Question

Business in the Global Legal Environment

What is dumping? Why is this a prohibited activity?

Answer 1

Dumping refers to a international trade practice. It occurs when international manufacturers export a product to another country at lower price. It results in injuring pricing. The products are exported at a price below the fair market price. To prevent this act many countries impose stiff duties on those products which have a possibility of dumping.

Dumping is prohibited because

1.It affects the interest of domestic consumers leading and when the products are at a higher price, there is a loss in consumer's surplus.

2. This affects the production progress in the importing country making it depend for the products of exporting country. This in turn leads to lesser economied of scale.

3. The purchasing power of the domestic consumers in the exporter country is affected.

4. In order to discourage long term dumping the importing country imposes tariffs.