Dumping (pricing policy)

Dumping, in economics, is a form of predatory pricing, especially in the context of international trade. It occurs when manufacturers export a product to another country at a price below the normal price with an injuring effect. The objective of dumping is to increase market share in a foreign market by driving out competition and thereby create a monopoly situation where the exporter will be able to unilaterally dictate price and quality of the product. Trade treaties might include mechanisms to alleviate problems related to dumping, such as countervailing duty penalties and anti-dumping statutes.

Overview

A standard technical definition of dumping is the act of charging a lower price for the like product in a foreign market than the normal value of the product, for example the price of the same product in a domestic market of the exporter or in a third country market. This is often referred to as selling at less than "normal value" on the same level of trade in the ordinary course of trade. Under the World Trade Organization's Antidumping Agreement, full name Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, dumping is not prohibited unless it causes or threatens to cause material injury to a domestic industry in the importing country. Dumping is also prohibited when it causes "material retardation" in the establishment of an industry in the domestic market.

The term has a negative connotation, as advocates of competitive markets see "dumping" as a form of unfair competition. Furthermore, advocates for workers and laborers believe that safeguarding businesses against such practices, such as dumping, help alleviate some of the harsher consequences of such practices between economies at different stages of development (see protectionism).