LOVELY FACULTY OF BUSINESS AND ARTS

TERM PAPER

ON

DUMPING: BOON OR BANE

Submitted to : submitted by:

Mr. Ashish sharma Name: Rohit kumar

Roll no.:-RS1002 B30

Sub: Managerial economics

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 PREFACE

As MBA Degree requires equal attention practical as well as theoretical aspect of the business,
various problems are to be dealt with in these courses, that is why research programs are there to
give deep as well as through knowledge of the subjects.

We have attempted to live up these requisites while preparing this term paper. It is part of
professional courses. With the help of term paper we can able to understand the deep knowledge
about the specific topic assign to us.

During our term paper I observed some of the cases behind the dumping :boon or bane. It is
hoped that this report meets the given expectations and various requirement of the research.

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 ACKNOWLEDGEMENT

It is our pride privilege to have an opportunity to carry out our term paper at Lovely
professional university. We received full co-operation from our college. We would like to
express our thanks and gratitude towards all those who helped to shape our efforts and mould it
into a masterpiece.
First and foremost, we would like to thank our Project guide for having the confidence on us to
give us the privilege of working on DUMPING: BOON OR BANE .The project was prepared
of Mr. ASHISH SHARMA (Faculty) Lovely faculty of business & arts, his guidance, helpful
comments and confidence on us which helped us for our important work in this field .
To conclude, we would thank everyone who helped to transform our term paper into grand
faculty success. We are highly indebted to the Management of Lovely professional University
for the opportunity to work on this project .

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CONTENTS

Page no.

Introduction 5

Objective of study 6

Literature review 7-9

Definition and objective of dumping 10

Types of dumping 11

Economic analysis of dumping

Why do firm dump? 12

Effects of dumping 12

Benefits of dumping 13

Acts and laws that govern dumping 13-16

Rational behind anti-dumping laws 17-18

Dumping case between India and china 19-20

Current strategy 21-22

Future prospects 23

Conclusion 24

Reference 25

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Introduction

Dumping, is a pricing practice where a firm charges a lower price for exporting goods than
it does for the same goods sold domestically. It is said to be the most common form of price
discrimination in international trade. Dumping can only occur at places where imperfect
competition and where the markets are segmented in a way such that domestic residents cannot
easily purchase goods intended for export. It is a subtle measure of protection which comes
under the non-tariff barriers and is product and source specific. Antidumping duties were
initiated with the intention of nullifying the effect of the market distortions created due to unfair
trade practices adopted by aggressive exports. They are meant to be remedial and not punitive in
nature. Although dumping does benefit the consumers of the importing country in the short
run, it is harmful to the domestic producers as their products are unable to compete with the
artificially low prices imposed by the imported goods. As a method of protection to the domestic
industries, anti dumping duties are thus levied on the exporting country which has been accused
of dumping goods in another country. As the anti dumping duty is only meant to provide
protection to the domestic firms in the initial stages, as per the international laws, the
antidumping legislations may last for a maximum period of five years.

Dumping is a term that is used in financial markets as well as in international trade. In the
context of buying and selling securities, dumping refers to the practice of selling large blocks of
securities. More specifically, when dumping securities the seller is primarily interested in getting
rid of the securities at any price. One simply dumps, or unloads, on the market with no regard to
the selling price of the securities.

Dumping is also used in a commercial sense in the context of international trade. It refers to the
practice of one country selling commodities or finished products in another country below cost
or fair market value. Predatory dumping occurs when one nation exports goods to another nation
below cost or fair market value in order to obtain market share at the expense of domestic
competitors. In many cases, predatory dumping drives out domestic competition. Then, having
established a dominant marketing position in the industry, the predatory dumpers raise their
prices well above previous levels.

