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Generate QuizWhat is the primary economic rationale behind a country imposing a 'Countervailing Duty' (CVD) on specific imported goods?
- To punish a foreign country for violating human rights laws
- To offset the unfair price advantage gained by foreign imports that are heavily subsidized by their home government
- To protect domestic infant industries from all forms of foreign competition indefinitely
- To raise general revenue for the national exchequer during a fiscal crisis
Answer: To offset the unfair price advantage gained by foreign imports that are heavily subsidized by their home government
When a foreign government provides massive subsidies to its domestic producers, those producers can export goods at artificially low prices, undercutting and harming the importing country's local industries. Under WTO rules, the importing nation can investigate and impose a Countervailing Duty exactly equal to the estimated subsidy margin, thereby neutralizing the unfair advantage and restoring a level playing field.