CHAPTER II

ANTI-DUMPING MEASURES: CONCEPT, MEANING AND

DIMENSIONS

For any theoretical study it is first of all important to trace the roots of the subject matter.
A proper conceptual understanding is fundamental for developing a comprehensive approach
towards analyzing any subject that can lead to a meaningful discussion resulting into valuable
outcomes. The present chapter therefore, focuses on understanding the meaning, definitions,
conditions, classifications, justifications etc. related with dumping and Anti-Dumping measures.
The chapter also focuses on the theories and debates that led to the development of this branch of
International trade law. The objective of writing this chapter is to lay down the detailed
conceptual canvas that can facilitate the study of Anti-Dumping measures in detailed manner in
the upcoming chapters of this work.

2.1. Origin and Nature of International Trade:

International trade is the trade between states or nations entirely foreign to each other. It is
one of the most important economic activities to ensure the development and prosperity of any
nation. International trade allows the countries to consume goods which they would not have
been able otherwise for lack of indigenous raw materials or technology to produce and to earn
considerable foreign exchange by selling goods which they are able to produce or manufacture at
an advantage over other countries. The mutual demand and supply for goods between nations in
turn stimulates the economy, resulting in growth of economy and employment generation.
Considering the fact that no country is wholly self-sufficient, the movement of goods from one
place to another stimulates the movement of capital, and capital enables a global financial system
to remain stable. Indeed, despite some of the difficulties globalization has brought into the
international trading system, international trade by and large remains a significant key to
economic success and development.3

3
Jason C. T. Chuah, “Law of International Trade: Cross border Commercial Transactions”, (2009), p.1
 International trade therefore, refers to trade between the residents of two different countries.
International trade takes place due to geographical division of labour. Quick transport and
communication facilities and improvement in science and technology made easy the
International trade. As per Halsbury‟s laws of England the word „trade‟ bears the meaning of:

(a) Exchange of goods for goods or goods for money;

(b) Any business carried on with a view to profit, whether manual or mercantile as
distinguished from the liberal arts or learned professions and from agriculture.4

„Trade‟ means lending, movement of goods, transactions linked with merchandise or flow of
goods, the promotion of buying and selling advance borrowings, discounting bills and mercantile
documents, banking and other forms of supply of funds. 5The word business however, is wider
than the term trade and includes any occupation.

The trade across the borders of the countries has been carried on since times immemorial. In
the past there were many countries and kingdoms that were considered foreign to each other. In
ancient times with the division of labour man could produce surplus and the producers used to
export their products to the nearby countries. Gradually this practice extended the export to far
off countries. With industrial revolution, the great industrial nations of Europe, i.e., the colonial
powers of Spain, Portugal, Denmark, France, Italy and Britain needed colonies to supply them
with raw materials. The European nations embarked upon imperialism for the sake of strategic
raw materials and markets for their products. Trade to far off countries started to grow due to sea
transportations. Boats and ships had been built and especially European countries expanded their
trade with foreign countries. Guilds were formed to carry on trade on large scale and later on
companies were formed to carry on trade on large scale with other countries. 6

The post World War II period witnessed an unexpected expansion of national companies into
international or multinational companies. The post 1990s period has given greater fillip to
International trade.7The multinational companies which were producing the goods in their home
countries and marketing them in various foreign countries before 1980s started locating their

4
S.R. Myneni, “International Trade Law”, (2008), p. 1
5
ibid
6
ibid, p. 2
7
ibid
plants and other manufacturing facilities in foreign countries. Thus, the scope of international
trade expanded into international marketing and international marketing expanded into
international business.8

2.2. International Trade Theories:

The great economic scholar Adam Smith in his celebrated work “The Wealth of Nations”
has advised never to attempt to make at home what it will cost more to make than to buy.
Successive generation of economists have supported and refined Smith‟s argument contending
that “if foreign country can supply us with commodity cheaper than we ourselves can make it,
better buy it of them with some part of the produce of our own industry, employed in a way in
which we have some advantage.”9 This is known as the concept of comparative advantage on
which the principle of free trade rests. Economists contend that a decentralized market system
that allows producers and consumers the freedom to choose according to market prices will
provide the most efficient allocation of the scarce resources, and this will result in gain in real
national income. Under free trade comparative advantage dictates that a country should exchange
what it can produce more efficiently. Even if a country could produce every commodity well
(absolute advantage), it would still gain by specializing in its better products (comparative
advantage). Economists do not admit of many exceptions to free trade. Exceptions arise only
when the domestic markets fail to allocate the resources efficiently or non-economic objectives
receive priority. Equal application of market economic principle to all firms is considered to be
the backbone of free trade. On the other hand, unfair trade like subsidized and dumped imports
hurt the free competitive market which is considered essential to free trade.10 In this backdrop
certain theories developed worldwide for the promotion of free trade.

2.2.1. Theory of Absolute Difference in Cost:

In support of International trade Adam Smith, the father of economics said that trade
between the countries would be mutually beneficial if one country could produce one commodity

8
Supra note 2
9
Adam Smith, “Wealth Of Nations”, Bantam Classic ed., (2013), p. 596
10
Meier, Garald M., “The International Environment of Business: Competition and Governance in the Global
Economy”,(1998), p.7
at an absolute advantage over the other country and the other country could, in turn, produce
another commodity in an absolute advantage over the first.11

Basing on free trade, Adam Smith explains the advantage of trade between countries
through his „Absolute Cost Theory‟. He observes: “whether the advantage which one country
has over another, be natural or acquired is in the respect of no consequence. As long as one
country has those advantages, and the other wants them, it will always be more advantageous
for the latter, rather to buy of the former than to make”. According to this theory, if France
produces 10 units of wine and 4 units of cloth per unit of labour and England produces 3 units of
wine and 7 units of cloth per unit of labour, France has an absolute advantage in the production
of wine over England and England has an absolute advantage in the production of cloth over
France. Hence, according to Smith, France should specialize in the production of wine and meet
its requirement of cloth through import from England. On the other hand, England should
specialize in the production of cloth and should obtain wine from France. Such trade would be
mutually beneficial.

2.2.2 Theory of Comparative Cost:

Later David Ricardo has also supported International trade by his „comparative cost
theory‟. He maintained that if trade is left free, each country, in the long run, tends to specialize
in the production and export of those commodities in whose production it enjoys a comparative
advantage in terms of real costs, and to obtain by importation those commodities which could be
produced at home at a comparative advantage in terms of real costs and that such specialization
is to the mutual advantage of the countries participating in it.12The law of comparative advantage
indicates that a country should specialize in the production of those goods in which it is more
efficient and let the production of other commodity to the other country to carry on. The two
nations will then have more of both by engaging in trade.

According to Ricardo‟s comparative cost theory free and unrestricted trade among nations
encourages specialization on a large scale and brings the following advantages:

11
Supra note 2, p.2
12
Luis A. Rivera Batiz & Maria Angels Oliva, “International Trade, Theory, Strategies and Evidence”, (2003), p. 1
 a) The most efficient allocation of world resources as well as maximization of world
production;
b) A redistribution of relative product demands, resulting in greater equality of product
prices among trading nations; and
c) A redistribution of relative resources/demands to correspond with demand and with the
introduction of money13

2.2.3. Equilibrium Theory:

Eli Heckscher and Bertil Ohlin developed the „factor endowment theory‟ or „general
equilibrium theory‟ of International trade.14 The framework developed by Eli Heckscher and
Bertil Ohlin assumes that countries have the same technologies but specialization and trade are
determined by relative factor abundances. Consider two countries trading capital intensive and
labour intensive manufacturers and import labour intensive manufactures. The country that is
relatively more capital abundant in the sense of featuring a greater endowment of capital per
worker is predicted to export capital intensive manufactures and import labour intensive
manufactures. The idea is that, in a scenario with no trade, the relatively abundant factor earns a
low rent rate in relation to other factor. There are thus incentives to specialize and export the
product that uses the relatively scarce factor more intensively. The relative factor abundance
theory, or simply the factor abundance theory, is useful in explaining a significant part of word
“trade”. For instance the exchange of U.S. manufactures for Venezuelan oil can be explained by
the fact that skilled labour is relatively abundant in the United States while oil is relatively
abundant in Venezuela.15

Paul Samuelson and Wolfgang Stolpher have further developed this theory. They have
traced the cause of cost differences to relative factor endowments and relative factor intensities.
They have put forward the view that since countries differ in their factor endowments and also
employ factors for production of exports in different intensities, there is scope for gains in
International trade. According to this theory, a country will specialize in the production and
export of goods whose production requires a relatively large amount of the factor with which the

