International Trade and Dumping Laws (Research Paper Sample)

INTERNATIONAL TRADE AND DUMPING LAWS
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Introduction
Globalization has resulted into increased trade between and among counties of the world. However, trade between nations has to be regulated because some countries with surplus resources may take advantage and inhibit the development of domestic industries by exporting their products into these countries at significantly low prices than can be produced by the domestic firms. Taxed agreements between such trading partners have resulted into creation of tariffs that regulate the amount of goods and services that can cross borders at given prices in order to protect domestic industries (Krugman 2009). However, increased globalization has reduced the distance between trading blocks, and firms have found it much easier to import products at lower prices than they sell these products in their respective domestic markets. This makes it harder for governments to protect domestic firms from discriminatory pricing that foreign firms infiltrate their products into domestic markets (Krugman 2009). This essay discusses the issue of dumping of goods into domestic markets by exporters from foreign markets. The essay uses the World Trade Organization (WTO) provisions and regulate framework to outline various rules that regulates the international trade and particularly regarding dumping. The first section of the paper provides the meaning of the term ‘dumping’ as described by the World Trade Organization. In order to prevent exploitation of the domestic firms, governments are allowed to impose anti-dumping duties to harmonize the prices of imported goods with those from domestic producers. This is discussed in the second section as it provides the specific criteria that have to be met by members of WTO in order to effectively impose anti-dumping duties. Lastly, the third section shall use existing examples, in EU and USA, of how these states apply antidumping duty criteria.
What is Dumping?
Dumping is well described by the World Trade Organization (WTO) as a situation of international price discrimination. According to WTO, dumping occurs when a company exporting products to a foreign market and sales the product in the foreign market at prices that are significantly higher than the same product sales in the exporting country (WTO 2014). Therefore, dumping can simply be established by comparing the prices a product is sold in foreign market with the prices provided for in its domestic market. Traditionally, a market is considered as a dumping ground for products coming from another foreign market when surplus products from the latter sell in the former market at significantly low prices (WTO 2014).
Dumping can take the form of sporadic dumping, predatory dumping and persistent dumping. Sporadic dumping is the occasional sale of products in a foreign market at a price below cost in order to unload an unforeseen surplus in the production. This is often done on perishable commodities such as milk, cheese, and wheat among others. Sporadic dumping does not, therefore, result in intentional price discrimination, but rather a measure to prevent adverse losses. Predatory dumping is a temporary sale of products at a price that is relatively below the average cost of production, or a relatively lower price in the foreign market, with an intention of driving foreign businesses out of the market. After the predating company has successfully driven local traders in the international in the foreign market out of business, it then resumes the normal prices as it is in its domestic market (Gandolfo 1998). The firm then takes advantage of monopoly, and may charge even higher prices than it does in its domestic market. Lastly, persistent dumping occurs when a firm continuously maximizes total profits by selling a commodity at extremely higher prices in the domestic market than it does in international market. Therefore, instead of the firm setting lower prices for export-bound products, it raises the price in domestic market, and thus resulting in a lower price in foreign market (Gandolfo 1998).
Irrespective of the form of dumping, it is considered an illegal practice and that which leads to exploitation of domestic firms. With the implementation of anti-dumping measures by the World Trade organization, and General Agreement on Trade Tariffs (GATT), nations are now in a better position to tame dumping practices and protect their domestic industries (WTO 2014). This is mainly done by the affected country imposing a duty on the company dumping the commodity into the market in order to even out the disparity in prices. This eventually discourages the dumping firm from selling the products at lower prices. However, there are specific criteria that must be met by WTO member states when imposing dumping duty.
Criteria that must be met by Member Countries in Imposing Dumping Duty
Article VI of the General Agreement on Trade Tariffs (GATT) 1994 authorizes WTO member countries to impose a specific anti-dumping duty on imports from a particular source that are considered to be in excess of bound rates. The duty can only be effective if it is established that the dumping practice threatens or causes injury to the domestic industry or materially retards the establishment and development of domestic industry (WTO 2014).the Anti-Dumping Agreement of Article VI clearly elaborates the fundamental principles that counties must follow when investigating, determining and applying the anti-dumping duties. The criteria for imposing anti-dumping duty, therefore, entail three steps: investigation of the dumping claim, determination of dumping, and collection of dumping duties.
Investigation of the Dumping Claim
According to Article 5 of the anti-dumping agreement, dumping investigation should be initiated after request is submitted by the domestic industry, or on behalf of the domestic industry. The domestic industry should express an instance of dumping by a foreign exporter, and must prove that due to the trade activities of the importing firm, their domestic operations are injured, or risk being kicked out of the market. Authorities can also initiate an investigation into dumping claims if there s a strong ground to believe that there exists dumping in the local market. However, according to Article 5.8, an immediate termination of the investigations shall be done if it is established that the volume of imports is negligible or the margin of dumping is de minimis. The investigations should be initiated and completed within one year, and cannot exceed 18 months after the initiation.
Determination of Dumping
In order to present strong evidence to ascertain the existence of dumping, an industry must establish the margin of dumping. It is established by comparing the normal value of a product and the export price. According to the Agreement, normal value of the commodity is generally the price at which the product is issued in the producing country in the ordinary course of trade. The underlying issue in determining the normal value of the commodity is sale in the ordinary course of trade. The investigating body must ascertain that the value of the product in question is derived from the prices paid for in the ordinary course of trade. After a successful determination of the normal value of the commodity, the investigating body hen determines its export price. As a general rule, the export price is calculated based on the transaction price at which the producer from foreign country sells the products to an importer in the home country (Van den Bossche, Prusa and Vermulst 2013). However, there are exceptions to this rule since this measure may not be appropriate for comparison in some circumstance. For instance, it may be hard to determine the export price, especially when the export transaction is an internal transfer or the product is being exchanged in terms of barter.
After the determination of the normal value and the export price, the investigating committee then indulges in a fair comparison of the two indices. The Agreement provides that the investigating body conduct a fair comparison of the normal value and the export price. In order to conduct a fair comparison, the agreement requires that prices being compared should be those of sales made at the level that is similar to the ex-factory level. The investigating authority should inform the concerned parties regarding any adjustment in terms of exchange rates, and other allowances (Van den Bossche, Prusa and Vermulst 2013). Therefore, adjustments must be made to either the normal value or the export price to ensure that the prices are compatible. Allowances are thus made in order to equalize differences in the export and import markets so as to reflect the disparities in the conditions of the terms of trade, quantities of sale, taxation, physical characteristics and other differences that can influence price comparability.
Calculation of Dumping Margin
The anti-dumping agreement provides the framework for calculating the dumping margin. Generally, the Agreement (under Article 2.4.2) states that two measures can be used to determine the dumping margin. Firstly, a comparison of the weighted average normal value to the weighted average of the available export prices can be used in determining the dumping margin. Otherwise, a transaction-to-transaction basis can be used when comparing the normal value and the export price. Calculation of the margin of dumping should be done in a transparent and credible manner, otherwise, an investigating authority can end up being required to reimburse the duty taxed on an importer if it is later established that there was no significant margin to warrant the anti-dumping duty (Greenwald 2013). A successful computation of the dumping margin will enable the investigating a...