What is dumping?
- Dumping is the practice of selling a product in a foreign market at an unfairly low price (a price that is lower than the cost in the home market, or which is lower than the cost of production) in order to gain a competitive advantage over other suppliers.
- Dumping is done to gain access to the foreign market and eliminate competition. It creates a monopoly in the market.
- Dumping enables consumers in the importing country to obtain access to goods at an affordable price. However, it can also destroy the local market of the importing country, which can result in layoffs and the closure of businesses.
- An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports when it believes that the goods are being “dumped” – through the low pricing – in the domestic market.
- Anti-dumping duty is imposed to protect local businesses and markets from unfair competition by foreign imports.
Ill effects of such duties
- While the intention of anti-dumping duties is to save domestic jobs, these tariffs can also lead to higher prices for domestic consumers.
- In the long-term, anti-dumping duties can reduce the international competition of domestic companies producing similar goods.
Dumping and WTO
- The World Trade Organization (WTO) plays a critical role in the regulation of anti-dumping measures.
- The WTO Anti-Dumping Agreement allows the government of the affected country to take legal action against the dumping country as long as there is evidence of genuine material injury to industries in the domestic market.
- The government must show that dumping took place, the extent of the dumping in terms of costs, and the injury or threat to cause injury to the domestic market.
- In other cases, the WTO intervenes to prevent anti-dumping measures.
Why in News?
- India has initiated an anti-dumping probe against imports of a certain type of tiles, used for covering the floors in residential and commercial buildings, from China, Taiwan and Vietnam following a complaint by domestic players.
- If it is established that the dumping has caused material injury to the domestic players, commerce ministry’s investigation arm Directorate General of Trade Remedies (DGTR) would recommend the imposition of anti-dumping duty on these imports. The finance ministry takes the final decision to impose the duties.
- Countries start anti-dumping probes to determine whether their domestic industries have been hurt because of a surge in cheap imports.
- As a countermeasure, they impose these duties under the multilateral regime of the Geneva-based World Trade Organisation (WTO). The duty is aimed at ensuring fair trading practices and creating a level-playing field for domestic producers vis-a-vis foreign producers and exporters.
- India has already imposed anti-dumping duty on several products to tackle cheap imports from various countries, including China.