How to Calculate Countervailing Duty

A countervailing duty (CVD) is usually calculated by multiplying the applicable rate by the imported product’s entered customs value. To estimate the amount owed, confirm the product is covered by a CVD order, identify the correct producer or exporter, verify the published rate, and apply that rate to the proper customs value basis. Keep in mind that CVDs can also stack on other tariffs like those levied under Section 301 and Section 232.

What Is the Formula for Calculating Countervailing Duties?

The basic formula for calculating countervailing duty is:

Countervailing duty owed = entered customs value × applicable CVD rate

A simple example of this would be the CVD order on off-road tires from India. Currently, there is a CVD owed on various types of off-road tires identified by 39 different HTS codes. The CVD rate varies by producer/exporter and case-specific rate assignment.

CVD Rates on Off-Road Tires From India

Source: Federal Register

In this case, the CVD rate depends on which Indian exporter supplies the off-road tires. There are two companies with specific rates, and then a national average. 

Using the CVD rate and the value of the imported goods, an importer can estimate their CVD payment. As an example, let’s use the 4.94% charged for standard exports.

Sample CVD Calculation

Because CVD is usually calculated as a percentage of entered value, the duty amount increases as the product value increases. 

How Do Producer-Specific Rates Change the Duty Owed?

Subsidies affect the final duty amount because Commerce uses subsidy findings to assign the CVD rate that is later applied to the importer’s entered value. 

Within the field of international trade, a subsidy is a monetary benefit granted by a government to businesses or manufacturers. 

A subsidy can take on different forms. 

• Direct Subsidy: Money paid directly toward a specific company or group within an industry
• Indirect Subsidy: A government action intended to financially aid an industry in various ways

Direct subsidies are straightforward. Imagine a button factory that wants to lower production costs and redirect that money to exporting. To turn a profit in the U.S., importers need it to have a final export price, or landed price, equal to or less than existing button prices. 

Continuing the example, the government agrees to pay 10% of the production costs for buttons in-country. The company essentially receives a 10% discount, which opens up options in their profit margins.

To rebalance those scales, the CBP collects countervailing duties when applicable.

Which Value Does CBP Use to Calculate CVDs?

CVD is usually calculated on an ad valorem basis using the entered value of the merchandise as it appears on its associated entry summary. In most cases, CBP applies the published countervailing duty rate on an ad valorem basis to the merchandise’s entered value. 

In some cases, Commerce may establish a per-unit or other non-ad valorem rate methodology instead of an ad valorem rate. 

How Do You Find the Correct Countervailing Duty Rate?

Importers can use the International Trade Administration’s (ITA) AD/CVD search tool to determine whether a countervailing duty applies to their imported goods, and what that duty rate is. 

The tool can be searched using the following criteria:

• Country of origin
• Product description
• Case number
• HTS code
• Commodity number

For instance, an importer vetting suppliers in Tokyo can search ‘Japan’ in the tool’s search field to see active case numbers, commodities, and HTS codes affected by CVDs.

How Do You Calculate Countervailing Duty Step by Step?

Use this step-by-step checklist to calculate an accurate estimate of AD/CVDs that apply to imported goods.

Calculating Countervailing Duties

1. Confirm the product is within scope
2. Identify the applicable producer/exporter
3. Verify the published CVD rate
4. Apply the rate to the correct customs value
5. Estimate total landed cost including other duties and fees

The formula for calculating AD/CVDs isn’t the difficult part: determining whether imported goods are affected by an AD/CVD order, and finding out which entities that order applies to, is the real challenge.

Countervailing Duty Calculation Example

For a simple example, consider an importer who wants to bring 1,000 shelving units for physical retail locations. They locate a supplier in China who sells the units for $100.00 per unit, noticeably more affordable than similar competitors. 

The competitor wisely checks the ITA’s AD/CVD database and finds that the Chinese supplier is under an ongoing countervailing duty investigation, and their goods are subject to a CVD order of 100% ad valorem. This brings the cost up to $200.00 before any other duties are taken into account, and removes the supplier’s pricing advantage in the U.S. market.

This example shows how a high CVD rate can eliminate a supplier’s apparent price advantage once the duty is included in landed cost. 

How Can Importers Avoid Countervailing Duties?

The only legal way an importer can avoid all CVDs is not to import products that fall under countervailing duty orders. Outside of that scenario, there are some steps importers can take to avoid overpayment. 

• When importing a product under a CVD order, choose a supplier only after verifying the applicable producer/exporter-specific rate and whether the goods are within scope.
• When applicable, file a protest or post-summary correction if the CVD rate for an imported product is reduced retroactively.
• Have imports reviewed by a customs broker to make sure product descriptions and HTS codes are accurate.

Sometimes the DOC reaches a suspension agreement with the foreign government, exporter, or producer involved in the proceeding. This is when a DOC investigation finds dumping or unfair subsidies but manages to make a deal with the exporting entity.

When Should Importers Get Help Calculating Countervailing Duties?

Importers often need help when product scope is unclear, the producer-specific rate is uncertain, or multiple duties may apply at the same time. A customs broker or trade advisor can review the entry, confirm the applicable rate, and reduce the risk of underpayment, delays, or penalties. 

This is because CVD exposure is case-specific rather than broadly imposed across all imports in the way tariffs usually are.

Call us at (855) 912-0406 or schedule a consulting session online to find out more.

Sources

AD/CVD Search, International Trade Administration

Certain New Pneumatic Off-the-Road Tires From India: Final Results of Expedited First Sunset Review of the Countervailing Duty Order, Code of Federal Regulations

Title 19 Chapter III Part 351 Subpart B § 351.208, Code of Federal Regulations