ECONOMYNEXT – Sri Lanka has drawn up anti-dumping and safeguard laws, which will allow domestic businesses to overprice and exploit customers by limiting competition from abroad, on grounds of ‘dumping’ or loss of market share.
The safeguard bill allows business to push up import taxes, simply when domestic consumers shift to a cheaper or better alternative from abroad, and domestic operators lose their grip on consumers.
Domestic businessmen do not have to claim that goods are ‘dumped’ from abroad.
Dumping usually refers to the alleged practice of selling goods in a foreign market at a lower price than in the domestic market or below ‘costs’ as determined by anti-dumping regulators in the market in which goods are sold.
Safeguard legislation is prepared according to rule of the World Trade Organization.
Under Sri Lanka’s draft laws, domestic producers can ask for an investigation and higher tariffs if people shift away from their products and imports bring down prices helping less affluent consumers in particular.
The draft law says that safeguard taxes or quotas can be set if there are large volumes of imports domestic firms cannot utilize capacity and prices benefit consumers such as a "decrease in domestic prices or lack of increase in domestic prices, which could have otherwise occurred in the absence of increased imports."
However under safeguard laws, the taxes are time bound and the domestic industry cannot resist competition and keep prices up forever.
If the domestic businessman can show that he is taking steps to cut costs (adjustment measures) the taxes will be extended once. But after that consumers will be emancipated.
Anti-dumping laws, are also under WTO rules, but domestic authorities have much more leeway in setting how ‘dumping’ is determined.
Predatory pricing is usually a deliberate strategy to sell below costs to drive out domestic producers and then raise prices later is also an argument made for anti-dumping laws.
Most legitimate business practices such as pricing goods differently in different markets is also considered ‘dumping’.
Pro-poor Free marketers say in the drugs market where price discrimination is common, domestic businesses have less success in pushing ‘anti-dumping’ laws, because lobbyists are less successful in victimising sick people than healthy ones and the strategy is more clearly seen.
Anti-dumping laws were devised in the West as ordinary members of the public began to see that import duties themselves limited competition and allowed rent-seeking businesses with political connections to push up import taxes and keep prices high.
Anti-dumping laws set up a regulatory body or council to ‘investigate’ and determine that goods are ‘dumped,’ and should be slapped with ‘countervailing duties’ giving the process more legitimacy in the eyes of the public.
In Sri Lanka’s proposed ‘Anti-dumping and countervailing duties’ bill an investigation can be launched after if an application is made by domestic producers whose output is more than 50 percent of the total market, and if producers with more 25 percent support it.
The director general who is charged with the investigation also has the discretion to launch his own investigation.
There are multiple ways domestic prices of the exporter is determined.
The US recently slapped countervailing duties claiming that Sri Lanka’s solid tyre producers are ‘dumping’ in the US market.
Neither Sri Lanka’s proposed safeguards bill nor the anti-dumping bill seem to have a public interest clause to protect the poor from rent seeking business interests, critics say.
There is also no floor tax, above which ‘dumping’ can be claimed which in theory means that a domestic producer who already enjoys high protection can claim further injury from foreign producers.
However in other countries, such as the US anti-dumping laws come when import duties are brought down to low levels or there is free trade. The US now has an average trade weighted import tariff of around 2.0 percent and half of all industrial goods enter the US duty free.
https://ustr.gov/issue-areas/industry-manufacturing/industrial-tariffs
However the two bills are expected to be a pre-cursor to lowering existing tariffs generally. (Colombo/Oct16/2017)