. In this case below cost-pricing is a kind of investment in the

marketing of the product to reap profits in the long run. Because this may require fixing

price below marginal cost, it may be treated as predatory pricing. Yet, clearly it is not.

6. Originally designed as a weapon against predatory and powerful companies, the role

of anti-dumping measures has changed from ensuring fair competition to protecting

inefficient competitors. They are being increasingly used against efficient producers;

especially from developing countries.

7. Confronted with such situations developing countries like China are formulating their

own anti-dumping legislations.

The bias in the definition of dumping favors the party imposing anti-dumping duties.

Dumping is considered to exist if the export price of a product is less than the comparable

price of the product or like-product in the domestic market in the ordinary course of trade.

However, when the average export and product prices of a product are calculated,

domestic sales prices below total cost are considered beyond the ordinary course of trade

and therefore excluded, while all export prices are included, thus artificially raising the

level of domestic price. This is a discrepancy in the calculation of dumping, and thus even


19/50

19

PTO

in cases where there is no dumping, according to the strict definition of dumping as per

the GATT Anti-dumping agreement, it will be considered as dumping and anti-dumping

measures will be unfairly levied on the producer; whilst in true cases of dumping, a

producer might be exempted from the anti-dumping measures. Thus this arbitrariness in

the calculation of dumping makes anti-dumping an unfair mechanism that randomly

levies duties on innocent producers or exempts the real dumping producers, due to non-

uniformity in the application of the anti-dumping rule.

Also, if no home market price can be found, the sales price in a third country

surrogate country can be used for comparisons. Since different countries have varying

levels of economic development and comparative advantages in different sectors, the

arbitrary choice of a third country may easily lead to the definition of dumping.

Furthermore, when neither home country nor a third country price is available, a

constructed value is used which is the sum of material and labor costs of production plus

administrative, selling and general costs plus profit. As items such as administrative costs

and profits vary greatly among countries and companies, it is not difficult to see the

inherent subjectivity of the approach.

Sometimes, selling below total cost is a normal business practice, and not necessarily

dumping. According to the theory of micro-economics, so long as the price is above

average variable cost of production, a firm has incentives to continue production in the

short run, in order to minimize losses on fixed investment, in the hope that the market

situation will improve later to bring it back to profit. The duration of these short periods

may vary from firm to firm.


20/50

20

PTO

When a product enters a foreign market the exporting firm may have to sell below

total cost of production to attract consumers or to meet the existing competition without

any intention to dominate the market, especially if the product does not enjoy the same

established reputation as similar products in the market. It is unreasonable to subject such

business practices which are normal within many countries to anti-dumping charges when

foreign companies are involved.

According to the Uruguay Round of anti-dumping code, an importing country can only

apply for anti-dumping duties when it is demonstrated that the dumped imports have

indeed caused injury to domestic industries.

Yet too often in reality either due to the complexities of the issues involved or to

protectionist considerations, anti-dumping authorities determine dumping without

carefully considering whether the difficulties of domestic producers resulted from their

own efficiency or inefficiency or from the allegedly dumped products. The consequent

imposition of anti-dumping duties tends to penalize the most efficient foreign producers.

The problems associated with anti-dumping rules are also related to the rules of origin.

In a world with increasingly globalizing tendencies and production, a product may be the

result of production in many countries. As there is no substantive multilaterally agreed

rules of origin, the same product can be considered to have different origins by different

countries. Therefore even if dumping has been correctly determined it may be difficult to

find who the party at fault is.

The application or abuse of lax anti-dumping rules penalizes foreign producers who


21/50

21

PTO

enjoy comparative advantages, to the benefit of inefficient domestic producers. It also

increases uncertainty in international trade, thus acting as a deterrent against potential

foreign competitors.

But foreign producers are not the only victims. The importers and industrial users of

the product in the country imposing the anti-dumping duties may become less competitive

due to higher prices caused by such measures. Consumers have to pay more for similar

products. As anti-dumping rules vary for different countries, their complaints may not be

adequately represented. Even if some anti-dumping legislation requires consideration of

the views of these groups, the theory of political economy tells us that it is unlikely for

these diverse groups to be as vociferous as the concentrated producers of an industry in

lobbying activities.

The abuse of anti-dumping rules hits the developing countries harder whose exports

are increasingly subject to such measures in recent years. Due to their less diversified

economies, the developing countries enjoy comparative advantage in only a few sectors.

If the export of their competitive products is obstructed by anti-dumping measures, their

foreign exchange earnings and even economic development may be negatively affected.

Furthermore, as they lack financial resources and experienced personnel on anti-

dumping law, the expenses that their exports have to pay for dealing with anti-dumping

cases increases. For developing or transitional economies undertaking economic reforms,

anti-dumping duties on exports already priced by market forces only serve to hinder their

painful process towards a full market economy and to create cynicism about the western

preaching of free trade.


22/50

22

PTO

If an importing country finds that a trade partner subsidizes its exports, it can invoke

multilaterally agreed countervailing measures designed for this purpose. If due to some

unforeseen developments an industry of an importing country is seriously injured with a

flood of imports, the country can take measures to protect domestic producers in

accordance with WTO agreement on safeguards. Anti-dumping measures are not an

effective cure for difficult market access in another country either, because they do not

tackle the problem at its source.

