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Dumping

Published: 
Sunday, February 18, 2018

Companies trying to break into foreign markets often employ a number of tactics to build traction.

One such tactic is the practise formally known as dumping.

Properly defined, dumping involves the export by a country or company of a product at a price that is lower in the foreign importing market than the price charged in the exporter’s domestic market.

Such a strategy may be employed by a dominant firm to attack rivals, an approach to building market share often referred to as predatory pricing.

Because dumping typically involves substantial export volumes of a product, it often has the effect of endangering the financial viability of manufacturers or producers of the product in the importing nation.

The primary advantage of dumping is the ability to permeate a market with product prices that are often considered unfair.

Participants in international trade are often accused of dumping by domestic firms charging more than rival imports.

Countries can slap duties on cheap imports that they judge are being dumped in their markets.

While the World Trade Organization (WTO) reserves judgment on whether dumping is an unfair competitive practice, most nations are not in favor of dumping.

Dumping is legal under WTO rules unless the foreign country can reliably show the negative effects of the exporting firm on its domestic producers.

To counter dumping, most nations use tariffs and quotas to protect their domestic industries from the negative effects of predatory pricing.

Further, the application of various trade agreements is also enforced to stymie the potential for dumping.

The majority of trade agreements include restrictions on dumping.

If both partners stick to the agreement, they can compete fairly and avoid it.

If two countries do not have a trade agreement in place, then there is no specific ban on trade dumping between the countries.

Many large manufacturing countries such as China and Canada have been accused of dumping their products in various export markets.

In 2017 for example, the Trump Administration warned Canada it would impose a 20 percent tariff on its $10 billion of lumber exports.

In practice, genuine predatory pricing is rare.

In any case, consumers gain from lower prices; so do companies that can buy their supplies more cheaply abroad.

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