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Home / IAS Preparation / Anti Dumping And Countervailing Duty

Anti Dumping Duty (ADD) & Countervailing Duty (CVD) Tax | UPSC Notes

Last Updated on Oct 01, 2024
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Anti Dumping Duty and Countervailing Duty is a type of duty imposed by the government to support domestic manufacturers by offsetting the negative impact of import subsidies. In economics, dumping is a sort of predatory pricing that is commonly discussed in the international trade area. An Anti Dumping Duty is a reactionary duty imposed by a domestic government on foreign goods that it considers to be underpriced. 

This concept is covered in GS Mains-III and is important for the UPSC IAS exam from the standpoint of Indian Economics. For UPSC aspirants, this article will offer important details about anti-dumping and countervailing duties.

Read more about Economy UPSC Notes to ace your preparation!

Syllabus

General Studies - III

Topics for Prelims

Tax, Duties, Dividend, Indirect Tax

Topics for Mains

Indian Economy, WTO Affairs, Trade and Commerce, Indian Economic Development

About Anti Dumping Duty and Countervailing Duty

When a country sells goods to another country at a lower price than it charges in its own domestic market, it is considered to be dumping. This is a deceptive trade technique that has the potential to distort global trade.

Anti dumping duty is a customs duty on imports that safeguards against the dumping of commodities at prices far below their normal value, whereas countervailing duty is a customs levy on things that have received government subsidies in the originating or exporting country. In other words, Anti-Dumping Duties are introduced to protect the industry from the plausible damage caused by the dumping of low-priced goods on the market.

Read more about GATT (General Agreement Of Tariffs And Trade) here.

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What is Anti Dumping Duty?

An Anti Dumping Duty is a protectionist levy imposed by a domestic government on foreign goods that it considers to be underpriced. Many countries apply tariffs on products they believe are being dumped in their domestic market in order to defend their economies. Anti-dumping is, in fact, a tool for guaranteeing fair trade, not a measure of protection for the domestic industry per se.

Read more about the United Nations Conference on Trade and Development here.

What is Countervailing Duty?

A Countervailing Duty (CVD) is a type of duty imposed by the government to safeguard domestic manufacturers from the detrimental effects of import subsidies. Countervailing Duty applies to goods that have reaped benefits from government subsidies in their country of origin. This results in substantially lower than normal prices.

What is the Countervailing Duty (CVD) Rate?

The rate of Countervailing duty is equal to the rate of excise levied on goods if those goods had been manufactured within the importing country.

Read more about the Trade Facilitation Agreement here.

Purpose of the Anti-Dumping and Countervailing Duty Laws

Anti-dumping duty (ADD) and countervailing duty (CVD) laws are designed to protect domestic industries from unfair competition from imported goods.

ADD and CVD laws allow countries to impose duties on imported goods that are dumped or subsidized. This is intended to level the playing field for domestic industries and prevent them from being harmed by unfair competition.

Difference between Countervailing Duty and Anti Dumping Duty

Antidumping and countervailing duties are designed to compensate for the value of dumping and/or subsidization. This thereby levels the playing field for domestic industries that have been harmed by unfairly traded imports.

  • Contrary to popular belief, anti-dumping duty is not the same as a countervailing duty. The latter is in place to mitigate the harmful effects of import subsidies and to protect native producers.
  • Countervailing duty is a customs duty on things that have received government subsidies in the originating or exporting country.
  • Anti Dumping Duty is a customs levy on imports that protects against the dumping of goods at much lower prices than their typical worth.

Read more about Economic Planning in India here!

Retrospective Anti-Dumping and Countervailing Measures

Anti-dumping and countervailing duties may be implemented retroactively in the following situations.

  • Before the inquiry is finished, significant quantities of the goods under investigation for dumping are occasionally imported. 
  • This is done to prevent having to pay any potential anti-dumping or countervailing duties. 
  • In these circumstances, the products can be subject to a registration requirement. With the use of these methods, anti-dumping and countervailing duties can be applied retroactively (up to nine months after imports).

Read the article on the Directorate General of Foreign Trade (DGFTR) here.

WTO’s Provisions Related to Anti-Dumping Duty

WTO’s Provisions Related to Anti-Dumping Duty are as follows:

  • Unless terminated before, anti-dumping duties are applicable for five years from the date of implementation.
  • By undertaking a sunset or expiry review study, it can be extended for another five years.
  • A sunset review/expiry review determines whether a programme or agency is still needed. It allows for a thorough assessment of the program’s or agency’s effectiveness and efficiency.
  • A review like this could be initiated on its own or in response to a well-founded request from or on behalf of the domestic industry.
  • World Trade Organization (WTO) agreement allows nations to take action against dumping if it causes or threatens material injury to a domestic industry.

Read more about WTO Agreements with this link!

Conclusion

The World Trade Organization (WTO) allows member governments to impose countervailing duties. When imported products are given a tax break in their nation of origin, the countervailing duty is applied as an extra duty on top of customs in India.

Key Takeaway for UPSC Aspirants

  • Direct Tax: Direct tax is a type of tax that is directly levied on an individual's or organization's income, wealth, or property.
  • Income Tax: It is a type of direct tax.
  • Corporate Tax: It is a type of direct tax.
  • World Trade Organization: This is the successor of GATT and it regulates and facilitates trade between two nations.
  • Globalization: This is the process of increased integration of different nations through the free and fair movement of goods, services, capital and people across borders. 

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Anti Dumping and Countervailing Duty UPSC FAQs

CVD is imposed to protect domestic industries from unfair competition.

In most countries, the government imposes Countervailing Duty through customs authorities based on investigations by trade regulatory bodies.

Countervailing Duty is imposed to counteract foreign government subsidies that make imported goods cheaper than domestic goods while Anti-Dumping Duty is imposed to prevent foreign exporters from selling goods at below market value or dumping them in the domestic market at unfairly low prices. Both duties aim to protect domestic industries but address different types of unfair trade practices.

In India, Countervailing Duty is imposed under the Customs Tariff Act, 1975.

Yes, it is an indirect tax.
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