13
Supra note 7, p. 3
14
ibid
15
Supra note 2, p.2
country is relatively well endowed. Regions or countries differ from one another in respect of
resource endowments or availability of factors. One country may have capital while labour may
be scarce. On the opposite, there may be an abundance of labour in another country while capital
may be scarce. According to this theory, countries which are rich in labour will export labour-
intensive goods and those which are rich in capital will export capital-intensive goods.
International trade increases the demand for abundant factors (leading to an increase in their
prices) and decreases the demand for scarce factors (leading to fall in their prices) because when
nations trade, specialization takes place on the basis of factor endowments.16 W.F. Stolper and
Paul A. Samuelson state that “International trade necessarily lowers the real wage of scarce
factor expressed in terms of any good”. In short, free international trade will benefit the
relatively abundant factor and hurt the relatively scarce factor of production. 17

2.3. Meaning of Dumping:

It has long been customary to speak of one market as the “dumping ground” for the
“surplus” products of another market when the producers of the latter for any reason sold their
commodities in the former at unusually low prices.18 Dumping in general is a situation of price
discrimination, where the price of a product when sold to the importing country is less than the
price of the same product when sold in the market of the exporting country. It is generally
accepted in the multilateral trading system that if dumping takes place, it might result in unfair
trade as the domestic industry in the importing country might suffer harm as a result of dumping.
If this is the case, the authorities of the importing country may, if certain requirements are met,
take action against dumping. Anti-dumping action can, therefore, only be taken if dumping is
taking place, accompanied by consequent injury to the domestic industry.19

In economics, “dumping” is a kind of „predatory pricing‟, especially in the context of

International trade. It occurs when manufacturers export a product to another country at a price
either below the price charged in its home market or below its cost of production. The purpose of

16
Supra note 7, p.3
17
ibid
18
Jacob Viner, “Dumping: A problem in International Trade”,(1923), cited in Douglas R. Nelson & Hylke
Vandenbussche, “The WTO and Anti-Dumping, Vol. 1, (2005), p. 1
19
ibid
this act is sometimes to increase market share in a foreign market or to drive out competition.20
Therefore, dumping is normally defined as selling a good at a price less than its marginal, or
variable cost.21

The term dumping is employed most often, even in careless business usage, to signify
selling the same commodities at different prices in different markets.22 By business men it is
often uncritically extended, however to cover various types of sales at prices lower than those
generally current, even although these low prices are uniform to all purchasers. Where there is
nothing to be said about low price for which another and simpler term is already available and is
sufficiently descriptive. Where the low price is the manifestation of “slaughter” or “sacrifice”
sales, or “cutthroat competition”, or “price cutting”, or selling below the cost of production, in all
of which cases all buyers may be receiving uniform treatment, the practices are sufficiently
identified by these terms of common use. For the practice of selling at lower prices to some
buyers whether or not accompanied by regional segregation of the buyers who receive
respectively the lower and the higher prices, the term “price discrimination” has become fairly
well established.23

The term “dumping” has many meanings. It may mean exporting a product at an unduly
low price to drive out competition in the importing country. It may also mean “social dumping”,
exporting a product from a country where wages are extremely low (and therefore, where the
export price is low) or where the level of working conditions is far below that of advanced
countries.24

2.4. Definition of Dumping:

For the purpose of conceptual understanding dumping has been defined variously. Some of
such definitions are as follows:

20
Source https:/en.m.wikipedia.org, retrieved on11th February 2014
21
William Loehr, “Dumping and Anti-dumping Policy with Applications in Lithuania”, july 1997, available at
pdf.usaid.gov, retrieved on 27 may 2014
22
Douglas R. Nelson &Hylke Vadenbussche, “The WTO and Anti-Dumping”, Cheltenham, 2005, p.2
23
Supra note 20
24
Mitsuo Matsushita, Thomas J. Schoenbaum & C. Petros, “The World Trade Organisation, Law, Practice
&Policy”, (2006), p. 396
 i. Dumping is defined in Oxford Dictionary as a sale of goods in foreign market at low
price.25

ii. Cf. F. W. Taussig has argued that “The possibility of charging different prices to
different purchasers explains the phenomenon of „dumping‟- that is, the disposal of commodities
in a foreign country at one price, and to domestic purchasers at another and higher price”.26

iii. T.E.C. Gregory, an English economist, in his work27 points out that the term dumping
at one time or another is used to cover all of four following practices:

(a) Sale at price below foreign market prices.

(b) Sale at prices with which (foreign) competitors cannot cope.
(c) Sale at prices abroad which are lower than the current home prices.
(d) Sale at prices unremunerative to the sellers.

iv. According to George Yarrow dumping is said to occur when the price of a product on
an export market, corrected for the costs of transport and related items, is lower than the price
of the same, or substantially similar, product on the home market.28

The common sense view of dumping is that it is an unfair trading practice against which
nations should legitimately be able to introduce countervailing measures: “No Government can
be expected to stand by whilst its markets are flooded by foreign imports whose prices are kept
artificially low in relation to the price of the product on its own tariff-protected domestic market.
It is this type of unfair trading advantage which anti-dumping legislation is designed to combat”
(Stanbrook, 1980).29

Whatever the term dumping means, it has the connotation of “unfair” or “predatory”. On
the other hand, there is a view that “dumping” is merely a legitimate price

25
The Concise Oxford Dictionary, (10th Edn.)
26
Cf. F.W. Taussig, “Principles of Economics”, (2007), cited in Douglas R. Nelson &Hylke Vadenbussche, “The
WTO and Anti-Dumping”, (2005), p.4
27
T. E.C. Gregory, “Tariffs: A Study in Method”, London, 1921, pp. 177, cited in Douglas R. Nelson &Hylke
Vadenbussche, “The WTO and Anti-Dumping”, Cheltenham, 2005, p.3
28
George Yarrow, “Economic Aspects of Anti-Dumping Policies”, available at http://www.jstor.org, retrieved on
23rd November 2015
29
ibid
competition.30Although Dictionary meaning of dumping is to “sell (excess goods) to a foreign
market at a low price”, however, dumping has a more specific meaning under Article VI of
GATT and the Agreement on Implementation of Article VI of GATT, 1994, hereinafter referred
to as Anti-Dumping Agreement (ADA).31

Dumping in the literature is defined in two ways: “price dumping” and “cost dumping”.
The former refers to International price discrimination while the latter is the practice of selling at
prices below per unit cost. The Anti-dumping law in the WTO Anti-Dumping Agreement
however refers to “price dumping”. The sales below cost are not considered „the ordinary course
of trade‟ and therefore are not covered under Anti-Dumping Agreement. 32

Under paragraph 1 of Article VI of GATT dumping connotes a practice “by which

products of one country are introduced into the commerce of another country at less than the
normal value of the products”. It is further provided that a product is to be considered as being
introduced into the commerce of an importing country at less than its normal value, if the price
of the product exported from one country to another:

 is less than the comparable price, in the ordinary course of trade, for like product when
destined for consumption in the exporting country, or
 in the absence of such domestic price, is less than either the highest comparable price for the
like product for export to any third country in the ordinary course of trade, or
 the cost of production of the product in the country of origin plus a reasonable addition for
selling cost and profit. “Due allowance shall be made in each case for differences in
conditions and terms of sale, for differences in taxation, and for other differences affecting
price comparability”.33

Article 2.1 and 2.2 of the Anti-dumping Agreement define dumping in the same way.34
Article 2.1 of the WTO Anti-dumping Agreement stipulates: A product is considered as being
dumped i.e. introduced into the commerce of another country at less than its normal value if the

30
Supra note 22, p. 397
31
Sheela Rai, “Anti-Dumping Measures Under GATT/WTO, (2004), p. 14
32
Aradhna Aggarwal, “Anti-dumping Law and Practice: An Indian Perspective, Working Paper no.85, ICRIER,
April, 2002, available at https://www.icrier.org retrieved on 15th Jan. 2014
33
Source https://www.wto.org
34
Supra note 29
price of the product from one country to another is less than the comparable price, in the
ordinary course of trade, for the like product when destined for consumption in the exporting
country.35 Therefore determination of dumping depends on the examination of following
ingredients:

a) That the export price is less than the normal value,

b) In the ordinary course of trade,
c) For the like product.36

In Indian context definition of dumping can be construed from section 9A (1) of The
Customs Tariff Act.it lays down that where any article is exported by an exporter or producer
from any country or territory to India at less than its normal value, then, upon the importation of
such article into India, the Central Government may, by notification in the official Gazette,
impose an Anti-Dumping duty not exceeding the margin of dumping in relation to such article.37

2.5. Economic Analysis of the Term Dumping:

In the economics literature „dumping‟ is normally defined as “selling a good at less than
its marginal, or variable cost”. It is one of the standard maxims of microeconomics that
procedures will maximize profits, or minimize losses, by producing at the point where marginal
costs (variable costs) are equal marginal revenue.38 However where marginal revenue is below
variable cost, production should cease. In that way, losses are minimized. Comparisons of
average revenue (price) having nothing to do with determining whether or not a producer
continues to produce once a production facility is established. Pricing below average cost causes
a producer to incur losses, but as long as some contribution is made to covering fixed costs after
variable costs are covered, continuing to produce will tend to minimize losses.39

