Production Subsidy and Countervailing Duties in Vertically Related Markets: The Hog-Pork Case Between Canada and the United States

This paper analyzes U.S. countervailing import duties aimed at offsetting the effects of a Canadian hog production subsidy. Approximate countervailing duty formulae for two alternative objectives are derived, the permissible range of these duties is illustrated, and empirical evidence is provided. To restore equilibrium at the presubsidy level in the U.S. hog market, a countervailing duty on hog imports suffices; this duty should be less than the unit hog production subsidy. To restore equilibrium in both the U.S. hog and pork markets, countervailing duties on both hog and pork imports are required. Such duties should be less than the unit subsidy, and the duty on pork should be less than the duty on hogs.