Question

Case Study-2

International trade theories argue that nations should open their doors to trade Conventional free trade wisdom says that by trading with others, a country can offer its citizens a greater volume and selection of goods at cheaper prices than it could in the absence of it. Nevertheless, truly free trade still does not exist because national governments intervene. Despite the efforts of WTO (World Trade Organization) and smaller groups of nations, government seems to be crying foul in the trade game now more than ever before.

We see efforts at protectionism in the rising trends in governments charging foreign producers for "dumping" their goods on the world market. Worldwide, the number of anti-dumping cases that were initiated stood at about 150 in 2014, 225 in 2015, 230 in 2016, and 300 in 2017.

There is no shortage of similar examples. The US charges Brazil, Japan, and Russia with dumping their products in the US market as a way out of tough economic times. The US steel industry wants the government to slap a 200 percent tariff on certain types of steel. But car makers in US are not complaining, and General Motors even spoke out against the anti-dumping charges — as it is enjoying the benefits of low cost steel for the use in its auto production. Canadian steel makers followed the lead of the US and are pushing for anti-dumping actions against four nations.

Emerging markets too, are jumping into the fray. Mexico recently expanded coverage of its Automatic Import Advice System. The system requires importers (from a selected list of countries) to notify Mexican officials of the amount and price of the shipment 10 days prior to its expected arrivals in Mexico. The ten day notice gives domestic producers advance warning of incoming low priced products so they can complain of dumping before the product clear customs and enter the market place. India is also getting onboard by setting up a new government agency to handle anti-dumping cases.

Why dumping is on the rise for the first place? The WTO has made major inroads on the use of tariffs, slashing them across every product category in recent years. But the WTO does not have the authority to punish companies, but only governments. Thus the WTO cannot pass judgments against individual companies that are dumping their products in other markets. It can only pass the rulings against the governments of the country that imposes anti-dumping duty. But the WTO allows countries to retaliate against nations whose producers are suspected of dumping when it can be shown that:

i) The alleged offenders are significantly hurting the domestic producers.

ii) The export price is lower than the cost of production or lower than the home market price.

Supporters of anti-dumping tariff claim that they prevent dumpers from undercutting the price charged by the producers in a target market and driving them about of business. Another claim in support of anti-dumping is that it is an excellent way of retaining some protection against the potential dangers of totally free trade. Detractors of anti-dumping tariffs charge that once the tariffs are imposed they are rarely removed. They also claim that they cost companies and governments a great deal of time and money to file and argue their cases. It is argued that the fear of being charged with dumping causes international competitors to keep their price higher in the target market than would have otherwise be the case. This would allow domestic companies to charge higher prices and not loose market shares forcing consumers to pay more for their goods.

Required Question

Questions 01: Based on the above case study, evaluate the effects of dumping on domestic business and also on the consumers

Answer 1

Ans 1) The effects of dumping on domestic business is that when other countries dump their products at a price lower than the price of domestic business then the domestic business cannot compete with them and as a result, they suffer huge losses because consumers like to buy low-cost products and the domestic business sales fall as a result of this while the makers of certain products get benefit from them as they get raw material at a very low price as it can be seen from the case that when Brazil, Russia, and Japan dumped their products to the US markets, the US steel industry wanted the government to slap a 200 percent tariff on certain types of steel products but the carmakers in the US were not complaining as they got low-cost steel for the use of auto production.

The effect of dumping on consumers is that they have to pay more price for the goods as it can be seen from the case that the international competitors fear for being charged with dumping and so they keep their price higher in the market where they want to dump their products and which allows the domestic companies to charge higher prices without losing their market shares which in turn forces consumers to pay a higher price for their goods.