Dumping: A Thorough Analysis

Overview: Understanding Dumping

Dumping is a form of international price discrimination where a product’s price, when sold in the importing country, is lower than its price in the market of the exporting country. Here, goods are exported at a different price, which is set below the normal price. The sole objective behind dumping is to expand market share in foreign countries by limiting the scope of competition.

Going by the etymology, the literal meaning of “dumping” is to get rid of certain things, to throw them away. The exporting country, by way of “dumping,” offloads the product on the international market, which is in excess, at a much lower price.

It creates an accessible environment for international consumers by fixing the price relatively low, but at the same time, it creates a hardship for the local markets of the importing nation.

Dumping in International Trade

Starting with a quotation from James Forrestal “For the only way in which a durable peace can be created is by worldwide restoration of economic activity and international trade.”^[i] International trade is indeed an important term.

Countries have recognised the importance of trade beyond their own borders since the beginning of globalization, which has shaped the way international trade operates. The relationship of interdependence between two countries is driven by the fact that “no country can produce everything,” conceptualised by the terms “import” and “export.”

International price discrimination acts as a tool for dumping; it is done to conceal the true reflection of their cost. Dumping in the international market happens in different phases, like sporadic dumping, which is done to temporarily avoid a price war in the domestic market.

In contrast, predatory dumping, on the other hand, is done permanently to gain a monopoly in the international market. When demand for the product in the International market is inelastic in nature, such items maintain greater pricing flexibility since demand is consistent regardless of price changes, a phenomenon known as reverse Dumping.^[ii]

Legality of Dumping

International Trade requires imports and exports of goods from one nation to another without any trade barriers. So free and Fairtrade methods must be utilized to make sure that no country gains at the expense of another country.

In situations where dumping harms, threatens to harm, or materially delays the development of a domestic industry then intervention is required, WTO AND GATT talk about such intervention. The first anti-dumping statute was enacted in Canada in 1904, Europe, and the US in 1916.^[iii]

The World Trade Organization (WTO), which was established in 1995, is a global organization in charge of regulating international trade. It replaced the General Agreement on Tariffs and Trade (GATT), which was established in 1947 in the aftermath of the Second World War.

While WTO does not talk about regulating the companies engaged in dumping, its focus is on how governments can or cannot react to dumping, it disciplines anti-dumping actions, and it is often called the “Anti-dumping Agreement”^[iv]

GATT (Article 6) allows countries to take action against dumping, GATT condemns dumping if it causes or threatens material injury to an established industry in the territory of a contracting party or materially retards the establishment of a domestic industry.^[v]

Anti-dumping actions aim to discourage dumping by levying extra import duty on imported goods to bring their price closer to the “normal value”

Anti-Dumping Duty in India

India’s local manufacturers have always suffered from the brunt of mass Chinese dumping which is poor quality cheap goods. Indian consumers are drawn to Chinese goods since they are brought there for less money than they would normally cost.

Its consequences would be a monopoly of Chinese goods on the local market because of their availability at a low price. The Indian government has envisioned the need for anti-dumping tools to restrict such unfair trade practices that damage the manufacturers of domestic countries, particularly micro and small industries.

The Customs Tariff Act of 1975[vi] outlines the circumstances under which the Central Government may impose anti-dumping duties on goods that are being dumped on the Indian domestic market.

Anti-dumping regulations were amended in 1995, and these changes set forth procedures for locating, determining, and collecting anti-dumping fees from importers. The difference between the regular price and the price that was dumped is a crucial factor in locating dumping. The next step is to determine the harm that cheaper domestic market dumping from the international market has done.

Advantages of Dumping

Given below are some of the advantages that dumping may offer,

a) Encourage Innovation and Competition: Competition is the part and parcel of a healthy economy. Producers must “compete” in an attempt to bring in more customers, usually by cutting prices, providing better versions of the products or services, or using marketing strategies.

Products that are dumped at a lower price will not be able to compete on the domestic market with products that are priced normally. Therefore, the local market’s production company must be imaginative to create a superior version of the product.

b) Scope of alternatives Product: Due to dumping, Consumers are at benefit since they have a large number of alternatives available.

c) Easily accessible at a lower rate: Products that have been dumped are often less expensive which attracts the customer and is easily accessible.

d) Leading industry: As a result of dumping, exporting nations can create jobs and take the lead in their respective industries.

Disadvantages of Dumping

a) Hardship for local manufacturers and Increase in unemployment: Dumping of commodities below cost price cause Disruption of local industries and competitiveness. The extremely low costs of such commodities make it impossible for local producers to compete and run their businesses. They eventually had to leave the market since no company can survive on a deficit for long. Due to the complete devastation of the local industry, thousands of people have lost their jobs and primary means of support.

b) Establishment of monopoly: Persist dumping accelerates the monopoly of dumping companies by taking all the market share thus eliminating competition domestically and internationally. They could grow to be so powerful that they begin to set any price it wants. 

c) Highly dependence on the exporter’s country for the dumped product: Once the successful establishment of the monopoly of dumping companies in the domestic market is achieved then the outcome would be the elimination of local manufacturers.

