Dumping and Anti-Dumping

Dumping and Anti-Dumping 

The anti-dumping rules and provisions on subsidies have enabled contracting countries trade effectively especially with regards to exports and imports of sub-standard market products/goods while on the other hand ensuring that high utility goods are availed at a considerable price. This blog gives a basis for the rules in GATT and its effect on key areas of production among the contracting member states.

Reasons for Dumping

• One of them is in a bid to find a market for the products; this especially happens when the monopolist industry is trying to establish itself in the foreign market. Due to competition, it opts to sell its products at a lower price, so that the demand of its products may increase.

• The second reason is the expansion of the industry. This is especially aimed at the sale of surplus products at the foreign market. By selling the products at a low price in the foreign market, the monopolist earns profits

• The third reason is to find new trade relations. This is by virtue of its products being bought at the foreign market. Thus, it cannot export its products and then sell them at a high price, because that would only result to it incurring loss as a result of its products not being bought.

Before we get into the details regarding the various anti-dumping rules and provisions, envisaged by Article VI of the General Agreement on Trade and Tariffs, (hereinafter referred to as GATT), we shall define the various terms used in our question for a better understanding.

• Dumping as described by Article 2(1) of the Anti-dumping agreement refers to a situation whereby, a product is charged less when exported to another country, as compared to its price in the market of the exporting country.
• Anti-dumping on the other hand, refers to the various measures imposed by a government, with the aim of removing the injury caused to the domestic injury.
• A subsidy is defined by Article 1 of the Agreement on Subsidies and Countervailing Measures as to exist when there is: a financial contribution by the government or public body within the territory of a member; this can be through non-collection or foregoing of the taxes due, any form of income or price support and a benefit is conferred by that financial contribution.

Essentially, there are three types of dumping;

1. Sporadic,
2. Persistent and
3. Predatory.

• Sporadic dumping is that which is unseen in that, it occurs as result of excess production of goods or unsold stock, even after there has been a sale. This happens especially when the producer is a monopoly at the domestic market of the exporting country. It is meant either to identify the product in a new market or to drive out a competitor in a foreign market.
• Persistent dumping, occurs when the monopolist industry continuously sells its product at a higher price in the domestic market of its country and at a lower price in the market of the importing country. This is usually motivated by the fact that this particular product has a higher demand in the importing country’s market, when compared to the exporting country’s market.
• Predatory dumping on the other hand occurs when the monopolist industry sells its commodity at an extremely low price in the importing country’s market, with the aim of driving out a competitor.

Determination for dumping 

There are various reasons why dumping occurs a vital question that arises with regards to this area is: how can one tell when there is dumping? Well, the Anti-dumping agreement provides for certain methods.

• Price of the product at the market of the exporter (normal value). When this price cannot be ascertained, then one can either use the price charged by the exporter in another country, or calculate the price based on the production cost, the expenses incurred and the normal profit margins of the product.
• The second method is based on the export price; the price charged on the product in the importing country. Similarly, when this price cannot be clearly ascertained, then one can use the constructed export price, which is basically determined from the price at which the imported products are resold to an independent buyer at first.

Before a state can impose anti-dumping measures on her imports, she has to satisfy the following criterion:

• A state has to show that indeed dumping is taking place, she has to calculate the level of dumping (this is usually done by determining how much lower the export price is, as compared to the exporter’s market price) and lastly, she has to show that the dumping is causing material injury or threatening to do so.
• However, the anti-dumping agreement requires that determination of material injury must be based on positive evidence and objective examination of both: the effect of the dumped products on the prices in the domestic market, as well as the impact of those products on the domestic producers of the like products. The word positive evidence means that the information used to determine material injury must be affirmative, credible and verifiable in nature.
• Material injury is inferred if there is price suppression in the domestic market of the importing country, or if there has been a change in the performance of the domestic industries; this could be from the reduction in the sales volume. This was affirmed by the Board on Tariffs and Trade in the case of Rhône Poulenc v Chairman of the Board, where they posited that price undercutting, price depression and decline in profits were the major determinants of injury in an anti-dumping investigation. Price undercutting in this context, refers to the fact of whether the dumped imports have caused the prices of products in the domestic market to decrease to a significant degree or they have prevented prices to increase, which would have occurred, to a significant degree.
• Additionally, injury can be construed from the increase in the dumped imports. This is done by considering if there has been a significant increase in these products, either in terms of their production or consumption in the domestic injury. Though the Anti-dumping Agreement does not specify how the investigating authorities are to evaluate the volume and prices of dumped products, 

Factors have to be developed to ascertain these factors, which should be in accordance with the circumstances of each given case.

