Popular Courses. Economy Economics. What Is Dumping? Key Takeaways Dumping occurs when a country or company exports a product at a price that is lower in the foreign importing market than the price in the exporter's domestic market.
The biggest advantage of dumping is the ability to flood a market with product prices that are often considered unfair. Dumping is legal under World Trade Organization WTO rules unless the foreign country can reliably show the negative effects the exporting firm has caused its domestic producers.
Countries use tariffs and quotas to protect their domestic producers from dumping. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Predatory dumping refers to foreign companies anti-competitively pricing their products below market value to drive out domestic competition.
Countervailing Duties CVDs Countervailing duties CVDs are tariffs levied on imported goods to offset subsidies made to producers of these goods in the exporting country. What Is Balanced Trade? Balanced trade is an economic model under which countries engage in reciprocal trade patterns and do not run significant trade surpluses or deficits. Anti-Dumping Duty Anti-dumping duty is a protectionist tariff that a government places on imports thought to be significantly underpriced.
What Is Trade? A basic economic concept that involves multiple parties participating in the voluntary negotiation. Except instead of fighting fires, it's trying to smoother the competition. Companies and countries that engage in dumping inundate a foreign market with products at an artificially low price.
In some cases, the company sells exported products at a lower price than it charges in their home market. Some companies even sell products below production costs. Dumping is considered a form of "predatory pricing," which could injure other companies — and in the long-run, consumers. Companies and governments may use dumping to secure market share. Taken to the extreme, dumping can drive competitors out of business and allow the aggressor to establish a monopoly. This is bad news for consumers.
If a company can establish a monopoly, it no longer has to worry about competition. This means it can raise prices and won't have to worry about being undercut by competitors. Further, in a competitive market, companies must innovate to survive. For a monopoly, however, innovation is a luxury. Even if the aggressor doesn't secure a monopoly, it can often expand market share and increase revenues at the expense of its competitors. As companies grow, they secure economies of scale, allowing them to buy supplies at volume rates and otherwise lower production costs.
This makes it harder for other companies, including new entrants, to compete. Many countries, including the United States, have anti-dumping policies in place to protect domestic firms and markets.
Often, trade authorities — rather than courts — review dumping allegations. In the United States, industries can file complaints under the Tariff Act of Complaints are filed simultaneously with the U.
Department of Commerce. In the United States, complaints are usually filed by domestic firms, unions, or industry representatives. However, on rare occasions, the government files self-initiated complaints. Most countries are now part of the World Trade Organization WTO , which works to ensure that international trade flows as freely, predictably, and smoothly as possible.
In other words, the WTO tries to prevent protectionism and to ensure free trade. Countries sign binding agreements through the WTO and could face sanctions if they violate the signed contracts. The WTO doesn't outlaw dumping. Instead, a Committee on Anti-dumping Practices determines how authorities can react if a country or company is dumping.
The WTO allows countries to defend their home market with anti-dumping measures if another country or company is causing or threatening to cause material injury. Authorities can also act if dumping hinders the development of a domestic industry. On paper, dumping might seem pretty straightforward. However, in practice, cases are complex, and there are a lot of gray areas. How do you prove that cheap imports are causing "material injury" or are hindering the development of a domestic industry?
Cases can drag on for months or even years. Countries can enact anti-dumping duties, which are tariffs designed to protect domestic markets.
A tariff is a tax imposed on imported goods and services. These duties are usually charged as a percentage of the transaction price between the buyer and seller. By using tariffs, governments can increase the price of the products sold. Authorities can also set quotas, which are hard import limits on specified products. Governments can pressure countries to enforce export quotas as well. However, it is recognized that this may not be possible in all cases, and thus the Agreement allows investigating authorities to limit the number of exporters, importers, or products individually considered, and impose an anti-dumping duty on uninvestigated sources on the basis of the weighted average dumping margin actually established for the exporters or producers actually examined.
The investigating authorities are precluded from including in the calculation of that weighted average dumping margin any dumping margins that are de minimis, zero, or based on the facts available rather than a full investigation, and must calculate an individual margin for any exporter or producer who provides the necessary information during the course of the investigation.