Pricing below average cost is normal economic behaviour whenever demand is depressed
and a portion of costs is fixed. When demand is depressed, prices fall. Prices may fall such that

35
Supra note 30, p. 9
36
ibid
37
Section 9A, The Customs Tariff Act, 1975
38
Marginal revenue is the same as the price as long as the firm involved operates in competitive markets.
39
Supra note 20, p. 7
the producer is not able to cover his total fixed cost and therefore incurs losses. Consider those
products that already exist and face an unexpected dip in demand. They have already made their
investments and have committed themselves to some fixed costs. The producer is faced with the
choice of continuing to produce despite losses, or ceasing production. If he stops production he
will incur loss equal to his fixed cost. If by maintaining production he can make some
contribution to covering his fixed costs, he will do so. In this case, he will reduce his losses
below what would be if he ceased production. Therefore, when faced with the decision to
continue or stop production, the producer will chose to continue only if the price is sufficient to
cover all variable costs and make some contribution to the fixed costs, thereby minimizing
losses. If the depressed price is simply a reflection of a market cycle, the producer may earn
profits over the long run even though he incurs loses in the short run. If prices have been falling
over a long run, perhaps because of excess capacity, some producers will eventually cease
production as their capital stock wears out and their fixed costs drop toward zero. Clearly, for
potential producers who have not yet invested, the activity in question is not attractive and they
will not make new investments in it. 40

In economic analysis, selling items below the average cost of production is not
necessarily dumping. Selling items below the variable cost of production may be dumping or
illogical behaviour. If it is the latter, those producers who are illogical will be quickly driven
from business as losses mount. The simple observation that producers are selling below average
cost is not sufficient economic information to determine if a firm is dumping. Only reference to
variable costs can determine whether or not dumping may be occurring. If a firm is selling its
product at a price below variable cost, then its motive for doing so is not profit maximization in
the short run. Its motive may be a strategic one that aims at extra ordinary profits in the long run.
Thus economic dumping therefore may be defined as selling an item below the variable cost of
production.41 In economics average variable cost (AVC) is a firm‟s variable costs (labour,
electricity etc.) divided by the quantity of output produced. Variable costs are those costs which
vary with the output. The WTO definition of Dumping however, is quite different, which

40
Supra note 20, p. 7
41
Supra note 20, p. 7
suggests that an item may be determined to have been dumped if the export price is less than the
normal price.42

Thus, the economic definition of dumping and WTO definition are very different. The
economic definition compares prices with variable costs. The WTO definition compares export
prices with “normal value”. There are two main reasons for this difference. First, variable
production costs are not easy to measure even where considerable information is available.43
Furthermore, since accusations of dumping are aimed at firms, and production cost information
is normally proprietary information, the information required to calculate variable costs is
usually not available. The WTO required an operational definition of dumping that was
measurable, and it therefore focused on variables that are relatively easy to measure and that are
generally in the public domain. Second, the WTO definition reflects protectionist interests in the
main contracting parties to GATT, primarily the U.S. and the E.U. By the early 1970s, the
various rounds of tariff negotiations under GATT had reduced normal tariffs to historically low
levels, especially for industrial goods. However, this did not eliminate protectionist sentiment
among enterprises that now had to compete in more open markets. Rather, new areas of
protectionism appeared in non-tariff areas, and accusation of “dumping” was one of those areas.
Particularly within the U.S. and the E.U. protectionist forces were brought to bear to negotiate
rules on dumping that allowed considerable flexibility. Indeed, the WTO definitions and rules
that resulted are ones that permit considerable protection even in cases where no economic
damage is being done to the economy that is being “dumped upon”. Such rules can be used to
maintain protection for inefficient producers who would not otherwise be able to compete in a
world with few other barriers to trade. In the formation of WTO dumping definitions and rules,
44
economic considerations have been largely forgotten. The rationales for anti-dumping have
long been subject to analysis by economists such as Viner 1923, Barcelo 1971, Trebilcock and
John Quinn 1979, Deardorff 1993)45.There are a number of arguments given as rationales for
anti- dumping laws:

42
ibid
43
This is particularly the case where a firm produces more than one product. The allocation of jointly incurred costs
to individual production activities is particularly difficult.
44
Supra note 20, p.7
45
Cited in Aradhna Aggarwal, “Anti-dumping Law and Practice: An Indian Perspective, Working Paper no.85,
ICRIER, April, 2002, available at https://www.icrier.org retrieved on 15th Jan 2014
  Dumping distorts comparative advantage because it provides distorted market signals to
producers in the importing country that are not based on cost efficiency.
 Dumping is the result of market isolation and sporadic anti- dumping is better than
economic isolation caused by broader protectionist measures.
 Anti- dumping action ensures „fair‟ competition and is therefore a response to ensure
equity between producers in different country- circumstances.
 Long- term interests of consumers, who are also producers, are served by anti-dumping
action.
 Anti- dumping action supports free trade regimes, anti- dumping measures are a
convenient instrument to be used for paying open foreign markets or triggering the flow
of foreign direct investment into one‟s own territory”.
 Distributive justice would see anti- dumping action as addressing net adverse effects on
consumer welfare, in particular impacts on the least- advantaged members of society.
 Communitarian values would support anti- dumping action against imports adversely
affecting industry- dependent communities, and
 Political expediency requires anti- dumping action. Baron, for example, argues that anti-
dumping is used as a safety valve against pressure for broader protectionist measures.

The most frequently offered economic justification for anti-dumping laws is that these laws
protect the competitive process and the consumer from monopoly power of the foreign exporters.
Many scholars define economic efficiency in terms of consumer welfare standards. This standard
when applied to anti-dumping remedies rules out the protection of domestic producer interests
per se as a primary economic justification for the remedies. There are however, two protection-
based justifications for imposing anti-dumping duties: optimal tariff argument of protection and
strategic trade policy argument. While the former emphasizes terms of trade gains from
protection, the latter is based on externalities generated by some sectors. Critics of the anti-
dumping legislation however, argue that there is little economic argument that can support the
practice of anti-dumping. They explain anti-dumping measures by the political economy of
protection that highlights the role of the domestic political influences mainly lobbying by
influential domestic producers in determining the anti-dumping cases. There is an attempt to
analyse four arguments as a potential justification for anti-dumping laws.46

Since the Anti-dumping law in the WTO Agreement refers to price dumping and the sales
below costs are not considered „the ordinary course of trade‟, therefore analysis presented over
here focuses only on price dumping.

2.5.1. Welfare Argument:

The consumer welfare argument suggests that the economic rationale of anti-dumping laws is
to prevent predatory pricing. Since competition policies are designed to prevent anti-competitive
practice primarily by domestic firms, such policies define predatory pricing as the situation
where a domestic firm prices below cost so as to drive competitors out of the market and acquire
or maintain a position of dominance. Predation involves efforts to achieve or exploit monopoly
power, restricts competition in domestic markets and injures consumers through monopoly
pricing in the long run. Competition policies deter predatory pricing by domestic firms to
preserve the process of competition and protect the interests of the consumer. An open trade
policy also aims at achieving these goals. In that context, anti-dumping policy is suggested to be
a trade policy instrument that, if used appropriately, curbs anti-competitive practices by foreign
firms by deterring predatory pricing. In international trade, predatory pricing is a strategy by
which an exporter attempts to drive competitors from export markets and obtain monopoly
power by cutting its export price below its export price below its home market price. Predation
involves short-term gains to the consumers but leads ultimately to the failure of domestic
producers and exposes the consumers to monopolistic prices. Monopoly power is inimical to the
proper operation of market economy, and companies tend to restrict competition and create
monopolies through predatory pricing. Though the current WTO anti-dumping legislation does
not explicitly state the underlying rationale for anti-dumping law and does not include predation
as a condition for dumping, preventing predation but it is one of the strongest economic
justifications of anti-dumping laws.47

2.5.2. Strategic Trade Policy Argument:

46
Supra note 43, p. 13
47
Supra note 43, p. 13
 Some policy analysts have advocated protectionist trade measures under the rubric of
“strategic trade policy”.48 The argument is that in some international markets that are
characterized by external economies of scale also, there are only a few firms in effective
competition. In concentrated markets, firms set prices in excess of the marginal cost of
production, which results in firms typically making excess returns. There is an international
competition over who gets these profits. The theory argues that strategic trade policy would
enable domestic companies to capture rents in these imperfectly competitive markets at the
expense of foreign firms. For instance, a subsidy to domestic firms, by deterring investment and
production by foreign competitors, can raise the profits of domestic firms by more than the
amount of the subsidy. Tariff may do the same. Assuming that other governments do not
retaliate, anti-dumping duty can shift rents from foreigners to domestic companies. The rapid
development of these strategic industries, such as the high technology electronic and
communication sectors 49confers beneficial spillovers on the rest of the economy. Moreover, it is
also argued that dumping in such industries termed „strategic dumping‟ by Willing (1998), gives
foreign firms an advantage. If the exporters‟ home market is foreclosed to foreign rivals and if
each independent exporter‟s share of their home market is of significant size relative to their
scale economies, the exporters will be able to have a significant cost advantage over domestic
firms that are unable to compete abroad. This advantage which is obviously contingent on the
home market being sufficiently large, eventually gives the exporting firms market power.
Strategic dumping, Willing points out, is likely to damage the importing country by reducing the
ability of domestic firms to take full advantage of scale economies. If domestic firms are unable
to compete effectively, over time domestic consumers may be injured by the exercise of market
power by exporting firms. Anti-dumping duty in this case therefore is a rational trade policy.50

