Dumping means an exporter sells his product in overseas market at a very low price. It is an international trade practice where an exporter sells his product in the export market at a lower price compared to the price he is charging in the home country markets.
According to the WTO, dumping is “a situation where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country.”
But in international trade, dumping is considered as a negative trade policy instrument where the exporter tries to sell more in a particular market by practicing a price war. A regular low priced export is not often termed as hurting for the importing country’s domestic industry.
Beyond a limit (low price), dumping is considered injurious for the importing country. At the same time, there is controversy about this limit.
In the WTO administered trade regime, several countries are widely using antidumping measures like imposition of additional import tax by terming imports as instance of dumping.
India is one such WTO member who extensively used antidumping duties against cheap imports especially that from China.
Types of dumping
Though most dumping activities are normal competitive market-expanding behavior, economists divide dumping into different categories based on the adverse impact. There are two dumping cases which could harm competition: strategic and predatory dumping. Strategic dumping occurs in vary special circumstances, where the seller has protection in his home market, and he sells more to foreign markets.
Predatory dumping on the other hand, as a pricing strategy aims to wipe out competitions by charging exorbitantly low prices. It is an abuse of dominance conduct. The WTO prohibits predatory dumping.
WTO’s running so far show increasing number of antidumping measures by member countries. Dumping is legal under World Trade Organization rules unless it poses injury to domestic industries.
When a country can impose antidumping duty?
The Agreement provides that, in order to impose anti-dumping measures, the investigating authorities of the importing Member must make a determination of injury. The Agreement defines the term “injury” to mean either (i) material injury to a domestic industry, (ii) threat of material injury to a domestic industry, or (iii) material retardation of the establishment of a domestic industry, but is silent on the evaluation of material retardation of the establishment of a domestic industry.
Dumping and antidumping procedures under WTO
As mentioned, antidumping duty is one of the frequently used trade restriction measure in the history of WTO. The trade body allows members to impose antidumping duty when dumping causes injury to the domestic industry. Under Article VI of GATT 1994, members are explicitly authorized to impose specific anti-dumping duty on imports from a particular source, in excess of bound rates, when dumping causes or threatens injury to a domestic industry, or materially retards the establishment of a domestic industry.
The Anti-Dumping Agreement provides further elaboration on the basic principles to govern the investigation, determination, and application, of anti-dumping duties.