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What is an 'Anti-Dumping Duty'

An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value. Dumping is a process where a company exports a product at a price lower than the price it normally charges on its own home market. To protect local businesses and markets, many countries impose stiff duties on products they believe are being dumped in their national market.

BREAKING DOWN 'Anti-Dumping Duty'

In the United States, the International Trade Commission (ITC) imposes anti-dumping duties based upon investigations and recommendations from the Department of Commerce. The ITC is an independent government agency. Duties often exceed 100% of the value of the goods. They come into play when a foreign company is selling an item significantly below the price at which it is being produced. Part of the logic behind anti-dumping duties is to save domestic jobs, but they can also lead to higher prices for domestic consumers and reduce the international competition of domestic companies producing similar goods.

The World Trade Organization

The World Trade Organization (WTO) operates a set of international trade rules. Part of the organization's mandate is the international regulation of anti-dumping measures. The WTO does not regulate the actions of companies engaged in dumping. Instead, it focuses on how governments can or cannot react to dumping. In general, the WTO agreement allows governments to "act against dumping where there is genuine (material) injury to the competing domestic industry." In other cases, the WTO intervenes to prevent anti-dumping measures.

This intervention is justified to uphold the WTO's free market principles. Anti-dumping duties distort the market. Governments cannot normally determine what constitutes a fair market price for any good or service; fair market value is whatever price the market will bear as determined by supply and demand.

Practical Examples of Anti-Dumping Measures

In June 2015, American steel companies United States Steel Corp., Nucor Corp., Steel Dynamics Inc., ArcelorMittal USA, AK Steel Corp. and California Steel Industries filed a complaint with the Department of Commerce and the ITC alleging that China (and other countries) were dumping steel on the U.S. market and keeping prices unfairly low.

A year later, the United States, after a review and much public debate, announced that it would be imposing a 500% import duty on certain steel imported from China. China may bring the debate before the WTO by China if it feels the tariffs are unfair.

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