What is Anti-Dumping Duty?

About Anti-Dumping Duty:

• It is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.
• 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.
• The duty is priced in an amount that equals the difference between the normal costs of the products in the importing country and the market value of similar goods in the exporting country or other countries that produce similar products. 
• It is imposed to protect local businesses and markets from unfair competition by foreign imports.
• Thus, the purpose of anti-dumping duty is to rectify the trade distortive effect of dumping and re-establish fair trade.
• The use of anti-dumping measures as an instrument of fair competition is permitted by the World Trade Organization (WTO). 
  • The WTO allows the government of the affected country to take legal action against the dumping country as long as there is evidence of genuine material injury to industries in the domestic market.
  • The government must show that dumping took place, the extent of the dumping in terms of costs, and the injury or threat to cause injury to the domestic market.
• While the intention of anti-dumping duties is to protect local businesses and markets, these tariffs can also lead to higher prices for domestic consumers.
• In India, the Ministry of Finance makes the final decision on whether to impose anti-dumping duties.

What is Countervailing duty (CVD)?

• It is a specific form of duty that the government imposes 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.
• Why is CVD imposed?
  • Foreign governments sometimes provide subsidies to their producers to make their products cheaper and boost their demand in other countries.
  • To avoid flooding the market in the importing country with these goods, the government of the importing country imposes CVD, charging a specific amount on the import of such goods.
• The duty nullifies and eliminates the price advantage enjoyed by an imported product.
• The WTO permits the imposition of CVD by its member countries.

Countervailing duty v/s Anti-dumping duty:

• Anti-dumping duty is imposed to prevent low-priced foreign goods from damaging the local market. On the other hand, CVD will apply to foreign products that have enjoyed government subsidies, which eventually leads to very low prices.
• While the anti-dumping duty amount depends on the margin of dumping, the CVD amount will completely depend on the subsidy value of the foreign goods.

Q1: What is the World Trade Organisation (WTO)?

WTO is an international organization that promotes and regulates global trade among nations. The WTO was established on January 1, 1995 by replacing the General Agreement on Tariffs and Trade (GATT). It has 164 member countries, representing over 98% of global trade. It is headquartered in Geneva, Switzerland, and operates on a consensus-based decision-making process. Its main objective is to promote free and fair trade by eliminating barriers to trade, such as tariffs and quotas, and by ensuring that trade disputes are resolved through a transparent and predictable process.

Source: Trade ministry proposes anti-dumping duty on Chinese aluminium foil imports