Home ›› 08 Oct 2021 ›› Editorial
The term unfair trade in common parlance is used to designate all lowest imports as dumped. However, under WTO the Anti-Dumping Practices lays down strict criteria for determining when an imported product is treated to be dumped. From Economics point of view, it states that “ a product is to be considered as being dumped”, if the export price is less than the price at which similar or a like product is sold for consumption in the exporting country. In other words, if on the basis of a comparison of the export price and home consumption price in the exporting country, the export price is less than home price, it is termed as dumped product. At times a product is said to be dumped if it is sold in a foreign market below its marginal cost of production.
When dumping takes place, there is a sudden and sharp increase in imports, causing serious injury to the domestic industry of the importing country. An investigation may be undertaken to determine the possibility of dumping. In such situation GATT Rules acknowledge that rise in imports may be due to the adoption of unfair trade practices by foreign country. The rules, therefore, lay down the basis on which government may levy compensatory duties on imports of the product benefiting from such unfair practices. Foreign firms may sell products “at a loss” or below the marginal cost of production for a variety of reasons. Reasons may be:-
The producers may have produced the goods and failed to find a market for them, so they are dumped on a country in a distress sale. Knickers from China and shoes from Brazil were two examples of this during the 1980s.
In the short run, a firm may have excess capacity. It will sell at a price below average cost. Steel and Chemical manufacturers tended to sell below total cost during the second half of 1970s, because so much excess capacity in those industries as a result of two Oil crises.
Low price could represent a more serious long term threat to domestic industry. A foreign producer may deliberately price at a loss to drive domestic producers out of business. Hardo Glass factory is a victim of such policy. The biggest producer of glass in Bangladesh was thrown out of business. Once the domestic industry is driven out of business, the foreign company may increase the price and enjoy monopoly profits. Japanese companies have been accused of doing this in the European Semi-conductor market or European Video Record market.
However, goals of long-term domination by a foreign producer might justify trade barriers, although it might become more efficient to subsidize domestic industries. In the short-term dumping leads to loss of profits for the industry, but consumers gain for lower prices.
GATT rules deal with two forms of Unfair Trade Practices which distorts conditions of competition. First, the competition may become unfair, if the exported goods benefit from specific subsidies. Second, the conditions of competition may be distorted if the producer dumps its goods in foreign market. However, it is very difficult to define ‘ unfair competition’. The whole basis for trade is that it is relatively cheaper to produce goods in some countries than others. It would be foolish to complain that products made by cheap labour in Bangladesh represent ‘unfair’. On the other hand, it can be true that countries or companies disrupt markets through dumping, which WTO defines as a sale of a product in an export market at a cheaper price than is charged n the domestic market.
The rules of the Agreement on Subsidies and Countervailing Measures (SCM) and Anti-Dumping Practices (ADP) do not per se condemn dumping or subsidization. They recognize that the lower prices of imported goods arising from dumping or subsidization could benefit industrial users and consumers in importing countries. The two Agreements therefore lay down an important principles e.g that compensatory duties in the form of countervailing duties or subsidized imports and anti-dumping duties on dumped imports cannot be levied solely on the ground that the product has benefited from subsidy or that it is being dumped. They can be levied only if it is established after an investigation, which must normally be initiated on the request of a domestic industry that the dumped or subsidized imports are causing ‘material injury’ to the industry. Similar principles apply when government takes Safeguard measures to restrict imports in order to assist a domestic industry, that is being injured by a sudden and sharp increase in imports. The standard of ‘injury’ to the industry that must be established to justify safeguard actions is much higher than that required for the levy of the countervailing or anti- dumping duties. In the case of safeguard actions, injury to the industry must be ‘serious’ while in case of countervailing or anti-dumping a lower standard of proof of material injury is adequate. The difference in standards is attributed to the fact that in the first case, the industry’s problem does not arise from unfair competition, while in the second case these are due to unfair trade practices of the foreign producers.
For business people, knowledge of the Complex Rules on the levy of anti-dumping and countervailing duties is essential in their capacities as exporters and producers whose interests may be adversely affected by unfair price practices of the producers in other countries. In recent times application for levying Countervailing and Anti-Dumping duties has increased manifold. In this circumstance, it I becoming essential for firms to be familiar with the Rules applicable in the area. Anti-dumping duties can be avoided if the exporter does not allow the difference between domestic price and export price to fall below a reasonable margin. If the margin is de minimis meaning less than 2 per cent of the export price or less than 3 per cent of all imports of like products investigating authorities may outright reject the application. The Agreements allow the exporting enterprises, trade bodies or associations to defend their interest. The ADP agreement provides the right to investigating authorities to ask for the cost of production sheet and other information via a questionnaire. The investigating authority shall notify the Government of the exporting country regarding investigation.
Complaints of dumping or subsidized imports are on the rise in most of the developing countries while implementing trade liberalization measures. While many of these complaints are due to inability of the domestic industry’s long accustomed to heavy levels of protection to adjust to the changed competitive situation resulting from removal of tariff or other barriers. However, some complaints about unfair trade practices of foreign suppliers are undoubtedly genuine.
A better understanding of the Agreements will help business people to take appropriate action as and when deemed necessary.
The writer is former DG of EPB
