What are Countervailing Duties (CVDs)?

Countervailing duties, another term for anti-subsidy tax and offset tariff, is a tariff that a Government issues (pursuant to World Trade Organization rules) to offset the benefit that exporters receive from subsidies paid by the foreign government. 

The purpose of a foreign subsidy is to give the exporter an advantage when exporting to the foreign market. The countervailing duties issued by the importing nation are used to neutralize the foreign exporter's benefits and raise the costs of the imported item. This puts domestic producers back on equal footing in terms of price competition when manufacturing similar products domestically.

How do Countervailing Duties (CVDs) Work?

Countervailing duties may be caused by both direct and indirect subsidies together with concessions given to imported goods in the production, manufacturing, and processing processes. Countervailing duties are used to protect manufacturing in the importing countries from foreign competitors by offsetting the effects of the incentives and subsidies granted to the imported goods. The incentives and subsidies include: direct payments made to foreign manufacturers to increase exports, tariff reduction, reduced financial services cost, US subsidies for taxes through International Trade Administration through the ministry of Commerce. The WTO members undertake anti-dumping duties in the below two ways: a retroactive tax and advance taxon imported goods.