INTRODUCTION

In the international marketplace, imports are an important part of many

sectors. Imported goods increase options for purchasers and consumers and
can ensure more competitive products from domestic sources. However,
imports can also distort the outcome of competition in the marketplace when
the foreign producer/exporter is able to engage in discriminatory pricing on
exports. For more than one hundred years, one or more trading nations have
had a remedy to address international price discrimination where a domestic
industry is injured. This remedy flows from a countrys antidumping duty law.
Dumping occurs when a product is sold for export for a price below that
which the same product is sold in the home market or at a price that is below
its full cost of production. The rights of trading nations to impose such
remedies have been recognized in the GATT (and now the WTO) since the
GATTs origins in 1947/48.

Prior to the 1980s, there were only a few countries who were relatively active
in pursuing antidumping actions. They are nowadays regarded as 5
traditional users, and these include Canada, the United States, the European
Union, Australia, and New Zealand. Today the situation changes a lot. More
than 75 countries (treating the EU as one) have adopted antidumping law
and the number of antidumping investigations has risen sharply during the
last two decades. The increasing use of antidumping policy has gained a lot
of attention from policy makers as well as academics.

To begin with, it is crucial to understand clearly what dumping is all about. To

general public, dumping sounds like an evil action where a foreign firm cuts
price below cost in the domestic market in order to eliminate domestic
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producers and gain monopoly power afterwards. Hence dumping is harmful

for society because it hurts not only the domestic producers but also
consumers. The reason is that the dumping firm can raise the price to the
monopoly level once the market has been monopolised. Such business
practice is clearly undesirable and this is the perception taken by a huge
number of free trade opponents. In fact, this perception is completely wrong.
It has nothing to do with dumping under the law.

According to the WTO rules, a firm is said to dump if it sells its product in
another country at a price less than the normal value. The normal value is
defined as the price it charges in its local country, or in a third country, or
the constructed price (the constructed price is calculated by the authority
concerned when the first two are unavailable). Therefore, it does not matter
whether a foreign firm sells at a higher or lower price than the domestic
ones; as long as the price charged in the domestic country is below that in its
own country, the firm can be found allegedly dumping.

Nevertheless, one may still believe that dumping is unfair because products
of the same quality should be priced equally wherever they are sold. But,
thinking about it more carefully, it is rather strange if the prices are identical
everywhere. There are so many factors that make price differ across
markets; tariff, market size, demand structure, and so on. Moreover,
dumping can be viewed as a sign of price discrimination. This common
business practice is acceptable domestically and there is no reason why it
cannot be done internationally. If it is good to sell concert tickets to school
students at a cheaper price than those for adults, why is it bad to sell
medicines in Uganda at a price less than in the United States?

The only unacceptable type of dumping is predatory dumping which is rather

similar to the wrong perception mentioned above except that price
differential between two countries needs to be taken into account as well. By
all means, this kind of dumping is really harmful. Fortunate enough, it is very
unlikely (if ever possible) that predatory dumping could occur at all. In
theory, if we allow new entrants to compete in the market, the dumping firm
will never be able to raise the price up, and it will never be able to sell below
cost forever either. In reality, there is no evidence of such kind of dumping.

Many governments take action against dumping in order to defend their

domestic industries. The WTO agreement does not pass judgment. Its focus
is on how governments can or cannot react to dumping it disciplines antidumping actions, and it is often called the Anti-Dumping Agreement.
(This focus only on the reaction to dumping contrasts with the approach of
the Subsidies and Countervailing Measures Agreement.) The legal definitions
are more precise, but broadly speaking the WTO agreement allows
governments to act against dumping where there is genuine (material)
injury to the competing domestic industry. In order to do that the
government has to be able to show that dumping is taking place, calculate
the extent of dumping (how much lower the export price is compared to the
exporters home market price), and show that the dumping is causing injury
or threatening to do so.

GATT (Article 6) allows countries to take action against dumping. The AntiDumping Agreement clarifies and expands Article 6, and the two operate
together. They allow countries to act in a way that would normally break the
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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.

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 products
normal value. The main one is based on the price in the exporters
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 exporters 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. Detailed
procedures are set out on how anti-dumping cases are to be initiated, how
the investigations are to be conducted, and the conditions for ensuring that
all interested parties are given an opportunity to present evidence. Anti4

dumping measures must expire five years after the date of imposition, unless
an investigation shows that ending the measure would lead to injury.
Anti-dumping investigations are to end immediately in cases where the
authorities determine that the margin of dumping is insignificantly small
(defined as less than 2% of the export price of the product). Other conditions
are also set. For example, the investigations also have to end if the volume
of dumped imports is negligible (i.e. if the volume from one country is less
than 3% of total imports of that product although investigations can
proceed if several countries, each supplying less than 3% of the imports,
together account for 7% or more of total imports). The agreement says
member countries must inform the Committee on Anti-Dumping Practices
about all preliminary and final anti-dumping actions, promptly and in detail.
They must also report on all investigations twice a year. When differences
arise, members are encouraged to consult each other. They can also use the
WTOs dispute settlement procedure.