INTRODUCTION
What is Dumping?
Before venturing into the formal definition of ‘Dumping’ as enunciated in WTO and in the legislations of various countries, it’s useful to acquire a basic understanding of the concept of ‘Dumping’. Dumping of goods usually happens in a situation when products of a certain geographical market are sold in a foreign geographical market for extremely low prices when compared to the home market. This act of selling at low costs in different geographical markets prompt subject market experts to consider the act of Dumping as an act of ‘Transnational Price Discrimination’. For a technical understanding of the concept, Dumping can be regarded as a situation when the selling price of similar product in a foreign market is less than the ‘Normal Value’ of the product in the domestic market of the exporting country. Hence, Dumping = Normal value in foreign market > Price in the exporting market. It must be noted that there is a thin line of difference between the act of Dumping and the act of selling below the cost price. The former will apply to an act where the same product is sold at an extremely cheaper rate in one geographic market when compared with another whereas the latter relates to an act where the goods are informally sold at a price lower than the cost price. However, in recent years the word is used synonymously to describe various practices like ‘cutthroat competition’, ‘price sacrifice’, ‘slaughter sales’ etc. Most literature in this area considers the concept of ‘predatory pricing’ as an important component of dumping. Predatory pricing is a highly debilitating strategy which is used by business entities in order to affect the business of domestic industries. Though it can always be argued that as far as the consumers are concerned, they do stand to gain in the short term due to cheap prices being offered by the business entity indulging in dumping, it also affects the entire economy in the long run thereby resulting in damages to the individuals of the country by exposing them to the ills of monopoly and price rise.
At this juncture, one must analyse the definitions of Dumping which are followed in various jurisdictions. Firstly, the definition followed by WTO is the most pertinent as most countries have adopted this definition. Article 2.1 of the World Trade Organisation’s Antidumping agreement postulates that the act of dumping is the sale of a product in the market of a foreign market at a price which is lower than the normal value of the product (paraphrased). Normal value can be regarded as the price at which the product is sold in its domestic market
India defines it as the act in which products are sold in a foreign market at a price lower than its ‘Normal Value’. United States of America defines Dumping as an act wherein a business entity incorporated in a foreign country sells products in the American market at a price comparable products are sold for in America’s domestic markets. The European Union on the other hand defines Dumping as the act when a product is sold in the union by a foreign entity at a price which is lower than the price of a similar product in country of the exporting entity. In the case of Australia, Dumping is any situation which has been recognised by the official as having been dumped under Section 269TACB. South Africa defines dumping as the selling of goods in the domestic market at a price which is lower than the normal value.
Measuring Magnitude of Discrimination:
The previous section dealt with the concepts of ‘normal value’ and ‘export price’ etc. The magnitude of discrimination involved in the dumping process, also known as ‘dumping margin’ is ascertained by normal value (minus) export price. The World Trade Organisation provides that in situations where the concerned product does not have a normal value in the originating country, then the exported country can ascertain the normal value by ascertaining the total cost of production and then comparing this amount to the export price of the product. It is to be noted that the term ‘cost of production’ would include both fixed and variable costs of production.
While determining ‘cost of production’ also, various jurisdiction have different approaches to the same. India considers the ‘average variable cost’ of a product for the purposes of dumping when the product does not have normal value in its originating country. The European Union on the other hand takes into account the entire range of cost of production that can be incurred by a product and also includes cost of general expenses such as marketing expenses, administrative expenses etc. South Africa on the other hand prefers to refer ‘cost of production’ as ‘average variable cost’. It is interesting to note that United States of America also follows the same concept of ‘average variable cost’. Whereas, the concept of ‘relevant cost to corporation’ is followed in Australia.
What are the different forms of Dumping?
1. Persistent Dumping: This can also be considered as domestic dumping. It is an act wherein a business entity sells its product at a cheaper price in its own domestic market when distinguished with the price of the product in the international market.
2. Sporadic Dumping: It is a temporary drop in prices of a product only in the international markets in order to tide over a period of excessive production or other eventuality.
3. Predatory Dumping: This is the most debilitating form of dumping in which products are sold at a price which is below the average cost or even at an inordinately low cost in international markets with the intention of attacking the domestic sellers of the product and harming their business.
Injury:
Dumping is considered as negatived and penalised only when it results in injury to the domestic industry of a country. Furthermore, anti-dumping duties will be enforced by the aggrieved state when the act has cause a material injury to industries in the country. Business entities of the importing country can be considered as ‘injured’ if the economic parameters pertaining to these entities exhibit deterioration. Such injury can also include a threat of such economic deterioration in the future whereas threat by material retardation entails injury to those business entities which are in their infant stage of life cycle.
As per World Trade Organisation has formulated comprehensive parameters which will assist the state in assessing the extent of ‘injury’. This assessment entails 3 distinct concepts, which are:
1. Actual ascertainable material injury to the industry of the exporting country.
2. Actual ascertainable threat to the industry of the exporting country.
3. Material retardation to the industry of the exporting country.
Reasons of Dumping:
Some of the most common and universal reasons for indulging in Dumping are:
a. Business entities are trying to eliminate competition in another geographical market in order to acquire an inordinate advantage in the long run i.e by acquiring monopoly.
b. Intense competition between business entities dealing with similar products in different geographical markets.
c. Market diversification tactics of business entities or business entities trying to get rid of their excess supply of goods.
Economic aspects of Dumping:
Substantial literature has been published which deals with the economic aspects of Dumping. One of the prominent works in this field postulates that dumping is indeed a formidable way in which a business entity will be able to establish and acquire a market in a foreign country to the detriment of other producers who operate in that foreign market. The business entity is backed by either a higher cash supply or massive subsidies which allows him to sell the product at predatory prices in a foreign market resulting in injury to the domestic market. However, the various works are not united in their opinion of dumping. The popular opinion can be categorised into 3 different categories:
a. The first category recognises the act of Dumping as a severe problem which affects the economy of the importing country and accepts that antidumping action is an appropriate response to dumping.
b. There are certain sections of researchers who believe that dumping action is not very harmful or debilitating in the long run and that the act of antidumping does not have any justifiable reasons to back it up other than protectionism.
c. The third view does not give an opinion on dumping but states that antidumping as a measure to protect indigenous industry is very effective.
According to traditional and classical schools, dumping is indeed a serious problem however antidumping is a normal protectionism measure which can be imposed even without the presence or threat of dumping. However, some researchers in the traditional school also consider anti-dumping as an unnecessary measure which gives inordinate power to the governments to support their favoured business entities and erodes investor confidence.The researchers who belong to Chicago school of thought strongly believe that it is not possible for any foreign entity to acquire monopoly power status by dumping their goods at predatory prices as this will only result in new entrants entering the market and therefore what must be done is that consumers must be allowed to enjoy the benefit of low prices instead of imposition of antidumping measures. Anti-Dumping measures do play a major role on protection of those industries which are in a fledgling state and hence is very important in helping a country to setup a robust industrial base.
CHAPTER 2
History of Anti-Dumping laws:
Anti-dumping law is the primary weaponry sanctioned by the World Trade Organisation which countries can deploy to combat the effect of dumping activities. This measure has been allowed though it directly flies in the face of one of the cornerstone principles of World Trade Organisation which is ‘Most Favoured Nation’. Anti-dumping measure restricts business entities from exporting the product on a determine price which is less than an amount which can be considered as the ‘normal value’ and it also insulates domestic industry from debilitating competition from unscrupulous foreign entities.
Anti-dumping laws were for the very first time formulated in Canada in the year 1904 and later it was adopted by numerous countries. Only a few countries were actively using anti-dumping laws initially until World War 2. Post war, few more countries started adopting them which led to multilateral treaties taking a keen interest in anti-dumping laws. Though the League of Nations tried hard to formulate comprehensive laws to deal with anti-dumping, they were not successful in doing so. This led to the GATT formulating rules for anti-dumping under Article 6 though the rules were not comprehensive and remained in the background as a minor trade measure and these measures were enforced very sporadically until 1980s. GATT introduced the anti-dumping agreement after thorough deliberation in 1968.
After the Uruguay round deliberations, there was an explosive increase in the anti-dumping measures being adopted by various countries. The countries were competing to enforce stringent measures aimed at enabling protectionism and fostering domestic business entities and industries.
