Meaning
Trade import tax imposed by a government to neutralize the impact of subsidies provided by an exporting country. Applying countervailing duties raises the landed cost of imported goods to a level that matches the price of domestic products produced without state assistance. This measure applies only to products that have been found to cause material injury to the domestic industry of the importing nation.
Subsidy Investigation
Government agencies conduct detailed reviews of the financial support received by foreign manufacturers from their home states. When officials calculate the rate for countervailing duties, they examine direct grants, low interest loans and tax breaks. The goal is to quantify the benefit received by the exporter and convert it into a percentage that can be added to the import price at the border.
This calculation involves complex accounting of state owned enterprises and the specific benefits they provide to the manufacturing sector.
Importer Cost
Negotiating distribution contracts and setting retail prices requires importers to account for these extra taxes. The presence of countervailing duties often forces a shift in the supply chain as buyers look for alternative sources that are not subject to the tax. Higher tariffs can lead to changes in the competitive landscape of a specific market sector.
International Protection
Laws permit these taxes to prevent unfair competition from distorting the local economy. Because countervailing duties are specific to the product and country of origin, they provide a targeted response to trade imbalances. These duties remain in place until a periodic review shows that the foreign subsidies have ceased.
