When a company or a country exports its products at a price lower than its domestic price Show
What is Dumping?Dumping in the financial world occurs when a company or a country exports its products at a price lower than its domestic price. Exporters dump to compete with the producers and sellers in the importing country. Summary
How Dumping Takes PlaceIt may seem that the dumping company may lose a lot of money by charging a lower price. However, it is not the case in real life, as the dumping company is not losing money. The majority of multinational companies (MNC) practice international price differentiation. They price a certain item depending on what each nation’s customer can afford. For example, Tide detergent in China is sold for less than one-fifth of the U.S. price. However, if a particular country is willing to pay more for a product, the MNC will price the product at a higher cost. Types of DumpingBelow are the four types of dumping in international trade: 1. Sporadic dumpingCompanies dump excess unsold inventories to avoid price wars in the home market and preserve their competitive position. They can either dump by destroying excess supplies or export them to a foreign market where the products are not sold. 2. Predatory dumpingUnlike sporadic dumping, which is occasional, predatory dumping is permanent. It involves the sale of goods in a foreign market at a price lower than the home market. Predatory dumping is done to gain access to the foreign market and eliminate competition. It creates a monopoly in the market. 3. Persistent dumpingWhen a country consistently sells products at a lower price in the foreign market than the local prices, it is called persistent dumping. It happens when there is a constant demand for the product in the foreign market. 4. Reverse dumpingReverse dumping happens when the demand for the product in the foreign market is less elastic. It means that price changes do not impact demand. Therefore, the company can charge a higher price in the foreign market and a lower price in the local market. Advantages of Dumping
Disadvantages of Dumping
The World Trade Organization’s and the European Union’s Fight against DumpingThe World Trade Organization (WTO) and the European Union (EU) continuously take measures to discourage countries from dumping by imposing tariffs and taxes. The WTO’s RoleMember countries of the WTO lay down principles during the negotiation of the General Agreement on Trade and Tariff (GATT), where they agree not to dump and enforce tariffs on each other. According to the WTO, if a country wants to put an anti-dumping tariff on a trading partner, then that country needs to prove the occurrence of the dumping and its impact on the local market. They also need to show that the dumped price is much lower than the exporter’s domestic price. The disputing country should also determine the normal price before the anti-dumping tariff is in place. The EU’s RoleLike the WTO, the European Union also enforces anti-dumping measures through its economic arm – the European Commission (EC). If a member country accuses a trading partner of dumping, the EC needs to find that dumping has caused material harm to the complainant. Before imposing the duties, the EC must find that the dumping has caused material harm to the local market. It also needs to ensure that the anti-dumping duties do not violate the best interests of the EU. If found guilty, the exporter can agree to sell at a minimum price, and duties can be imposed if the EU rejects the price offered by the exporter. Additional ResourcesCFI is the official provider of the Commercial Banking & Credit Analyst (CBCA)® certification program, designed to transform anyone into a world-class financial analyst. To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:
When goods in our country are deliberately sold in a foreign market at a lower price than the domestic market in order to capture the foreign market it is called?3. Persistent dumping. When a country consistently sells products at a lower price in the foreign market than the local prices, it is called persistent dumping.
When a product is sold on a foreign market at a price that is lower than the cost of production in the country of origin?Dumping is, in general, a situation of international price discrimination, where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country. Thus, in the simplest of cases, one identifies dumping simply by comparing prices in two markets.
When a product is sold in a foreign country at a price that is lower than the domestic price it is called?What Is Dumping? Dumping is a term used in the context of international trade. It's when a country or company exports a product at a price that is lower in the foreign importing market than the price in the exporter's domestic market.
What means selling goods at low price in foreign in foreign markets?Dumping refers to the practice by firms of selling products abroad at below costs or significantly below prices in the home market.
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