Importance of Anti-dumping law:
Anti-dumping laws are of prime importance in the current economic landscape marred with cutthroat global competition perpetuated by economic globalisation. In such an atmosphere, business entities often supported by unscrupulous foreign governments in the form of heavy subsidies, often indulge in dumping of goods in foreign markets for multiple reasons such as: market capture, destabilisation of economy, asymmetric economic warfare etc. The situation can become even more aggravated in situations where state trading corporations are involved in dumping as these organisations do not usually have a profit motive and are backed by the economy of the state and can hence indulge in extensive dumping activities. Anti-dumping laws are very important to counter such activities.
In the case of individual business entities acting in a highly protected domestic market, such protection can result in the entity being able to maximise its profit and inefficiently charging higher prices and also being able to utilise higher capacity and also have a low cost of production but contributing very little to research and development and increase in capital whereas a foreign firm acting under stiff competition can have high cost of production but highly developed products and robust research and development. Some researchers are of the opinion that the anti-dumping measures has lot of potential of being misused. In this regard, they have distinguished potential measures against dumping into 2 different categories:
a. Measures which are enforced after proper consultation with the country of origin of dumping.
b. Negative measures such as countervailing duties, anti-dumping measures and strict penalties which affect the entire globalised economic order.
However, a middle path can be adopted between both these school of thoughts. While it is true that anti-dumping laws fosters development of business and industries and ensures protection from unscrupulous foreign entities and governments, there also exists a good chance of such laws being grossly misused by governments. Hence, what is required is good anti-dumping laws coupled with serious measures to ensure that institutions are strengthened to ensure insulation from dumping. This approach accepts the fact that presence of subsidies and asymmetric cost of production can result in dumping against which countervailing duties and anti-dumping measures can be effectively employed.
WTO and Anti-dumping laws:
World Trade Organisation has deal comprehensively with anti-dumping measures and the procedures to be adopted in order to affect a comprehensive anti-dumping legal regime. A specific authority must be constituted in each state in order to deal with dumping and the anti-dumping measures to be adopted. It is this authority which looks into the entire gamut of the issue and decides whether dumping or a threat for the same is taking place and what measure is to be adopted to counter the same. The domestic entity which is aggrieved by dumping action must approach the designated authority and must adduce appropriate proof and evidence supporting the claim of presence of dumping action. The authority will then look into the matter and will give a chance to the foreign entity to adduce defence against the accusation. If found to be guilty of dumping, the authority will order appropriate anti-dumping measures in order to counter the effect. The authority must investigate the matter thoroughly and before enforcing anti-dumping measures must ensure that the dumping being undertaken is not:
a. Insignificant percentage (less than 2% of export price).
b. Imports from a specific country < 3% (total imports).
As per World Trade Organisation, the anti-dumping measures enforced on the basis of a specific investigation can only be enforced for a period of 5 years. After this period, the designated authority must initiate fresh investigation and must prove the existence of dumping or threat of dumping before new anti-dumping measures can be imposed. The entity against whom such measures are being imposed can approach WTO and can appeal against the measures being imposed.
Argument against anti-dumping laws:
At this juncture, one must analyse the the various arguments prevalent against anti-dumping laws as a weapon to counter dumping. Many of these arguments point towards the ambiguity in calculation of ‘normal value’, effect of countervailing duties etc. Many studies in this area suggests that anti-dumping measures have ended up being a mere tool to prop up domestic industries and insulate them from business risks at the detriment of the consumers. This is done by perverting the various anti-dumping procedures for example by misinterpreting the ‘normal value’, extent of injury etc. The problem is even more severe in the case of countries which cannot in the strict sense of the term be considered as market economies i.e economies where the price is decided on the basis of demand and supply measures. The situation in such economies can be further affected by factors like asymmetric information. Both these factors can affect the process in which the designated authority measures the extent of dumping as the available information can be outdated or can be distorted to fit the narrative of the domestic country thereby resulting in perversion of the entire process. One of the most common victim of this issue is China which has been exposed to multiple anti-dumping measures by various countries.
