Countervailing Duties - Explained
What are Countervailing Duties?
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
Table of ContentsWhat are Countervailing Duties (CVDs)?How do Countervailing Duties (CVDs) Work?Academic Research on Countervailing Duties
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.
Academic Research on Countervailing Duties
- Anti-dumping and countervailing duties under oligopoly, Dixit, A. (1988). European Economic Review, 32(1), 55-68. The paper uses the theoretical international oligopoly variation model in which there is a response between the home country best policy and subsidies and foreign institutions damping of foreign governments can be quantified. The best portion depends on the both size and cross effect demand in addition to the degree of market competition.
- Taking stock of antidumping, safeguards and countervailing duties, 19902009, Bown, C. P. (2011). The World Economy, 34(12), 1955-1998. The paper undertakes the examination of cross-country implementation of anti-dumping, safeguard and countervailing duty policies like momentary trade obstructions over 1990-2009 periods. The pieces of evidence received from the examinations support the sharing of temporary trade barriers by some of the developing countries exporters, extending anxieties of the upsurge use of discriminatory trade barriers a south-south phenomenon.
- International control of subsidies and countervailing duties, Finger, J. M., & Nogues, J. (1987). The World Bank Economic Review, 1(4), 707-725. The paper outlines the recommendation cases of administered protection in the 1980s that significantly started to impact the shaping of international trade movements. There is an examination of the domestic sectors relationships, unfair use of the subsidies and trade policies is found to be common in the examined countries given that most successful developing countries have adopted the fair policies between imported and domestic goods. There is a proposal for the rejection of subsidies which is more beneficial for the developing countries.
- Subsidies, Countervailing Duties and Antidumping After the Tokyo Round, Barcelo, J. J. (1980). Cornell Int'l LJ, 13, 257. The paper states the most significant issue of whether one can treat the unfair trade more harshly than fair trade in addition to whether harsh treatment of unfair trade improves the efficiency provisions of liberal system efficiency goals. The paper also makes an inquiry on the perception of fairness probable of supporting differentially harsh regime for unfair trade even though there is the existence of inconclusive and unsupportive efficacy opinions.
- Subsidies and Countervailing Duties-Analysis and a Proposal, Barcelo III, J. J. (1977). Law & Poly Int'l Bus., 9, 779. The paper states the recommendations for adopting new schemes for the application of government subsidies and countervailing duties in international trade. The author puts up with the possibility of the rules based on the principles of trade and economic efficiency. Analysis of strengths and weaknesses of free trade theory and the GATT policy regarding subsidies and countervailing duties was done.
- Why can't countervailing duties deter export subsidization?, Qiu, L. D. (1995). Journal of International Economics, 39(3-4), 249-272. The shows that in a market competition involving duopoly, there is general deterrence to a foreign country from subsidizing its export to the domestic country in cases of warned application of countervailing duties by the latter. Late retaliation, Constraint in the quantity of countervailing duties by GATT and discretional export restrictions have to be put under considerations in explanation of the coexistence of export subsidization and countervailing duties. These factors failed to deter export subsidization.
- Countervailing Duties and Export Subsidization: A Re-emerging Issue in International Trade, Butler, E. B. (1968). Va. J. Int'l L., 9, 82. The paper states the re-examination of the association of countervailing duties, foreign export subsidies and import tariffs subjected to uncertainty in the imperfect competition. The findings were; there is dependence of optimal countervailing duty on the current import tariffs, best import tariff is at the peak when the optimal countervailing duty is zero, and there is more probability of imposing Countervailing duty on foreign companies whose government do not take action corresponding to the reduction of subsidies undertaken by other foreign countries.
- Production subsidy and countervailing duties in vertically related markets: the hog-pork case between Canada and the United States, Moschini, G., & Meilke, K. D. (1992). American Journal of Agricultural Economics, 74(4), 951-961. This paper carries out an analysis of US countervailing duties in counteracting the Canadian hog production subsidy effects. It concluded that for the restoration of balance in both US hog and pork markets, there is the necessity of introduction of Countervailing duties to both. The duty is suggested to be less than subsidy per unit and lesser duty on pork than on hog.
- Countervailing duties, Marvel, H. P., & Ray, E. J. (1995). The Economic Journal, 105(433), 1576-1593. The paper surveys the impact of antidumping and countervailing in the development of the economy and the corresponding consequences to the international trade.
- Countervailing Duties in a Not Quite Perfect World: An Economic Analysis, Andoh, E. K. (1991). Stan. L. Rev., 44, 1515. The paper examines the distribution, duration and final impacts of antidumping and countervailing investigations. It concludes that there is a significant reduction in trade volumes and market share caused by anti-dumping and countervailing measures imposed in developing countries.
- Capital subsidies and countervailing duties in oligopolistic industries, Spencer, B. J. (1988). Under GATT countries are at their discretion of applying countervailing duties to counterbalance foreign subsidies even though it poses the limitation in the countervailing rules to be applied. The paper carries examination of a universal model of imperfect completion with capital subsidies and outlines circumstances under which countervailing duties will outweigh exports subsidy impacts besides, putting consideration on the profit shifting motives for subsidy existence even with the anticipation of maximum subsidy.