A number of economists argue for scrapping the anti-dumping agreement altogether.

They maintain that unless the anti-dumping laws seek to check predatory pricing the

application of the laws is welfare reducing. By seeking to protect domestic producers who

cannot face foreign competition the consumers are put to a loss. They argue that domestic

consumers benefit from low prices and if the import market is perfectly competitive, the

benefits to consumers outweigh the losses to domestic producers.

The current anti-dumping agreement imposes no substantive obligations on the

authorities to take the broader public interest into account. Many countries have

recommended that investigating authorities must consider public interest before imposing

anti-dumping duties.

It is not fair that the consumers be asked to pay the price for no commitment on the part

of the domestic producers even in the future to be able to take care of their interests.

However, it must be noted that public interest is not consumer interest alone. It is a

much wider term which covers in its ambit the general social welfare taking into account


23/50

23

PTO

the larger interest of various stake holders.

Sporadic dumping is when the producer intends to dispose of the casual overstock of

the producers. Sales in the specified period may not be as good as expected and the

producer finds himself with surplus stock. He finds it difficult to either dispose it off in

the domestic market or to hold it for the next season for various reasons. He therefore

tries to sell it in the foreign markets at lower prices to recover some cost, which results in

dumping. Sporadic dumping may be unintentional. It could be due to currency

fluctuations or due to inexperience of the exporters.

Also, in sporadic dumping there is an occasional sale of a commodity at lower costs

abroad to unload an unforeseen and temporary surplus of the commodity without having

to reduce domestic prices, and persistent dumping which may prove to be benefit to a

nation since if the producer faces different marginal cost and marginal revenue lines in

each market, then it pays to charge different prices in each market. Thus, even though the

foreign markets will not be monopolized, the anti-dumping duties will cause severe losses

of producer surplus.

Also, in countries like USA, according to their Robinson-Patman Act, selling of goods

at unreasonably low prices to drive out competition is prohibited and anti-dumping duties

are slapped on firms even if the impact on these competing firms is negligent and

temporary. Thus, even though antitrust laws are meant to protect competition, anti-

dumping laws are wrongly used for the same purpose because of the simple reason that

any firm would be better off without competition.


24/50

24

PTO

An important reason why anti-dumping laws are abused is to obtain protectionist

outcomes is the definition often used to label acts as acts of dumping. According to this

definition, a firm is dumping if it sells its products abroad below fair market value i.e. the

average price of the product in its home market. Thus, even if it charges a competitive

price for its products in the foreign country, just because they may be lower than their

home market prices because of several price determining factors such as markets,

demand, tariffs, advertising and selling costs, domestic taxes, skewed market functioning

and corruption amongst producers leading to artificial deviances in prices or the company

simply having lower cost of production than its foreign counterparts, a company is

allegedly dumping. The principal argument against this practice is that if price

discrimination is accepted as a valid measure domestically, how can it be called dumping

merely because it is done internationally?

Also, the definition of dumping doesn t consider the fact that normal values of goods

may differ from time to time. Thus, one cannot just compare the face value of the prices

of the good in the two countries to determine the dumping margin and impose a similar

anti-dumping duty on the imports. Additionally, because it is often difficult to prove that

foreign firms charge higher prices to domestic than export customers, many a times a

supposedly fair price based on estimates of foreign production costs is used to calculate

the dumping margins. This a fair price can interfere with perfectly legal business practices

such firms willingly incurring losses to sell its goods and simultaneously reducing its

costs through experience or making an entry into a new market. The WTO rules do not

define market economy conditions. Thus, each member has broad discretion in setting the

conditions in antidumping allegations and taking advantage of these loopholes to demand

protection.


25/50

25

PTO

Since, anti-dumping duties are discriminatory, it implies that the domestic industry can

use this instrument to their benefit and target only those foreign firms it views as market

rivals. Also, in case of multinational firms, the definitions of domestic and foreign firms

are often blurred. Since they produce diverse products, one company may be treated as a

domestic firm that seeks protection from dumping, while for another product it may be

treated as a foreign firm.

The WTO does mandate that the above factors be taken into consideration when

determining whether or not dumping is occurring. However, many developing nations

and some industrialized nations believe that the most nations do not carry out this

obligation in order to gain or keep the political favor of specific groups of voters.

There is still much confusion as to whether countries are actually using WTO

standards or not in their dumping investigations. There are many theoretical problems

with some anti-dumping procedures. Allegations of unfair investigations abound. The

WTO's Antidumping Agreement was made very complex to help to deal with these

problems. However, it has become too opaque to be able to correctly determine the

validity of some anti-dumping measures; thus arbitrarily imposing anti-dumping charges

on efficient and innocent producers, posing to be a serious threat to the international

market and jeopardizing the concept of free trade.


26/50

26

PTO

3.2: A legal perspective on anti-dumping: Why are Anti-dumping laws

enacted and what is the reasoning behind the legislations of the

WTO/GATT to curb predatory pricing and dumping?

