Anti-dumping

Introduction

If we talk about public policies, we cannot avoid mentioning the concept of “anti-dumping”. One of the most widespread measures throughout the world. But of course, it doesn't take a linguist to imagine that before talking about “anti” we must first understand what dumping is all about.

First: why dumping?

The Cambridge Dictionary defines dumping as “the act of getting rid of something that is not wanted”. Of course, this is not the economic meaning to which we will refer below, but it does allow us to get closer. Dumping is, in a way, an attempt to get rid of (break) something that is not wanted (the competition).

According to the World Trade Organization, the practice of dumping refers to a situation of international price discrimination that consists of establishing a differentiated and lower price in the importing country than the price at which the product is sold in the market of the country of origin.

The factors that may be behind this type of practice are varied: for example, it may be due to a policy of promoting the product so that new consumers enter the market (which would be a legitimate commercial strategy); it may be due to a fiscal stimulus in the country of origin that allows absorbing the difference in order to gain export markets; or it may be due to a predatory pricing strategy that consists of displacing existing or potential competitors from the market.

This occurs especially when the producing firm is willing to offer the product even below its costs (for a period of time).

Regardless of which of the reasons weighs more heavily, what is certain is that dumping prices are usually an obstacle to free and healthy competition.

In addition, in many cases this type of practice may be due to differences in labor conditions: countries with enormous labor precariousness face much lower costs than those countries where their workers are more protected.

Dumping can also be found within a local market when a firm is willing to sell at a loss for a period of time in order to displace its competitors.

Why object?

If dumping means selling in one (foreign) market above the price in another (home) market, why would a country oppose it? After all, it would allow its citizens to have access to a product at a cheaper price, which is preferable for all consumers!

The answer must be given on two fronts, which are both given by different deadlines. The first answer lies in the effects they can bring on employment and production: if foreign goods suddenly invade the local market for a certain good at a price that none of the local suppliers can compete with, it is likely that eventually those companies will close, leaving all those who were engaged in the industry in question without jobs. Okay, that's one reason. But a bigger one has to do with the medium to long term.

Just as all consumers in the world prefer to buy goods at a lower price (without losing quality), it is also true that all suppliers prefer to sell at the highest possible price (without losing market share). Therefore, dumping practices can lead to a price increase in the long run: when all competitors have been swept out of the market, the foreign producer firm can now behave like a monopoly and raise the price to captive demanders.

Anti-dumping legislation

As a result of the above, many countries can apply sanctions and restrictions to those products that are dumped in their local markets.

For these reasons, in 1994 the WTO established an agreement defining what practices can be considered dumping and the criteria for sanctions. Its purpose is to establish a common regulatory framework, so as to prevent a country from establishing numerous arbitrary anti-dumping regulations that in reality mean abuses on imports of goods. In other words, the aim is for anti-dumping measures to follow objective criteria and not be used as a non-tariff barrier.

More information:

World Trade Organisation: https://www.wto.org/english/tratop_e/adp_e/adp_e.htm