UK: Trade Policy In The New Trump World Order - Mind The Gap

Last Updated: 15 November 2016
Article by Bernardine Adkins

A major plank of Trump's candidacy was that of trade protection of US industry. Contrast that with the situation in the UK, where the current UK government continues to promote a free and open trade policy.

It is not surprising, therefore, that little consideration in post-(hard)-Brexit discussions has been given to the future of trade defence to protect UK domestic industry. The US surprise election result overnight (8/9 November 2016) has highlighted that gap.

All this begs the question as to whether, in the light of the UK's historically anti-protectionist stance, and recent comments made by ministers of the newly-formed cabinet, the UK government will, ultimately, have the appetite to pursue a strong trade defence policy - in contrast to Trump's position.

This will, of course, be a source of concern for those working in industries vulnerable to cheap imports, such as British steelmakers.

Compounding steelmakers' woes, and regardless of the position Britain ultimately seeks to adopt, there is likely to be a temporal gap post-Brexit before the UK can, under World Trade Organization (WTO) law, impose UK-specific anti-dumping measures, leaving a number of British industries largely defenceless to dumped imports in the interim.

Over time, it seems likely that the UK's relatively liberal approach towards trade will lead to a divergence away from the EU's trade defence model, as well as that of the US. While this will be welcomed in certain sectors, it is likely to be a serious cause for concern for the already struggling British steel industry.

This analysis aims at stepping aside from the rhetoric on the subject of trade defence and:

  • explores the tension between the current UK government's ideological stance against what they view as protectionism;
  • the challenges facing the UK government should they wish in any event to introduce trade defence measures in a post-(hard)-Brexit world;
  • the current trade policy of the US, in comparison to that of the EU and UK; and
  • the changed trajectory of the rest of the EU in trade policy following on from the waning influence of the UK.

Dumping v anti-dumping

In brief, trade defence measures are state measures aimed at defending their own domestic producers from unfair trade or subsidised imports, and against dramatic shifts in trade flows insofar as these are harmful to the domestic economy. Such measures include anti-dumping duties, which are imposed on a dumped product at the state border to neutralise the effect of the 'dumping' of the product - i.e. sale at below cost.

In the run-up to the referendum, certain Brexit campaigners cited the lack of governmental response to Tata Steel's decision to sell the struggling Port Talbot plan as an example of ineffective EU law impeding UK ministers from taking action to protect British industries from unfair trade practices1.

We argued then that, while the ineffectiveness of EU trade defence instruments and the inflexibility of State aid rules did restrict the level of protection that could be afforded to the British steel industry, it was highly doubtful that British steelworkers would have been have been in a better position outside the EU.

Little wonder then, that the newly-minted UK government has not yet provided any detail regarding what trade defence will look like in a post-Brexit Britain.

Beyond indicating that representatives from the Department for International Trade are currently carrying out a review of the 'five or six' main anti-dumping regimes, Liam Fox's new department has not provided any detail regarding what UK trade defence may look like outside of the EU. However, there are some early indications of the direction of UK trade defence post-Brexit available from:

  • the UK's historical position in relation to trade defence; and
  • comments made by government ministers regarding trade more generally.

Within the EU, the UK has historically taken a relatively anti-protectionist stance towards trade defence. It therefore seems likely that the level of anti-dumping protection afforded to UK industries will ultimately be curtailed post-Brexit.

The UK has consistently rejected calls for increases in the level of protection from third country imports to be afforded to EU industries. For example, the UK government is in favour of granting China 'market economy status' in trade defence investigations, a move resisted by a majority of Member States within the EU. Similarly, it has repeatedly voted in favour of maintaining a lesser duty rule in EU trade defence investigations2.

Indeed, it has been the influence of the UK, together with a handful of other northern EU Member States, which has tempered the severity of the measures that may be imposed under the EU's trade defence regime. The UK's influential role in restraining the scope of EU trade defence measures is particularly evident when comparing measures imposed by the US regime on the same products. By way of example, constrained by the lesser duty rule, the tariff on Chinese cold-rolled steel exports into the EU is just 25.3%, compared with the over tenfold larger 265.96% tariff imposed by the US for exports of the same product (which, in the rhetoric of the President-elect, Donald Trump, is still not enough).

Underpinning the UK government's anti-protectionist stance is the belief that one industry's loss (e.g. the UK steel industry) may be another industry's (or industries') gain (e.g. manufacturing sectors that purchase steel for use as an input product)3.

In a speech delivered on 29 September 2016, the International Trade Secretary, Liam Fox, impliedly criticised the degree of protection offered to EU industries under the current EU trade defence regime, noting that:

"Adam Smith argued that it is a moral right for people to buy whatever they want from those who sell it to them the cheapest."

While recognising that in certain, limited circumstances, anti-dumping measures would be appropriate, he went on to add:

"The terrible truth about protectionism is that while it may be a short-term vote winner or temporarily prop up failing industries, it is always the consumer and often the poorest in society that ultimately lose out4."

These comments suggest that the UK government ultimately intends to move away from the EU's 'protectionist' trade defence policy.

Free (for all) trade

Regardless of how the UK government decides to shape UK trade defence post-Brexit, there are likely to be certain 'teething problems' for UK trade defence.

At the time of writing, there are 72 EU anti-dumping measures in force, of which 57 relate to imports from the People's Republic of China alone. The measures cover a number of products across a range of sectors, including steel making, ceramic manufacturing and chemical production5.

To simply remove these duties overnight would leave a number of UK industries exposed to dumped imports, and (but for the weak pound) at a significant disadvantage with competitors still trading within the EU-27.