Answer:-

Political reality suggests that any government that attempts to establish or maintain

an open import regime must have at hand some sort of pressure valve - some process to

manage occasional pressures for exceptional or sector-specific protection. Since the

1980s anti-dumping has served this function. An anti-dumping petition is the usual way in

which an industry, plagued with troublesome imports, will request an anti-dumping

investigation. It is the way in which the government then provides protection.

Anti dumping is a measure to rectify the situation arising out of the dumping of goods and

its trade distortive effect. Thus, the purpose of anti dumping duty is to rectify the trade

distortive effect of dumping and re-establish fair trade. The use of anti dumping measure

as an instrument of fair competition is permitted by the WTO. In fact, anti dumping is an

instrument for ensuring fair trade and is not a measure of protection for the domestic

industry. It provides relief to the domestic industry against the injury caused by dumping.

Adam Smith noted that by restraining, either by high duties, or by absolute prohibitions,


27/50

27

PTO

the importation of such goods from foreign countries as can be produced at home, the

monopoly of the home market is more or less secured to the domestic industry employed

in producing them. It can be inferred from his writings generally that he was of the view

that by imposing duties, imports that harm domestic industries should be discouraged.

Anti-Dumping is a reactionary measure to the dumping of goods into a foreign market.

When a country feels that another country is dumping goods into its economy it may

institute anti-dumping measures to protect the interests of the domestic producers of that

good. The exponents of anti-dumping justify it on the ground that it is a defense

mechanism in the hands of the importing country to safeguard their domestic producers.

The primary justification for anti-dumping measures is the perceived threat of predatory

dumping. In an imperfectly competitive and segmented market i.e. where the prices of

goods are controlled by firms and not by the market forces, and consumers have

minimum access to goods meant for export purposes, respectively, dumping can prove to

be profit-maximizing strategy for a monopolist firm. Firms may indulge in predatory

dumping, wherein the prices of their goods in the foreign markets are reduced

temporarily. The lower price imports could decrease the amount of domestic products

purchased, and domestic companies may not be able to lower their prices in order to

compete with these imports, driving these local firms out of business. These foreign firms

then command the prices, taking advantage of their newly acquired monopolistic status

and cause material injury in the form of economic retardations of the locally established

industries.

The cumulative effect of these injuries, it is contended, will finally lead to job losses,


28/50

28

PTO

slowdown of economic growth and spread of non-competitiveness.

In such cases it is argued that anti-dumping measures are justified as they protect

domestic industries from unfair competition from abroad, help in restoring the domestic

economies and may thus prove to be prudent measures. By imposing anti-dumping duties,

dumped imports are discouraged and domestic firms maximize their own production and

profits.

It must be recorded however, that predatory dumping is a rarity because it assumes capital

market imperfection and an irregularity in financial resources that favor foreign

producers. It also assumes an impossible coordination between firms to precisely

calculate when and how much to dump to drive domestic industries out of business.

Additionally, since it is difficult to determine whether dumping is predatory or not,

domestic producers demand protection against any form of dumping even if it actually

not harmful.

From a petitioner point of view, anti-dumping stand out since it is a good instrument to

obtain protection because imposing other restrictions like import tariffs or voluntary

export restraints are inconsistent with the norms of the WTO and most governments are

not open to help domestic producers with protection. Also, anti-dumping producers can

disguise their fear of being destroyed by gigantic foreign rivals by asking for protection

and accusing these foreign competitors of unfair trade practice.

The main argument advanced for taking an anti-dumping measure against foreign

producers is that such a step ensures that national producers get better experience than the

foreign firms. It is frequently argued that such industries bring special advantages to a


29/50

29

PTO

country, either because they enable domestic factors of production to earn higher returns

than in other sectors of the economy or because they generate externalities or spill over

benefits for the rest of the economy. Anti-dumping policy is the best instrument for

achieving these objectives.

According to them, anti-dumping is an instrument that is necessary as it acts as a safety

valve that ensures domestic political support to trade liberalizing initiative. Anti-dumping

in their view is the price paid for the maintenance of an open trading system among

nations. Anti-dumping is a trade remedy for domestic producers injured by cheap imports.

It is a tool that discourages predatory dumping. Anti-dumping is a GATT/WTO legal tool

that is used to grant protection to the import competing domestic industry, which is

adversely affected by free trade.

Government imposed trade barriers and government-tolerated anti-competitive practices

permit domestic producers to create monopolies in their home market. This enables them

to charge a low price in export markets and compensate the loss by charging higher

process in the domestic market without attracting foreign entry.

Producers in the importing countries fail to expand capacity, to improve productivity and

to use all resources efficiently. The distorted price signals in the market thus stimulate

overproduction of the exportable goods and underproduction of importable goods. This in

turn leads to a chronic oversupply by inefficient producers on one hand and the closure of

otherwise competitive facilities on the other, reducing worldwide efficiency. Anti-

dumping duties restore relative pricing to prevailing world market conditions and hence


30/50

30

PTO

efficient resource allocation.

