Meaning
- A countervailing duty is a trade remedy tariff imposed by a country on imported goods.
- It is levied to offset subsidies provided by the exporting country to its producers.
- Objective: To ensure fair competition between domestic producers and foreign exporters.
Why is CVD Imposed
- When a foreign government provides:
- Direct financial grants
- Tax exemptions
- Preferential loans
- Export incentives
- These subsidies allow exporters to sell goods at artificially lower prices.
- CVD neutralises the unfair price advantage.
Legal Basis
- Governed under the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement).
- A country can impose CVD only after:
- Conducting a detailed investigation
- Establishing existence of a subsidy
- Proving injury to domestic industry
- Demonstrating causal link between subsidy and injury
Key Conditions for Imposition
- Subsidy must be specific to an enterprise, industry or group.
- There must be material injury to domestic industry.
- Transparent investigation must be conducted.
- Duty imposed should be limited to the extent of subsidy margin.
Difference Between CVD and Anti-Dumping Duty
Countervailing Duty
- Imposed to counter foreign government subsidies.
- Focuses on unfair state support.
- Imposed when goods are exported at a price lower than their normal value.
- Focuses on unfair pricing by firms.
Example
- If Country A provides heavy export subsidies to its steel producers,
- Steel is exported cheaply to Country B,
- Domestic steel producers in Country B suffer losses,
- Country B may impose a countervailing duty to restore competitive balance.
Procedure in India
- Investigations are conducted by the Directorate General of Trade Remedies (DGTR) under the Ministry of Commerce.
- Final decision to impose duty is taken by the Ministry of Finance.
- Duties are notified through customs authorities.
Importance
- Protects domestic industries from unfair trade practices.
- Ensures compliance with WTO rules.
- Maintains balance between trade liberalisation and industry protection.
Challenges
- Complex investigation process.
- Risk of retaliation by exporting countries.
- Possibility of misuse as a protectionist tool.
- Frequent disputes at WTO.
