In an article today for politics.co.uk, George Peretz QC has commented on issues arising from Jeremy Corbyn’s speech yesterday on Labour’s Brexit policy.

The article is here.

This briefing reflects, with an introduction and some updating, George Peretz’s comments at the UK Trade Forum/Steptoe & Johnson seminar on 15 January 2018 on trade remedies in the United Kingdom after Brexit.

1. Introduction
2. Outline of the trade remedies regime set out in the Bills
3. Constitution of the TRA
4. Economic interest and public interest
5. Appeals
6. WTO and EU law
7. Conclusion

To read full blog please click here. It was first published on UK Trade Forum.

On 7 November 2017, the Government presented to Parliament the Trade Bill. This is one of the eight bills that were envisaged in the 2017 Queen’s speech in order to manage Brexit.

The Trade Bill provides for

• the power to implement the Government Agreement on Procurement,
• the power to implement trade agreements with third parties which mirror those the latter have with the EU,
• the establishment of a Trade Remedies Authority.

This blog entry will examine the power to implement trade agreements.

The power to implement international trade agreements

This power is laid down in s 2(1) which reads as follows:

An appropriate authority may by regulations make such provision as the authority considers appropriate for the purpose of implementing an international trade agreement to which the United Kingdom is a signatory…

The subject-matter of this power is about agreements with countries which have a trade agreement with the EU either at the time of Brexit or at an earlier time when the above regulations are made.

Why the power to implement trade agreements?

The power to implement trade agreements is provided for two main reasons. The first is practical and is about ‘continuity in the UK’s existing trade and investment relationships’ (para. 38 of the Trade Bill Explanatory Notes) with the countries with which the UK, pursuant to its EU membership, shares a trade agreement. The Explanatory Notes suggest that the aim of the Bill is ‘to establish a UK trade agreement with each partner country based, as closely as possible, on the corresponding trade agreement that country has with the EU’ (ibid).

The second reason for which the power to implement trade agreements is introduced in the Trade Bill is related to EU law. The UK is prevented from negotiating and concluding trade agreements whilst still an EU Member State. This is one of the reasons for which the Department for International Trade has been engaged in a scoping out exercise in third countries, merely exploring the possibility for possible trade deals in the future.

What is the scope of the power to implement trade agreements?

The scope of the power to implement trade agreements is broad.

First, it covers free trade agreements (FTAs) or agreements that mainly relate to trade (but it does not cover tariff provisions, as these would be dealt with under the Taxation (Cross‐Border Trade) Bill). This definition is quite broad and may catch a wide range of agreements. In the context of EU law, for instance, there is a solid body of case-law addressing the question which agreements relate mainly to trade. The definition provided in the Trade Bill would clearly cover, amongst others, mutual recognition agreements. The EU has free trade agreements with more than 50 countries (here) and is currently negotiating with an even greater number of  countries.

Second, the power to implement trade agreements is not confined to existing agreements between the EU and third countries, but also covers any agreements that the EU may sign with a third country prior to the Brexit date.

Third, the power to implement is about

• modifying primary legislation that is retained EU law;
• conferring functions on the Secretary of State or any other person, including conferring a discretion;
• delegating functions;
• providing for penalties for failing to comply with the regulations.

Fourth, the duration of the power is 5 years. This may be renewed for no more than 5 years at a time.

What lies underneath: implementation of trade agreements presupposes renegotiation

The power to implement trade agreements pursuant to the Bill appears to be about the transitional application of existing trade agreements. It may also appear to amount to grandfathering or rolling over existing trade agreements. In legal terms, neither of these positions is entirely accurate.

The power to implement pursuant to the Trade Bill presupposes the post-Brexit application to the UK of the existing agreements between the EU and third countries. Such application, however, requires the consent of the contracting parties under international law. While the UK is currently bound by trade agreements with third countries concluded either by the EU alone (such as the Agreements with South Africa on trade in wine) or by the EU and the Member States (such as the Free Trade Agreement with South Korea), both types of agreements would cease to apply to the UK after Brexit: the former because the UK is not a party to them; the latter, known as ‘mixed agreements’, because they are in essence of a bilateral character, even though the UK is a contracting party (the status of such agreements post Brexit was examined in this blog last year (here).

