Trade Defence Instruments: Issues for the UK Post-Brexit

A “Trade 101” post on this blog briefly explains the main features of trade defence instruments (“TDIs”).  In short, they are exceptional customs duties imposed on products that are found to have been “dumped” or subsidised by the exporting country government. This post considers what the UK Government White Paper on the UK’s future trade policy, published on 9 October 2017, has to say on the issues that will need to be decided as to how TDIs will operate in the United Kingdom after Brexit.

Impact on the transitional position

Since TDIs involve the imposition of duties, the United Kingdom will be in no position to take its own independent action on the imposition of TDIs while it is still in a customs union with the EU: any decision by the UK government not to follow an EU TDI would mean that there would be a gap in the common external tariff through which subsidised or dumped goods could pass into the EU, evading the TDI. Any transitional arrangement will therefore, necessarily, involve an automatic pass-through of EU TDIs to the United Kingdom. The United Kingdom will need a mechanism to ensure that UK courts follow the EU courts in interpreting the measure and, conversely, that they do not, if the measure is withdrawn or annulled by the EU courts.

The White Paper does not cover these issues, and instead simply says (at §5.1) that “The new UK trade remedies investigating function will need to be operational by the time we leave the EU. This will enable it to take on new investigations and reviews of existing cases.” Given the points made in the previous paragraph, is hard to square that passage with the Prime Minister’s recognition of the need for a transitional period.

Impact on domestic policy

The fact that other WTO members can impose countervailing measures (“CVMs”) is a serious constraint on the ability of any WTO member to subsidise industries which conduct any significant amount of international trade. Since the devolved administrations have considerable powers to grant subsidies (including, increasingly though devolved tax powers), the need to avoid breach of the United Kingdom’s obligations at WTO level will need to be factored into the post-Brexit devolution settlement. Again, although the White Paper frequently refers to the need to consult the devolved governments on trade matters, it is silent on this particular, important point.

Impact on the deal between the EU and UK

Outside the EU, the default position is that the EU and UK will be able to impose TDIs on each other. As just noted, that in itself would be a constraint on the ability of the United Kingdom (were it to wish to do so) to subsidise domestic producers: the result would be likely to be that those producers would face CVMs from the EU.

The United Kingdom might seek a mutual agreement with the EU not to impose TDIs: given that the United Kingdom is the smaller player and hence more likely to be adversely affected by EU TDIs than vice versa, that would seem to be in the United Kingdom’s interests, and would avoid problems in enforcing TDIs at the Irish border. It would also protect the United Kingdom against a protectionist turn by the EU (with an eye on Canada’s concerns about the use of TDIs by the current US Administration).

However, that is not a sustainable position unless the United Kingdom is prepared to agree to State aid control and to commit to an effective competition policy. That is because the whole rationale of TDIs is to deal with distortions caused by state subsidies and protected or monopolistic domestic markets: and if the EU is concerned that the United Kingdom could potentially go down that route, it will refuse to renounce the use of TDIs.

Note here that even the EEA Agreement – Article 26 of which contains a mutual renunciation of TDIs as between the EU and the three EEA/EFTA States – nonetheless allows TDIs in relation to fish and other products not covered by the State aid and competition provisions of the EEA Agreement: and, as a result, the EU has in the past imposed anti-dumping duty on, for example, Norwegian salmon exports (in that case after a complaint from the Scottish salmon industry).

The White Paper does not discuss these issues.

Creation of a domestic TDI regime

Outside the EU, the United Kingdom will need to impose its own TDIs: the mechanisms for doing that are briefly discussed in the White Paper. Issues that need to be sorted out include: –

  • Who should investigate and take decisions? The White Paper say that the Trade Bill will create “a new, independent, trade remedies investigating authority as a new arm’s length body that will investigate trade remedies cases and make recommendations on the basis of clear economic criteria.” This is interesting and ambivalent language, which probably reflects an underlying tension that has not yet been resolved. The tension is this.

 

  • On the one hand, TDIs involve the imposition of taxes (in the form of duties) and may involve a balancing of competing domestic interests (as well as wider considerations of international trade politics) the Government is likely to want to maintain political control over the imposition of TDIs.

 

  • On the other hand, the Government is also likely to want an element of independent evaluation so as to assure business, other countries, and the courts that the difficult judgments that have to be made on technical issues are not taken on political grounds, and that procedures are fair and transparent. Moreover, it may well suit Ministers faced with competing domestic political pressures to be able to say that decisions are a matter for an independent decision-maker.

