Dumping is the intentional mass export of goods to other countries where those goods are sold below the importing country's market price. This is done to turn out foreign competitors from the domestic market.
Types of Dumping:
There are 4 types of dumping: -
1. Predatory Dumping - Under the predatory type, exporters drive out competition in the international market by selling goods at low prices. Once the competition is eliminated, the firm can raise the product's price and gain additional revenue.
2. Sporadic Dumping - It is the practice of occasionally dumping products at lower prices primarily to eliminate excess inventory stocks. It signifies that the business does not regularly sell its products at such low prices. Hence it is an impermanent phenomenon.
3. Persistent Dumping - This type is the most popular form of cross-border dumping due to constant demand for a particular product. It helps exporting entities establish a presence and a significant market share in overseas marketplaces.
4. Reverse Dumping - In this type, the scenario is the product is priced low in the local market. At the same time, the product price is set high in the foreign market because high prices do not affect the demand.
Objectives of Dumping:
Dumping is done, keeping in mind the following objectives: -
- To find place in international market.
- To sell surplus commodity.
- Expansion of Industry.
- New trade relations.
Effects of Dumping:
Effects of dumping on importing country are as follows: -
1. Here a monopolist dumps his commodity and it depends on whether dumping is for short period or for a longer period. Even it depends on the nature of the product and the aim of dumping. If a producer dumps his commodity abroad for a short period, then the industry of the importing country is affected for a short period. Due to low price of dumping, the industry of that country has to incur a loss for some time because less quantity for its commodity is sold.
2. Dumping is harmful for long period because it takes time for changing production in the importing country and its domestic industry is not able to bear competition. But when cheap import steps or dumping doesn’t exist, it becomes difficult to change the production again.
Effects of dumping on exporting country are as follows: -
1. Where the domestic consumers have to buy the monopolist commodity at a high price through dumping, there is a loss in the consumer surplus. But if the monopolist produces more commodity in order to dump it in another country, there is consumer’s benefit. This is because, with more production of a commodity the marginal cost falls and as a result, the price of a commodity will be less than the monopoly price without dumping.
2. The exporting country also benefits from dumping when the monopolist produces more commodities. Consequently, the demand for the required inputs such as raw materials for the production increases the overall production and thereby, the means of employment in the country.
3. The exporting country earns foreign currency by setting the commodity in large quantities in foreign market through dumping. As a result, Balance of Trade (BOT) improves.
Anti – Dumping Measures:
Anti-dumping measures are actions taken by an importing country to counteract the effects of dumping. These measures are usually in the form of anti-dumping duties, which are essentially taxes imposed on the dumped imports to raise their price to a more competitive level.
Why are Anti-Dumping Measures Used?
- Protecting Domestic Industries: Anti-dumping duties help protect domestic industries from unfair competition caused by dumped imports.
- Ensuring Fair Trade: They are a mechanism to ensure that international trade is conducted fairly and that businesses are not disadvantaged by predatory pricing practices.
- Remedying Injury: Anti-dumping measures are applied only when the dumping is causing or threatening to cause material injury to the domestic industry in the importing country.
