Countervailing Duties (CVDs) are tariffs levied on imported goods when such products enjoy benefits like export subsidies in the country of their origin. This regulation, under WTO rules, is meant to neutralize the negative effects that subsidies on the production of a good in one country have on the same industry in the importing country. Simply put, CVD is a tax levied by a country on imports. For instance, let’s assume that India is importing a particular brand of mobile phone from China. This product enjoys export subsidies from the Chinese government, making its price lower than similar products made in India and available in the Indian market. This will be unfavouarble to the Indian product. To overcome this, the Government of India can impose a countervailing duty on Chinese imports.
According to the WTO rules, a country can determine CVD charges. However, a CVD investigation is ruled out if the subsidy is de minimis (too small to warrant concern) or if import volumes are negligible. The de minimis thresholds and import volume allowance are more relaxed for developing and least-developed countries.
The de minimis standard is usually a subsidy of 1% or less and valorem (proportion to the estimated value of goods) and 2% in special cases. India was eligible for the 2% de minimus standard until the USTR reclassification. (It is to be noted the WTO allows countries to declare themselves ‘developing’, ‘developed’ or least-developed countries. India has declared itself a developing country. The self-declaration, however, can be challenged by member states.
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