Protectionism refers to government actions and policies that restrict or restrain international trade, often done with the intent of protecting local businesses and jobs from foreign competition. It is considered to be a hindrance to the basic principle of WTO agreements i.e. to promote free and fair trade.
In today’s world tariff and non-tariff barriers are decreasing rapidly as countries are opening their markets to foreign economies. The WTO agreements provides for various trade remedies such as anti-dumping duties, countervailing duties and safeguards in order to protect the domestic industry from the adverse consequences of trade liberalization.
One of the most sought trade remedy is Anti-Dumping.
Dumping is said to occur when an exporter sells a product in an export market at a price below that which is charged for the same or some comparable merchandise in the home market(of the exporter).
The WTO Anti-Dumping Agreement and the GATT gives the right to contracting parties to apply anti-dumping measures, i.e. measures against imports of a product at an export price below its “normal value” (usually it’s the price of the product in the domestic market of the exporting country) if such dumped imports cause injury to a domestic industry in the territory of the importing contracting party (Article VI of the General Agreement on Tariffs and Trade (GATT) in 1947).
The reason why dumping is condemned is because although consumers of dumped products may benefit in the short term from lower prices, dumping sends false market signals about the underlying competitive positions of market participants.
It is pertinent to notice that the dramatic increase in the use of Anti-Dumping law is inversely related to trade liberalization schemes adopted by a country.
When high tariffs are no longer available to protect domestic industries, and most nontariff barriers, such as quotas, are outlawed as they have been in the WTO system, the only remaining effective means of protecting the domestic industry is through the trade remedy law.
Politically, it is easier for a government to punish “unfair” trade practices and to give protection to domestic industry through imposition of penalty antidumping or countervailing duties than to impose higher tariffs or quotas on domestic producers who are unable to compete with the imports.
S wherein with the help of sham Dumping calculations, developed countries like the U.S, Canada or The EU increase the cost of foreign products in the domestic markets by imposing duties which they would have been otherwise unable to impose. (the trend has now shifted even to the developing countries)
Surely Anti-Dumping may be justified in cases where foreign exporters are guilty of predatory pricing. The question that comes up at this juncture is, how often does such situation arise?
Logically it’ll be quite rare because predatory pricing relies on the unlikely ability of a single producer to dominate a world market.
The choice between Anti-Dumping and free trade can be understood easily by the Prisoners Dilemma. Everyone wins only if there is cooperation among all players (none of the Countries impose Anti-Dumping Measures).
In the case of noncooperation by one, the defector will gain the most benefits (it can apply anti-dumping duties to others' imports, without it being imposed on its own exports). Others will follow a similar rationale, until finally some late-coming countries are virtually forced to use it to simply level the trade playing field.
Navin Kumar Jaggi
Tanvi Singh
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