In economics, "dumping" can refer to any kind of predatory pricing. However,
the word is now generally used only in the context of international trade law, where
dumping is defined as the act of a manufacturer in one country exporting a product to another country at a price which is either
below the price it charges in its home market or is below its costs of production. The
term has a negative connotation, but advocates of free markets see "dumping" as beneficial
for consumers and believe that protectionism to prevent it would have net negative consequences. Advocates for workers and
laborers however, believe that safeguarding businesses against predatory practices, such as dumping, help alleviate some of the
harsher consequences of free trade between economies at different stages of development (see protectionism). 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.
A standard technical definition of dumping is the act of charging a lower price for a good in a foreign market than one
charges for the same good in a domestic market. This is often referred to as selling at less than "fair value." Under the 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. [1]
Remedies and penalties
In United States, domestic firms can file an antidumping petition under the regulations
determined by the Department of Commerce, which determines "less
than fair value" and the International Trade Commission,
which determined "injury". These proceedings operate on a timetable governed by U.S. law. The Department of Commerce has
regularly found that products have been sold at less than fair value in U.S. markets. If the domestic industry is able to
establish that it is being injured by the dumping, then antidumping duties are imposed on goods imported from the dumpers'
country at a percentage rate calculated to counteract the dumping margin.
Related to antidumping duties are "countervailing duties." The difference is
that countervailing duties seek to offset injurious subsidization while antidumping duties offset injurious dumping.
Some commentators have noted that domestic protectionism, and lack of knowledge regarding foreign cost of production, lead to
the unpredictable institutional process surrounding investigation. Members of the World Trade Organization can file complaints against anti-dumping measures.
Anti-dumping actions
Legal issues
If a company exports a product at a price lower than the price it normally charges on its own
home market, it is said to be “dumping” the product. Opinions differ as to whether or not this is unfair competition, but many governments take action against dumping in order to defend their
domestic industries. The WTO agreement does not pass judgment. Its focus is on
how governments can or cannot react to dumping—it disciplines anti-dumping actions, and it is often called the “Anti-Dumping
Agreement”. (This focuses only on the reaction to dumping contrasts with the approach of the Subsidies and Countervailing
Measures Agreement.)
The legal definitions are more precise, but broadly speaking the WTO agreement allows governments to act against dumping where
there is genuine (“material”) injury to the competing domestic industry. In order to do that the government has to be able to
show that dumping is taking place, calculate the extent of dumping (how much lower the export price is compared to the exporter’s
home market price), and show that the dumping is causing injury or threatening to do so.
Definitions and degrees of dumping
GATT (Article VI) allows countries to take 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 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 product’s “normal value”. The main
one is based on the price in the exporter’s 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 exporter’s production 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.
Calculating the extent of dumping on a product is not enough. Anti-dumping measures can only be applied if the dumping is
hurting the industry in the importing country. Therefore, a detailed investigation has to be conducted according to specified
rules first. The investigation must evaluate all relevant economic factors that have a bearing on the state of the industry in
question. If the investigation shows dumping is taking place and domestic industry is being hurt, the exporting company can
undertake to raise its price to an agreed level in order to avoid anti-dumping import duty.
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.
Anti-dumping investigations are to end immediately in cases where the authorities determine that the margin of dumping is
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 WTO’s dispute settlement procedure.
Actions in the European Union
European Union anti-dumping is a under the purview of the European Council. It is governed by European Council regulation 384/96. However, implementation of
anti-dumping actions (trade defence actions) is taken after voting by various committees with member state representation.
The bureaucratic entity responsible for advising member states on anti-dumping actions is the Directorate General Trade (DG Trade), based in Brussels. Community industry
can apply to have an anti-dumping investigation begin. DG Trade first investigates the standing of the complainants. If they are
found to represent at least 25% of community industry, the investigation will probably begin. The process is guided by quite
specific guidance in the regulations. The DG Trade will make a recommendation to a committee known as the Anti-Dumping Advisory
Committee, on which each member state has one vote. Member states abstaining will be treated as if they voted in favour of
industrial protection, a voting system which has come under considerable criticism. [2]
As is implied by the criterion for beginning an investigation, EU anti-dumping actions are primarily considered part of a
"trade defence" portfolio. Consumer interests and non-industry related interests ("community
interests") are not emphasized during an investigation. An investigation typically looks for damage caused by dumping to
community producers, and the level of tariff set is based on the damage done to community
producers by dumping.
If consensus is not found, the decision goes to the European Council.
If imposed, duties last for five years theoretically. In practice they last at least a year longer, because expiry reviews are
usually initiated at the end of the five years, and during the review process the status-quo is maintained.
Chinese economic situation
The dumping investigation essentially compares domestic prices of the accused dumping nation with prices of the imported
product on the European market. However, several rules are applied to the data before the dumping margin is calculated. Most
contentious is the concept of "analogue market". Some exporting nations are not granted "Market Economy Status" by the EU:
China is a prime example. In such cases, the DG Trade is prevented from using domestic prices as
the fair measure of the domestic price. A particular exporting industry may also lose market status if the DG Trade concludes
that this industry receives government assistance. Other tests applied include the application of international accounting
standards and bankruptcy laws.
The consequences of not being granted market economy status have a big impact on the investigation. For example, if China is
accused of dumping widgets, the basic approach is to consider the price of widgets in China against the price of Chinese widgets
in Europe. But China does not have market economy status, so Chinese domestic prices can not be used as the reference. Instead,
the DG Trade must decide upon an analogue market: a market which does have market economy status, and which is similar enough to
China. Brazil and Mexico have been used, but the USA is a popular analogue market. In this case, the price of widgets in the USA
is regarded as the substitute for the price of widgets in China. This process of choosing an analogue market is subject to the
influence of the complainant, which has led to some criticism that it is an inherent bias in the process.
Agricultural support and dumping
European Union and Common Agricultural Policy
The Common Agricultural Policy of the European Union has often been accused of dumping though significant reforms were made as part of the
Agreement on Agriculture at the Uruguay
round of GATT negotiations in 1992 and in subsequent incremental reforms, notably the Luxembourg Agreement in
2003. Initially the CAP sought to increase European agricultural production and provide support to
European farmers through a process of market intervention whereby a special fund - the European Agricultural Guidance and Guarantee Fund (EAGGF) - would buy
up surplus agricultural produce if the price fell below a certain centrally determined level (the intervention level). Through
this measure European farmers were given a 'guaranteed' price for their produce when sold in the European community. In addition
to this internal measure a system of export reimbursements ensured that European produce sold outside of the European community
would sell at or below world prices at no detriment to the European producer. This policy was heavily criticised as distorting
world trade and since 1992 the policy has moved away from market intervention and towards direct payments to farmers regardless
of production (a process of "decoupling"). Furthermore the payments are generally dependent on the farmer fulfilling certain
environmental or animal welfare requirements so as to encourage responsible, sustainable farming in what is termed
'multifunctional' agricultural subsidies - that is, the social, environmental and other benefits from subsidies that do not
include a simple increase in production.
See also
External links
References
- ^ Van den Bossche, Peter (2005). The Law and Policy of the World Trade Organization.
Cambridge, UK: Cambridge University Press, 42. ISBN 978-0-511-12392-4. “Dumping, i.e. bringing a product onto the market of
another country at a price less than the normal value of that product is condemned but not prohibited in WTO
law.”
- ^ Eggert, J. Observations of the EU Anti-Dumping
Regulation FTA Position for the Expert Meeting. Retrieved on 2007-07-23.
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