In the light of the above, the extension of the application of the existing agreements to the UK post Brexit presupposes the consent of the other contracting parties. This consent would require a modification of the existing agreements. It is for this reason that the Explanatory Notes to the Trade Bill state that ‘the new UK-third country agreements that are implemented through use of this power will be legally distinct from the EU-third country agreements on which they are based’ (para. 53).

There is no information as to the form of these ‘new UK-third country agreements’. Their scope, however, may vary. The existing EU-third country agreements would certainly require some amendments to their wording, so that they reflect their application to a state which is no longer an EU Member State. They may well require more than technical modifications. For instance, it may be necessary to adjust some of their provisions to the new post-Brexit trade reality.

The range and depth of such changes would depend to a great extent on the approach of the other contracting parties. Trade treaties, after all, are the outcome of long and complex negotiations and of package deals and compromises reached in a very specific policy context.  The Trade Bill presupposes the good will of third countries to extend existing deals to a completely new context. It may not prevent, however, these countries from seeking to unravel specific aspects of these deals in order to maximise the benefits for their economy.

The challenges of achieving what the power to implement trade agreements presupposes

In addition, therefore, to the negotiations that the UK carries out with the EU in the context of Article 50 TEU, there is an international trade layer to the current efforts to manage Brexit. It involves the third parties with which the UK currently shares trade agreements pursuant to its EU membership. The timely and successful outcome of such negotiations may be facilitated considerably by the cooperation between the UK and the EU – after all, the EU is a party to all the trade agreements to which the Trade Bill refers and which currently govern the UK’s relations with a considerable number of third countries.

The UK-EU cooperation on this issue is mentioned expressly in the Guidelines for Brexit Negotiations that the European Council adopted on 29 April 2017 (‘a constructive dialogue with the United Kingdom on a possible common approach towards third country partners, international organisations and conventions concerned should be engaged’, para. 13) (here). Similarly, the negotiating directives adopted by the Council on 22 May 2017 state that ‘a constructive dialogue should be engaged as early as practicable with the United Kingdom during the first phase of the negotiation on a possible common approach towards third country partners, international organisations and conventions in relation to the international commitments contracted before the withdrawal date, by which the United Kingdom remains bound, as well as on the method to ensure that the United Kingdom honours these commitments’ (para. 17) (here).

Two points about such a common approach are worth making. First, the overall climate of the Article 50 negotiations is bound to have an impact on how smooth and efficient the post-Brexit adjustment of the UK’s existing trade treaties would be.

Second, and following from the point made in the previous section, the willingness of third countries to accept the arrangements proposed by the UK or by the UK and the EU should not be presumed. In fact, the challenges of this process have already become apparent in the World Trade Organisation (WTO) context. In September 2017, the UK and the EU reached agreement about the adjustment of tariff rate quotas on the basis of historical averages. Before, however, they even notified the Permanent Representatives of the other WTO parties formally, they received a letter from the representatives of the United States, Canada, Brazil, Argentina, New Zealand, Thailand, and Uruguay in which this approach was rejected (here). In other words, adjustment or extension of existing trade relations post-Brexit would require negotiation.

The reliance upon Henry VIII powers

The power to implement trade agreements pursuant to the Trade Bill is a power for the executive. As it provides for the amendment by the executive of primary legislation that has the status of retained EU law (in the meaning of the Withdrawal Bill), it introduces Henry VIII clauses in the area of implementing international agreements. Whilst the power to implement is exercised by unamendable statutory instruments, its renewal is subject to a resolution of each House of Parliament (Schedule 2(4)).

The extensive use of Henry VIII clauses is a thread that runs through the Brexit Bills that have been presented to Parliament (see in this blog). It is a controversial aspect of the Withdrawal Bill that is being debated in the House of Commons at the time of writing. In the specific context of the Trade Bill, the scope of the power to implement is broad and is not be confined to merely technical adjustments. As the Department for International Trade acknowledges in a memorandum on delegated powers that accompanies the Trade Bill, the power ‘is broad enough to allow implementation of substantial amendments, including new obligations’ (para. 46). (here).

There is a disjunction between the implementation of trade agreements pursuant to Henry VIIl clauses and the increasing emphasis on transparency and accountability in international trade law. The latter has emerged in the last few years in response to the strong public disquiet about international trade deals and their implications for domestic legal orders. Whilst the extensive use of Henry VIII powers may appear to provide the process of the implementation of trade agreements with flexibility, it feeds into the growing concern about the lack of accountability in the area.

