What is dumping?
Dumping is a term used in the context of international trade. It is when a country or a company exports a product at a lower price on the foreign importing market than the price on the exporter’s domestic market. Since dumping generally involves substantial export volumes of a product, it often jeopardizes the financial viability of the manufacturers or producers of the product in the importing country.
Key points to remember
- Dumping occurs when a country or an enterprise exports a product at a price lower in the foreign importing market than the price in the exporter’s home market.
- The greatest advantage of dumping is the ability to flood a market with prices of products that are often considered unfair.
- Dumping is legal under WTO rules, unless the foreign country can reliably demonstrate the negative effects that the exporting company has caused to its domestic producers.
Dumping is considered to be a form of price discrimination. This occurs when a manufacturer lowers the price of an item entering a foreign market to a level lower than the price paid by domestic customers in the country of origin. This practice is considered intentional in order to gain a competitive advantage in the importing market.
The pros and cons of commercial dumping
The main advantage of trade dumping is the ability to enter a market with product prices which are often considered unfair. The exporting country may offer the producer a subsidy to offset losses incurred when the products are sold below their manufacturing cost. One of the main disadvantages of trade dumping is that subsidies can become too expensive over time to be sustainable. In addition, trading partners who wish to restrict this form of trading activity may increase restrictions on the product, which could result in increased costs of exporting to the affected country or limits on the amount a country will import.
International attitude towards dumping
Although the World Trade Organization reserves judgment on whether dumping is an unfair competitive practice, most countries are not in favor of dumping. Dumping is legal under WTO rules, unless the foreign country can reliably demonstrate the negative effects that the exporting company has caused to its domestic producers. To fight dumping and protect their domestic industries from predatory pricing, most countries use tariffs and quotas. Dumping is also prohibited when it results in a “significant delay” in the establishment of an industry on the domestic market.
The majority of trade agreements contain restrictions on commercial dumping. Violations of these agreements can be difficult to prove and their cost can be prohibitive to fully enforce. If two countries have not concluded a trade agreement, there is no specific prohibition of commercial dumping between them.
Real example of dumping duties in international trade
In January 2020, the International Trade Association (ITA) decided that the anti-dumping duty imposed on silica cloth products from the People’s Republic of China the previous year would remain in effect based on the investigation by the Department of Commerce and the International Trade Commission. The ATI’s decision was based on the fact that there was a high probability that dumping would repeat itself if the tariff were removed.