A question has always been posed, how do you describe a situation where a firm/company exports a product at a price lower than the price it normally charges in its own home market, it is said to be “dumping” the product. Is this unfair competition?
The Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (GATT),popularly referred to as Anti-Dumping Agreement does not prohibit dumping but it focus on the actions that governments can take and what they cannot take while reacting to dumping in their markets. It is for this reason that perhaps there is no such thing as a Dumping Agreement but rather an Anti-Dumping Agreement or AD Agreement.
What is Dumping?
Both Article VI of the GATT 1994, and in the AD Agreement, as the sale of an imported product in the importing market at less than its “normal value “. Normal value will be explained shortly. But in essence dumping would occur where the price of the imported good is less than the price at which the exporter sells that good in its own home market. In summary dumping occurs where there is international price discrimination.
Dumping is not Price Undercutting
It is important to underline that the sale of an imported product for less than the price charged for the same product produced domestically is not dumping but price undercutting. In Kenya for example this is dealt with under the Competition Act whose section 21 covers price under cutting among other restrictive trade practices . Also, importing of substandard products is not dumping but a problem which can be addressed through domestic Anti counterfeit such as Kenya’s Anti Counterfeit Act .
Legal Basis for Anti-Dumping & Anti-Dumping Legislation.
Article VI of GATT allows countries to take action against dumping.The AD Agreement clarifies and expands on Article VI, and the two operate together. The AD Agreement is rather long and complex. In short, it represents an effort to balance potentially conflicting interests: on the one hand, the interest of importing countries in imposing anti-dumping measures to prevent or remedy injury to their domestic industries caused by dumped imports; and on the other hand, the interest of exporters (and importers and consumers) for whom anti-dumping measures and procedures should not themselves become obstacles to fair trade.
Under GATT, countries are allowed to act in a way that would normally break the GATT principles of binding a tariff and not discriminating among trading partners. Ordinarily, anti-dumping action means charging an extra import duty on a particular product imported from a particular exporter in order to bring the price of the imported product up to its normal value by offsetting the margin of dumping. Anti-dumping measures also may take the form of price undertakings i.e. the offending importer agrees to remedy the situation by raising the export price of the product to avoid the possibility of an anti-dumping duty.
Article VI of GATT and the AD Agreement a Member can impose specific anti-dumping measures on imports from a particular source. This is usually done in addition to ordinary customs tariffs. This, of course, is only possible when the importing Member demonstrates through a properly-conducted investigation that dumping is causing or is threatening to cause material injury to a domestic industry or would materially retard the establishment of a domestic industry.
When is a product dumped?
A product is to be considered as being dumped when it is introduced into the commerce of another country at less than its “normal value”, normally the comparable price at which the product is sold in the domestic market of the exporting country, or if there is no such price, a comparable price for sale of the like product to a third country market, or the cost of production of the product plus a reasonable amount for selling costs and profit.
Accordingly under GATT and AD Agreement, WTO Members can impose anti-dumping measures if they determine that;(a)dumping is occurring;(b) that the domestic industry producing the like product in the importing country is suffering material injury or threat thereof, or that the establishment of a domestic industry is being materially retarded; and (c) that there is a causal link between the two. Each of the above must, as of necessity, be fulfilled before the anti- dumping measure can be imposed.
In addition to substantive rules governing the determinations of dumping, injury, and causal link, the AD Agreement sets forth detailed procedural rules for the initiation and conduct of investigations, the imposition of measures, and the duration and review of measures.
Dumping under Kenya Trade Remedies Act.
Kenya is among the few African countries that have recently passes a trade remedies law, The Kenya Trade Remedies Act. This legislation covers dumping as a trade remedy and has in fact made the country to be compliant with the WTO’s AD agreement. The gives Kenya a legal framework implementing Article VI of GATT and AD Agreement. Section 3 of the Act establishes the Kenya Trade Remedies Agency KETRA. Under section 5 (a) of gives the Authority to investigate and evaluate allegations of dumping and subsidization of imported products in Kenya. The power to impose anti -dumping measures is governed by section 23(1) of the Act which states that ;” The Cabinet Secretary may impose- (a) in the case of goods dumped in Kenya, an antidumping duty in an amount equal to or less than the margin of dumping of the imported goods”
In terms of investigations the Act in sections 24- 37 indicate the procedure for commencing investigation of alleged dumping.
The Second Schedule , Part II covers determination of dumping, injury[ caused by dumping] and causal link(the relationship between dumping and the injury. Also included in this Schedule is the determination of the normal value( s. 3) and the export price(s.4). It is also worth noting that threat of injury (s.7) can be as basis of anti-dumping measures.
The Act elaborates in Part III of the Second Schedule deals with initiation, conduct and conclusion of a dumping investigation. While Part IV is on duration of the anti-dumping duties and voluntary price undertakings. (s.23).