Memorandum by EEF and UK Steel
1. EEF is the representative voice of manufacturing,
engineering and technology-based businesses with a membership
of 6,000 companies employing around 800,000 people (see www.eef.org.uk
for further information). Comprising 11 regional EEF Associations,
the Engineering Construction Industries Association (ECIA) and
UK Steel, EEF is one of the leading providers of business services
in employment relations and employment law, health, safety and
environment, manufacturing performance, education, training and
skills.
2. UK Steel, a division of EEF, is the trade
association for the UK steel industry. All companies who melt
steel, and most downstream processors are members.
3. This submission focuses on European trade
policy from a UK manufacturing perspective, but with specific
reference where relevant to the steel industry.
Question 1: What are the future prospects
for multilateral trade negotiations? What effect will the rising
number of bilateral agreements have on the existence and further
development of multilateral agreements?
4. It is very difficult to forecast whether
the current round of multilateral trade negotiations (the DDA)
will produce an acceptable outcome for UK manufacturing. While
WTO Director General Pascal Lamy earlier this month welcomed the
issuing of revised negotiating texts on agriculture and non-agricultural
market access (NAMA) as paving the way for future progress in
the Round, we note that there remain wide differences between
the views of the different groupings.
5. The key areas of negotiation for UK manufacturing
that still form part of the DDA are NAMA and rules. The negotiating
text for NAMA still contains wide ranges for the two coefficients
to be used, and leaves the flexibilities to be enjoyed by developing
countries completely open. With EU tariffs on manufactured goods
already low (and in the case of some sectors, including steel,
already set at zero), it is imperative that the NAMA negotiations
produce real market opening for UK exporters. It is particularly
important that substantial tariff reductions be secured from emerging
countries, many of whom have rapidly developing industries in
competition with UK manufacturing.
6. We are concerned that the draft negotiating
text on rules appears to favour the USA. The text would for example
undo the rulings by the WTO Appellate Body that the US practice
of "zeroing"[7]
is not WTO compliant. In general, we fear the opportunity could
be missed to narrow the wide margins of discretion that currently
exist in the application of trade defence instruments, which leads
for example to the EU applying a noticeably more liberal regime
than the USA.
7. As for future rounds of multilateral
negotiations beyond the DDA, we note that if the DDA is concluded,
it is likely to be on a basis that is far less ambitious than
the goals that the UK and EU originally set. While there is likely
to be very little appetite to embark on a fresh round of negotiations
in the immediate aftermath of the DDA, the EU must continue to
pursue its trade liberalising agenda.
8. The protracted lack of progress in the
DDA has resulted in a wave of new bilateral trade negotiations.
Although little has come of the USA's original bilateral ambitions,
at least partly due to Congressional antipathy, the EU's own plans
are developing more successfully. While we support in principle
any initiatives that lead to improved market access for UK manufacturers,
we do tend to prefer the multilateral approach, for two reasons:
8.1 Having a plethora of bilateral agreements
risks administrative complexity and therefore uncertainty for
businesses.
8.2 One of the great successes of the Uruguay
Round was the agreement on a dispute resolution system (the DSU)
with real teeth. It is therefore essential that the authority
of the WTO should not be undermined.
Question 2: What role can European trade policy
play to stimulate growth and create jobs in Europe?
9. It is EEF's belief that trade, provided
it is conducted according to common rules adopted by all trading
partners, is always beneficial to economic growth, and thus to
job creation. European policy can and does facilitate trade in
a number of ways:
9.1 The pursuit of a liberalising agenda
in the DDA and through the negotiation of bilateral trade agreements.
9.2 The use of the Trade Barriers Regulation,
bilateral trade negotiations and WTO dispute settlement proceedings
to break down trade barriers in foreign countries.
9.3 The Commission's market access database
is developing into a valuable tool for exporters.
9.4 The use of its trade defence instruments
offsets the unfair advantages enjoyed by dumped and subsidised
imports which might otherwise lead to job losses in European industries.
Questions 3 and 4: What should be the relationship
between European trade policy and policies on development, climate
change and depletion of natural resources?
Have developing countries benefited from multilateral
trade agreements? What steps should European trade policy take
to help less developed countries reap the benefits of global trade?
10. DEVELOPMENT:
The European market for manufactured goods is already extremely
accessible to developing countries, with very low tariffs and
non-tariff barriers generally, and additional specific market-opening
regimes available to developing countries (eg the Generalised
System of Preferences).
