Trade Knowledge Exchange > Commentary > Unscrambling Trade Remedies in Brexit

Unscrambling Trade Remedies in Brexit

In its recently released White Paper on the future relationship between the EU and UK, the government has committed to developing an independent regime for trade remedies. It has also committed to examining the current EU regime for trade remedies, in order to identify which elements in that regime should be carried over by the UK.

The cursory treatment of trade remedies in the White Paper belies the complexity of the issue. The allocation of rights and obligations is likely to be complex. This allocation arises in the first place as regards the handling of measures currently in force, or under consideration, at the EU level. But it will be equally important for new trade remedy cases that arise after Brexit, and in particular during the proposed implementation period up to 31 December 2020. This is because of the possibility that will still exist for remedies implemented – or not implemented – by one side to have knock-on effects on the trade of the other.

Types of trade remedies

World Trade Organisation (WTO) rules, as implemented and amplified in EU law, allow member countries to have recourse to three different types of remedies that may be applied against imports from other WTO members in the event of abuses or severe disruptions in international trade. These are explained in detail in our separate article Trade Remedies: why do we need them and how do they work? and are as follows:

  • Anti-dumping duties;
  • Anti-subsidy (“countervailing”) duties;
  • Safeguard measures, to protect a domestic industry from injury caused by a sudden surge of imports of a product.

Impact of EU trade remedies

All measures taken by the EU in international trade are agreed by the Union as a whole under the common commercial policy, and apply in the same way in all member states. This includes trade remedies. Of course in any particular case some member states will be more affected than others depending upon the nature of the imported products concerned, which EU states make them, how and where they are traded, and the economic impacts respectively of the alleged abuses and of the remedies proposed. For example, an anti-dumping or anti-subsidy duty or a safeguard measure may be important to protect industries in member states which have substantial production of the items concerned, whereas states that have no production and must import those goods may be adversely affected by the increased prices. The use of trade remedies has to balance the respective interests of all the member states.

In 2017 the EU tightened the criteria for investigation of cases of alleged dumping originating in countries where state interference significantly distorts the economy. This change enables the EU investigating authorities to tackle the grey area between dumping and subsidy in countries, particularly China, where exporting firms are owned or otherwise influenced by governments. In such cases it may be difficult or impossible to establish clear and fair criteria to establish what a normal market price and/or costs of production actually are, in order to determine the margin of alleged dumping. The EU has therefore amended its rules so that where necessary it can use “undistorted benchmarks” based on data drawn from other sources to determine the normal value of a product that is subject to a complaint of dumping.

Safeguard actions are rarely taken because of the difficulty inter alia of determining what constitutes a surge of imports, and whether changed trade patterns may reflect not abusive practices but other factors such as changes in comparative advantage (e.g. in cost of inputs or labour), technology or consumer taste.

Trade remedies and Brexit

This is the position on trade remedies from which the UK and the EU27 start in the Brexit negotiations. The two sides must establish criteria not merely for the apportionment between them of trade remedies actually in force, but also for the handling and resolution of investigations in progress at the point of Brexit. This will be harder than it appears at first sight, because individual cases may be at any of a number of possible stages, for example:

  • Anti-dumping or anti-subsidy duties currently in force;
  • Safeguard duties or quantitative restrictions currently in force;
  • Measures in force but near termination and pending review as regards possible extension;
  • New complaints concerning alleged dumping or unfair subsidization which are in the process of investigation and may lead to imposition of remedies.

The working assumption is that during the implementation period after Brexit, assuming that this is agreed, the UK will continue to apply existing EU trade defence measures including any measures agreed after the formal exit date of 29 March 2019. In the long term the proximity of the UK and EU means that whatever definitive post-Brexit trading arrangement they manage to negotiate, future trade measures taken by one side are very likely to have knock-on effects in the other. Both sides need to establish regular channels of consultation and cooperation as regards complaints of unfair trading and proposals for trade remedies.

Scope of the immediate problem

In recent years the EU has considerably reduced its use of trade defence measures, and in this context the view that was widely held roughly from the 1970s to the 2000s that the Union was a protectionist “Fortress Europe” no longer applies. The total number of EU anti-dumping plus anti-subsidy measures in force dropped from 156 in 2004 to 123 in 2014. By December 2017 there were 99 provisional and definitive anti-dumping measures in force (subsequently extended in 29 cases) and 13 provisional and definitive countervailing measures (subsequently extended in 3 cases). There was 1 price undertaking in force from 1 country covering 1 product. At the end of December 2017, 46 investigations (including reopened cases and cases where provisional measures were imposed) were on-going.

