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What is anti-dumping duty in international trade?

Anti-dumping duty refers to the imposition of a tariff on imported goods that are sold in international markets at prices below their fair value. Learn more about it in this blog.

With the growing international trade, ensuring a level playing field becomes important across regions. Unethical trade practices, such as dumping, can impact the competitiveness of local businesses. Dumping occurs when goods are exported to a foreign market at prices significantly below their fair value, giving exporters an unfair advantage and distorting competition. To address this issue, governments and international organizations have implemented various mechanisms, including the imposition of anti-dumping duties.

What is anti-dumping duty?

Anti-dumping duty is the imposition of a tariff or additional duty by a country on imported goods that are sold in foreign markets at prices below their local fair value. This is done to rectify the advantage gained by exporters in such cases¹.

Importance of anti-dumping duty

Anti-dumping duty is important for some of the following reasons:

Safeguarding domestic industries:

It protects local industries, and ensures sustainability of critical sectors.

Restoring fair competition:

It creates a level playing field, promoting fair competition among domestic producers.

Preserving jobs and economic stability:

It mitigates the negative impact of dumping, safeguarding employment and contributing to economic stability.

Ensuring national security and self-sufficiency:

It protects strategically important industries, ensuring stability and self-sufficiency.

Promoting a balanced global trading system:

It contributes to a balanced and fair global trading system, fostering stability and growth in the global economy.

Encouraging innovation and investment:

It fosters innovation, attracts investment, and enhances the growth and competitiveness of local businesses.

Types of dumping

Different types of dumping can occur in international trade, and understanding these variations helps in identifying and addressing unfair trade practices. Here are some common types of dumping:

Persistent dumping

Persistent dumping is when a country consistently exports goods to another country at prices below their fair value over an extended period.

Predatory dumping

Predatory dumping occurs when a company intentionally sells its goods in a foreign market at prices below its production costs or even below prevailing market prices.

Sporadic dumping

Sporadic dumping involves the practice of regularly exporting goods to a foreign market at prices lower than their fair value to avoid a price war in the domestic market. This strategy is often employed by either destroying excess supplies or exporting them to a foreign market.

Reverse dumping

Reverse dumping occurs when a company charges high prices in an export market while offering low prices in its home or domestic market, and this price differential does not impact the demand.

How does anti-dumping duty work?

Here is a commonly followed process of how anti-dumping duty checks work:

Initiation of investigation:

A formal complaint or petition is submitted to relevant government authorities by a domestic industry or its representative.

Preliminary investigation:

The authority assesses the evidence of dumping and injury to decide whether further action is warranted.

Determination of dumping:

Export prices of dumped goods are compared to their normal value (domestic or comparable market price) to establish dumping.

Determination of injury:

The impact of dumped imports on the domestic industry is evaluated through factors like market share, sales volume, and financial performance.

Calculation of dumping margin:

The extent to which the export price is lower than the normal value is measured as dumping margin.

Lesser duty rule:

Anti-dumping duty is limited by the lesser duty rule, ensuring it does not exceed dumping margin or the amount necessary to address industry injury.

Public notice:

Preliminary findings and proposed duty are communicated to the public for comments and evidence submission.

Final determination and imposition of duty:

A final determination is issued, leading to the imposition of anti-dumping duty as additional tariffs on dumped imports.

Review:

Periodic reviews assess the duty’s impact.

Advantages and disadvantages of anti-dumping duty

Below are a few pros and cons of anti-dumping duty.

Advantages of anti-dumping duty

Protecting domestic industries:

Anti-dumping duty promotes growth and sustainability of domestic industries, preserving jobs and supporting economic development.

Restoring fair competition:

Anti-dumping duty helps restore fair competition by ensuring that prices in the market reflect actual production costs.

Correcting market distortions:

The imposition of an anti-dumping duty helps stabilize markets by addressing unfair trade practices. It prevents market manipulation and promotes a balanced trading system where all participants can compete fairly.

Preserving employment:

By protecting domestic industries from the harmful effects of dumped imports, it helps maintain a stable workforce and supports the livelihoods of workers.

Disadvantages of anti-dumping duty

High consumer prices:

Additional tariffs imposed on dumped imports are ultimately passed on to consumers, potentially increasing the cost of certain products.

Potential for protectionism:

In some cases, anti-dumping measures may be employed to shield domestic industries from competition, hindering market openness and impeding the potential benefits of free trade.

Trade disputes:

The imposition of anti-dumping duties can lead to trade disputes between countries.

Administrative burden:

The process of investigating, determining, and imposing anti-dumping duty can be complex and administratively burdensome for governments and businesses involved.

What products does anti-dumping duty cover?

Anti-dumping duty can be applied to a range of products across various industries³.

Some of the products subject to anti-dumping duties are:

Steel and metal products

Chemicals and petrochemicals

Textile and apparel

Electronic and electrical products

Agricultural and food products

Furniture, home appliances, and household goods

Role of WTO in anti-dumping

The World Trade Organization (WTO) plays a crucial role in governing and regulating international trade, including administration and oversight of anti-dumping measures. Here are key aspects of the WTO’s role in anti-dumping²:

Legal framework:

The WTO provides a legal framework for addressing anti-dumping issues through the Anti-Dumping Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-Dumping Agreement).

Dispute settlement:

The WTO’s Dispute Settlement Understanding (DSU) resolves disputes related to anti-dumping measures.

Surveillance and monitoring:

The WTO conducts surveillance and monitors member countries’ anti-dumping measures, analyzing their impact on international trade.

Review of measures:

The WTO periodically reviews national anti-dumping measures to assess compliance with WTO rules.

Promoting fair trade practices:

The WTO promotes open and fair-trade practices, ensuring anti-dumping measures are consistent with WTO rules and do not unjustifiably restrict trade.

Technical assistance and capacity building:

The WTO offers technical assistance and capacity-building programs to help members strengthen their anti-dumping regimes.

WTO Anti-dumping agreement

The WTO Anti-Dumping Agreement is a key international trade agreement that regulates the use of anti-dumping measures among WTO member countries. This agreement, formally referred to as the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, establishes a framework to address unfair trade practices resulting from dumping.

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Frequently Asked Questions

How to determine if your product is subject to anti-dumping duty?

To find out if your product is subject to anti-dumping duty, you can check the Antidumping and Countervailing Duties (AD/CVD) orders issued by the commerce department of the target market.

Who is responsible for paying anti-dumping duty?

Typically, the importer is responsible for paying the anti-dumping duty.

What is the distinction between dumping and anti-dumping duty?

Dumping refers to the practice of selling goods in a foreign market at prices below their normal value. Anti-dumping duty, on the other hand, is an additional tariff imposed by the importing country to counteract the negative effects of dumping.

Published on May 25, 2023.

Sources:
1. https://www.investopedia.com/terms/a/anti-dumping-duty.asp
2. https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm8_e.htm
3. https://www.dgtr.gov.in/faq
4. https://trade.ec.europa.eu/access-to-markets/en/glossary/anti-dumping-duty
5. https://www.dripcapital.com/en-us/resources/blog/anti-dumping-duty
6. https://www.wallstreetmojo.com/anti-dumping-duty/#h-anti-dumping-duties-and-countervailing-duties

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