Countervailing Duties, Dumping, and Trade Agreements
Countervailing Duties
Countervailing duties (CVDs) are tariffs levied on imported goods to offset subsidies made to producers of these goods in the exporting country. CVDs are meant to level the playing field between domestic producers and foreign producers who can sell at a lower price due to government subsidies. Unchecked subsidized imports can severely affect domestic industries, leading to factory closures and job losses. The World Trade Organization (WTO) has procedures to determine when countervailing duties can be imposed.
Dumping Definition
In international trade, dumping is the export by a country or company of a product at a price that is lower in the foreign market than the price charged in the domestic market. Dumping often involves substantial export volumes, endangering the financial viability of manufacturers in the importing nation. It can also refer to offloading stock with little regard for its price.
Anti-Dumping Duty Definition
An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports believed to be priced below fair market value. In the United States, the Department of Commerce imposes anti-dumping duties, often exceeding 100%. They are used when a foreign company sells an item significantly below its production cost. The logic is to save domestic jobs, although critics argue this leads to higher prices for consumers and reduces competitiveness.
Marrakesh Agreement
Key points of the Marrakesh Agreement:
- The multilateral trading system (WTO) has significantly contributed to economic growth, development, and employment.
- International trade can promote economic development and alleviate poverty.
- Recognition of the vulnerability and difficulties of least-developed countries in the global economy.
- Commitment to the WTO as the forum for global trade rule-making and liberalization.
- Awareness that trade measures alone cannot address all challenges in a changing international environment.
- Reaffirmation of the objective of sustainable development.
- Reaffirmation of Members’ right to regulate services under the General Agreement on Trade in Services (GATS).
- Recognition of challenges posed by expanding WTO membership.
GATS Agreement
The General Agreement on Trade in Services (GATS) is a WTO treaty that entered into force in January 1995 following the Uruguay Round negotiations. It extends the multilateral trading system to the service sector, similar to how the General Agreement on Tariffs and Trade (GATT) covers merchandise trade. All WTO members are signatories to GATS, and the Most Favored Nation (MFN) principle applies, with possible temporary exemptions.
Trade Sanctions
A trade sanction is a trade penalty imposed by one or more nations on others. Sanctions can be unilateral (one country on another) or multilateral (multiple countries on multiple countries). Allies often impose multilateral sanctions on their foes.