The White Paper’s language shows that getting that balance right will be tricky. It is keen to highlight the proposal that there will be a new independent body. But it is critical to note that, slipped in at the end of the sentence, is the point that that independent body will merely “make recommendations”. That raises the questions – unanswered in the White Paper – of who is to receive those recommendations and the power of that person to reject those recommendations. One can guess that the decision-maker will in fact be the Trade Secretary: but what will be key is the basis on which he or she is able to reject the independent body’s recommendations, and the procedures that have to be followed before he or she does so. The White Paper says nothing about the former, and as to the latter merely promises transparency and fair procedures throughout.

  • What powers should the authorities have to investigate? What presumptions should they be able to apply if faced with non-cooperation by bodies outside the jurisdiction? Should there be any constraint on their powers to demand information from foreign state or state-owned actors, given legal principles of State immunity and wider diplomatic concerns?. There is no discussion of these issues in the White Paper.

 

  • Should the wider public interest be considered, or should the UK go down the US route where duty is automatically imposed if the legal conditions are made out? Should the dice be loaded, as in the EU, in favour of imposing duty where the legal conditions are made out? If the public interest is to feature, what factors should be relevant or excluded as irrelevant, and who should make the public interest assessment? Here, the White Paper has a bit more to say. It makes it clear that there will be an “economic interest” test, which will be applied before any remedies are imposed. That economic interest test will “take into account the interests of domestic producers and regional impacts, as well as those of other interested parties, such as user industries and consumers.” That means that, unlike in the United States, the UK authorities will have power to refuse to impose TDIs even if it is clear that dumping or subsidisation has occurred: the UK authorities will be able to refuse to impose those measures on the basis (for example) that the benefits of the dumping to end users in terms of lower prices outweigh the interests of domestic suppliers. The White Paper does not, however, explain whether the economic interest test will be applied by the independent body or by Ministers.

 

  • The role of the courts. The White Paper promises a right of appeal by “interested parties” to the courts (interestingly, against “decisions made by the investigating authority” rather than by Ministers: the “decisions” language here does not sit well with the earlier statement that the investigating body will merely “make recommendations”). But should there be a statutory appeal to a specialist tribunal (perhaps the Competition Appeal Tribunal, with its expertise in economics), or should the only remedy be judicial review in the Administrative Court? To what extent should the courts be entitled to look at the merits (factual issues and issues of economic judgment) rather than just the legality/rationality of a decision? Who is an “interested party” able to challenge the imposition of duty – purchasers, importers of the goods, consumer groups, or just the exporters? What remedies should the courts be entitled to grant if the duty is quashed (repayment of duty to the importer who actually pays it? compensation to the exporter or purchasers?). Should the courts have power to suspend the imposition of duty on an interim basis? Given that those who apply for TDIs to be imposed will be able to challenge a decision not to impose TDIs on usual judicial review grounds, should they be granted a right of appeal against such a decision, and if so who should have that right and on what grounds?

 

  • What should the relationship be between TDIs imposed by the EU on third countries and UK TDIs? In reality, in cases where the EU has imposed anti-dumping duties or CVMs on, for example, exports of Chinese steel, the United Kingdom might well just want to follow the EU (especially as, if it did not, that could raise issues at the Irish border). There are also evident advantages in extensive co-operation where the EU and UK interests are very similar. If co-operation with the EU is to be “built in” to the UK regime, to what extent should the UK authorities be able to rely on work done by the EU? What co-operation mechanisms, such as exchange of documents and information, are needed with the EU and will the EU agree to them? What should be done where the impact of the dumping or subsidy is plausibly different in the United Kingdom as compared to the EU? What should happen if the EU TDI decision is annulled by the EU courts, or the UK decision quashed or suspended by the UK courts? Should the UK courts be bound by the EU courts’ interpretation of the law, and if not how are any differences to be resolved? What weight, if any, should be attached to findings of fact by the EU authorities or the EU courts? The White Paper is silent on all of those issues: its only discussion of EU decisions is about reviewing which EU TDIs in force on Brexit should continue to be applied.

Conclusion

The United Kingdom will need to establish a robust mechanism for implementing TDIs post-Brexit. The challenges of setting up such a mechanism should not though be under-estimated, and though the White Paper makes some progress in this respect, it remains silent on a large number of key questions. Moreover, the future relationship between the United Kingdom and the EU in the field of TDIs – which has not received the attention it deserves and about which the White Paper maintains a complete silence – remains very obscure and raises a large number of difficult issues.

George Peretz QC

@GeorgePeretzQC

One comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s