This briefing reflects, with an introduction and some updating, my comments at the UK Trade Forum/Steptoe & Johnson seminar on 15 January 2018 on trade remedies in the United Kingdom after Brexit.
- Introduction
- Outline of the trade remedies regime set out in the Bills
- Constitution of the TRA
- Economic interest and public interest
- Appeals
- WTO and EU law
- Conclusion
Introduction
This briefing comments on the proposed provisions for a UK trade remedies regime set out in the Trade Bill and the Taxation (Cross-border Trade) Bill (“the Customs Bill”).
WTO rules permit member states to impose duties (“trade remedies” or “trade defence instruments/TDIs”) to deal with two sets of problems, namely products that are “dumped” onto the domestic market by foreign exporters, and products that benefit from subsidies from foreign states. The aim of such duties is to protect domestic industry from essentially unfair competition from dumped or subsidised products. For further explanation of these rules, see my earlier blog post here.
As part of the common commercial policy, the EU has exclusive competence in the area of trade remedies. The United Kingdom has therefore not operated a trade remedies regime since 1973.
On Brexit, the United Kingdom will at some stage fall outside the EU trade remedies regime. I say “at some stage”, because it appears that the United Kingdom will be seeking to negotiate remaining in a customs union with the EU as part of the “standstill” arrangements to operate for a period after Brexit. Indeed, clause 31 of the Customs Bill, which Ministers have accepted[1] has such a customs union with the EU very much in mind, provides sweeping powers (including modifying any aspect of the trade remedies provisions) to implement such an agreement in domestic law. In a customs union without border checks, it would be wholly infeasible for the United Kingdom to operate its own trade remedies policy, and it is likely therefore to remain bound by the EU trade remedies regime and not to operate its own regime unless and until that standstill arrangement comes to an end. Such arrangements are likely to be permissible under Article XXIV of GATT 1994.
It should be noted though that even on a “soft” Brexit that kept the United Kingdom in the single market via the EEA or equivalent arrangement, but not in a customs union, a separate UK trade remedies regime would be needed.
The Government’s proposals make it clear that the Government accepts that the United Kingdom should, outside the EU, operate its own trade remedies regime: that is a policy choice, since there is no requirement on WTO members to operate a trade remedies regime if they do not want to. Switzerland, for example, does not have any system for imposing countervailing measures and has never taken action in relation to dumping.
Schedule 4 of the Customs Bill resembles maps of Africa produced by early 19th century European explorers: while the outlines are clear, large areas are, in effect, marked as “unknown lands” or “here be dragons”.
Outline of the trade remedies regime set out in the Bills
The trade remedies regime provisions are split across the two Bills. In essence, the Trade Bill (which is much shorter, and which otherwise mainly deals with law-making powers that the Government thinks will be necessary to implement successor agreements more or less replicating for the United Kingdom free trade agreements between the EU and third countries) sets up the Trade Remedies Authority (“TRA”) as an independent body, with members appointed by the Secretary of State. Clause 13 of, and Schedule 4 to, the Customs Bill (which otherwise deals with a whole range of issues arising from the setting up of an independent customs and VAT regime outside the EU) then set out the framework in which the TRA will operate.
The regime set out in Schedule 4 resembles maps of Africa produced by early 19th century European explorers: while the outlines are clear, large areas are, in effect, marked as “unknown lands” or “here be dragons”.
As for the outlines, Schedule 4 makes it clear that the regime will apply the WTO rules that condition the application of trade remedies, but provide for detailed filling out by statutory instrument of exactly how WTO concepts such as “normal value” and “export price” are to be determined. It also makes it clear that the “lesser duty rule” is to be applied (see paragraph 18(4) of Schedule 4). That rule (which is not required by, but is recommended as desirable by, Article 9 of the WTO Anti-Dumping Agreement) essentially limits the amount of duty that may be imposed to the amount needed to remove injury to domestic industry even if the “dumping margin” (the difference between the export price and “normal value”) is greater.
