Handbook on International Trade Policy
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Handbook on International Trade Policy

Edited by William A. Kerr and James D. Gaisford

The Handbook on International Trade Policy is an insightful and comprehensive reference tool focusing on trade policy issues in the era of globalization. Each specially commissioned chapter deals with important international trade issues, discusses the current literature on the subject, and explores major controversies. The Handbook also directs the interested reader to further sources of information.
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Chapter 33: Unfair Subsidies and Countervailing Duties

Katherine Baylis


Katherine Baylis Introduction The idea behind countervailing duties (CVDs) is inherently appealing. If a foreign competitor is being ‘unfairly’ subsidized, the importing country can mitigate against the effect of that subsidy by imposing a CVD. The rationale appeals to the concept of fairness, and if by being available, CVD law discourages bad (distorting) behaviour by exporters, it should improve global welfare. However, as is the case with many trade tools, there is the potential for abuse, and many argue that CVDs, like anti-dumping (AD), are often used as purely a means to insulate one’s domestic producers from the competition of international trade. How does a CVD work? If an industry (a firm, union or trade association) believes its products are competing against unfairly subsidized imports, it can file a petition for CVDs. Two key components need to be determined for CVD to be imposed: first, if there is an actionable subsidy, and second (at least for signatories of the GATT subsidies code), if the domestic industry has been injured by the subsidized imports. A preliminary determination is made both in terms of the existence of the subsidy and injury. Next, the appropriate governing body (for example, the International Trade Authority (ITA) of the Department of Commerce in the United States) makes a final determination of whether there is a subsidy. Then, the government (for example, the US International Trade Commission (ITC)) determines whether the subsidies, or, in the case of the United States, the subsidized exports, have injured the...

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