The main reason why international price discrimination is usually considered unfair is

that a dominant firm, exporting its surplus over domestic profit-maximizing sales at lower

prices, can benefit from economies of scale in production which its competitors abroad

are not able to achieve. Such a system could be sustained as long as its home market

remains protected. However, such conduct enhances competition in the export market as

long as the firm sets export prices at or above cost. Selling abroad at a loss could only be

rational for predatory purposes.


31/50

31

PTO

3.3: The concluding chapter shall deal with the EC Bed Linen Case:

A case of anti-dumping filed by the EU against India. Here, all the

legal loopholes and economic issues that this landmark case has risen

in the Anti-dumping agreement under GATT and how do it affect theIndian producers?

Answer:-

EC BED LINEN CASE

Possibly the most egregious distortion of dumping, is the practice known as "zeroing."

Zeroing is a concept whereby non-dumped sales are not permitted to offset dumped

sales, essentially by setting the value of a negative dumping margin to zero. This is

not something dealt with in article VI of the WTO Anti-Dumping Agreement.

It is a significant cause of the systemic overestimation of dumping margins and

subsequent application of inflated anti-dumping duties. Certainly, the impact of

zeroing varies from case to case. If every comparison generates a positive dumping

margin, then the prohibition of zeroing will have no impact. But if there are many

comparisons generating negative margins, or if there are only a few generating large

negative margins, the prohibition of zeroing can have a very substantial impact on the


32/50

32

PTO

amount of anti-dumping duties ultimately applied.

The EU50 and the US argue that zeroing should be authorized by the WTO. Zeroing

of course makes dumping easier to find. But that is an unsatisfactory rationale. The

European commission explains that zeroing is needed to combat targeted dumping.

A dumper, it says, may conceal dumping by selling at high prices at other times or

places.

However, even if targeted dumping is accepted as a plausible possibility, moreover,

the ADA51 allows national authorities to follow unusual trade practices if export

prices differ significantly among different purchasers, regions or time periods.

But, to justify zeroing under that provision of the ADA(Article 2.4.2), the authorities

need to explain that zeroing is necessary and helps in tackling issues of targeted

dumping.

The practice of zeroing had the effect, in almost every case, of increasing the dumping

margin. In many cases, the practice of zeroing also resulted in a dumping margin of

more than the threshold of 2 per cent required to maintain an anti-dumping

proceeding. In fact, in many cases, zeroing generated a margin of dumping where

there would otherwise not have been any.

The WTO Appellate Body has now conclusively determined in multiple cases that

zeroing is contrary to member countries commitments under the WTO Anti- Dumping

Agreement (ADA). Article 2.4.2 of the ADA requires that an investigating authority


33/50

33

PTO

take into account all comparable export transactions in the calculation of dumping

margins.

The WTO Appellate Body held that, by converting negative dumping margins to zero,

an investigating authority is not taking into account all export transactions. The

Appellate Body thus said that it was impermissible to ignore the effects of negative

dumping, i.e., those sales made at un-dumped prices.

Hence, the current stand of the WTO is that zeroing is not a practice in accordance

with the provisions of the Anti-dumping agreement, and thus should be not be

followed. It is a measure that is fundamentally flawed in many respects and tends to

give an unfair disadvantage to innocent producers.

The EC Bed Linen Case:

In September 1996 the European Communities (EC) initiated an anti-dumping case

against imports from India of cotton-type bed linen. However, the European Union

was split about the case. The reason for support for the action was clear protecting the

EUs fabric weaving sector from low-priced import competition. Equally obvious was

the reason for opposing the anti-dumping action: jobless companies that consumed the

imports which incurred or faced redundancies as a result of the protective remedy.

Because there were so many Indian exporters and producers of the subject

merchandise, cotton-type bed linen, the EC elected to analyze dumping from a sample

of Indian companies. In determining the home (Indian) market price for bed linen sold


34/50

34

PTO

by investigated respondents, the EC took the constructed value as a substitute for

Normal Value. The reason for using constructed value as a proxy for normal value

was a lack of sales made in the ordinary course in the Indian market (the market was

not viable). The EC identified five types of cotton bed linen exported to it and also

sold in representative quantities in India. However, not all five types were sold in

India in the ordinary course of trade. Thus, the EC could not base normal value on

prices from these sales, and had to use the constructed value.

The EC established export price from prices actually paid or payable for cotton-type

bed linen in the EC market and compared constructed value with export price,

computed for each Indian respondent with the dumping margin being the difference

between the weighted average constructed prices. In this computation EC applied a

zeroing methodology. It deemed any negative dumping margin as zero.

The EC calculated dumping margins for different models (for example- pillowcases

and sheets) finding negative dumping margins on a number of them. It then zeroed

these to obtain a dumping margin for bed linen.

The panel ruled that the calculation did not take into account of all transactions, as

WTO rules require it to. The WTO appellant body said that a comparison between

export price and normal value does not fully take into account the prices of all

comparable export transactions such as the practice of zeroing is not a fair comparison

between export price and normal value (the price in the exporters home market)

The Appellate Body of the World Trade Organization has faulted the methods


35/50

35

PTO

adopted by the European Union in anti-dumping investigations and calculations of

dumping and found them to be violative of the WTO s Anti-Dumping (AD)

agreement, and ruled in favor of India, in the EC s actions against imports of cotton-

type bed linen from India.

