Anti-Dumping Duty - Explained
What is an Anti-Dumping Duty?
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Table of ContentsWhat is an Anti-Dumping Duty?How does an Anti-Dumping Duty Work?The World Trade OrganizationRealistic Example of Anti-Dumping MeasuresAcademic Research on Anti-Dumping Duty
What is an Anti-Dumping Duty?
Dumping in economics and commerce refers to the action of exporting market products to another country at a market price that is far below what is charged at the home country where such a product is manufactured. Such an action, while it seems irrational, has other motives. Generally, dumping such products in a nation can harm the GDP of the country.
An anti-dumping policy helps to prevent a potential dumping scheme. It generally entails a protectionist tariff that a government imposes on foreign imports which they deem to be far below market price in the country of production.
There is no special requirement for what a dumping scheme is, and thus, it is possible to see nations placing anti-dumping duties on any kind of product which they believe are being dumped into their economic market.
- An anti-dumping tariff is a protectionist tariff that is imposed on a foreign import by a domestic government that it believes are sold for a price far below what it is sold for in its home country.
- The appropriate body for carrying out trade issues is the World Trade Organization, and this body doesnt prevent dumping schemes, rather it focuses on the measures which domestic governments take to thwart dumping schemes.
How does an Anti-Dumping Duty Work?
The United States is one of the top nations that seem to battle dumping schemes head on. The International Trade Commission (ITC) is the assigned body that imposes anti-dumping duties based on examinations, analysis, and investigations carried out from the Department of Commerce.
Since the Department of Commerce is the go-to body for any matter concerning trades, imports and exports, and goods production in the nation, the International Trade Commission (ITC) can decide to impose anti-dumping duties on any product or nation based on their recommendations.
More often than not, the duty imposed on dumped products are more than 100% higher than their value, thus forcing the exporters to increase their market prices or stop exporting to such nation.
The ITC mainly impose such duties when the price at which a foreign source is selling a product in the U.S. is significantly lower than what the product was initially sold for both in the United States and the foreign sources home nation. Say for instance, the cost of a can of car lubricants was tagged at $50, and a foreign company decides to export to the national market at a price of $20 per can, whereas in the home country of production (i.e. in the foreign firms country), the product commands up to $35 per can.
Such a product or company runs the risk of imposition of anti-dumping duties, since the price of the product is way lesser than what it is sold for in the country where it is produced and also lesser than the initial price of similar products in the country where it is exported to. While anti-dumping duties can help protect the local jobs in a nation, they can also lead to a higher cost of consumption in the nation, as consumers will be subject to paying higher prices for the products they once paid a minuscule amount for.
Anti-dumping duties also reduce a nations competitive in the international market for local firms that are producing similar goods to the ones been believed to be dumped into the national market.
The World Trade Organization
The World Trade Organization (WTO) was set up to oversee and implement a number of international trade rules. This organization has been established a long time ago, and it is responsible for all matters pertaining to international trade. One of the major tasks and obligations of this organization is to regulate and supervise anti-dumping methods and measures. The previous sentence implies that the WTO is more focused on anti-dumping rather than dumping, and this helps to eliminate bias when dealing with international trades. The WTO doesnt tag any export as a dumping scheme, rather it focuses on how national governments react to supposed dumping schemes and use this to take action or mitigate what can be done and what must not be done. As a part of the World Trade Organization mandate, the organization backs governments in acting against dumping schemes by helping them regulate and implement anti-dumping measures where genuine investigations are carried out and the exporting company is found to be guilty of such act. In some cases, the WTO assists companies to thwart the effort of governments that plan to impose protectionist tariffs on products where enough materials or evidence cannot be found to back claims of dumping.
Since market prices are relative, it isnt possible to say what is a fair market price and what isnt in international trade. This is the error that some government bodies make in creating anti-dumping duties, as they usually make up a fair market price based on what the product is sold for in their own country rather than looking at the price of such an import from an international market point of view. Anti-dumping duties create shambles in the market, and the WTO intervention on such duties is a replica of their free-market principles which they very much uphold.
