CVD (Countervailing Duty)

A countervailing duty (CVD) is a trade remedy applied at the border to cancel out the effect of a foreign subsidy that injures a domestic industry. Unlike an antidumping duty, which targets private firms selling below "normal value," a CVD targets government support — grants, preferential loans, tax breaks, input subsidies, or below-cost provision of land or energy.

The international framework sits in the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement), which entered into force in 1995 alongside the WTO itself, and in Article VI of the GATT. The SCM Agreement defines what counts as a "specific" subsidy, distinguishes prohibited from actionable subsidies, and lays out the procedural requirements for investigations, including evidence of (i) a subsidy, (ii) material injury or threat of injury to a domestic industry, and (iii) a causal link between the two.

Domestically, CVDs are typically administered by trade agencies. In the United States, the Department of Commerce determines the subsidy rate and the U.S. International Trade Commission (USITC) determines injury. The European Commission runs parallel investigations for the EU. India, Canada, Brazil, and many others maintain comparable regimes.

CVDs are politically sensitive because they often involve allegations against state-led economies. Long-running U.S.–Canada disputes over softwood lumber stocks (where the U.S. argues provincial stumpage fees amount to subsidies) and U.S. CVD orders on Chinese steel, solar panels, and aluminum are leading examples. The EU has imposed CVDs on Chinese electric vehicles following a 2023–2024 investigation.

Key practical features:

• CVDs are usually expressed as an ad valorem percentage equal to the calculated subsidy margin.
• Orders are subject to sunset review, typically every five years.
• Disputed measures can be challenged at the WTO Dispute Settlement Body or, where applicable, under regional FTA panels (e.g., USMCA Chapter 10).