What is dumping?
Dumping is the sale of a product for export at less than its normal value (i.e.: profitable domestic sales prices or cost of manufacture plus a small allowance for selling, general and administrative costs and profit margin) in the market where it is produced. Dumping can happen for a range of reasons:
-It can be maintained as a short-term predatory pricing strategy by exporters designed to put competitors in an export market out of business.
-It can be the result of market intervention or state subsidy of a company's production that enables it to artificially lower the cost of export.
Predatory pricing of this kind is illegal under WTO rules if it harms producers in the export market. Of course, dumping also harms exporters in third countries, who are unable to compete with artificially cheap exports from the dumping country.
States are entitled to use WTO anti-dumping rules to ensure that predatory pricing does not unfairly harm their domestic producers. Proportionate to the size of its economy, the European Union is a very moderate user of anti-dumping measures, initiating less cases, and imposing less measures, than most other major economies including the US and India. China is also a big user of anti-dumping measures.
How is an anti-dumping investigation launched?
The European Commission undertakes investigations into complaints of dumping filed by European industry. To initiate an investigation, a credible complaint has to be received from producers representing 25% or more of European production of the product in question. Investigations last between 12 and 15 months. EU investigators collect economic and commercial data through questionnaires and on-site investigations.
A dumping investigation investigates three things: 1) if dumping is taking place; 2) if injury is being caused to European producers competing against dumped imports and 3) if acting to remove that injury is in wider European economic interests.
How do you know if dumping is taking place?
It is only possible to categorically identify dumping by undertaking a detailed analysis of the conditions in which exports are produced.
Reducing market share for European producers is not, in itself, evidence of dumping. European companies face tough competition from exports and in some sectors this competition has reduced EU producer's share of the EU domestic markets. Some EU producers have relocated production outside of Europe and their share of the EU market now appears as imports rather than domestic production. So reduction in market share alone is not evidence of dumping.
Rising imports are not, in themselves, evidence of dumping. Competitive exporters are consistently seeking to raise their exports to Europe. Imports of both textiles and shoes to the European Union from China have surged since 1 January 2005 when quotas on these imports were lifted and importers were able to place new orders with highly competitive producers there. Although this shift in production and the fall in unit prices that such new economies of scale for exporters can bring can be unnerving for European producers, they do not necessarily represent unfair trade, and they alone are not evidence of dumping.
The clearest prima facie evidence of dumping is usually a drop in export unit prices for the product in question sold to Europe when compared to equivalent costs elsewhere - although this can also be simply the result of technological innovation or industry rationalisation. A drop in export unit prices of this kind will often produce a rise in import volumes as importers move to the cheapest producer in the market - which is why dumping is usually associated with rising import volumes. So a fall in unit prices for imports is not in itself evidence of dumping.
Only an investigation of the conditions of production of an exported product can produce unequivocal evidence that it is being exported below normal value.
Are anti-dumping measures `protectionism'?
No. Acting to limit the damaging effects of dumping is not protectionism - dumping is contrary to any understanding of what constitutes fair trade. Anti-dumping measures use a tariff to raise the price of illegally under-priced imports to better reflect their actual value.
The `lesser duty' rule used in Europe (but not, for example, in the United States) means that our measures either:
close the margin of dumping, which is the difference between the export price of the dumped product and its true value or;
close the margin of injury, which is the difference between the export price of the dumped item and the sales price for the equivalent EU product, whichever is less.
This means that an anti-dumping duty can still leave an imported product cheaper than the equivalent EU product, and it ensures that anti-dumping measures cannot be used to make imports more expensive than the equivalent EU product.
Anti-dumping measures counter the effect of illegal under-pricing through state subsidy or predatory commercial practice; they do not shield European producers from tough but legitimate competition. Anti-dumping measures do not take the form of quantitative restrictions or import quotas, there is no ban on the goods in question and no limit to their export to Europe.
Anti-dumping measures will not save uncompetitive European producers - but they will create a market in which comparative advantage is exercised fairly.
But don't consumers benefit from cheap imports - however they are produced?
This is in many cases true - although if illegal under-pricing eliminates meaningful competition and prices are then raised again the benefits can be short-lived. European rules on anti-dumping require that the Commission must weight the potential costs to consumers, importers and retailers in acting to address dumping. If the costs imposed elsewhere in the European economy by raising the price of under-priced imports are greater than the loss to the European economy through unfair pricing, the Commission has the option of not acting.
It is worth noting that we do not usually regard consumers as being entitled to enjoy cheap goods by any means - for example, most people think cheaper goods do not justify tolerance of abusive labour standards or damagingly weak environmental standards. Dumping is illegal in international trade law and is often based on state intervention in free and fair competition. The extent to which we are willing to tolerate it is a decision that needs to be weighed very carefully indeed.
What is the role of MES in an anti-dumping investigation?
Market Economy Status (MES) is a technical status applied to an economy. The criteria for Market Economy Status are as follows:
-Prices, costs and inputs have to be determined by supply and demand;
-Firms have to have one clear set of basic accounting records, independently audited in line with international standards;
-The production costs and financial situation of firms must not be subject to significant distortions carried over from previous non-market economy systems;
-Firms are subject to bankruptcy and property laws;
-Exchange rate conversions must be carried out at markets rates.
The absence of these conditions suggests a serious lack of transparency in commercial accounting standards and possible serious state intervention in production, exchange rate controls or commercial finance. These conditions mean it is not possible to accurately determine the genuine costs of production in the economy at face value because the apparent costs are distorted by the absence of market conditions. WTO law requires in this situation that an analogue country of similar productive capacity be used to model costs in market economy conditions.
Even in a non-Market Economy Status country individual companies can sometimes meet MES criteria. When undertaking an investigation in a non-MES country the European Commission assesses each sample company individually to determine if it operates according to MES standards.
It has been suggested that the non-granting of MES makes a finding of dumping inevitable. This is not true. The decision means only that a third and analogous country, is used to determine sales and cost data that cannot reliably be determined in the country under investigation itself. It does not in any way imply that a finding of dumping is inevitable.
How does the `analogue country' procedure work?
The rules for the analogue country procedure are set out in the 1994 WTO Anti-dumping Agreement. An investigation that is not able to gather credible data from a non-market economy is required to use a country in which the general capacity of production closely approximates that of the investigated country. The intention is to allow investigators to model the costs of production in the exporter country as if that country operated on market economy conditions.
Most importantly, the intention is not to choose a country that recreates the conditions of production in the investigated country because by definition those conditions are not known, or have been distorted by the fact that market economy conditions do not operate. The analogue country allows investigators to model what those costs might be if market economy conditions prevailed.
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