Dumping: What is it and how it affects countries?
When an exporter sells his/her products to a country at prices lower than domestic prices in his country it is called dumping. Per se there is nothing illegal about dumping. However when it affects the domestic industry, the government steps in through its designated authority.
Dumping occurs when the export price of goods imported into a country is less than the Normal Value of ‘like articles’ sold in the domestic market of the exporter.
The price at which like articles are sold in the domestic market of the exporter is referred to as the “Normal Value” of those articles. The normal value is the comparable price at which the goods under complaint are sold, in the domestic market of the exporting country or territory. If the normal value cannot be determined by means of domestic sales, it can be arrived at by providing for the following two alternative methods:
- Comparable representative export price to an appropriate third country
- Cost of production in the country of origin with reasonable addition for administrative, selling and general costs and for profits.
The export price of goods imported into India is the price paid or payable for the goods by the first independent buyer. If there is no export price or the export price is not reliable because of association or a compensatory arrangement between the exporter and the importer or a third party, the export price may be constructed on the basis of the price at which the imported articles are first resold to an independent buyer.
Margin of dumping refers to the difference between the Normal Value of the like article and the Export Price of the product under consideration. Margin of dumping is normally established on the basis of:-
- a comparison of weighted average Normal Value with a weighted average of prices of comparable export transactions; or
- comparison of normal values and export prices on a transaction to transaction basis.
A Normal Value established on a weighted average basis may be compared to prices of individual export transactions if the Designated Authority finds a pattern of export prices that differ significantly among different purchasers, regions, time period, etc. The margin of dumping is generally expressed as a percentage of the export price.
It is not sufficient that a country claims dumping. They need to prove it. Injury analysis can broadly be divided in two major areas:
The Volume Effect: Here the volume of the dumped imports, including the extent to which there has been or is likely to be a significant increase in the volume of dumped imports, either in absolute terms or in relation to production or consumption in India, and its effect on the domestic industry.
The Price Effect: Here the impact of dumping like the existence of price undercutting, or the extent to which the dumped imports are causing price depression or preventing price increases for the goods which otherwise would have occurred. The resultant economic and financial impact can be seen through:
- decline in output
- loss of sales
- loss of market share
- reduced profits
- decline in productivity
- decline in capacity utilization
- reduced return on investments
- price effects
- adverse effects on cash flow, inventories, employment, wages, growth, investments, ability to raise capital, etc.
Injury analysis is a detailed and intricate examination of all the relevant factors. To prove dumping many and not all relevant factors need to be shown. A ‘causal link’ must exist between the material injury being suffered by the local industry and the dumped imports. Relief can be provided to the domestic industry in the form of antidumping duties or price undertakings.
Anti -Dumping Duties
Duties are imposed on a source specific basis and can be expressed either on ad valorem or specific basis. Non-cooperative exporters are required to pay the residuary duty, which is generally the highest of the co-operative exporters.
Lesser Duty Rule: Under the GATT provisions, the national authorities cannot impose duties higher than the margin of dumping. Appropriate Government authorities impose a lesser duty which is adequate to remove the injury to the domestic industry.
Injury Margin: Besides the calculation of the margin of dumping, the Designated Authority also calculates the injury margin which is the difference between the fair selling price due to the domestic industry and the landed cost of the product under consideration.
In some countries the anti-dumping duty is not payable on products imported by units in EPZs and 100% EOUs, as well as imports on products imported by advance license holders. The final anti-dumping duty paid on imported goods used in the manufacture of export goods are liable to be refunded as duty drawback in accordance with the drawback rules.