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 OBJECTIVE OF STUDY

 To know about the dumping whether it is a boon or bane for the country
 Reason behind the dumping in a country
 Adverse affect of dumping
 Steps taken by government to stop dumping-like anti dumping regulation

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LITERATURE REVIEW

Dumping in a Linder Model of Trade with Multiple Retail Channels

Abstract (Summary)

The last decade has witnessed an accelerating adoption of AD laws by LDCs and their increasing
usage against developed countries. Our model of third degree price discrimination with
heterogeneous consumers that have differing preferences for quality in the two countries
suggests that this is likely to continue. Duopolistic interaction may yield bilateral dumping, or
unilateral dumping in either direction, under free trade. Even when dumping is unidirectional,
there is a compelling basis for the introduction of AD laws by both governments. This mitigates
competition, which is beneficial for both firms, and portends pessimism for an abatement of this
recent proliferation of AD laws and complaints.

CHINA'S 'MADE IN CHINA' PROBLEM

Abstract (Summary)

China's state planning agency is warning of massive overcapacity in a half-dozen industrial

sectors. Trade frictions could develop if China starts exporting the excess at cut-rate prices--what
trade experts call dumping. Washington is starting to take action. China now faces duties that
nearly double the price of tubular steel exports to the U.S. after the Commerce Dept. issued a
preliminary ruling that Beijing is dumping the tubes, which are used in the oil industry. Beijing,
too, is concerned about the industrial glut. If companies adding capacity can't sell their extra
output, they risk defaulting on their loans. And plans to wean China off state spending, creating a
more consumption-driven and innovative economy, could suffer if companies continue to over
invest in commodity production. China has taken some steps to rein in the expansion. That
doesn't mean it will be easy to fix the problem. China may not be willing to make the
macroeconomic changes required to face up to the challenge. Chinese economists, meanwhile,
argue that growth eventually will eat up any excess production.

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China steps up dumping campaign

Abstract (Summary)

The Chinese government has stepped up its campaign against the alleged dumping of chemicals,
announcing antidumping duties on imports of caprolactam, phenol, and toluene diisocyanate
(TDI). China is using antidumping measures partly to compensate for falling tariffs since its
WTO accession, some sources say.; The Ministry of Commerce, formerly the Ministry of
Foreign Trade and Economic Cooperation, imposed provisional antidumping duties last week on
imports of phenol from Japan, Korea, Taiwan, and the US.

Dumping: China Strikes Back;

Abstract (Summary)

At first glance, it looks like a typical case of tit for tat. On June 18, Washington set anti-dumping
margins of up to 198% on a slew of Chinese manufacturers for allegedly selling bedroom
furniture in the U.S. at less than the cost of production. That same day, China's Commerce
Ministry announced a preliminary antidumping finding of its own - against Corning Inc. -
assessing a 16% penalty on its sales of fiber-optic cables. A final ruling is due in 18 months. So
is Beijing unfairly targeting American companies to get back at the U.S. for the furniture ruling
and a similar decision on color televisions in April? Actually, the jury is out. The complaint
against Corning was filed last July, well before the furniture and TV rulings, and also involves a
Japanese and two Korean suppliers. Indeed, most of the 27 antidumping cases filed by China
since 1997 have been against Japanese and Korean exporters.

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Dumping Issue May Foil E-Commerce Agenda at WTO

Abstract (Summary)

Many other nations want to use the new round of trade talks to attack the U.S.'s antidumping
laws, which are dear to the steelmakers and other old-line industries. Some officials from
developing countries are going so far as to suggest a link: If the U.S. won't bend on antidumping
laws, they won't open their borders to American-dominated e-commerce.

"A number of countries would like to see a revision of the U.S. antidumping disciplines," says
Mexico's undersecretary of international trade, Luis de la Calle. For the WTO talks to succeed,
he says, the agenda must include more items that other countries want, or there will be no
incentive to bargain with the U.S. "If developing countries see exclusions of things they care
about, they won't come" to the talks, he says.

Japan, Mexico, South Korea and Brazil, in particular, loathe U.S. antidumping laws, which
punish countries for "dumping" products on the U.S. market at prices below those in their home
markets. U.S. steel companies most recently used the statutes to punish Japan, Russia and South
Korea for undercutting U.S. steel prices.

