Twenty-seven years ago, when I was offered to work for two months for the Ministry of Economy, to reject claims on anti-dumping measures adopted by the Argentine government, I asked: what is dumping?
The answer was graphic, simple and enough for me to get deeper into this corporate, social, political and tax phenomenon, which has deserved an international agreement signed by almost all nations of the globe.
From a practical point of view, dumping consists of exporting certain product at less than its normal value in the domestic market.
Example: an automobile factory located in Japan sells cars at USD 10,000 in the domestic market. However, when exporting them to Brazil, they are sold at USD 6,800. This practice may cause the local factories to close (thus, increasing unemployment) since they would not be able to compete with the exceptionally low prices in Japan.
Therefore, we shall have:
a) A dumping practice (defined as an export carried out at less than its normal value) and
b) Damage caused by said dumping, endured by the manufacturing company located at the importing country.
Within an international context, where global commerce is highly valuated, it is worth remembering that it is an undesired practice, unaccepted by nations.
Under the General Agreement on Tariffs and Trade 1994 (GATT) and, afterwards, the World Trade Organization (WTO), more than a hundred countries have self-limited the faculties to impose taxes on international commerce exchange. This means opening the economy of a country to the world. As a counterpart, these countries expect benefits for themselves. It is an effort over sovereignty in pursuit of national common good.
However, this commitment finds an exception when facing a dumping practice.
Dumping practices were not a theory conceived in the 1947 GATT, as a means of gaining foreign markets and destroying domestic competence. United States, since the beginning of the XX century, as well as the interwar Europe have regulated and fought this practice, the effect of which was to undermine the strength of Nations.
Therefore, in 1967, during the Kennedy Round, Article VI on Anti-dumping Rights and Countervailing Duties was added and it starts as follows: “The contracting parties recognize that dumping, by which products of one country are introduced into the commerce of another country at less than the normal value of the products, is to be condemned if it causes or threatens material injury to an established industry in the territory of a contracting party or materially retards the establishment of a domestic industry. “
Legal remedy: Anti-dumping duty.
That a country accepts lowering import duties values, so that the companies located in other contracting countries perform dumping practices affecting local employment (national production branch), was not a desired effect by the Agreement, neither was coherent with the statements on values and objectives which gave rise to the GATT.
Therefore, after acknowledging the dumping practice and the fine established, said Agreement states the way to counteract this detrimental effect: the country suffering a dumping practice is authorized to apply an additional tax on the import of products subject to dumping, named “Anti-dumping duty”: “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 product. “
However, the sole claim of a dumping practice causing damage, is not enough for the government of a WTO member country to apply an anti-dumping duty. It is necessary to follow a previous investigation proceeding.
As well as in the case of other GATT articles, an Agreement has been established in relation to the application of Article VI of the General Agreement on Tariffs and Trade. This was the 1967 Anti-dumping Code. Since then and up to these days, in each round of negotiation this practical Agreement has been enriched: it explains how to move forward with the investigation intended to show we are facing a scenario where a product subject to dumping is causing damage over a production sector in the importing country.
The Agreement on the Application of Article VI of the 1994 General Agreement on Tariffs and Trade shines for its simplicity: previously established proceeding and for a certain period of time, right to a defense and evidence from the parties, detailed justification on the decisions taken, publication of the duties to be applied, possibility of appealing.
Basically, the government shall carry out an investigation where the necessary evidence is gathered to justify its assertion: in our production sector, we are suffering dumping practices. However, if the industry is not damaged by the dumping practice, no Anti-dumping duty shall be imposed.
These safeguarding policies, materialized in the Agreement, make it frequent to think about Anti-dumping investigations as a judicial struggle when, in fact, it is not.
The duty is the result of a political decisión adopted within a legal frame. The State shall carry out an investigagion to verify if the case complies with the pre-established legal requirements. If these elements are present, it shall analyze if the legal remedy may be applied: Andi-dumping duty.
During all this proceeding, it shall count with the assistance and participation of the companies being part of the offer and demand of the product subject to dumping, as well as the diplomatic representation of the country performing dumping practices.
In conclusion, what is the reason for taking part in dumping cases? To actively exercise the right to work, develop a licit industry and do business in a country, as manufacturer, exporter or importer, within a legal system multilaterally agreed upon, which is strengthened as long as equity and justice are applied.