In its ruling, the Appellate Body found fault with the EU Commission, AD

investigations and measures such as:

1. The practice of zeroing; i.e. investigating the existence of margins of dumping -

taking account of the averaging of positive dumping margins in investigated products,

but ignoring the cases where there are negative margins and giving a zero value to

them instead;

2. Calculating the administrative, selling and general (SG&A) costs and profits by

using a method where data applicable to one other exporter or producer is used to

apply to all others, and

3. Calculating the amount of profits by excluding sales by other exporters or

producers not made in the ordinary course of trade; and

4. Using all types of bed-linen products - bed sheets, duvet covers and pillow cases,

packaged for sale either separately or in sets, and made of cotton-type fibers, pure or

mixed with man-made fibers or flax, and bleached, dyed or printed - as a single

product competing with like products of the domestic industry, for certain purposes of

investigation, but using the various components of the imported product for


36/50

36

PTO

calculating export price and normal value and averaging them, to establish dumping.

As a final observation about the bed linen cases, the appellate body exposed

the hypocrisy of the EC s argument that bed linens were a single product, but

different dumping margins had to be calculated and zeroing had to be used, for

different product types.

Despite the considerable leeway provided to the importing countries to invoke the

Anti-dumping agreement s instruments to protect their domestic industry - the WTO

dispute settlement panels issuing the rulings shows, the extent of the abuse of the

powers and trade harassment by the major industrialized countries, and the long time-

period before any relief can be obtained by the exporters in such cases.

Chapter 4

Examples of Dumping and Anti -Dumping

Dumping

EXAMPLE-I

Dumping occurs when a surplus of a product exists in one country, allowing exporters

to be able to sell that product at a deep discount in other countries, often far below

what a local farmer must sell his crop for in order to make a profit. Thus, while a


37/50

37

PTO

farmer in Chiapas, Mexico may be able to grow corn for, say, $3 a bushel, a U.S.

company can export it to Mexico and sell it for $2.20 a bushel (25% below the cost to

produce it), allowing the corn to sell on Mexican markets cheaper than domestic corn.

Corn is Mexicos de facto national crop, yet in post -NAFTA Mexico over 25% of

the countrys corn market is now imported from America: an eighteen fold increase

since the implementation of NAFTA.

Under NAFTA, a yearly cap was placed on the amount of allowable amount of

corn that the U.S. could export to Mexico. The amount was supposed to increaseyearly until by the year 2008 when all limitations are removed. This was intended to

facilitate the price of corn in Mexico, which had been above world average, to fall

slowly until it was more in line with the price of corn in America and Europe.

Unfortunately for the Mexican farmer, this did not occur. Instead of a gradual

decrease in the price of corn over fifteen years, the market price collapsed at anastonishing rate until, by 1997, it was equivalent to the world market average having

decreased over 70 percent. In a little over two years, the bottom fell out from beneath

the feet of Mexican corn farmers.

This results in the Mexican farmer, whose field is likely less than five acres in size,

not being able to sell his crop for a profit. In turn, this will lead to forced sale of his

farm. These former farmers often attempt to cross into the US in hopes of finding a

way to earn money. Ironically, they often end up working for the very farm

corporations that put them out of business.

Thus from the above example of Dumping we can see how it can affect a countrys

economy and their residents and the Domestic Market.


38/50

38

PTO

EXAMPLE II Salmon: USA & EU/Chile:

Chilean sales of salmon (Salmon is the common name for several species of fish in

the family Salmonidae) to the USA are huge US $2 billion in 2002, and a major

contributor to Chiles economy. Chile is now the second largest salmon and trout

farmer in the world, after Norway. The USA is Chiles most important market, and so

trade relations with the USA are critical. The first anti-dumping challenge occurred in

mid 1997, when US salmon producers claimed that Chilean government subsidies

were allowing producers there to sell below true production cost. This was rejected

by the ITC after the Chilean government was able to prove no such distorting

subsidies existed. However, fighting this allegation was very expensive though

estimated at $22 million, which was paid by Chilean farmers. Chilean companies had

to harmonize their accounting systems to accord with US government standards for

greater transparency. A further anti-dumping challenge followed, but this time was

company-specific, setting tariffs at various levels around 5%. However by February

2003, a third US government review had concluded that 90% of Chilean producers

should not be subject to duties, and this challenge has now been officially terminated

completely.

In the EU, there has been a similar claim made against Chilean salmon. In July 2002

Irish and Scottish salmon farmers claimed that Chilean frozen salmon was being sold
http://en.wikipedia.org/wiki/Family_(biology)http://en.wikipedia.org/wiki/Salmonidaehttp://en.wikipedia.org/wiki/Salmonidaehttp://en.wikipedia.org/wiki/Family_(biology)


39/50

39

PTO

in the EU at below production cost, so causing a fall in fresh salmon prices. This

claim had some difficulties since:

(i) Chile accounts for only 5% of EU supplies.