• The investigating authorities must thus determine the impact of the dumping on the domestic industries. This was affirmed by the panel in the WTO Egypt-Steel Rebar Report where the panel stated that an investigating authority must not only gather data, but must also analyse and interpret it in a way that deals with determination of the impact of dumped products on the domestic industries.

In determination of this impact, several factors must be put into consideration. They include:

• the magnitude in the margin of dumping;
• actual and negative effects on employment,
• wages and ability to raise capital;
• actual and potential declines in sales, profits and productivity and other factors which are likely to affect domestic prices.

However, not all of the aforementioned factors are important in a given case. Thus, the investigating authorities must evaluate which factors are relevant in a particular set of circumstances.

• It is important to note that, it is not only enough to establish that there is material injury, but also link the injury to the dumped imports. The reason why this is vital is other factors may be causing material injury, for example a decrease in the demand of the domestic products and developments in technology. As was held in US-Hot Rolled Steel, the investigating authorities must separate the injurious effects from the non-injurious effects, while ascertaining the causation element of dumped imports.
• This procedure is provided for by Article 5 of the Anti-Dumping Agreement. The first step is to submit a written application to the investigating authorities. The application is for requesting the investigating authorities to initiate an investigation regarding a claim of dumping. For this application to be said that it is written by on behalf of the domestic industry, it must be supported by domestic producers, whose output constitutes of more than fifty per cent of the total production of the like product in the domestic industry.
• Caution must be taken regarding this because, no investigation can be initiated, if the application is supported by domestic producers whose output constitutes of less than twenty-five per cent of total production. Still on the first step, the application must contain necessary information revealing the presence of dumping, injury and causation, for the initiation of the investigation to be justified.
• The next step is for the investigating authority to inform the exporting country about the initiation of investigations.The authority must also issue a public notice regarding this, for the process to be deemed transparent.
• After the investigation is conducted and a conclusion made that indeed there is dumping which causes or threatens to cause material injury, the importing country can proceed to impose the anti-dumping duties. 
• There is a general rule which states that, after the investigations have been initiated, they should be completed within one year and not more that eighteen months after initiation. 
• Before the anti-dumping duty is imposed, a price undertaking can be given to the exporters. This is usually on a voluntary basis and is meant for requesting them to either revise their prices or stop selling their products at dumped prices. It is entered into between the exporter and importer, after a preliminary and affirmative determination of dumping, injury and causation has been made. An exporter can also request for the investigation to be continued even after acceptance. However, the undertaking lapses after the conclusion of investigations and a final determination made that there is neither dumping nor injury nor causation found. Though it still exists if the determination was triggered by its existence in the first place.
• These are explicitly provided for under Article VI of the GATT. They are used by countries to protect their domestic industries from competitive imported goods. 

Before we discuss the various anti-dumping dumping rules, it is important to understand the difference between an anti-dumping duty and a countervailing duty.

An anti-dumping duty is a kind of tax that is imposed by the government upon the dumped imported goods. It is meant to cure the injury caused by the dumped goods if any.  Additionally, it takes the form of a customs duty. 

A countervailing duty on the other hand, is imposed upon subsidized imported goods and is meant to cure the negative impact caused by those goods.

