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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.

International trade between countries permits access to resources, technology, and markets and supports competition. While international trade can stimulate economic growth and promote global collaboration, it also carries significant risks, including market distortions and unfair competitive practices.

A major risk in international trade is the practice of dumping, where foreign firms sell products at below-market prices to capture market share, thereby threatening domestic industries. This tactic can severely impact local businesses as they find it challenging to compete with these drastically lower-priced imports. In this blog post, we will explore anti-dumping duty, its meaning, benefits, example, and calculation.

What is anti-dumping duty?

Imports from overseas that have costs below fair market value, usually less than the exporter's domestic market price or manufacturing cost, are subject to anti-dumping duty. The practice of dumping leads to undercutting local companies that can cause economic damage and result in unfair competition. Anti-dumping duties are implemented to address this issue, raising the cost of imported goods to a more equitable level and allowing domestic businesses to compete on equal terms.

Importance of anti-dumping duty

Anti-dumping duties serve several important purposes:

Safeguarding domestic industries:

• Prevents domestic industry from collapsing by allowing local companies to compete fairly and avoid being undercut.
• Reduces foreign competition for domestic producers offering similar goods in the long-term.
• Encourages innovation and productivity by providing a level playing field.²

Restoring fair competition:

• Ensures fair competition by preventing inexpensive foreign goods from injuring domestic companies.

Preserving jobs and economic stability:

• Preserves jobs by protecting domestic businesses.
• Maintains market price stability which benefits consumers in the long term by promoting fair competition and preventing sudden price fluctuations.

Ensuring national security and self-sufficiency:

• Safeguards industries critical to national security by preventing imports from undercutting vital domestic industries. ³
• Supports economic self-sufficiency by reducing reliance on imports and strengthening local producers and manufacturers.⁴

Promoting a balanced global trading system:

• Prevents market distortions caused by underpriced dumped goods, ensuring fair competition and healthier global trade dynamics.⁵

Encouraging innovation and investment:

• Protects domestic industries from cheap imports, which makes them more likely to improve and advance their products.
• Ensures a stable market which creates a secure environment for investors and supports long-term economic development.⁶

Types of dumping

Each of the four primary categories of dumping—predatory, sporadic, persistent, and reverse dumping—has unique pricing tactics and influences on the market.

Persistent dumping

This occurs when a company continuously sells its products at a lower price in a foreign market than in the domestic market, often to maintain or increase its market share abroad over the long term.

Predatory dumping

A company sells its products at an extremely low price in the foreign market, even below the cost of production, with the intent to drive out competitors. Once competitors are eliminated, the company increases its prices to recoup losses.

Sporadic dumping

A company sells surplus or excess products in a foreign market at a lower price. This is done occasionally when domestic demand is insufficient, and the firm needs to offload extra inventory without lowering domestic prices.

Reverse dumping

This happens when a company charges a higher price in the foreign market and a lower price in its home market. This can occur when the demand for the product in the foreign market is less price-sensitive.⁷

How does anti-dumping duty work?

Anti-dumping duty is a protectionist measure imposed by a government on foreign imports that it believes are priced below fair market value. Here's how it works:

Filing complaint and initiating investigation:

If a domestic industry deems that it is being hurt by imported goods sold below fair value, it can file a formal complaint with the authorized government body.

Conducting the investigation:

If the government body (For example, the Directorate General of Trade Remedies in India) suspects that dumping is transpiring, it launches an investigation on its own discretion.

Determining the injury:

Indicators such as market share, quantities sold, and economic performance are used to assess the effect of dumping imports on the home industry.

Calculating the dumping margin:

The export price of the product is compared to its normal value (generally the price in the exporting country's market). If the export price is lower, a dumping margin is calculated.

Imposing the duty:

The government can levy anti-dumping duties if the investigation reveals dumping and damage to the domestic industry. The tariffs placed on imports to boost the rates up to fair market value are usually equivalent to the dumping margin.

Monitoring and reviewing:

Anti-dumping duty charges are regularly reviewed in order to ensure that they remain warranted. Duties can be amended or abandoned in response to new conditions and information.⁸

Investigation for imposing anti-dumping duty

In India, the investigation to impose anti-dumping duties is initiated by the Directorate General of Trade Remedies (DGTR), usually in response to applications from local industries claiming damage due to dumped imported goods. A valid application must be supported by domestic producers representing at least 25% of the total production of the like product in India, with more than 50% of those producers supporting the application. ⁹

The procedure involves assessing whether the price of the imported product is below its normal value in the exporting country and determining if this pricing is significantly harming the local industry. The investigation considers various factors, including the volume and price impact of the dumped goods on the domestic market. The authority may terminate the inquiry if insufficient evidence is found.

