Dumping (pricing policy)
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In economics, "dumping" can refer to any kind of predatory pricing, and is by most definitions a form of price discrimination. 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 what some perceive as an unreasonably low price, usually meaning below the 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, such that the foreign market is "injured". This is often referred to as selling at less than "fair value." True dumping (by a technical definition) is actually very difficult under free trade, and is condemned (but not prohibited) [1] by the WTO.
In the 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." Like antidumping duties, countervailing duties attach to imported goods that are being sold at unreasonably low prices. The difference is that countervailing duties seek to "countervail" subsidies being granted in the exporting country rather than simply goods being sold by the foreign sellers at less than fair value.
Some commentators have noted that domestic protectionsim 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.
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.
In the context of GATT and later WTO (World trade Organization) dumping or anti-dumping refers to a trade agreement signed by the 149 (2006) members of the organization.
The Anti-dumping agreement has been signed alongside a Anti-subsidy agreement and a Safeguard agreement.
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[edit] The WTO agreements
Anti-dumping measures including subsidies, safeguards, contingencies, binding tariffs, etc. that are applied equally to all trading partners (most-favoured-nation treatment, or MFN) are keys to the smooth flow of trade in goods. The WTO agreements uphold the principles of anti-dumping, but they also allow exceptions—in some circumstances.
Three of these issues are:
- actions taken against dumping (selling at an unfairly low price)
- subsidies and special “countervailing” duties to offset the subsidies
- emergency measures to limit imports temporarily, designed to “safeguard” domestic industries.
[edit] Anti-dumping actions
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. Is this unfair competition? Opinions differ, but many governments take action against dumping in order to defend their domestic industries. The WTO agreement does not pass judgement. 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 focus 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.
GATT (Article 6) allows countries to take action against dumping. The Anti-Dumping Agreement clarifies and expands Article 6, 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.
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 an investigation 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.
[edit] See also
[edit] External links
- The Fallacies of Shrimp Protectionism by Don Mathew - says that arguments against "dumping" are flawed
- Protectionism and the Destruction of Prosperity By Murray N. Rothbard - "As far as consumers are concerned, the more "dumping" that takes place, the better."
- US International Trade Commission Official page concerning trade remedies in the United States.
- European Commission Anti-Dumping page Official page concerning the use of anti-dumping measures by the European Union.
- ^ Van den Bossche, Peter (2005). The Law and Policy of the World Trade Organization. Cambridge, UK: Cambridge University Press, 42. ISBN 0-511-12392-2. “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.”
