In the United States, there has been a long standing policy to conduct fair trade within the international market. An important aspect of conducting fair trade is ensuring that the domestic economy will not suffer due to bad foreign trade practices that end up benefiting the exporter. While some American firms may be displeased with the duties associated with purchasing imported products, they are deliberately set to protect both the consumer and the economy from practices such as dumping by imposing anti-dumping and countervailing duties.
Dumping is a form of predatory pricing in which manufacturers export a product to a foreign country at a price below the amount charged in the product’s domestic market or lower than the cost of production. Anti-Dumping duties in the United States prevent price discrimination and market flooding by exporters. This is done by charging the price difference as an import duty in order to remove injury to the U.S. economy and to bring the imported product’s price lower to the normal or market value.
Article VI of the World Trade Organization’s General Agreement on Tariffs and Trades (GATT) allows countries to pursue action against dumping at exporting manufacturers. However, anti-dumping action can only proceed if a detailed investigation finds that the ‘dumping’ is hurting the industry of the importing country. In the United States, the U.S. Department of Commerce would determine what is less-than-fair value for the imported product while the International Trade Commission investigates to determine the injury caused by dumping.
The U.S. steel industry suffered greatly in the late 1990s when a record amount of cheap steel imports resulted in the bankruptcy of three steel firms, resulting in the loss of thousands of steel worker’s jobs and greatly decreased investment in the steel industry. This past week, a Chinese steel company CEO said that their companies will reduce steel imports to the U.S. in 2017, mainly due to the merging of large steel firms in China.
Countervailance is a Prevention Measure in the Shipping Industry
While dumping is one form of unfair trade, countervailance prevents another way exporters can conduct unfair trade and price discrimination. Assessed by the U.S. Department of Commerce and the International Trade Administration (ITA) , countervailing duties are imposed when findings show that a foreign country’s exported product are being unfairly subsidized by the exporting country’s government, whether by tax or financial incentives, by said exporting country.
Recently, the ITA announced countervailing duties on hot-rolled steel imports from Brazil, Turkey and Korea. While Korea filed a suit against the Department of Commerce for objections towards steel import duties, Turkey subsequently filed a suit as well citing that “the Department [of Commerce] had failed to take into account evidence that Korean steelmakers were benefiting from government-subsidized electric rates.”
The countervailing duty amount is equivalent to the amount of subsidy margin the exporting manufacturer receives, which in turn cancels out the subsidies used by the exporting manufacturer. The U.S. Customs and Border Protections enforces the countervailing measures and duty levies based on the assessment of the ITA and U.S Department of Commerce, if it is found that the exporter’s subsidies will injure the importing country’s domestic industry3. Antidumping and countervailing investigations occur in several phases, which can last up to a year for an investigation to be completed.