In the context of a market of some 500 million people covering 28 countries, this total of just over 100 cases where remedies were in force, plus 46 ongoing investigations, does not look large. That does not however mean that the issue is insignificant in the context of Brexit, because each case must be individually resolved. That may not be easy and will take time. There is no single formula or rule of thumb that can be applied, because the economic and market circumstances will be unique to each case. In some instances the interests of the UK and EU27 in trade remedies will be similar, in others they will diverge. Where a measure is significant for the UK, as regards either producer or consumer interests or both, a national priority for immediate and future handling will have to be worked out. EU negotiators will be faced with a similar but potentially much more complex task case by case of balancing the different interests of stakeholders across 27 member states.

Issues to be settled

Depending on the eventual long-term trading relationship and customs procedures between the EU and the UK, technical negotiators for the UK will have to establish case by case:

  1. Whether the UK produces the item(s) subject to import measures, and if so to what extent. If it has no significant industry to protect, should the measure be dropped in the case of the UK, or should it be maintained so as to avoid diversion of trade flows through the UK which could undermine measures applied by the EU27? The same considerations apply in the reverse direction, i.e. where keeping a trade remedy in place might be more important for the UK than for all or some of the EU27.
  2. In the case of a remedy of interest to both the UK and the EU27, but to different degrees, whether there is a case following Brexit for continuing the measure at different levels for the UK and EU27. In cases where an exporting company or government has given a price undertaking to eliminate dumping or subsidy, should the guaranteed price(s) continue to apply at the same level in both the UK and EU27, or do market conditions justify differential price levels? What in such cases would be the risk of trade diversion?
  3. Where a remedy is reaching the point of expiry and there may be a case for extending it, whether in that instance renewal should apply to both the UK and EU27 sides, and if so whether this should be at the same level, or at differential levels, and for the same time period(s).
  4. In the (rare) cases where a safeguard action takes the form of an import quota, whether the quota should be distributed between the UK and the EU27, and if so how the distribution should be calculated.

Administration

The UK Government intends to rebuild its ability to conduct trade remedy investigations on the national level, and where appropriate to implement measures. It will of course have to do this in accordance with WTO rules and subject to the discipline of potential dispute action in the WTO. The Department for International Trade is recruiting staff for a new national Trade Remedies Office. These will need to be in place and fully trained by the end of the proposed implementation period on 31 December 2020, and in practice earlier than that, so that they can be ready to take over from Commission staff without hiatus. There could be a case for seconding UK staff to the Commission for limited periods to familiarise themselves with investigation and enforcement procedures and to facilitate transition. In the long term, arrangements for regular UK/EU consultation on future complaints of unfair trading against third countries will be needed so as to avoid damaging clashes of policy and administration.

Policy issues

Aside from the case-by-case negotiation on how to handle current measures, issues of principle arise concerning the overall UK attitude to use of trade remedies in the context of future UK/EU relations.

For example, what should be the fundamental UK attitude to remedies? In recent decades the UK has tended to be on the more liberal side of the argument, and has sometimes sought to resist the imposition of EU measures which it did not consider to be economically justified. In future, whatever arrangements are agreed for UK/EU trade, issues of alleged unfair trading will arise. Some cases inevitably will be of concern to the EU27 but perhaps not to the UK – or vice-versa. Should the UK, in the interests of maximum freedom of trade and competition, take a more relaxed attitude, confining trade remedies to cases perceived as most serious? But if it took that line, how might this be reconciled with more rigorous criteria enforced across the Channel by the EU27? What arrangements for bilateral consultation need to be put in place? What provisions would be needed to handle mutual accusations of circumvention and trade distortion? Should the agreement permit the UK and the EU to take anti-dumping, anti-subsidy and/or safeguard actions against each other? For example, such measures happen now between the EU and Turkey even though they have a customs union agreement between them.

Automatic data processing

ADP is used worldwide for the collection, submission and dissemination of trade data, and this applies equally to the consideration of trade remedies. Inevitably when the UK has withdrawn from the EU, ADP will continue to be used by both sides for customs and statistical purposes within the scope of a new bilateral trade arrangement; and that will require a specific agreement on ADP. Any special arrangements relating to the use of ADP for purposes of trade remedies and which depart from the general arrangements for ADP exchange will need to be defined in the context of that agreement.

The wider context

No single solution to the handling of EU trade remedies post-Brexit is currently available. What currently looks to be a manageable number of cases for negotiators may turn out to be much less manageable in practice because of the variety of individual cases. The interests of the parties in separating out their respective interests in trade remedy cases also link with related concerns over the apportionment of rights and obligations in cases such as EU tariff rate quotas for certain imported goods, and measures enforcing competition policy.


About the Author

Michael Johnson

Michael
Johnson

Michael Johnson was a senior official of the UK’s former Department of Trade and Industry, where he worked on international commodity policy, UK bilateral commercial relations with developed country markets, and the UK’s input to EU external trade policy. He is in demand as an independent consultant, and has advised governments of more than twenty developing or former Communist countries on trade policy formulation and on trade-related development projects.


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