Counter Vailing Duties (CVD) are often imposed on imports to offset the impact of
Export subsidies
Understanding Countervailing Duties (CVD)
Countervailing Duties (CVD) are specific duties imposed by an importing country on imported goods. These duties are levied to counteract the negative impact caused by subsidies provided by the government of the exporting country to its producers or exporters.
The primary goal of imposing Countervailing Duties (CVD) is to level the playing field for domestic industries that might be harmed by unfairly low prices of imported goods, which are made possible due to foreign government subsidies. When a foreign government subsidizes its exports, it effectively lowers the cost for its companies, allowing them to sell products in the importing country at prices below their true market value or production cost without the subsidy. This can make the imported goods artificially cheaper and more competitive than domestically produced goods, potentially causing injury to the domestic industry.
CVD and Export Subsidies
Let's look at the relationship between Countervailing Duties (CVD) and the options provided:
- Predatory pricing: This involves a company setting very low prices to drive competitors out of the market, intending to raise prices later. While harmful, it's a company's strategy, not typically directly offset by CVD, which targets government actions (subsidies).
- Export subsidies: These are financial contributions or support programs by a government that encourage the export of goods. Examples include direct payments to exporters, low-cost export financing, tax exemptions related to exports, or provision of goods/services to exporters at preferential rates. These subsidies directly lower the cost or increase the revenue for exporters, making their goods cheaper in foreign markets. Countervailing Duties (CVD) are specifically designed as a trade remedy to offset these unfair advantages created by export subsidies.
- Dumping: This occurs when goods are exported at a price lower than their normal value in the exporting country's domestic market, or below the cost of production. Dumping is typically addressed by Anti-Dumping Duties, not Countervailing Duties (CVD). While both dumping and subsidized exports can lead to unfairly priced imports, they are treated under different sets of trade rules (anti-dumping vs. anti-subsidy/CVD).
- Low cost financing: If this low-cost financing is provided by the government specifically to encourage exports, it would fall under the umbrella of an export subsidy. However, the term "Export subsidies" is a broader and more direct description of the practice that CVDs are intended to counteract.
Therefore, Countervailing Duties (CVD) are most directly imposed to offset the impact of export subsidies.
How Countervailing Duties Work
When a country believes that imports are subsidized and causing harm to its domestic industry, it can initiate a CVD investigation. If the investigation finds that subsidies exist and are causing material injury to the domestic industry, the importing country can impose Countervailing Duties (CVD). The amount of the CVD is typically calculated to offset the value of the subsidy received by the exporting producers.
Consider the following comparison:
| Trade Remedy | Targets | Purpose |
|---|---|---|
| Countervailing Duty (CVD) | Foreign government subsidies (especially export subsidies) | To offset the unfair cost advantage provided by government subsidies. |
| Anti-Dumping Duty | Dumping (selling goods below fair value/cost) | To offset the unfair price advantage resulting from dumping practices by companies. |
This comparison clearly shows that Countervailing Duties (CVD) are the tool used to counteract subsidies provided by foreign governments, particularly export subsidies.
Revision Table: Key Trade Remedies
| Term | Definition | Related Duty |
|---|---|---|
| Export Subsidy | Financial support by a government to its exporters, making exports cheaper. | Countervailing Duty (CVD) |
| Dumping | Exporting goods at a price below domestic market value or production cost. | Anti-Dumping Duty |
| Countervailing Duty (CVD) | A duty imposed on imported goods to offset foreign subsidies. | N/A (It is the duty itself) |
Additional Information on Subsidies and CVD
Under international trade rules, specifically the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (SCM Agreement), certain types of subsidies are prohibited (like those contingent on export performance), while others are actionable (meaning a country can take countermeasures like CVD if the subsidy causes adverse effects). Export subsidies are generally considered prohibited under WTO rules, but imposing CVD is the multilateral mechanism allowed for countries to address the harm caused by actionable subsidies.
The process of imposing Countervailing Duties (CVD) involves a detailed investigation to determine if a subsidy exists, calculate its amount, and assess whether it causes material injury to the domestic industry. Only after meeting these criteria can CVD be lawfully imposed according to international trade agreements.
Important Questions from International Taxation
The main objective of safeguard duty is
Arm's length price as per section 92F is the price applied or proposed to be applied when:
- Which of the following requirements have to be satisfied in order that an assessee is entitled to claim deduction under section 91 for doubly taxed income?
A. The assessee must have been non- resident in India in the relevant previous year.
B. The assessee must have been resident in India in the relevant previous year.
C. Income must have been accrued or arisen to him during that previous year in India.
D. Income must have been accrued or arisen to him during that previous year outside India.
E. In respect of that income which accrued or arouse outside India, he must have paid by deduction or otherwise tax under the law in force in the country in question.
Choose the correct answer from the options given below: - When tax system would be progressive?
Given below are two statements one is labelled as Assertion (A) and the other is labelled as Reason (R).
Assertion (A): Section 91 provides for grant of unilateral relief in the case of resident taxpayers on income which has been taxed in India as well as in the country with which there is no Double Taxation Avoidance Agreement.
Reason (R): The relief under section 91 is granted by allowing to the tax payer a deduction from tax liability of an amount equal to the tax calculated at the average Indian rate of tax or the amount of tax calculated at the rate of tax of that other country on the doubly taxed income, whichever is higher.
In the light of the above statements, choose the most appropriate answer from the options given below:
