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Antidumping is a unilateral trade remedial action taken by an individual country against the dumped imports of another country. Antidumping action implies the imposition of antidumping duties. This trade remedial measure is a weapon in the hands of all the trading countries through which they can protect their domestic industry against certain illegitimate trading/export practices. It is designed to ensure that if something goes wrong during the conduct of international trade, then countries should have a ‘fall back’ option using which they can remedy the damage/correct the wrong.
For instance, if due to international trade there is a huge surge of imports of a particular commodity into a country and if this import surge is causing damage to the domestic industry, then the importing country should have a weapon to stop or neutralise the effect of increased imports so as to protect its domestic industry.
It is important to understand how imposition of antidumping duties will protect domestic industry. Imposing antidumping duties does not impose a physical or a quantitative restriction on the imports. It simply raises the price of the imported product and hence does not make it remunerative for the exporter to sell the product in the overseas market or makes it unattractive for consumers to buy. Hence there will be fall in demand, which eventually would lead to lesser imports.
The imposition of antidumping duties is governed by the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994. It is also called the Antidumping agreement. However, before we understand antidumping or imposition of antidumping duties it is imperative to understand the concept of dumping/dumped imports.
Dumped imports are those imports that are sold in the importing country at a price less than the domestic price in the home country. For instance, if the price of fans in country ‘A’ is 10 units and the same fans are exported and sold in country ‘B’ for 8 units, then ‘A’ is dumping fans in country ‘B’ and fans constitute dumped imports.
However, dumped imports alone cannot attract antidumping action; dumping per se is not actionable. For a country to take antidumping action it is also necessary to show that these dumped imports are causing material injury to the domestic country and there is a causal link between the dumped imports and the injury being caused to the domestic industry.
In short, before antidumping duty is imposed it is necessary to prove the following:
- Dumping is taking place
- Injury is being caused to the domestic industry
- There is a causal link between dumping and the injury being caused to the domestic industry.
Hence, if the fan industry of country ‘B’ is suffering injury due to the fans dumped by country ‘A’, then ‘B’ can take antidumping action against the dumped ‘fans’ coming from country ‘A’. However, if no injury is being caused to the fan industry of country ‘B’, then ‘B’ cannot impose antidumping duties even if ‘A’ is dumping fans in ‘B’.
Dumping per se is not actionable because it is essentially a pricing technique. Different companies may be selling their products at cheaper rates either because they may have been able to reduce their cost of production by reaping economies of scale or by having access to better technology. Hence, someone cannot be penalised simply for selling the product at a cheap rate.
Further, if someone sells the product at a cheap rate, then consumers benefit. In the above example, assume that fans in ‘B’ cost 12 units and if ‘A’ sells the same quality of fans in ‘B’ at 8 units, then, the consumers of ‘B’ are benefiting by getting the same quality of fan at a cheap price. Hence, in this case, although ‘A’ is dumping fans in country ‘B’, it is proving advantageous to country ‘B’.
There are three methodologies given in the Antidumping (AD) agreement to determine whether dumping is taking place or not.
1. Comparison with domestic price:
This methodology is discussed above. If a country sells a product in another country’s market at a price less than the price at which it sells in its own market, then, dumping is taking place. This is the first option given in the AD agreement to determine whether dumping is taking place or not. This option is mandatory. However, if this option cannot be exercised, then the AD agreement provides the other two options.
2. Comparable export price in a third country:
According to this methodology if the domestic price of a product cannot be used as the comparable price to determine whether dumping is taking place or not, then the price in the market of any third country is used as the comparable price. For instance, if country ‘A’ sells fans in country ‘B’ at 8 units and in country ‘C’ at 10 units. In this case if the domestic price of the fans in country ‘A’ cannot be used as the comparable price to determine whether ‘A’ is dumping fans in country ‘B’ or not, then the price of ‘fans’ in country ‘C’ will be used as the comparable price. ‘A’ is dumping fans in ‘B’ as the price of the fans in ‘B’ is less than the price of fans in ‘C’.
3. Cost of production:
The other option that can be used as the comparable price to determine whether dumping is taking place or not if the domestic price cannot be used is the cost of production. If a country is selling its products in another country at a price that is less than its cost of production, then dumping is taking place.
