Under the WTO framework (within which the new UK regime will operate post-Brexit), there are broadly three types of trade remedies: anti-dumping duties (on exported products where the export price to the importing country is less than its normal value); ‘countervailing measures’ (to deal with subsidies); and ‘safeguarding measures’ (to deal, essentially, with sudden floods of exports). A subsidy against which countervailing measures could be imposed is a financial contribution (or income or price support) that confers a benefit, and would therefore extend to tax credits and, for example, a low rate of corporation tax confined to a particular region or sector. Trade remedy decisions are open to challenge by way of judicial review or where the exporting member state brings a dispute before the WTO’s dispute resolution mechanism (although the mechanism for doing so has run into serious difficulties in recent years).
One of the basic principles of the General Agreements on Tariffs and Trade (GATT) – set out in article I – is that members should charge the same duties on all products no matter where they come from (the famous ‘most favoured nation’ principle). That principle is subject to various exceptions, including the well-known (though often misunderstood) exception for free trade agreements in GATT article XXIV. But some of the most important exceptions are for trade remedies. Trade remedies are higher duties on exports of particular products from particular countries or producers, imposed to protect domestic industry against particular types of unfair competition.
There are three types of trade remedies: anti-dumping duties; ‘countervailing measures’ (to deal with subsidies); and ‘safeguarding measures’ (to deal, essentially, with sudden floods of exports). One could also add to that list national security measures, based on GATT article XXI, which have been controversially used by the current US administration to raise tariffs on imports of products such as steel (but I will not deal with that issue here).
At WTO level, the Anti-Dumping Agreement (WTO Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994: ‘ADA’) regulates the concept of dumping and the steps WTO members are permitted to take to deal with it.
The concept of ‘dumping’ comes from the US, where anti-dumping legislation dates from the early part of the 20th century. The concept is one that tends to cause economists of a sensitive disposition some distress, but for those who know some competition law, it is roughly analogous to the concept of predatory pricing (pricing by a company in a dominant position at below cost, with the aim of excluding a competitor from the market). The intuition is that, say, the widget industry in an exporting state may have a protected domestic market (perhaps because of protectionist behaviour by the exporting state government or because it has managed to get itself into a monopoly position). It can sell at high prices in that market. However, it may then have surplus production: rather than expand domestic sales (which would cause prices there to fall), it sells that surplus production at lower prices to other countries – and it can use its high profits from domestic sales to cross-subsidise those sales.
Under the ADA, an exported product is said to have been ‘dumped’ if its ‘export price’ to the importing country is less than its ‘normal value’ (in principle, the domestic price) – the difference between them being the ‘dumping margin’ – in a way that causes ‘injury’ to domestic industry.
In practice, the most difficult issue is how to determine the ‘normal value’. One might assume that the domestic price in the exporting country was the ‘normal value’ – and that is, indeed, the case if there are normal market conditions in that country. But that is a big ‘if’: there may be few such sales, or domestic sales may be between associated companies or distorted in various other ways, or (as is often said to be the case in relation to China) the domestic market may be heavily distorted by state influence. One possibility in such circumstances may be to look at prices in other countries to which the exports at issue are made: but, again, there may be no clear third country comparator. In that case, a ‘normal value’ has to be constructed by adding together production costs, a reasonable amount for general overheads, and a reasonable profit.
Needless to say, there is room for considerable dispute, involving accounting and economic evidence, as to what those costs are. The importing country authorities will often need to seek a considerable volume of data from the exporters, even though (because they are outside their jurisdiction) it can be hard to force those exporters to provide it. Those difficulties are typically dealt with to some extent by allowing the authorities to make assumptions – sometimes rather heroic ones – if reliable information is not provided.
Even once the ‘normal value’ has been settled, there are issues with comparing it to the actual export price. That is because exporting is generally more expensive than supplying the home market (think of factors such as transport, customs formalities, credit, packing, and assistance with technical standards). Or the price may be affected by the fact that the importer is part of the same corporate group as the exporter. Those factors have to be taken into account: indeed, article 2.4 of the ADA requires that the comparison between the two must be ‘fair’.