What is missing from the Trade Bill

The Trade Bill does not deal with trade agreements that the UK intends to negotiate once it has left the EU. It is also silent on the direction of the future trade policy of the UK. Instead, it merely provides the main elements of a mechanism for implementing existing trade agreements once the latter have been adjusted in order to deal with Brexit. In doing so, as this blog suggested, the Trade Bill leaves important issues open.

The EFTA Court, the equivalent of the CJEU for the non-EU countries within the European Economic Area, has handed down a judgment in Case E-16/16 Fosen-Linjen AS v AtB AS, holding that a simple breach of public procurement law may in itself be sufficient to trigger the damages liability of a contracting authority. Provisions of EEA public procurement law are identical to those within the EU and hence the UK.

This ruling puts the EFTA Court at variance with our own Supreme Court and its finding that a “sufficiently serious breach” is required to trigger the liability of a contracting authority in such circumstances in EnergySolutions v NDA.

The EFTA Court judgment is of particular interest while an EEA-type solution, including the EFTA Court’s jurisdiction, remains on the table as a possible transitional or even permanent outcome in Brexit negotiations.

A link to the Monckton summary and case note on EnergySolutions case may be found here.

The EFTA Court’s summary of the Fosen-Linjen judgment is here.

Brexit is generating debate on so called Henry VIII powers, and is likely to do so for a number of years. They give rise to some basic questions. How do we identify Henry VIII powers? How are they different from the power to make delegated legislation? Henry VIII powers would allow ministers to change primary legislation. That leads to a fundamental question over the legality of such powers under the constitution. The use of such powers will become increasingly important when the process of dismantling those parts of the vast body of EU law incorporated into UK law under the European Union (Withdrawal) Bill that the UK does not wish to keep begins.

It is already strongly arguable that unless ministers are given sufficiently clear authority to change primary legislation by statute, ministerial attempts to change primary legislation without further sanction from Parliament would be unconstitutional.

Henry VIII was given his powers by the Statute of Proclamations, passed by Parliament and repealed by Parliament following his death as the following brief historical perspective on Henry VIII powers shows. That article draws attention to a talk given by Lord Judge in 2016 where his lordship questioned the legality of skeletal provisions enabling ministers to change primary legislation. The Supreme Court in the Miller judgement ([2017] 1 ALL ER 593) referred to Henry VIII clauses in the context of the power to make ancillary regulations. The Supreme Court also lends support to Lord Judge’s contention that skeletal provisions permitting changes to primary legislation would be unconstitutional by making clear that

“…the principle of legality means that Parliament must squarely confront what it is doing and accept the political cost’, and so ‘fundamental rights cannot be overridden by general … words’ in a statute”.

There is understandable concern over the prospective use of Henry VIII powers. However historical and recent legal precedent provides ammunition for contesting the use of such powers.

This blog post is a version of a blog by George Peretz QC on the UK Trade Forum blog . The UK Trade forum is a new initiative by a number of experts in the law and policy of trade to encourage informed public discussion of trade issues in the UK: both George Peretz and Thomas Sebastian are on its steering committee.

Previous post on this blog briefly explained the main features of trade defence instruments (“TDIs”).  In short, they are exceptional customs duties imposed on products that are found to have been “dumped” or subsidised by the exporting country government. This post considers what the UK Government White Paper on the UK’s future trade policy, published on 9 October 2017, has to say on the issues that will need to be decided as to how TDIs will operate in the United Kingdom after Brexit.

Impact on the transitional position

Since TDIs involve the imposition of duties, the United Kingdom will be in no position to take its own independent action on the imposition of TDIs while it is still in a customs union with the EU: any decision by the UK government not to follow an EU TDI would mean that there would be a gap in the common external tariff through which subsidised or dumped goods could pass into the EU, evading the TDI. Any transitional arrangement will therefore, necessarily, involve an automatic pass-through of EU TDIs to the United Kingdom. The United Kingdom will need a mechanism to ensure that UK courts follow the EU courts in interpreting the measure and, conversely, that they do not, if the measure is withdrawn or annulled by the EU courts.