• Moving on to the rules, one of them is that, a contracting party may levy an anti-dumping duty on any dumped product, which should not be more than the margin of dumping. The margin of dumping is calculated as the difference between the price of the product at the domestic market of the exporter and its price at the market of the importer. For example, if country A is exporting bananas to country B and A is selling its bananas at sh. 100 in its domestic market and sh.50 at B’s market, the margin of dumping will be sh. 50. This means that if B decides to impose an anti-dumping duty upon the bananas of A, it should not be more than sh. 50.
• The second rule is that no countervailing duty shall be levied by an importing contracting party, on any product of an exporting contracting party, which is more than the amount of subsidy provided by the exporting country, either directly or indirectly, for the manufacture, production or export of a product. For example, using the hypothetical scenario given above, if country A provided a subsidy of let’s say sh. 100 to any of its citizens exporting the bananas to country B, then B should not tax this particular exporter more than sh. 100, which was the subsidy given by A. 
• The third rule is, no product of any exporting contracting party, shall be subject to anti-dumping or countervailing duty, reason being, that it has been exempted from being taxed the relevant tax levied upon its like products in its country of origin, or that there has been a tax refund. Like products in this context means that both products resemble each other, either in their physical characteristics or that they perform the same functions. Still using the case scenario given above, this rule states that country B should not impose an anti-dumping or countervailing duty upon the bananas from country A, because the bananas have not been taxed, just like other bananas in country A are taxed.
• The fourth rule is that, no imported product shall be charged either anti-dumping or countervailing duties, whose sole purpose is compensating the same situation of dumping or export subsidization. The latter word means a situation whereby, the exporting country encourages export of products, while discouraging the products being sold at its domestic market. One of the ways through which the situation is manifested, is the provision of tax reliefs to those individuals or corporations exporting products.
• Rule number five says, an antidumping or countervailing duty shall not be imposed upon the imported product, unless the importing country determines that the dumping causes or threatens to cause material injury to an established domestic industry, or that it slows down the establishment of a domestic industry.
• However, rule six is an exception to rule five in that, it allows the contracting parties to impose an anti-dumping or countervailing duty on the product, if they are able to determine that the subsidy or dumping is causing or threatening to cause material injury to the importing country’s industry.
• Rule seven is more of an enlightenment to determine when a product does not cause material injury. It states that, a product is presumed not to cause material injury to the imported country’s market, if there is a system to stabilize the domestic price such that, the product is not only sold at a lower price at the imported country, but also sold at a higher price in its domestic market.
• We interpreted key areas of production to mean various industries present in the contracting parties, such as manufacturing and production. We are going to use hypothetical case scenarios, in order to demonstrate our understanding on these effects.
• One positive effect caused is the development of local industries. This goes hand in hand with reduction of competition. It is derived from rule number five in that, if a country imposes an anti-dumping or countervailing duty upon an imported product which was slowing down the establishment of a local industry, the result will be that the imported product is probably going to be withdrawn from the market and thus local industries will be established. This is best understood in a case scenario. Take the example of country C and D. country C is exporting ‘Ankara’ to country D, at a low price. There is XYZ Company in country D, which is in the process of being incorporated to manufacture the same ‘Ankara’. Due to the fact that ‘Ankara’ from C have been brought to D, this slows down the incorporation of XYZ. If D imposes an anti-dumping duty on C’s ‘Ankara’ thereby driving them out of its market, then XYZ will be incorporated and it will also start manufacturing the ‘Ankara’.
• Another positive effect is that these rules discourage unfair trade practices. This is mainly through the elimination sub-standard market products which are dumped in other countries.  Using the case scenario above, if C was selling ‘Ankara’ of good quality in her domestic market while exporting the poor quality ‘Ankara’ to D, after the imposition of anti-dumping and countervailing duty upon the ‘Ankara’ by D, C will be discouraged from exporting her product to D. This in return ensures that the ‘Ankara’ being manufactured and sold at D is of a good quality, as the poor quality ‘Ankara’ will have been driven out of the market.
• A negative effect is that the rule limits excessive production of goods by the industries. As already discussed, one of the reasons why dumping occurs is as a result of unsold stock, which is then sold at a foreign market at a lower price. If C was exporting the ‘Ankara’ to D because it was left unsold, when the anti-dumping duty is imposed by D, it will discourage the manufacturing industry (ABC) at C from making excess ‘Ankara’. The reason why this is a disadvantage is that there will be loss of income on the side of ABC. They could have been generating additional income from the sale of their product to D, but now they are no longer generating income because they have been driven out of D’s market.
• Another negative effect is that the rules cause trade diversion. This in return results to the domestic market producers being driven out of the market and the people who had been employed by these producers losing their jobs. For example, still using the same scenario but now introducing country B into the picture. So now we have country B and C exporting ‘Ankara’ to country D, but B is selling the ‘Ankara’ at the same price at which it sells in its domestic market. The anti-dumping duty imposed by D is directed against the products of C. This will drive C out of the market, leaving B. The next result is that B will increase her exports to D and sell her product at a lower price maybe sh.45 compared to that which is sold by XYZ; sh. 50. The effect will be that B’s product will have a higher demand, causing XYZ to incur losses and probably shut down its operations and even fire its employees. 
• In conclusion, these rules have both positive and negative effects. It is therefore incumbent upon the governments to utilise them to their advantage. By this we mean that, even though they will be encouraging the growth of local industries on one hand, they should monitor these industries to ensure that they sell their products at affordable prices, so that at the end of it all, both the consumers and producers will benefit.
• As has earlier been noted, sometimes it is difficult to ascertain the price of a product both in its domestic market and at the market of the importing country. One of the reasons is if the product is not sold in the ordinary course of trade at its home country. This is usually because the product is not profitable. The other reason is if the product is imported and sold in a batter transaction, or the export price is unreliable as a result of a compensatory agreement between the exporter and importer. When this is the case, the alternative methods provided by the Anti-dumping agreement are used to determine the normal value and the export price.

 

1. Agreement on Subsidies and Countervailing Measures
2. Bolton R, ‘Anti-dumping and Distrust: Reducing Anti-dumping Duties under the WTO through Heightened Scrutiny’ (2012) Berkeley Journal of International Law 29, 72
3. Hudec R, ‘Like product: The Differences in Meaning in GATT Articles I and III’ [2000] Michigan Press, 3 & 4.
4. General Agreement on Tariffs and Trade 1994