A further issue arises if there are sub-periods over the relevant period where the export price is higher than normal value. The US (in particular) has on several occasions treated those periods as ones where the dumping margin is zero (rather than negative), thereby increasing the calculated value of the dumping margin over the whole period, a practice known as ‘zeroing’: one of the complaints that the US has had about the WTO dispute resolution mechanisms is that they have consistently ruled that zeroing is not permitted.
Once all of this has been taken into account and a ‘dumping margin’ calculated, the next stage is to show that the dumping has caused (or would cause unless action is taken) ‘injury’. That involves looking at the volume and price of the dumped imports, at the impact on domestic prices, and at the impact on domestic industry as a whole (or, at least, on a major proportion of it) in terms of factors such as sales, profits, output, employment, wages, and ability to raise capital. It also involves showing a causal link between the dumping and the identified injury.
Once all those hurdles are overcome, the final stage is to calculate the amount of the duty to be imposed. The maximum duty that may be imposed is the ‘dumping margin’: but many WTO members (including, as we shall see, the UK) apply the ‘lesser duty rule’ that is recommended as ‘desirable’ under article 9 of the ADA: under that rule, the duty is set at the lowest level that is adequate to remove the injury. In principle, the dumping margin should be calculated separately for each producer and separate duty rates imposed; but it is recognised that in many cases that is impractical and that the same duty will be imposed on all exporters from a particular country.
Even when duty has been imposed, a further issue can then arise: if duties are imposed on all exports of a complex product from Blueland, what do you do a case where some of the manufacturing takes place in Blueland but the final stage is carried out in Redland? The answer will depend on ‘rules of origin’, the basic principle of which is that goods take the origin of the country in which the last substantial manufacturing or processing stage takes place. For a very recent application of that test by the Upper Tribunal (in relation to solar panels said to attract anti-dumping duty as being of Chinese origin but where the importer argued that the last substantial stage of manufacture took place in India), see Renesola v HMRC [2020] STC 810, where the Upper Tribunal analysed the large volume of EU case law on the topic and made a reference to the CJEU.
It is also important to note that the ADA imposes various standards for the initiation and fair conduct of anti-dumping investigations (including a requirement that investigations only be commenced on a complaint by producers accounting for at least 25% of domestic production and where they are not outnumbered by producers opposing an investigation) as well as for judicial review of final decisions.
Countervailing measures (CVMs) deal with government subsidies. Under the WTO Subsidies and Countervailing Measures Agreement (SCMA), a subsidy is defined as a financial contribution (or income or price support) that confers a benefit: ‘financial contribution’ here includes not just grants but also loans and equity investment provided on favourable terms, as well as tax credits or provision of discounted goods or services. It does not matter if the contribution is made by central or local government, or even whether it comes directly from the state (a direction by the state to a private company to pay money to an exporter is caught by the rules).
However, a WTO member can impose countervailing measures only if the subsidy is
The effect of these rules is that WTO members cannot impose CVMs in relation to measures such as a generally low rate of corporation tax in the exporting country – but they could do so in response, for example, to a low rate of corporation tax confined to a particular region or sector. Finally, CVMs can be imposed only if the subsidy causes injury to the industry of the importing country.
Those familiar with EU state aid rules will see a close resemblance between the WTO concept of a ‘subsidy’ and the EU concept of a state aid: indeed, it is quite hard to find areas in which the concept of a State aid differs very much from the WTO concept of ‘subsidy’ (though state aid rules cover services as well as goods). The main difference is that the ‘effect on trade’ test for a state aid is a notoriously low hurdle, while the requirement to show domestic injury before CVMs can be imposed is a high one. It should also be noted that under article 11.9 of the SCMA any investigation must cease if the volume of imports is found to be negligible or the amount of the subsidy is less than 1% ad valorem (note that the UK implementing provisions set out a 2% threshold in the case of developing countries).
