Posted in Operations and Supply Chain Terms, Total Reads: 198
Definition: Countervailing Duties
Countervailing duties (CVDs) are the tariffs imposed on imported goods in order to offset the subsidies provided by the exporting country to promote these goods in the international markets.
The main objective of these duties is to provide a level playing field to the domestic producers to compete with foreign producers of the same product as they receive subsidies from their respective governments to sell it at a lower price in international markets.
If these duties are not imposed, it can severely affect the domestic industries and may even lead to their shutting down and creating unemployment.
Export subsidies granted by exporting countries are considered to be unfair trade practices by the WTO. This is why the WTO allows countervailing duties to be imposed.
Consider the following example. If a country A manufactures cricket bats at Rs. 800 per bat and exports them to country B. Country B meanwhile produces the same bats at Rs. 1000 per bat. Now, in order to level the playing field between both the countries, country B can impose a countervailing duty of 25% on bats imported from country A. This eliminates the price advantage that the producers in country A enjoy in foreign markets due to subsidies provided by the government.
World Trade Organisation permits the imposition of CVDs only after the importing country has performed an in-depth analysis into the subsidized exports form the foreign player.
The Government of India plans to reduce the import of electronic goods to zero by 202. For this purpose, it is offering reimbursement of countervailing duties up to 25% for setting up manufacturing facilities in India under the Make In India program.