Dumping

Dumping in international trade refers to the practice of exporting goods from one country to another at a price lower than their normal value, usually the domestic market price or cost of production. It is often considered an unfair trade practice because it can distort market competition, harm domestic industries in the importing country, and lead to trade disputes. Dumping is closely regulated under the World Trade Organization (WTO) framework through anti-dumping measures and investigations.

Meaning and Definition

Dumping occurs when a manufacturer or exporter sells a product in a foreign market at a price lower than the price charged in its own domestic market or below the cost of production. The difference between the export price and the normal value of the product represents the dumping margin.
According to the World Trade Organization (WTO) Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade (GATT) 1994, dumping is defined as “the introduction of a product into the commerce of another country at less than its normal value.”
In simple terms, dumping implies price discrimination between national markets, where goods are sold at artificially low prices abroad to capture market share or eliminate competition.

Types of Dumping

Dumping can take various forms, depending on the exporter’s motive and market conditions:

• Sporadic Dumping: Occurs occasionally when a manufacturer disposes of surplus goods in a foreign market at low prices to avoid price reduction in the domestic market.
• Predatory Dumping: A deliberate attempt by a firm to eliminate competition in the importing country by selling at very low prices temporarily, and then raising prices after local competitors are driven out of business.
• Persistent Dumping: Involves continuous sale of goods in foreign markets at lower prices over a long period, often to maintain market share.
• Reverse Dumping: Occurs when goods are sold at higher prices in the foreign market and at lower prices in the domestic market, usually due to greater demand abroad.
• Reciprocal Dumping: When two countries simultaneously dump similar products in each other’s markets, often seen in highly competitive sectors such as steel or chemicals.

Causes of Dumping

Several economic and strategic reasons motivate exporters to engage in dumping:

• Excess Production Capacity: To dispose of surplus inventory without affecting domestic prices.
• Market Penetration Strategy: To enter or expand in foreign markets by offering lower prices.
• Economies of Scale: Large-scale producers can afford to sell below cost temporarily due to lower average production costs.
• Government Subsidies: Export incentives or subsidies reduce the effective cost of production, enabling low export prices.
• Currency Devaluation: Favourable exchange rate movements can make exports cheaper abroad.
• Monopolistic Practices: Firms with domestic monopolies may use foreign markets to dump products without reducing home-market profitability.
• Strategic Intent: To weaken or eliminate foreign competitors and secure long-term dominance.

Effects of Dumping

Dumping can have both positive and negative effects, depending on the perspective of the exporting and importing countries.
On the Importing Country:

• Negative Effects:
  • Injury to domestic industries due to unfair competition.
  • Job losses and industrial decline in affected sectors.
  • Dependency on foreign suppliers after domestic firms exit the market.
  • Potential for monopolistic pricing once the foreign firm gains control.
• Positive Effects:
  • Consumers may benefit temporarily from lower prices.
  • Access to cheaper goods can reduce inflationary pressures.

On the Exporting Country:

• Positive Effects:
  • Enables producers to utilise excess capacity and maintain production levels.
  • Expands foreign market presence and increases exports.
• Negative Effects:
  • Sustained losses if dumping is below cost for long periods.
  • Risk of retaliation and trade disputes under international trade laws.

Measurement of Dumping

Dumping is determined by comparing the normal value of the product in the exporting country and the export price charged in the importing country.

• Normal Value: The domestic selling price of the product in the exporter’s home market.
• Export Price: The price at which the product is sold to the importing country.
• Dumping Margin:

  Dumping Margin=Normal Value−Export Price\text{Dumping Margin} = \text{Normal Value} – \text{Export Price}Dumping Margin=Normal Value−Export Price

If the dumping margin is positive and significant, and it causes injury to the domestic industry, it is treated as an instance of dumping under WTO rules.

Anti-Dumping Measures

To protect domestic industries from injury caused by dumped imports, countries can impose anti-dumping duties in accordance with WTO guidelines. These duties are additional tariffs designed to offset the dumping margin and restore fair competition.
Key features of anti-dumping action include:

• Investigation: Conducted by national authorities to determine the existence, extent, and impact of dumping.
• Provisional Measures: Temporary duties may be imposed during investigation if injury is evident.
• Definitive Duties: Long-term anti-dumping duties applied for up to five years, subject to review.
• Sunset Review: Conducted before the expiry of duties to assess whether dumping and injury are likely to continue.

In India, anti-dumping investigations and duties are governed by the Customs Tariff Act, 1975 (Section 9A) and the Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995. The Directorate General of Trade Remedies (DGTR) under the Ministry of Commerce and Industry handles such cases.

Examples of Dumping and Trade Disputes

Several global trade disputes have arisen due to allegations of dumping:

• Chinese Steel and Solar Panels: The European Union and the United States have repeatedly imposed anti-dumping duties on Chinese steel, solar panels, and aluminium products.
• Indian Chemicals and Textiles: India has both imposed and faced anti-dumping duties in sectors such as chemicals, synthetic fibres, and textiles.
• U.S.–EU Aircraft Dispute: Boeing and Airbus have faced mutual accusations of receiving subsidies leading to dumping-like effects in global markets.

These cases demonstrate how dumping can strain trade relations and trigger retaliatory measures between countries.

Advantages and Disadvantages of Dumping

Advantages:

• Helps exporters utilise idle capacity and maintain production.
• Provides temporary benefits to consumers through lower prices.
• Promotes international trade and market expansion.
• Enables countries to manage surplus output efficiently.

Disadvantages:

• Distorts free and fair competition.
• Harms domestic industries in the importing country.
• May lead to job losses and deindustrialisation.
• Causes trade disputes and retaliatory tariffs.
• Encourages dependence on foreign suppliers and market instability.

WTO and Anti-Dumping Agreement

The WTO Anti-Dumping Agreement provides the legal basis for member countries to take action against dumping. It ensures that anti-dumping measures are applied fairly and based on evidence, preventing their misuse as protectionist tools.
Key principles of the Agreement include:

• Fair Comparison: Between export and domestic prices.
• Evidence of Injury: Proof that domestic industry is materially injured by dumped imports.
• Causal Link: Demonstration that injury results directly from dumping, not from other factors.
• Transparency and Due Process: Ensuring that investigations are impartial and based on factual data.

This framework balances the need to prevent unfair trade while allowing competitive market behaviour.

Dumping in the Indian Context

India has been both a victim and a practitioner of dumping. Due to its open market and growing economy, it often faces dumping from countries such as China, South Korea, and Thailand, particularly in sectors like steel, chemicals, rubber, and electronics.
Conversely, Indian exporters have also faced anti-dumping actions from the United States and European Union in industries such as pharmaceuticals, textiles, and steel.
India’s proactive use of anti-dumping measures demonstrates its commitment to protecting domestic industries while adhering to WTO norms.