The EU has traditionally applied the lesser duty rule (although, arguably, with less than complete consistency and rigour about how the amount needed to remove injury is calculated), while the United States has not. In the debate on second reading of the Customs Bill, a number of opposition MPs criticised the decision to require the “lesser duty rule” to be applied: but it may be noted that paragraph 18(5) provides that regulations can be made as to how the TRA is to set about determining the amount needed to remove injury to domestic industry, which would appear to give a Secretary of State who wished to lessen the practical impact of the lesser duty rule some latitude to do so.
As to the structure of the regime, the outlines are that the TRA will determine whether the legal conditions for the application of trade remedies are met and calculate the amount of duty that may be imposed. For example, in the case of dumping, whether there is a valid complaint made by a sufficient proportion of UK industry, whether there has been dumping, whether there is domestic injury, and what the maximum duty to be imposed should be on the basis of the lesser duty rule. The TRA will then, if it finds that a remedy can be imposed and unless it finds that the remedy is against the UK economic interest, make a recommendation to the Secretary of State who can then, but only then, impose a trade remedy, but need not do so if he considers that the remedy is against the UK economic interest or the public interest.
The regime therefore, in essence, places the “technical” questions as to whether the legal conditions for a remedy are met and what the maximum amount of duty should be in the hands of the independent TRA, while leaving, if the legal conditions are found to be met, the final decision on whether the remedy should in the public interest be imposed in the hands of the Secretary of State. That structure seems to me to be conceptually right:
- It minimises the risk that the (often judgment-laden) assessment of whether the legal conditions are met and calculations of values such as “normal value” and “injury” are influenced or seen to be influenced by political considerations or by a view as to the ultimate public interest. Allegations of political interference are a common feature of the otherwise very different EU and US regimes (for example, it is often said that the Commission is reluctant to rely on the “Union interest” as a reason for not applying a remedy, or for applying a lower duty, but prefers instead to adjust its calculation of injury to achieve a similar result);
- It means that the ultimate decision to impose what is, after all, a tax (and a tax that will usually have incidence on UK business and consumers, and not just on foreigners) is in the hands of a politician accountable to Parliament and not a regulator. That seems to me to be consistent with the English constitutional tradition that no tax should be levied without the approval of the House of Commons (or, at least, accountability to the House);
- It also means that judgments as to the public interest are made by accountable politicians and not by regulators with limited accountability to Parliament. Since those judgments, in trade remedies cases, will typically involve decisions as to whether, for example, consumers or importing businesses should be deprived of cheap imports in order to protect a particular UK industry, they will involve judgments as to who should lose and who should gain that are intrinsically political and best made by politicians who can, and will have to, defend those decisions in the political arena.
Constitution of the TRA
The TRA will be appointed by the Secretary of State. However, given the importance of its role (and particularly if it retains the ability to refuse remedies on broad economic interest grounds) it seems to me that there is a strong case for:
- Requiring the Secretary of State to appoint members of the TRA from a specified range of backgrounds and based on a specified range of experience and expertise;
- Requiring appointment of the TRA’s members (or at least its chair and CEO) to be subject to approval of the International Trade Select Committee.
Economic interest and public interest
I have concerns about the structure for applying the “economic interest” test set out in paragraph 25. This test is failed if the decision-maker considers that imposition of a remedy would not be in the UK economic interest, and the decision-maker’s attention is directed to the impact of remedies on different sectors and regions within the United Kingdom. The problem here is that the economic interest test has to be passed at both the TRA and the Secretary of State stage (see paragraphs 17(5) and 20(2)(a)). That seems to me to be problematic.
For reasons set out above, it does not seem to me to be right in principle for the TRA to be making judgments of that kind (deciding, in crude terms, whether it is right for a tax to be imposed on the basis that X’s gains from it outweigh Y’s losses from it) – those are political judgments to be made by politicians;
It therefore seems to me to be wrong that the TRA could refuse, on essentially political grounds, to make a recommendation to the Secretary of State in a case where the legal conditions for a remedy were met, thereby depriving the Secretary of State (if he takes a different view of economic interest, which he may well) of the power to impose a remedy.
