7.3 Dumping, Export Subsidies, and International Trade Disputes

Dumping and export subsidies often provoke international trade disputes. Both are considered unfair trading practices, which are used to gain an advantage in the domestic market of the importing country. Dumping is often done by private firms with tacit agreement of their national governments, while export subsidies involve direct intervention in markets. To the extent that governments are involved, this is seen by importing countries as tilting the international playing field in favour of exporting country-producers. This can cause significant material injury to domestic producers in importing countries.

As seen before, both dumping and export subsidies bring benefits to importing countries, particularly to their consumers. However, they can disrupt production in importing countries and cause material injury to domestic firms as they lose market share. Domestic firms are often successful in lobbying their governments for protection. As a result, importing-country governments often respond with additional import duties intended to remove the advantage that foreign firms have in the domestic market. Anti-dumping and countervailing duties, although legitimate under WTO rules, can prompt retaliation by the exporting countries. Such tit-for-tat actions in which the respective governments favour their domestic industries can trigger trade wars. Recognizing this potential, a procedure for settling international trade disputes is included in the rules of the WTO.