Session 11

Pushing Export

Dumping

Selling exports at a price that is “too low,” a price below “normal value” or “fair market value.”Either

The export price is lower than the price charged for comparable domestic sales in the home market of the exporter.

orThe export price is lower than the full unit

cost (including a profit margin).

Specific Types of Dumping

• A firm temporarily charges a low price in the foreign export country so as to access the market.

Predatory Dumping

• During the part of the cycle when demand is low, a firm tends to lower its price to limit the decline in quantity sold.

Cyclical Dumping

• A firm sell of excess inventories of product during the low season.

Seasonal Dumping

• A firm with market power uses price discrimination between market to increase its total profit.

Persistent Dumping

MC = AC MC = AC

MR Demand DemandMR

Actual Anti-dumping PoliciesThe importing- country’s government should examine each case and consider benefits and costs before imposing anti-dumping duties or restrictions on dumped imports.

The WTO rules permit countries to retaliate against if the dumping injures domestic import-competing producers. If the government in the importing country finds both dumping and injury, then the government is permitted to impose an anti-dumping duty.

Proposal for Reform on Anti-dumping Policies

Anti-dumping actions could be limited to situation in whichpredatory dumping plausible.

The injury standard could be expanded to require that weight be given to consumers and users of product.

Anti-dumping policy could be replaced by more active use of safeguard policy*.*Safeguard policy is the use of temporary import protection when a sudden increase in imports causes injury to domestic producer

Export Subsidies(Small Nation)

World Price

Export without subsidy

Suppliers’ revenue with subsidy

* Subsidy will increase the domestic price otherwiseall products will be exported.

Export with subsidy

Decreased Consumer surplus

Increased Producer surplus

Government subsidy on export

Deadweight Loss

Export Subsidies(Large Nation)

Initial World Price

Export without subsidy

New World Price

Suppliers’ revenue with subsidy

* Subsidy will increase the domestic price otherwiseall products will be exported.

Decreased Consumer surplus

Increased Producer surplus

Export with subsidy

Government subsidy on export

Deadweight Loss

Switching an Importable Product into an Exportable Product

Import

Suppliers’ revenue with subsidy

* Subsidy will increase the domestic price otherwiseall products will be exported.

Export with subsidy

Decreased Consumer surplus

Increased Producer surplus

Government subsidy on export

Conclusion toward Subsidy An export subsidy can expands exports and production

of subsidized product.

An export subsidy can lowers the price paid by foreign buyers, relative to the price that local consumers pay for the product.

The export subsidy reduces the net national well-being of the exporting contry.

WTO Rules on Subsidies Subsidies linked directly to export are prohibited,

except export subsidies used by the lowest-income developing countries.

Subsidies that are not linked directly to export but still have an impact on export are actionable.

Some subsidies are non-actionable.

Should the Importing Country Impose countervailing Duties ?

Exporting country is a large nation.

Initial world price

Importing country

New world price when exporting country offered subsidy to its exporters.

Decreased Producer surplus

Increased Consumer surplus

If the importing country employ the countervailing duty,

this is the extra benefit from such duty.