UNFAIR INTERNATIONAL TRADE PRACTICES: EXAMPLES - CULTURE VOCABULARY - 2024

The unfair practices of international trade may be defined as all commercial practices or acts that are fraudulent, deceptive, restrictive or unethical to get business in the international market. International trade not only fortifies economically, it also generates cultural and political links.

Undoubtedly, international trade is often linked to maximum competitiveness, especially in this totally globalized world. Unfortunately, this voracious competition often generates practices that are not in accordance with what should be commercial fair play between countries.

By engaging in such unfair practices, countries only seek their own advantage by taking advantage not only with respect to the domestic products of the buyer country, but also with respect to their international competitors, regardless of the possible damages caused by that reason.

These practices may include acts that are considered illegal, such as those that violate consumer protection laws and international trade regulations, agreed to by the World Trade Organization.

Main unfair practices in international trade

Dumping

Dumping is defined as the price of a product that is exported from one country to another with a lower price, if compared to the price of this product or a similar one destined for consumption in the exporting country.

The term dumping is used interchangeably to cover the following four practices:

- Sale at prices below prices in international markets.

- Selling at prices that foreign competitors cannot afford.

- Sale at prices that are lower abroad than current local prices.

- Selling at unprofitable prices for sellers.

In short, dumping implies price discrimination between national markets. Therefore, it constitutes dumping to sell products at a lower price in foreign markets than the price of the like product in the domestic market.

Dumping is one of the unfair commercial practices used by companies that try to expand their market in foreign countries or force the exit of competitors from foreign markets, in order to raise prices later.

Subsidies or grants

The subsidy is given when the government of a foreign country grants benefits, either directly or indirectly, to producers or traders who export merchandise, in order to strengthen and favor them in their international competitive position.

Unlike dumping, which is committed by a particular export company, the unfair practice of the subsidy is established by a government or through some state agency.

Controlled currency exchange rate

With this practice, a country can manipulate the value of its currency with respect to other currencies used in international trade, such as if it were a direct export subsidy, giving products and services a great advantage with respect to international competition.

Normally, when a country imposes import or export tariffs, it applies to certain specific products. When you keep an unfair controlled exchange rate fixed, you are imposing it on all products and services.

Protectionist policies

These protection policies include:

- Raise the relative price of products and services that come from abroad, through the application of tariffs, taxes, subsidies and excessive antitrust application.

- Block or limit the access of foreign companies to national markets through the application of minimum standards, sanitary or other regulations, data privacy and other policies.

Real examples

Fixed and controlled currency exchange rate

China's most damaging and pervasive unfair international trade practice is to have a strictly controlled currency exchange rate, thus manipulating the value of its currency.

The Chinese yuan is below its value against the US dollar by 25%, reducing the cost of all its exports by that percentage.

China requires that all Chinese banks turn over to their Central Bank all dollars deposited by customers from exports to the United States.

If a Chinese company needs foreign exchange to import commodities or services, make an investment, or finance operations abroad, the company must obtain government approval to obtain dollars or other foreign exchange.

This limits imports, by maintaining a fixed exchange rate, as well as the necessary approval to acquire foreign currencies

Subsidies

China owns and subsidizes many companies, such as the steel industry. Through subsidized companies, China can target any market with low-cost products, retain market share, and drive out the competition.

Chinese steelmakers can sell steel at below-market prices because they are state-owned and subsidized by their government.

According to the American Steel and Iron Institute, US steelmakers have had to lay off 13,500 employees because China has been pouring steel into the US.

Export tax refunds

Another unfair business practice widely used by China is its export tax refund of 15% on many products. If a Chinese company exports a million dollars of merchandise in one month, it will receive the next month $ 150,000.

Protectionism

The US market has long been open to Indian products, but US-made products face strong barriers to entering one of the most protected markets in the world.

US exports to India have to face an average duty six times higher than the duty payment for Indian products in the United States.

Theft of intellectual property

The Chinese government refuses to pass legislation requested by the film industry to combat piracy and has been revoking patents on pharmaceutical companies, unfairly empowering its own industry to manufacture and export drugs previously developed at great cost by foreign companies.

From fake iPods to fake Apple stores, the Chinese are rising higher in piracy.

Product quality and safety

China has not established controls on the quality and safety of the products. Therefore, their manufacturers do not incur the costs of complying with such safety and quality standards and regulations.

As a result, other countries have received toothpaste, food, and other items that could be contaminated.

Restrictive regulations

The import of foreign films is severely restricted in China. It only allows 20 foreign films to enter the country per year. Additionally, there are strict limitations on when and where they can be displayed.

On the other hand, the existing regulations in the United States require that:

- Jamaica is only allowed to sell you 950 gallons of ice cream a year.

- Mexico can only sell you 35,000 bras per year.

- Poland can only send you 350 tons of alloy tool steel per year.

- Haiti is allowed to sell only 7,730 tons of sugar.

References

1. Winston & Strawn LLP (2018). What are Unfair Trade Practices? Taken from: winston.com.
2. Michael Collins (2016). It is time to stand up to China. Why and how the US must confront China on unfair trade practices. Taken from: industryweek.com.
3. Stephen Tabb (2011). China's Unfair Trade Practices. Taken from: stevetabb.com.
4. Linda Dempsey and Mark Elliot (2018). Shedding light on India's unfair trade practices. The Hill. Taken from: thehill.com.
5. Shigemi Sawakami (2001). A Critical Evaluation of Dumping in International Trade. Bulletin of Toyohashi Sozo Junior College. Taken from: sozo.ac.jp.