A Guide to Countervailing Duties in India

Now, more than ever, the public needs to be aware of the potential for long-term adverse impacts on the country’s economy from the use of these duties.

They are the duties imposed by a government on a foreign product to offset subsidies that its manufacturers enjoy in the country where it is made. Countervailing duties in India or CVDs are like an income tax but levied on imports instead of income. These are put in place to shield the domestic industry from unfair competition from countries that enjoy subsidies from their own governments to help them become more competitive in the global market. The rationale for introducing CVDs is that it is unfair for nations to compete with each other based on artificially lowered prices obtained through subsidies. Since countries like China do not reveal their actual prices and costs, CVDs are used as a proxy for determining how much subsidy a foreign product has received. They also offer a way to level the playing field as many traders feel that they cannot compete with Chinese goods that have been subsidized by its government.

An example of countervailing duties in India

Let's say a company in India makes widgets. This company is able to produce widgets at half the price of a US-based widget maker. The Indian government might impose a countervailing duty on the US-made widgets, making them too expensive for consumers. The net effect is less competition, which leads to higher prices for consumers and less incentive for widget makers to innovate.

From the consumer perspective, countervailing duties in India are a nasty tax that prevents savings and hurts jobs, but they can also have a chilling effect on entrepreneurship. Entrepreneurs and small businesses often look to keep costs low by partnering with overseas production companies, but if those companies face countervailing duties there is less incentive for them to produce products in the first place.

Hence, countervailing duties in India can hurt people all over the world. They hurt consumers by driving up prices, they hurt entrepreneurs by making it harder to compete, and they hurt workers because fewer goods are being produced.

In the past, CVDs were imposed only to protect domestic industries from unfair competition, but today they are also imposed as a punishment for dumping or subsidized exports. Dumping means selling goods at prices lower than those charged in the country of manufacture or export that bring down the price of a product below its cost of production including its cost of subsidies.

Also Read:- How to Find the Best Anti-dumping Consultants for Your Firm

Trade remedies such as countervailing duties and anti-dumping measures are used by importing countries to safeguard their domestic industries against foreign imports where there is evidence that the latter is being "dumped" on the home market or benefitting from unfair subsidies.

Countervailing duties in India (CVD) are additional import duties imposed on items that are being imported at a lower rate or are being imported at a zero duty, in order to ensure that the products being exported from India to another country do not have an undue advantage.

The UNCTAD Balance of Payments Manual defines dumping as "selling goods in export markets at prices lower than the normal values in the country of origin or the constructed value in case of materials imported from another source." The Anti-Dumping duty Agreement, which came into force on 1 July 1967, provides for measures to be taken against those who dump goods in international markets at prices below their actual value or below a "normal value," which is determined by a comparison of the price at the time of exportation with price, calculated on factors such as cost, insurance, and freight and often modified by factors such as profit, sales promotion expenses and general average, allowed when sold at home (the "normal value").