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DEFINITION

Dumping is a term that is used in financial markets as well as in international trade. In the
context of buying and selling securities, dumping refers to the practice of selling large blocks of
securities. More specifically, when dumping securities the seller is primarily interested in getting
rid of the securities at any price. One simply dumps, or unloads, on the market with no regard to
the selling price of the securities. Dumping is also used in a commercial sense in the context of
international trade. It refers to the practice of one country selling commodities or finished
products in another country below cost or fair market value.

Objectives of dumping

To enter into a foreign market—dumping may be resorted to make an entry in a foreign market
with subsidies being provided by the government

To dispose of occasional surplus at a lower price in foreign markets

To develop a market in foreign countries by selling at a lower price in the initial stages just as
new markets van be developed in the country itself by selling at lower prices

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Types of dumping:

 Sporadic Dumping: Occasional sale of a commodity at below cost in order to unload an

unforeseen and temporary surplus of the commodity without having to reduce domestic
prices.

 Predatory Dumping: Temporary sale of a commodity at below cost or a lower price

abroad in order to derive foreign producers out of business, after which prices are raised
to take advantage of the monopoly power abroad.

 Persistent Dumping: Continuous tendency of a domestic monopolist to maximize total

profits by selling the commodity at a higher price in the domestic market than
internationally (to meet the competition of foreign rivals).

For international price discrimination to take place, conditions must be met:

 Domestic and foreign markets must be separated.

 Demand elasticity of the product must be different in two markets. The
good can be sold with a lower price where the demand elasticity is high;
and with a higher price where demand elasticity is low

It is said to be the most common form of price discrimination in international trade. Dumping
can only occur at places where imperfect competition and where the markets are segmented in a
way such that domestic residents cannot easily purchase goods intended for export. It is a subtle
measure of protection which comes under the non-tariff barriers and is product and source
specific.

Although dumping does benefit the consumers of the importing country in the short run, it is
harmful to the domestic producers as their products are unable to compete with the artificially
low prices imposed by the imported goods.

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Economic analysis on dumping

Why do firms dump?

Dumping occurs when firms start using price discrimination as a strategy for profit
maximisation. The conditions mandatory for dumping to take place are

- Presence of an imperfect market where price discrimination between markets is possible.

(Because in imperfect market firms are price setters not price takers).

- Segmented markets where there is no arbitrage easily possible between markets.

Only if the above two conditions are satisfied is it profitable for the exporting firm to engage in
dumping. For any firm, price discrimination in favour of exports is more common because the
share of exports is usually lesser than the domestic demand. In the export market, individual
firms have lesser monopoly power and hence choose to keep prices lower in foreign markets
while charging higher prices for domestic markets. This can also be explained through the price
elasticity of demand for goods. In areas where the demand is price inelastic, producers tend to
charge a higher price. This is said to be the case in domestic markets. In foreign markets, price
elasticity of demand is elastic and hence prices are low. Thus, if there is high elasticity on export
sales than on domestic sales, firms will dump.

Effects of dumping:-

On the importing country

1. Domestic industry might be affected adversely by a decline in sales and profits. Indian steel
industry was affected by Chinese dumping of steel.

2. If dumping is continued for a longer period, survival of the domestic industry may be
threatened.

3. Dumping may create balance of payments problems for the country subjected dumping

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Benefits of dumping:

On the exporting country

a) It finds market for its surplus production

b) By exporting more, it is able to strengthen its balance of payments position
c) Consumers in the importing country benefit as they have to pay lower prices for
whatever they purchase of the commodity dumped.

Dumping benefits the consumers in the importing country who can buy the products at
cheaper rates. The losers are the consumers in the exporting country.

Dumping may also be caused by what is known as transitional dumping. It occurs when
an exporter needs to price below marginal cost in order to maximize sales and expand
market share. In this case below cost-pricing is a kind of investment in the marketing of
the product to reap profits in the long run. Because this may require fixing price below
marginal cost, it may be treated as predatory pricing.

