What are countervailing duties?

Countervailing duties are duties imposed by nations that are intended to offset, or “countervail,” the price effect of significant foreign government subsidies on a product or good. For example, if Nation A provides large exploration and production subsidies to oil and gas firms, Nation B may impose a countervailing duty on oil and gas from Nation A to put its domestic oil and gas producers on an equal footing with its foreign competitors.

Who pays countervailing duty?

The importer of record pays all Customs duties, including countervailing duty, associated with the entry of a good into a country. Of course, the answer isn’t that simple, as these costs are almost always passed on in some way, shape, or form to the end consumer of a product in the form of a higher price. In a fuller sense, then, everyone in the supply chain pays a portion of a countervailing duty.

What is the function of a countervailing duty?

The function of a countervailing duty is to counteract the effect of an unfair or excessive subsidy provided by a foreign government to the producers or sellers of a good. Because the producers or sellers of a good are unable to sell their product at an artificially low price, their domestic competitors are able to compete fairly.

How is CVD duty calculated?

Typically, the nation who seeks to impose a countervailing duty must conduct an in-depth investigation of the industry and country where the products or goods are produced. Once the amount and impact of the offending subsidies are calculated, a countervailing duty that would increase the price of the good to where it would be without the subsidy is imposed. The procedures for this are set out in the WTO Agreement on Subsidies and Countervailing Measures.