Friday, October 23, 2015

Why Anti Dumping Duty in International Trade is Important for Developing Countries

Now a days the whole world has been reduced to the the status of a village,to be precise global village in which the near placed homes represent the neighbouring countries. The advent of technology has virtually reduced the mammoth distance between countries all over the world to almost zero. So in this atmosphere of intense connectivity to each other the countries would naturally want to benefit from the strategic, technical, resourceful advantage of each other. This very advantage leads to the onset of trade and commerce between different countries.

This trade and commerce is very advantageous but it also has a negative activity in it termed as dumping.

Now What is DUMPING in International Trade ??

Dumping means to export goods in bulk quantity to some other country at a price which is lower than the price involved in the manufacturing of that item or at a price which is lower than the price at which that particular product is available in the domestic markets of the importing country. It is a type of predatory pricing which is being done in order to gain an edge in the markets of a particular item. 

This practise of dumping is intentionally being done in order to first capture the market and eradicating all the competitors and then increasing the price at will. Obviously if anyone selling the product for a cost which is less than its cost price, other manufacturers of that product will quit as it would not be sustainable for them to carry on. This is an anti competitive practice which is practised by countries to give them undue advantage in foreign markets. China has become famous for using this policy for many years now and sometimes the countries where the products are being exported are unable to check this practise as they require those products but do not have the skills to produce them efficiently.

What is the utility of Anti Dumping Duty ?

Anti Dumping Duty is a potent weapon that can be used by the importing country to avoid this practise of predatory pricing which hurts its domestic manufacturers. By imposing a duty the product which is being imported will become expensive in the domestic market and people will avoid buying it and go for locally produced comparatively cheaper domestic products. This will enable the domestic producers to remain sure that they are being protected by the government against malpractices of foreign exporters.

This is very very important for countries that are still in their developing phase and are lacking crucial infrastructural facilities and industrial development.

In India to impose the dumping duty, recommendations are being given by directorate-general of anti-dumping and allied duties and if the finance ministry of India accepts them the duties are being imposed. Recently many such duties were being imposed like - 

1. Hexamine being imported from UAE and China.
2. Plain medium density fibre(Thickness of 6mm and above) from Sri Lanka, Thailand, Malaysia, China.
3. Yarn imported from Thailand and China.
4. Front axle beam and Steering Knuckles of heavy and medium commercial vehicles from China.

Can Anti Dumping Duty be a permanent solution ??

No Anti Dumping Duty can not be a permanent solution for eradicating malpractices in international trade because if the domestic manufactures become sure that they will be permanently protected against foreign competition they will obviously become careless and will avoid innovation. The government should make it clear to the domestic producers that this anti dumping duty is being imposed temporarily in order to give them time to innovate and bring themselves at par with the foreign quality at competitive prices. Trade means competition and innovation to bring out the best final product at the most reasonable prices to the final consumer and that precisely is the meaning of present day CAPITALISM.

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