Price Dumping¶
Price Dumping refers to the practice of exporting a product at a price significantly lower than the selling price in its domestic market, or below the cost of production. This strategy is often used to gain market share in foreign markets by undercutting local businesses or to offload surplus production.
Forms of Dumping¶
- Below Cost Dumping: International shipments are classified as dumped if the products are sold below their cost of production. This method is often aimed at eliminating competition in a foreign market by selling products at unsustainable prices.
- Market Price Dumping: This approach characterizes dumping as selling goods in a foreign market below the price of the same goods in the home market. This comparison shows a direct price disparity that affects local producers in the importing country.
Economic Perspective¶
Economists may define dumping differently, focusing on its long-term effects on competitive practices and market structures rather than just the pricing strategy.
WTO Regulations¶
The World Trade Organization (WTO) rules recognize the detrimental effects of dumping on global trade. Accordingly, WTO allows for the imposition of duties to counteract these effects: - Anti-Dumping Duties: These are levied to protect local industries from unfair competition due to dumped goods. - Countervailing Duties: Imposed on foreign goods that benefit from subsidies related to production, export, or transportation, these duties aim to neutralize the unfair price advantage.
Trade Restrictions¶
- Minimum Access Volume (MAV): This restriction limits the amount a country will import to prevent market saturation from dumped goods, thus protecting local industries.
Conclusion¶
Dumping practices can disrupt normal trade patterns and lead to significant economic distortions. By understanding and regulating such practices, countries work to maintain fair competition and protect domestic industries from potential harm caused by unfairly priced imports.
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