1An Overview of Trade Defence
What is Trade Defence?
4.Trade defence policies are one of the recognised exceptions to the MFN principle under WTO rules and the obligations undertaken by WTO Members in their Schedule of Commitments under the General Agreement on Tariffs and Trade. Where an importing country believes it is necessary to protect their domestic industries from disruptive trade flows—whether ‘fair’ or ‘unfair’—from third countries it can use trade defence policies to restrict imports.1 These policies manifest in the form of ‘trade defence measures’ (TDMs) or ‘trade remedies’. TDMs usually constitute additional tariffs—whether fixed, variable or ad-valorem—on particular product imports from third countries.2 There are three primary forms of TDMs:
- anti-dumping measures—on imports of goods exported at prices lower than prices of the same good in the importer’s domestic market or less than full cost of production plus a reasonable profit;
- anti-subsidy measures and countervailing duties—on imports of goods benefiting from certain types of government subsidy; and
- safeguards measures—to counter the effects of an unforeseen surge of ‘fairly’ traded imports.3
5.We were told that the first two measures “deal with … unfair trade. It is supposed to be unfair to subsidise your industry or to dump products in other people’s markets.” By contrast, “the safeguards instrument … deals with fair trade.”4 Safeguards have been described as the ‘nuclear option’ as they apply to all imports.5 Unlike anti-dumping and anti-subsidy measures, their objective is to give an industry temporary breathing space to make the necessary adjustments to respond to new imports—safeguards always come with an obligation to restructure.6
6.Of the three types of TDMs, Edwin Vermulst, Partner, VVGB, told us that “the anti-dumping instrument is used the most often by far … [t]here are also subsidy cases, more regularly, especially against China and India, but it is less used and the safeguards regulation is hardly ever used”.7 At the end of 2015, the EU had 87 anti-dumping measures (which were extended in 30 cases) and 11 anti-subsidy measures in force.8 By contrast, the EU opened no safeguard investigations and imposed no safeguard measures in 2015.9
7.TDMs have been described as an important component of trade liberalisation.10 Mr Vermulst told us that, as such measures are “allowed under the WTO rules … the correct use of these instruments is not protectionist.”11 However, the imposition of TDMs can be controversial. It has been argued that TDMs can depress trade flows and have ‘chilling’ effects on trade beyond their direct impact, such as discouraging imports because of the announcement of a trade defence investigation. Commentators also note that such measures often involve the imposition of significant tariffs, and can create friction between the disputing WTO Member States as investigations could be seen to imply that an exporter has acted unfairly.12 China, for example, described EU anti-dumping duties imposed in October 2016 as “‘unfair and unreasonable’ and ‘seriously damag[ing to] the interests of Chinese enterprises.’”13
UK’s Existing Trade Defence Framework
8.The UK’s trade defence framework is currently governed by WTO and EU law. Edwin Vermulst told us, “[a]t the international level we have agreements in the WTO … the anti-dumping agreement, the agreement on subsidies and countervailing measures and the safeguards agreement”.14 WTO Member States are required to give effect to these agreements in their domestic law. The EU has done so through: (i) Regulation 2016/1036 (dumping);15 (ii) Regulation 2016/1037 (subsidisation);16 and (iii) Regulations 260/2009 and 625/2009 (safeguards).17
9.In order to impose a TDM, a concerned country must first conduct an investigation into the existence of dumping or subsidisation and the occurrence of injury. Investigations can be commenced either on receipt of a complaint from producers of the product concerned or on the initiative of the investigating authority. For the UK, the relevant investigating authority is currently the European Commission. Bernard O’Connor, Partner, Nctm, told us that the EU’s “trade defence investigations [system] is primarily an administrative system.”18 This means that the Commission, in effect, undertakes all aspects of the investigation and imposition process. According to its website, the Commission:
- examines evidence provided by complainants and decides whether to launch investigations or review existing measures;
- conducts investigations; and
- decides on all the actions—for example, whether to impose or not provisional and definitive trade defence measures, whether to accept or reject undertakings, whether to grant refunds and whether to terminate, amend or extend the measures.19
However, before the Commission imposes a measure it must consult the Trade Defence Instruments Committee (TDI Committee). The TDI Committee is composed of representatives of all EU-28 Member States and is chaired by a representative of the Commission. Mr Vermulst told us that the TDI Committee “have to be consulted and … basically give their stamp of approval. If a qualified majority is against, then the measure cannot be adopted, but that is fairly rare.”20
10.The EU is a “very substantial user” of TDMs.21 Between 1995 and 2010, the EU was the third largest user of such measures, although these only affected a small proportion of goods (in 2015 only 0.25% of total imports into the EU were affected by dumping or subsidisation measures).22 However, the frequency with which the EU has initiated trade defence cases has declined over time. In the period 2009–2013, an average of 51 cases was initiated per year compared to an average of 67 cases for the previous 13 years.23
UK’s Future Trade Defence Framework
