Countervailing Duty [CVD] is also called anti-subsidy duties and are trade import tariffs introduced to deal with any negative effects of subsidies.
Imposed under World Trade Organization, this duty is levied when a country finds that the importing country is subsidizing the products and harming domestic suppliers. Under the WTO rules, the country can impose additional duties to combat this situation.
What Is Dumping?
When a country exports products to another country at a price cheaper than its original price in the native market, it is referred to as dumping which is an unfair trade practice. Anti-dumping duty is a measure that seeks to rectify the situation caused by dumping.
The World Trade Organization On Countervailing Duty
WTO supports the use of anti-dumping duty as a tool for promoting fair competition.
Countervailing Duty is different from anti-dumping duty as it is imposed on products receiving subsidies in the exporting country.
What Is Countervailing Duty [CVD]?
Countervailing Duty is a tariff levied on imported goods to offset subsidies given to the producers in the originating country.
These duties are intended to level the field between a product's domestic producers and the foreign producers who could offer them to importing countries at a cheaper price because of the subsidies received from the government.
According to the rules of the World Trade Organization, a nation can do an investigation to find any negative use of subsidies and decide to charge extra duty on products provided they are compliant with the General Agreement on Tariffs and Trade [GATT] Agreement on Subsidies & Countervailing Measures.
How do Countervailing Duties Work?
As countries can domestically rule whether their industries are in danger and whether other countries are subsidising products, the investigation and identification process has impacts beyond Countervailing Duty.
The Ministry of Commerce investigates whether any imports are subsidised and how much and recommends imposing additional duty if it finds any harm to the competing domestic market. The Directorate General of Trade Remedies then take measures to impose appropriate duties on products to offset any adverse effects.
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Recent Applications of Countervailing Duty [CVD]
The Department of Commerce in the United States has recently identified that 18 countries were benefitting from dumping and subsidies and has decided to levy additional tax on aluminium sheet exports to these nations, including India.
The country has recently imposed Countervailing Duties on several Chinese products to protect local manufacturers. These tariffs are a significant aspect of international trade and should be used strategically to protect the local producers and hence the economy of a country.
FAQs on Countervailing Duty [CVD]
Q1) What is World Trade Organization, that imposed the Countervailing Duty [CVD]?
This is an international body dealing with the rules of international trade. It has its headquarters in Geneva in Switzerland. One of its rules for facilitating trade includes the imposition of Countervailing Duty [CVD].
Q2) What is the rate of Countervailing Duty [CVD]?
The rate of Countervailing Duty [CVD] equals the rate of excise levied on the products if they had been manufactured in the importing country.
Q3) Who imposes the Countervailing Duty [CVD]?
Countervailing Duty [CVD] is imposed under World Trade Organization rules.
Q4) What is the anti-dumping duty in India?
The Finance Ministry of India imposes this duty as a measure to prevent the negative impact of unfair trade practices on the domestic market, also referred to as a Countervailing Duty [CVD]. It has levied anti-dumping duty on Chinese imports as they were exported at a price cheaper than their original price in the Indian markets.