Effects of Dumping.
The low prices of the imported products may harm the domestic industry which is producing like products;
The consumers and industrial users of the product in the importing country may benefit from such low prices.
Impact on trade.
Generally, the very initiation of an investigation on dumping gives rise to uncertainty in the exports from the country under investigation to the investigating importing country. Importers may start shifting their sources of supply. Usually, the investigation takes a long time, and even if finally there is a negative determination of injury of dumping, some damage would already have been done, with some loss of market for the exporting country.
Developing countries are exposed to a considerable degree of uncertainty about their export prospects as they have been facing a large number of anti-dumping investigations.
Classification.
Persistent dumping or international price discrimination, is the continuous tendency of a domestic monopolist to maximize total profits by selling the commodity at a higher price in the domestic market than internationally.
Predatory dumping is the temporary sale of a commodity at below cost or at a lower price abroad in order to drive foreign producers out of business, after which prices are raised to take advantage of the newly acquired monopoly power abroad.
Sporadic dumping is the occasional sale of a commodity at below cost or at a lower price abroad than domestically in order to unload an unforeseen and temporary surplus of the commodity without having to reduce domestic prices.
Cases in history
In the late twentieth century, Japan was accused of dumping steel and television sets in the US, and European nations of dumping cars, steel, and agricultural products. With the development of international trade, however, more and more developing countries are exposed to charges of dumping by developed countries.
Disciplines regarding anti-dumping measures.
Existence of dumping
- Existence of material injury or threat of material injury to domestic industry producing like products
- Causal link between dumping and injury
- Margin of dumping
If an enterprise is found to be dumping its products and if such dumping is causing injury to the domestic industry in the importing country, the importing Members can impose a countervailing duty on the imports up to the maximum extent of the margin of dumping, i.e., the quantum of dumping.
Three steps in determining the existence of dumping
1. determination of the export price
2. determination of the normal value
3. comparison of the export price and the normal value
The major importing countries have enacted very complex procedures to adjust the available data for the export price and the normal value so as to make them reasonably comparable.
Export Price
Generally, the export price will be based on the transaction price at which the foreign producers sells the product to an importer in the importing country. In some cases, however, this price may not be available or reliable:
- the export transaction is an internal transfer
- the product is exchanged in a barter transaction
- the exporter and the importer may be associated
- the exporter and the importer may have some mutual compensatory arrangement between them or a third party.
In such cases, an alternative method of determining an appropriate export price or calculating a constructed export price for comparison is needed.
Constructed export price: The basis for calculating the constructed export price is the price at which the imported product is first sold to an independent buyer. If the product is not resold to an independent buyer or is not resold in its original imported condition, the authorities in the importing country may determine the constructed export price on some reasonable alternative basis.
Normal Value.
General rule for the determination of normal value:
The normal value is generally the price of the product at issue or the price of the like product, in the ordinary course of trade, when destined for consumption in the exporting country market.
Sometimes, it may not be possible to consider the sale price in the exporting country because:
- there is no sale of the like product in the exporting country
- the sale is made in a particular market situation
- sales volume in the domestic market of the exporting country is less than 5% of the sale of the product to the importing country
- sales in the domestic market of the exporter are made below cost
Ordinary course of trade
This concept has been clarified by citing negative situations:
- the exporters and importers are related
- the sale price is consistently below the cost price
- the product is made for a single and specific purpose according to exclusive specifications
Particular market situation:
- there may be strict government control on prices and prices may not be determined based on market conditions, but on several other social and political considerations
- there may be different patterns of demand for the product in the exporting and importing countries
Sales below cost.
Prices consist of fixed costs, variable costs, plus the amounts for administrative, selling and general costs/expenses and amounts for profits. This issue has particular significance as it has a bearing on the calculation of the dumping margin. If prices below cost in the exporting countries are left out while calculating the normal value, there will be a bias towards arriving at a higher normal value and therefore a higher dumping margin. Generally, prices below cost will be included in calculating the normal value. When there is evidence of persistent sales at lower prices and when large quantities are involved, sales below cost will be excluded from the calculation of normal value.
Conditions for exclusion of sales below cost from calculation
- such sales are made within one year, and in no case less than six months
- the volume of such sales is 20% or more of the volume under consideration in determining normal value
- the weighted average selling price of the transaction under consideration is below the weighted average per unit cost, and therefore cannot provide for the recovery of all costs within a reasonable period of time
Cost of production
Normally, the cost will be calculated based on the records kept by the exporter or producers under investigation if:
- such records have been kept in accordance with the generally accepted accounting principles of the exporting country, and
- the records reflect reasonably the costs associated with the production and sale of the product.
Some adjustments in the cost will be required as there may be some items of cost which are spread over products beyond those which have been exported, such as R&D costs, costs relating to start-up operations.
Alternative Methods for Calculating Normal Value
If the recorded sale price for the product in the exporting country cannot be taken for the purpose o of calculating the normal value, the normal value will be determined as:
a comparable price of the like product when exported to an appropriate third country
a constructed normal value based on the cost of production in the country of origin plus administrative, selling and general costs/expenses and profits
Which of the two alternatives should be adopted will depend on the discretion of the importing country.
According to GATT 1994 and the Agreement, importing countries have exercised significant discretion in the calculation of normal value of products exported from non-market economies where the governments have a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by states.
Comparison of Export Price and Normal Value (Calculation of Dumping Margins)
General disciplines
The comparison must be made at the same level of trade, normally the ex-factory level, and the comparison must be of sales made at as nearly as possible the same time. Due adjustments should be made for differences which affect price comparability, such as differences in conditions and terms of sale, taxation, levels of trade, quantities, physical characteristics, etc.
In cases where the export price is constructed on the basis of sale to the first independent buyer, adjustments should be made for costs incurred between importation and resale, such as duties and taxes, and also for profits. In most cases, the comparison of the export price and the normal value will involve conversion of currencies. The rate of exchange on the date of sale (i.e., the date of the instrument which establishes the material terms of sale) will be considered.
Level of trade refers to the stage of transaction, e.g., whether the sale is to retailers, to local distributors, or to regional distributors. If levels other than ex-factory level have entered into the calculations, they will have to be reduced to ex-factory level by making suitable adjustments.
Normal method for comparison of prices
After having made all the relevant calculations, the actual comparison will normally be made according to the following methods:
- a weighted average normal value will be compared with a weighted average of the prices of all export transactions
- the normal value will be compared with the export price on a transaction-to-transaction basis
This parity in comparison is important as it ensures a degree of fairness. If the average normal value were to be compared with the export prices in individual transactions, it will generally result in a higher dumping margin. In averaging the export prices of various transactions, the higher export prices get balanced with the lower prices and, the margin becomes smaller.
Exceptions-Targeted Dumping
A weighted average normal value may be compared with the export prices of individual transactions when there is a pattern of export prices differing significantly among purchasers, regions or time periods. To prove a pattern in respect of regions, for example, it will be necessary to show that the prices of products exported to a particular region in the importing country are usually different from the prices for other regions.
Determination of Injury
In order to impose anti-dumping duties, the investigating authorities of the importing Member must make a determination of injury.
Coverage of injury: Injury covers material injury to a domestic industry, or threat of material injury to a domestic industry, or material retardation of the establishment of a domestic industry.
Elements of analysis: To confirm the determination of injury, a Member must examine the volume of dumped imports either in absolute terms or relative to production or consumption in the domestic industry, and price effects of dumped imports on the domestic market such as significant price undercutting by the dumped imports as compared with the price of a like product of the importing Member or price depression or prevention of price increase of domestic like products evaluate the impact of dumped imports on the domestic industry, such as actual or potential declines in sales, profits, output, market share, productivity, return on investment, utilization of capacity, actual or potential effects on cash flow, inventories, employment, wages, growth, ability to raise capital or investment
Demonstration of Causal Link.
A demonstration based on an examination of all relevant evidence must be given to show that there is a causal relationship between the dumped imports and the injury to the domestic industry. Apart from dumping, other factors such as changes in the pattern of demand or developments in technology may cause injury to domestic producers. Injury caused by such factors must not be attributed to dumped imports.
Procedures for Imposition of Anti-dumping Duties
Initiation of investigations: Generally, investigations should be initiated on the basis of written request submitted by or on behalf of a domestic industry, stating evidence of dumping, injury, and causality, as well as information regarding the product, industry, importers, exporters, and other matters.
Investigation: collection of evidence, use of sampling techniques, confidentiality of sensitive information, transparency of proceedings, on-the-spot investigations, use of best information available, etc. Investigations should be completed within one year, and in no case more than 18 months after initiation.
All interested parties should be given an opportunity to present evidence and to comment.
Anti-dumping investigations are to end immediately in cases where the authorities determine that the margin of dumping is de minimis, i.e., less than 2% of the export price, or that the volume of dumped imports is negligible, i.e., less than 3% of the imports of the like product in the importing country individually and no more than 7% collectively.
Provisional measures: Provisional measures preferably in the form of a security through cash deposit of bond may be applied if there is a preliminary affirmative determination of dumping, injury and causality 60 days after initiation of an investigation. The time limit is usually 4 months, with a possible extension to 6 months. The period of provisional measures for a Member imposing anti-dumping duties lower than the margin of dumping is 6 and 9 months respectively.
Price undertaking: In the case of preliminary affirmative determination of dumping, injury and causality, undertaking from exporters may be acceptable by revising prices to remove the effects of dumping or by ceasing exports at dumped prices to the area in question.
Imposition of anti-dumping duties: Members should collect duties on a non-discriminatory basis on imports from all sources found to be dumped and causing injury, except with respect to sources from which a price undertaking has been accepted. Moreover, the amount of the duty collected may not exceed the dumping margin, although it may be a lesser amount.
Retroactive duty: Anti-dumping duty can be imposed on products imported up to 90 days prior to the date of application of provisional measures in the following cases:
- there is a history of dumping causing injury
- the importer was, or should have been, aware that the exporter practices dumping which would cause injury
- the injury is caused by a massive volume of dumped imports in a relatively short time, which is likely to seriously undermine the remedial effect of the prospective final anti-dumping duty.
Duration and termination: The ‘sunset’ requirement establishes that dumping duties shall normally terminate no later than 5 years after first being applied, unless a review investigation prior to that date establishes that expiry of the duty would be likely to lead to continuation or recurrence of dumping and injury. This 5-year ‘sunset’ provision also applies to price undertakings.
Public Notice
Article 12 sets forth detailed requirements for public notice by investigating authorities of the initiation of investigations, preliminary and final determinations, and undertakings. The public notice must disclose non-confidential information concerning the parties, the product, the margins of dumping, the facts revealed during the investigation, and the reasons for the determinations made by the authorities, including the reasons for accepting and rejecting relevant arguments or claims made by exporters or importers.
Dispute Settlement.
Members may challenge the imposition of anti-dumping measures, in some cases may challenge the imposition of preliminary anti-dumping measures, and can raise all issues of compliance with the requirements of the Anti-dumping Agreement, before a panel established under the Dispute Settlement Understanding.
But, the role of the panel is very much restricted in the field of anti-dumping. It will only determine whether the authorities of the importing Member established the facts properly and whether they evaluated the facts in an
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