Most Favoured Nation: Mind The Gap

The TRA is back, baby

Welcome to the 128th edition of Most Favoured Nation. The full post is for paid subscribers only, but you can sign up for a free trial below.

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As long-term readers will know, I occasionally like to write about the trials and tribulations of the UK’s Trade Remedies Authority.

Specifically, I like to write about the time the TRA tried to get rid of some illegal safeguard tariffs on steel but was overruled by the government and was then forced to write a report changing its recommendations, which it did reluctantly, which tangentially led to Lord Geidt resigning and the fall of the Boris Johnson premiership.

[Seriously …]

Anyway, it’s nearly time to do all this again!

The current tariffs expire on 30 June 2024, and the UK needs to decide whether to extend them again. Based on the criteria set by the government, which the TRA has previously been quite grumpy about, in its Statement of Intended Final Determination the TRA has recommended the tariffs be extended for another two years.

But whereas before the other countries that were annoyed with the illegal tariffs stayed quiet, this time they have submitted their objections [emphasis added].

Here’s China:

“The scope of the investigation should not cover the product categories 6, 7, 12, 16 17, because the SG measures is not made on the investgation [sic] findings. In the last investigation, TRA DID reach the investigation findings that there was no evidence that the absolute and relative import volume of product categories 6, 12, 16 and 17 has increased and DID not conduct the injury investigation on the product categories 6, 7, 12, 16 and 17, that is, there is neither investigation nor evidence to show that product categories 6, 7, 12, 16 17 have caused injury to the UK domestic industries. Therefore, the determination of the Secretary of State to extend the period of the SF for above 5 product categories without any investigation and investigation findings wass [sic] inconsistent with Articles 4 and 7 of the Agreement on Safeguards.”

South Korea:

The UK’s safeguard measure do not meet the requirements of WTO Agreement on Safeguards. (1) TRA’s analysis to impose steel safeguard did not match the principle of parallelism as there was a difference between the scope of goods subject to a safeguard investigation and the scope of the application of safeguard measures. In this regard, the lack of parallelism in the TRA’s analysis violates Article 2.1 and 4.2 of WTO Agreement on Safeguards. Notably, 1) UK did not take the imported amounts from EU 27 countries after the EU Exit into the investigation and 2) the UK took the EU’s measure without proper independent investigations that was procedurally required. (2) Also, in TRA’s review report, the casual relationship between the increase in imports and the occurrence of damage is unclear, suggesting a possible violation of Article 2.1, 4 and 7 of the Safeguard Agreements. Particularly, although the TRA suggested not extending safeguard measure on five products including product categories including product number 6, 7, 12, 16, and 17, additional two years of safeguards were imposed starting from July 2022. Right after, we have noticed that the former Secretary of state for Department for International Trade, Trevelyan has acknowledged that ‘the decision to extend the safeguards on the five product categories departs from our international legal obligations under the relevant WTO agreement.’ In this regard, the imposed quota on those five products should be eliminated.

And Turkey:

“In addition, even with the Transition Review, the UK itself concluded that these criteria were not met for certain product categories. For instance, the TRA recommended revocation of the measures for the categories 6, 12, 14, 16, 17 and 27 due to lack of absolute or relative increase whatsoever in these categories between 2013 and 2017. Similarly, it was confirmed that categories 4B, 19 and 28 were not produced in the UK. Further, TRA concluded that imports of category 25A do not cause serious injury to the domestic producers. Despite the TRA’s findings that there had been no increase in long steel products (including rebar) imports or that the removal of the measure was not likely to cause serious harm, the UK opted for the continuation of the measure in these categories, which is also considered as not compliant with the WTO Safeguards Agreement.”

It seems to me that the problem the UK has here is that the TRA’s own original investigation found that a number of these tariffs are unjustified and, unfortunately, we have a former UK secretary of state on record acknowledging that the measures are illegal (as per the South Korean submission):

Right after, we have noticed that the former Secretary of state for Department for International Trade, Trevelyan has acknowledged that ‘the decision to extend the safeguards on the five product categories departs from our international legal obligations under the relevant WTO agreement.’

Hmmmmmm.

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Lies, Damned Lies, and Statistics

Adam Wolfe, an emerging markets economist at Absolute Strategy Research, has shared some interesting charts.

The first is this one, which shows that — counter to recent news stories saying that Mexico has overtaken China as the biggest exporter to the US – the US and China trade data doesn’t match, and that China exports to the US recorded by Chinese trade authorities [the yellow lines] are much higher than China exports to the US recorded by US trade authorities [the thick black line]:

He also notes a big flip in the relationship — until 2018 it was always the US that recorded more imports than the Chinese reported exporting to the US. There are a few reasons for this, including question marks around Hong Kong and how shipping costs are accounted for. But from 2018 onwards, China is saying it is sending more stuff to the US than the US says it is receiving … which really shouldn’t be possible.

Adam estimates that in 2022 this amounts to around $120bn in missing trade. His explanation: tariff avoidance. Here’s his chart showing that the flip in the relationship [Chinese exports to the US being recorded as higher than US imports from China] is concentrated in Chinese exports subject to US tariffs:

I think he is probably right about this, for the most part. It makes sense that Chinese exporters are avoiding US tariffs by sending their products to the US via a different country, such as Mexico or Vietnam.

In the comments on his Twitter thread, some others raised the possibility that this data mismatch is due to the “SHEIN effect”. This theory is based on the fact that low-value parcels, valued at under $800, imported into the US are not subject to tariffs and therefore the US data recording is a bit shoddy. So in this scenario, an uptick in US consumers buying some from Chinese e-commerce websites could be responsible.

Again, I agree with Adam on this that the answer is “maybe a little bit, but not really”. Here he shows that low-value consignments could account for around $11.6bn of missing Chinese exports … but this doesn’t explain what has happened to other ~$118.4bn.

So yeah, probably circumvention.

But I do think this discussion highlights another wider issue: trade data are often a bit crap and this is of import/export data mismatch pops up quite a lot.

For example, immediately following Brexit, the Eurostat estimates of EU-UK goods trade were quite a lot different from the UK ONS estimates. The CER’s John Springford helpfully charted this out here: