Introduction

Anti-dumping (AD) and countervailing duties (CV) are import duties applicable to specific goods. The government imposes these additional import duties on goods sold in any market like the US. Both these duties are applied to protect local traders against foreign traders trying to sell cheap goods.

Usually, the US department of commerce or the home ministry handles these laws and their establishment.

What are Anti-dumping and Countervailing Duties?

Dumping is a process where a company exports goods to a foreign market at a price lower than what they charge in the home country. Anti-Dumping duties are a type of tariff that the government imposes on such import items with a price tag significantly lower than the domestic market value.

Since dumping benefits the exporter but severely hampers the market where goods are imported, AD duties act as a counterbalance to keep the importing country’s domestic economy stable.

Countervailing duties are tariffs imposed by the government to offset the subsidies provided by the country exporting these goods.

The World Trade Organization only allows regimentation of countervailing duties after a country has investigated the subsidized exports. These duties nullify or remove the benefit enjoyed by the exporters.

Hence, the primary reason for implementing this duty is to create a balance in the local and international markets while ensuring fair trade.

What is the purpose of the Anti-Dumping and Countervailing Duty laws?

The main objective for implementing AD and CV duties is to protect local manufacturers from foreign producers. These laws provide a balance between both the markets, where nobody enjoys an unfair advantage.

Anti-Dumping Duty laws

Anti-Dumping duties exist to reduce stiff international competition for local companies. Implementing these duties provides a fair chance for domestic companies to gain a competitive advantage over international sellers.

The government imposes these duties on products that can undercut the local market. So, if the product cost is lower than the exporter's domestic market value and production price, the government will impose AD duties.

To begin imposing AD duty for any goods, there must be valid proof that the dumping of the product is harmful to the local industry. In the long run, AD duties will help save a lot of domestic jobs and the business of local markets. Additionally, it may sometimes also increase the prices of some locally manufactured products.

Countervailing Duty laws

Countervailing duties come into effect when a foreign government provides subsidies to any local industry. The subsidies can be in the form of tax exemptions or affordable loans that will help manufacturers export their goods at a lower price than domestic firms.

The International Trade Commission usually investigates to understand the value of the subsidy and then implements the CV duties to prevent any negative effects of subsidized goods of the foreign country on another country's local market.

As the country receiving the goods might not have similar subsidies, they might face extreme competition, job losses, and even factory closures. CV duties help in preventing all these complications and ensure that the international trade is fair.

How and why are AD and CV duties established

As mentioned earlier, both AD and CV duties were established to protect the local market and business owners from foreign competition and financial losses due to external products. These duties provide a fair playing ground to all local businesses, ensuring that they too gain profits.

The government imposes AD duties at the company level, where the actual amount of the duty fills the gap between the proper market value and the pricing set by the foreign manufacturer for a particular product.

On the other hand, the government implements CD duties at the country level, where the duties counter the foreign government's subsidy. It creates a fair-trading scenario where no international company can exploit local businesses.

Who conducts AD and CVD investigations?

The U.S. Department of Commerce and the U.S. International Trade Commission are responsible for conducting investigations for anti-dumping and countervailing duties.

Any company or manufacturer of the local industry in the USA can file a complaint against a foreign manufacturer selling goods below their market price. Additionally, they can also file a petition against any foreign government providing subsidies that negatively affect the local business owners.

These complaints must include the following information for a proper investigation:

  • Complete information about the imported goods foreign exporters and importers
  • General information about these business transactions
  • Details about the product prices and subsidies associated with them Injury information
  • Information about any critical circumstances hampering the local business

After reviewing the petition, the authorities will decide whether to move forward with the investigation or not. This is why business owners must provide all the information accurately.

When it comes to the investigations, both departments look into it, however, they have different roles to play. The Department of Commerce verifies the extent of the subsidizing or dumping and the associated amount.

On the other hand, the USITC checks whether the local industry is suffering any financial injury or is threatened by foreign importers and manufacturers.

When both the departments reach a consensus, the Department of Commerce will implement an AD or CV duty to assist the domestic market.

What kind of products qualify for AD or CV duties?

As per the International Trade Administration (USA), a huge variety of products come under AD and CV duties in the USA. These include:

  • Steel fittings
  • Carbon and steel alloy rods
  • Glass containers
  • Shaft engines
  • Milk products and wood moldings
  • Quartz products
  • Metal lockers

Other products include wooden furniture, plastic bag, tissue paper, household items, lawnmowers, concrete steel wire, and ceramic tiles.

How does the AD and CVD process work?

The government imposes anti-dumping duty on any imported product that has a price lower than the current market value. This duty will be the amount the foreign exporter has reduced. It's calculated using a simple formula:

AD Duty = Normal Value – Export Value

Here, the normal value is the product's price according to the local market while the export value is the price at which the foreign company exports the goods.

The government calculates CV duties considering the number of subsidies the foreign government provides for exporting the goods.

Difference between AD and CV duties

The primary difference between AD and CV duties is the reason for which each is imposed. A government implements anti-dumping duties to prevent low-priced foreign goods from damaging the local market. On the other hand, countervailing duties will apply to foreign products that have enjoyed government subsidies, which eventually leads to very low prices.

In both cases, the country receiving the goods faces financial problems due to unfair competition.

While the AD duty amount depends on the margin of dumping, the CVD amount will completely depend upon the subsidy value of the foreign goods after the government conducts a thorough investigation to finalize and determine both duties.