11. Of course, where a developing country
has little manufacturing capacity, open access to European markets
for manufactured goods will confer little economic advantage.
In these circumstances improved market access for agricultural
products would appear to be the best way of encouraging development.
12. EEF does not subscribe to the view that
hiding behind high trade barriers of their own is a viable policy
for aiding economic progress in developing countries. Artificially
increasing the price to their consumers of manufactured goods
(assuming those goods are fairly traded) will put a brake on economic
growth. Nevertheless, EEF recognises that market failures (such
as slow or corrupt administrations, poor infrastructure) place
additional burdens on enterprises in developing countries. Thus:
12.1 High import tariffs are frequently
one of the few secure ways of raising government finance.
12.2 High tariffs might also be thought
necessary to support the emergence of infant industries.
Such measures can only be short term palliatives,
as they will ultimately slow down economic growth. EU governments
and the Commission must devote increased resource to trying to
help developing country governments eliminate such market failures.
13. Several newly-industrialising countries,
such as Brazil, India and China, however have very advanced manufacturing
facilities in a range of sectors. It is economically inefficient
for those industries to remain shielded from international competition
while enjoying tariff-free access to the developed world's markets.
14. CLIMATE
CHANGE: As a general statement
of principle, EEF's view is that environment-related trade measures
should be limited to ensuring that the performance of imported
goods comply with national standards. They should not relate to
the environmental performance of the processes used to manufacture
the goods, unless such trade measures are an integral part of
a widely-supported multilateral environmental agreement (MEA).
Process-related trade measures, particularly for "heavy"
industries such as steel, can quickly lead to back-door protectionism.
15. Therefore, EEF's strong preference is
for EU environmental measures to be designed so as to avoid imposing
uncompetitive cost burdens onto industry. In the specific instance
of the EU Emissions Trading Scheme (ETS), EEF's view is that energy
intensive industries should continue to receive free allocations
of permits, but based on EU-wide performance benchmarks, and related
to those industries' technological capability to reduce their
emissions. Internalising the cost of carbon for industries such
as steel, cement and aluminium would raise their costs to uncompetitive
levels and result in the progressive flight of production, and
the associated emissions, to countries where the cost of carbon
was not internalised. The net environmental benefit would be zero.
16. However, if additional cost burdens
are placed on EU manufacturing, then these will need to be offset
by some form of border adjustment measure, imposing internalisation
of carbon costs on imported goods while exempting exports from
those internalised costs. The immense complexity of constructing
such a system to make it WTO-compliant is one reason why EEF prefers
a zero-cost ETS. A system that was not WTO-compliant would risk
plunging the EU into a major trade war.
17. Nevertheless, there is one proposal
that would fit neatly with a benchmark-based allocation system
and provide national treatment to imported goods, thus making
it WTO-compliant. Once performance benchmarks had been established
for EU-manufactured goods, those same benchmarks could be applied
to imported goods. Imports from plants whose emissions were higher
than the EU benchmark would be obliged to purchase ETS allowances
before the goods could be placed on the market—in exactly
the same way as would happen for EU companies. Conversely, imports
with associated emission levels better than the EU standard would
receive allowances for sale. EEF believes this idea merits further
development.
18. At some stage, it is hoped that a global
climate change agreement will be signed that commits all parties
to similar levels of effort and similar means of compliance. At
that stage it could be necessary for the signatories of that MEA
to agree to a common border mechanism to prevent non-signatories
from gaining unfair market advantage at the expense of the global
environment.
19. Depletion of natural resources: EEF
is concerned that a number mineral resources are beginning to
become scarce. This scarcity lies behind the surging market prices
of a number of non-ferrous metals for example. The only sensible
policy response is an increasing drive for resource efficiency
throughout the world.
20. These scarce minerals are however frequently
located in just a few countries, and there is a growing tendency
for these countries to give unfair advantages to their own consuming
industries by placing export restrictions, both tariff and quantitative,
on those raw materials. This could threaten the long term survival
of EU manufacturing if it is denied equal access to raw materials,
or is forced to pay higher prices than overseas competitors.
21. The Commission is attempting to oppose
export restrictions through the provisions of the EU's bilateral
agreements and the WTO as appropriate. Export tariffs however
are not banned by the WTO.