It is important to bear in mind that although the first option is mandatory and has to be exercised before exploring the second and the third options, there is no hierarchy between the second and the third option. It is up to the importing country that wants to impose antidumping duties to use any of the two options (second and third) in determining whether dumping is taking place or not.
After it is proven that dumping is taking place, the next step is to see whether this dumping is causing injury to the domestic industry or not. The determination of injury to the domestic industry is based on the volume and price effects of dumped imports and the consequent impact of the dumped imports on the domestic industry.
In determining the injury to the domestic industry it is very important to find out whether this injury is taking place on account of dumping or some other factors. For instance, if a domestic industry is suffering because of domestic factors such as faulty industrial policy or labour unrest or lack of infrastructure, then even if dumping is taking place, antidumping duties cannot be imposed. Antidumping duties can be imposed only if there is a direct relationship (causal link) between dumped imports and the injury to the domestic industry.
The AD agreement provides close to 15 factors that need to be considered to find out the bearing on the state of the industry. These factors are:
- actual and potential decline in sales, profits, output, market share, productivity, return on investments, or utilisation of capacity
- factors affecting domestic prices
- the magnitude of the margin of dumping
- actual and potential negative effects on cash flow, inventories, employment, wages, growth, ability to raise capital or investments.
The AD agreement also states that this list is not exhaustive and other factors can be considered. It is important to see the cumulative effect on the industry due to dumped imports before deciding whether injury to domestic industry is taking place or not.
Antidumping duties should not be more than the margin if dumping. Margin of dumping is the difference between the price at which the alleged dumped product is sold in the importing country and the comparable price (domestic price or the price in a comparable third country or cost of production). For instance, if a product is sold in country ‘A’ at 10 units and the same product is exported and sold in country ‘B’ at 8 units, then the margin of dumping is 2 units (10 - 8). In such a case, the antidumping duty should not be more than 2 units. However, it could be less than the margin of dumping (in this case 2 units).
It is important to keep in mind the basic rationale behind imposing antidumping duties. Antidumping duties are imposed to correct the injury that is caused to the domestic industry. The purpose is to genuinely protect domestic industry and not to shield inefficient domestic industry from competition or to provide an upper hand to the domestic industry against the imported goods. Therefore, the quantum or magnitude of antidumping duties should be such that it is able to remedy the injury to domestic industry.
There could be a case where even a lower antidumping duty, less than the margin of dumping, is sufficient to counter the injurious affect of dumping. One of the situations where this could happen is where less duty is sufficiently able to inflate the price of the dumped product to the level of domestic price. For instance, if the cost of domestically produced fans is 9 units and if the dumped fan is being sold at 8 units, then the antidumping duty of 1 unit will be sufficient to bring the price of the dumped fan at par with the price of the domestic fans, although the dumping margin is 2 units (price of the fan in the market of the dumping country is 10 units) and hence an antidumping duty of 2 units could also be imposed. In such a scenario, if the country so desires, it could impose an antidumping duty of 1 unit instead of 2 units (which is the dumping margin).
Imposing antidumping duty that is lower than the dumping margin and enough to counter the injurious effect of antidumping is called the lesser duty rule. The AD agreement encourages countries to follow the lesser duty rule but does not make it mandatory. Hence, it is left to the concerned country whether it wants to impose a lesser duty or an antidumping duty equivalent to the full dumping margin. In practice, countries have shown a tendency to disobey the lesser duty rule and impose antidumping duties equal to the full dumping margin.
The procedure followed for imposing anti dumping duties is fairly elaborate.
Step 1:
The first step in the process is to initiate an investigation to find out whether dumping is taking place or not and then to examine whether it is hurting domestic industry. This investigation is launched by the government of the importing country on the basis of a written request made ‘by or on behalf’ of the domestic industry. The domestic industry has to make an application to the government requesting it to impose antidumping duties on the imported goods. Before we proceed further it is imperative to understand the meaning of ‘domestic industry’.