The White Paper does not cover these issues, and instead simply says (at §5.1) that “The new UK trade remedies investigating function will need to be operational by the time we leave the EU. This will enable it to take on new investigations and reviews of existing cases.” Given the points made in the previous paragraph, is hard to square that passage with the Prime Minister’s recognition of the need for a transitional period.

Impact on domestic policy

The fact that other WTO members can impose countervailing measures (“CVMs”) is a serious constraint on the ability of any WTO member to subsidise industries which conduct any significant amount of international trade. Since the devolved administrations have considerable powers to grant subsidies (including, increasingly though devolved tax powers), the need to avoid breach of the United Kingdom’s obligations at WTO level will need to be factored into the post-Brexit devolution settlement. Again, although the White Paper frequently refers to the need to consult the devolved governments on trade matters, it is silent on this particular, important point.

Impact on the deal between the EU and UK

Outside the EU, the default position is that the EU and UK will be able to impose TDIs on each other. As just noted, that in itself would be a constraint on the ability of the United Kingdom (were it to wish to do so) to subsidise domestic producers: the result would be likely to be that those producers would face CVMs from the EU. The United Kingdom might seek a mutual agreement with the EU not to impose TDIs: given that the United Kingdom is the smaller player and hence more likely to be adversely affected by EU TDIs than vice versa, that would seem to be in the United Kingdom’s interests, and would avoid problems in enforcing TDIs at the Irish border. It would also protect the United Kingdom against a protectionist turn by the EU (with an eye on Canada’s concerns about the use of TDIs by the current US Administration).

However, that is not a sustainable position unless the United Kingdom is prepared to agree to State aid control and to commit to an effective competition policy. That is because the whole rationale of TDIs is to deal with distortions caused by state subsidies and protected or monopolistic domestic markets: and if the EU is concerned that the United Kingdom could potentially go down that route, it will refuse to renounce the use of TDIs. Note here that even the EEA Agreement – Article 26 of which contains a mutual renunciation of TDIs as between the EU and the three EEA/EFTA States – nonetheless allows TDIs in relation to fish and other products not covered by the State aid and competition provisions of the EEA Agreement: and, as a result, the EU has in the past imposed anti-dumping duty on, for example, Norwegian salmon exports (in that case after a complaint from the Scottish salmon industry).

The White Paper does not discuss these issues.

Creation of a domestic TDI regime

Outside the EU, the United Kingdom will need to impose its own TDIs: the mechanisms for doing that are briefly discussed in the White Paper. Issues that need to be sorted out include:

• Who should investigate and take decisions? The White Paper say that the Trade Bill will create “a new, independent, trade remedies investigating authority as a new arm’s length body that will investigate trade remedies cases and make recommendations on the basis of clear economic criteria.” This is interesting and ambivalent language, which probably reflects an underlying tension that has not yet been resolved. The tension is this.
  • On the one hand, TDIs involve the imposition of taxes (in the form of duties) and may involve a balancing of competing domestic interests (as well as wider considerations of international trade politics) the Government is likely to want to maintain political control over the imposition of TDIs.
  • On the other hand, the Government is also likely to want an element of independent evaluation so as to assure business, other countries, and the courts that the difficult judgments that have to be made on technical issues are not taken on political grounds, and that procedures are fair and transparent. Moreover, it may well suit Ministers faced with competing domestic political pressures to be able to say that decisions are a matter for an independent decision-maker.
• The White Paper’s language shows that getting that balance right will be tricky. It is keen to highlight the proposal that there will be a new independent body. But it is critical to note that, slipped in at the end of the sentence, is the point that that independent body will merely “make recommendations”. That raises the questions – unanswered in the White Paper – of who is to receive those recommendations and the power of that person to reject those recommendations. One can guess that the decision-maker will in fact be the Trade Secretary: but what will be key is the basis on which he or she is able to reject the independent body’s recommendations, and the procedures that have to be followed before he or she does so. The White Paper says nothing about the former, and as to the latter merely promises transparency and fair procedures throughout.
• What powers should the authorities have to investigate? What presumptions should they be able to apply if faced with non-cooperation by bodies outside the jurisdiction? Should there be any constraint on their powers to demand information from foreign state or state-owned actors, given legal principles of State immunity and wider diplomatic concerns? There is no discussion of these issues in the White Paper.
• Should the wider public interest be considered, or should the UK go down the US route where duty is automatically imposed if the legal conditions are made out? Should the dice be loaded, as in the EU, in favour of imposing duty where the legal conditions are made out? If the public interest is to feature, what factors should be relevant or excluded as irrelevant, and who should make the public interest assessment? Here, the White Paper has a bit more to say. It is makes it clear that there will be an “economic interest” test, which will be applied before any remedies are imposed. That economic interest test will “take into account the interests of domestic producers and regional impacts, as well as those of other interested parties, such as user industries and consumers.” That means that, unlike in the United States, the UK authorities will have power to refuse to impose TDIs even if it is clear that dumping or subsidisation has occurred: the UK authorities will be able to refuse to impose those measures on the basis (for example) that the benefits of the dumping to end users in terms of lower prices outweigh the interests of domestic suppliers. The White Paper does not, however, explain whether the economic interest test will be applied by the independent body or by Ministers.
• The role of the courts. The White Paper promises a right of appeal by “interested parties” to the courts (interestingly, against “decisions made by the investigating authority” rather than by Ministers: the “decisions” language here does not sit well with the earlier statement that the investigating body will merely “make recommendations”). But should there be a statutory appeal to a specialist tribunal (perhaps the Competition Appeal Tribunal, with its expertise in economics), or should the only remedy be judicial review in the Administrative Court? To what extent should the courts be entitled to look at the merits (factual issues and issues of economic judgment) rather than just the legality/rationality of a decision? Who is an “interested party” able to challenge the imposition of duty – purchasers, importers of the goods, consumer groups, or just the exporters? What remedies should the courts be entitled to grant if the duty is quashed (repayment of duty to the importer who actually pays it? compensation to the exporter or purchasers?). Should the courts have power to suspend the imposition of duty on an interim basis? Given that those who apply for TDIs to be imposed will be able to challenge a decision not to impose TDIs on usual judicial review grounds, should they be granted a right of appeal against such a decision, and if so who should have that right and on what grounds?
• What should the relationship be between TDIs imposed by the EU on third countries and UK TDIs? In reality, in cases where the EU has imposed anti-dumping duties or CVMs on, for example, exports of Chinese steel, the United Kingdom might well just want to follow the EU (especially as, if it did not, that could raise issues at the Irish border). There are also evident advantages in extensive co-operation where the EU and UK interests are very similar. If co-operation with the EU is to be “built in” to the UK regime, to what extent should the UK authorities be able to rely on work done by the EU? What co-operation mechanisms, such as exchange of documents and information, are needed with the EU and will the EU agree to them? What should be done where the impact of the dumping or subsidy is plausibly different in the United Kingdom as compared to the EU? What should happen if the EU TDI decision is annulled by the EU courts, or the UK decision quashed or suspended by the UK courts? Should the UK courts be bound by the EU courts’ interpretation of the law, and if not how are any differences to be resolved? What weight, if any, should be attached to findings of fact by the EU authorities or the EU courts? The White Paper is silent on all of those issues: its only discussion of EU decisions is about reviewing which EU TDIs in force on Brexit should continue to be applied.

Conclusion

The United Kingdom will need to establish a robust mechanism for implementing TDIs post-Brexit. The challenges of setting up such a mechanism should not though be under-estimated, and though the White Paper makes some progress in this respect, it remains silent on a large number of key questions. Moreover, the future relationship between the United Kingdom and the EU in the field of TDIs – which has not received the attention it deserves and about which the White Paper maintains a complete silence – remains very obscure and raises a large number of difficult issues.

This blog post is a version of a blog by George Peretz QC on the UK Trade Forum blog . The UK Trade forum is a new initiative by a number of experts in the law and policy of trade to encourage informed public discussion of trade issues in the UK: both George Peretz and Thomas Sebastian are on its steering committee

In the real world of international trade, governments get involved in supporting their own domestic industries. Trade defence instruments (“TDIs”) are mechanisms, allowed by WTO rules, that WTO members can deploy to defend their own industries against “unfair” foreign competition. There are two types of TDIs: “countervailing measures”, which are additional duties designed to deal with goods that have been subsidised by exporting country governments, and “anti-dumping duties” to deal with dumping.