Once they exit the market then the dependence on dumped goods would increase exponentially. The exporter then proceeds to raise the prices because it takes time and effort to identify and establish a new source of supply, the importing country must purchase those items at a higher price. As a result, input costs rise, increasing the price of final items and setting dangerous trends for inflation.

d) High Risk of exposure to pollution: For many developed nations, the safe and proper disposal of garbage that contains hazardous components, such as electronic waste (or e-waste), is still a challenge. Instead of dealing with the expense and challenges of effective trash disposal, these countries frequently prefer to dump the waste in developing countries which will increase the pollution level in the developing nations.

Recent Development in India

a) Vocal for Local as a means to curb dumping

Atmanirbhar Bharat Abhiyaan or Self-reliant India campaign represents the Hon. Prime Minister Shri Narendra Modi’s vision for a modern India. It has gained a lot of prominence after the grunt of COVID-19 when the entire world went upside down. The new catchphrase “Vocal for Local”^[vii] was introduced by Prime Minister Narendra Modi on May 13, 2020, while addressing the nation.

Vocal for local phrases is used to encourage local domestic goods. Swadeshi Jagran Manch (SJM) national co-convenor Ashwani Mahajan tells that it is time to repose trust in indigenous talent, resources and knowledge.^[viii]

Encouraging the use of indigenous products will help flourish India’s regional manufacturers while discouraging dumped products.

b) India imposes a five-year anti-dumping duty on five Chinese products.^[ix]

The Central Board of Indirect Taxes & Customs (CBIC), Department of Revenue, Ministry of Finance, is in charge of developing policies relating to the imposition and collection of Income Tax. A year ago, India has imposed anti-dumping duties on 5 Chinese products in order to protect the local market.

Directorate General of Trade Remedies (DGTR), after analysing the situation concluded that domestic industries are suffering from a material injury due to dumping.

Conclusion

Having said that, Free and Fair transaction is the part and parcel of globalization and it also reflects strong international relation. Dumping is a process of selling goods at an unfairly cheap price on international markets. Every coin has two sides, dumping has certain advantages as well as certain disadvantages.

Dumping encourages innovation and brings cheaper alternatives that are easily accessible to the consumers while dumping brings a negative impact on the domestic market which can’t be ignored. It destroys the local market by offering anti-competitive measures. Dumping also increases unemployment in the domestic country by killing off the livelihood of domestic manufacturers. Dumping has a deleterious impact on the environment also. Developed nations frequently prefer to dump waste in developing countries. In a list put together by When On Earth, India is the 6th largest country that is used as a dumping ground.^[x]

Dumping should be encouraged as long as it is fair in its mechanism and does no harm to the domestic country.

^[i] BRANNY QUOTES, https://www.brainyquote.com/topics/international-trade-quotes#:~:text=For%20the%20only%20way%20in,economic%20activity%20and%20international%20trade.&text=I%20do%20believe%20that%20international%20trade%20agreements%20benefit%20both%20nations%2C%20always. (last visited Dec 21, 2022).

^[ii] Cfi Team, Dumping, Corporate Finance Institute, 2022 https://corporatefinanceinstitute.com/resources/economics/dumping/.

^[iii] Pooja Kalyani, Anti-Dumping Laws,Legal Service of India, 2022.

^[iv] World Trade Organization, Anti Dumping.

^[v] The General Agreement On Tariffs And Trade, Article VI(Anti-dumping and Countervailing Duties), 1994.

^[vi] The Customs Tariff Act, 1975, Sec 9A, No. 51, 1975(India).

^[vii] Be vocal for local, must make India self-reliant: PM Modi, THE TIMES OF INDIA, 2022.

^[viii] OUTLOOK, https://www.outlookindia.com/magazine/story/business-news-vocal-for-local-will-stop-unfair-chinese-dumping-of-goods/303240 (last visited 22 Dec 2022).

^[ix] INDIA TIMES, https://economictimes.indiatimes.com/news/economy/foreign-trade/india-imposes-antidumping-duty-on-5-chinese-goods-for-5-years/articleshow/88502207.cms (last visited 22 Dec 2022).

^[x] ATCHUUP, https://www.atchuup.com/countries-used-as-dumping-grounds-of-worlds-trash/ (last visited 23 Dec 2022).

This article has been contributed by Chhawi Kumari Gupta, a student at Chanakya National Law University.