Realistic Example of Anti-Dumping Measures
A number of household steel companies and firms in the United States filed a complaint against China in 2017. The firms: United States Steel Corp., Nucor Corp., Steel Dynamics Inc., ArcelorMittal USA, AK Steel Corp., and California Steel Industries, all filed a complaint with the International Trade Commission (ITC) and the Department of Commerce, about the incessant dumping of steel into the market by China, and how much it affected the domestic prices of their products. They also named other countries that carried out the same act, but the emphasis was placed more on China, as they seemed to be the biggest exporters of the imports into the nation. After investigations were carried out a year later, the United States decided that itd impose a 500% tariff on designated steel imports coming into the nation from China. This decision was made following a number of debates and arguments by appropriate bodies. In 2018, China decided to file a complaint with the World Trade Organization (WTO) challenging the tariffs or duties that was imposed on it by President Donald Trump of the White House. However, the White House replied in 2019 that it would continue to challenge unfair trading practices by China and its other trading partners via the WTO.
Academic Research on Anti-Dumping Duty
- Anti-dumpingand countervailingdutiesunder oligopoly, Dixit, A. (1988). Anti-dumping and countervailing duties under oligopoly.European Economic Review,32(1), 55-68. This paper constructs a conjectural variations model of international oligopoly in which the home country's optimal policy responses to the foreign government's subsidies and foreign firms' dumping can be calculated. Some theoretical support is found for tariffs that countervail part of the foreign export subsidy; the optimal fraction depends on the size of own and cross effects in demand and on the extent of market competition. However, no normative case is found for anti- dumping duties.
- Testing the effect of ananti-dumping duty: The US salmon market, Asche, F. (2001). Testing the effect of an anti-dumping duty: The US salmon market.Empirical Economics,26(2), 343-355. Anti-dumping measures have been increasingly common. When imposed, the measures will always reduce trade with named countries. Depending on market structure, there can also be price effects and increased imports from non-named countries. In this paper we investigate relationships between prices to obtain information about the market structure. Using only prices will in many cases be an advantage because of the greater availability of price data. An empirical example is provided using the US case against Norwegian salmon.
- On the spread and impact ofantidumping, Prusa, T. J. (2001). On the spread and impact of antidumping.Canadian Journal of Economics/Revue canadienne d'conomique,34(3), 591-611. In this paper two key costs of AD protection are documented. First, once AD has been adopted, countries often have a difficult time restraining its use. In recent years \new' users have accounted for half of the overall world total. Many of the heaviest AD users are countries who did not even have an AD statute a decade ago. Second, I will show that that, on average, AD duties cause the value of imports to fall by 3050 per cent. I find that trade falls by almost as much for settled cases as for those that result in duties. I also find that, even for those cases that are rejected, imports fall. JEL Classification: F13
- Anti-dumpingpolicies in the EU and trade diversion, Brenton, P. (2001). Anti-dumping policies in the EU and trade diversion.European Journal of Political Economy,17(3), 593-607. Anti-dumping actions are by nature discriminatory. Imports from targeted countries are discriminated against relative to domestic producers but also relative to imports from non-named countries in the rest of the world. This paper analyses the impact of anti-dumping actions in the EU, distinguishing between the impact upon named countries, non-named countries in the rest of the world and non-named countries in the EU. The results suggest that anti-dumping policies cause trade diversion and that this diversion is primarily to non-EU suppliers.
- Creating barriers for foreign competitors: a study of the impact ofantidumpingactions on the performance of US firms, Marsh, S. J. (1998). Creating barriers for foreign competitors: a study of the impact of antidumping actions on the performance of US firms.Strategic Management Journal,19(1), 25-37. This study investigates whether antidumping statutes are effective at improving the performance of U.S. firms. As international trade grows and competitors increasingly cross national borders to enter new markets, U.S. trade law becomes a potentially important tool for managers as they consider how to create barriers for foreign competitors. The results of this study suggest that the antidumping laws significantly increase returns of U.S. firms that pursue antidumping protection. The average petitioner between 1980 and 1992 received a $46 million increase in market value as a result of filing an antidumping petition. However, no significant change in market value was associated with preliminary or final determinations of the International Trade Commission, except when petitions received a negative determination at the final stage of the process. A negative determination at the final stage of the process resulted in a loss of market value.