COUNTERVAILING DUTIES. The underlying idea of a countervailing duty is one which is imposed for the purpose of setting off or compensating some other duty. The form in which it was first used was that of a duty imposed on goods imported into the country, where similar goods produced in the country had to pay an excise or other inland revenue duty, the idea being to put the producers of the home-made goods on exactly the same footing as the importers of the foreign goods. The idea was so carefully applied that the amount of the import duty was not necessarily exactly the same as the amount of the inland duty. Thus while spirits made in Britain were charged Io/6d. per proof gal., the duty on similar spirits imported was Io/IOd., the extra 4d. being supposed to compensate the home producer for the loss and inconvenience caused to him by having to carry on his trade under the regulations of an excise duty, which interfered with the free conduct of the trade and resulted in additional expense. Under the commercial treaty with France in 186o this additional duty was fixed at 2d. ; it was later raised to Sd., and then re duced to 4d. (see 28th report, Commissioners of Inland Revenue), and after the War again raised to 2s.iod. Similar duties were imposed on imported articles containing spirits; but in the case of methylated spirits, which paid no duty but were manufactured under regulations, only the countervailing duty of 4d. was levied.
In all cases the idea was that the countervailing duty must be no more than just what was required to place the home producer on an exactly equal footing with the importer of the foreign goods.
The name of countervailing duty has also been applied where articles made in a country without duty were also imported from other countries where they were subject to some fiscal assistance; e.g., in the form of a bounty. Thus when the Continental beet sugar system was found to result in a bounty to the producers, enabling them to send these bounty-fed sugars into Britain at less than cost, it was argued that such imported sugar should be subject to a countervailing duty in Britain in order to equalize their cost with that of the home-produced article. The World War stopped the British import of beet sugar, and since then the situation has been complicated by the imposition of war duties on sugar, and later by the adoption of a subsidy system on beet sugar grown in England, the subsidy amounting between 1931 and 1938 to £21,164,399.
From the close of the War, however, until the coming into force on March I, 1932 of the Import Duties Act, 1932, as modified by the Ottawa Agreement, the entire absence in the British system of protective duties gave place to a policy under which they were regarded as a defensive measure justified by the abnormal condi tions of post-war times. In this sense, the term "countervailing duties" sometimes included duties on imports intended as a set off against the fact that the foreign producer was in some way more favourably placed than the home manufacturer; e.g. by the position of the foreign exchanges or the existence of a lower level of wages, or some other item in the cost of production.
Countervailing duties have also been levied to check the tendency of strongly organized industries to sell goods in foreign markets at rates below the price in the home market ; as when in 1904 Canada levied a countervailing duty on steel rails imported from the United States.