Context:
India has recently imposed an anti-dumping duty on water treatment chemicals from China and Japan.
Anti-Dumping Duty:
- A protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.
- Dumping – A process wherein a company exports a product at a price that is significantly lower than the price it charges in its domestic market.
- Calculation – 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.
- Purpose –
- To protect local businesses and markets from unfair competition by foreign imports.
- To rectify the trade distortive effect of dumping and re-establish fair trade.
- Permitted by the World Trade Organization (WTO) as an instrument of fair competition
- 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.
- These tariffs, however, 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.
Countervailing duty v/s Anti-dumping duty:
| Feature | Countervailing Duty (CVD) | Anti-Dumping Duty |
| Purpose | To counter the negative impact of foreign subsidies on domestic producers | To prevent foreign goods priced below fair market value from damaging the local market |
| Imposition Trigger | Imposed on foreign products benefiting from government subsidies, making them cheaper in the importing country | Imposed on foreign products sold at a price significantly lower than in the exporting country (dumping) |
| Calculation Basis | Based on the subsidy value of the foreign goods | Based on the margin of dumping, i.e., the difference between the normal value and the export price |
| Objective | To nullify the price advantage of subsidized imports and protect domestic industries | To protect local businesses and markets from unfair competition by foreign imports |
| Governing Authority | World Trade Organization (WTO) allows the imposition of CVD | World Trade Organization (WTO) permits the use of anti-dumping measures as an instrument of fair competition |
| Impact on Prices | Can lead to higher prices for domestic consumers due to the elimination of the subsidy advantage | Can lead to higher prices for domestic consumers because it neutralizes the dumping effect |
| Legal Requirements | Government must show that the imported product benefits from foreign subsidies, leading to material injury to domestic industries | Government must demonstrate that dumping has occurred, the extent of dumping, and that it causes or threatens to cause material injury to domestic industries |
Read more about Countervailing duties
Source: TH
Previous Year Question
With reference to the international trade of India at present, which of the following statements is/are correct?
1. India’s merchandise exports are less than its merchandise imports.
2. India’s imports of iron and steel, chemicals, fertilizers and machinery have decreased in recent years.
3. India’s exports of services are more than its imports of services.
4. India suffers from an overall trade/current account deficit.
Select the correct answer using the code given below:
[UPSC Civil Services Exam – 2020 Prelims]
(a) 1 and 2 only
(b) 2 and 4 only
(c) 3 only
(d) 1, 3 and 4 only
Answer: (d)
Explanation:
Export of iron and steel products witnessed a sharp rise of more than 100% in June 2020.