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    Anti-Dumping Duty - Meaning, How to Calculate & Example

    Anti-Dumping Duty | What Is It, Calculation, Example & More

    What is Anti-Dumping Duty?

    Anti-dumping duty is a duty levied on goods manufactured in foreign countries and imported into the US. These imports have a lower price than the fair market value of the same or similar goods in the domestic market. The government imposes anti-dumping duty on imports when there are reasons to believe that the goods are being dumped into the domestic market due to their low pricing. Anti-dumping duty is a way of protecting local businesses and markets from unfair competition by imports. In other words, it is a protectionist tariff.

    Why is Anti-Dumping Important?

    Anti-dumping duties are typically levied when a foreign company sells an item at a significantly lower price than the price at which it has been produced. In many cases, the duties imposed on the goods exceed the value of the goods.

    The primary intention of anti-dumping duties is to save domestic jobs. However, these tariffs can also lead to higher prices for domestic consumers. The long-term benefit of anti-dumping duties is that it can reduce international competition of domestic companies producing similar goods. Local enterprises rely on anti-dumping laws to deal with unfair competition from imports manufactured abroad that have below-market value.

    Types of Dumping

    There are four types of Dumping in international trade:-

    • Sporadic-dumping:
    • Predatory-dumping
    • Reverse-dumping
    • Persistent-dumping

    1) Sporadic Dumping The companies dump excess inventories to avoid price wars in the home market and protect their competitive position. They can dump by - destroying extra supplies or exporting them to a foreign market where the products are not currently sold. It is a temporary strategy.

    2) Predatory Dumping Predatory Dumping is a permanent strategy. In this type of Dumping, the company regularly sells the product in the foreign market at a lower price than the domestic prices. The company sells the product at a loss to gain entry and destroy the local industry. Once it gains some monopoly in the foreign market, it slowly starts to increase the price.

    3) Persistent Dumping When a country regularly sells products at a lower price in the foreign market than the domestic prices, it is called persistent Dumping. It generally happens when there is a constant demand for the product in the foreign market.

    4) Reverse dumping Reverse dumping happens when the price changes do not impact demand. Thus, the company can charge a higher price in the foreign market and a lower price in the local market.

    How does Anti-Dumping Duty Work?

    The International Trade Commission (ITC) is at the helm of controlling dumping in the US and is chiefly responsible for ensuring that anti-dumping laws are strictly enforced. The ITC acts on the recommendations of the Department of Commerce. In most cases, more than 100% of the product’s value is imposed as a duty on the erring party.

    When an importer sells a product in the U.S. at a substantially lower price than its country of origin(home market), that product attracts anti-dumping duties. Besides saving domestic jobs, levying anti-dumping duties also helps mitigate the level of competition of local companies selling related or comparable products.

    Companies enforce anti-dumping laws and duties to protect local markets/businesses and put an end to the unethical practice of foreign companies flooding the markets with their cheap goods. There has been a significant increase in the instances of anti-dumping cases initiated by American businesses.

    Examples of Anti-Dumping Duty

    The ITC imposes the anti-dumping duty based on the recommendations of the US Department of Commerce. Some cases where the anti-dumping duty was imposed are as under:-

    1. Flat panel display (FPD) screens dumping by Japanese companies in 1991:-

    In the 1990s, American businesses had complained about the dumping of the FPD screens by Japanese companies in their domestic markets. The US Department of Commerce took cognizance of these complaints and ruled that Japanese companies were liable for dumping the FPD screens in the US market.

    Consequently, the ITC initiated an investigation and concluded that the Japanese companies had indeed dumped FPD screens, causing material damage to the American businesses. The ITC recommended a 62.5% anti-dumping duty on FPD screens imported from Japan.

    2. Dumping of steel by Chinese companies in 2015:-

    Large American steel producers filed complaints with the US Department of Commerce about the dumping of steel by Chinese companies in the US markets. Imports of steel in large quantities had resulted in an unfair competition since the imports were unfairly low in price.

    The ITC investigated the allegations on the recommendation of the Department of Commerce and found that the Chinese companies were guilty of dumping steel products, causing material damage to the American businesses. The ITC then imposed a 500% import duty on select steel imports from China to protect the domestic steel industry.

    What Products have Anti-Dumping Duty?

    Anti-dumping duty has been imposed on the following few imported products into the US in the past.

    • Bikes
    • Ceramic tiles
    • Certain cold-rolled flat steel products
    • Ironing boards
    • Pump trucks from China

    These are just a few items. A list of the most recently applied anti-dumping duty measures is available on the government website.