Many of the principles and issues that apply in anti-dumping cases also apply, mutatis mutandis, in SCMA cases. The amount of duty imposed has to be no more than the amount of the subsidy (and, where the lesser duty rule is applied, no more than is adequate to prevent domestic injury). Again, the calculations of the value of the subsidy are beset with difficult accounting and economic issues, as well as the difficulty in obtaining evidence. And assessment of whether the subsidy has caused injury to the industry of the importing country is also complex, as it involves assessing what would have happened in terms of prices on the affected market if the subsidy had not been granted.
Safeguarding measures are much less common than anti-dumping duties or CVMs. Essentially, the WTO Agreement on Safeguards permits members to impose emergency duties on products that are being important in such sudden, sharp and significant increased quantities that serious injury is likely to be caused to domestic producers: the purpose is to give domestic injury breathing space in order to adapt.
As observed above, WTO rules require members to allow judicial review of trade remedy decisions. I will look at the UK mechanism for this in the second article.
But another way in which those decisions may be challenged is if the exporting member state brings a dispute before the WTO’s dispute resolution mechanism. That has happened very frequently and has resulted in a substantial volume of case law, much of which is likely to be of considerable relevance in any dispute before the UK courts about relevant legal principles. However, the WTO mechanism has run into serious difficulties as a result of the refusal of the US in recent years to consent to the appointment of members to its appellate body: the result is that appeals from first-instance dispute panels are stuck in limbo and that (unless the losing party agrees) the reports of those dispute panels cannot be adopted so as to become definitive. A number of WTO members, including the EU, are involved in setting up a multiparty interim appeal arbitration agreement to act as a temporary dispute resolution mechanism for disputes between participating members: the UK government has not yet decided whether or not to join.
In a second article, the author will look at the UK legislation governing the new regime, the transition between the EU regime under which the UK has operated for nearly 50 years and the new regime, and at what the relevant authorities have been doing so far.
Under the WTO framework (within which the new UK regime will operate post-Brexit), there are broadly three types of trade remedies: anti-dumping duties (on exported products where the export price to the importing country is less than its normal value); ‘countervailing measures’ (to deal with subsidies); and ‘safeguarding measures’ (to deal, essentially, with sudden floods of exports). A subsidy against which countervailing measures could be imposed is a financial contribution (or income or price support) that confers a benefit, and would therefore extend to tax credits and, for example, a low rate of corporation tax confined to a particular region or sector. Trade remedy decisions are open to challenge by way of judicial review or where the exporting member state brings a dispute before the WTO’s dispute resolution mechanism (although the mechanism for doing so has run into serious difficulties in recent years).
One of the basic principles of the General Agreements on Tariffs and Trade (GATT) – set out in article I – is that members should charge the same duties on all products no matter where they come from (the famous ‘most favoured nation’ principle). That principle is subject to various exceptions, including the well-known (though often misunderstood) exception for free trade agreements in GATT article XXIV. But some of the most important exceptions are for trade remedies. Trade remedies are higher duties on exports of particular products from particular countries or producers, imposed to protect domestic industry against particular types of unfair competition.
There are three types of trade remedies: anti-dumping duties; ‘countervailing measures’ (to deal with subsidies); and ‘safeguarding measures’ (to deal, essentially, with sudden floods of exports). One could also add to that list national security measures, based on GATT article XXI, which have been controversially used by the current US administration to raise tariffs on imports of products such as steel (but I will not deal with that issue here).
At WTO level, the Anti-Dumping Agreement (WTO Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994: ‘ADA’) regulates the concept of dumping and the steps WTO members are permitted to take to deal with it.
