Impacts of Anti-Dumping Laws on International Business Environment

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Title i

Table of contents ii

Abstract iii

Research Context 1

Research Questions 7

Research Methodology 8

Significance of the Study 9

References 10

Abstract

Theinternational business environment in the 21st century hasto deal with various challenges. Multinational corporations havestrived to penetrate the valuable foreign markets as a survivaltechnique. In this case, there has been an increased competitionamong the companies. Dominant players in the international businessenvironment have a lot of benefits because they have the ability tolure both developed and developing nations on adopting aggressivestrategies. Competition has bred dumping which is the primary issuein business. Dumping sets back the economic conditions and otherpolicies of a country. Governments have been at the forefront atdiscouraging the vice by passing various anti-dumping (AD)legislations. This paper is geared towards examining the strategiesand impacts of AD laws in the international business environment.

Research Context

Dumping is a case where exporters sell their goods and services at aslightly lower price than sold domestically (Bi, 2013). There is astrong relationship between free trade and dumping. The research willexamine all aspects of the free trade and how they are related todumping, both in developing and developed nations. Historically, thegrowth and development of international business were based onprinciples of wealth maximization and efficiency (Gawande, Hoekman &ampCui, 2015). However, this has not been the case in the real world.Engaging in business in a different environment is prone toconflicts. It should be noted that trade friction is common becauseof the changing means of productivity (Bown &amp McCulloch, 2012).The modern economy has been structured by forces of demand andsupply. The need to achieve market equilibrium directly translates toincreased productivity in one nation and vice versa (McGovern, 2016).The effort will undermine the overall welfare of some countries. TheInternational business environment will not promote the wellbeing ofall trading nations but will often lead to interest conflict amongthe trading partners (Lee, Park &amp Cui, 2013). The research studywill focus on international environment and the challenges thatpositively influence the trading partners in their effort to achieveproductivity.

Moreover, it is important to examine the factors that lead to theadoption of AD laws. The trade effects of international trade areuncertain in nature (Bown et al., 2012). The trading partners willmutually benefit for a given period until the market equilibrium overthe long term. When this limit is achieved, there will be backwardtrading among the partners which is detrimental especially in thedeveloping countries. Efficiency can efficient to free trade. Itensures that there is an absence of trade barriers in theinternational business. The restrictions lead to a loss in efficiencyin the economy. The distortions will increase the national welfare.Gawande et al. (2015) assert that economies of scale also play asignificant role in the business environment. Imposition oflegislations as means to protect industries will tend to reducecompetition and increase profits in the short run (Konings &ampVandenbussche, 2013). However, over the long term, many firms may beswayed to enter the protected industry. The entrance will lead toincreased production and flooding of the domestic market. Bown et al.(2012) argue that free trade provides the necessary incentives forentrepreneurs to locate new and effective ways to export theirproducts and challenge the rising imports. Free trade policies willprovide more opportunities and spill-over in the market thispromotes the economic environment (Lee et al., 2013).

The research study will also look at the failures of theinternational business environment as a result of free trade.Although free trade leads to economic growth, it also hurts thedomestic market. According to the theory of second best, free tradepolicies are important to an economy of there is efficiency in themarket (McGovern, 2016). The capital and labor market should beeffective in allocating the much-needed resources for production. Theabsence of these aspects can lead to market failures. Free policyremains the best option for countries operating in the internationalbusiness environment (Konings et al., 2013). Intervention techniquessuch as employment of legislation cannot be adequately feasiblebecause it is difficult to establish the origin of market failure andadopt a specific policy to address the problem (Lee et al., 2013).Conversely, free trade has a lot of advantages than restrictivetrade. With few domestic producers, it is crucial to employ freetrade. Countries exhibiting imperfect competition should adopt bothfree and intervening trade policies if they aim at maximizing theirwelfare in the domestic and international markets (Lee et al., 2013).