These measures can be very significant. The recent proposed action by the United States concerning alleged Canadian subsidies for the aircraft manufacturer Bombardier attracted a lot of press coverage, and if confirmed will have major implications for Bombardier’s business, including its plant in Northern Ireland. On this side of the Atlantic, the EU had 98 TDIs in place in 2015: and duties imposed by those measures can be very high (the EU has recently imposed duties at rates over 64%). The US has gone far above this level and imposed an anti-dumping duty of 265.79 % on a certain type of steel. The UK Government, in its White Paper on the UK’s future trade policy, published on 9 October 2017, made it clear that the United Kingdom will, after Brexit, have systems in place to impose TDIs: a further post will consider what the White Paper has to say on that.

Anti-dumping duties

At WTO level, the Anti-Dumping Agreement (WTO Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994) regulates the concept of dumping and the steps WTO members are permitted to take to deal with it. In the EU, Regulation 1036/2016 sets out the legal framework.

The concept of “dumping” comes from the US, where anti-dumping legislation dates from the early part of the 20th century. A product is said to have been “dumped” if its “export price” to the importing country is less than its “normal value”.

For those who know some competition law, it bears some relationship 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). But it does not involve any claim that the perpetrator is “dominant” or has market power. Rather, the intuition is that exporting states may offer their industries guaranteed domestic markets, insulated from competition by high tariff or non-tariff barriers. Those industries could, the argument goes, use those profits to fund loss-making exports (i.e. a “cross-subsidy”): and if they do so those loss-making exports will damage the domestic industry of the importing country, which will be unable to compete with those artificially low prices. The extent to which dumping is in fact a significant economic issue is highly debatable: but all significant WTO members make use of the concept.

Countries impose duties on dumping, in order to remove the “dumping margin”. This is calculated by comparing the difference between the “export price” of a good and its “normal value”. The really 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 there may be few such sales, or domestic sales may be between associated companies or distorted in various other ways. 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. In the EU, those difficulties are dealt with to some extent by allowing the authorities to make assumptions 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. This 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). These costs have to be taken into account.

Once all of this has been taken into account, a “dumping margin” can be calculated and a duty imposed so as to eliminate that margin.

China and “market economy status”

China poses particular problems in this context. When it acceded to the WTO, members took account of China’s economic system at the time by providing in the accession agreement that, for 15 years after its accession in 2001, importing countries would be allowed to base their calculation of “normal value” not on Chinese prices and costs but on a constructed methodology, unless the Chinese exporters could show that market economy conditions obtained in that sector in China. After 15 years that rule expired – and the expiry of that rule is sometimes referred to as China obtaining “market economy status”. However, in practice the expiry of the 15-year rule has not meant much change so far. That is because the expiry of the 15-year rule simply means that the general rules apply: and those general rules allow departure from a domestic price and costs model in appropriate circumstances. The EU Commission’s response to the end of the 15-year special rule for China has therefore been to announce, in effect, that it will rely more heavily on the general rules: its proposal (agreed last week by the EU Council) is for a “new methodology [in the EU anti-dumping Regulation] that will be country-neutral. It will apply the same way to all WTO members and will take into account significant distortions in certain countries, due to state influence in the economy” stating that “in determining distortions, several criteria will be considered, such as state policies and influence, the widespread presence of state-owned enterprises, discrimination in favour of domestic companies and the independence of the financial sector.”  Whether this proposal is WTO-compliant is in dispute.

Countervailing measures

Countervailing measures (“CVMs”) deal with government subsidies. The EU regime is set out in Regulation 1037/2016. Under the WTO Subsidies and Countervailing Measures Agreement, 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 one 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

• “prohibited”: when the subsidy is given in return for export performance (for example, a grant that depends on a certain volume of exports being achieved) or use of domestic over imported goods, or
• “actionable”: when the subsidy is specific to a company, industry, set of industries, or regions.

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 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.

The amount of duty imposed has to be based on the amount of the subsidy. 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 industry of the importing country has suffered injury 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.

Circumventing TDIs

One obvious response of a company facing TDIs is to ship its goods to a third country, slap the equivalent of a new coat of paint on them, and then export them from that country. To stop that, anti-circumvention measures may be taken. As often the case with anti-avoidance provisions, these can be extremely complicated.

What can a domestic producer do if it thinks it is affected by a subsidy or by dumping?

The decision whether to impose anti-dumping duties or CVMs is for the government concerned. So it is up to the domestic producer to try to persuade its government to take action.

