Anti Dumping Duty is a protectionist tariff that a country uses to protect the domestic industry from cheaper foreign goods. A country imposes this duty if the price of the imported goods is less than the fair price of that commodity in the domestic market.
So, after the imposition of this duty, the price of the imported item comes at par (or more) than the price of the same (or similar) item in the domestic market. In several cases, the amount of duty levied has been much more than the value of the products (as much as over 550%).
Usually, in a dumping, the exporting company exports an item at a price that is significantly less than the price it charges in its home country. So, to protect the economy and local industry, the importing nation imposes anti dumping duty on such items.
It will not be wrong to say that anti dumping is an effective tool to ensure fair trade among the countries. Moreover, it protects the domestic industry from dumping harm by another country.
Similar to anti-dumping duties, importing countries may also levy countervailing duty on imports. Such a duty helps to cancel out the benefits that exporters get as subsidies in their countries.
In the U.S., the ITC (International Trade Commission) is responsible for levying such duties. The ITC base its decisions on the recommendations from the Department of Commerce (DoC).
WTO and Anti Dumping Duty
The primary objective of levying anti-dumping duties is to protect domestic jobs and industry. However, by imposing these duties, it may be possible that the prices for domestic users may become higher. Moreover, in the long term, such duties may also contribute in reducing the international competition for the domestic companies that make similar items.
So, to ensure that countries do not misuse such duties, the WTO (World Trade Organization) has come up with rules and regulations regarding anti-dumping duties. A point to note is that the WTO does not directly deal with the companies practicing dumping. Rather, the organization stipulates how nations can or can not answer to dumping from other countries and MNCs.
The WTO allows the use of anti-dumping duties if dumping results or may result in material injury to the domestic injury. However, the government levying such duties must ensure that the imposition of duties must not breach WTO’s free-market principles.
At the same time WTO does expect that the member countries not to discriminate between the member countries. Moreover, it expects the member countries to adhere to the DATT 1994 principle while calculating the duty. The DATT 1994 principle lays several norms guiding the trade between the member countries.
Moreover, this principle requires that the duties on the imports must not be more than the costs of the domestic goods. Also, the principle wants countries to give the same treatment to the imports as they give to the domestic goods. However, the principle does allow imposition of duties on imports by the countries. But only and only when it causes or has the potential to cause material injury to the domestic industry.
How to Calculate Anti Dumping Duty?
The most popular way to calculate the amount of duty is on the basis of the normal price of the product.
So, Anti-Dumping Duty = Normal Value less Export Value
The normal value here is the fair value of the same or similar product in the country of the exporter. In case, if determination of fair value is difficult, then there are two ways to get the normal value.
First is considering the price of the same or similar product in any other country.
And, the second method involves calculating the duty on the basis of the cost of the product, related expenses, as well as the profit margin of the producer.
Talking about export value, it is the value at which an exporter sells a product. So, it is actually the FOB (Free on Board) price of that item.
Below is a simple example that will help us in understanding the calculation of anti dumping duty.
Assume, Mr. A from China exports mobile to Mr. B of U.S. at $1,500 per unit (FOB). However, in China, Mr. A sells the same mobile at $1,800. In this case, Mr. A is selling the same item at a lower price in the foreign market.
Fai Value here will be $1,800 and the Export Value will be $1,500.
Anti dumping duty = $1,800 less $1,500 = $300.
So, the U.S. can consider levying an anti dumping duty of $300 on the mobiles from Mr. A.
Real World Examples
In 2015, several U.S. steel companies, including ArcelorMittal USA, United States Steel, California Steel Industries and more, lodged a complaint with the ITC and DoC (Department of Commerce). In their complaint, these companies claimed that many nations, including China, are dumping steel into the U.S. at unfairly low prices.
After investigation a year later, the U.S. authorities said they are levying anti-dumping and countervailing import duties on certain steel from China. Thereafter, China filed a counter complaint with the WTO over the tariffs from the U.S.
Another real-world example is of the Japanese companies. In the early 90s, American companies filed a complaint against the dumping of FPD (flat panel display) screens by the Japanese companies in America. After investigation, the ITC proposed levying 62.5% anti-dumping duty on the FPD screens from Japan.
The U.S., in the past, has also imposed anti-dumping duty on the bikes, ceramic tiles, ironing boards, Chinese pump trucks, specific cold-rolled flat steel products and more.
Anti dumping duty is a powerful tool that an importing country has to protect the local industries from the unfair practices of the foreign exporters. However, countries must use this tool carefully to ensure it does not obstruct free trade and does not make domestic industries complacent enough not to undertake any innovative activities.