The research will also examine the concept of dumping and how it cameto be in the global business environment. The idea is attributed toJacob Viner in 1923 in his study “Dumping: A problem ininternational trade.” Viner (1923) defines dumping as “pricediscrimination in the foreign markets.” Dumping occurs when thereare identical products, sale process, and two markets, domestic andinternational (Bi, 2013). There are cases when the same good orservice is sold at a higher value in the foreign than the localmarket. It should be acknowledged that the primary difference betweencommon price inequity and dumping is that dumping arises in theinternational business environment between nations (Hansen, Meinen &ampNielsen, 2014). The present international business law and economicanalysis deal with cases where goods and services are sold more in aforeign market than the home market (Bi, 2013). However, thedevelopment and growth of the international trade have led to theinclusion of sales below the cost of production. In most cases,particularly in developing countries, dumping has been associatedwith bounties and subsidies (Hansen et al., 2014). It should bedistinguished that distinct legislations regulate subsidies anddumping.

The strategies and impact of foreign AD laws on the internationalbusiness environment would be complex to define without examining thedifferent types of dumping. In that case, the research will look atthe various forms of dumping based on Viner’s concepts. Accordingto Viner (1923), there are three kinds of dumping. They includesporadic, short-run or intermittent, and long-run or continuousdumping. Sporadic dumping is an unintentional act (Viner, 1923).Foreign country exporting goods and services may have excessivesupply brought by changes in demand for production procedure. Theless experience can also introduce dumping during product pricing.Fluctuation of foreign exchange rates may also lead to sporadicdumping. Short-run or intermittent dumping may be months or years ata time. Short-run approach arises in cases where a company wishes toaccess a new market (Viner, 1923). It is also known as predatorydumping. The organization or country lowers their prices as a meansto drive present domestic enterprises out of operation. On the otherhand, long-run or continuous dumping is where a company seeks tobecome the only producer in the foreign market (Viner, 1923). In thiscase, the organization aims at attaining economies of scale withoutreducing the current domestic prices. Viner’s perspective isimportant in this study because it looks at dumping from importingnation’s point of view (Viner, 1923). The view will evaluate theeffect or impacts of dumping on the domestic industry and theconsumers as a whole.

The study will also examine the various reasons for dumping in bothforeign and domestic markets. The reasons will help in shading lighton the importance of AD legislation in controlling the vice.Companies have been created with one primary objective of maximizingthe shareholder’s wealth (Gawande et al., 2015). Organizationsparticipate in dumping because they want to accomplish their goals ofmaximizing profits. The price discrimination, especially in amonopoly model, requires companies to set prices such that there isan equilibrium between marginal costs and revenue (Bi, 2013). Theelasticity of demand also plays a significant role in the dumpingprocess. Countries operating in the international businessenvironment have a different elasticity of demand (Hansen et al.,2014). It means that if an organization decides to charge the sameprice within all markets, there would be fluctuations in marginalrevenue. For a country or corporation to increase their profits, theywould have to sell more goods and services in places with highelasticity of demand and high marginal revenue. Dumping occurs due tothe presence of imperfect markets and competition (Bown et al.,2012). Free trade policies also contribute to dumping because thereis a separation of natural and human barriers. Additionally, thereshould be an unequal elasticity of demand in the business environment(Hansen et al., 2014).

The study will also look at the effects of dumping, both on domesticand foreign markets. There are proponents and opponents of AD laws.The opponents argue that dumping significantly benefits the consumersof the importing nation (McGovern, 2016). The proponents claim thatcheaply imported goods and services cause the home market prices todecrease (McGovern, 2016). Domestic companies can take advantage oflow prices if they use the dumped imports on their production (Bownet al., 2012). The effect of dumping is only adverse in cases whereit is predatory in nature. The consumers and markets will sufferbecause of the minimal shift from dumped goods to substitutes.Countries and companies have been forced to employ various ADlegislations in their day to day activities (Konings et al., 2013).

