Description

Countervailing duties are charged on top of regular import duties. They can be levied on subsidised imports that could harm the domestic economy. They can help safeguard the existence of domestic agricultural production and boost income and food and nutrition security.

If a sector suffers under subsidised imports the WTO Agreement on Subsidies and Countervailing Measures enables importing countries to counter these subsidies from exporting countries by imposing countervailing duties. However, these duties can only be applied if the importing country has undertaken a comprehensive investigation first. The investigation must prove that the exports are subsidised, that they cause harm to the domestic sector and that there is a causal relationship between the subsidies and this harm. The WTO agreements regulate the procedure for the investigation and how long the countervailing duty may be applied (usually five years).

The scientific proof of the harmful effects on the sector presents a challenge to less developed countries in particular, since they often lack the data and scientific resources required. An alternative are safeguards, for which the burden of proof is less strict.

Since developing countries have less strict subsidy regulations, a countervailing duty cannot be applied to countries with a per capita GDP of less than USD 1,000.

There are other WTO-compliant alternatives for protecting sectors, such as import duties and safeguards. Countervailing duties are applied much less often than anti-dumping tariffs and are mainly used by the USA and the EU.

Requirements

• A properly functioning country-wide administration and monitoring system with access to the relevant information and sufficient technical and human capacities for its design, implementation and monitoring
• Compatible regional and world trade law (WTO conformity)
• Constant market surveying and forecasting
• Clear and coherent political strategy and targets for policy-makers and public authorities
• Close cooperation and knowledge sharing with research institutions
• Efficient customs administration
• Market price information systems

Possible Negative Effects

• Inefficient allocation of resources / market distortion
• Higher prices for consumers (loss of consumer surplus) and the processing industry (usually short-term)
• Prices of complementary products could rise