48
Homi Katrak, 1977, “Multinational Monopolies and Commercial Policy”, Oxford Economic Papers, Vol 29, pp
283-91. Svedberg Peter, “Optimal Tariff Policy on Imports from Multinationals”, Economic Record, (55) 1979:64-
7. James A. Brander and Barbara J. Spencer, 1981, “Tariffs and the Extraction of Foreign Monopoly Rents Under
Potential Entry”, Canadian Journal of Economics, Vol 14, pp 371-89, cited in Aradhna Aggarwal, “Anti-dumping
Law and Practice: An Indian Perspective, Working Paper no.85, ICRIER, April, 2002, p.21, available at
https://www.icrier.org
49
L. D. Tyson, 1992, “Who‟s Bashing Whom?”, Institute for International Economics, cited in Aradhna Aggarwal,
“Anti-dumping Law and Practice: An Indian Perspective”, Working Paper no.85, ICRIER, April, 2002, p. 21,
available at https://www.icrier.org

50
Supra note 43, p.13
 2.5.3. Optimal Tariff Argument:

The possibility that a tariff could improve national welfare for a large country in
51
international markets was first noted by Torrens . The argument suggests that if the country
has important internal markets then it might force exporters to diminish their price by imposing
a small tariff. The foreign exporters may absorb most of the increase in prices to keep their
share in such an important market and the country imposing the tariff could gain more than it
loses. Since the welfare improvement occurs only if the terms of trade gain exceeds the total
deadweight losses, the argument is commonly known as the Terms of Trade Argument for
protection.52 Optimal Tariff argument is valid only under two conditions:

i. The tariff imposing country should be a large exporter,

ii. Increase in tariff should be small (Johnson 195453).54

2.5.4. Political Economy Argument: Preliminary Evidence:

Theoretically, predation by exporters is successful where domestic industry is

concentrated. This is because the elimination of just a few firms would enable foreign firms to
enjoy a monopoly. Moreover, high entry barriers in these industries allow foreign firms to raise
prices without any threat from potential entrants once domestic firms are driven out of business
(see, Hyun Shin Ja 1998). In practice however, it is possible that dominant domestic producers in
concentrated industries use the anti-dumping laws to protect themselves from foreign
competition. Oligopolists may use their lobbying power effectively to obtain protection from

51
Robert Torrens, 1844, “The Budget: On Commercial and Colonial Policy”, London, Smith, Elder, cited in
Aradhna Aggarwal, “Anti-dumping Law and Practice: An Indian Perspective, Working Paper no.85, ICRIER, April,
2002, p. 24, available at https://www.icrier.org retrieved on 15th Jan. 2014
52
Supra note 43, p.13
53
H.G. Johnson, (1954), “Optimum Tariff and Retaliation‟ Review of Economic Studies 21, 142-153, cited in
Aradhna Aggarwal, “Anti-dumping Law and Practice: An Indian Perspective, Working Paper no.85, ICRIER, April,
2002, p. 27, available at https://www.icrier.org retrieved on 15th Jan. 2014
54
Cited in Aradhna Aggarwal, “Anti-dumping Law and Practice: An Indian Perspective, Working Paper no.85,
ICRIER, April, 2002, p. 27, available at https://www.icrier.org retrieved on 15th Jan. 2014
import competition (Tharakan 1994, Tharakan and Waelbroeck 1994, Hutton and Trebilcock
1990). This argument suggests that if dumping investigations are heavily biased in favour of
concentrated industries then predatory dumping may not be the reason for such investigations. 55

2.5.5. Viner’s Theory of Rationale behind Dumping:

Viner developed the first original theoretical rationale for anti-dumping law. He argued
that anti-dumping duties may be needed to protect domestic consumers from predatory dumping.
Most economists however contend that predatory dumping is an exception rather than a rule.
Viner distinguished between three forms of dumping: Sporadic, Short run, and Long run. Only
the second form justified a reaction in his view, as only this form of dumping can be construed as
anti-competitive. In the first case injury to the firm is transitory, while the gains to consumers
outweigh the losses to domestic producers in the last case.

2.5.6.Garten’s Theory:

Garten also offered a representative and thoughtful defense of anti-dumping that

emphasized entry barriers in the exporter‟s home market as the main cause of dumping. He
advanced four major reasons for dumping:

i. Closed home market of exporters;

ii. Anti-competitive practices in the exporting country market which permit sales below
cost;
iii. Government subsidization, and;
iv. Non-market conditions.56

2.6. Conditions of Dumping:

Dumping can occur mainly on three bases, i.e., dumping as sales below cost, dumping as
international price discrimination, and dumping on the basis of duration. These three conditions
of dumping may be understood in following manner.

2.6.1. Dumping as Sales below Cost:

55
Supra note 43, p.13
56
Supra note 43, p.13
 Dumping may take the form of sales below cost. Sales below cost may be defined as sales of
a product at prices below the cost of production including indirect expenses as well. Sales below
costs can occur in various circumstances:57

a) Firstly, intense competition in a market may result in sales below cost. If competition in
market is fierce, the mark-up tends to be small, below the marginal cost of production.
b) Secondly, a decline in demand in a market due to recession may lead to sales below cost.
This is true especially in industries, such as steel industry, in which the fixed cost of
production is high. When a recession hits the steel industry, the demand for steel declines,
and the production capacity in the market becomes excessive in relation to that demand.
When sales volume declines due to recession, the average total cost increases due to an
increase in the fixed cost per unit of products. This increase in the fixed cost per unit of
product tends to push down the market price below the cost of production.
c) Thirdly, forward pricing may result in sales below cost. Forward pricing is the practice of
pricing goods below cost to increase sales volume early in a product‟s life cycle and
maximize profitability over the full life cycle of the product.in industries that require a huge
amount of money to develop a product, the initial cost of production is so great that the sales
of a new product at prices above cost would be prohibitive. under these circumstances, the
only marketable price of product would be one below the cost of production. Enterprises
therefore sell the product at prices below the cost of production expecting that the cost of
production will decline sharply as the product is mass- produced and sold and that profit will
be made later.
d) Finally, predatory pricing may cause sales below cost. Predatory pricing is the practice of an
enterprise with market power engaging in sales below the cost of production to drive out the
competition and to gain a monopoly. Predatory pricing may occur if an enterprise has a
reasonable expectation that the profits lost to sales below cost can be recouped by raising
prices after competitors have been driven from the market. An enterprise has this expectation
only when it has market power, when the market is concentrated, and when other enterprises
cannot easily enter the market to compete with it.58

57
Supra note 22, p. 7
58
Supra note 22, p.7
2.6.2. Dumping as International Price Discrimination:

Another form of dumping is international price discrimination. International price

discrimination occurs when an enterprise sells the same product at different prices in different
area or to different customers. In the international arena, price discrimination usually takes the
form of selling the same or similar product at different prices in the domestic market and an
export market i.e., international price discrimination based on geography.59International price
discrimination can occur when the markets of the exporting and importing country are relatively
isolated (e.g., by high tariffs, quotas or private restrictive business practices such as exclusive
dealing arrangements, tie-in contracts, boycotts, or other forms of anti- competitive practices).
Products exported at a price lower than the price charged in the exporting country will be re-
exported to the importing country unless:

 The market of the exporting country is insulated from that of the importing country; or
 Costs of transportation and other sales expenses are significant factors that prevent such a
re-export from occurring.60

International price discrimination can also occur when there are significant differences in
elasticity of demand between different countries. If, for example, the demand for a product in the
market of the exporting country is inelastic, a seller of the product in the market of the exporting
country has incentive to charge higher prices in that market while charging lower prices to
customers in the importing country, where demand for the product is elastic.61

2.6.3. Duration:

Dumping can be classified by duration into sporadic or intermittent, and continuous

(persistent) activity. While sporadic dumping generally is not worrisome, intermittent or
continuous dumping may produce adverse welfare effects if it is designed to be predatory, to
drive competitors out of business. Dumping of longer duration also may result in a misallocation
of resources, especially in the exporting country.

