Countervailing Duties

Countervailing Duties: The Ultimate FAQ Guide

In today’s guide, I will answer all questions regarding yet another important freight term called countervailing duties.

So if you want to learn more about countervailing duties, read this guide.

What are Countervailing Duties?

Countervailing duties (CVD) is a form of import duty imposed by the government so as to protect its domestic manufacturers/producers.

By doing this, the government is able to counter the negative impacts brought about by the import subsidies.

This way they make their products cheaper and are able to export to other countries at competitive prices.

 Countervailing Duty

 Countervailing Duty

Who Imposes Countervailing Duty?

Countervailing duties are import taxes on imported goods set by the International Trade Administration’s (ITA) Commerce department.

The importing country is able to protect its locally produced goods from competitive prices.

They eliminate and nullify the low-price advantage enjoyed by imported products once it is exempted from tax in their manufacturing country.

ITA is responsible for the calculation of countervailing duty rates as well as establishing the scope of orders for the same.

It is also responsible for enforcement and compliance with the set orders.

Customs and border protection enforces decisions made by the ITA and collects the CVD that have been assessed on all imported goods.

When can Countervailing Duty be Imposed?

Countervailing duty will be imposed once importing country feels that price of locally produced commodities isn’t competitive enough with those being imported.

The government however cannot impose the countervailing duty based on price difference alone.

It must be able to prove that the imported goods are cheaper because they are being subsidized from their country of origin.

Once this is evident, the countervailing duty will then be imposed as per the guidelines set by the World Trade Organization.

What is Subsidization?

Subsidization is the act of subsidizing goods done by the government or any other organization.

When subsidization occurs, the prices of commodities are affected by a decrease in price.

There are many reasons why the government may choose to adopt subsidization.

Some of the subsidization measures are mostly taken in developing countries to cover commodities such as food, electricity, water and education.

Subsidization may also be done to protect local manufacturers from unfair competition from imported products that may be enjoying better manufacturing terms.

Once that is done, it means that the prices of locally produced goods will become cheaper compared to imports.

Are all Subsidies Countervailable?

Not all subsidies will be countervailable.

For a subsidy to be countervailable, it must be specific.

A countervailable subsidy must include the government’s financial contribution.

Government support must confer benefit that is very specific to a certain type of industry, enterprise or region in the country.

What is the Purpose of Countervailing Duty Laws in International Trade?

The purpose of Countervailing Duty is to offset the value of subsidization to avoid its misuse.

Countervailing Duty Laws have been put in place to ensure that unfair trade policies are not introduced.

They are created to also fix any disputes that may arise from the introduction of countervailing duties by different countries.

It also seeks to ensure that developing countries are given room for growth without strict policies.

Which Countries have Countervailing Duties?

Many countries across the world have countervailing duties. Importing countries are the ones that impose countervailing duties on the goods entering their market.

This measure may be seen more in developing countries which do not enjoy a lot of benefits in their products like developed countries.

They do this in a bid to try and boost their manufacturing sector and protect it from exploitation by incoming foreign goods.

 US vs. China Countervailing Duty

 US vs. China Countervailing Duty

Why do Countries Impose Countervailing Duties on Imports?

The purpose of countervailing duties on imports is to protect their domestic industry from getting a material injury.

This is the injury caused by the subsidization of imported commodities from their countries of origin.

For a country to be competitive in the international market, it should be able to offer good products and at affordable prices.

This may not however be achievable when other countries are having low costs of production compared to another country.

To compete, the government may subsidize production costs or other fees that may be pushing price above-average global market price.

Once this is done, the producers or manufacturers are able to export their goods at a cheaper price than other countries.

When these products are exported to other producing countries, they may slow down the sales of locally manufactured products in those countries.

This may cause adverse effects on the economy of the importing country.

This may include collapsing of industries due to lack of market as well as unemployment caused by layoffs due to low sales.

To prevent these adverse effects, the importing country will conduct research on the subsidization of the product.

