Question

Q. With reference to the Countervailing duties, which of the following statements is/are correct?

Select the correct answer using the codes given below:

• A. 1 only
• B.
  2 only
• C. Both 1 and 2
• D. Neither 1 nor 2

Answer 1

The correct option is B

2 only
Explanation:

Statement 1 is incorrect: Countervailing duty is imposed by the government to protect domestic producers by countering the negative impact of import subsidies. Thus it is an import tax by the importing country on imported products.

Statement 2 is correct: To avoid flooding of the domestic market with imported goods the importing nation’s government imposes countervailing duty. It eliminates or reduces the price advantage enjoyed by an imported good (as the exporting country provides subsidy or exempts them from the domestic taxes). Thus, the countervailing duty raises the price of the imported product, bringing it closer to its true market price. By doing this, the government provides a level playing field for its domestic industries.