Countervailing Duty

The commerce ministry has recommended the imposition of countervailing duty on imports of a chemical used in making personal care products from Indonesia, Malaysia, and Thailand as it was impacting the domestic industry.

About the ‘Countervailing Duty’ –

• It is a specific form of duty that the government imposes to protect domestic producers by countering the negative impact of import subsidies.
• CVD is thus an import tax by the importing country on imported products.

Why is CVD imposed?

• Foreign governments sometimes provide subsidies to their producers to make their products cheaper and boost their demand in other countrie
• To avoid flooding the market in the importing country with these goods, the government of the importing country imposes CVD, charging a specific amount on the import of such goods.
• The duty nullifies and eliminates the price advantage enjoyed by an imported product.
• The duty raises the price of the imported product, bringing it closer to its true market price
• The World Trade Organisation (WTO) permits the imposition of CVD by its member countries.

Who administers CVD in India?

• The countervailing measures in India are administered by the Directorate General of Anti-dumping and Allied Duties (DGAD), in the Commerce and Industry ministry’s Department of Commerce.
• While the department of commerce recommends the CVD, the department of revenue in the finance ministry acts upon the recommendation within three months and imposes such duties.

What is Anti-dumping duty?

• It is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.
• Dumping is a process wherein a company exports a product at a price that is significantly lower than the price it normally charges in its home (or its domestic) market.

Countervailing duty v/s Anti-dumping duty –

• AD is imposed to prevent low-priced foreign goods from damaging the local market. On the other hand, CVD will apply to foreign products that have enjoyed government subsidies, which eventually leads to very low prices.
• While the AD duty amount depends on the margin of dumping, the CVD amount will completely depend upon the subsidy value of the foreign goods.