This means that, in the almost inevitable challenge to the ultimate decision to impose a remedy, the tribunal considering the appeal may well have to look at two separate decisions (by the TRA and by the Secretary of State) as to the economic interest test. That is, to put it mildly, rather messy, and is likely to lead to complications: what happens if the TRA and the Secretary of State both reach the same conclusion, but by very different routes (all too likely in areas involving judgment and economic analysis)?
I suspect that the reason why the TRA has been invited to consider the economic interest test is that, given its work in assessing whether the legal conditions for a remedy are met, it may well be in a good position to take an informed view of the economic consequences of imposing the remedy. But it would seem to me much better for the TRA to be given the duty (or power) to make recommendations to the Secretary of State on economic interest rather than to take any decision on economic interest itself. That would allow the Secretary of State to make use of the work and thinking of the TRA on economic interest while leaving the decision on economic interest, and accountability for that decision, entirely to him.
The Secretary of State is also given broad power to refuse to implement a trade remedy if it is against the public interest (paragraph 20(2)(b)). The public interest clearly means something additional to “economic interest” but it is not clear what else is contemplated. National security has been referred to as one possibility: but one other obvious possibility is that the Secretary of State might decide not to proceed if to do so would harm the United Kingdom’s relationships with the third country exporter, or lead to retaliation (either in trade or more generally).
One safeguard here is that the Secretary of State must explain to the House of Commons what his reasons for rejection are (paragraph 20(3)(c)). But in my view, in order to avoid possible legal argument as to whether it is acceptable to bear (for example) threats made by exporting countries in mind[2], it would be wise to set out an indicative list of what factors the “public interest” includes, including “prejudice to relations between the United Kingdom and another State” as a specific example (see, for example, section 27(1) of the Freedom of Information Act 2000 as a drafting precedent).
Appeals
One of the most important uncharted “here be dragons” areas in the Schedule 4 map is appeals. Paragraph 30 simply gives the Secretary of State power to make provision for appeals. Nothing is said about which tribunal or court should hear the appeals, which decisions should be subject to appeal, and what the basis of such appeals should be: those decisions are left to the Secretary of State acting by statutory instrument. In my view, that is unsatisfactory: the balance between the judiciary and the executive in this important policy area should in my view be decided by the legislature and should be the subject of primary, not secondary, legislation.
Starting with the appropriate court, it seems to me that the best answer would be the Upper Tribunal (Tax and Chancery Chamber) (“UT”), for the following reasons:
- It consists of a senior judge, often a High Court judge, sitting where appropriate with lay members with appropriate expertise (the Competition Appeal Tribunal has a number of lay members with relevant skills in economics, business, and accounting, who could perhaps be made available).
- Use of a specialist tribunal rather than the Administrative Court allows the tribunal rapidly to build up expertise in a specialist area.
Challenges may also arise to specific decisions to impose duty on particular importers. Those challenges would usually be dealt with by the First-tier Tribunal and then on appeal by the UT (although there is existing provision in the existing tribunal rules to transfer the first instance decision in complex cases to the UT). It seems sensible for those challenges to end up in the same tribunal as that responsible for direct challenges to the general measure imposing duty, to ensure effective case-management and consistent decisions. There is a question as to whether importers charged with a trade remedy duty should be able to challenge the validity of the general measure imposing the duty as well as its application to their case, but the default position, absent any statutory restriction, is that they would be able to.
As to the kinds of decision that should be appealable, it first has to be remembered that any decision by the TRA or the Secretary of State will be challengeable by judicial review in the Administrative Court. If (as I recommend) the UT is granted jurisdiction to hear appeals in this area, the question is really whether all such decisions should go to the UT or whether some decisions should go to the UT and some to the Administrative Court. General experience in areas where only certain decisions have been made appealable is that much time and energy is spent on litigation as to what counts as an appealable decision: it is much more satisfactory simply to provide that all decisions taken under a particular legislative scheme are appealable to the same court.