There may well be a number of reasons why a government will not want to impose anti-dumping duties or CVMs even if it has a good legal basis for doing so. After all, purchasers in the importing countries (which may include domestic industry as well as consumers) may well benefit from the low price of the exported goods, even if the goods are “dumped” or those prices are subsidised. So, as is so often the case in trade matters, the decision to impose CVMs or anti-dumping duties typically involves complex trade-offs between clashing domestic interests.

Indeed, the relevant EU rules provide that CMS or anti-dumping duties may not be applied where it is not in the “Union interest” to do so. Thus, Article 21 of Regulation 1036/2016 (Article 31 is the equivalent provision in the Regulation dealing with CVMs) requires that the Union interest must be “based on an appreciation of all the various interests taken as a whole, including the interests of the domestic industry and users and consumers.” However, that Article also requires that “special consideration” be given to the “need to eliminate the trade distorting effects of injurious dumping and to restore effective competition”. It also requires a clear conclusion that the imposition of duty is not in the Union interest before a decision can be taken not to impose duty. That all means that the default position is that if dumping is found, duty will be imposed. Further, it is unclear whether it is legitimate for the EU authorities to take into account wider trade-related or political considerations.

The US goes even further – its complex procedures make no provision for a “public interest” override, so that if a complainant (such as Boeing in the Bombardier case) can show that dumping is occurring, the US authorities have to impose anti-dumping duty.

In both cases, however, cynics may note that the complexity and imprecision of much of the analysis required in a TDI case inevitably gives the authorities in practice considerable “wriggle room” to avoid politically inconvenient findings.

What can an exporter do if it finds itself at the wrong end of a TDI?

There are two main courses of action open to it (which can both be taken at the same time).

One is to seek to challenge the decision in the courts of the state imposing the measures. In the EU, that is done by applying to the General Court of the EU for an order annulling the measure on the basis of error of law (which would include procedural errors) or manifest error of fact. The losing party can then appeal to the Court of Justice of the EU.

The other is to persuade its own government to invoke the WTO’s own dispute resolution mechanisms, but that involves persuading that government to take action, a decision that will always be “political”. Further, the WTO mechanism takes time and offers no right to damages or repayment for the companies affected.

Conclusion

TDIs are a critical element of a modern trade policy. They remain deeply controversial (indeed, many experts in the field are very sceptical of the rationale for anti-dumping rules, as well as critical of the somewhat very rough-and-ready methodologies sometimes employed). But there is a broad consensus, shared by the UK Government, that whatever its role as a “global champion of free trade”, the United Kingdom will need to establish a robust mechanism for implementing them post-Brexit. The issues involved in setting up a UK system of TDIs will be discussed in a separate post on this blog.

On 18 September, Christopher Muttukumaru CB gave a presentation to the FIDE Foundation in Madrid on the enforcement of EU-derived rights in a post Brexit UK context. His co-speaker was Professor Pedro de Miguel Asensio, Professor of EU Law at Complutense University, Madrid.

In summary, Christopher’s presentation covered a number of issues, including the following. The EU acquis as it exists on the effective date of Brexit will become UK national law by virtue of the European Union (Withdrawal) Bill. But the acquis may be amended as it is converted into retained national law; moreover it would be open to the UK Parliament to make further modifications in the future.  The UK considers the CJEU should not have a (direct) post-Brexit enforcement role. Nor, it seems, should the Commission.

Enforcement of rights will therefore become a matter for the national courts and for any regulatory bodies which are given powers in substitution for those of the Commission. The national courts will be bound to give supremacy to rulings of the CJEU in respect of retained EU law provided that those rulings were given before Brexit day. But the UK Supreme Court will alone have power to refuse to follow pre-Brexit rulings of the CJEU. For the future, the UK courts may take account of EU law, but need not do so.

Yet the UK wishes to have full access to the Single Market in the transitional period following Brexit.  There is an obvious risk to the consistency of law making in a post Brexit future unless the UK is able to guarantee that it would follow post-Brexit laws adopted by the EU in the transitional period. There is also an obvious risk to the uniformity of approach by the courts. It seems doubtful that the EUWB, as drafted, will provide adequate assurance to the EU’s negotiators. For example, having regard to the UK Government’s deregulatory aspirations, will the UK continue to adhere to the Single Market rules as they apply to the EU27?