Question 5: Is there still a need for Trade
Defence Instruments, and if so, how can these be designed to ensure
that their effects are targeted and proportionate?
22. Trade defence instruments remain an
essential means of helping to ensure that our trading partners
observe WTO rules and trade fairly, and of providing a safety
valve for disruptive trade flows.
23. Firstly, the Agreement on Subsidies
and Countervailing Measures and the EU regulation that gives effect
to this agreement provide an important means of ensuring that
foreign governments do not unfairly subsidise domestic producers
at the expense of EU manufacturers. It helps apply at an international
level the same type of market discipline that the EU's state aid
rules achieve within Europe.
24. Safeguards protection is used to provide
a temporary safe haven for an industry suffering from sudden and
damaging surges in imports. The requirement to compensate trading
partners for their loss of concessions tends to mean that safeguard
measures are normally of short duration. Measures can only last
longer than four years if there is evidence that the domestic
industry is restructuring. Thus the instrument can ensure that
an EU industry is not destroyed by foreign competition while at
the same time encouraging it to adapt to the new market circumstances.
For these reasons, EEF believes that safeguard measures are a
proportionate response. However, the compensation requirements,
and the fact that measures must be applied against all trading
partners, also mean that safeguards are rarely used.
25. Anti-dumping measures have become more
contentious. They essentially discipline import surges resulting
from discriminatory pricing practices. When the exporting country
is employing predatory pricing there is a clear analogy to the
EU's internal rules on abuse of a dominant position. Given the
virtual impossibility of using safeguards measures, EEF supports
anti-dumping as a means of providing temporary safe havens for
EU manufacturing sectors from the worst effects of surges in discriminatorily
priced imports.
26. The anti-dumping Regulation, and the
working practices of the Commission, already provide significant
scope for ensuring that duties are only applied to the specific
types of products being dumped and causing injury, and that duties
are only maintained for as long as they are necessary. The steel
industry for example has experience of duties on imports of its
raw materials being suspended, or the product scope of the measures
being modified. In any case, EU measures are generally terminated
after five years under the "sunset" clause. For these
reasons, EEF maintains that anti-dumping measures are already
targeted and proportionate.
27. EEF does not believe that anti-dumping
measures should be used to protect EU industries from competition
based on genuine competitive advantage—that would in the
long term be economically inefficient. Equally however, overseas
producers enjoying genuine competitive advantage should have no
reason to dump in European markets. It is thus unlikely that companies
found during to be dumping do in fact have a genuine competitive
advantage.
28. The WTO anti-dumping agreement was designed
specifically to address unfairly priced and injurious imports
of manufactured and agricultural goods. EEF suggests that it is
not normally in the long term interests of consumers for local
producers of such goods to be eliminated by unfairly priced imports.
Despite this, the EU is unique in considering the interests of
direct consumers of dumped goods in proposing whether to impose
measures. We welcome the use of the Community interest clause
for these purposes. However, EEF rejects the notion that macro-economic
effects, such as the possible impact of measures on inflation,
should be a relevant consideration.
29. Finally, EEF notes that the EU's anti-dumping
practices are among the most liberal in the world, and are more
liberal than the WTO agreement itself. EEF is not in principle
opposed to further reform of the EU's practices, but any such
reforms should be part of a negotiated agreement mandating revised
norms on all WTO signatories.
Question 6: What is the best approach for
ensuring that Intellectual Property Rights are protected? Do these
rights hinder development goals—and if so, how can an appropriate
balance be struck?
30. The Uruguay Round TRIPS agreement already
in theory contains reasonable protection for IPR associated with
manufactured goods. Nevertheless, we are increasingly hearing
stories of imported products bearing UK companies' branding, but
of inferior quality. UK manufacturers are not just losing market
share to such imports, but the value of their brands can also
suffer. The issue would appear to be that stricter policing of
the existing rules is required.
Question 7: Services represent 77% of European
GDP and employment. What are the best mechanisms to remove barriers
to trade in services? Is the GATS still fit for purpose?
31. EEF has no views on this matter.
Question 8: Is there still a role for the
WTO in the 21st Century?
32. The WTO remains critical as the means
for solving trade disputes and for ensuring that trading partners
keep their borders open in compliance with WTO rules.
26 February 2008
7 Zeroing is the practice whereby sales at non-dumped
prices are excluded from the calculation of dumping margins. This
artificially inflates the level of anti-dumping duties levied
on imports into the USA. Back
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