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What Are Countervailing Duties?

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  • Written By: A. Leverkuhn
  • Edited By: Andrew Jones
  • Last Modified Date: 22 November 2016
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Countervailing duties are trade duties that countries can set under modern international financial agreements. These are called countervailing duties (CVDs) because they are used to counter the effects of subsidies. The idea is that a country can subsidize its exports, which can hurt producers in the country that the exports get exported to. In such cases, the World Trade Organization has stipulated that the importing country has access to the use of countervailing duties; the WTO was set up to regulate international trade on a global level.

As specific rules on global business, countervailing duties are in accordance with an agreement called the General Agreement on Tariffs and Trade. This law, which has been modified in various rounds of negotiations, is still a part of the WTO’s legal infrastructure. These kinds of laws, in theory, help to create fairness in global trade, and regulate the ways that international businesses act within a global community.

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One of the significant aspects of this agreement is that countries can make domestic decisions about whether certain industries are in danger within their borders, and adjust their duties accordingly. The WTO ruling on countervailing duties is related to certain other trade situations where WTO law applies. One of these is called “dumping,” where an anti-dumping law allows countries to set tariffs according to the pricing of imported products. In a dumping scenario, a country might exports certain products at a price lower then the price at which they are sold within that country. As this is generally considered an unfair trade advantage, countries that realize their domestic producers are being undersold have the ability to counter these prices, and prevent a foreign country flooding their markets with low priced products that hurt domestic markets.

WTO law is controversial within many countries and areas of the world. Some believe that the laws and principles of this organization will promote fair global trade, while others point to certain restrictions on individual countries as excessively binding. Countervailing duties are not generally a very controversial part of WTO law except for within a community of producers, where specific legislation on this issue can have dramatic effects on business. Many professionals in diverse industries do stay informed on changes in this kind of international law in order to plan new trade strategies that serve their interests.

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