The concept of ‘dumping’ comes from the US, where anti-dumping legislation dates from the early part of the 20th century. The concept is one that tends to cause economists of a sensitive disposition some distress, but for those who know some competition law, it is roughly analogous to the concept of predatory pricing (pricing by a company in a dominant position at below cost, with the aim of excluding a competitor from the market). The intuition is that, say, the widget industry in an exporting state may have a protected domestic market (perhaps because of protectionist behaviour by the exporting state government or because it has managed to get itself into a monopoly position). It can sell at high prices in that market. However, it may then have surplus production: rather than expand domestic sales (which would cause prices there to fall), it sells that surplus production at lower prices to other countries – and it can use its high profits from domestic sales to cross-subsidise those sales.
Under the ADA, an exported product is said to have been ‘dumped’ if its ‘export price’ to the importing country is less than its ‘normal value’ (in principle, the domestic price) – the difference between them being the ‘dumping margin’ – in a way that causes ‘injury’ to domestic industry.
In practice, the most difficult issue is how to determine the ‘normal value’. One might assume that the domestic price in the exporting country was the ‘normal value’ – and that is, indeed, the case if there are normal market conditions in that country. But that is a big ‘if’: there may be few such sales, or domestic sales may be between associated companies or distorted in various other ways, or (as is often said to be the case in relation to China) the domestic market may be heavily distorted by state influence. One possibility in such circumstances may be to look at prices in other countries to which the exports at issue are made: but, again, there may be no clear third country comparator. In that case, a ‘normal value’ has to be constructed by adding together production costs, a reasonable amount for general overheads, and a reasonable profit.
Needless to say, there is room for considerable dispute, involving accounting and economic evidence, as to what those costs are. The importing country authorities will often need to seek a considerable volume of data from the exporters, even though (because they are outside their jurisdiction) it can be hard to force those exporters to provide it. Those difficulties are typically dealt with to some extent by allowing the authorities to make assumptions – sometimes rather heroic ones – if reliable information is not provided.
Even once the ‘normal value’ has been settled, there are issues with comparing it to the actual export price. That is because exporting is generally more expensive than supplying the home market (think of factors such as transport, customs formalities, credit, packing, and assistance with technical standards). Or the price may be affected by the fact that the importer is part of the same corporate group as the exporter. Those factors have to be taken into account: indeed, article 2.4 of the ADA requires that the comparison between the two must be ‘fair’.
A further issue arises if there are sub-periods over the relevant period where the export price is higher than normal value. The US (in particular) has on several occasions treated those periods as ones where the dumping margin is zero (rather than negative), thereby increasing the calculated value of the dumping margin over the whole period, a practice known as ‘zeroing’: one of the complaints that the US has had about the WTO dispute resolution mechanisms is that they have consistently ruled that zeroing is not permitted.
Once all of this has been taken into account and a ‘dumping margin’ calculated, the next stage is to show that the dumping has caused (or would cause unless action is taken) ‘injury’. That involves looking at the volume and price of the dumped imports, at the impact on domestic prices, and at the impact on domestic industry as a whole (or, at least, on a major proportion of it) in terms of factors such as sales, profits, output, employment, wages, and ability to raise capital. It also involves showing a causal link between the dumping and the identified injury.
Once all those hurdles are overcome, the final stage is to calculate the amount of the duty to be imposed. The maximum duty that may be imposed is the ‘dumping margin’: but many WTO members (including, as we shall see, the UK) apply the ‘lesser duty rule’ that is recommended as ‘desirable’ under article 9 of the ADA: under that rule, the duty is set at the lowest level that is adequate to remove the injury. In principle, the dumping margin should be calculated separately for each producer and separate duty rates imposed; but it is recognised that in many cases that is impractical and that the same duty will be imposed on all exporters from a particular country.
Even when duty has been imposed, a further issue can then arise: if duties are imposed on all exports of a complex product from Blueland, what do you do a case where some of the manufacturing takes place in Blueland but the final stage is carried out in Redland? The answer will depend on ‘rules of origin’, the basic principle of which is that goods take the origin of the country in which the last substantial manufacturing or processing stage takes place. For a very recent application of that test by the Upper Tribunal (in relation to solar panels said to attract anti-dumping duty as being of Chinese origin but where the importer argued that the last substantial stage of manufacture took place in India), see Renesola v HMRC [2020] STC 810, where the Upper Tribunal analysed the large volume of EU case law on the topic and made a reference to the CJEU.
