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Countervailing Duties Definition

Countervailing Duties (CVDs) Definition

Countervailing Duties (CVDs another term for anti-subsidy tax and offset tariff, is the additional charge on imported goods for export goods to the extent of export subsidies or subsidies in the differential tariffs” form. The tax amount collected for a product is equivalent to the amount of subsidy allowed.

A Little More on What is Countervailing Duties (CVDs)

Contravening duties implemented in the late 19th Century in the UK by subjecting this tax to European sugar that received export subsidies. Subsequently, other countries followed the pattern. Counterviewing duties were proposed to counter the subsidy that importers enjoy and to reduce the competitiveness of imported goods thereby reducing the dumping effects leading to the protection of both domestic market and production. 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 the special tariffs of imported goods that correspond to the favorable treatment of the foreign suppliers receiving subsidies from their government. 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. Over the years, countervailing duties have faced difficulties in progress for the negotiations of International Trade and this has affected the pattern of International counterpart trade due to difficulty in measurement of government subsidies I peer-t0-peer trade.

Regulation of Countervailing Duties (CVDs)

First, WTO members undertake anti-dumping duties in the below two ways;

Retroactive tax approach which states that when the final determination of dumping margin is 28% of imports, the business pays 28% for deposit clearance while the actual amount is paid after the review by the Ministry of Commerce one year down the line. To reduce the time for the final determination of actual tax, Anti-dumping agreements to be made to be made in the suggested anti-dumping duties the final approximate of the amount within, the longest 18 months of decision making. When the retroactive tax exceeds the dumping margin final decisions, the excess will be given back within 90 days starting from the anti-dumping duty final decision’s date.

In addition to retroactive tax approach, advance taxation approach implemented by EU provides that when there is EU final decision in imposing 28% anti-dumping duty on a company’s products. The actual imposing is undertaken after one year from the decision’s date no matter the fluctuations in the export price. This extra imposed tax amount exceeding the imported product actual dumping margin of the imported product is determined after 12 months’ period following the provision of strong evidence and making a refund request by the party. The request shall be approved within 18 months’ period after which payments should be within 90 days. Anti-dumping duty should not be higher than anti-dumping margin and if this results, refund problems emerge. There is the provision of a clear requirement on the refund period necessary in protecting the legal interests of the importers by the Anti-Dumping Agreement.

Secondly, according to GATT’s Article 6(3), countervailing duties understandings should be as a special tariff executed to counter any incentives or subsidies imposed on the manufacture, production or exports of goods. From a general view, Countervailing is not retaliatory, and the objectives of its collection are compensating the subsidy. Besides, GATT Article 6 and 16 states that when a contacting state imports products of another contracting state, there is either direct or indirect allowance received by the importing state, and it undertakes the creation of establishment industry in the introducing country. An importer has a choice of executing countervailing duties on the damage threat or actual damage in addition to significantly impeding the industrial establishment in the importing country.

The below three conditions for executing countervailing duties are also similar to those for anti-dumping duty;

  1. The element of a subsidy.
  1.      The impact of damage to the relevant industries in the importing country or the establishment of an associated industry in the importing country
  2.      There must be a causative connection between the subsidy and the damage.

Besides, Collection of countervailing duties is provided by WTO’s Agreement on Subsidies and Countervailing Measures. When reasonable efforts are made regarding completion of consultations, the final ruling on the availability and quantity of subsidies and the effects of subsidies is made by members. If there is loss caused by subsidized imported products, countervailing duties may be applied based on the provision of this case unless there is revocation of such subsidy.  Subsidy and loss are believed from any product that has been subjected to Countervailing duties.

All imported products are subjected to similar, non-discriminatory countervailing duties in regards to the nature of every condition, and to abandon any subsidies or the imported products from countries that have been accepted under this Agreements terms. Excluding any exporter who’s last countervailing duties is imposed without actual investigation other than repudiation to collaborate. For the investigative body to quickly ascertain different countervailing duties, It is appropriate to undertake accelerated reexamination, The countervailing duties on any imported products should be less than the number of calculated subsidies done in units of subsidized exports.

References for Countervailing Duties

Academic Research for 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, 1990–2009, 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.

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