Dumping is a kind of predatory pricing in the context of international trade, whereby a country exports its goods/products at a price less than the price at which it is sold in the home market of the importing country. Dumping usually takes place in huge quantities to increase market share in a foreign market or to drive out the competition.
The World Trade Organization has condemned dumping but has not prohibited dumping as it tends to result in material injury to a domestic industry in the country of import.
Dumping Margin= Domestic Market Price-Export Sale Price
Advantages of Dumping
The only advantage of dumping is that it offers a lower price to the consumers when the prices of a certain product start becoming unfair. This leads to stabilisation of the prices of the products.
Dumping cripples the domestic industry. It acts as a means to the economic colonization of developing countries by powerful and industrial nations.
Over a period of time, when goods are exported at a lower price than the domestic market price then it tends to incur losses in the long run. When the government provides a subsidy to the producers in order to compensate the losses, this too, in the long run, will incur additional costs to the government.
Prevention of Dumping
For investigating dumping cases in India, an Anti-dumping Unit works under the Ministry of Commerce and Industry. Domestic producers have to provide evidence to prove that dumping of a certain commodity has taken place. Then the Anti –dumping cell will calculate the “normal” price of the product. The normal price of the product so arrived will reflect the price of the product had it been produced in the exporting country without these subsidies. If there is any evidence that the good is being dumped then the government will levy an anti-dumping duty on that particular good for a period of 5 years and will review the need for continuation if needed.
As per the Anti-Dumping Rule of 1995, if any case is proven then the central government can notify in the official Gazette and impose an anti-dumping duty. This anti-dumping duty should not exceed the margin of dumping. Till November 2016, nearly 353 anti-dumping cases were initiated by Directorate General of Anti-Dumping and Allied Duties (DGAD).