Week 7 - Chapter 11: Export subsidies, trade blocs and trade blocks Flashcards
Dumping
Selling exports at a price that is too low - less than normal value
What are the two legal definitions of normal value?
The price charged to comparable domestic buyers in the home market
The average cost of producing the product, including costs and profit
Reasons for dumping
Predatory dumping
Cyclical dumping
Seasonal dumping
Price discrimination (persistent dumping)
Predatory dumping
When a firm temporarily sells its exports in the foreign market at a low price.
The purpose is to drive foreign competitors out of business and then use the monopoly power gained to raise prices and earn profits
Cyclical dumping
During periods of recession when demand is low, a firm tends to lower its price to limit the decline in quantity sold
The firm will continue to sell as long as the price exceeds to average variable cost, if any of the sales are exports, then the firm is dumping
Seasonal dumping
Intended to sell off excess inventories of a product
Price discrimination (persistent dumping)
The firm uses its market power to engage in price discrimination between different markets
It must face both less competition in the home market and an inability of home market customers to import the cheaper foreign good, avoiding the higher home prices
Antidumping duty
An extra tariff equal to the discrepancy (the dumping margin) between the actual export price and the normal value of a good
When can an antidumping duty be imposed?
When a government in the importing country feels that dumping is harming their import competing firms
What are the results of antidumping policies
The procedure is biased toward finding dumping
The injury test considers only harm to import competing firms. There is no consideration of benefits to the consumers for the ow priced imports
The process is usually biased toward improving antidumping duties even though this usually has adverse effects of the well being of the importing country
What are the proposals for reform for antidumping duty?
Antidumping actions could be limited to situations in which predatory dumping is plausible
The injury standard could be expanded to require that weight be given to consumers and the users of the product
Antidumping policy could be replaced by more active use of safeguard policy
Safeguard policy
The use of temporary import protection when a sudden increase in imports causes injury to domestic producers
The aim to give import computing firms the time to adjust to the increased import competition
The safeguard policy is better than other antidumping policies because:
There is no need to show that foreign exporters have done anything unfair
The interests of consumers can be taken into consideration
The focus is on adjustment by the import competing produces
There is pressure to adjust because the import protection is temporary
Export subsidies
Financial assistance given by government to exporters
This is a controversial practice because it violates international norms about fair trade
Effects of export subsidies in a competitive industry
An export subsidy expands exports and production of the subsidies product
An export subsidy lowers the price paid by foreign buyers, relative to the price that local consumers pay for the product
The export subsidy reduces the national well being of the exporting country
