[OPE-L] Profit from dumping, or, the "heavy artillery" of cheap commodities...

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Fri Sep 07 2007 - 18:03:52 EDT

An Oxfam paper claims dumping is profitable:

Each year, rich countries spend in excess of US$300 billion in support of agriculture-some six times the amount they allocate to foreign development assistance. Most of the subsidies end up supporting production and generating large surpluses, which are then dumped on world markets at prices that bear no relation to production costs. Meanwhile, high tariffs and other trade barriers are used to keep imports out. Tariffs on agricultural goods in the EU and U.S. are four to five times those applied to manufactured goods, and peaks in excess of 100 percent-for groundnuts in the U.S. and dairy produce in Europe, for example-are common. (...) 

Who benefits from these policies? (...) The biggest 25 percent of EU subsidy recipients receive more than 60 percent of all subsidies. In the U.S. 60 percent of farmers get no support at all, while the biggest 7 percent account for 50 percent of government payments. The large slice of subsidies directed toward sugar and dairy producers makes up part of this distorted picture. To make matters worse, most of the benefits generated through agricultural support do not even reach producers: the supports are capitalized into higher land values and higher input prices. According to OECD (Organisation for Economic Co-operation and Development) estimates, only 25 percent of price supports end up as net income gain for farmers.(...)

Standard consumer welfare models tend to obscure the damage caused by agricultural dumping. Export subsidies in industrialized countries undermine incentives for small farmers in developing countries, and destabilize local markets. (...) 

Among other things, the paper concludes paradoxically that:

While developing countries may suffer from opening their markets to cheap imports, they also lose from keeping their markets closed.


An Indiana University paper notes different kinds of dumping:

There are three main types of dumping: predatory dumping, persistence dumping, and sporadic dumping. 

Predatory dumping occurs when foreign firms sell their products at below cost abroad, in order to eliminate competition. These firms usually enjoy a monopoly at home and hope to establish one overseas. Of course, once they have driven out domestic producers, prices will be increased. The greater the inelasticity of the product, the greater the price increase. Since the demand for inelastic products, such as clothing and food, remains relatively constant regardless of price changes, sellers can raise the prices of these goods without lowering their sales volumes. (...)

When a company possesses a monopoly at home but faces competition overseas, it may also participate in persistence dumping. Lack of domestic competition allows the company to sell its product at high cost at home. Once the product enters the international market, it faces competition from both the host country, as well as other countries. In order to sell the product and earn a profit, the producer must lower the price. This is considered dumping, because a lower price is being charged abroad than at home. Yet, unlike predatory dumping, businesses that engage in persistence dumping are not focused on eliminating the market shares of domestic producers. 
The third type of dumping, sporadic dumping, occurs when companies run a surplus and try to sell the excess product over the foreign market. If they charge a lower price abroad than they do domestically, they are guilty of sporadic dumping. On the other hand, if they lower their domestic price, they are simply having a sale. For example, if a department store in Chicago charged a higher price than a store in Miami for the exact same dress, would it be accused of dumping? As Fred Smith of the Competitive Enterprise Institute said, ``If our antidumping laws applied to U.S. companies, every after-Christmas sale in the country would be banned'' http://www.iusb.edu/~journal/2000/ross.html

The latest concern is about "social dumping":

Increasingly, the charge of "social dumping" is heard as a rational for protectionist measures against developing country exports. Many businessmen, labour unions and politicians in developed nations believe that lax working regulations and conditions, as well as weak political and social rights, provide developing-country exports with an unfair advantage. To counter this, they argue that either developing-country exports of cheap manufactured goods should be subject to antidumping duties to eliminate the "unfair" competitive factors, or these countries should impose higher labour standards.http://www.voxeu.org/index.php?q=node/213

It looks to me as though "dumping" is increasingly understood to mean "trading with an unfair advantage".


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