    Role of WTO in Anti-Dumping

    The World Trade Organization (WTO) plays a crucial role in regulating anti-dumping measures. As an international organization, the WTO does not regulate brands blamed for dumping activities. However, it has the power to regulate how governments handle dumping activities in their countries.

    There have been instances of some governments reacting aggressively to the dumping of goods in their territories by foreign companies by applying punitive anti-dumping duties on those products. In such cases, the WTO may step in to check if such actions are justified or whether they go against the WTO free-market principle.

    According to the WTO anti-dumping agreement, dumping is legal unless it causes material injury in the importing country’s domestic market. The WTO also bans dumping when the activity results in material retardation in the domestic market. In such cases, the WTO allows the affected country’s government to take legal actions against the dumping country.

    However, there must be sufficient proof of genuine material injury to trade in that country’s domestic market. Under this circumstance, the affected government must prove the following:-

    • The fact that the dumping took place
    • Cite the extent of the dumping expenses
    • Establish the injury or threat to the domestic market

    What is the WTO Anti-Dumping Agreement?

    Anti-dumping measures are unilateral remedies and involve actions such as imposing anti-dumping duties on the product/s being dumped. The US government (or that of any importing country) may apply the anti-dumping measure after a thorough investigation has established beyond any element of doubt that the product is, in fact, being dumped in that country. This measure is also important because the sales of the dumped product are causing losses to the domestic/local industry that produces a similar product.

    This intervention must be justified to uphold the commitment of WTO to free-market principles. Anti-dumping duties have the potential to distort the market. In a free market, governments cannot typically determine what constitutes a fair market price for any goods or services.

    How is Anti-Dumping Duty Calculated?

    The WTO Anti-Dumping Agreement makes sure that the governments do not discriminate between trading partners and honors the General Agreement on Tariffs and Trade (GATT) 1994 principle when calculating the anti-dumping duty. The GATT 1994 principle has offered several guidelines to govern trade between members of the WTO. For instance, it states that imported goods must not be subjected to internal taxes more than the costs imposed on domestic goods.

    It also requires that imported goods be treated the same way as domestic goods under domestic laws and regulations. However, it allows the government to impose a duty on imports if they exceed the bound rates and can cause injury to the domestic market.

    There are established ways of determining whether an imported product has been dumped lightly or heavily and the amount of duty to be applied. The first method calculates the anti-dumping duty based on the normal price of the product. The second technique uses the price charged on the identical product but in a different country. The third method calculates the duty based on the total product costs, expenses, and the manufacturer’s profit margins.

    How to Find if your Product is Subject to Anti-Dumping Duty?

    To determine if any product is subject to anti-dumping duty, an importer should first review the scope of anti-dumping duty/countervailing duty (ADD/CVD) orders, whether the merchandise falls under the scope of an order.

    A scope ruling is the only method to confirm whether the goods are subject to an ADD/CVD order. The ITA issues a scope ruling to clarify the scope of an ADD/CVD order.

    A scope ruling request must contain the following:-

    • A detailed description of the product, its technical characteristics and uses, and its current US tariff classification number.

    • A statement of the interested party’s position whether the product is within the scope of an order, including a summary of the reasons for this conclusion, citations to any applicable statutory authority, and factual information supporting this position.

    You must serve a copy of the scope ruling request to all parties on the Comprehensive Scope Service List. The requests must include a Company Certification of Accuracy, Representative Certification of Accuracy, and Certificate of Service.

    After preparing a scope ruling request, it must be submitted electronically via the Anti-dumping and Countervailing Duty Centralized Electronic Service System (ACCESS) .

    If a scope inquiry is initiated, notice is sent to all parties on the Comprehensive Scope Service List, comments are solicited, and the ITA typically issues a final ruling within 120 days of the initiation of the inquiry.

    ADD/CVD orders reference the US Harmonized Tariff Schedule (HTS) classification of the goods subject to the orders. The HTS classification of your product can sometimes help make that determination.

    Is Anti-Dumping Good or Bad?

    There are benefits and drawbacks of imposing the anti-dumping duty.

    Benefits of Anti-Dumping :-

    • It helps protect the domestic businesses of a country against unfair competition created by foreign exporters by reducing the export prices against their fair price.

    • It is an effective way of curbing such unfair pricing policies and helps create a level playing field.

    Drawbacks of Anti-Dumping :-

    • Anti-dumping duty creates a barrier to free trade between economies. Consequently, the economy of such a country that imposes a duty suffers the results of restrictive entry into its market.

    • It also acts against the interest of domestic consumers as they are deprived of the opportunity of obtaining products at lower prices.

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