Conversely, simply adopting the current measures imposed by the EU with a view to later reviewing which measures the UK wishes to keep in place (à la Great Repeal Bill) would arguably place the UK in breach of its WTO obligations and specifically Annex VI of the WTO General Agreement on Tariffs and Trade 1994 ("GATT 1994") (assuming the UK manages to establish full individual WTO membership before it officially leaves the EU)6.

Article 6(a) of Annex VI to the GATT 1994 provides that "[n]o contracting party shall levy any antidumping [...] duty on the importation of any product of the territory of another contracting party unless it determines that the effect of the dumping [...] is such as to cause or threaten material injury to an established domestic industry, or is such as to retard materially the establishment of a domestic industry."

This restriction should be read alongside Article 3.1 of the Agreement on the Implementation of Annex VI of the GATT 1994 (the "Implementation Agreement"), which provides that any determination of injury shall be based on "positiveevidence" and involve an objective examination of inter alia the effect of the dumped imports on prices in the domestic market for like products7.

Further, Article 6.1 of the Implementation Agreement provides that all interested parties in an anti-dumping investigation shall be given "ample opportunity" to present in writing all evidence which they consider relevant to the investigation and that exporters shall be given at least 30 days to reply to any questionnaires issued to them during an investigation.

Accordingly, the temporary adoption of EU anti-dumping measures unsupported by UK-specific investigations would leave the UK's trade defence authority vulnerable to potentially costly and time-consuming appeals before a WTO tribunal. This is a position the UK authority will not want to find itself in during its formative months and years.

Assuming that the UK does wish to comply with WTO rules on anti-dumping after it leaves the EU, it will need to initiate its own anti-dumping investigations under its new trade defence regime before it can impose antidumping duties.

This will be a resource-intensive exercise for what is (and will continue to be) an already massively overstretched UK civil service, with each investigation likely to last a number of months. It will also mean that those industries vulnerable to the effects of cheap imports will, at least temporarily, be denied any form of trade defence.

Meanwhile in Brussels...

Elsewhere, the European Commission asked EU national leaders at a Brussels summit in October to approve a number of 'protectionist' reforms to the EU trade defence regime. The proposals include:

  • a change to how dumping is calculated in instances where there is oversupply or severe distortions in the exporting country, a measure specifically designed to offer EU industries continued protection from dumped Chinese imports without falling foul of WTO rules following the expiry of China's WTO accession protocol at the end of this year; and
  • the abolition of the lesser duty rule in anti-dumping investigations.

In proposing these reforms, the European Commission was no doubt emboldened by the UK's waning influence within the European Union. Despite not reaching an agreed way forward during the summit, the national leaders committed to reaching an agreement on the modernisation of EU trade defence instruments by the end of the year. While adoption of the above reforms is by no means certain in the immediate term, such a possibility seems far more likely in an EU without the UK.

Conclusion

While, initially at least, the UK trade defence regime is likely to substantially mirror that of the EU, there are early indications that the UK government ultimately intends to move away from the EU's 'protectionist' trade defence policy. In so doing, it will also be moving away from the espoused position of the US President-elect.

For example, given the UK's historical opposition to both of the European Commission's proposals, it seems unlikely that, in the event that they are adopted by the EU before the UK leaves the EU, they would be kept by the UK government when it comes to crafting a UK-specific trade defence regime.

Meanwhile, the EU may, in the long term, be tempted to move towards the US's relatively protectionist approach to imported goods, further increasing the gulf between the EU and UK's trade defence regimes.

Regardless of the trade agreement the UK ultimately secures with the EU, it is inevitable that British companies will continue to compete and trade closely with companies based within the EU.

The distortive effect that diverging trade defence regimes will have on a number of sectors and the significant effects to British jobs and the wider economy should therefore be very carefully thought through.

Footnotes

1. E.g. Simon Boyd, a director at Reidtseel, Britain's largest steel construction company, is quoted as saying "while we remain in the EU, the UK government we elect can do little to tackle the dumping of cheap steel or unfair state aid rules." http://www.telegraph.co.uk/news/politics/david-cameron/12207876/EU-row-over-deal-to-save-steel.html. See also: https://www.thesun.co.uk/archives/politics/1114068/boris-johnson-being-a-member-of-the-eu-means-we-cant-help-steel-workers/

2. The lesser duty rule provides that anti-dumping tariffs imposed on exporters should be no higher than is required to prevent injury to the EU industry. The abolition of the rule would, in particular, allow the European Commission to increase many of the tariffs currently imposed on steel products, thereby granting greater protection to the European steel industry.

3. See for example the comments made by Sajid Javid, the then Business Secretary, following the UK's decision to veto a European Commission proposal to abolish the lesser duty rule in February of this year: "There are many British companies ... that would tell you if duties got out of control ... then it would cost them jobs and growth and it would certainly cut their exports" https://www.theguardian.com/business/2016/mar/30/would-brexit-help-britain-steel-industry

4. https://www.gov.uk/government/speeches/liam-foxs-free-trade-speech

5. http://trade.ec.europa.eu/tdi/completed.cfm

6. A process that Roberto Azevêdo, the WTO's director-general has suggested would be likely to take years https://www.ft.com/content/5741129a-4510-11e6-b22f-79eb4891c97d

7. Attempts to extend trade measures from a third country have previously been rejected by the WTO, albeit not in the context of antidumping. (See: http://www.mlex.com/NewTI/DetailView.aspx?cid=829845&siteid=197&rdir=1)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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