It then adds the same subsidy on the product which will be known as a countervailing subsidy.

Without countervailing duties, some countries especially developing countries may not be able to grow.

This is due to cheaper imports that block the locally produced goods from selling.

To prevent these adverse effects, the importing country will conduct research on the subsidization of the product.

Then, add the same subsidy on the product which will be known as a countervailing subsidy.

Without countervailing duties, some countries especially developing countries may not be able to grow.

This is as a result of cheaper imports that block the locally produced goods from selling.

How do Countervailing Duties Work?

Countervailing duties normally work through an increase in price for a given commodity.

The commodity’s price is believed to have been lowered by the producing country through subsidies making it sell at a cheaper price.

The cheap price may mean lower sales for the locally produced goods.

Therefore, government can therefore carry out the subsidy investigation before filing a countervailing duty petition.

The countervailing duty petition can be filed by the affected companies as well provided there is proof of injury.

The countervailing duty, therefore, seeks to establish a level playing ground where products can compete fairly based on the price.

Without countervailing duties, local industries may collapse due to a lack of market for their products.

What is the Difference between Countervailing Duties and Antidumping Duties?

Antidumping duties are imposed when a government realizes that some foreign suppliers are selling their goods at unfair market price.

It is considered dumping when the product is sold at a lower price compared to that of the exporter’s home country.

Moreover, it could even be sold lower than its actual cost of productions.

To issue anti-dumping duty, there must be proof that the product has a harmful effect on another local company in importing country.

The duty cannot however be put at any figure.

The amount is calculated so as to offset the dumping margins and prevent the dumping from happening.

Countervailing duties on the other hand applies when the foreign government offers assistance to their local industries or provides subsidies.

This can be given in form of tax exemptions, loans at low rates as well as indirect payments.

This government aid enables manufacturers/suppliers to sell their goods at affordable prices in comparison to domestic industries of exporting country.

This kind of government assistance enables their manufacturers and suppliers to export and sell their goods at less and affordable prices.

This is compared to the domestic industries of the exporting country.

The International Trade Commission conducts investigations so as to assess amount of subsidy offered by their government before imposing countervailing duty.

Which Products are Currently Subject to Countervailing Duty?

Some of the most common items that are subjected to countervailing duties include but are not limited to:

  • Plastic Bags
  • Wooden Furniture
  • Steel
  • Household Supplies such as Tissue Paper.

 Countervailing Duty on Steel from China

Countervailing Duty on Steel from China

How do you Calculate Countervailing Duty?

Countervailing duty cannot be placed at any general figure.

There must be proof of an existing subsidy on the product from the producing country’s government.

From this subsidy, the countervailing duty will be calculated.

The duty must be the same as the subsidy that is being enjoyed by the product.

The countervailing duty should not come in to take advantage and create another unfair price competition from imported goods.

What are Countervailing Measures and Subsidies?

These are measures that are set by the World Trade Organization that seeks to discipline the application of subsidies.

The measures also seek to regulate the actions taken by countries to counter the effects arising from subsidies.

A country may use the dispute-settlement procedure under the WTO to seek withdrawal of a subsidy.

Moreover, it can seek removal of the adverse effects brought by the same.

The country may also launch its independent investigation and charge extra duty on the subsidized goods.

How are Countervailing Duty Orders Imposed?

The countervailing duty order is imposed by having the department of commerce inform the bureau in charge of Customs and Border Protection.

The bureau will assess the countervailing duties on the imports for the product in order to offset the detected unfair trade practice.

How can you Find the List of Products Covered by Countervailing Orders?

The Automated Commercial Environment has modernized trade processing on all trade capabilities including exports and imports as well as Partner Government Agencies.

Through ACE, you can find a comprehensive guide on every case of Countervailing Duties.

The International Trade Centre (ITC) also publishes a comprehensive list of countervailing duty case.

