An anti-dumping duty represents a fee imposed on companies that violate a nation's pricing policy restrictions. Dumping refers to a company that exports goods to a foreign country and sets the selling price of goods below the cost of production in the importing country. This makes it impossible for domestic firms to produce and sell goods in a competitive market. The anti-dumping duty is typically the difference between the good's selling price and the actual market value in the open economic environment.
An example of the anti-dumping duty is when an international firm exports 100,000 laptops to a foreign country. The international firm country can produce the laptops very cheaply and sets a selling price of $100 US Dollars (USD) in the foreign country. Producers in the foreign country have a cost of production near $250 USD for similar laptops. The duty imposed is then equal to $15,000,000 USD when fined by the foreign country's government.
A government does not always discover the dumping of products in its country on its own. Competing businesses are typically the complainants, and must request a review of an international firm's exporting practices. A business may sue the international firm or alert the government to a possible violation of the current dumping policy. In some cases, an industry watchdog or professional organization will be the initiator in the lawsuit against a potential dumping violation.
The purpose of the anti-dumping duty is to protect domestic firms from international competitors who can produce goods inexpensively. The use of import tariffs does not typically work to prevent international firms from dumping goods. An import tariff that adds an a relatively small amount to the cost of each product may result in a price which is still significantly below the current market price of this particular product. Therefore, an anti-dumping policy may be considered necessary to prevent unfair international competition.
It is possible for a perceived dumping policy violation to be completely false. As technology increases and companies can maximize their production operations, costs will naturally fall for goods and services. Therefore, companies sometimes cannot help but charge a cheaper selling price to consumers. One way companies can usually avoid an anti-dumping duty is to sell their goods at only a slightly cheaper price than a competitor's goods rather than the lowest price possible. While the international company's product will still be less expensive, the difference in prices is less significant and the locally-produced product may remain competitive.