2.7. Classification of Dumping:

59
ibid
60
Ibid
61
Supra note 22, p.7
 There are various forms of dumping and these may be classified in various ways and from
different points of view. But for the purpose of economic analysis probably the most serviceable
bases for classification are according to the motives or the objectives of the dumper and
according to the degree of continuity of the dumping. There follows a two-fold classification of
dumping according to these two bases:62 On the basis of duration there are three types of
dumping:

i. Sporadic
ii. Short-run or intermittent
iii. Long-run or continuous

This classification based on continuity has further sub classification based on motives:

2.7.1. Sporadic Dumping may be done on the basis of threefold Motives:

a) To Dispose of a Casual Overstock: A producer may find that in a given season sales
at the established prices are not running high enough to clear his stocks on hand or in process.
The alternative procedures open to him to meet this situation are: (a) to hold over the surplus
stocks to another season;(b) to reduce his prices in his standard markets in order to increase
sales; or (c) to dispose of his surplus stocks in some distant or unimportant market at the best
prices obtainable, even if these are lower than the prices current in his standard markets. He may
be reluctant to hold his surplus stocks over to another season, because of carrying and storage
charges, the difficulty of financing an over-large inventory, or the danger of deterioration or of
change in style to which his products may be subject. He may also be reluctant to reduce his
prices in his standard market. It is probable that it will not be practicable to reduce prices on any
portion of his sales in this market without making the reductions general to all purchasers, so that
any reduction in domestic price will apply to his entire output. In any case, the demand for his
product in his standard market may be inelastic, so that a reduction in price, whether partial or
general, will not have a substantial effect on sales. A reduction in price once conceded may make
a subsequent re-establishment of the original price difficult or even impossible, or may incite
cutthroat competition on the part of rival producers; that is, it may “spoil” his standard market.

62
Supra note 21, p.7
For any or all of these reasons a producer may choose to unload his surplus stocks at reduced
prices in a minor or hitherto uncultivated market.63

b) Unintentional Dumping: Unintentional dumping can take place only when goods are
exported speculatively in anticipation of their sale at a profitable price after arrival in the foreign
market, or when goods have been shipped to a market by mistake or for some reason delivery
cannot be made to the original purchaser. If such goods were shipped with the expectation that
they would eventually be sold at prices as high as those current in the home market, but if they
must eventually be disposed of at lower prices, unintentional dumping has taken place. Such
dumping is most likely to occur under the consignment system, or under the branch warehouse
system, where goods are shipped to be sold after arrival in the foreign market. But such dumping
cannot be regarded as unintentional if the goods were shipped with the expectation, or with full
realization of the imminent probability, that they would realize upon sale prices lower than those
current in the home market.64

c) To maintain connections in a market in which prices are on remaining considerations

unacceptable: A producer may find that the prices obtainable in a given market are lower than
those at which he can elsewhere dispose of all of his current production, but he may nevertheless
meet the prices current production, but he may nevertheless meet the prices current in that
market to retain his trade connections therewith, if in the long run if affords a valuable outlet for
his product. In this case the producer is willing to sell at the reduced prices only because this will
serve to retain for the future a market which temporarily has no attraction for him.65

2.7.2. Short-run or Intermittent Dumping may be done with the following motives:

a) To develop trade connections and buyers’ goodwill in a new market: A producer may
for a time sell at reduced prices in a market in which he is endeavoring newly to establish
his trade in order to develop therein a demand for his products which will subsequently
make possible their sale in that market at prices as high as those current elsewhere.66

63
Supra note 21, p.7
64
ibid
65
Supra note 21, p. 7
66
ibid
 b) To eliminate competition in the market dumped on: A concern may sell at dumping
prices in a given market in order t eliminate its competitors in that market or to bring them
to terms. Such dumping may be directed against the domestic producers of the market
dumped on, or against competing exporters from the dumper‟s own country, or against
competing exporters from a third country. It may be intended wholly to crush competitors,
or it may have the more modest objective of inducing competitors by the threat of
destructive competition to follow the prices quoted by the dumping concern, to share the
market with it on specified terms, or otherwise to make their operations in the given market
conform to the wishes of the dumping concern. This type of dumping is often termed
“predatory” or “malignant” dumping. It is the most objectionable form of dumping from
the point of view of the country dumped on.67
c) To forestall the development of competition in the market dumped on: A concern
which has a monopoly of its product in the markets in which it operates but fears that
competition may appear in concern of its markets if it exacts too high a price may quote
lower prices in those markets in which competition is most likely to develop in order to
forestall such development.68
d) To retaliate against dumping in the reverse direction: If a concern in one country is
embarrassed by competition in its home market from products exported to that market by a
foreign manufacturer at dumping prices or at unreasonably low prices, it may endeavor to
bring such competition to an end by resorting to retaliatory dumping in the principal market
of the offending manufacturer. In other words, dumping may not only be used as the
offensive instrument of cutthroat competition.69

2.7.3. Long-run or continuous dumping may be done with following motives:

a) To maintain full production from existing plant facilities without cutting domestic
prices: If a manufacturer can sell each year in his domestic market a part, but only a part, of
his maximum possible output at higher prices than those ruling in outside markets, he may
decide to maintain his domestic prices at this higher level and to seek foreign orders at
reduced prices for the balance of his potential output in preference to reducing his domestic

67
ibid
68
ibid
69
Supra note 21, p. 7
 prices and in preference to operating only to part capacity. By resorting to dumping he may
obtain the economies of operation at full capacity without surrendering the profits to be
derived from the sale of part of his output in the domestic market at prices above the foreign
level. A reduction in the domestic prices may be unprofitable, especially if the domestic
demand for his products is inelastic, even in the absence of the possibility of resorting to
dumping. This case closely resembles with sporadic dumping due to casual overstock, but it
differs from that on the ground that in the present case the commodities dumped are not
merely surplus stocks which had originally been produced in anticipation of sale at the full
prices but are stocks deliberately produced in order to be dumped. It is probable that this is
the most prevalent type of dumping, but business men who practice it with the purpose of
maintaining at the same time high domestic prices and production to full capacity have a
readily explicable reluctance to admit it.70
b) To obtain the economies of larger-scale production without cutting domestic prices: It
is possible that a manufacturer may sell abroad at reduced prices in order to increase his
sales, without reduction of his domestic prices, to such a rate that it will not only permit him
to maintain full production from his exciting plant facilities but will enable him to extend
his plant so as to obtain the economies of larger-scale production. It is obvious that once the
plant has been extended, further dumping will be illustrative of previous case.71
c) On purely mercantilist grounds: Dumping on purely mercantilist grounds, that is,
dumping which is resorted to only in order to stimulate export trade for the sake of the
national advantages to be derived therefrom by the dumper‟s country, is altogether unlikely
to be practiced on purely private initiative. Producers who believe that a country derives
some special advantages from exports which are not to be obtained in equal measure from
domestic trade are not hard to find, but the producer who will be willing solely on such
grounds to sell abroad at lower prices than he can obtain for all of his output at home must
indeed be rare. Mercantilist considerations often play a part in dumping, however, where
governments grant bounties on exports. If dumping results from the grant of an official
bounty on exports and the establishment of this bounty by the government has for its object
the stimulation of exports, the dumping may be said to be the result of mercantilist motives.

70
ibid
71
ibid
 The producer who resorts to dumping always does so with the aim of deriving a personal
pecuniary advantage therefrom, but he may often find an effective defense of his practice
against protests from agencies of his government or from domestic consumers in an appeal
to mercantilist prejudices.72

It is probable that in most actual instances of dumping no single motive is dominant but that
some combination of the ones listed above or all of them concerned with private profit and not
national policy, is operative.73

2.8. Objectives of Dumping: The main objectives of dumping may be categorized as follows:74

2.8.1. To find a place in the foreign market:

A monopolist resorts to dumping in order to find a place or to continue himself in the

foreign market. Due to perfect competition in the foreign market he lowers the price of his
commodity in comparison to the other competitors so that the demand for his commodity may
increase. For that purpose, he often sells his commodity by incurring loss in the foreign market.

2.8.2. To sell surplus commodity:

When there is excessive production of a monopolist‟s commodity and he is not able to

sell in the domestic market, he wants to sell the surplus at a very low price in the foreign market.
But this situation is rare and it happens occasionally.

2.8.3 Expansion of industry:

A monopolist also resorts to dumping for the expansion of his industry. When he expands it,
he receives both internal and external economies which lead to the application of the law of
increasing returns. Consequently, the cost of production of his commodity is reduced and by

72
Supra note 21, p. 7
73
ibid
74
Smriti Chand, “Dumping- Meaning, Types, price Determination and Effects if Dumping”, available at
www.yourarticlelibrary.com retrieved on 27h March 2014
selling more quantity of his commodity at a lower price in the foreign market, he earns larger
profit.

2.8.4. New trade relations:

Monopolists generally practice dumping in order to develop new trade relations abroad. For
this, they sell their commodity at a low price in the foreign market, thereby establishing new
market relations with these countries. As a result, the monopolists increase their production,
lower their costs and earn more profit.

