Why do developed countries such as the United States regulate trade through the mechanisms described in this section? Why might a less developed country do so?
To promote fair trade the WTO prohibits the practice of dumping. Dumping occurs when a manufacturer sells its goods in a foreign country for less than their normal value. If this practice causes or threatens material injury to a domestic or established foreign manufacturer in the foreign country, the act is prohibited. The price is considered less than normal value if it is less than the price charged in the producer’s home country. A firm may want to dump its goods in a foreign market for two reasons. First, its home market may be saturated and cannot support any further supply. Second, a firm might sell its goods in a foreign market at a price below other competitors and support that price with higher prices in its home country in an effort to establish itself and perhaps drive other firms out of the foreign market. After its competitors are forced out, the producer may raise prices to the normal level or above. GATT permits retaliatory duties to be imposed on countries that have dumped goods in other member countries.