Role of manufacturing
The view has been expressed that the UK could thrive as a services based economy. This is not correct. Manufacturing is a dynamic and driving force in the economy and it matters. Government has a role in helping manufacturing and trade remedies are a critical part of this. Protecting manufacturing against unfair trade is in the long term interest of the economy, including consumers. Manufacturing provides skilled jobs in many economically challenged areas of the UK and support for the industry is essential to help to level up the country.
Role of trade remedies
Trade remedies are a critical component of the UK industrial strategy. Global markets can become dysfunctional as a result of trade barriers or unfair trading practices. Subsidised imports create distortions as importers and consumers switch from the domestic or fairly traded products towards the subsidised imports. Dumping of products occurs because of state distortions or barriers to trade, giving exporters an unfair advantage when competing on foreign markets. Remedies against dumping and subsidies are crucial in ensuring that the global playing field remains fair. As the UK continues at speed to negotiate new free trade agreements post-Brexit, the UK must ensure robust trade remedies are in place.
State distortions and non-market economies
Around 50% of all UK trade remedies are against China. China was previously regarded as a 'non-market economy' (NME) which enabled other countries to disregard Chinese prices in anti-dumping investigations and instead use prices from third countries. While the NME status officially ended in July 2020, China hasn’t moved to be a market economy in the way that was expected in the protocol of accession at the WTO and this is now subject to international debate.
To some extent, distortions to import prices caused by state distortions and NME situations can be countered by robust anti-subsidy remedies (countervailing duties). However, the WTO subsidy agreement does not permit all subsidies to be countervailed (e.g. a subsidy that is generally available i.e. non-specific is not covered by the agreement). Anti-dumping is therefore critical in addressing state distortions and NME situations where these distort export prices and global markets.
When prices in the domestic market are abnormally or artificially low due to an alleged distortion, this can result in a lower dumping margin than if domestic prices were not subject to a distortion. A common practice amongst WTO members when calculating dumping margins in such situations has been to make corrective adjustments to domestic price and cost of production information. WTO jurisprudence is in flux at the moment but MTRA strongly believes that there are methodologies to make price and cost adjustments in a WTO-consistent way. Without this possibility, anti-dumping will become an ineffective instrument. MTRA strongly supports the possibility to use prices from third countries when making adjustments to exporter’s cost data.
The WTO agreement also authorises the use of a special methodology in the case of non-market economies. In addition, certain countries WTO accession protocols permit the use of a special methodology in relation to calculation of dumping.
Lesser duty rule
The lesser duty rule (LDR) means that the rate of duty for each case is based on the dumping or subsidy margin, unless a lower rate would remove the injury,
In principle, dumping and subsidy margins are a measure of the market distortion. The LDR is not mandatory under WTO rules. Of the 32 main users of anti-dumping, 23 do not have a mandatory lesser duty rule. For some countries with a lesser duty rule (e.g. Australia and EU), the LDR is only mandatory in certain circumstances. The EU has amended its lesser duty rule to be non-mandatory where there are raw material distortions. The EU has also included a minimum profit of 6% and the consideration of imminent future regulatory costs in the calculation of the non-injurious price. The UK now has a mandatory LDR and there is no minimum profit or the consideration of imminent future regulatory costs.
Economic interest and public interest
A Public Interest Test means that, in the case of the UK, the Secretary of State for International Trade may reject a recommendation from the TRA to impose a trade remedy if they are satisfied that it is not in the public interest to accept it.
Most WTO members ( i.e. 27 of the main 32 global users of AD do not have a mandatory public interest test (PIT)). Of the 5 countries that have a PIT, 2 of them are only mandatory in certain circumstances. The EU is one of the mandatory PIT users. There are specific reasons why a PIT is necessary in the EU due to the fact that it is necessary to balance the interests of 28 member states, some of whom agree to impose AD/CVD measures even though they might not have a domestic industry. Canada is the main other WTO member to have an explicit public interest provision. However, unlike the EU, it is not mandatory in every investigation. Some academic economists emphasise the ‘benefits’ of cheap imports to the economy (even if unfairly traded), often suggesting that a cost-benefit approach should be adopted in a PIT. However, this ignores economic and political realities that result in not one WTO member applying a PIT in this way. A PIT is not about balancing the interests of producers, users and consumers. Although it is inevitable that an AD/CVD measure will increase the cost of imports, indeed that is the point of the corrective measures, it is in users and consumers interest for effective competition to be maintained. There are also social considerations (e.g. jobs, regional considerations) that politically are important to consider when taking such actions. In the UK the TRA will conduct an economic interest and public interest test on cases but a presumption will be made that measures will be in the economic interest unless it can be shown to be otherwise.