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Introduction
Countervailing Duties are also known as anti-subsidy obligations. They are import tariffs levied by the World Trade Organization rules to mitigate the increased impacts of subsidization.
Countervailing Duty
CVDs are concrete actions aimed at mitigating the damaging effect that subsidies for the manufacturing of a product in one nation have on the same economy in another nation, at which manufacturing of that product is not encouraged and supported.
If unchecked, such supported importation might have a severe influence on the local industrial sector. This might result in the closure of industrial plants, resulting in enormous employment losses. Since export subsidies are deemed unethical business conduct, the World Trade Organization (WTO), which handles international trade regulations between nations, has detailed systems in place to determine the conditions within which an importing country might levy countervailing tariffs.
The World Trade Organization’s Agreement on Subsidies and Countervailing Steps, incorporated in the General Agreement on Tariffs and Trade (GATT) 1994, stipulates instances when an export subsidized component can be employed and how it should be levied. It also establishes that member nations can take action to counter the effects of such concessions.
Example Of Countervailing Duties
Evaluate the following countervailing duty scenario. Suppose Country X offers an export subsidy for dashboard manufacturers in the nation, who are into the process of exporting dashboards to Country Y at $10 per dashboard. Country Y has its own customization sector and domestic dashboards are offered at $15 per dashboard.
If Country Y gets to decide that its internal customization industry is actually affected by uncontrolled imported goods or subsidized customization options, it may enforce a 25 percent countervailing duty on customization options brought into the country from Country X. Hence the corresponding cost of the imported customization options is also $10. This removes the unfair pricing benefit that customization producers in Country X enjoy in accordance with the export subsidies from their national authorities.
In India, Who Implements Countervailing Measures?
In India, countervailing measures are administered by the Directorate General of Anti-dumping and Allied Duties (DGAD), which is composed of the department of commerce. While the ministry of commerce recommends the anti-dumping duty, temporary or permanent, it is the ministry of revenue in the department of finance that reacts upon the recommendation within three months and imposes such charges.
Foreign Governments Provide Subsidy To Their Producers
To advertise their brand better, sell their products at a cheaper rate and raise their appeal in other nations, government agencies occasionally grant subsidies to their manufacturers. To prevent the accumulation of the industry in the importation process with these commodities, the administration of the importation involved country seeks to impose a countervailing obligation. This means trying to levy a set amount on shipment of such commodities which are involved in the import process.
When an imported product receives subsidies or is excluded from internal taxes within the country where it is designed and built, the duty negates and eradicates the pricing power.
Conclusion
We discussed Countervailing Duty, Example Of Countervailing Duties, World Trade Organization’s Agreement on Subsidies and Countervailing & Who Implements Countervailing Measures, and other related topics through the study material notes on the Full Form Of CVD. We also discussed foreign governments providing subsidies to their producers for better clarity.
Countervailing duties are also referred to as CVDs. They are tariffs levied on imported commodities to counterbalance government subsidies provided by the country of export. CVDs assist to balance any adverse internal consequences that manufacturers of the same product may have as a consequence of global competitiveness, in this instance a subsidy to exporting the same commodity.
