Dumping, (Trade) right or wrong?

Written by Mario Estuardo Archila, Consortium Legal

Dumping, within international trade, is considered an inadequate and negative practice since it consists of exporting at lower values than the market price. In terms of competition law, it could be considered an abusive or prohibited practice if it is proven that it tends to reduce the market.

The controversial aspect of this type of conduct results in an obvious benefit to the consumer of such goods, either for final consumption or as an intermediary of intermediate goods or raw materials to produce other goods.

In international trade, we find that, usually, this practice occurs because there is some government subsidy to these goods, from direct subsidies, quotas, and subsidies to special tax benefits. Thanks to these subsidies, all of these could be directed so that the export is “profitable” at lower prices than in other jurisdictions. The recipient country may initiate proceedings to complain about these practices in such cases.

In competition matters, it could also be considered harmful if an economic agent uses the profits of another product to lower its prices on a second product to gain more market share. In both cases, the applicable laws allow for proceedings against “bad competitors”.

Now, if we turn the focus to the customers, we can intuit another result. If government A grants a subsidy to a product, it can lower its price, and citizens in country B will be able to buy it more cheaply. Country B does not necessarily lose, but, on the net, the operation is perhaps a great social gain because the lower price frees up resources for other needs. It may be temporary, but it is a net social gain. The loser in country B is a specific producer or trader.

The same exercise can be done in the context of local practice with competition laws. The net social gain may be higher due to a price reduction of a product. The loser is probably a particular agent.

Thus, socially, it is possible that the best strategy in the face of international dumping is to send a letter of thanks to the taxpayers who have allowed their money to favor a specific producer and the citizens of another country.

In the same way, subsidizing products is something to thank for making the family budget cheaper. I leave you with the reflection for discussion.