Which are the acts and laws that govern dumping?

The first Indian Anti-dumping legislation came into existence in 1985 when the Customs Tariff
(Identification, Assessment and Collection of duty or Additional duty on Dumped Articles and
for Determination of Injury) Rules, 1985 were notified. Section 9 of the Customs Tariff Act,
1975 empowers the central government to impose anti-dumping duty. The manner and procedure
of anti- dumping investigations and the appointment of designated authority, are governed by the
anti-dumping rules. These rules contain the operational provisions and confirm to the WTO
agreement on anti-dumping. The Directorate General of Anti-Dumping & Allied Duties
(DGAD) was constituted in April 1998.

The Common Agricultural Policy of the European Union has often been accused of dumping
though significant reforms were made as part of the Agreement on Agriculture at the Uruguay
round of GATT negotiations in 1992 and in subsequent incremental reforms, notably the
Luxembourg Agreement in 2003. Initially the CAP sought to increase European agricultural
production and provide support to European farmers through a process of market intervention
whereby a special fund - the European Agricultural Guidance and Guarantee Fund (EAGGF) -
would buy up surplus agricultural produce if the price fell below a certain centrally determined
level (the intervention level). Through this measure European farmers were given a 'guaranteed'
price for their produce when sold in the European community. In addition to this internal
measure a system of export reimbursements ensured that European produce sold outside of the
European community would sell at or below world prices at no detriment to the European
producer. This policy was heavily criticised as distorting world trade and since 1992 the policy
has moved away from market intervention and towards direct payments to farmers regardless of

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production (a process of "decoupling"). Furthermore the payments are generally dependent on
the farmer fulfilling certain environmental or animal welfare requirements so as to encourage
responsible, sustainable farming in what is termed 'multifunctional' agricultural subsidies - that
is, the social, environmental and other benefits from subsidies that do not include a simple
increase in production.

While permitted by the WTO, General Agreement on Tariffs and Trade (GATT) (Article VI)
allows countries the option of taking action against dumping. The Anti-Dumping Agreement
clarifies and expands Article VI, and the two operate together. They allow countries to act in a
way that would normally break the GATT principles of binding a tariff and not discriminating
between trading partners—typically anti-dumping action means charging extra import duty on
the particular product from the particular exporting country in order to bring its price closer to
the ―normal value‖ or to remove the injury to domestic industry in the importing country.

Dumping is considered to exist if the export price of a product is less than the comparable price
of the product or like-product in the domestic market in the ordinary course of trade.
However, when the average export and product prices of a product are calculated, domestic sales
prices below total cost are considered beyond the ordinary course of trade and therefore
excluded, while all export prices are included, thus artificially raising the level of domestic price.
This is a discrepancy in the calculation of dumping, and thus even in cases where there is no
dumping, according to the strict definition of dumping as per the GATT Anti-dumping
agreement, it will be considered as dumping and anti-dumping measures will be unfairly levied
on the producer; whilst in true cases of dumping, a producer might be exempted from the anti-
dumping measures. Thus this arbitrariness in the calculation of dumping makes anti-dumping an
unfair mechanism that randomly levies duties on innocent producers or exempts the real
dumping producers, due to non-uniformity in the application of the anti-dumping rule.

Also, if no home market price can be found, the sales price in a third country – surrogate
country—can be used for comparisons. Since different countries have varying levels of
economic development and comparative advantages in different sectors, the arbitrary choice of a
third country may easily lead to the definition of dumping.

When a product enters a foreign market the exporting firm may have to sell below total cost of
production to attract consumers or to meet the existing competition without any intention to
dominate the market, especially if the product does not enjoy the same established reputation as
similar products in the market. It is unreasonable to subject such business practises which are
normal within many countries to anti-dumping charges when foreign companies are involved.

According to the Uruguay Round of anti-dumping code, an importing country can only apply for
anti-dumping duties when it is demonstrated that the dumped imports have indeed caused injury
to domestic industries.

