The main reason for dumping is the desire of one country (or company) to increase its share in the foreign market through competition and thereby create a monopolistic situation where the exporter can unambiguously dictate the price and quality of the product. In modern trading, it is considered a kind of dirty trick.
Definition
In simple terms, what is dumping? The essence of this definition is very simple and unambiguous. Dumping is the act of charging a similar product in a foreign market for a lower price than its normal market value. In accordance with the anti-dumping agreement of the World Trade Organization (WTO), dumping is not prohibited if it does not threaten to cause material damage to the industry of the importing country. Dumping is prohibited when it causes a "material delay" in the creation of an industry in the domestic market.
Local dumping
Local dumping is an underestimation of the price of a product on the domestic market. The term has a negative connotation as it is perceived as a form of unscrupulouscompetition. In addition, workers' rights advocates believe that protecting businesses from practices such as dumping helps mitigate some of the more severe effects of dumping at different stages of an economy's development. For example, European right-wingers often refer to EU trade policies as "social dumping" because they promoted competition among workers, exemplified by the stereotype of "Polish plumbers" as a collective image of Eastern Europeans willing to work in we althier countries at lower prices, squeezing out from the local handymen's market. Of all the types of dumping, it is considered the safest.
Rockefeller Example
There are several examples of local dumping that created a monopoly in regional markets for certain industries. Ron Chernow cites regional oil monopolies as an example in The Titan. The Life of John D. Rockefeller Sr. he mentions a strategy whereby oil in one market, such as Cincinnati, will be sold at a price below the generally accepted price in order to reduce the profit of a competitor and take it off the market. In another area where other independent businesses have already been driven out, namely Chicago, prices will be increased by a quarter. Thus, an oil company that has resorted to such a policy of dumping will benefit and get rid of competitors. After that, it becomes clear why they are trying to fight such dirty tricks in all modern states.
Fightingdumping
If a company exports a product at a price that is lower than what it would normally charge in its own domestic market, or at a price that is below the full cost of production, it is said to be "dumping" the product, which is dumping. It is considered a form of third-degree price discrimination. Opinions vary as to whether such practices constitute unfair competition, but many governments take anti-dumping action to protect domestic industries. However, the WTO does not take an unequivocal decision on this issue. The focus of the WTO is on how governments may or may not respond to dumping - it can be said to "discipline" anti-dumping action. Since dumping is an artificial lowering of prices, the WTO allows importing countries to press exporters to raise prices to accepted standards.
The WTO agreement allows governments to act against dumping when there is a genuine ("material") injury to a competing domestic industry. To do this, the government must prove that dumping occurs, calculate its extent (how much lower the export price compares to the exporter's market price), and show that dumping harms or threatens economic stability.
Anti-dumping agreements
Although dumping is permitted by the WTO, the General Agreement on Tariffs and Trade (GATT) (Article VI) allows countries to take action against it. The anti-dumping agreement clarifies andexpands Article VI to allow countries to act together.
There are many different ways to calculate how much the price of a product drops. The agreement narrows the range of possible options. It provides three methods for calculating the "normal value" of a product. The main one is based on the price in the exporter's domestic market. When this cannot be determined, two alternatives are available: the price charged by the exporter in another country, or a calculation based on the combination of the exporter's production costs, other costs, and normal profit. The agreement also specifies how a fair comparison can be made between the export price and the regular price.
Five percent rule
According to footnote 2 of the Anti-Dumping Agreement, domestic sales of a similar product are sufficient to provide normal value if they account for 5 percent or more of sales of the product in question in the market of importing countries. This is often referred to as the five percent rule or the home market viability test. This test is applied worldwide by comparing the quantity of a similar product sold in the domestic market with the quantity sold in the foreign market.
Normal value cannot be based on the exporter's domestic price when there is no domestic sales. For example, if the products are only sold in the foreign market, the normal value must be determined on a different basis. In addition, some products may be sold on bothmarkets, but the quantity sold in the domestic market may be small compared to the quantity sold in the foreign market. This situation is common in countries with small domestic markets such as Hong Kong and Singapore, although similar situations can also occur in larger markets. This is due to differences in factors such as consumer taste and maintenance.
Economic damage
Calculating the degree of dumping is not enough. Anti-dumping measures can only be applied if the acts of dumping are detrimental to the industry in the importing country. Therefore, a detailed investigation must first be carried out in accordance with the said rules. The study should evaluate all relevant economic factors that affect the state of the industry in question. If it turns out that dumping is taking place and hurting the domestic industry, the exporting company can raise its price to an agreed level to avoid anti-dumping import duties.
Investigations
Detailed procedures are set out on how to initiate anti-dumping cases, how investigations should be conducted, and the conditions for enabling all interested parties to provide evidence. Anti-dumping measures must end five years after the date of adoption, unless analysis shows that their end would hurt the economy.
The essence of the procedure
An anti-dumping investigation usually develops as follows: a domestic manufacturer makes a request to the relevant authority to initiate an anti-dumping investigation. An investigation is then carried out for the foreign manufacturer to determine if the claim is true. It uses questionnaires completed by stakeholders to compare the export price of a foreign producer (or producers) with the normal value (the price in the exporter's home market, the price charged by the exporter in another country, or a calculation based on a combination of the exporter's production costs, other expenses, and normal profit). If the foreign manufacturer's export price is lower than the normal price, and the investigating authority proves a causal relationship between the alleged dumping and the damage done by the domestic industry, it concludes that the foreign manufacturer is dropping the price of its products. It is necessary that the actions of the exporter in each such case fit the concept of dumping.
According to Article VI of the GATT, dumping investigations, except in special circumstances, must be completed within one year.
Failed investigation
Anti-dumping investigations are immediately terminated in cases where the authorities determine that the margin of dumping is minimal or negligible (less than 2% of the export price of the product). Among other things, other rules are established. For example, the investigation should also end if the amount of imports being dumped is negligible.
The agreement states that member countries must inform the Committee on Antidumping Practices promptly and in detail about all preliminary and final antidumping actions. They must also report all investigations twice a year. When differences arise, members are encouraged to consult with each other. They can also use the WTO dispute settlement procedure.
Example of European agricultural policy
The Common Agricultural Policy of the European Union has often been accused of dumping, despite significant reforms, in the framework of the Agreement on Agriculture in the Uruguay Round of GATT negotiations in 1992 and subsequent agreements, in particular the Luxembourg Agreement in 2003. CAP sought to increase European agricultural production and support European farmers through a market intervention process whereby a special fund, the European Agricultural Guidance and Guarantee Fund, would buy up surplus agricultural produce if the price fell below that provided by central intervention.
European farmers were given a "guaranteed" price for their products when they were sold in the European Community, and an export refund system ensured that European exports were sold at below world prices, in no way inferior to the European producer. Such a policyfits the definition of dumping, and therefore has been seriously criticized as distorting the ideals of the free market. Since 1992, EU policy has moved somewhat away from market intervention and direct payments to farmers. In addition, payments are generally dependent on farmers meeting certain environmental or animal protection requirements to encourage responsible and sustainable agriculture through so-called multifunctional agricultural subsidies. The social, environmental and other benefits of subsidies will no longer include a simple increase in production. Dumping is not prohibited in Russia, unlike the EAEU, of which the Russian Federation is also a member.
