DUMPING

Guided By ~ Presented By ~ Prof. Raksha Thakur Isha Joshi (BFT – VI sem)

Meaning of Dumping

Dumping is a situation of price discrimination, where the price of a product when sold to the importing country is less than the price of the same product sold in the market of the exporting country.

Dumping is price discrimination between two markets in which the monopolist sells a portion of his produced product at a low price and the remaining part at a high price in the domestic market.

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Why does Dumping take place?Price discrimination: The first reason of dumping is price discrimination. If a firm has monopoly of a good in home market, but faces strong competition in foreign market, the firm will naturally charge a higher price in home market and lower competitive price in foreign market.

Predatory pricing: The second major reason is predatory pricing. It is the practice of cutting prices of goods in an attempt to drive rival firms out of business.            

Surplus stock: A firm may resort to dumping to dispose off surplus stock.

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Objectives of Dumping

1)To find a place in the foreign market2)To sell surplus commodity3)Expansion of industry4)New trade relations

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Types of Dumping

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•Sporadic Dumping

•Persistant Dumping

•Predatory Dumping

Effects of Dumping

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On Importing Country

On Exporting Country

Effects on Importing CountryIf a producer dumps his commodity abroad for a short period, then the industry of the importing country is affected for a short while. Due to the low price of the dumped commodity, the industry of that country has to incur a loss for some time because less quantity of its commodity is sold.

Dumping is harmful for the importing country if it continues for a long period. This is because it takes time for changing production in the importing country and its domestic industry is not able to bear competition. But when cheap imports stop or dumping does not exist, it becomes difficult to change the production again.

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If the dumped commodity is a consumer good, the demand of the people in the importing country will change for the cheap goods. When dumping stops, this demand will reverse, thereby changing the tastes of the people which will be harmful for the economy.

If the monopolist dumps the commodity for removing his competitors from the foreign market, the importing country gets the benefit of cheap commodity in the beginning. But after competition ends and he sells the same commodity at a high monopoly price, the importing country incurs a loss because now it has to pay a high price.

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Effects on Exporting CountryWhen domestic consumers have to buy the monopolistic commodity at a high price through dumping, there is loss in their consumers’ surplus. But if a monopolist produces more commodities in order to dump it in another country, consumers benefit. This is because with more production of the commodity, the marginal cost falls. As a result, the price of the commodity will be less than the monopoly price without dumping.

The exporting country also benefits from dumping when the monopolist produces more commodity. Consequently, the demand for the required inputs such as raw materials, etc. for the production of that commodity increases, thereby expanding the means of employment in the country.

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The exporting country earns foreign currency by selling its commodity in large quantity in the foreign market through dumping. As a result, its balance of trade improves.

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Management of Dumping

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Price Undertaking

Anti - Dumping

Price Undertaking

Undertaking by an exporter to raise the export price of the product to avoid the possibility of an anti-dumping duty.

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Anti - DumpingIt is a measure to rectify the situation arising out of the dumping of goods and its trade distortive effect.

Re-establish fair trade.

The use of anti dumping measure as an instrument of fair competition is permitted by the WTO.

It provides relief to the domestic industry against the injury caused by dumping.

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Imposition of Anti – Dumping DutyIf there is dumping but no injury then no duty can be imposed.

Duty remains in force for 5 years.

Re-determination at a “sunset review”.

Yearly administrative reviews if requested by domestic industry or exporter.

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Essentials for initiating Anti – Dumping InvestigationSufficient evidence to the effect that –there is dumpingthere is injury to the domestic industry; andthere is a causal link between the dumping and the injury, that is to say, that the dumped imports have caused the alleged injury.

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Period of Investigation

Should not be less than six months and not more than eighteen months.

The most desirable period of investigation is a financial year. (period should be as representative as possible)

For the purposes of injury analysis, the domestic industry has to furnish the relevant data for the past three years.

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Stages of the Investigation ProcessPreliminary ScreeningInitiationAccess to InformationPreliminary FindingsProvisional DutyDisclosure of InformationFinal Findings

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Preliminary Screening

The application is scrutinized to ensure that it is fully documented provides sufficient evidence for initiating an investigation. If evidence not adequate, then a deficiency letter is issued. Till then cannot be considered as application pending before authority.

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Initiation

Designated Authority determines that the application has been made by or on behalf of the Domestic Industry. It also examines the accuracy and adequacy of the evidence provided The Initiation notice will be issued normally within 5 days from the date of receipt of a properly documented application.

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Access to Information

The Authority provides access to the non-confidential evidence available for inspection to all interested parties on request after receipt of the responses.

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Preliminary FindingsThe Designated Authority will proceed expeditiously with the conduct of the investigation It makes a preliminary finding containing the detailed information on the main reasons behind the determination.

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Provisional DutyA provisional duty not exceeding the margin of dumping may be imposed by the Central Government on the basis of the preliminary findingCan be imposed only after the expiry of 60 days from the date of initiation of investigation. The provisional duty will remain in force only for a period not exceeding 6 months, extendable to 9 months under certain circumstances.

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Disclosure of InformationBased on these submissions and evidence gathered the Authority will determine the basis of its final findings. The Designated Authority will inform all interested parties of the essential facts, which form the basis for its decision before the final finding is made.

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Final FindingsThe interested parties submit their response to the disclosure and The Authority examines these final submissions of the parties and comes out with final findings.

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