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The problems associated with anti-dumping rules are also related to the rules of origin. In a
world with increasingly globalizing tendencies and production, a product may be the result of
production in many countries. As there is no substantive multilaterally agreed rules of origin, the
same product can be considered to have different origins by different countries.

Therefore even if dumping has been correctly determined it may be difficult to find who the
party at fault is.The application or abuse of lax anti-dumping rules penalizes foreign producers
who enjoy comparative advantages, to the benefit of inefficient domestic producers. It also
increases uncertainty in international trade, thus acting as a deterrent against potential foreign
competitors

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Calculation of dumping margin

There are many different ways of calculating whether a particular product is being dumped
heavily or only lightly. The agreement narrows down the range of possible options. It provides
three methods to calculate a product‘s ―normal value‖. The main one is based on the price in the
exporter‘s domestic market. When this cannot be used, two alternatives are available—the price
charged by the exporter in another country, or a calculation based on the combination of the
exporter‘s production costs, other expenses and normal profit margins. And the agreement also
specifies how a fair comparison can be made between the export price and what would be a
normal price.

Calculating the extent of dumping on a product is not enough. Anti-dumping measures can only
be applied if the dumping is hurting the industry in the importing country. Therefore, a detailed
investigation has to be conducted according to specified rules first. The investigation must
evaluate all relevant economic factors that have a bearing on the state of the industry in question.
If the investigation shows dumping is taking place and domestic industry is being hurt, the
exporting company can undertake to raise its price to an agreed level in order to avoid anti-
dumping import duty.

The parameters by which injury to the domestic industry is to be assessed in the anti dumping
proceedings are such economic indicators having a bearing upon the state of industry as the
magnitude of dumping, and the decline in sales, selling price, profits, market share, production,
utilisation of capacity etc. Existence of dumping can be estimated by calculating the dumping
margin which is the difference between the Normal Value of the like article and the export Price
of the product under consideration.

Dumping margin= normal value- export price

The normal value is the comparable price at which the goods under complaint are sold, in the
ordinary course of trade, in the domestic market of the exporting country or territory while the
export price of goods imported into India is the price paid or payable for the goods by the first
independent buyer.

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RATIONALE BEHIND ANTI-DUMPING LAWS

Political reality suggests that any government that attempts to establish or maintain an open
import regime must have at hand some sort of pressure valve - some process to manage
occasional pressures for exceptional or sector-specific protection. Since the 1980s anti-dumping
has served this function. An anti-dumping petition is the usual way in which an industry, plagued
with troublesome imports, will request an anti-dumping investigation. It is the way in which the
government then provides protection.

Anti dumping is a measure to rectify the situation arising out of the dumping of goods and its
trade distortive effect. Thus, the purpose of anti dumping duty is to rectify the trade distortive
effect of dumping and re-establish fair trade. The use of anti dumping measure as an instrument
of fair competition is permitted by the WTO. In fact, anti dumping is an instrument for ensuring
fair trade and is not a measure of protection for the domestic industry. It provides relief to the
domestic industry against the injury caused by dumping.

Anti-Dumping is a reactionary measure to the dumping of goods into a foreign market. When a
country feels that another country is dumping goods into its economy it may institute anti-
dumping measures to protect the interests of the domestic producers of that good. The exponents
of anti-dumping justify it on the ground that it is a defense mechanism in the hands of the
importing country to safeguard their domestic producers.
The primary justification for anti-dumping measures is the perceived threat of predatory
dumping. In an imperfectly competitive and segmented market i.e. where the prices of goods are
controlled by firms and not by the market forces, and consumers have minimum access to goods
meant for export purposes, respectively, dumping can prove to be profit-maximising strategy for
a monopolist firm.34 Firms may indulge in predatory dumping, wherein the prices of their goods
in the foreign markets are reduced temporarily. The lower price imports could decrease the
amount of domestic products purchased, and domestic companies may not be able to lower their
prices in order to compete with these imports, driving these local firms out of business.
In such cases it is argued that anti-dumping measures are justified as they protect domestic
industries from ―unfair‖ competition from abroad, help in restoring the domestic economies and
may thus prove to be prudent measures. By imposing anti-dumping duties, dumped imports are
discouraged and domestic firms maximize their own production and profits.It must be recorded
however, that predatory dumping is a rarity because it assumes capital market imperfection and
an irregularity in financial resources that favor foreign producers. It also assumes an impossible
coordination between firms to precisely calculate when and how much to dump to drive domestic
industries out of business. Additionally, since it is difficult to determine whether dumping is
predatory or not, domestic producers demand protection against any form of dumping even if it
actually not harmful.

