Duties
Antidumping, Antidumping Countervailing Duties
Policy Response to Foreign Dumping
Policy Response to Foreign Export Subsides
Dumping occurs when a firm is exporting
goods at a price that is below the price in its
home market.
WTO rules allow an importing country to apply an
antidumping duties (or tariffs) any time that a
foreign firm is dumping its product.
Antidumping Duties
The amount of the antidumping duty is equal
to the discrepancy (called the dumping margin)
between the exporters local price and the
dumped price in the importing country.
This creates a strong incentive for the Foreign firm
to raise its export price to reduce or avoid the duty.
Antidumping Duties
S
P
P0
D
S0
D0
Q
1
Antidumping Duties
Antidumping policy sounds like it is about
unfair exports.
However, antidumping policy has become a major
way for import-competing producers to gain new
protection against imports with the usual
deadweight costs to the world and the importing
country.
Countervailing Duties
A large Foreign country export subsidy will
reduce the price of the subsidized good in the
importing country.
Antidumping Duties
The fact that Foreign will firms raise their
prices to reduce the potential duty gives Home
producers an incentive to charge Foreign
producers with dumping even if none is
occurring.
Countervailing Duties
Suppose that the price charged to importers
falls by the full amount of the export subsidy.
WTO rules allow an importing country to apply an
countervailing duty any time that a foreign
country is subsidizing its exports.
2
Countervailing Duties
Countervailing Duties
S
P
S
P
P0
P0
P1
D
S0
D0
D
Q
S1
Countervailing Duties
S0
D0
D1
Q
Countervailing Duties
Costs and benefits: Foreign export subsidy and a
Domestic countervailing duty compared with an
export subsidy and no countervailing duty:
Change in consumer surplus
=
-(a+b+c+d)
Change in producer surplus
=
S
P
+a
P0
P1
Change in government revenue =
+c
D
Net effect on Home welfare =
-(b +
d)
S1
S0
D0
D1
Q
3
Countervailing Duties
Costs and benefits: Foreign export subsidy and
a Domestic countervailing duty compared with
free trade:
Change in consumer surplus
=
0
Change in producer surplus
=
0
Change in government revenue = + c
Net effect on Home welfare
= +c
4