11.Once the UK leaves the EU it will cease to be bound by EU regulations governing trade defence. The Commission will also cease conducting trade defence investigations on behalf of UK producers. In response, the Government confirmed in the Queen’s Speech that it would introduce a Trade Bill to create the “necessary legislative framework to allow the UK to operate its own independent trade policy” after Brexit, which included establishing a UK trade remedies system.24 Subsequently, the Department said in the Trade White Paper that it would introduce “legislation (including a trade bill and a customs bill) that… [c]reates a UK trade remedies framework”.25 As part of this commitment, the Government said it would establish “a new, independent, trade remedies investigating authority as a new arm’s length body”.26
12.The Trade Bill was presented to Parliament on 7 November 2017. The Bill did not establish an overarching trade remedies framework but instead provided for the creation of a new non-departmental public body, the TRA. The Minister of State for Trade Policy told us that the Government was creating the TRA “to ensure that the UK can continue to provide a safety net to domestic industries after the UK has left the EU”.27 Under the Trade Bill, the TRA’s primary function is providing the Secretary of State with advice, support and assistance at his or her request in connection with: (i) the conduct of an international trade dispute;28 (ii) functions of the Secretary of State relating to trade; and (iii) functions of the TRA. The Bill also empowers the TRA to “otherwise provide such advice, support and assistance as it considers appropriate” in relation to international trade and trade remedies.29
13.The subsequent Customs Bill, presented to Parliament on 20 November 2017, provides further clarity regarding the UK’s future trade remedies framework. According to the Explanatory Notes, the Bill impacts directly on the UK’s future international trade policy as it outlines the “basis of a new UK trade remedies framework that can be used to impose additional Customs duty in certain circumstances”.30 The most relevant aspect of the Customs Bill is that it empowers the TRA to conduct trade defence investigations and recommend the imposition of TDMs to the Secretary of State. Greg Hands told us that the “TRA will have full autonomy to conduct trade remedies investigations based on the framework set out in the [Customs Bill].”31
14.Witnesses expressed two concerns to us in evidence about the Government’s approach to establishing the UK’s trade remedies regime. First, we were told that it “seems odd” that the “raison d’être of the TRA”—conducting trade defence investigations—was not clearly stated in clause 5 of the Trade Bill, but instead included in the Customs Bill.32 Second, we heard a variety of views about the content of the Bills. Daniel Moulis, Principal Partner, Moulis Legal, was most positive, telling us that “generally speaking … the legislation is a good start with things to fill in.”33 Conversely, other witnesses described the Bills as “scaffolding”,34 “very rudimentary”,35 and said that “a lot of very important concepts are missing from the primary legislation”.36 Gareth Stace, Director, UK Steel, likewise told us that “there is very little detail” in the Bill, and that UK Steel was concerned any “secondary legislation or guidance will be just the same with lack of detail”.37 George Peretz QC, Monckton Chambers, further told us:
You also have to fill in the very large gaps in schedule 4, which at the moment is a bit like one of those pictures that requires to be coloured in in order to see how the thing will work. It is quite sketchy. I described it in a piece I wrote as like a map of Africa drawn by west European explorers at the beginning of the 19th century. You can see the edges and the outline but there are vast spaces in the middle with spaces marked, ‘Here be dragons’.38
We further heard that the UK’s approach differed from other countries as most countries “copy and paste from the WTO agreement” when establishing their trade defence frameworks.39 Accordingly, the Manufacturing Trade Remedies Alliance (MTRA) said that “as much of the UK’s framework should be in primary legislation as possible”40 and Dr Laura Cohen, Chief Executive, British Ceramics Confederation, added that, “[a]s a minimum, … the UK should have pasted the WTO Anti-Dumping Agreement provisions on calculation into the primary legislation”.41
15.The Minister told us that the Government had “carefully considered the right balance between primary and secondary legislation” in preparing the Bills. He further said that the rules required to enable the TRA to operate “will be at a level of detail that would not be sensible to include in primary legislation”. As such, while the Trade Bill will not require secondary legislation to establish the TRA, it is anticipated that the Government will introduce secondary legislation “set[ting] out the detailed rules under which the TRA will operate”.42
16.Establishing a trade defence regime is critical to protect UK domestic industries from injury from adverse trading practices. The Trade and Customs Bills are important, necessary steps in this respect, and we welcome the Government’s attention to this subject.
17.The Bills do not yet have sufficient detail pertaining to the UK’s future trade defence framework. The Government should write to us outlining how it consulted with affected and interested industries before publishing the Trade and Customs Bills. The Government should ensure that Parliament has adequate opportunity to scrutinise trade defence regulations. The Government should set out why it believes that the negative procedure is preferable for scrutiny of trade defence regulations.
1 Institute for Government, “Trade Defence”, 2018
2 For example, the European Commission recently resolved to continue anti-dumping on Chinese imports of seamless pipes and tubes of stainless steel for another five years. The duties imposed ranged from 48.3% to 71.9%. See European Commission, “Commission extends anti-dumping measures on Chinese steel products”, 6 March 2018.