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The main argument advanced for taking an anti-dumping measure against foreign producers is
that such a step ensures that national producers get better experience than the foreign firms. It is
frequently argued that such industries bring special advantages to a country, either because they
enable domestic factors of production to earn higher returns than in other sectors of the economy
or because they generate externalities or spill over benefits for the rest of the economy. Anti-
dumping policy is the best instrument for achieving these objectives. Anti-dumping is a trade
remedy for domestic producers injured by cheap imports. It is a tool that discourages predatory
dumping. Anti-dumping is a GATT/WTO legal tool that is used to grant protection to the import
competing domestic industry, which is adversely affected by free trade. Government imposed
trade barriers and government-tolerated anti-competitive practices permit domestic producers to
create monopolies in their home market. This enables them to charge a low price in export
markets and compensate the loss by charging higher process in the domestic market without
attracting foreign entry.

Producers in the importing countries fail to expand capacity, to improve productivity and to use
all resources efficiently. The distorted price signals in the market thus stimulate overproduction
of the exportable goods and underproduction of importable goods. This in turn leads to a chronic
oversupply by inefficient producers on one hand and the closure of otherwise competitive
facilities on the other, reducing worldwide efficiency. Anti-dumping duties restore relative
pricing to prevailing world market conditions and hence efficient resource allocation.

The main reason why international price discrimination is usually considered unfair is that a
dominant firm, exporting its surplus over domestic profit-maximizing sales at lower prices, can
benefit from economies of scale in production which its competitors abroad are not able to
achieve. Such a system could be sustained as long as its home market remains protected.
However, such conduct enhances competition in the export market as long as the firm sets export
prices at or above cost. Selling abroad at a loss could only be rational for predatory purposes.

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Dumping case between India and china

Invasion of Chinese goods in India

China has indulged in large scale dumping all across the world; India being majorly affected.
Here it has to be remembered that everything you complain against will not be qualified as
dumping. According to WTO, if Investigations prove for such goods falling in the anti dumping
bracket that the exporter is charging a price below than what he charges in his domestic market
or if the volume of imports is too high so as to cause a disadvantage to the local producers can be
called as dumping. Thus, we conclude that not any and everything will be classified as dumping.
Once a complaint is filed, it has to be investigated by a designated agency taking into account the
WTO laws.

Dumping wars have gained strong ground especially in the times of recession, with India filing
maximum number of anti dumping cases against China. A growing insecurity for India in
resorting to levy of high anti dumping duty is the current high trade deficit with China. Can we
forget to mention here the case of green veneer tape, where the Interest of the local monopolist
was protected at the cost of consumers getting a better product at more competitive prices?
Besides dumping is not the only way Chinese goods enter India, much of it enters through Illegal
route of Nepal.