2.9. Effects of Dumping:

Dumping affects both the importer and exporter countries. These effects may be
understood as under:

2.9.1. Effects of Dumping on Importing Countries:

The effects of dumping on the country, in which a monopolist dumps his commodity, depend
on whether dumping is for a short period or a long period and what the nature of the product is
and what is the aim of dumping.

a) If a producer dumps his commodity abroad for a short period, then the industry of the
importing country is affected for a short while. Due to low price of the dumped commodity,
the industry of that country has to incur loss for some time because less quantity of its
commodity is sold and it experiences the decline in sales and profits.
b) Dumping is harmful for the importing country if it continues for a long period. This is
because it takes time for changing production in the importing country and its domestic
industry is not able to bear competition. But when cheap imports stop or dumping does not
exist, it becomes difficult to change the production again. If the dumping is for longer period;
it affects the survival of the industry and also changes the industrial structure in the foreign
country. If the dumping company increases the price at the later stage(i.e., after eliminating
competition) the importing country would be at loss both in terms of high cost of imports and
change in the structure of the domestic industry.
c) If dumped commodity is a consumer good, the demand of the people in the importing
country will change for low priced goods. When dumping stops, this demand will reverse,
thereby changing the tastes of the people which will be harmful for the economy.
d) If dumped commodities are cheap capital goods, they will lead to the setting up of a new
industry. But when the imports of such commodities stop, this industry will also be shut
down. Thus ultimately, the importing country will incur a loss.
e) If the monopolist dumps the commodity for removing his competitors from the foreign
market, the importing country gets the benefit of cheap commodity in the beginning. But
after competition ends and he sells the same commodity at a high monopoly price, the
importing country incurs a loss because now it has to pay a high price.
f) If a tariff duty is imposed to force the dumper to equalize prices of the domestic and
imported commodity, it will not benefit the importing country.
g) But a lower fixed tariff duty benefits the importing country if the dumper delivers the
commodity at a lower price.

2.9.2. Effects of Dumping on Exporting Countries:

Dumping affects the exporting country in the following ways:75

a). When the domestic consumers have to buy the monopolistic commodity at a high price
through dumping, there is loss in their consumers‟ surplus. But if a monopolist produces more
commodities in order to dump it in another country, consumers benefit. This is because with
more production of the commodity, the marginal cost falls. As a result, the price of the
commodity will be less than the monopoly price without dumping.

But this lower price than the monopoly price depends upon the law of production under
which the industry is operating. If the industry is producing under the law of diminishing returns,
the price will not fall because costs will increase and so will the price increase. The consumers
will be at loss and the monopolist will gain profits. There will be no change in price under fixed
costs. It is only when costs fall under the law of increasing returns that both the consumers and
the monopolist will benefit from dumping.

75
Supra note 72, p. 24
b). The exporting country also benefits from dumping when the monopolist produces more
commodities. Consequently, the demand for the required inputs such as raw materials, etc. for
the production of that commodity increases, thereby expanding the means of employment in the
country.

c). The exporting country earns foreign currency by selling its commodity in large quantity in the
foreign market through dumping. As a result, its balance of trade improves.

2.10. Difference between Anti- dumping Duty and Normal Customs Duty:

Although anti- dumping duty is levied and collected by the Customs Authorities, it is entirely
different from the Customs Duties not only in concept and substance, but also in purpose and
operation. The following are the main differences between the two:76

 Conceptually, Anti- dumping and the like measures in their essence are linked to the notion
of fair trade. The object of these duties is to guard against the situation arising out of unfair
trade practices while customs duties are there as a means of raising revenue and for overall
development of the country.
 Customs duties fall in the realm of trade and fiscal policies of the government while Anti-
dumping and Anti- subsidy measures are there as trade remedial measures.
 The object of Anti- dumping and allied duties is to offset the injurious effect of International
price discrimination while Customs duties have implications for the government revenue and
for overall development of the economy.
 Anti- dumping duties are not necessarily in the nature of a tax measure inasmuch as the
authority is empowered to suspend these duties in case of an exporter offering a price
undertaking. Thus, such measures are not always in the form of duties/tax.
 Anti- dumping duties are levied against exporter/ country inasmuch as they are country
specific and exporter specific as against the Customs duties which are general and
universally applicable to all imports irrespective of the country of origin and the exporter.

76
Agreement on Anti-Dumping, Frequently Asked Questions, Centre for WTO Studies, Indian Institute of Foreign
Trade, available at www.commerce.nic.in
 Thus, there are basic conceptual and operational differences between the Customs duty and
the Anti- dumping duty. The Anti- dumping duty is levied over and above the normal Customs
duty chargeable on the import of goods in question.

2.11. Measures to Offset Dumping:

The legal underpinning of the multilateral trading system is provided by the General
Agreement on Tariffs and Trade (GATT) and its ancillary agreements and codes, currently
administered by World Trade Organisation. The GATT has made possible the progressive
liberalization of the world through the basic mechanism of binding commitments by signatories
to reduce trade barriers on a most favored-nation (MFN) basis. The GATT has survived,
however, in significant part, because its framers were wise enough to recognize that the system
would not be sustainable in the absence of certain exceptions to the general commitments
undertaken by the signatories. These exceptions, which include “escape clause” provisions,
special rules for developing countries, and anti-dumping, countervailing duty and safeguard
measures, have functioned as interface mechanisms to soften the dislocation that have occurred
as the reduction in border restrictions has brought differing national economic systems into
progressively closer competitive contact. Without the existence of these mechanisms, given the
politically sensitive subject of international trade… the General Agreement might never have
been concluded or might never have endured in the face of the pressures that have buffeted it.77

Article VI of GATT 1994 and the Agreement on Anti-Dumping (ADA), disapproves

dumping per se. the members of WTO are authorised to follow the measures to offset dumping,
which are as follows:

i. Anti-dumping duty;
ii. Countervailing duty;
iii. Safeguards.

2.11.1. Anti-dumping Duty:

77
Robert W. Staiger and Frank A. Wolak, “Strategic Use of Anti-Dumping Law to Enforce Tacit International
Collusion”, NBER Working Paper No. 3016, Cambridge,1989, p.1
 Anti-dumping is a measure to rectify the situation arising out of the dumping of goods and its
trade distortive effect. The use of anti-dumping measures as an instrument of fair competition is
permitted by the WTO. Article VI of the GATT stipulated that „in order to offset or prevent
dumping a contracting party may levy on any dumped product an anti-dumping duty not greater
in amount than the margin of dumping in respect of such countries‟. Almost all WTO member
countries including India have adopted/amended their anti-dumping legislation largely in
accordance with the GATT provisions to deal with dumped imports. Some of the countries that
are not members of WTO have also acquired their Anti-dumping legislation.78 The trade
protection measures i.e. the Agreement on Implementation of Article VI of GATT 1994 (the
Agreement on Anti-dumping), is designed to encourage Members to open up their markets since
in a situation threatening their domestic producers they could protect them from injury by taking
the most appropriate protection measure in a given situation. The Agreement has a great bearing
on the open and free trade and has often been used by the Members for protecting their domestic
industry.

Perhaps the Agreement on Anti-dumping (ADA) is the most frequently used Agreement that
also attracts the maximum attention of the Members. It is the most dreaded weapon for the
exporters for selective targeting and discriminate treatment in the foreign markets. Anti-dumping
is an instrument for ensuring fair trade and is not a measure of protection per se for the domestic
industry. 79

2.11.2. Countervailing Duty:

A countervailing duty is a defensive instrument that in theory attempts to mitigate,

circumvent or respond to other trading nations „unfair‟ trading practices. This unfair trade
practice is typically associated with a situation where an exporter sells merchandise in the
importing country at prices that are comparatively below than those of the „identical‟ or „like‟
product sold in the country of the exporter; specifically, that are „less than fair value‟.
Specifically, if the merchandise is ought to be „dumped‟. A response to this is the imposition of

78
Asif Qureshi,“Anti-dumping Legislation Issues and Tips”, Journal of World Trade NO. 34(6), 2000, pp. 19-32
79
Messerlin, Patrick and P.K.M. Tharakan, “The Question of Cotingent Protection”; The World Economy, Vol 22
No. 9, 1999, pp.1251-1270
duty. The countervailing duty is essentially a tariff designed to „counter‟ the effects of the
foreign export subsidy.80

2.11.3. Subsidy:

Subsidy generally means money granted by the State or a public body to keep down the
prices of commodities. Subsidy may be in the nature of direct or indirect Government grants on
production or exportation of goods including any special subsidy on transportation of any
particular product. A subsidy is said to exist:

(a). if there is a financial contribution by the Government or any public body within the
territory of the exporting country, i.e. where:

 There is a direct transfer of funds (including grants, loans and equity) by the
Government;
 Government revenue i.e. otherwise due is foregone and not collected (including fiscal
incentives, I.T. exemption);
 A government provides goods or services other than general infrastructure.

(b) A government grants or maintains any form of income or price support which operates
directly or indirectly to increase export of any article from its territory.Anti-subsidy
countervailing measure is in the form of countervailing duty which is to be imposed only after
determination that:

 The subsidy is a specific subsidy;

 The subsidy related to export performance;
 The subsidy related to the use of domestic goods over imported goods in the export
article; or
 The subsidy has been conferred on a limited number of persons engaged in
manufacturing, producing or exporting the article.

