Trade Barriers - Ways and Effects on Protecting Domestic Labour Markets from Dumping

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Trade Barriers
Ways and effects on protecting domestic
labour markets from dumping

International Business
and Social Sciences
WS11/12
Labour Market and
Human Resource
Management
International Labour
Policy

Ways and effects on protecting domestic labour
markets from dumping
With the grow of international trade in our markets, the degree and the amount of competition has increased tremendously in our domestic labour markets. The pressure in our domestic markets are higher than ever before because of the grow of international competitors. Also the actions processes of competitors to dominate and to win market share for making more profit have developed a lot. ‘Unfair competition‘, ‘Antitrust acts‘ or ‘Price dumping acts‘ occurred. Especially the dumping affairs have worried many domestic companies because they had troubles to sell their products for the original domestic price. If a company charges a lower price in the exporting/ foreign country than in the domestic country we define this as dumping and international price discrimination. Because the share of exports of these firms is usually lesser than the domestic demand, they try to capture on this way the foreign market. This is called short-term predatory pricing strategy which should drive competitors out of the market. It is a short-term strategy because once domestic firms are forced and wiped out of industry, and market, it is difficult for them to restart what gives the exporting firm the opportunity of a monopoly power in the foreign market.1 2

In the 19th century the first time an industry (European Sugar Industry) has appealed to their respective government for protection against sugar being dumped at unfairly low prices. After the first formal agreement on antidumping has been made in 1902 Canada adopted the first anti-dumping law in 1904 followed by the European countries and then the US in 1916. These legislative texts formed later (1947) the basis for the articles on anti-dumping in the GATT (General Agreement of Tariffs and Trade).3

Antidumping became a matter of states because they were interested in protecting their own domestic industry from foreign companies, in terms of production growth

1

www.wto.org

2

www.commerce.nic.in

3

Debroy & Chakraborty

(related to GDP) but also of the employment rate. Therefore more and more states agreed to the GATT over the 20th century.
The way of how the states particularly acted to pretend foreign companies to lower the power of domestic companies with dumping prices, is tendentially related to trade barriers for the companies of the exporting countries. Preferably protectionist governments tend to put trade barriers. Those states with low protectionism are the ones which are convinced of the free trade culture and the totally self-regulating market.4

The most common trade barrier is the setting up of tariffs for imported goods. In this case foreign producers have additional costs to pay which would lower their profitable outcome. That makes it less beneficial for them to export and because of this reduction of profit it makes it very hard to dump the prices. This makes it more difficult to compete as an exporter and as a consequence of that it would prevent domestic companies from lowering or adjusting their prices.

This tariff is also classify as anti dumping duty. Especially companies in developing countries with very high production costs is helped by this duty for importers.5 The tariff as a way of protectionism correspond to an employment and social equity concern and on the other hand promote economic efficiency and industrial restructuring. By reducing import via tariffs, protection seeks to raise the market share of domestic producers and the price they receive for their goods. Greater output and profitability in the domestic industry is presumed to increase employment and promote modernisation.

The negative side of tariff barriers is that there will be a deadweight...
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