China leads in the number of anti dumping cases filed against any country in the WTO. Between
1995 and 2005, India filed more anti dumping complaints against China than any of the
developed nations of US and Europe. Anti dumping measures have become more popular today
to offset unfair competition, in relation to other measures such as QR‘s and import quotas which
are non discriminatory in nature and require injury in severest form. To India, the pinch is more
in those areas where it is also a large producer such as chemicals, toys, electronics, leather and
textiles. Recently anti dumping Import duties have been filled on acrylic fibers, Analgin,
potassium permanganate, paracetamol, sodium nitrite, caustic soda and green veneer tape. From
1995-1999, India initiated 140 anti dumping investigations which are highest for any country.
Many feel this is not fair. It is also seen that the amount of anti dumping duties levied are against
the basic rules. This also arises due to the non market economy (NME) status of China in
countries such as US. As we examine, we find out that the entire amount of duty which is levied
against the Chinese goods is flawed. Here it is pertinent to understand the meaning of a Non
Market Economy. In very simple terms, a Non Market Economy is one which does not operate

19
on market principles of cost and pricing. For NME‘s, the value of its goods do not reflect the true
price. In most cases in US, it is seen that where the Chinese companies fail to respond against the
AD case, (Many a times due to Ignorance of the legal structure) it gets more of an unfair deal.

China‘s relation with US- It has already been mentioned that the boom in China is ―made in
USA‖. Another question which is being asked commonplace today is ―Are Economies such as
US and Europe overly dependent on cheap Chinese products?‖ The answer is ‗no‘ as Stephen
Dunaway rightly points out, that due to intense competition, the cost differentials between China
and other counties has indeed narrowed down. Another point which needs mentioning is that
China‘s Economy is highly export dependent on countries such as US, so we may as well study
the dependence the other way.

China is facing strong opposition of dumping from the European countries as well. These
Countries are levying a high import duty on vast scales Chinese dumping of leather goods. To
salvage their own domestic Industries countries like Japan are resorting to high level investment
in China to sell back in their own domestic economies. This will soon be followed suit by many
other Economies. FDI is playing a big role in China‘s technological process with China
becoming an attractive destination. India and China are considered at par in terms of
investments. India with its paranoid behavior is lacking in many respects to provide a suitable
ground to MNC‘s to invest in the country thus losing big on FDI.

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Current Strategy –What stand has India taken on Chinese Dumping?

India‘s strategy revolves around Imposing high tariffs and taxes on Chinese goods whereas
countries like Japan have resorted to a high level investment in China to counterfeit Chinese
dumping. How does this work? Does it affect level of FDI in our country? With the dumping
allegations against China Increasing; what holds good for India now? Is putting high level of
tariffs the only solution? One, a high level of tariffs does promote a menace called smuggling
and offers no solution. Indian consumers end up paying more for products they could have
brought cheap. Doesn‘t the simple theory of comparative advantage tell us that two countries
should produce and exchange products with each other in which they have a comparative
advantage in? Also trade between two countries should be a multiple of their GDP‘s.
Antidumping tariffs are not a solution, for one as suggested by many an economists, the line
between protecting the producers and consumer welfare is very thin. Anti dumping games only
prevent the competition rather than the competitors.

In some cases where the product is being used as a raw material and an anti- dumping duty is
levied on it, the end user industries suffer because of the cost of rise in their raw materials. They
come at the mercy of the monopolist, duopolistic or the cartelized arrangements in their own
country; thus the entire arguments of levying the anti-dumping duty become a façade. This is
clearly illustrated in the case of imposing a safeguard duty on soda ash. It was vehemently
opposed by the detergent and glass manufacturers. Their arguments being that imports of soda
ash are less than 10% of the total domestic production and it doesn‘t qualify for dumping. These
imports just help in keeping a reality check on the prices.

The Government recently imposed a 6 month ban on the import of Chinese toys to India and
withdrew it within two months after Beijing warned of going to WTO. The Domestic industry is
now alleging China of becoming a price predator (Price Predation refers to selling at lower prices
to acquire market share and increasing prices in future) this time. Is it a case of artificial pricing
or high intensity of competition amongst Chinese products which make similar products cost
upto70% less is to be seen. Another Important fact to be mentioned here is that anti dumping
Investigations take long time for final settlement which can easily damage the domestic
Industries. This has to become faster paced especially in authentic cases wherein the domestic
producers are affected.

