Session 11 Pushing Export

Dumping Selling exports at a price that is “too low,” a price below “normal value” or “fair market value.” Either The export price is lower than the price charged for comparable domestic sales in the home market of the exporter. or The export price is lower than the full unit cost (including a profit margin).

Specific Types of Dumping A firm temporarily charges a low price in the foreign export country so as to access the market. Predatory Dumping During the part of the cycle when demand is low, a firm tends to lower its price to limit the decline in quantity sold. Cyclical Dumping

A firm sell of excess inventories of product during the low season. Seasonal Dumping A firm with market power uses price discrimination between market to increase its total profit. Persistent Dumping

Demand MR MR Demand MC = AC MC = AC

Actual Anti-dumping Policies The importing- country’s government should examine each case and consider benefits and costs before imposing anti-dumping duties or restrictions on dumped imports. The WTO rules permit countries to retaliate against if the dumping injures domestic import-competing producers. If the government in the importing country finds both dumping and injury, then the government is permitted to impose an anti-dumping duty.

Proposal for Reform on Anti-dumping Policies Anti-dumping actions could be limited to situation in which predatory dumping plausible. The injury standard could be expanded to require that weight be given to consumers and users of product. Anti-dumping policy could be replaced by more active use of safeguard policy*. *Safeguard policy is the use of temporary import protection when a sudden increase in imports causes injury to domestic producer

Export Subsidies (Small Nation) Suppliers’ revenue with subsidy * Subsidy will increase the domestic price otherwise all products will be exported. Decreased Consumer surplus Increased Producer surplus Government subsidy on export Deadweight Loss World Price Export with subsidy Export without subsidy

Export Subsidies (Large Nation) Suppliers’ revenue with subsidy * Subsidy will increase the domestic price otherwise all products will be exported. Decreased Consumer surplus Increased Producer surplus Government subsidy on export Deadweight Loss Initial World Price New World Price Export with subsidy Export without subsidy

Switching an Importable Product into an Exportable Product Decreased Consumer surplus Suppliers’ revenue with subsidy * Subsidy will increase the domestic price otherwise all products will be exported. Increased Producer surplus Government subsidy on export Export with subsidy Import

Conclusion toward Subsidy An export subsidy can expands exports and production of subsidized product. An export subsidy can lowers the price paid by foreign buyers, relative to the price that local consumers pay for the product. The export subsidy reduces the net national well-being of the exporting contry.

WTO Rules on Subsidies Subsidies linked directly to export are prohibited, except export subsidies used by the lowest-income developing countries. Subsidies that are not linked directly to export but still have an impact on export are actionable. Some subsidies are non-actionable.

Should the Importing Country Impose countervailing Duties ? Exporting country is a large nation. Importing country Decreased Producer surplus Increased Consumer surplus Initial world price New world price when exporting country offered subsidy to its exporters. If the importing country employ the countervailing duty, this is the extra benefit from such duty.