The Agreement makes provision for the assessment of anti-dumping duties on exports from producers or exporters who were not sources of imports considered during the period of investigation. While that review is in progress, the authorities may request guarantees or withhold appraisement on imports, but may not actually collect anti-dumping duties on those imports.
The decision regarding the like product is important because it is the basis of determining which companies constitute the domestic industry, and that determination in turn governs the scope of the investigation and determination of injury and causal link.
Related domestic producers The Agreement recognizes that in certain circumstances, it may not be appropriate to include all producers of the like product in the domestic industry. Thus, Members are permitted to exclude from the domestic industry producers related to the exporters or importers under investigation, and producers who are themselves importers of the allegedly dumped product. A regional industry may be found to exist in a separate competitive market if producers within that market sell all or almost all of their production of the like product in that market, and demand for the like product in that market is not to any substantial degree supplied by producers of the like product located outside that market.
If this is the case, investigating authorities may find that injury exists, even if a major proportion of the entire domestic industry, including producers outside the region, is not materially injured. However, a finding of injury to the regional industry is only allowed if 1 there is a concentration of dumped imports into the market served by the regional industry, and 2 dumped imports are causing injury to the producers of all or almost all of the production within that market.
If an affirmative determination is based on injury to a regional industry, the Agreement requires investigating authorities to limit the duties to products consigned for final consumption in the region in question, if constitutionally possible.
If the Constitutional law of a Member precludes the collection of duties on imports to the region, the investigating authorities may levy duties on all imports of the product, without limitation, if anti-dumping duties cannot be limited to the imports from specific producers supplying the region.
However, before imposing those duties, the investigating authorities must offer exporters an opportunity to cease dumping in the region or enter a price undertaking.
The Agreement provides that, in order to impose anti-dumping measures, the investigating authorities of the importing Member must make a determination of injury. However, it does require that a determination of injury must be based on positive evidence and involve an objective examination of i the volume of dumped imports and the effect of the dumped imports on prices in the domestic market for like products, and ii the consequent impact of the dumped imports on domestic producers of the like product.
Article 3 contains some specific additional factors to be considered in the evaluation of these two basic elements, but does not provide detailed guidance on how these factors are to be evaluated or weighed, or on how the determination of causal link is to be made.
The Agreement sets forth factors to be considered in the evaluation of threat of material injury. These include the rate of increase of dumped imports, the capacity of the exporter s , the likely effects of prices of dumped imports, and inventories. There is no further elaboration on these factors, or on how they are to be evaluated.
The Agreement does, however, specify that a determination of threat of material injury shall be based on facts, and not merely on allegation, conjecture, or remote possibility, and moreover, that the change in circumstances which would create a situation where dumped imports caused material injury must be clearly foreseen and imminent.
The Agreement requires investigating authorities to consider whether there has been a significant increase in the dumped imports, either in absolute terms or relative to production or consumption in the domestic industry. Consideration of price effects of dumped imports. In addition, the Agreement requires investigating authorities to consider whether there has been significant price undercutting by the dumped imports as compared with the price of a like product of the importing Member.
The Agreement provides that no one or several of these factors can necessarily give decisive guidance. It does not specify how the investigating authorities are to evaluate the volume and price effects of dumped imports: merely that consideration of these effects is required. Thus, investigating authorities have to develop analytical methods for undertaking the consideration of these factors.
Moreover, since no single factor or combination of factors will necessarily result in either an affirmative or negative determination, in each case investigating authorities have to evaluate which factors are relevant, and which are important, in light of the circumstances of the particular case at issue. The Agreement provides that, in examining the impact of dumped imports on the domestic industry, the authorities are to evaluate all relevant economic factors bearing upon the state of the domestic industry.
The Agreement lists a number of factors which must be considered, including actual or potential declines in sales, profits, output, market share, productivity, return on investments, utilization of capacity, actual or potential effects on cash flow, inventories, employment, wages, growth, ability to raise capital or investments, and the magnitude of the margin of dumping. However, the list is not exhaustive, and other factors may be deemed relevant.