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Market Economy status for China and Impact on India- With China’s entry into the WTO

Market Economy status for China and Impact on India- With China‘s entry into the WTO, there
is much talk happening about granting of MES to China. (MES-When the exporting country is
treated at par in terms of transparency and prices are known to be decided by the economic
forces. What forbearing it has for India? For once a market economy status doesn‘t take the anti
dumping prowess from you. It will be in the best interest if India does it earlier rather than
becoming a mere follower to other countries. This has more political considerations rather than
economic. It is also to be remembered that granting of MES to China will not have any effect on
the trade deficit. On the upside, it will ensure that Indian manufacturers improve their efficiency
at the earliest possible along with substantial developments in the infrastructural development.
Investment linkages between India and China will also grow in coming times.

Reforms need to be Implemented by WTO- The need of the hour is not the complete dismantling
of Anti Dumping duties but some reforms to be implemented at the WTO level.

The WTO rules and regulations in terms of the anti dumping measures are entangled with many
rules and regulations. Re examination of duties imposed after a certain time period, a maximum
limit to the amount of duty imposed, making the concept of ―Injury‖ clear, abolition of back to
back cases, time taken for the finalization etc need to be worked upon

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Future Prospects

As all good things come to an end so will the heavenly rights enjoyed by China. The price of
Chinese products in near future will be more realistic as IPR is enforced. The west too is
realizing the huge trade surplus of China, the recent imposing quotas on Chinese textiles (Better
known as the Bra War) bringing China to reality grounds. Also though China has maintained the
price of its goods as static to capture large share in world volumes but it is sooner or later going
to face the rising cost of raw materials. China would soon increase its prices when it enters the
market economy status which is 2016 for US. We must not forget that India and China produce
similar kinds of goods in terms of their export basket to the West. China has highly skilled labor
and a comparative advantage in the assembly stage of technology. India has to improve its
manufacturing prowess; Non tariff measures such as Anti Dumping will only prove to be
detrimental. In many cases, it has been observed that the mere filing of a case leads to a total
disruption of trade. Trade relations in the coming years between these two BRIC giants are
bound to improve, China‘s imports are surging into India on account of their product
diversification and competitiveness. The reality is that 72% of the products imported are at par
with Indian Quality or even superior. The World today sits back to notice when a professor
claims that in 2050 the trade relations between India and China will be the most important
economic relationship in the world and these countries will drive the growth of the entire world
leaving far behind the Giant four.

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CONCLUSION

The use of anti-dumping measures as a trade protection tool has increased phenomenally during
the last decade. One significant aspect of this new trend is the increasing involvement of
developing countries. India is one such country which has emerged as a frequent user of anti-
dumping measures.

Those in favor of anti-dumping duties argue that it is a tool of protection in the hands of the
domestic producers against the cheaper foreign imports. Critics of anti-dumping duties though
find it difficult to prove the fact that the imposition of anti-dumping duties results in economic
benefits to the domestic industry. Consumers are aggrieved as well, as they feel deprived of the
lower costs and availability of variety of goods. The role of the government in tackling the
problem of anti-dumping should be to protect the smaller industries rather than concentrating on
the major industries. This is because, it is these small scale industries which suffer the most as a
result of imposition of anti-dumping duties
The wage rate differs from country to country, the economies differ and the demand levels are
also different. It is a settled economic fact that firms are guided by profit-maximizing motives.
The profits keep increasing till the time that marginal revenue is greater than marginal cost. To
allow marginal cost based pricing to adversely affect industry in other countries cannot be
justified on social welfare grounds. The capital dumped in the concerned industry and the
employment generated by that industry cannot be allowed to go non-functional. This is not to say
that the industry should be protected at all costs. As economics, anti-dumping action looks at
only half of the economic impact on the domestic economy. It gives standing to import
competing domestic interests, but not to domestic users, be they user enterprises or consumers.
As politics, it undercuts rather than supports a policy of openness; by giving voice to only the
negative impact of trade on domestic interests and by inviting such interests to blame their
problems on the "unfairness" of foreigners.

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Reference

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tId=129893

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