Advantages of anti-dumping duty

Anti-dumping duty is beneficial for domestic producers and sellers. It protects domestic businesses from unfairly priced imports and instead enables them to compete with international businesses. The anti-dumping duty is imposed after careful investigation, it does not impact every business importing into the country.

Disadvantages of anti-dumping duty

Anti-dumping duty is disadvantageous for foreign exporters. It can create high barriers to entering new markets. Since it drives the price of the exporter’s products higher, it can reduce the exporter’s share in the market. Anti-dumping duty is sometimes considered overprotectionist and an impediment to free trade.¹¹

What products does anti-dumping duty cover?

The Central Government (Department of Revenue, Ministry of Finance) in accordance with the recommendations of the Directorate General of Trade Remedies (DGTR), Department of Commerce, imposes anti-dumping duty on various products including:
• Ceramic tableware and kitchenware
• Aluminium foil (80 micron and below)
• Decor paper
• Melamine
• PU leather
• Colour coated / pre-painted flat products of alloy or non-alloy steel
• Polyester spun yarn
• Porcelain vitrified tiles
• Chemicals like Amoxycillin trihydrate, Ceftriaxone sodium sterile , etc.¹²

Calculation of anti-dumping duty

The lower of two margins, Margin of Dumping (MOD) and the Injury Margin (IM), is used to calculate the anti-dumping duty:
• Margin of Dumping (MOD) = Normal Price − Export Price
o Normal Price is the product’s domestic price in the exporting country, the price in another market, or the cost of production in addition to profit.
o Export Price, which is normally also the Free on Board (FOB) price is the price at which the product is exported, excluding freight and insurance expenses.
• Injury Margin (IM) = Fair Selling Price − Landed Cost
o Fair Selling Price is the amount the product would sell for in the local market under normal circumstances.
o Landed Cost includes all expenses incurred to bring the product to the importing country. It is also known as the cost of import.

Example of anti-dumping duty

Chinese Steel Dumping: Concerns regarding Chinese corporations selling steel in the United States at unreasonably cheap costs were raised by American steel producers in 2015. Following an inquiry, the International Trade Commission (ITC) validated these allegations and, in order to protect the

Anti-dumping Agreement (ADA) and the role of WTO in anti-dumping

The World Trade Organization (WTO) plays a vital role in overseeing the global use of anti-dumping duty tariffs through its Anti-Dumping Agreement (ADA). The WTO establishes the legal basis for determining when and how countries can impose anti-dumping duties to protect domestic businesses from unfair trade practices. It ensures that such duties are applied only in cases where dumping causes or threatens to cause serious harm to a domestic industry.

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Frequently Asked Questions

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

To determine if your product is subject to anti-dumping duty, you need to inspect the scope of anti-dumping and countervailing orders (AVD/CVD) orders released in the intended market.

2. Who is responsible for paying anti-dumping duty?

The importer of the goods is responsible for paying the anti-dumping duty.

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

Dumping takes place when a company exports a product to another country at a price lower than its normal value in the exporter's domestic market.

4. How long will anti-dumping apply?

Anti-dumping is provisionally applied for up to nine months and definitively up to 5 years.

Published on May 25, 2023.

Sources:
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2. https://www.investopedia.com/terms/a/anti-dumping-duty.asp
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11. https://www.oxyzo.in/blogs/anti-dumping-duties-how-they-impact-imports/121121
12. https://pib.gov.in/Pressreleaseshare.aspx?PRID=1809737
13. https://www.wintwealth.com/blog/anti-dumping-duty-working-calculations-and-examples/
14. https://www.credlix.com/blogs/understanding-anti-dumping-duties-us-laws-measures-and-real-life-examples
15. https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm8_e.htm
16. https://www.revenue.ie/en/customs/businesses/importing-exporting/anti-dumping-countervailing-duty/index.aspx#:~:text=How%20long%20will%20Anti%2DDumping,a%20period%20of%20five%20years

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