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					         Lecture Eleven

2.The determination of dumping
3.The determination of injury
4. Dumping: An Economic Analysis

  Dumping occurs if a company sells at a
  lower price in an export market than in its
  domestic market.
  If such dumping injures the domestic producer
  s in the importing country, under certain
  circumstances the importing country
  authorities may impose anti-dumping duties to
  offset the effects of the dumping.
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1.2.National anti-dumping legislation dates back to
  the beginning of the 20th century. The GATT 1947
  contained a special article on dumping and
  anti-dumping action.
   – Article VI condemns dumping that causes injury,
     but it does not prohibit it.
   – Article VI authorises the Importing Member to
     take measures to offset injurious dumping.
   – The GATT addresses governmental behaviour
     and therefore cannot possibly prohibit dumping
     by private enterprises

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1.3.Now the WTO approaches the problem from the
  position of the importing Member and prescribe in
  some detail the circumstances under which
  anti-dumping measures may be imposed.
   – Since 1947, anti-dumping has received elaborate
     attention in the GATT/WTO on several occasions.
   – A new agreement, the Agreement on
     Implementation of Article VI (ADA), was
     concluded in 1994 as a result of the Uruguay
     Round. Article VI and the ADA apply together.

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1.4.Forms of dumping
    – GATT 1947 applied only to goods which
      implied that dumping of services was not covered.
    – Neither Article VI nor the ADA cover exchange
      rate dumping, social dumping, environmental
      dumping or freight dumping.
    – The calculation of dumping is a comparison
      between the export price and a benchmark
     price, the normal value, of the like product.

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1.5. Like product
  The term like product (‘product similar’) is
  defined in Article 2.6 ADA as a product which
  is identical, i.e. alike in all respects to the
  product under consideration, or in the
  absence of such a product which has
  characteristics closely resembling those of the
  product under consideration.

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1.6. Forms of injury
  In order to impose anti-dumping measures,
  an authority must determine not only that
  dumping is occurring, but also that such
  dumping is causing material injury to the
  domestic industry producing the like product.

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Material injury: present injury. Future injury (threat of
 material injury) and material retardation of the
 establishment of a domestic industry.

1.7. In order to calculate dumping and injury margins,
  the importing Member authorities will select an
  investigation period (IP). This is often the one-year
  period. Some jurisdictions use shorter investigation
  periods. Extremely detailed cost and pricing data will
  need to be provided for this investigation period.

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 2. The determination of dumping
2.1.The export price: the price at which the
  product is exported from one country to another.
  The price is normally indicated in export
  documentation, such as the commercial invoice,
  the bill of lading and letter of credit.
  It is this price that is allegedly dumped and for
  which an appropriate normal value must be
  found in order to determine whether dumping in
  fact is taking place.

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2. The determination of dumping
2.2. Normal value
2.2.1.The standard situation: the normal value is
  the price of the like product, in the ordinary
  course of trade, in the home market of the
  exporting Member.
   – Comparisons are made between identical or
     closely resembling models.
   – Each exported model is matched to a domestic
  e.g. the domestic price of a model: 100
       its export price: 80; the dumping amount:20
       the dumping margin: 20/80100=25%
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 2. The determination of dumping
2.2.2. Alternatives: third country exports or
  constructed normal value
   – When there are no sales of the like product in the
     ordinary course of trade in the domestic market of
     the exporting country or when, because of the
     particular market situation or the low volume of sale
     s in the domestic market of the exporting country,
     such sales do not permit a proper comparison, the
     dumping margin shall be determined by comparison
     with a comparable price of the like product when
     exported to an appropriate third country.

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2. The determination of dumping
 – In dumping investigations, importing Member
   authorities routinely request both price and cost
   information in order to check whether domestic
   sales are made below cost.
   three elements of constructed normal value:
   - cost of production;
   - reasonable amount for administrative, selling
   and general costs (SGA);
   - reasonable amount for profits.

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  3. The determination of injury

3.1. Material injury
  The determination of material injury must be
  based on positive evidence and involve an
  objective examination of the volume of the
  dumped imports, their effects on the domestic
  prices in the importing Member market and
  their consequent impact on the domestic

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 3. The determination of injury
3.2.Threat of injury
   It may occur that a domestic industry alleges
  that it is not yet suffering material injury, but
  is threatened with material injury which will
  develop into material injury unless
  anti-dumping measures are taken.
  A determination of threat must be based on
  facts and not merely on allegation,
  conjecture or remote possibility.

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  4.Dumping: An Economic Analysis
Two conditions must be satisfied for the price
1.The producer must be able to separate the home
  market from foreign market– market segmentation.
2.Different demand conditions in home and foreign
  Home: competition is greater and an inelastic (steep)
  demand curve.
 Abroad: an elastic (flat) demand curve.

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4.Dumping: An Economic Analysis

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4.Dumping: An Economic Analysis

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     4.Dumping: An Economic Analysis
   demand curve: a line showing the relationship between
    the price of a product and the quantity demanded per
    time period.

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4.Dumping: An Economic Analysis
       Elasticity of demand
       A measure of responsiveness of quantity demanded
        to a change in the price of a good.
       Inelastic demand: The quantity demanded changes
        less than proportionately in response to a given
        change in price.
         ED= - Proportionate change in quantity demanded
                     proportionate change in price

            e.g. if the price of good X should rise by 10% and
           the quantity demanded should fall 5%,
           then: ED= 0.050.1=0.5
        Dumping:An Economic Analysis
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4.Dumping: An Economic Analysis

 Average Cost
 The unit cost
 of producing outputs
 for plants of different

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4.Dumping: An Economic Analysis

MC=marginal cost:
the extra cost (addition
to total cost) that is
incurred in the short
run in increasing output
by one unit.

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  4.Dumping: An Economic Analysis
 MR=marginal revenue: the addition to total revenue
  from the sale of one extra unit of output

(a) under perfect competition, each extra unit of output sold adds exactly the same amount to total
revenue as previous units
(b) Under conditions of imperfect competition (e.g.MONOPOLISTIC COMPETITION) the firm
faces a downward sloping demand curve and price has to be lowered in order to sell more units
Marginal revenue is less than price: as price is lowered each extra unit sold adds successively
smaller amounts than previous units.

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