It is also important to note that the ADA imposes various standards for the initiation and fair conduct of anti-dumping investigations (including a requirement that investigations only be commenced on a complaint by producers accounting for at least 25% of domestic production and where they are not outnumbered by producers opposing an investigation) as well as for judicial review of final decisions.
Countervailing measures (CVMs) deal with government subsidies. Under the WTO Subsidies and Countervailing Measures Agreement (SCMA), a subsidy is defined as a financial contribution (or income or price support) that confers a benefit: ‘financial contribution’ here includes not just grants but also loans and equity investment provided on favourable terms, as well as tax credits or provision of discounted goods or services. It does not matter if the contribution is made by central or local government, or even whether it comes directly from the state (a direction by the state to a private company to pay money to an exporter is caught by the rules).
However, a WTO member can impose countervailing measures only if the subsidy is
The effect of these rules is that WTO members cannot impose CVMs in relation to measures such as a generally low rate of corporation tax in the exporting country – but they could do so in response, for example, to a low rate of corporation tax confined to a particular region or sector. Finally, CVMs can be imposed only if the subsidy causes injury to the industry of the importing country.
Those familiar with EU state aid rules will see a close resemblance between the WTO concept of a ‘subsidy’ and the EU concept of a state aid: indeed, it is quite hard to find areas in which the concept of a State aid differs very much from the WTO concept of ‘subsidy’ (though state aid rules cover services as well as goods). The main difference is that the ‘effect on trade’ test for a state aid is a notoriously low hurdle, while the requirement to show domestic injury before CVMs can be imposed is a high one. It should also be noted that under article 11.9 of the SCMA any investigation must cease if the volume of imports is found to be negligible or the amount of the subsidy is less than 1% ad valorem (note that the UK implementing provisions set out a 2% threshold in the case of developing countries).
Many of the principles and issues that apply in anti-dumping cases also apply, mutatis mutandis, in SCMA cases. The amount of duty imposed has to be no more than the amount of the subsidy (and, where the lesser duty rule is applied, no more than is adequate to prevent domestic injury). Again, the calculations of the value of the subsidy are beset with difficult accounting and economic issues, as well as the difficulty in obtaining evidence. And assessment of whether the subsidy has caused injury to the industry of the importing country is also complex, as it involves assessing what would have happened in terms of prices on the affected market if the subsidy had not been granted.
Safeguarding measures are much less common than anti-dumping duties or CVMs. Essentially, the WTO Agreement on Safeguards permits members to impose emergency duties on products that are being important in such sudden, sharp and significant increased quantities that serious injury is likely to be caused to domestic producers: the purpose is to give domestic injury breathing space in order to adapt.
As observed above, WTO rules require members to allow judicial review of trade remedy decisions. I will look at the UK mechanism for this in the second article.
But another way in which those decisions may be challenged is if the exporting member state brings a dispute before the WTO’s dispute resolution mechanism. That has happened very frequently and has resulted in a substantial volume of case law, much of which is likely to be of considerable relevance in any dispute before the UK courts about relevant legal principles. However, the WTO mechanism has run into serious difficulties as a result of the refusal of the US in recent years to consent to the appointment of members to its appellate body: the result is that appeals from first-instance dispute panels are stuck in limbo and that (unless the losing party agrees) the reports of those dispute panels cannot be adopted so as to become definitive. A number of WTO members, including the EU, are involved in setting up a multiparty interim appeal arbitration agreement to act as a temporary dispute resolution mechanism for disputes between participating members: the UK government has not yet decided whether or not to join.
In a second article, the author will look at the UK legislation governing the new regime, the transition between the EU regime under which the UK has operated for nearly 50 years and the new regime, and at what the relevant authorities have been doing so far.