(ii) The fall in fresh salmon prices preceded a fall in those of frozen salmon by

6months

In February 2003 the Fisheries Commission of the European Parliament terminated

the investigation finding no grounds to proceed. Latterly, this issue has been

reopened, though, this time the emphasis is on a safeguard approach, the arguments

being that material damage to the Scottish and Irish salmon farmers has occurred, and

that this warrants action against third country imports.


40/50

40

PTO

Anti-Dumping:

EXAMPLE - I

US beef imports to Mexico

While Mexico exports more live cattle to the U.S. than it imports, the U.S.

exports beef products back into Mexico in large numbers accounting for over 18% of

the U.S. beef market which amounted to over $450 million worth of beef products.

The Mexican government, in response to complaints from its farmers,

instituted anti-dumping tariffs on US beef products.

However, the four major U.S. beef packers are being charged anti-dumping tariffs

ranging from zero to 7.6% on bone in and boneless beef products exported to Mexico

while all the other U.S. packers must pay 75% on boneless beef and 13% on bone-in

beef.

In addition, beef offal is hit with a 215% anti-dumping tariff for all American

packers except the big four who pay anywhere from 3% to 26% duty on the same

products.

The measures still exist and American beef packers are still seeking a decision

by international trade courts.

Some countries institute de facto anti-dumping measures involving packing standards,

health standards, or manufacture standards that would prove extremely costly, if not

impossible, for some countries to maintain.


41/50

41

PTO

These measures have the same result of monetary anti-dumping measures:

they usually result in the decrease of importation of those products into the domestic

market.

The countries being affected cannot fight such measures as these standards are

matters of internal domestic affairs, and the WTO has ruled that countries have to

right to enact such laws as ways to ensure the health of citizens.

EXAMPLE-II

Imports of Steel Pipes from India to USA

The US has imposed a preliminary anti-dumping duty on import of certain types

of steel pipes from India, about a month after New Delhi lodged a complaint

with WTO against the US for imposing anti-subsidy duties on import of certain Indian

steel products.

The US Department of Commerce said it has "preliminarily determined" that

Indian firms were selling the pipes -- circular welded carbon-quality steel pipe in the

US at 48.43 per cent below the fair market value of the product.

"Commerce preliminarily determined that producers/ exporters from India ... sold

certain steel pipe in the United States at dumping margins, or margin ranges, of 48.43

per cent," it said.

In the India investigation, the Department said, the mandatory respondent Zenith Birla
http://economictimes.indiatimes.com/topic/anti-dumping-dutyhttp://economictimes.indiatimes.com/topic/steelhttp://economictimes.indiatimes.com/topic/WTOhttp://economictimes.indiatimes.com/topic/US-Department-of-Commercehttp://economictimes.indiatimes.com/topic/US-Department-of-Commercehttp://economictimes.indiatimes.com/topic/WTOhttp://economictimes.indiatimes.com/topic/steelhttp://economictimes.indiatimes.com/topic/anti-dumping-duty


42/50

42

PTO

(India) (previously known as Zenith Steel Pipes and Industries) received a preliminary

dumping margin of 48.43 per cent.

"There is an existing anti-dumping (AD) order on certain steel pipe from India.

Therefore, this investigation covers only merchandise manufactured and/or exported

by Zenith Birla...," it said.

The pipe is generally known as standard pipe, fence pipe and tube, sprinkler pipe, and

structural pipe.

In 2011, the US imports of pipes from India were estimated at USD 64.6 million. As

a result of the preliminary affirmative determinations, the Department "will instruct"

US Customs and Border Protection (CBP) to require a cash deposit or bond based on

these preliminary rates from importers. Last month, India had requested consultations

with Washington under the World Trade Organization (WTO) dispute settlement

system concerning the latter's countervailing duties on certain steel products from

India.

In March, the US had imposed preliminary countervailing duties of about 286 per cent

on certain steel pipe from India.
http://economictimes.indiatimes.com/topic/World-Trade-Organisationhttp://economictimes.indiatimes.com/topic/World-Trade-Organisation


43/50

43

PTO

4.1 CONCLUSION

The use of anti-dumping measures as a trade protection tool has increased phenomenally

during the last decade. One significant aspect of this new trend is the increasing involvement

of developing countries. India is one such country which has emerged as a frequent user of

anti-dumping measures.

Those in favor of anti-dumping duties argue that it is a tool of protection in the hands of

the domestic producers against the cheaper foreign imports. Critics of anti-dumping duties

though find it difficult to prove the fact that the imposition of anti-dumping duties results in

economic benefits to the domestic industry. Consumers are aggrieved as well, as they feel

deprived of the lower costs and availability of variety of goods. The role of the government in

tackling the problem of anti-dumping should be to protect the smaller industries rather than

concentrating on the major industries. This is because; it is these small scale industries which

suffer the most as a result of imposition of anti-dumping duties.

However, safeguarding competition in domestic industry is not the only purpose that anti-

dumping laws serve and in the present situation, they are acting as barriers for free trade and

domestic producers are concerned about avoiding competition.

