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Countervailing Duty (CVD)

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The finance ministry is considering a proposal to impose a countervailing duty on steel imports from China.

About Countervailing duty (CVD):

  • 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.
  • The World Trade Organization (WTO) permits the imposition of CVD by its member countries.
  • Why is CVD imposed?
    • Foreign governments sometimes provide subsidies to their producers to make their products cheaper and boost their demand in other countries.
    • 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
  • 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 (AD)?

  • 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