Countervailing duty (CVD) and Antidumping duty (ADD) in the international trade play crucial roles in safeguarding domestic industries from unfair trade practices.

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Countervailing Duty (CVD)

Government of the importing country impose countervailing duty on imported goods to offset subsidies provided by foreign governments to their producers and exporters.

Key Points:

1. Nature of subsidies: Exporting countries providing financial assistance, such as grants, loans, or tax incentives to their industries, prompt the imposition of countervailing duty on imported goods.This subsidy enables them to sell goods at lower prices in international markets.
2. Impact on Domestic Industries: Importing countries aim to protect their domestic industries from the adverse effects of subsidized imports by imposing CVD.
3. Legal Framework: The imposition of CVD follows rigorous investigation and verification procedures by national authorities, ensuring compliance with international trade regulations outlined by the World Trade Organization (WTO).

Antidumping Duty (ADD)

Countries use antidumping duty as a trade remedy mechanism to counteract the practice of dumping.

Dumping means that foreign producers sell goods in an export market at prices below their domestic market or production costs, thereby posing a threat to local industries.

Key Points:

1. Definition: Antidumping duty targets imports sold at unfairly low prices, often to gain market share or eliminate competition in the importing country
2. Calculation and Imposition: calculation of antidumping duty based on the price difference between the export price and the normal value (domestic price or cost of production) of the product in the exporting country.
3. Protective Measure: Like CVD, ADD aims to protect domestic industries and ensure fair competition in the market, preventing economic distortions caused by predatory pricing practices.

Difference

Countervailing duty vs Anti-dumping Duty

Aspect	Countervailing Duty	Anti-Dumping Duty
Definition	Imposed on imports to offset subsidies in the exporting country.	Imposed on imports to counteract dumping, selling goods below fair market value.
Purpose	Address unfair trade practices related to subsidies.	Address unfair trade practices related to pricing.
Nature of violation	Subsidization of exported goods by the exporting country.	Selling goods below fair market value in the importing country.
Calculation	Calculated based on the amount of subsidy received by the exporter.	Calculated based on the difference between the export price and the fair market value.
Impact on imports	Increases the price of imported goods to a level comparable to domestic prices.	Raises the price of dumped goods to prevent injury to domestic industries.
Legal basis	Allowed under WTO agreements to counteract unfair trade practices.	Permissible under WTO rules to address dumping, preserving fair competition.
Application	Applied when evidence shows the exporting country is providing unfair subsidies.	Applied when evidence confirms dumping is harming domestic industries.
Administration	Typically initiated by domestic industries or government agencies.	Initiated by domestic industries or government authorities concerned about unfair competition.
Duration	Can be temporary or permanent, depending on the duration of the subsidy.	Can be temporary or permanent, depending on the resolution of the dumping issue.

Countervailing duty and antidumping duty are designed to safeguard domestic industries and promote fair competition.

Mains Practice Question: Discuss the significance of countervailing duty (CVD) and antidumping duty (ADD) in the context of international trade. How do these measures protect domestic industries and ensure fair competition? Illustrate with examples from recent global trade disputes.

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