Archive for the 'Dumping' Category

Oct 21 2008

Fair trade vs. free trade: the problem with “dumping”

FT.com / World – Anti-dumping investigations soar

Free trade is good, right? This sentiment is one that economists typically agree with wholeheartedly. The mutual gains from free trade among nations that specialize in the goods for which they have the comparative advantage results in increased global output and consumption among trading nations. That, at least, is the basic premise of free trade.

But is there such a thing as unfair free trade? The World Trade Organization, whose mission is the removal of barriers to trade among all the world’s nations, thinks there is such a thing as unfair trade. Under certain circumstances, the WTO allows member nations to place protective tariffs on particular imports, and recently, more and more nations have taken action to protect their domestic markets from unfair trade practices of their trading partners:

The number of new anti-dumping investigations soared by nearly 40 per cent in the first six months of this year, the World Trade Organisation said on Monday, reflecting increased trade tensions as the credit crunch began to take its toll on the global economy.

Between January and June 16 WTO members started 85 new investigations compared with 61 in the first six months of 2007. China was the target of nearly half the probes, a jump of 75 per cent over the same period last year.

Under WTO rules, countries can put duties on unfairly priced imports that are sold in export markets more cheaply than at home. But until this year dumping actions had seemed to be on a downward trend, with 164 investigations in the whole of last year compared with over 200 in 2006.

Anti-dumping actions, once mainly taken by rich countries against poor ones, have become a tool increasingly used by developing nations while industrialised countries have increasingly become targets…

The EU was the third-ranking target in the first half of the year, after China and Thailand. Canada, the US, New Zealand and Norway also had investigations opened against their exports.

The WTO said the main products affected were base metals (21 investigations), textiles (20) and chemicals (10).

The number of new measures taken as a result of anti-dumping probes also rose in the first six months of 2008, with 54 measures against 51 measures in the same period in 2007. India applied duties in 16 cases, with the EU some way behind in second place.

China was again the main target followed by Taiwan, the EU, South Korea, Russia and the US.

Discussion Questions:

  1. Why would a country want to keep cheap imports out of its domestic markets? Don’t cheap goods make consumers happy?
  2. Does dumping refer to the sale of a country’s goods below the importing country’s costs of production or the costs of production in the country where the good is made? Why does this distinction matter?
  3. When a nation protects its domestic market from dumping, is the principle of comparative advantage being undermined? Discuss.

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