Imposition of Anti-dumping Duty-A Trade Protection Measure
Anti-dumping investigations are no longer a strange phenomena for most of the importers, exporters or producers. They are being increasingly subjected to such investigations by the authorities’ concerned. The history of anti-dumping duties dates back to many decades ago, even prior to the General Agreement on Tariffs and Trade (GATT), Canada for the first time applied anti-dumping duties early in the last century. In due course, other countries adopted this measure against price discrimination. A provision for imposition of company and product specific duties was thereafter incorporated in the year 1947 when the GATT was drafted. Today, anti-dumping measures have become one of the most favored non-tariff measures to protect the interest of domestic industry in certain specified circumstances for most of the WTO Members.
Dumping is said to occur when the export price of any product is less than the comparable price of a like product in the domestic market of the exporting Member. For a fair comparison of export price with normal value, the sale in the home market needs to be in the ordinary course of trade and should at least be five percent of the quantity sold to the importing Member.
Imposition of anti-dumping duties has an important bearing on the trading decisions. While anti-dumping duties, levied provisionally or finally, definitely make the imports costlier from such sources, even a mere initiation of investigation against certain exporters scares the importers away from those exporters to other sources. It may be argued that exporters resorting to dumping practices and causing injury to domestic producers in the importing country need to be disapproved. It may, however, also be argued equally well that the domestic producers need not be given undue protection. The investigating authorities, therefore, have a delicate job to perform by balancing the interests of exporters, domestic producers and the consumers.
One of the basic questions that need to be answered in this context is why at all exporters resort to dumping. Dumping obviously means sending goods at cheaper prices, which is against the general business principle of maximizing the profits. Exporters may be compelled to change different prices in different markets for various reasons. When they charge lower prices in foreign markets as compared to prices in the domestic market it is considered to be dumping in the context of the Agreement on Anti-dumping. Since no one in the business may be expected to sell at a loss over a substantial period of time, one may sell at lower prices in the foreign market only at the cost of higher prices in the domestic market i.e. by cross subsidising the foreign market sales or one may resort to such practices for capturing the foreign markets with the ultimate intention of monopolizing the same. It may also be a result of a desire to maximize sales by pushing goods even at prices which provide only for a marginal profit over the variable costs but do not provide adequately for the recovery of all costs, particularly the fixed costs. There may be other external reasons too for dumping, for example, compulsion to bring prices in line with the prices prevailing in the importing country.
Generally speaking countries having advantage of geographical nearness or having the advantage of their goods being treated with preferential tariffs or exchange rate advantages may be able to supply goods at prices cheaper than other exporters. Importers would, however, expect all supplies to be made at the cheapest of such prices which may also be the trendsetter and this may compel the other exporters would need to compress its prices would depend upon the extent of disadvantage it suffers.
Neither Article VI of GATT 1994 nor the Agreement in Anti-dumping, however, disapproves of dumping per se. Dumping is to be condemned only if it causes or threatens to cause material injury to a domestic industry in the importing country or materially retards the establishment of a domestic industry. The fundamental objective of anti-dumping measures, therefore, is to remove the injurious effects of dumping. It is in this view of the matter that while the Agreement on Anti-dumping permits levy of full dumping margin as anti-dumping duty, it recommends imposition of a lesser amount as duty, if that lesser amount will be adequate to remove injury to the domestic industry. While some Members follow the lesser duty rule, notably the European Communities, Australia, New Zealand and India, some others like the US and Canada impose the full dumping margin as anti-dumping duty. It can reasonably be argued that those imposing duty in excess of that which is adequate to remove injury to a domestic industry provide an undue protection to their domestic industry.
Source- Safeguards, countervailing & Anti-dumping measures against imports & exports -2nd Edition Sept 2003.