The list of products subjected to the countervailing Duties can also be found on the International Trade Administration’s (ITA) website. This list is comprehensive and list products based on their countries of origin.

What is the Difference Between Countervailing Duty and Import Duty?

Import duty is the tax that is imposed on imported goods and some exports by the authorities of a given country.

Conversely, countervailing duty is the tax imposed on imported goods to offset the subsidization benefits they enjoy from their countries of origin.

The amount of countervailing duty charged is dependent on the amount of subsidy offered to the product by the government.

The import duty on the other hand is based on the value of the imported good.

The import duty may sometimes be referred to as import tariff, tariff, customs duty or import tax depending on the context.

Are there Exemptions to Countervailing Duty?

There may be exemptions on the application of a countervailing duty that are aimed at safeguarding the exporting country.

Products exported from developing countries are safeguarded if has little or no effect on the developed country’s economy.

Also, developing country could be exempted from CVD when it supplies less than 3 percent of a given product.

The product should have less than 9 percent market share.

If the members of a developing country supply less than 3% of a given product with a collective share of less than 9% market share, they may be exempted from countervailing duties.

What are the Acceptable Payment Methods for Countervailing Duty?

The U.S Customs and Border Protection (CBP) will accept only payment methods that have been authorized by the Department of Treasury.

The payment methods include credit cards as used in payment of other fees, taxes, non-commercial entry duties as well as other charges.

Is there a Difference Between Countervailing Duty and Safeguard Tariff?

Safeguard tariffs is also known as safeguard duty or safeguard quota.

It is imposed if there is a sudden increase in imports posing a threat to the local industries.

Safeguard tariffs are normally set at a level similar to the average imports for the last 3 years.

This can be taken as a temporary measure put in place to shield domestic industries from foreign exporters.

Unlike countervailing duty which only focuses on products of one or several countries, safeguard tariffs are concerned with all the imports.

For European unions, for example, the countervailing tariff may include imports from third world countries.

What is Countervailing Duty Petition?

A countervailing duty petition is a request made for consideration of a countervailing duty.

One must provide a reasonable basis for authority to believe that indeed subsidization of the product in question is happening.

In order for a countervailing duty petition to be successful, you must provide a reasonable basis for the authority to suspect.

Or believe that indeed subsidization of the product in question is happening.

You must prove that the local industries are suffering or has suffered a material injury.

There must be a clear link between suffering and subsidization.

Who can Submit Countervailing Duty Petition during International Trade?

A countervailing duty petition can be filed by any local industry that has been affected.

Any company can file a countervailing duty petition irrespective of the number of players in the affected sector.

The statute will define specific criteria to be followed by various interested parties that may want to file a petition.

Those filing the countervailing duty petition must prove that they have the support of the industry as per the statutory criteria.

How do you file a Countervailing Duty Petition?

All petitions must be filed simultaneously at the International Trade and the Department of Commerce.

The draft petitions must also be sent to the Petition Counseling Office in Enforcement and Compliance’s Office of Policy.

Is Countervailing Duty and Additional Excise Duty the same?

Yes, this because the countervailing duty is an additional import duty imposed on imported goods by the importing country.

Is Countervailing Duties Tariff or Non-tariff Barrier?

Non-tariff barriers are trade used to restrict the import of goods through other means apart from the tariffs.

As such, countervailing duties are considered non-tariff barriers.

Other non-tariff barriers include quotas, embargoes, licenses and import deposits.

Non-tariff barriers are often used by developed countries to control trade between them and other countries.

Can you avoid paying Countervailing Duties?

Countervailing duties are unavoidable since they are charged at the port of entry by the Customs and Border Protection.

They are put as additional import duty which means that the product must be cleared before being granted entry.

It is also illegal to evade payment of duties and taxes and nobody would want to fall into trouble with the authorities.

Always ensure that the payments are made correctly as per the requirements.

As a leading freight forwarder in China, BanSar will help you ship from China at affordable rates.

Contact us today for any inquiries when importing from China.

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