Guide to: Dumping and anti-dumping duties

One of the multiple taxes relevant to importing goods into South Africa is anti-dumping duty.

Levying anti-dumping duties, which are also called countervailance or safeguard duties, is an aggressive approach governments around the world may take to protect their local markets.

Here’s what you should know about it:

A crash course on international dumping?

Dumping is a loose term in trade which refers to international price discrimination. In practice, dumping occurs if a trader sells their wares in an export market for less than the accepted market value, or for less than what they would charge in their own market.

Here’s an example of how dumping could happen

An industrial chicken farm in the USA miscalculates how the reproductive rate of their chickens will affect their farm’s capacity. They decide to take pressure off resources by slaughtering 50% of their chickens immediately. This means they have a much higher stock level of chicken pieces on hand than what they need to cater for local demand. The amount of chicken pieces this decision generates is about half of what all the chicken farmers in South Africa would have produced within that month.

The chicken farm is eager to get rid of the meat and is not concerned with making their usual profit. After all, it’s better to recuperate a little income than discard spoilt meat. They decide on a very low sales price, but the farm’s management does not want to offer the meat to their local clients at such a reduced rate for fear of diminishing the brand’s value. They decide to export the chicken pieces to South Africa, where the brand is unknown, instead.

Once the chicken pieces reach South Africa, the farm’s management contracts an agent to sell it. Because the price of the chicken pieces is so low, the South African buyers stock up on as much as they can. As a result, the South African food vendors who buy the imported chicken don’t need to buy from their usual, local, chicken farmers for the rest of that month.

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This single import causes a knock-on effect within the South African chicken farming industry in that local farmers are forced drop their prices to match the unrealistically low market value set by the import.

The South African chicken farmers don’t want a repeat of this scenario, so they appeal to government to instill a tax on future imports of chicken pieces from this source. The import tax is so high that, next time, the American farm won’t be able to sell their unwanted chicken in South Africa at such a low price again.

In this example the offloading of unwanted chicken pieces at a below market-value price is the dumping. The tax the government instils to prevent future imports at such a low price is called an anti-dumping duty.

Dumping also happens when:

Wares are deemed to unsafe or sub-par for one market, and the trader decides to offload it in a less strict government’s jurisdiction instead – at the peril of end users.

When a trader can’t get their goods exported from the manufacturer’s country, so they decide to sell it within the manufacturer’s country for less than what wat they paid. The trader thereby becomes their own supplier’s direct competition.

An international company sells their wares below market value in an export market they wish to dominate, simply to eliminate their competitors within that market.

In addition an exporter can commit reverse dumping. Reverse dumping is when a trader finds an export market in which their product is not sold at all. Because there is no competition for their product, they inflate their price so that it is no longer in line with what they charge in their domestic market.

Dumping is terrible, but not illegal

Because dumping is so detrimental to international trade, the World Trade Organization does stand against it, and takes some measures to prevent it. It is however up to governments to take legal action for the prevention and prosecution of traders who practice dumping in their markets.

Countries may use tariffs and import duties to counter dumping activities and protect the value of domestic produce within their local markets. These are the import duties we call anti-dumping duties. If a country is a member of the World Trade Organization, they can also bring formal complaints to the organization about both dumping and protective measures.

How are anti-dumping duties different to other import duties?

Although general import duties are levied for the same reason as anti-dumping duties (i.e. to protect local markets), anti-dumping duties can be a lot more specific.

Where a general import duty would apply to an import from any country, anti-dumping duties are narrowly targeted at products imported from specific countries and can even be levied on particular producers or exporters within those countries. Anti-dumping duties are levied as an additional tax over and above the general duty incurred by the import. It is applied as a set value (e.g. 940c/kg), or a percentage calculated on the import’s FOB value. Because of their function, anti-dumping duties are often higher than general import duties.

To establish whether an import would incur an anti-dumping duty, we must refer to Schedule 2 of the Customs and Excise Act. Anti-dumping duties are listed here according to tariff code. A tariff code may have more than one anti-dumping duty listed in Schedule 2, because the same goods may incur different anti-dumping duties depending on where it originates from.

How do anti-dumping duties get imposed?

Industries may appeal to the International Trade Administration Commission of South Africa (ITAC) to have a new anti-dumping duty included in Schedule 2. There would have to be proof of the offending country or exporter causing material injury. According to ITAC, “Material injury is measured in terms of declines in the prices, sales volume, profits, market share, employment and other factors of domestic manufacturers.”

ITAC would then conduct an anti-dumping investigation.

As a first point of call, the investigation is published in the Government Gazette where importers and exporters are invited to comment and/or verify the need for an anti-dumping duty. Once a preliminary determination of the need is identified, it is presented to the Minister of Trade and Industry. If the Minister approves of the duty, implementation is published in the Government Gazette, as well as the Schedule 2. This process takes an average of 10 months. Once an anti-dumping duty is set, it is reviewed for ways traders can circumvent it or illicitly benefit from it.

For an in-depth understanding of all the taxes, duties and levies imposed on South African traders, sign up for our online training course about Duties, VAT and Excise on Imports and Exports.