Problem:
"You can't tell consumers that the low price they are paying for that fax machine or automobile is somehow unfair because the selling company is dumping its products in the U.S. Consumers are not concerned with the profits of some company. To them, it's just a great bargain." Do you agree with this statement? Please discuss this question in terms of this case:
Down with Dumping
"Canada Launches WTO Challenge to U.S....Mexico Widens Anti-dumping Measure...China to begin Probe of Synthetic Rubber Imports...Rough Road Ahead for U.S. -China Trade...It Must Be Stopped," are just a sampling of headlines from around the world.
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 quantity and selection of goods at cheaper prices than it could in the absence of trade. Nevertheless, truly free trade still does not exist because national governments intervene. Despite the efforts of the World Trade Organization (WTO) and smaller groups of nations, governments still cry foul in the trade game. On average 234 antidumping cases are initiated each year.
In the past, the world's richest nations would typically charge a developing nation with dumping. But today, emerging markets, too, are jumping into the fray. China recently launched an inquiry to determine whether synthetic rubber imports (used in auto tires and footwear) from Japan, South Korea and Russia are being dumped in the country. Mexico expanded coverage of its Automatic Import Advice System. The system requires importers (from a select list of countries) to notify Mexican officials of the amount and price of a shipment ten days prior to its expected arrival in Mexico. The ten-day notice gives domestic producers advanced warning of low-priced products so they can report dumping before the products clear customs and enter the marketplace. India set up a new government agency to handle antidumping cases. Even Argentina, Indonesia, South Africa, South Korea and Thailand are using this recently popular tool of protectionism.
Why is dumping so popular? Oddly enough, the WTO has a hard time prohibiting it. The WTO has made major inroads on the use of tariffs, slashing them across almost every product category in recent years. But it does not have authority to punish companies, only governments. Thus the WTO cannot make judgments against individual companies that are dumping products in other markets. It can only pass rulings against the government of the country that imposes and antidumping duty. But the WTO allows countries to retaliate against nations whose producers are suspected of dumping when it can be shown that " (1) alleged offenders are significantly hurting domestic producers and (2) the export price is lower than the cost of production or lower than the home market price.
Alternatives to bringing antidumping cases before the WTO do exist. U.S. President George W. Bush relied on a Section 201 or "global safeguard" investigation under U.S. trade law to slap tariffs of up to 30 percent on steel imports. The U.S. steel industry had been suffering under an onslaught of steel imports from Brazil, the European Union, Japan and South Korea. Yet nations still brought complaints about the action before the WTO. Similarly, in 2004 the U.S. government slapped around 100 percent tariffs on shrimp imported from China and Vietnam, charging those nations with dumping their crustaceans on U.S shores.
Supporters of antidumping tariffs claim that they prevent dumpers from undercutting the prices charged by producers in a target market, driving them out of business. Another claim in support of antidumping is that it is an excellent way of retaining some protection against the potential dangers of totally free trade. Detractors of antidumping tariffs charge that once such tariffs are imposed they are rarely removed. They also claim that it costs companies and governments a great deal of time and money to file and argue their cases. It is also argued that the fear of being charged with dumping causes international competitors to keep their prices higher in a target market than would otherwise be the case. This would allow domestic companies to charge higher prices and not lose market share—forcing consumers to pay more for their goods.