Apart from other factors such as free trade, the research will alsolook at the companies that have been at the lead in pushing for ADlaws. The challenges in the international business environmentresulted in the drafting of AD measures. The primary purpose of thelaws was to defend the domestic consumers from predatory activitieson foreign suppliers. World Trade Organization (WTO) and GeneralAgreement on Tariffs and Trade (GATT) have largely contributed to theAD measures (Bown et al., 2012). Countries have joined theorganizations as a means to safeguard their interests in the businessenvironment. WTO agreement acts as an arbitrator among conflictingnations by providing various guidelines to how they should addressdumping. The ‘Anti-Dumping Code’ gives countries power to reactin cases where dumping has caused material damage to the domesticfirms (Bown et al., 2012). However, there is need to perform athorough investigation before taking any action. The investigationhas to show beyond reasonable doubt that dumping has occurred,analysis of the dumping degree, and demonstrate that it hasthreatened or caused an injury (McGovern, 2016). The research willfurther look at the developments and amendments made on both WTO andGATT.

The study will delve more into AD laws and its effects on theinternational trade, having introduced some of the factors that leadto dumping. It will examine the effects on prices and benefits toconsumers, especially in an importing nation. AD laws influence theprices in the dumping countries. The levies placed on the importswill ensure that the products have the same price, both in local andforeign markets (Bown et al., 2012). AD laws lead to deadweightsocial costs, particularly on the consumers. The increase in pricesin the foreign markets will decrease the supply. The less consumersurplus in the importing country will force them to pay a higherprice for the goods and services. Customers who will not afford topay the higher price will automatically be driven out of the market.AD measures will also affect the consumers and industries. There willbe a disappearance of user benefits resulting from dumping (Koningset al., 2013). Importing countries will drive the dumped goods andservices out of the market because the duties are high enough. Inthis case, the measures will restrict the prices of the products suchthat they are higher than domestically produced goods. However, whenthe dumped products exit the market, the home industries willmonopolize their prices because of less competition. In this case,the less efficient companies prevail over, the more efficient firmsin the international business environment will become (Bown et al.,2012).

The research will also look into trade diversion as an effect of ADlaws. Trade diversion is a scenario where a country moves theirtrading patterns from a partner who is more efficient to one that isless efficient. The introduction of AD measures leads to decrease ofdumped imports. On the other hand, there is a direct increase inimports from third world countries. Consumers who are used to thedumped products will have to find similar goods with the lowest pricepossible. Exporters from other nations will benefit from the changingpatterns because they produce at a relatively cheaper rate (Bown etal., 2012). AD laws do not profit the domestic country as required(Bi, 2013). The shift to other low efficient products may set backthe economy and status of local firms. Apart from trade diversion, ADmeasures also lead to loose of job opportunities. Companies have beencreated in the importing countries as a result of dumping (Konings etal., 2013). The adoption of AD laws will harm the companies who willend up closing their operations. As a result, the domestic workerswill lose their jobs. It is hard to ascertain the effects of AD lawson the international business environment. The local consumers andproducers are placed in a conflict circumstance. The abolition of theAD measures will encourage foreign exporters in the market (Koningset al., 2013). The consumers will benefit from the low prices. On thecontrary, the local producers or exporters will be adversely affectedby the cheap imports. In the long-run, they might risk terminatingtheir business as a result of losses.

Research Questions

The upcoming research study will focus on the impacts of AD laws onthe international business environment and how the measures have beenemployed by two different countries including the People’s Republicof China and the United States (U.S.). Specifically, the researchwill be aimed at addressing different questions.

  1. What are the factors that contribute to the adoption of AD laws in a foreign or domestic market?

  2. What is the effect of AD laws on the international business environment?

  3. How can the findings on dumping be used in assisting the consumers and government to choose a suitable approach to address the issue?

