A logical outgrowth of a market policy in international business is goods priced competitively at widely differing prices in various markets. Marginal (variable) cost pricing as discussed earlier is a way, prices can be reduced to stay within a competitive price range. The market and economic logic of such pricing policies can hardly be disputed but the practices often are classified as dumping and are subject to severe penalties and fines. Various economists define dumping differently One approach classifies international shipments as dumped if the products are sold below their cost of production. Another approach characterizes dumping as selling goods in a foreign market below the price of the same goods in the home market.
World Trade Organizations (WTO) rules allow for the imposition of a dumping duty when goods are sold at a price lower than the normal export price or less than the cost in the country of origin increased by a reasonable amount for the cost of sales and profits, when this is likely to be prejudicial to the economic activity of the importing country. A countervailing duty or minimum access volume (MAV) which restricts the amount a country will import may be imposed on foreign goods benefiting from subsidies whether in production export or transportation.
For countervailing duties to be invoked it must be shown that prices are lower in the importing country than in the exporting country and that producers in the importing country are being directly harmed by the dumping. A report by the US Department of Agriculture indicated that levels of dumping by the United States hover around 40 percent or wheat and between 25 and 30 percent for corn, and levels for soybeans have risen steadily over the past four years to nearly 30 percent. These percentages for example mean that wheat is selling up to 40 percent below the cost of production. For cotton, the level of dumping for 2001 rose to a remarkable 57 per cent and for rice it has stabilized at around 20 percent. The study indicated that these commodities are being dumped onto international markets by the United States in violation of WTO rules. The report found that may years of accepting agricultural dumping a few countries have begun to respond by investigating whether some US agricultural exports are dumped. Brazil is considering a case against US cotton before the WTO. In 2001 Canada briefly imposed both countervailing and antidumping duties on US corn imports the United States did the same for Chinese apple juice concentrate.
Dumping is rarely an issue when world markets are strong. In the 1980s and 1990s dumping became a major issue for a large number of industries when excess production capacity relative to home country demand caused many companies to price their goods on a marginal costs basis. In a classic case of dumping, prices are maintained in the home country market and reduced in foreign markets.
Toady, tighter government enforcement of dumping legislation is causing international marketers to seek new routes around such legislation. Assembly in the importing country is a way companies attempt to lower prices and avoid dumping charges. However, the screwdriver plants, as they are often called, are subject to dumping charges if the rice differentials reflect more than the cost savings that result from assembly in the importing country. Another subterfuge is to alter the product so that the technical description will fit a lower duty category. To circumvent a 16.9 per cent countervailing duty imposed on Chinese gas filled non-refillable pocket flint lighters, the manufacturer attached a useless valve to the lighters so that they fell under the non-disposable category thus avoiding the duty. Countries do see through many such subterfuges and impose taxes. For example, the European union imposed a $27 to $58 dumping per unit on a Japanese firm that assembled and sold electronic typewriters in the European Union. The firm was charged with valuing imported parts for assembly below costs.
Source: International Marketing