3 Department for Business, Skills and Innovation, Anti-dumping measures and international trade: selected economic issues, 11 May 2012, p 4
4 Oral evidence taken before the International Trade Committee on 29 November 2017, HC (2017–19) 603i, Q 2 [Edwin Vermulst]
5 UK Steel, UK Implementation of Post-Brexit WTO-Compliant Trade Defence Remedies: a Steel Sector View report, April 2017, p 4
6 European Commission, Safeguards, 18 March 2013
7 Oral evidence taken before the International Trade Committee on 29 November 2017, HC (2017–19) 603i, Q 5 [Edwin Vermulst]
8 The main countries affected by EU anti-dumping measures were China (53), Indonesia (seven) Malaysia and Russia (six each), India and Taiwan (five each), Korea and Thailand (four each), Ukraine and Korea (three each) and USA and Philippines, Sri Lanka and USA (two each). The main countries affected by EU anti-subsidy measures were China (five), India (four), and Canada, Turkey and USA (one each).
9 European Commission, 34rd Annual Report from the Commission to the European Parliament and the Council on the EU’s Anti-Dumping, Anti-Subsidy and Safeguard activities (2015), October 2016, pp 6, 15
10 UK Steel, UK Implementation of Post-Brexit WTO-Compliant Trade Defence Remedies: a Steel Sector View report, April 2017, p 2
11 Oral evidence taken before the International Trade Committee on 29 November 2017, HC (2017–19) 603i, Q 4 [Edwin Vermulst]
12 Department for Business, Skills and Innovation, Anti-dumping measures and international trade: selected economic issues, 11 May 2012, pp 5–8
13 “China Protests The European Union’s Unfair Duties And Tariffs On Steel”, Forbes, 9 October 2016
14 Oral evidence taken before the International Trade Committee on 29 November 2017, HC (2017–19) 603i, Q 2 [Edwin Vermulst]
17 Council Regulation (EC) No 260/2009 of 26 February 2009 on the common rules for imports; Council Regulation (EC) No 625/2009 of 7 July 2009 on the common rules for imports from certain third countries. There are also some specific bilateral safeguards regulations, notably in the EU-Korea FTA for sensitive areas in which Korea practices ‘duty drawback’ (refunding the duties paid on component parts of goods that are later exported). These safeguards were agreed as a means to diffuse opposition to the EU-Korea FTA from the car industry, but are not expected to be widely used.
18 Q 43
19 European Commission, Introduction to trade defence policy
20 Oral evidence taken before the International Trade Committee on 29 November 2017, HC (2017–19) 603i, Q 6 [Edwin Vermulst]
21 Oral evidence taken before the International Trade Committee on 29 November 2017, HC (2017–19) 603i, Q 3 [Edwin Vermulst]
22 Department for Business, Skills and Innovation, Anti-dumping measures and international trade: selected economic issues, 11 May 2012, p 5
23 European Commission, Actions against imports into the EU, 20 October 2016
24 HC Deb, 19 September 2017, col 10289; PMO, Queen’s Speech 2017: background briefing notes, 21 July 2017, p 20; Department for International Trade, Preparing for our future UK trade policy, Cm 9470, October 2017, p 11.
25 Department for International Trade, Preparing for our future UK trade policy, Cm 9470, October 2017, p 11
26 Department for International Trade, Preparing for our future UK trade policy, Cm 9470, October 2017, p 35
27 Q 1 [Greg Hands]
28 Clause 6(2) of the Trade Bill clarifies that: “[a]dvice, support and assistance requested [in relation to an international trade dispute] may include, among other things— (a) analysis of trade remedy measures imposed in countries or territories other than the United Kingdom, and (b) analysis of the impact of such measures on producers and exporters in the United Kingdom.”
29 Trade Bill, clause 6(4) [Bill 122 (2017–19)]
30 Explanatory Notes to the Taxation (Cross-border Trade) Bill, para 16 [Bill 128 (2017–19)]
31 Q 1 [Greg Hands]
33 Q 84
34 Oral evidence taken before the International Trade Committee on 29 November 2017, HC (2017–19) 603i, Q 36 [Bernardine Adkins]
35 Oral evidence taken before the International Trade Committee on 29 November 2017, HC (2017–19) 603i, Q 34 [Edwin Vermulst]
36 Oral evidence taken before the International Trade Committee on 29 November 2017, HC (2017–19) 603i, Q 55 [Edwin Vermulst]
37 Oral evidence taken before the International Trade Committee on 29 November 2017, HC (2017–19) 603i, Q 37 [Gareth Stace]
38 Q 49 [George Peretz QC]
39 Oral evidence taken before the International Trade Committee on 29 November 2017, HC (2017–19) 603i, Q 34 [Edwin Vermulst]
41 Q 107 [Dr Laura Cohen]
Published: 10 May 2018