According to the AD agreement domestic industry is defined as the producers as a whole of a ‘like product’. ‘Like product’ implies that the product is identical to, or in the absence of such a product, one that has characteristics closely resembling those of the dumped product. For instance, if country ‘A’ is dumping ink pens in country ‘B’, then ink pens manufactured in country ‘B’ are the like products. If country ‘B’ does not produce ink pens, then ball point pens may be called a like product as it possesses characteristics that resemble close to that of ink pens that country ‘A’ is dumping.
An application for the imposition of antidumping duties is deemed to be made by or on behalf of domestic industry if it is supported by those domestic producers whose collective output constitutes more than 50 per cent of the total production of the ‘like product’ produced by that portion of the domestic industry. Hence, if the domestic industry of ink pens wants to make an application to the government for imposing anti dumping duties on the imported ink pens, then the application for dumping should either be made or supported by producers of ink pens whose collective output is more than 50 percent.
This can be understood by an example. Assume that there are 10 manufacturers of ink pens in a particular country. Out of 10 if 7 manufacturers petition the government for imposing antidumping duties, then the government will entertain this application only if these 7 producers constitute more than 50 percent of the ink pen production. If these 7 manufacturers together produce 30 percent or less than 50 percent of the ink pens, then they cannot request the government to impose antidumping duties. On the other hand, even if one producer out of 10 manufacturers produces more than 50 percent of ink pens, then he can make an application requesting the government to initiate an investigation for imposing antidumping duties.
However, no investigation shall be initiated when domestic producers expressly supporting the application account for less than 25 per cent of total production of the like product produced by the domestic industry.
The written request of the domestic industry for imposing antidumping duties to government should contain information on volume and value of the domestic production of the product that is affected by the alleged dumping. The application should also give complete description of the allegedly dumped product, country or countries of origin, price at which the alleged dumped product is being sold and the volume of the alleged dumped product.
Step 2:
Once the written request is made, the government shall examine the accuracy and adequacy of the evidence provided in the application to determine whether there is sufficient evidence to justify the initiation of an investigation. If the government is convinced that the applicant (domestic industry) has provided sufficient evidence, then it will initiate the investigation to find out whether dumping is taking place and whether there is a causal link between dumping and injury to domestic industry. The government will also determine whether there is the requisite support of the domestic industry backing the application. If not, then it would not launch/terminate the investigation.
Further, the investigating authority will also not launch/terminate the investigation if the margin of dumping is de minimis. In other words, if the margin of dumping is less than 2 percent, expressed as a percentage of the export price (de minimis) then no antidumping investigation will be launched. Also, if the volume of dumped imports accounts for less than 3 percent in the total imports of the like product in the country where an application for imposing anti dumping duty has been made, no investigation will take place.
Step 3:
Once the government is convinced that there is accuracy and adequacy of evidence in the application made by the domestic industry, it will launch the investigation. In the investigation process all the interest parties i.e. the exporter or producer or importer of the product under investigation, the government of the country against whom dumping proceedings have been initiated and the producer of the like product in the importing country (domestic industry) shall be given notice of the information that the investigation authorities require. The interested parties will also be given ample opportunity to give all the evidence in writing that they consider relevant for the purpose.
During the investigation process, except for the confidentiality of certain sensitive information disclosed by the parties to the dispute, the investigation authorities will disclose the information given by one party to the other. Also, during the time of investigation, all the interested parties shall have complete opportunity to defend their interests.
If, after hearing all the interested parties and analysing the evidence, the investigating authorities come to the conclusion that dumping is taking place and there is a causal link between dumping and the injury to the domestic industry, then they may impose antidumping duties. Before the final imposition of antidumping duties, the investigating government may also impose provisional measures to safeguard the affected industry.
These provisional measures could take the form of provisional duties or security by cash or bond. Such provisional measures could be taken in the course of investigations provided a preliminary affirmative determination has been made of dumping and of subsequent injury to the domestic industry. Here, it is important to remember that no provisional measures could be applied within 60 days from the date of initiation of the investigation. In other words, any provisional measure can be applied only after 60 days from the initiation of the investigation.
Further, the investigating country (country where the alleged dumping is taking place), may also suspend or terminate the dumping investigation if the exporter, who is allegedly dumping, provides a voluntary undertaking to revise the prices or to cease the dumped exports so as to remove the injurious effect to the domestic industry. This voluntary undertaking is called price undertaking.
