In the business world the two most common practices of Dumping are the following:
1 – Social dumping, occurs when employers use cheaper labour than is usually available at their site of production and/or sale. In the latter case, migrant workers are employed; in the former, production is moved to a low-wage country or area.
This is done to save money and potentially increase profits.
To fight this practice, many governments are now considering reducing their labour and social standards to ease labour costs on enterprises to retain business activity within their jurisdiction.
2 – Price to price dumping, occurs when goods are exported at prices lower that the home-market prices. The exporter applies higher home-prices to supplement the reduced revenue from lower export prices in order to gain an advantage within the market that imports the goods.
This hidden form of price-discrimination is possible because often exports are subsidized by local government with duty drawbacks, cash incentives and similar stimulus.
In addition, trade dumping is considered legal under the World Trade Organisation (WTO) rules, unless the foreign country can reliably show the negative effects of the exporting firm on the domestic producers.
To counter trade dumping, the W.T.O. rules allow the imposition of an anti-dumping duty equal to the difference between the exporter´s home-market price and the importer´s Free on Board (FOB) price; most nations also add tariffs and quotas to protect their domestic industry from the negative effects of predatory pricing.
Advantages of Trade Dumping
The primary advantage of trade dumping is the ability to permeate the market with product prices often seen as unfair. The exporting country may offer the producer a subsidy to counterbalance the losses that may be incurred, especially when the products are sold at a price below the costs associated with production.
Disadvantages of Trade Dumping
Trading dumping can be costly to maintain over time. This is due in part to the lower sale price being offered on the good as well as the costs involved in subsidizing the activity, if applicable.
Additionally, trade partners who wish to restrict this form of market activity may increase restrictions on the good in question, which either makes it more expensive to export into the affected country or limits the quantity of the good the importing country will accept.
International Attitude on Dumping
While the World Trade Organization (WTO) reserves judgment on whether dumping is unfair competition, most nations profess to be against the practice and their agreements include restrictions regarding trade dumping. Violations of such agreements may be difficult to prove and can be cost prohibitive to fully enforce. If two countries do not have a trade agreement in place, then there is no specific ban on trade dumping governing the trades between the aforementioned countries.