Question

Dumping of goods can harm the domestic producers of the developing countries.

Hint:

Dumping harms domestic producers in developing countries by undercutting prices, forcing industry closures, causing job losses, discouraging investment, and blocking industrialization. Anti-dumping duties under WTO rules provide some protection against this unfair trade practice.

Answer 1

Step 1: Definition of Dumping.
Dumping occurs when a country exports goods at a price lower than their normal value, typically lower than the price in the domestic market of the exporting country, or below the cost of production. It is considered an unfair trade practice under WTO agreements.
Step 2: Arguments supporting how dumping harms domestic producers in developing countries.

• Price Undercutting and Market Displacement:
  • Dumped goods are sold at artificially low prices that domestic producers cannot match
  • Local consumers shift to cheaper imported goods, reducing demand for domestic products
  • Domestic firms lose market share and revenues
  • Example: Dumping of steel by China harmed domestic steel industries in India, Brazil, and other developing countries
  • Textile dumping from large manufacturers affects local textile producers in Africa and South Asia
• Closure of Domestic Industries:
  • Sustained dumping forces domestic firms to operate at losses
  • Unable to compete with below-cost imports, many firms shut down
  • Results in de-industrialization in certain sectors
  • Example: Poultry dumping from EU and US harmed local poultry farmers in West Africa
  • Tomato paste dumping from Europe destroyed tomato processing industries in several African countries
• Job Losses and Unemployment:
  • Closure of domestic industries leads to massive job losses
  • Workers in manufacturing sectors become unemployed
  • Particularly harmful in developing countries with weak social safety nets
  • Example: Shoe industry job losses in Mexico due to dumped imports from Asia
  • Agricultural job losses in developing countries due to dumped food products
• Discouragement of New Investment:
  • Fear of dumping discourages entrepreneurs from investing in domestic industries
  • Banks reluctant to finance sectors vulnerable to dumping
  • Stunts industrial development and diversification
  • Potential investors prefer to import rather than manufacture locally
• Obstacle to Industrialization:
  • Developing countries need to build manufacturing capacity for economic development
  • Dumping kills infant industries before they can become competitive
  • Countries remain dependent on imports rather than developing domestic production
  • Example: Dumping of used clothing (mitumba) harmed local textile industries in many African countries
• Unfair Competition:
  • Dumped goods benefit from subsidies or protection in exporting countries
  • Domestic producers in developing countries compete against subsidized foreign producers
  • Level playing field is destroyed
  • Exporting countries use dumping to capture markets and eliminate competition
• Loss of Food Security:
  • Dumping of agricultural products undermines local farming
  • Farmers abandon agriculture when they cannot compete with cheap imports
  • Countries become dependent on food imports, risking food security
  • Example: Rice and wheat dumping affected farmers in various developing countries
• Long-term Economic Consequences:
  • Loss of productive capacity and industrial skills
  • Increased import dependence and trade deficits
  • Vulnerability to global price fluctuations
  • Difficulty in rebuilding industries once destroyed

Step 3: Anti-dumping measures available to developing countries.

• WTO agreements allow countries to impose anti-dumping duties
• India is one of the most active users of anti-dumping measures
• Brazil, Argentina, South Africa also frequently use anti-dumping duties
• Safeguard measures can be imposed temporarily to protect domestic industries