Few studies in this area postulate a bigger problem in enforcing anti-dumping measures. Some research has pointed out the fact that many anti-dumping measures does not consider the aspect of ‘depreciation of the value of currency’. Such instances have resulted in many business entities being exposed to anti-dumping measures simply for change in currency exchange rates which results in a shift in the ‘normal value’. This phenomenon was seen during the East Asian crisis when many countries despite facing historic currency depreciation had to face massive anti-dumping measures for no fault of their domestic business entities. The phenomenon is also prevalent in countries like Zimbabwe and Venezuela which are facing historic hyperinflation thereby pushing up the ‘normal value’ of the product in their countries and thereby attracting undue anti-dumping measures.
Economic perspectives of Anti-dumping laws:
Multiple researchers have worked on analysing the economic aspects of anti-dumping laws. The most prevalent justification for anti-dumping laws is that these laws preserve and protect domestic business entities from extraordinary power of foreign entities and protect the interest of consumers. If one looks from the viewpoint of absolute consumer satisfaction maximisation, it would not be possible to justify anti-dumping laws and it does not prioritise consumers in the short run. However, economists argue that there are two concepts under which anti-dumping laws can be justified:
a. Optimal tariff argument: This concept prioritises the monetary gains made from anti- dumping laws
b. Strategic trade policy: This concept emphasises the strategic gains made by anti-dumping laws.
However, there are few economists who use economic concept of political economy of protection to argue that antidumping measures should not be legalised. It is their argument that the domestic business entities who wield massive political clout will use this power to unfairly impose anti-dumping measures on foreign competition.
The economic justification of antidumping laws can be summarised in the following concepts:
1. Consumer welfare argument:
This theory postulates that antidumping is important though it affects consumer interest in the short run as in the long run, anti-dumping measures results in supporting the fledgling industry and in the strengthening of markets and economy resulting in job creation and in development of R&D. In this way, anti-dumping measures results in consumer welfare. Predatory prices though provide short term gains to consumers are extremely harmful in the long run and anti- dumping laws assists in preventing predation. Moreover, anti-dumping measures helps in prevention of build-up of monopoly power in an economy which further enhances consumer welfare.
2. Strategic Trade Policy Argument:
In this concept, economists argue that anti-dumping laws are very useful as an instrument of strategic trade policy i.e these measure can be used by governments to give impetus to domestic business entities in order to acquire the excess demand in the market to the exclusion of foreign companies. Such strategic policy can assist the companies in acquiring a strong domestic foothold in the face of stiff international competition. It is also seen that anti-dumping measures act as a good counter to the act of ‘strategic dumping’ i.e the act in which foreign business entities indulge in dumping at predatory prices.
3. Optimal Tariff Argument:
This concept postulates that imposing of anti-dumping measures and tariffs can control the perversion of prices by a foreign business entity by imposing costs on them for high prices.
4. Political Economy Argument:
The economists who support the political economy argument postulate that the domestic business entities and political economy are closely intertwined. The domestic entities will resort to their political clout in order to lobby with the government and enforce anti-dumping duties on foreign entities even if they are not indulging in dumping. Business entities enjoying monopoly power or even oligopolistic power can misuse their influence to impose prohibitory anti-dumping measures on foreign entities thereby barring their entry. This results in an inordinate advantage to such domestic entities to the detriment to consumer and market welfare.
Legal perspectives of Anti-dumping laws:
The legal perspectives of anti-dumping laws take into consideration various factors of laws and rules and concepts involved in the estimation of dumping and the measures available. The important concepts are:
1. Estimation of normal value:
As mentioned earlier in the paper, the process must begin with ascertaining of the normal value. The normal value is the usual price at which a business entity conducts business with a comparable product in the country from wherein the product is exported. Comparison of prices lies at the heart of ascertainment of normal value i.e price in the country where the product is being imported and the country exporting the product.
2. Ascertaining the export prices:
Though there is no specific method of ascertaining the export price as per the WTO anti- dumping agreement. Each country follows its own method of doing so.
3. The calculations required to be able to compare export prices and normal value:
The World Trade Organisation’s anti-dumping agreement stipulates that the distinguishing factor must be bonafide i.e fairly done when comparing the export prices of the product and the normal value of the product in order to arrive at a decision regarding presence of dumping.
