TAKING STOCK : Welcome dumping

Kathmandu :

Nepal is in the WTO. This is good. It will increase Nepal’s competitiveness in the world markets. Both export and import barriers are expected to come down.

Reducing barriers to trade may be good in theory, “but what about dumping?” ask many. Dumping is export by a country of goods at such low prices that the importing country’s industries can’t compete and may shut down. If your neighbour showers you with gifts (which

is equivalent to dumping goods ‘free’ on a country), would you be harmed?

And yet when it comes to a country, governments obstruct dumping by tariffs. Why? It is not the consumers who complain. They are thrilled with cheaper imports, like you are when your neighbour dumps gifts on you. Cries are heard from the businessmen who now have to compete with imported products. Cheaper toys from China made the Indian manufacturers run to the government. ‘Protect us’, they screamed even as the children playing with the Chinese toys rejoiced.

That businessmen argue in self-serving ways is no surprise. That we accept their arguments is. “Employment would be lost”, whine the Indian toy-makers, and the US steel and

textile manufacturers. So what? Why is it necessary to maintain employment, with artificial barriers, at the expense of consumers, in industries where you are not competitive?

If Nepal’s cement industry is destroyed by cheap imports from China, that would be a boon not a disaster. Yes, employment in the cement industry would be lost, but, it would be more than compensated by the increased employment in the construction business where a cheaper input, cement, would increase consumption. You, if you were building a house, would be happy for you could use your savings in cement costs to add a room or to buy a carpet. Whatever you do, your actions ensure that no net loss of employment occurs.

What if big companies first destroy your industry by dumping and then raise prices at will. If Nepal’s markets are kept open to imports from all countries, competition among suppliers ensures that no one has monopoly pricing powers. The moment a Chinese cement company increases prices to make exorbitant profits, importers can buy cement from Indian, Korean or even other Chinese companies.

No one has ever given me a single example of any company successfully destroying competition by ‘predatory’ pricing and then establishing a monopoly. This is because none exists and is yet another self-serving argument of businessmen lobbying for protection with a view to greater profits.

If it is so easy to prosper by dumping, then let us dump goods at below cost on countries which are open to free trade: Singapore, Hong Kong and any other country which will accept them. Singapore and Hong Kong will not be harmed, they have thrived on free trade, it would be us — our companies — which would go bankrupt.

For a small country like Nepal it is of paramount importance to keep its borders open for trade. Only free trade and benefits it offers can eliminate poverty. Free trade is good for all, but big countries, like the US, can do relatively well, even with a modicum of restrictions on imports, because its 300 million people in its 50 states trade freely with each other.

India, after liberalisation, still restricts imports but permits relatively free trading within its various states. Why, if restrictions are so good, is unrestricted trade ok within the national borders? Why not restrict trading between cities as well? Would anybody like to propose restrictions by Patan for imports from Bhaktapur?”

Frederic Bastiat, a great proponent of free markets, born in France in 1801, petitioned the government on behalf of candle-makers. He pleaded to restrict ruinous competition from a foreign rival working under vastly superior conditions and flooding the domestic market with a free good.

He asked for the ‘Sun’ to be stopped from dumping its ‘light’ and thus destroying the domestic market for daytime use of candles. This satirical letter, was Bastiat at his best, responding to those businessmen who sought government ‘protection’.

(The writer can be contacted at: everest@mos.com.np)