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In the realm of international trade, there exists a plethora of terms to refer to certain phenomena that occur in global and local markets. One of them is the concept of dumping, which we will discuss in this blog.
What is Dumping?
Dumping is a commercial strategy considered unfair in which a company exports products at a price lower than the cost of production or the price charged in the domestic market. This is done with the aim of gaining market share at the expense of local competitors in the importing country.
Types of Dumping
- Sporadic Dumping: Occurs when a company has a large quantity of product in stock and seeks to get rid of it by selling it to other countries at a lower price to avoid damaging its domestic market.
- Persistent Dumping: Happens when a monopoly exists, and the company begins to sell its products to other countries at a higher price than in its own country to increase its revenue and compete internationally.
- Predatory Dumping: One of the most common and severe types, where a company sells its products at a low price even if it means economic losses. Why? To capture the market and later sell at very high prices.
- Reverse Dumping: Arises when the demand for the product in the foreign market is less elastic. This means that price changes do not affect demand, allowing the company to charge a higher price in the foreign market and a lower price in the domestic market.
- Cyclical Dumping: Occurs when a country is facing economic problems and the population lacks sufficient income. Therefore, companies lower their prices to sell something and cover their basic expenses.
- Seasonal Dumping: Happens when a company ends up with excess seasonal products and begins to sell that surplus at lower prices.
- Social Dumping: This type of discrimination emerged with the birth of the WTO, as the need to consider low labor costs for certain products was raised, resulting in very low final prices.
- Ecological Dumping: Occurs when there is an advantage or exploitation through lax environmental legislation in certain countries.
Consequences of Dumping
The main consequences of dumping are:
- Harm to Local Competition: Local companies may be forced to close due to the offer of cheaper products with which they cannot compete.
- Loss of Employment: Reduction in business activity and national production can lead to a decrease in demand for local labor.
- Distortion of International Trade: Dumping can distort international trade and unbalance trade flows.
Measures to Prevent Dumping
- Antidumping Taxes: Governments can impose special tariffs on imported products that are considered subject to dumping.
- Legislation and Regulation: Implement laws and regulations that prohibit or regulate dumping practices.
- Trade Agreements: Trading partners can agree on a pact where they decide to compete on equal terms.
- Legal Actions: Affected companies can resort to legal action to combat dumping before trade and judicial authorities.
If you need assistance with your foreign trade operations, do not hesitate to contact our customs agency.
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