Most Favoured Nation: Ex Officio

Why it's hard for the UK to start a trade war

Welcome to the 114th edition of Most Favoured Nation. This week’s edition is free for all to read. If you enjoy reading Most Favoured Nation, please consider becoming a paid subscriber.

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As we speak, the EU and US are failing to negotiate the so-called Global Arrangement on Sustainable Steel and Aluminium. If it is ever concluded, the GSA will probably involve two sets of measures. The first will involve tariffs applied to steel and aluminium imports from so-called non-market economies [see: China], and the second a carbon club type thing, with new tariffs/restrictions placed on carbon-intensive products sourced from outside the club.

The US will do this by ignoring its WTO obligations and initially just keeping its 25/10% tariff on all steel/aluminium coming in from China, the EU via a combination of new trade defence investigations and its existing carbon-border adjustment mechanism (CBAM).

From a UK perspective, this raises two questions:

1. If there is a carbon club, should it join?

2. If it does join, how exactly would it implement the necessary measures?

The first question is more existential. My working assumption is that the UK would eventually have to join. This is because being outside the club has three negative impacts:

1. Being outside the club would make the US angry.

2. Direct exports to club members could be penalised and face new tariffs/carbon levies/duties.

3. Carbon intensive, and non-market economy, steel and aluminium could be diverted onto the UK market. [Note: I think this could happen because of CBAM anyway.] This would make domestic producers sad, and put pressure on the UK government to join.

The second question – HOW? – is more technical.

One of the interesting things about the EU’s recently announced anti-subsidy investigation into Chinese EVs is that it was launched by the European Commission, even though the European Commission was not asked to do so by industry. This is referred to as an ‘ex officio’ investigation. The Commission has this power because it assumes there will be instances where the industry does not instigate an investigation because it fears retaliation from the offending state.

Although it has not been used much historically, this ex officio power allows the Commission to start investigations into whoever it wants, even if there is no industry demand.

The post-Brexit trade defence system is set up slightly differently.

By this I mean, the UK’s Trade Remedies Authority does not have the power to trigger investigations itself. It can only instigate an investigation if an application is requested by industry or “in exceptional circumstances” by the Secretary of State [Kemi Badenoch].

See the excerpt from the relevant legislation:

Initiation of a dumping or a subsidisation investigation

9(1)The TRA may initiate a dumping or a subsidisation investigation in relation to goods only if—

(a)it is requested to initiate an investigation in an application made—

(i)by or on behalf of a UK industry in the goods (“the applicant UK industry”), or

(ii)in exceptional circumstances, by the Secretary of State,

(b)it is satisfied that the application contains sufficient evidence that—

(i)the goods have been or are being dumped in the United Kingdom and the dumping has caused or is causing injury to a UK industry in those goods, or

(ii)as the case may be, the goods have been or are being imported into the United Kingdom and are subsidised, and the importation of the subsidised goods has caused or is causing injury to a UK industry in those goods,

(c)it is satisfied that it appears from that evidence that—

(i)the volume of dumped goods (whether actual or potential), and the injury, is more than negligible, and the margin of dumping in relation to those goods is more than minimal, or

ii)as the case may be, the volume of subsidised goods (whether actual or potential), and the injury, is more than negligible, and the amount of the subsidy in relation to those goods is more than minimal, and

(d)the market share requirement is met or the TRA waives the requirement in relation to the application.

This is an issue that has come up recently in discussions around whether the UK will instigate its own anti-subsidy investigation into imported Chinese electric vehicles.

Answer?

Well, if industry asks for an investigation, then sure. But UK industry doesn’t want the investigation … so probably not for now?

All of this means that if the UK wants to go down the US route of putting tariffs on everyone, it will probably need to change the legislative mandate of the Trade Remedies Authority.

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What is even the point

Simon Evenett and Fernando Martin have published a new briefing highlighting that, well, all this concern about imported Chinese steel and aluminium is a bit overblown.

As the chart below shows, from 2022 US and EU imports of steel and aluminium have been falling. The surge appears to be over. They also make the point that given the US and EU only account for a fairly modest share of Chinese imports, their ability to influence Chinese behaviour is also fairly modest. This could, of course, change if lots of other countries joined the theoretical carbon club.

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More Crime

In response to Most Favoured Nation’s deep dive into the main driver of the global economy [answer: Crime!], the EU has unveiled a new plan to crack down on drug traffickers moving crack cocaine through its ports. See:

1. A new European Ports Alliance to increase the resilience of ports against criminal infiltration by reinforcing the work of customs authorities, law enforcement, public and private actors in the ports across the EU. For example, through state-of-the-art scanning and equipment.

2. Dismantling high-risk criminal networks through facilitating financial and digital investigations, mapping the biggest criminal networks, reinforcing cooperation between specialised prosecutors and judges, and making use of the Schengen Information System (SIS) alerts.

3. Measures to prevent organised crime through exchange of best practices and guidance among Member States to prevent infiltration of these groups in the society and legal economy, prevent criminal groups to recruit youngsters and improve public safety and health, and to limit more effectively access to drug precursors.

4. Working with international partners to confront the global threat, including through reinforcing information exchange, joint operations on the main drug trafficking routes, and strengthening law enforcement and judicial cooperation with non-EU countries.

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Economic security

Mona Paulsen has released a new paper highlighting that everyone’s favourite new trade topic — economic security — is actually not new at all.

Here’s the abstract:

This article responds to industrial economies’ ever-frequent invocation of economic security to indefinitely justify activities that impair other states’ trade within the post-war global economic order. It makes two crucial contributions to the discourse. Through richly detailed archival research, the first contribution is to show how governments have long grappled with state interventions on critical materials, unpacking questions of self-sufficiency, conservation, and defeating foreign economic competitors within the embryonic postwar global economic order. I expose complications by assuming the General Agreement on Tariffs and Trade (GATT) was a site for security through rules-based trade by probing the dispute between the US and Czechoslovakia, exploring how Czechoslovakia faced increased insecurity of supply owing to US controls on defence-capable materials. Through historical examination, I disprove contentions that Cold War-era trade institutions are no longer fit for purpose. After that, I investigate the underexplored influence of the Korean War upon GATT contracting parties and reveal the importance of equitable distribution of strategic materials in what one US congressperson called a ‘super-government’ cartel. I redescribe the contingent character of these legal structures, showing the functions (and limits) of economic planning and military preparedness when governments and firms – fresh off the Second World War experience – demanded economic security and access to strategic supplies. The second contribution is normative – showing the potential to govern economic security strategies within existing World Trade Organization intuitional structures. Drawing on my historical contribution, I develop a conceptual framework that dissects economic security into four categories and explains how governments can – and should – address security ambitions without abandoning coordination and collective goals for the future.

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Best wishes,

Sam