Countervailing duties
are taxes places on imports that are subsidized in their country of origin. These taxes are imposed because a subsidized product can be sold for less than market value; if an imported good is being sold below market value then local goods and other imported goods cannot compete. A countervailing duty is a special tax that raises the price of these goods to market value.
Subsidy
Countries subsidize products when they want to encourage production of that product, create jobs, stimulate the economy or any of a wide variety of other reasons. In essence, though, the mindset behind subsidies is that making something more accessible will create more of it. A good example of a subsidy is the American ethanol tax credit, which pays corn growers to use their corn for ethanol instead of food.
Duties
If an industry can produce its goods at a lower-than market value price then they can food other countries' economies with their low-priced goods. This means that, in spite of free trade becoming more and more common, duties are necessary to bring the price back to what it should be and protect jobs.
While this appears to be flying in the face of free trade--particularly in a North American context--the fact is that goods whose production was subsidized by the government are not really being traded freely. The government subsidy on one end of production needs to be compensated for with a tax on the other end to make trade actually free.
Examples
Countervailing duties are generally imposed by the International Trade Commission (ITC). In the past, they have been placed on steel from Canada imported into the USA and tubing imported from Argentina. As of September 2010 investigations are in place on the import of semiconductors from Taiwan, oil from Saudi Arabia and many other import agreements.
Tags: market value, Countervailing duties
