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Dumping and Protectionism for a Fair Trade

Have you ever come across the news headlines which talk about anti-dumping measures taken by a country? For an instance, recently, India has initiated an Anti-dumping probe against two Chinese products, namely, hydrofluorocarbon blends and décor paper, following complaints by domestic companies in India. Similar highlights like “INDIA REVIEWS ANTIDUMPING DUTY EXTENSION ON STEEL IMPORTS FROM SEVEN COUNTRIES” or “COMMERCE MINISTRY RECOMMENDS CONTINUATION OF ANTIDUMPING DUTY ON CHINESE CHEMICALS” might have gained your attention.

Dumping

Such news items being aired, raise several questions regarding anti-dumping duties, its effects on an economy, the political and the economic consequences, and much more. This article is meant to resolve all these doubts and provide a better understanding of the concept.

To begin with, one should be familiar with an international trade practice called Dumping, under which a country exports its products at a price which is relatively less than the price prevailing in the domestic market of the exporting country or when the price charged is below the full cost of production. In other words, the products are sold at cheaper rates in foreign markets or lower than the normal value to take advantage of the price discrimination.

Dumping

ECONOMICS OF DUMPING


Lets look at the different side of the same coins to understand its impacts-

  • ADVANTAGES TO EXPORTING COUNTRY:

One of the biggest advantages that an exporting country enjoys is the market share in a foreign country. By selling its products at lower prices drives out the domestic competitors who find it unsustainable to compete in order to exist in their market.

The government of the exporting country may find it feasible enough to generate more employment in the market.

The exporting country may also see it as a source of earning foreign currency which improves foreign currency reserves and ultimately the Balance of Trade.

  • DISADVANTAGES TO EXPORTING COUNTRY:

The pecuniary benefits to the exporting nation may seem to be appealing to boost the revenues of an economy but there are some foreseeable problems which may arise while carrying out such activities that involve price discrimination. As it’s already known that this concept is used in the context of international trade which may affect the political-economic structure of both the countries. Consequently, the importing country may use anti-dumping duties against another country in order to minimize unfavourable impacts on its economy which may also lead to trade wars.

From the perspective of the exporting nation, it may not be viable to compensate the domestic producers for the losses they bear by selling their products at lower costs outside. However, the government may provide them with subsidies, but it will still be accountable for the expense that it has to bear in the long term.

  • DISADVANTAGE TO IMPORTING COUNTRY:

As a matter of economic logic, the country being dumped upon would face the huge ramifications. The domestic market would suffer the most due to foreign competition. A large consumer base might get shifted to products being offered at much lower prices, the country will see the huge unemployment figures. The local producers may even be forced to shut down the business if prices of imported goods fall heavily and the share of profits would change hands from the domestic suppliers to the suppliers of the foreign country.


ANTIDUMPING MEASURES:

To offset the negative repercussions of dumping, there are certain measures adopted by the World Trade Organization to ensure fair trade amongst its members.

Anti-dumping measures, in common parlance, are treated as a protectionist measure against the unfair trade, even though dumping is considered legal by WTO with some terms and conditions. Selling products at a value lower than its normal value may be considered as a practice of unfair trade by countries due to the economic loss a nation has to face. Therefore, under Article VI of GATT 1994, and the concerned anti-dumping agreement, WTO members can impose anti-dumping, if, after an investigation in accordance with the agreement, a determination is made-

(i) that dumping is occurring

(ii) that the domestic industry producing the like product in the importing country is suffering material injury, and

(iii) that there is a causal link between the two.

Tariffs

The main purpose of anti-dumping measures, according to the Ministry of Commerce and Industry, is to rectify the effect of dumping and re-establish fair trade. It provides relief to the domestic industry against the injury caused by dumping. In this sense, it can be considered as a protectionist measure.

It is constituted by the following measures:

Tariff duty is imposed to increase the price of dumped products. To counteract the effects of dumping and prevent effects on other imported goods, it should be considered that the rate of duty on imports should be equal to the difference between the normal value of the product and the price of the dumped item.

An import quota is also used in a similar way in which a specific volume of a commodity is imported by imposing a duty with a fixed quota.

Measures like import embargo in which imports from a particular country or imports of specific goods are restricted by government order and Voluntary Export Restraint(VER) which is the bilateral arrangement whereby an exporting country agrees to reduce or restrict exports without the importing country having to make use of quota, tariffs or any other measure, are also used as retaliatory measures by the importing country to protect its own domestic market.

Trade war

After getting a comprehensive understanding of the concept, we can easily analyze the decisions taken by Directorate General of Trade Remedies regarding the anti-dumping safeguards. Quite often, we learn about trade practices between China and India which are picking up steam in tandem but how do these anti-dumping policies taken by India against Chinese products affect the bilateral relations between the two large economies?

Till now, investigation for about 200 products from the People’s Republic of China has been concluded by DGTR. How does this affect the exports and imports and the Balance of trade of both countries? Ponder upon this for a while and leave your thoughts in comment section below.

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