Countervailing duty
Additional customs duty imposed to offset the effect of government subsidies granted by an exporting country to its producers or exporters.
Definition and legal framework
A countervailing duty (CVD) is an additional customs duty applied to imported goods that benefit from subsidies from the exporting country's government. The objective is to neutralise the unfair competitive advantage created by these subsidies. This mechanism is governed by the WTO SCM Agreement (Subsidies and Countervailing Measures) and, in the EU, by Regulation (EU) 2016/1037.
Types of subsidies targeted
Subsidies that may be subject to countervailing duties are those that are:
- Specific: granted to a particular enterprise, sector, or region
- Actionable: causing injury to the importing country's industry
They can take various forms: direct grants, preferential-rate loans, government guarantees, tax exemptions, provision of goods or services below market price.
Investigation procedure
The procedure mirrors that for anti-dumping duties:
- Complaint from EU industry
- Commission investigation (existence of subsidy, injury, causal link)
- Union interest test
- Provisional then definitive duties (max. 5 years, renewable)
Common pitfalls
- Countervailing and anti-dumping duties can be cumulated on the same product
- Distinguish between prohibited subsidies (export-linked) and actionable subsidies (causing injury)
- WTO rules limit the countervailing duty to the amount of the subsidy per unit of product
- The lesser duty rule in EU practice means the duty imposed may be less than the full subsidy margin if a lower amount suffices to remove injury