4. Ascertaining the value of dumping margin:
World Trade Organisation’s anti-dumping agreement states that the dumping margin will be the normal value (minus) export price.
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CHAPTER 3
Anti-dumping laws and India:
In India, the Directorate General of Anti-Dumping is the appropriate institution tasked with the mandate of investigating dumping activities in India. There are few legislations in India which deal with anti-dumping measures which can be adopted by the country to deal with the issue of dumping. The most prominent of these legislations are Customs Tariff Act and the rules. The rules are comprehensive and provide the procedure to be adopted in order to deal with dumping and anti-dumping measures.
There are few procedures which must be followed before any claim of dumping can be investigated by the Directorate General of Anti-Dumping. Only the specific business entity or the industry which has been affected by the dumping activity can make an application to the authority to initiate an investigation into dumping. In order for an application to be made, the entities who are allowed make an application are:
a. An individual entity which has 25% of the total capacity to produce
b. Group of entities (holding 50% capacity)
In the investigation that follows, the following must be conclusively proved in order for anti dumping measures to be enforced:
a. There must be actual dumping of the product in Indian market
b. The said dumping must result in injury to Indian industry
c. There must be cogent relationship between the product being dumped and the injury caused
Implications of Anti Dumping in India:
It is clear from the discourse so far that the levying of anti dumping duties can have multiple effects on the economy and society. Some of the implications are:
1. Economic implications:
There are both positive and negative implications of imposition of anti dumping duties on products. The positive implication obviously is that the foreign entities cannot monopolise trade in that specific product by ruining the business of the domestic business entities. Whereas, the negative implications are that it does not take into consideration the consumer welfare perspective according to which consumers will not be getting the benefit of lower costs.
2. Political implications:
Political implications are multi faceted. Business entities in India which wield a wide clout can lobby the government to enforce anti dumping measures on genuine and bona fide global competition in order to maintain their oligopolistic control over the market for the product. The government can also unilaterally enforce anti dumping duties without fair investigations to achieve short term political goals.
3. Social implications:
There are several social implications on anti dumping. Non imposition of anti dumping measures can result in job loss in domestic companies which had to face the brunt of the stiff foreign competition whereas imposition of anti dumping measures can result in foreign companies not being able to expand much and setup subsidiaries in India.
Anti dumping measures against China: India has historically imposed anti dumping measures against China multiple times in the past.
CONCLUSION
This research paper examined in depth the concept of Dumping and traced the various facets and implications of the same. The paper studied the impact of dumping on the economy and the various reasons associated with it. The paper further delved into the concept of anti dumping and the implications of enforcing these measures on the economy and on dumping itself. The paper analysed the system of anti dumping measures in India and understood the multi-dimensional impact anti dumping measures can have on the market.
The analysis indicates that despite having some negative attributes associated with it, anti dumping measures are very vital for an economy as it ensures that foreign entities and governments do not indulge in predation of domestic business entities by indulging in dumping activities which is highly injurious to the economy.
BIBLIOGRAPHY
Acts
1. World Trade Organisation Anti Dumping Agreement
Articles
1. Dibyendu Maiti “Anti dumping, competitiveness and welfare: A study with special reference to India” Delhi School of Economics
2. Hylke, Viegelahn “Indian anti dumping measures against China”
3. Radhika Joshi “Anti dumping regulations A boon or bane” Centre for Civil Society
4. Aradhna Aggarwal “Anti Dumping Law and Practice:An Indian Perspective”
5. Vermulst, Driessen “New battle lines in the anti dumping war” Journal of World Trade
6. Hoekman, Mavroidis “Dumping, Antidumping and Antitrust” Journal of World Trade
7. Finger J.M, Francis, Sonam Wangchuk “Antidumping a safeguard policy” University of Michigan
8. Torrens “The Budget: On commercial and colonial policy”
9. Skyes “Antidumping and antitrust” Brookings trade forum.
10. Viner, Jacob “Dumping: A problem in International trade” Chicago university press.
11. K. Narayanan, Lalithambal Natarajan “India and Anti Dumping under the WTO”
12. Messerlin “Anti dumping laws and developing countries” World Bank
13. Bhagwati J “Protectionism” MIT press, London
AUTHOR
ADVOCATE VISHNU T MENON
