Anti-Dumping

Dumping refers to the process in which the producers sell their goods at low prices. That is, here the products are sold at a price that is much lower than the price at which products are sold in the domestic country. Dumping involves the exportation of goods at lesser amounts. It can be called a form of predatory pricing. The products are dumped by the exporters to improve their market in the importing country. it creates a monopoly situation in the country, driving existing competitors out of the market. It causes loss even in the home country.[i]

According to the world trade organization, dumping is not forbidden until it causes a negative effect on the market. When a particular product is traded at a price lower than the price at which it is traded in the home country or selling at a price lower than the cost of production, the price is not enough to cover its cost. then it is said the products are dumped. To prevent exporters from dumping. Countries have started formulating various anti-dumping policies.

However, before adopting anti-dumping policies proper investigation procedures should be followed by the nations. Various factors are needed to be considered such as-

• whether dumping is occurring,
• the goods produced by the domestic country are like the goods imported and the domestic trade is suffering the injury.

There is a link between the two above factors. The injury can be a material injury, the threat of material injury. If certain disputes are arising concerning anti-dumping duties. [ii] And if it is found that such practices are conducted i.e. if authorities believe that the prices charged for the products are much lower than its fair market value then the tax may be impose by the government on its imports on the basis of such findings. This duty is levied to protect the domestic market against competition. These duties are imposed by some nations to protect their economy from the goods being dumped at low values. Dumping is done by exporters when they believe that the product could compete with import’s country domestic products and can drive traders out of their home market. Countries levy it to safeguard domestic jobs. The world trade organization has got the power to administer the trade taking place between countries. They have set up rules including international regulation of anti-dumping measures.

There is a specialized body of dispute settlement established under the guidance of the World Trade Organization. It has setted up the appellate body to redress any grievances related to dumping, subsidies, countervailing duties, and its related aspects. A dispute related to anti-dumping measures was brought to the notice of the WTO appellate board. In [iii]Stainless Steel from MEXICO ( STATE USA V. STATE MEXICO ), the state Mexico alleged that the state USA has adopted wrong methods for calculating margins of dumping and thus contravened the provisions of the anti-dumping agreement. Many similar complaints were filed against the US. The issue arises whether the WTO appellate body must follow previously adopted reports that address the same issues in ruling on a dispute. It was held that yes, the body must follow earlier adopted reports, and at the same point of time, such reports are not enforceable.

Subsidies

Subsidy on the other hand is the grant provided by the government or other public body. It can also be defined as the discount given by the government on certain goods and services. It is a kind of financial aid provided by the administrating authorities to help others. The aim of the government behind offering subsidies is to make available goods and services at low prices to those who are not able to afford them and to increase consumption. It is a kind of incentive and is not only limited to the government but also some non-government organizations even make available grants for those in need.[iv]

Subsidies can be direct and indirect. Indirect subsidies, cash can be given, loans can be issued which do not carry interest, etc. in indirect subsidies, rebates in rent can be given, loans with low rate of interest, insurance, tax exemption, tax deduction, etc. Subsidies involve three elements, they must be provided by a government or any public body within the borders of the country, it must be a financial contribution, they must be beneficial to the receiver. There is another term that is commonly heard in connection with dumping and subsidies. It is of countervailing duty.[v]

Countervailing duties

Countervailing duties are imposed to remove the negative impact of subsidies. They are also called anti-subsidy duties. They are taxes or duties imposed on products imported to countries to counterbalance subsidies made available to manufactures on their products in the home country. when exporting nation provides various subsidies and tax exemptions on their exports. An additional kind of import duty is levied by the importing nation on the goods imported, it’s done with an objective to balance the benefits enjoyed by the exporter. it is done to protect the domestic traders.[vi]

In ZENEX SOLAR LTD V. REVENUE & CUSTOMS, It was an appeal the case revolves around that the duty should be remitted according to a particular article and the amount of duty should be a specific rate and not the residual rate. The appeal was dismissed.[vii]

Comparative analysis between Dumping and Subsidy

Dumping is a measure used by individuals and organizations. Subsidy on other hand is adopted by the government. The world trade organization has been adopted by various signatories to guide and formulate rules on trade between nations. They tend to promote free international trade. The world trade organization has framed policies on countervailing and anti-dumping duties. Nations cannot usually opt for enforcement. If dumping is causing a negative impact on their economy, they can opt for measures to counter the effect.[viii]

World Trade Organization provisions on subsidies and countervailing duties

The provisions include two things, it controls the usage of subsidies and it regulates the actions taken by nations to balance the effects of subsidies. The regulations enlighten us that WTO has established a dispute settlement procedure for settlement of disputes between nations. With the help of settlement procedure, the nations can seek for taking back the subsidy on product and help in reducing or removal of its harmful effects on the domestic industry. The countries can even prohibit imports of such kinds which have a negative impact on their domestic products. The injury caused by the imports must be very severe to take such action.[ix]

The World trade organization agreement provides for two kinds of subsidies, prohibited and actionable subsidies. Earlier the third category of subsidy even existed, non-actionable subsidies which lasted only for five years and then was struck off from the agreement.

Prohibited Subsidies- subsidies that require recipients to meet the export targets or to use home country goods instead of imported goods. Such goods are prohibited completely, and their main aim is to disturb the international market. They cause harmful effects to the industry of the country in which they are exporting their products. This can be reported to the dispute settlement forum and the countries can be ordered to withdraw such subsidies.

Actionable Subsidies- the complaining country must prove that the subsidies on imports are causing adverse effects on the nation’s market if it is not proved such subsidy is permitted. Such subsidy causes damage to the domestic industry, it causes damage to other exporters from another country who are exporting in the same industry. Complain can be made to dispute settlement regarding such cases for seeking action.

Frequently Asked Questions

How subsidies affect the economy?

In certain cases, subsidy causes inflation i.e., prices are increased. The effect of the per-unit subsidy is to shift the supply curve vertically downward. It has got both positive and negative effects on the economy. Subsidies increase the fiscal deficit and decrease the cost of production.

What is the importance of subsidies?

The positive effect of subsidies on a country’s trade is it leads to an increase in consumption. The goods which people were not able to purchase due to high prices after subsidy they can purchase them. When prices are reduced due to subsidies, it increases the output.

What are the subsidies given by the UK government?

The United Kingdom offers various subsidies like- subsidies on agriculture including farming subsidies, dairy and meat products are covered under 50% subsidy, subsidies on fossil fuels, etc.

What are countervailing duties? Examples?

It is a form of duty imposed by the government on imports to protect its domestic trade. For example- if a country is negatively affected by the subsidized imports, they apply a certain percentage on the amount of the import which is called countervailing duty, so that the resulting cost does not have an adverse effect on the domestic market.

What is the anti-dumping duty with examples?

Anti-dumping duty is the tariff charged by the government on certain products to manage and control their introduction in their market. For example- a normal rate of duty can be 5% but anti-dumping duty will be 35%.

Reference

[i] The Institute of Company Secretaries of India, International Business-Laws and Practices, (2014)

[ii] Ibid

[iii] Casebriefs.com

[iv] Investopedia.com

[v] Ibid

[vi] The Institute of Company Secretaries of India, International Business-Laws and Practices, (2014)

[vii] Casemine.com

[viii] The Institute of Company Secretaries of India, International Business-Laws and Practices, (2014)

[ix] www.wto.org