In case of allegations and anti-dumping duties slapped on economically weaker nations, it

could result in a stunt of economic growth for these developing countries, as they are unable

to develop secure and stable long term industries. Even the threat of imposition of anti-

dumping duties has a serious adverse effect on the functioning of small and medium size

firms, resulting in a fall in production, heavy unemployment and declines in incomes and


44/50

44

PTO

increases in poverty levels.

Anti-dumping duties were imposed by developed countries to protect their industries

against the low priced imports. Right from the beginning there was a clear division between

the fundamental aims of those countries whose exports were most commonly exposed to anti-

dumping action (developing countries) and those which took such action (mostly developed

countries). Developing countries wanted anti-dumping rules to be tight and explicit as

possible, allowing minimum transparency. Developed countries wanted to retain and even

expand their discretion to meet what they saw as being used by companies to get around the

present rules of anti-dumping code and thereby cause injury to domestic industry, their

proposals tended to be the most radical and controversial.

The wage rate differs from country to country, the economies differ and the demand

levels are also different. It is a settled economic fact that firms are guided by profit-

maximizing motives. The profits keep increasing till the time that marginal revenue is greater

than marginal cost. To allow marginal cost based pricing to adversely affect industry in other

countries cannot be justified on social welfare grounds. The capital dumped in the concerned

industry and the employment generated by that industry cannot be allowed to go non-

functional. This is not to say that the industry should be protected at all costs.

The negotiating stance of developing countries like India should be for tightening the

agreement. This is because India is a victim if the costs and benefits to different industry

segments are assessed at an aggregate level. Even though abolishment of these anti-dumping

laws will lead to increased competition, lower prices for consumers, more efficient

production, and higher national income, it is unrealistic to hope that the WTO will remove


45/50

45

PTO

this trade device in the near future. But before things become worse, an immediate reform is

necessary and the WTO anti-dumping rules need to be amended to allow a more transparent

process of investigation and to determine correctly whether the material injury caused is

because of dumping or higher competition. The WTO rules need to be formulated so as to

target only predatory dumping and not persistent or sporadic dumping. All countries need to

have the uniform standards for determination of the dumping margins so as to maintain

fairness. While aiming at consumer welfare, it is necessary to justify the use of anti-dumping

laws as tools against unfair trade, to reconsider its definition and analyze as to what is

essentially fair and what is not and keeping in mind the gross abuse of anti-dumping laws

answer the very fundamental question of whether these laws are necessary at all.

As economics, anti-dumping action looks at only half of the economic impact on the

domestic economy. It gives standing to import competing domestic interests, but not to

domestic users, be they user enterprises or consumers. As politics, it undercuts rather than

supports a policy of openness; by giving voice to only the negative impact of trade on

domestic interests and by inviting such interests to blame their problems on the "unfairness"

of foreigners.

The key characteristic of a sensible safeguard procedure is that it treats domestic interests that

would be harmed by an import restriction, equally with those domestic interests that would

benefit. The "morality" of the foreign interest is irrelevant - the issue is the plus and minus on

the domestic economy. Operationally, this suggestion means simply that what is done in an

"injury test," - identification of impact on import competing interests - is repeated for users of

imports.


46/50

46

PTO

Some argue that there must be more rigorous anti-dumping rules that must be formulated at

the domestic and international level. The notion of predatory pricing must be clearly

incorporated in the definition of dumping. The burden of proof of dumping must be placed

squarely on the party initiating dumping cases. The implementation of anti-dumping

measures should be subject to the close inspection of the WTO. Countries should more amply

inform their public of the costs and benefits of anti-dumping measures so as to promote an

unbiased and fair public opinion on this matter. These measures would ensure that anti-

dumping laws are fairly applied and assist only those producers who suffer as a result of the

low prices, and not arbitrarily affect the production of efficient producers who are not in

error.

4.2 Bibliography

BOOKS:

See: Directorate General of Anti-Dumping & Allied Duties Ministry of Commerce,

Government of India.

INFOFISH: INFOFISH International 4/2003

Charles Woodhouse: Fish Farming International, September, November December 2003


47/50

47

PTO

ML Jhingan, International Economics , Vrinda Publication, 2001

Bhala, Raj, International Trade Law: Theory and Practice, Lexis Nexis, 2003

Jackson, John; The World Trading System - Law and Policy of International Economic

Relations, The MIT Press, New York, 2nd Edn., 2000

Krugman R. Paul, Maurice Obstfeld, International Economics: theory and policy, 6th ed.,

Pearson Education: Delhi, 2004.