Finally, there is the question of whether decisions should be appealable on judicial review grounds only (i.e. error of law, procedural unfairness, unreasonableness) or “on the merits”, which would enable the tribunal to make a different finding on the basis that it thought the decision maker’s finding to be incorrect (as opposed to unreasonable). In regulatory areas that resemble the areas in which the TRA will be operating in (i.e. areas that involve complex economic evidence and making judgments based on a range of indicators) the practical reality is that the differences between merits appeals and judicial review can be overstated, but that merits review is the most effective way of enabling errors in the decision-maker’s approach to be identified and corrected. One of the best analyses of why that is so is that of the Competition Appeal Tribunal in its comments[3] on a proposal by the then coalition Government to move from merits appeals to judicial review in regulatory and competition cases. Those comments make the following broad points.
- Merits appeals are no longer or more complex than judicial review. Judicial review can involve intensive scrutiny, and will usually involve considerable legal argument as to whether particular criticisms of the decision are or are not within the scope of the court’s jurisdiction. Moreover, on a judicial review the court cannot remake the decision, once it finds an error: it has to send the decision back to be taken again (while on a merits appeal, the court can simply substitute a corrected decision for the original one).
- Merits review does not involve a redetermination of the issues before the decision-maker: rather, it focuses on specific criticisms of the decision made by the appellant.
For those reasons, it seems to me that the decisions by the TRA as to whether the legal conditions for the imposition of a trade remedy are met should be appealable on the merits.
It is also worth observing that, where there is a challenge to a UK trade remedy in the WTO disputes system, it is likely to be of considerable assistance to the United Kingdom if it can rely on a judgment by a senior UK judge that the conditions for imposition of a trade remedy were met as a matter of both fact and law: such a judgment is likely to carry more weight than the decision of an administrative body.
However, procedural decisions (such as the use of powers of investigation or the provisions of information to the parties) should be subject only to judicial review challenge. More importantly, the public and economic interest tests are not suitable for judicial determination: the application of those tests by the Secretary of State should in my view be subject only to judicial review.
It is worth noting that appeals to the courts against trade remedy decisions are likely to be more searching and rigorous than is often the case with appeals to the General Court in the EU system. UK judges are typically much more ready to get into details of facts and analysis than is the General Court. That should encourage the TRA from the outset to be careful and evidence-driven in its approach: in particular, it may decide (as the Competition and Markets Authority now does) to ensure that all proposed decisions are subject to thorough review by senior officials not previously involved in the case. In particular, it will encourage transparency since, in UK appeals (unlike in the EU) there is a strong general duty on the respondent authority to be candid about the reasons for its decision and to disclose relevant information and documents.
WTO and EU law
One issue that may arise is the extent to which a UK court should look at case-law interpreting concepts ultimately drawn from WTO law in other WTO member states (including the EU) and in the WTO dispute resolution procedure itself. In my view, it would be helpful if the legislation could state on its face that the court may (or even should) take account of that case-law.
Conclusion
Setting up the TRA will pose considerable challenges. There is little experience in the UK of dealing with trade remedy investigations. It is not clear when it will actually start work (and that may well not be clear, given the current state of Brexit negotiations, for some time). There are complex transitional issues, such as how to deal with EU trade remedies in force at the time when the UK leaves the EU trade remedy system. But if, as now seems likely, the United Kingdom does leave the EU trade remedy system, there will be considerable and immediate calls on the TRA to take action in all sorts of sectors. A robust legal framework therefore needs to be in place well before it starts work. The framework in the two Bills is a start, but there is much work still to do.
Main photo: the scales of justice by ccPixs.com
[1] See the Financial Secretary’s answer to a question from Sir William Cash MP at the start of the debate.
[2] See the judgment of the Divisional Court in R(Corner House) v Director of the Serious Fraud Office [2008] EWHC 718 (Admin) for an example where the Court was unimpressed with a submission that threats made by a foreign government justified a decision not to bring proceedings. The circumstances in that case were very different, and the judgment itself was reversed on appeal to the House of Lords: but it shows the difficulties that can arise.
[3] See from §11 on.
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