Countervailing Duty (CVD) is an extra duty charged on imported goods when the exporting country's government provides subsidies to its producers. It is used to reduce the price advantage created by those subsidies and protect local producers from unfair competition.
In India, CVD can be imposed after an investigation finds that subsidized imports are causing injury to the domestic industry. The duty is generally based on the amount of subsidy found to benefit the imported product.
How It Works:
- A foreign government provides subsidies to its exporters.
- Imported goods enter the domestic market at lower prices.
- Authorities investigate the subsidy impact.
- A countervailing duty is imposed to neutralize the advantage.
- The duty raises the import price to a fair level.
Benefits:
- Protects domestic industries from unfair subsidies
- Promotes fair trade practices
- Prevents market distortion
- Supports local businesses and employment
Example:
A foreign government gives subsidies to its steel producers, helping them sell steel at lower prices in India. If this hurts Indian steel makers, the government can impose a countervailing duty to offset the subsidy advantage.