Anti-Dumping Duty is a financial safeguard that is as complex as crucial. Understanding Anti-Dumping Duty is essential in the era of globalisation, where goods flow across borders more seamlessly than ever. India alone has initiated more anti-dumping investigations than any other country. This speaks volumes about its significance in protecting domestic interests.
Therefore, knowing how this mechanism works can be your shield in international shipping if you’re a business owner.
In this blog post, we will demystify anti-dumping duty with examples and dissect how it works.
What is Anti-Dumping Duty?
Anti-Dumping Duty (ADD) is a customs duty implemented by the Directorate General of Trade Remedies (DGTR) under Section 9A of The Customs Tariff Act, 1975, to protect domestic industries from the predatory pricing strategies of foreign competitors. The primary objective of ADD is to rectify the trade distortive effects caused by the practice of “dumping.”
The implications of dumping are far-reaching. When foreign goods are dumped into a market at rock-bottom prices, local industries struggle to compete. This can lead to declining sales, factory closures, and even widespread job losses. By imposing Anti-Dumping duties, governments can level the playing field for local industries, thereby protecting jobs and maintaining healthy market competition.
For example, imagine a scenario where South Korea produces bicycles and sells them in their local market for Rs 10,000. Now, if they start exporting the same bicycles to India and sell them for Rs 6,000 while the local Indian manufacturers are selling similar bicycles for Rs 8,000, that’s dumping. South Korea is essentially “dumping” their bicycles into the Indian market at a price significantly lower than the local market rate. The purpose of Anti-Dumping Duty is to neutralise this unfair advantage and re-establish a level playing field, or in economic terms, to re-establish “fair trade.”
How Anti-Dumping Duty Works
While Anti-Dumping Duty may sound complex, understanding its mechanics is crucial for grasping the nuances of global commerce. Anti-Dumping Duty begins with an investigation. This can be initiated in two distinct ways:
Suo-moto by the Directorate: The Directorate General of Trade Remedies (DGTR) can initiate an investigation on its own accord if it suspects that dumping is occurring.
Written Application by Domestic Industry: Alternatively, the investigation can be triggered by a formal application from the domestic industry that believes it’s adversely affected by dumped imports.
For an application to be considered valid, it must meet specific criteria.
Firstly, domestic manufacturers should support it, accounting for at least 25% of the total production of similar articles in the country. Secondly, those supporting the application must represent more than 50% of the total production of like articles by those opposing the application. Failure to meet these conditions can result in the application being dismissed.
Calculation Methods of Anti-Dumping Duty
Once the investigation is underway, the next step is to calculate the Anti-Dumping Duty. This involves two key metrics:
Margin of Dumping (MOD): This is calculated as the difference between the Normal Price (the domestic selling price in the exporting country) and the Export Price (the price at which the product is exported).
Injury Margin (IM): This is the difference between the Fair Selling Price (the price at which the product would be sold in the domestic market under normal conditions) and the Landed Cost (the total cost of the product when it reaches the importing country, including shipping and customs duties).
The Anti-Dumping Duty is then set as the lower of the MOD and IM. To illustrate, let’s say the MOD is Rs 40 per unit, and the IM is Rs 30 per unit. The Anti-Dumping Duty would be Rs 30 per unit.
Anti-Dumping Duty is a critical tool designed to offer equal opportunity to local businesses, ensuring that domestic industries can compete fairly against foreign counterparts.
However, it’s essential to remember that Anti-Dumping Duty is a double-edged sword. While it safeguards local industries and jobs, it also challenges the ideal of free trade, potentially leading to trade wars and strained international relations. So, if you’re new to starting an export and import business, leverage cross-border logistics platforms like NimbusPost, which can help you with customs clearance, freight forwarding, and international shipping without putting a hole in your pocket.
We hope you walk away with a richer understanding of how duties like Anti-dumping duty, safeguard duty, and countervailing duty shape your business. For more comprehensive knowledge of export/import business, learn about different export incentive schemes and social welfare charges.
Who applies anti-dumping duty?
The importing country’s government can apply for anti-dumping duties on foreign imports that it believes are priced below fair market value.
Which is dumping and antidumping duty under the WTO?
Dumping occurs when a company exports products at a lower price than it charges in its home market. Anti-Dumping Duty is a corrective measure that allows the importing country to impose additional tariffs on “dumped” goods under the World Trade Organisation (WTO) framework. This measure aims to protect domestic industries from unfair competition and re-establish fair trade practices. The duty is imposed if the dumped imports are proven to cause material injury to domestic producers.