Vermuslt Edwin, The WTO Anti-Dumping Agreement, Oxford University Press, United

Kingdom, 2005

ARTICLES:

From Wikipedia/ Dumping (Pricing Policy)

From: http://useconomy.about.com/od/glossary/g/Dumping.html

See: http://unctad.org/en/docs/edmmisc232add14_en.pdf

See: http://www.expressindia.com/latest-news/india-tops-list-of-final-antidumping-measures-

wto/234827/ , Nov 01, 2007
http://useconomy.about.com/od/glossary/g/Dumping.htmlhttp://unctad.org/en/docs/edmmisc232add14_en.pdfhttp://www.expressindia.com/latest-news/india-tops-list-of-final-antidumping-measures-wto/234827/http://www.expressindia.com/latest-news/india-tops-list-of-final-antidumping-measures-wto/234827/http://www.expressindia.com/latest-news/india-tops-list-of-final-antidumping-measures-wto/234827/http://www.expressindia.com/latest-news/india-tops-list-of-final-antidumping-measures-wto/234827/http://unctad.org/en/docs/edmmisc232add14_en.pdfhttp://useconomy.about.com/od/glossary/g/Dumping.html


48/50

48

PTO

See: http://www.nri.org/projects/fishtrade/issues-dumping.pdf

See: www.globalpolitician.com/23989-business

See: http://economictimes.indiatimes.com/news/economy/foreign-trade/us-imposes-anti-

dumping-duty-on-steel-pipe-imports-from-india/articleshow/13491165.cms

A. Smith, The Wealth of Nations, sourced online

http://www.memoware.com/?screen=doc_detail&doc_id=8811&p=category%5E!Philosophy

~!&sort_by=downloads&start=0 ,

Hindley, Brian, Edwin Vermulst, Zeroing in on Zeroing: Anti-dumping in WTO dispute

settlement.

Ikenson, Dan, Zeroing In: Antidumping's Flawed Methodology under Fire, sourced online

M. S. Knoll, Dump Our Anti-Dumping Laws sourced online from R.L. Varshney, Anti-

dumping duties and WTO, Chartered Secretary, 1, Vol. 32, 2002

S. Wittayarungruangsri, Antidumping: A Villain in International Trade sourced from

http://economics.about.com/cs/moffattentries/a/antidumping.html.

Zhu Xiaohua, Anti-dumping measures: time to roll them back, Economic and Political

Weekly, 18, Vol. 32, 1997

Anonymous, Dump Anti-dumping, sourced online
http://www.nri.org/projects/fishtrade/issues-dumping.pdfhttp://www.globalpolitician.com/23989-businesshttp://economictimes.indiatimes.com/news/economy/foreign-trade/us-imposes-anti-dumping-duty-on-steel-pipe-imports-from-india/articleshow/13491165.cmshttp://economictimes.indiatimes.com/news/economy/foreign-trade/us-imposes-anti-dumping-duty-on-steel-pipe-imports-from-india/articleshow/13491165.cmshttp://economictimes.indiatimes.com/news/economy/foreign-trade/us-imposes-anti-dumping-duty-on-steel-pipe-imports-from-india/articleshow/13491165.cmshttp://economictimes.indiatimes.com/news/economy/foreign-trade/us-imposes-anti-dumping-duty-on-steel-pipe-imports-from-india/articleshow/13491165.cmshttp://www.globalpolitician.com/23989-businesshttp://www.nri.org/projects/fishtrade/issues-dumping.pdf


49/50

49

PTO

http://www.ogilvyrenault.com/en/ResourceCenter/ResourceCenterDetails.aspx?id=1011&pId

=3

http://www.wto.org/english/tratop_e/adp_e/adp_info_e.htm#introduction

http://commerce.nic.in/Anti-Dum.PDF

See http://www.wto.org/english/tratop_e/adp_e/adp_info_e.htm#introduction,

General Agreement on Tariffs and Trade

Zhu Xiaohua, Anti-dumping measures: time to roll them back, Economic and Political

Weekly, 18, Vol. 32, 1997, at p 936

Goel, Ravinder, Reforming the WTO Anti-dumping Agreement in National Interest,

Chartered Secretary, 12, Vol. 32, 2002, at p 1685

S. Wittayarungruangsri, Antidumping: A Villain in International Trade sourced from

http://economics.about.com/cs/moffattentries/a/antidumping.html.

Anonymous, Dump Anti-dumping, sourced online

A. Smith, The Wealth of Nations sourced from

http://www.memoware.com/?screen=doc_detail&doc_id=8811&p=category%5E!Philosophy

~!&sort_by=downloads&start=0 ,


50/50

50

M. S. Knoll Dump Our Anti-Dumping Laws sourced from

http://www.cato.org/pubs/fpbriefs/fpb-011.html

See Rai, Sheela, Anti-dumping measures under GATT and WTO, Eastern Book Company:

Lucknow,2004

Dan Ikenson, Zeroing In: Antidumping Flawed Methodology under Fire sourced online

from, European Union

Anti-dumping agreement

Brian Hindley, Edwin Vermulst, Zeroing in on Zeroing: Anti-dumping in WTO dispute

settlement.

See:http://www.ogilvyrenault.com/en/ResourceCenter/ResourceCenterDetails.aspx?id=1011

&pId=3

Bhala, Prof Raj, Modern GATT law a treatise on the general agreement of Tariffs and Trade,

S. Wittayarungruangsri, Antidumping: A Villain in International Trade, sourced from

http://economics.about.com/cs/moffattentries/a/antidumping.htm ,

project on dumping[1]

Documents