Clearly, the subsidy benefits the export producers. Consumers of the product in the exporting
country would have to pay more for the product of which the „like‟ price would be less in the

80
Jorge Miranda, Raul A. Torres & Mario Ruiz, “The International Use of Anti-dumping-1987-1997”, Journal of
World Trade, Vol. 32, 1998, at pp. 5-71
export market. The burden of the increased price of the product for consumers in the market of
origin would also be leveraged on the taxpayers of that country; the result being a negative net
national welfare effect for the exporting country.81 Consumers in the importing country benefit
from the foreign subsidy through lower prices for the goods while import competing products
suffer losses because they are out-competed.

The net effect for the importing country, however, is positive since the gains to consumers
outweigh the losses to producers. If the import competing firms concerned prove the subsidy
causes material injury the importing country may levy a countervailing duty, which serves to
counter the effects of the foreign export subsidy. In theory, the countervailing duty will bring the
price in the import market and price in the export market back on par or at free trade
equilibrium.82

2.11.4. Factors Taken into Consideration for Imposing CVD:

Anti-subsidy countervailing measure is in the form of countervailing duty which is to be

imposed only after the determination that:

 The subsidy is a specific subsidy;

 The subsidy relates to export performance;
 The subsidy relates to the use of domestic goods over imported goods in the export
article; or
 The subsidy has been conferred on a limited number of persons engaged in the
manufacturing, producing an article.

2.11.5. Difference Between Anti-dumping Duty (AD) and Countervailing Duty (CVD):

People sometimes refer to the anti-dumping measures and countervailing duties together –
“AD-CVD” but there are fundamental differences between the two. 83 „Dumping‟ and „subsidies‟
together with „anti-dumping measures‟ and „countervailing duties‟ share a number of similarities.

81
Kyle Bagwell and Staiger Robert, “A Theory of Managed Trade”, American Economic Review, Vol. 80, 1990,
pp. 779-95
82
Barcelo III, John J., “Subsidies Countervailing Duties and Anti-dumping after the Tokyo Round”, No. 13, Cornell
International Law Journal, Vol. 257, 1980, p 260
83
R. K. Gupta, “Safeguards, Countervailing and Anti-dumping Measures against Imports and Exports-
Commentary, Cases and Text”, Academy of Business Studies, (1998)
Many countries handle the two under a single law, apply a similar process to deal with them, and
give a single authority responsibility for investigations.

The reaction to dumping and subsidies is often a special offsetting import tax (countervailing
duty in the case of a subsidy). This is charged on products from specific countries, and therefore
it breaks the GATT principles of binding a tariff and treating trading partners equally (Most
Favored Nation or MFN). The Agreement provides an escape clause , but they both also say that
before imposing a duty, the importing country must conduct a detailed investigation that shows
properly that domestic industry is hurt.

Dumping is an action by a company, with subsidies; it is the Government or a Government

agency that acts, either by paying out subsidies directly or by requiring companies to subsidize
certain customers. But the WTO is an Organisation of countries and their Government. The
WTO does not deal with companies and cannot regulate companies‟ actions such as dumping.
With subsidies, Governments can act on both sides, they subsidize and they act against each
other‟s subsidies. Therefore the subsidies agreement disciplines both the subsidies and the
reactions. AD and CVD are two different trade mechanisms available to WTO members and are
addressed by two different WTO Agreements. If a company exports a product at a price lower
than the price it normally charges in its own home market, it is said to be “dumping” the product.
It is therefore a situation of international price discrimination. The Agreement on implementation
of Article VI of GATT 1994, commonly known as the Anti-dumping Agreement (ADA),
provides elaboration on the basic principles set forth in Article VI of GATT, to govern the
investigation, determination, and application, of anti-dumping duties. The WTO Agreement on
Subsidies and Countervailing Measures (SCM) on the other hand disciplines the use of subsidies,
and it regulated the actions countries can take to counter the effects of subsidies. The
fundamental difference between the two is while dumping is an action by a company, for
subsidies, it is the Government that acts either by granting subsidies directly or by requiring
companies to subsidize certain customers. The countervailing duty is essentially a tariff designed
to „counter‟ the effects of the foreign export subsidy.

2.11.6. Safeguards:
 A safeguard is a form of temporary relief. They are used when imports of a particular
product, as a result of tariff concessions or other WTO obligations undertaken by the importing
country, increase unexpectedly to a point that they cause or threaten to cause serious injury to
domestic producers of “like or directly competitive products”. Safeguards give domestic
producers a period of grace to become more competitive vis-à-vis imports. Safeguards usually
take the form of increased duties to higher than bound rate or standard rates or quantitative
restrictions on imports.84

The use of safeguards is permitted when there is an important surge or increase in the
imports‟ share of a shrinking market, which threatens serious injury to domestic producers. It is a
precautionary measure taken by the Government when there is a surge in exports to the country.
It is based on the principle of „prevention is better than cure‟. It is a kind of duty imposed by
Government directly to offset dumping.

2.11.7. Factors Leading to Imposition of Safeguard Measures:

 There are increased imports- the increased quantity of imports may be either an absolute
increase or an increase relative to domestic production.85
 There is serious injury or a threat of serious injury- „serious injury‟ is defined as a
significant overall impairment in the position of a domestic industry.

In determining whether serious injury is present, investigating authorities must evaluate

all relevant factors having a bearing on the condition of the industry, including the absolute and
relative rate and amount of increase in imports, the market share taken by the increased imports,
as well as changes in level of sales, production, productivity, capacity, utilization, profit and
losses, and employment of the domestic industry. „Threat of serious injury‟ means a clear and
imminent danger of serious injury.

 There must be objective evidence of the existence of a causal link between increased imports
of the products concerned and serious injury. Injury caused to the domestic industry at the

84
Richard O. Cunningham, “ Commentary on the First Five Years of the WTO Anti-Dumping Agreement and
Agreement on Subsidies and Countervailing Measures”, George Town University Law Centre, 2000, pp. 112.206
85
Michael P. Leady, “ Macroeconomic Conditions and Pressures for Protection under Anti-dumping and
Countervailing Duty Laws: Empirical Evidence from the United States”, IMF Working Paper 44, 1 (March), 1997
 same time by factors other than increase imports must not be attributed to increased imports
to the domestic industry.
 „Domestic industry‟ mean the producers- as a whole of the like article or a directly
competitive article in a country; or whose collective output of the like article in a country
constitutes a major share of the total production of the said article in that country.

2.11.8. Difference Between Anti-dumping, Countervailing Duty and Safeguards:

The GATT designed Safeguards protection does not have the unique combination of
economic and political manipulability of anti-dumping. The use of Anti-dumping is fought with
ambiguities and is amenable to misuse, which makes anti-dumping duty highly discriminatory in
nature. Once the anti-dumping case is filed the decision to grant protection is subject to
substantial discretion and hence can be influenced by the involved parties.

On the other hand, the uses of safeguards is permitted when there is an important surge or
increase in the imports share of a shrinking market which threatens serious injury to domestic
producers. Apart from this, anti-dumping measures are firm specific. In contrast, safeguard
confirms to the principle of non-discrimination. It is non-discriminatory i.e. safeguard shall be
applied to a product being imported irrespective of its source. It cannot be targeted at imports
from a particular country. It is therefore clear that safeguard measures have greater political
visibility than the anti-dumping. Besides, a member proposing to apply/extend safeguard
measures is expected to provide adequate opportunity for prior consultation with those members
having a substantial interest as exporters of the product concerned with a view to review
information provided by the member country.

However, there is no such provision for consultation in the cases of anti-dumping law.
Finally, the safeguard agreement provides for differential and preferential treatment of
developing countries. Safeguard measures agreement provides for differential and preferential
treatment of developing countries. Safeguards may be taken against a developing country only if
it supplies more than three percent of imports of that product. In cases these countries supply less
than 3% individually, they should together account for more than 9% of total imports to be
subject to the safeguard measures. Furthermore, a developing country has a right to extend the
period of application of a safeguard measure for a period up to two years beyond the maximum
period. Finally, notwithstanding the provisions of the paragraph 5 of Article 7, a developing
country may apply safeguard measure again to the import of product, which has been subject to
such a measure, provided that the period of non-application is at least two years. No such
preferential treatment is provided to developing countries in the anti-dumping law. Article 15 of
the law recognizes that developed countries must give special regard but it is not effective.

For these reasons anti-dumping is unique combination of WTO consistency and case of use
and safeguard measures are no competitors to anti-dumping and this is perhaps the reason why
anti-dumping measures are frequently used as trade protectionist measures. Safeguards are
different from countervailing measures because countervailing duty is imposed to offset the
subsidized imports to the country, whereas safeguard duty is imposed when there is a surge of
imports into the country. The use of safeguard comes along with compensation because these are
applied under the recognition that the domestic industry needs to undergo adjustments. Anti-
dumping requires no compensation since it is allegedly based on unfair trade. Moreover
prerequisite for initiating SG measures are higher in comparison with AD. SG are applied if
imports enter the country in such increased quantities, absolute or relative as to cause, threaten
serious injury to the domestic industry.

