Dumping

Dumping is an economic concept primarily related to international trade. It is the sale of goods in the foreign market at a price lower than in the domestic market. In order to gain a competitive advantage in the importing market, the producer drops the price of the product going to the foreign market to a level below the price paid by domestic buyers in the home country. Dumping prices are significantly lower than market prices, and sometimes even lower than the cost of goods or services.

Dumping explained

Dumping is defined as price discrimination between national markets. It is noted that this definition theoretically covers both the situation in which the producer sells goods on his national market at a price lower than abroad, and the situation in which he sells goods on the national market at a price higher than in export markets, but at the beginning of the twentieth century, it was fixed that only the second situation could cause problems in the importing country.

Dumping can be carried out at the expense of the exporting company or with the help of the state by subsidizing export deliveries from the state budget. The exporter can provide the manufacturer with a subsidy to compensate for losses when selling products below its producing cost. 

Dumping is implemented for various purposes: penetration or strengthening in a new market, crowding out competitors. 

Dumping effect

Dumping violates fair competition in world trade and fills the market with commodity prices that are often unfair. Its main goal is to conquer new foreign markets, flooding them with its cheap goods, which are more competitive compared to domestic production. However, selling goods at artificially low prices sometimes jeopardizes the financial viability of the producer of the goods or producers in the importing country. 

In modern international trade relations, both firms and the state often resort to dumping as a way to quickly obtain the necessary foreign exchange funds, as well as to realize their economic interests. 

Dumping can also pursue political goals, in particular, to suppress the competition of national producers in less developed countries by an economically more powerful state and gradually establish economic control over them. 

Dumping regulation

Dumping is not supported by most countries in the world. It is within the power of the World Trade Organization (WTO) to decide whether dumping is an unfair competitive practice. According to WTO rules, dumping is legal if a foreign country cannot reliably prove the negative consequences that the exporting firm has caused to its domestic producers. To counter dumping and protect domestic industries from predatory pricing, countries will apply tariffs and quotas. Under the ban is dumping, which leads to a strong slowdown in the development of the industry in the domestic market.

Restrictions on trade dumping are included in most trade agreements, and if there is none, there is no specific ban on trade dumping. However, even if such an agreement is violated, it is not always possible to prove this.