From UPSC perspective, the following things are important :
Prelims level : Anti-dumping duty, Countervailing Duty
Mains level : Read the attached story
India has initiated an anti-dumping probe against imports of a certain type of tiles, used for covering the floors in residential and commercial buildings, from China, Taiwan and Vietnam following a complaint by domestic players.
Why in news?
- Countries start anti-dumping probes to determine whether their domestic industries have been hurt because of a surge in cheap imports.
- The dumping has caused material injury to the domestic players. If established, the Directorate General of Trade Remedies (DGTR) would recommend an anti-dumping duty on these imports.
- As a countermeasure, they India would impose these duties under the multilateral regime of the World Trade Organisation (WTO).
What is Dumping?
- Dumping is a process wherein a company exports a product at a price that is significantly lower than the price it normally charges in its home (or its domestic) market.
- This is an unfair trade practice which can have a distortive effect on international trade.
- Anti dumping is a measure to rectify the situation arising out of the dumping of goods and its trade distortive effect.
What is Anti-Dumping Duty?
- An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.
- In order to protect their respective economy, many countries impose duties on products they believe are being dumped in their national market.
- In fact, anti-dumping is an instrument for ensuring fair trade and is not a measure of protection per se for the domestic industry.
- Such ‘dumped’ products have the potential to undercut local businesses and the local economy.
- Anti-dumping duties provide relief to the domestic industry against the injury caused by dumping.
Mechanism in India
- The Department of Commerce recommends the anti-dumping duty, provisional or final.
- The Department of Revenue in Finance Ministry acts upon the recommendation within three months and imposes such duties.
WTO and Anti-Dumping Duties
- The WTO operates a set of international trade rules, including the international regulation of anti-dumping measures.
- It does NOT intervene in the activities of companies engaged in dumping.
- Instead, it focuses on how governments can—or cannot—react to the practice of dumping.
- In general, the WTO agreement permits governments to act against dumping if it causes or threatens material injury to an established domestic industry.
Issues with such duties
- Anti-dumping duties have the potential to distort the market.
- In a free market, governments cannot normally determine what constitutes a fair market price for any good or service.
Countervailing duty (CVD)
- Countervailing duty (CVD) is a specific form of duty that the government imposes in order to protect domestic producers by countering the negative impact of import subsidies.
- CVD is thus an import tax by the importing country on imported products.
- To make their products cheaper and boost their demand in other countries, foreign governments sometimes provide subsidies to their producers.
- To avoid flooding of the market in the importing country with these goods, the government of the importing country imposes a countervailing duty, charging a specific amount on import of such goods.
How does it work?
- The duty nullifies and eliminates the price advantage (low price) enjoyed by an imported product when it is given subsidies or exempted from domestic taxes in the country where they are manufactured.
- It raises the price of the imported product, bringing it closer to its true market price.
- In this way, the government is able to provide a level playing field for domestic products.
CVD and India
- The World Trade Organization (WTO) permits the imposition of countervailing duty by its member countries.
- In India, the CVD is imposed as an additional duty besides customs on imported products when such products are given tax concession in the country of their origin.
Who imposes countervailing measures in India?
- The countervailing measures in India are administered by the Directorate General of Anti-dumping and Allied Duties (DGAD), in the commerce and industry ministry’s department of commerce.