The AD agreement states that the antidumping duty shall remain in force only as long as it is necessary to counteract dumping that is causing injury to the domestic industry. However, the AD agreement also states that any definitive antidumping duty will be terminated after five years of imposition. In other words, no antidumping duty can be imposed for more than five years. This automatic termination of an imposed antidumping duty is referred to as sunset clause.
After five years of imposition of antidumping duty, the country imposing the duty will have to undertake a review to determine whether removal of the antidumping duty would again lead to dumping and subsequent injury to the domestic industry. If such a review shows that removal of the antidumping duty would bring back dumping and subsequent injury, then imposition of antidumping duties could be extended. Hence, any extension of an already imposed antidumping duty beyond five years is subject to a review.
It is important to understand why antidumping duties are to be terminated as soon as the injury to the domestic industry ceases. Antidumping duties are temporary measures that seek to remedy the distortions caused by international trade. Once the distortion is corrected the measure should also be removed. The purpose of imposing antidumping duties is not to provide permanent protection to the domestic industry but to protect it from illegitimate exports for a brief period. Once the need for such protection comes to an end, the antidumping measure should also come to an end.
Many countries have very frequently resorted to imposition of antidumping duties in the multilateral trading regime. From 1995 to the first half of 2003, the total number of antidumping initiations (cases where investigations were initiated) was 2284. This is a mammoth number if one compares this with the other two trade remedial measures i.e. countervailing duties and safeguard measures. For the same period the total number of countervailing duty initiations was 16 and from 1995 to 2002 the total number of safeguard initiations was 230.
Prior to 1997, developed countries the US, EC, Australia and Canada were the traditional and major users of antidumping measures. These users accounted for 66 percent of the total global antidumping measures imposed. However, this trend has changed now with many developing countries such as India, Argentina, Mexico, South Africa and Brazil emerging as new users of antidumping. In fact, a large part of antidumping duties that have been imposed on developing countries have emanated from other developing countries.
Countries have misused the AD agreement by using antidumping measures as tools to offer illegitimate and at times permanent protection to domestic industry. The global trends in imposing antidumping duties clearly suggest the abuse of antidumping measures. This abuse is taking place because of certain fundamental flaws that exist in the concept of dumping itself.
For instance, before imposing antidumping duties, only the impact of any alleged dumping on industry is examined; the impact on consumers is not examined. A particular dumping may be bad for an industry but it may be good for consumers, as it offers them products at a cheaper rate. Hence, while answering the question whether antidumping duties should be imposed or not it is pertinent to examine the impact that dumping may be having on the consumer and not just on the industry.
Many economists have argued that the positive impact that dumping may have on consumers may offset the negative impact on the industry and hence result in overall economic welfare. In such a case there is no economic rationale to impose antidumping duties, as it may actually reduce the economic welfare. However, the terms of debate on antidumping are such that its impact on consumers is never examined.
Similarly, a single monopoly producer who wants to keep all competition out of the market may successfully get the government to impose antidumping duties. For instance, as we have seen, a single monopoly producer who may constitute 70 percent or more than 50 percent of the total production of a particular product is in a position to apply for the imposition of antidumping duties. In such a scenario the voice of the producers who constitute the rest 30 percent or less than 50 percent is never heard.
These concerns were taken on board at the Doha Ministerial meeting of the World Trade Organisation (WTO) in 2001. Member countries of the WTO agreed that there is a need to correct the hasty and discriminate use of antidumping measures. In this regard the following submissions have been made by developing countries:
Lesser Duty Rule: This rule (discussed above) should be made mandatory and should not remain voluntary for countries. In other words if countries are able to remove the injury to domestic industry by imposing duty that is less than the full dumping margin, then it should be mandatory for them to impose antidumping duty that is less than full dumping margin and not equivalent to full dumping margin.
Sunset Clause: Countries should not be allowed to impose antidumping duties beyond the period of five years. Only in extreme circumstances should it be increased to another year.
Back-to-Back initiation: In cases where a particular country imposed antidumping duty and it was successfully challenged by the other country in the dispute settlement body of the WTO, then the losing country should not be allowed to once again subject the same good to an antidumping investigation. |