In addition, the Agreement again specifies that no single factor or combination of factors will necessarily lead to either an affirmative or negative determination. The Agreement requires a demonstration that there is a causal relationship between the dumped imports and the injury to the domestic industry.
This demonstration must be based on an examination of all relevant evidence. The Agreement does not specify particular factors or give guidance in how relevant evidence is to be evaluated. Article 3. Thus, the investigating authorities must develop analytical methods for determining what evidence is or may be relevant in a particular case, and for evaluating that evidence, taking account of other factors which may be causing injury.
Cumulative analysis refers to the consideration of dumped imports from more than one country on a combined basis in assessing whether dumped imports cause injury to the domestic industry. Obviously, since such analysis will increase the volume of imports whose impact is being considered, there is a greater possibility of an affirmative determination in a case involving cumulative analysis. The practice of cumulative analysis was the subject of much controversy under the Tokyo Round Code, and in the negotiations for the Agreement.
The authorities must determine that the margin of dumping from each country is not de minimis, that the volume of imports from each country is not negligible, and that a cumulative assessment is appropriate in light of the conditions of competition among the imports and between the imports and the domestic like product.
De minimis dumping margins and negligible import volumes are defined in the Agreement. Agreement Article 5 of the Agreement establishes the requirements for the initiation of investigations. The Agreement establishes requirements for evidence of dumping, injury, and causality, as well as other information regarding the product, industry, importers, exporters, and other matters, in written applications for anti-dumping relief, and specifies that, in special circumstances when authorities initiate without a written application from a domestic industry, they shall proceed only if they have sufficient evidence of dumping, injury, and causality.
In order to ensure that investigations without merit are not continued, potentially disrupting legitimate trade, Article 5. In order to minimize the trade-disruptive effect of investigations, Article 5. Article 6 of the Agreement sets forth detailed rules on the process of investigation, including the collection of evidence and the use of sampling techniques. It requires authorities to guarantee the confidentiality of sensitive information and verify the information on which determinations are based.
In addition, to ensure the transparency of proceedings, authorities are required to disclose the information on which determinations are to be based to interested parties and provide them with adequate opportunity to comment.
The Agreement establishes the rights of parties to participate in the investigation, including the right to meet with parties with adverse interests, for instance in a public hearing. Further guidance on the conduct of investigations is contained in two Annexes to the Agreement, which set forth rules for the on-the-spot investigations to verify information obtained from foreign parties, as well as rules for the use of best information available in the event a party refuses access to, or does not provide, requested information, or significantly impedes the investigation.
Article 7 of the Agreement provides rules relating to the imposition of provisional measures. These include the requirement that authorities make a preliminary affirmative determination of dumping, injury, and causality before applying provisional measures, and the requirement that no provisional measures may be applied sooner than 60 days after initiation of an investigation.
Provisional measures may take the form of a provisional duty or, preferably, a security by cash deposit or bond equal to the amount of the preliminarily determined margin of dumping. If a Member, in its administration of anti-dumping duties, imposes duties lower than the margin of dumping when these are sufficient to remove injury, the period of provisional measures is generally six months, with a possible extension to nine months at the request of exporters.
Article 8 of the Agreement contains rules on the offering and acceptance of price undertakings, in lieu of the imposition of anti-dumping duties. It establishes the principle that undertakings between any exporter and the importing Member, to revise prices, or cease exports at dumped prices, may be entered into to settle an investigation, but only after a preliminary affirmative determination of dumping, injury and causality has been made.
It also establishes that undertakings are voluntary on the part of both exporters and investigating authorities. In addition, an exporter may request that the investigation be continued after an undertaking has been accepted, and if a final determination of no dumping, no injury, or no causality results, the undertaking shall automatically lapse. Article 9 of the Agreement establishes the general principle that imposition of anti-dumping duties is optional, even if all the requirements for imposition have been met.
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