Economic DUMPING in export Business

Economic DUMPING in export Business

What is Economic Dumping in EXIM business?

Economic dumping is taking place all around us.  When an exporter sells a product in another country at a lower price compared to the price of the same product in the destination country. The Exporters thus flood the market of importing country with merchandise at considerably lower prices. This causes a serious setback to other companies manufacturing the same products and selling at higher price in their domestic market. Dumping usually involves exporting large quantities of a product in the foreign market. Dumping can have harmful impacts on international trade, and some countries disapprove the practice.

To make the dumping easy to understand, let us assume that India is manufacturing and selling bicycles at certain price. Suddenly the importers get a better deal of similar or better products at considerably lower price and in high volume. This causes a turmoil among the manufacturers of bicycles who are unable to compete with the new imported bicycles. They have hard time selling their product. Consequently, this causes a persistent demand and the country of export begins do persistent dumping of their products. The goal of dumping is almost always to gain a competitive advantage in a foreign market.

Is it possible to identify Dumping?

It is somewhat difficult to identify dumping trade practice. Sometimes an imported product may have lower price compared to the value of the same product in the domestic market of country of import. It is difficult to prove that the product imported from another country or exported by the vendor of country of export and sold at a lower price amounts to “Dumping trade”.

It is also nearly impossible to compare market value of a product or number of products assumed to be as “Dumped” in two different countries for various reasons. Nevertheless, analysis to determine the price in the exporting country and the export price of same product may throw some light on the trade practice.

Dumping and its kinds

According to international trade, dumping can be classified into 4 segments:

  1. Predatory dumping: Predatory dumping means perpetual sale of goods in a foreign market at lower price than the existing price in the country of import. The goal of grasping dumping is to eliminate competition in the foreign market and create a monopoly.
  2. Sporadic dumping: Sporadic or periodic dumping happens as a result of   excessive unsold produce. The country that exports products on periodic basis or sporadically export their excessive produce to another country and sell at a lower price.   
  3. Persistent dumping: Persistent dumping happens due to high and persistent demand of a product or a number of products in foreign market.   The exporting company prefers to sell their goods at relatively lower price due to high turnover.
  4. Reverse dumping: Reverse dumping happens due to low demand of the product or a number of products on a foreign soil. The exporter sells the goods at a higher price as compared to their domestic market. 

Advantages of economic dumping

  • Increased market share for the exporting country.
  • Government incentives and subsidies to the exporting enterprises for increase in world market share.
  • The consumer in importing country pays lower price for the same or similar product produced within the domestic market.

Disadvantages of economic dumping

  • Incentives and subsidies can become a deterrent for exporting company.
  • Possible retribution by importing countries.  
  • Possible reservations by World Trade Organization (WTO) and other such trading alliances.
  • Bitter trade relationships between countries.

Anti-dumping measures and its effects.

Every country tries to use the basic method of discouraging dumping by exporting country by imposition of duties and other tariffs. This can help their producers to sell their goods in domestic market. According to the rules of WTO, dumping is not illegal trade practice. 

Exporters have to be cautious while exporting products in a high volume at lower price than the prices prevailing in the country of import. Similarly they should desist from offloading large quantity of raw material or products in semi-knocked down condition (SKD) or completely knocked down condition (CKD) that resemble dumping. Such practice can become a storm in the eye of the importing country and have adverse effect in trade relations.

EXIM service providers and their benefits

Services of organizations like EXIM Anything can be of a great help to both importing and exporting countries with respect to their trades, tariff calculations, necessary codes market survey and logistics. This facility is part of SMART inclusive services offered by EXIM Anything.

By

Syed M Faredie