Research Methodology

The data will be gathered from past and present literature. It willemploy quantitative research methodology when collecting the data.There are various journals on international finance, business law,and economics that deal with the dumping of goods and services.Research web sites such as Ebsco host and WTO will substantiallycontribute to the research. It would be hard and challenging toconduct fieldwork in the study. The respondents may give biasedanswers depending on how the AD measures have influenced them on apersonal level. WTO would be essential in providing data, especiallyin the AD cases. The organization acts as an arbitrator for variouscountries around the world. It means that most situations regardingAD measures have been filed in the group. The study will use acomparative research design which will ensure that the data collectedfrom WTO has information on goods and services, nations involved ineach given case, dates of the procedure, and investigation and theoutcomes of each case.

The comprehensive data will help in ascertaining the relevance of ADlegislation and how countries have used the outcome in theinternational business environment. There will be comparison ofdifferent nations and how they have addressed the AD measures intheir trading activities. Ebsco website will also providequantitative information on AD measures on international trade. Thereexist several peer-reviewed journals that delve deeper into effectsof dumping on the economy. It is important that the literature ispublished between 2008 and 2017. Articles that are within the givenrange will provide insightful information on AD measures during theglobal depression and how countries and firms addressed the issue.With plenty of cases of AD, it would take a lot of effort to ensurethat the required information is evaluated. The research will sampleout the data based on the investigation, trade restriction anddiversion effects of AD. On the other hand, the journals from theEbsco website will be selected based on the currency and specialty.The journals should be peer-reviewed in nature and focused on the ADand its effects.

Significance of theStudy

In conclusion, the research will provide a valuable perspective on ADmeasures on the international business environment. There is asignificant difference between the past and the present tradingenvironment. In the past, AD legislation was an important policy toolbecause it directly protected the domestic market from outsideexploitation. The study will expound on matters regarding dumping andits positive and adverse effect on business. The changing environmenthas led to development and adoption of other policies that best worksfor a country. The research will build on and add to the presentstate of knowledge in international business law. Although manycountries have employed AD measures, there are some challenges in themarket. The primary objective of AD is to safeguard the importingcountries from predation by foreign exporters. However, it isworrying because the presence of AD measures has even led to moreproblems to the consumers and domestic nations. The legislation haspromoted collusion and cartel organization who seek to control theinternational business environment rather than addressing theanticompetitive traits. In today’s economy and trading system, theimpacts of AD measures have been minimal because most nations areactive participants in international trade. The increase in thetrading partners has seen a reduction on predation by exporters.Various countries have politicized the AD measures in an effort toimprove their cordial relationships. The research will focus on theneed to remain vigilant so that the AD legislations are not abused bygovernments to gain and exploit the present market power.

References

Bi, Y. (2013). Is Dumping StillHarmful-New Thinking on Antidumping in the Global Free Trade.&nbspJEAsia &amp Int`l L.,&nbsp6,29.

Bown, C. P., &amp McCulloch, R.(2012). Antidumping and market competition: implications for emergingeconomies.

Gawande, K., Hoekman, B., &ampCui, Y. (2015). Global supply chains and trade policy responses tothe 2008 crisis.&nbspTheWorld Bank Economic Review,&nbsp29(1),102-128.

Hansen, J. D., Meinen, P., &ampNielsen, J. U. M. (2014). Elasticity of substitution and anti-dumpingdecisions.&nbspReviewof World Economics,&nbsp150(4),787-816.

Konings, J., &amp Vandenbussche,H. (2013). Antidumping protection hurts exporters: firm-levelevidence.&nbspReviewof World Economics,&nbsp149(2),295-320.

Lee, M., Park, D., &amp Cui, A.(2013). Invisible Trade Barriers: Trade Effects of US AntidumpingActions against the People`s Republic of China.

McGovern, E. (2016).&nbspInternationaltrade regulation&nbsp(Vol.2). Globefield Press.

Viner, J. (1923).&nbspDumping:A problem in international trade.University of Chicago Press.