An anti-dumping duty (ADD) is a tariff that a country places on a product that is being sold in the country at less than the cost of production. The purpose of an ADD is to protect local businesses from cheap foreign imports, and to ensure that products are sold at a fair price.
The World Trade Organization (WTO) prohibits countries from imposing tariffs on products for the sole purpose of protecting domestic industries. However, the WTO allows countries to impose tariffs on products if it can be shown that the products are being sold below their cost of production. This is known as “dumping”.
When a country imposes an ADD on a product, it is essentially saying that it does not agree with the country that is exporting the product. The country that places an ADD on a product must provide evidence to show why it believes the product was being sold at less than its cost of production. The country requesting the ADD has 60 days to gather evidence and make its request. The country against which the ADD will be imposed has another 60 days to respond with arguments against the imposition of the ADD .
The WTO determines if anti-dumping duties are warranted, taking into consideration how much support there is for imposing an ADD , what type of injury that might cause domestic businesses, and whether or not other countries are also dumping products in the market.
An anti-dumping duty does not have to be paid by all exporters; only those exporters that are selling a product at a price below its true cost of production in the exporting country will have to pay the ADD . In other words, not all foreign manufacturers who export products to a country have to worry about being hit with an anti-dumping duty. Determining whether or not a company is going to be subject to an ADD can be complicated and time consuming.
There are two types of ADDs : provisional and definitive. A provisional ADD is imposed when there exists sufficient evidence that products from another country have been sold in the importing country for less than fair value, but the investigating authorities do not yet have enough information on which they can determine the normal value and the exporting price (value). Definitive ADD’s give more protection to the importing country. A definitive ADD must be paid by all exporters of a product, regardless of whether or not they were responsible for dumping.
In summary, an anti-dumping duty:
1) is used to protect local businesses from cheap foreign imports; and
2) keeps products sold at fair market value. It is only imposed if it can be proven that a product has been dumped in the market. However, most cases of dumping are handled with tariffs rather than ADDs . The WTO determines if anti-dumping duties will be placed on a particular product after taking into consideration what type of injury such duties might cause domestic businesses, and whether or not other countries are also dumping products in the market. Anti-dumping duties are usually provisional, but can be made into definitive tariffs without an expiry date if there is enough evidence that the product was dumped.