Anti-dumping is restricted to dumping that causes/ threaten material injury. Furthermore,

safeguard measures are non-discriminatory while anti-dumping is firm and country specific.
Finally, the investigation process of anti-dumping itself tends to hamper exports. However,
economists, while assessing the costs and benefits of contingent protection measures argue that
safeguard measures are superior to anti-dumping. Safeguard are more transparent, less
belligerent and more focused than anti-dumping.

2.12. Relationship between Anti-dumping Policy and Competition Policy:

The various causes cited for dumping have given rise to the debate on relationship of
dumping and competition laws and whether anti-dumping Agreement should be replaced by
agreement on competition policy. Anti-dumping duties have been described as a “curious hybrid
of tariff ideas and price discrimination theories of anti-trust law”.86 Different views exist here

86
Referred in Michael Trebilock, “Competition Policy and Trade Policy: Mediating the Interface”, Journal of World
Trade, 71, Cited in Sheela Rai, “Anti-Dumping Measures under GATT /WTO”, (2004)
also, while some writers support the idea of replacing anti-dumping laws with competition
policy, others hold it not possible,87 enumerating the differences between competition policy and
trade policy, some say that both should co-exist while some others say that anti-dumping laws
should be scrapped. Thus, four alternatives have been suggested:

a) Substituting competition policy for anti-dumping policy in the context of a free trade
agreement.
b) Making anti-dumping rules more competition friendly within the WTO context.
c) Simply abolish anti-dumping within the context of a free trade agreement without
replacing it with competition rules.
d) Co-existence of both anti-dumping policy and competition rules.

Both competition policy and trade liberalization are based on the principle that
undistorted markets lead to optimal economic efficiency and resource allocation. Free trade pulls
resources to where their comparative advantages are, and competition induces a process of
market cleanup in which the more efficient innovating firms are the winners while the
inefficient, less dynamic firms stand to lose. It is fully recognized that the process of competition
is unthinkable without losers, but that the net outcome will be more efficient markets with better
and cheaper products for the consumers. Protecting the losers during this process would
negatively interfere with the market clean up.

According to a view there can be no solid case made for anti-dumping on the basis of
economic arguments alone. Competition policy standards which protect competition are more
adequate in dealing with unfair trade practices and promoting efficiency than anti-dumping rules,
which protect specific competitors. Likewise competition policy is perfectly compatible with
trade liberalization, whereas anti-dumping is something of an anomaly with the current WTO
framework.

Those who support the third alternative have highlighted the difference between the
competition law and the anti-dumping law which is a trade policy.88 They point out that the

87
Supra note 29, p.9
88
Gunnar Niles and Adriaan Ten Kate, “Trusting Antitrust to Dump Anti-dumping: Abolishing Anti-dumping in
Free Trade Agreements without replacing it with Competition law”, Journal of World Trade, 31(6): 29-51,1997,
cited in Sheela Rai, “Anti-Dumping Measures under GATT /WTO”, (2004), p. 7
underlying objective of competition policy in most jurisdictions tends to be efficient resource
allocation and thereby the maximization of national welfare. The objectives underlying trade
policy contrast starkly with those of competition laws. Governments pursue trade policies for a
variety of reasons, including as a means to raise revenue, to protect specific industries, to shift
the terms of trade, to attain certain foreign policy or security goals, or simply to restrict the
consumption of specific goods. Whatever the underlying objective, an active trade policy
redistributes income between segments of the population by protecting specific industries and the
factors of production employed there, and usually do so in an inefficient manner. Trade policy is
consequently often inconsistent with the objectives underlying competition policy. The way this
inconsistency is frequently put is that competition law aims at protecting competitors (or factors
of production). This is also the case for anti-dumping, although many defenders regard it as the
example of a trade policy that is consistent with the objectives of competition law. While this
may have been the case when anti-dumping laws were first written, it is certainly not the case
today. Proponents of anti-dumping are concerned implicitly if not explicitly, with the continued
existence of national firms that produce a good. The fact that competition from other outside
sources will, in most realistic circumstances, prevent the formation of a monopoly is considered
irrelevant. What matters is the prevention of domestic industry.

Trade policy is consequently inconsistent with the objectives underlying competition

policy. The way this inconsistency is frequently put is that competition law aims at protecting
competition (and thus economic efficiency), while trade policy aims at protecting competitors (or
factors of production). This is also the case for anti-dumping, although many defenders regard it
as the example of a trade policy that is consistent with the objectives of competition law.

On the ground of effect on the complaining industry it is contended that the market power
standard in competition policy represents the single most important difference with anti-dumping
standards. Critics who consider competition policy as an adequate substitute for anti-dumping
often overlook this fact. The injury standard might be regarded as counterpart of anti-dumping to
market power. “Still the two (market power and injury standards) could not be applied more
differently in practice”.89 Instead injury to domestic industry can be found rather easily. The

89
Supra note 86, p. 37
essence of competition is precisely to try out performing and thus injuring competitors, and if a
foreign firm sells at low prices it automatically hurts competitors in the importing country. In
practice injury may already be determined if imports have, say, tripled market share from two to
six percent in a couple of years. From a competition point of view, the anti-dumping injury test is
a typical example of protection of individual competitors to the detriment of the process of
competition. No account is taken of the efficiency of the injured or the market power of the
injurer. Moreover, the imposition of anti-dumping duty shielding the domestic market from
import competition often grants the originally injured substantially more market power than that
of the injurer before the import duties, leaving competition severely distorted.90

Pointing to another main difference between competition policy and anti-dumping it is

said that competition authorities‟ concern with price discrimination refers more to the negative
effects on downstream (secondary line) competition. If a firm sells an identical intermediate
good at different prices to different users, competition between these users in their final goods
market becomes distorted. In this case the user paying the lower price for the input obtains a
possibly unfair competitive advantage. Anti-dumping law is not concerned with secondary line
injury. If anything, dumped inputs favour downstream buyers in the importing country over their
competitors from the exporter‟s home market. This makes the imposition of anti-dumping duties
on the intermediate goods even more awkward.91

Opponents argue that it could be expected that if competition policy‟s predation standards
were applied to dumping complaints, virtually none of these complaints would stand the
scrutiny. The reasons are simple. An alleged dumper would rarely have enough market power to
force all domestic producers and other exporters out of the market. Even if he should eventually
succeed in doing so he would find it difficult to increase prices to monopoly levels afterward
because that would induce new competition from other exporting firms and countries. Entry or
re-entry by domestic competitors is also not to be excluded. Thus while predatory pricing is
extremely rare in a domestic context, it is even more unlikely to occur in international trade.
Moreover, challenged dumpers in general do not even have the intention to monopolize foreign
markets. In most cases their strategies of selling cheaply abroad rather reflect situations of excess

90
Supra note 86, p. 37
91
Ibid
capacity at home, of meeting competition in the importing country or of simply trying to get a
foothold in a new market.

The point that virtually no dumping case would pass the scrutiny of competition standard
is confirmed by a number of empirical studies. The most important of these studies is a report to
the OECD, which thoroughly analyses anti-dumping practice in the US, Canada, Europe and
Australia. The report findings are devastating: in the overwhelming majority of cases where anti-
dumping procedures were applied, there was no plausible threat to competition in the domestic
market. Instead, anti-dumping actions in these cases led to competition reducing outcomes,
including the application of duties, undertakings to raise import prices, voluntary export
restraints and encouragement of collusion between domestic competitors.92

However, some contend that anti-dumping can be made more competition friendly by
applying a more rigorous approach in determining material injury to domestic industry as that
which affects its health. In fact European Community while determining material injury is also
assessing the impact on overall competitive conditions of market.93

With the development of concept of international trade, the problem of dumping also
emerged. Various attempts were made to define, categorize and classify the term while tracing its
historical backdrop. Various theories were developed to advocate the free flow of capital and
goods but with time it led to emergence of problems like dumping. At international level it led to
formulation of Anti-Dumping measures whereas domestic actions in form of rules, regulations
and guidelines were also adopted by nations. GATT Article VI which lead to the formation of
Anti-Dumping Agreement 1994 currently deals with the Anti-Dumping measures at international
level only covers the cases of “price dumping” not the “cost dumping”, and the entire study to be
followed in succeeding pages is going to be confined only to this type of dumping, since the
entire Anti-Dumping jurisprudence under GATT and WTO regime has been developed around
this type of dumping only.

92
Rodney C. Grey, “The Relationship Between Anti-dumping Policy and Competition Policy, For UNCTAD
Revised/31 May 1999.
93
John H. Jackson, “World Trade and The Law of GATT”, 403, (1969) cited in Sheela Rai, “Anti-Dumping
Measures under GATT /WTO”, (2004), p.9