Most Favoured Nation: Trouble Brewing at the TRA
Trade remedies, Katherine Tai, WTO databases and the real reason(s) the UK isn't joining DEPA
Let’s say you wanted to embed a pro-liberalisation bias into the very bones of UK trade policy, and free it from the meddling hands of vested interests and their captured politicians. One of the first things you’d look at is your approach to trade defences. While there can be legitimate reasons to apply penalty tariffs to imported goods – either because they are being dumped on your market at an artificially low price, unfairly benefiting from a market distorting subsidy or there’s been an unexpected surge in imports – domestic producers are always complaining about something or other. Even worse, these companies can sometimes get their MPs to moan too. “Tariff this, tariff that, tariff everything”. It can get really annoying.
So way better to take the trade defence decision making process out of the hands of easily-influenced politicians, and instead make it a boring, evidence-driven, technocratic affair. This way, companies only get their tariff protection if there’s evidence that unfair practices actually exist, and they are suffering as a result. No evidence: no tariffs!
If you’re really being clever about it, you could put the people in charge of investigating and making trade defence recommendations somewhere no politician would ever voluntarily go, such as Reading. You could also legislate to restrict the ability of politicians to meddle: the geeks investigate and make their recommendations, the politicians get to accept or reject the recommendation, nothing more … and if the politicians decide to reject the recommendation of the geeks they better have a darn good reason.
Anyway, the approach outlined above is pretty much what the UK went for when it set up its own Trade Remedies Authority (TRA) post-Brexit. And all was going swimmingly for about five months or so, right up until the TRA made its first recommendation …
Following the UK’s exit from the EU, the TRA has been reviewing the trade defence measures the UK rolled over from EU membership to make sure they are justifiable on a UK-only basis. These included the EU’s steel safeguard measures (a 25% tariff applied to imports outside of yearly country-specific quotas), which were introduced as a result of Trump’s trade war. Upon reviewing the evidence, the TRA recommended that the UK extend the steel safeguard measures across 10 product categories for a further three years. For the other nine product categories the TRA recommended revoking the safeguards, either because there was no evidence of increased imports or damage to UK producers, or because the safeguard tariff was damaging the competitiveness of UK firms that use steel to make other things.
So far, so evidenced based. It was then up to the then Secretary of State for International Trade, Liz Truss, to either accept or reject the recommendation. Yes, or no.
But politics has a way of intervening. The TRA recommendation led to some British steel producers having a tantrum, questions arising about how dropping protections for domestic industry aligned with the government’s levelling up agenda, and other politicians and cabinet ministers getting involved.
As a result, this minor furore resulted in the Government rushing through emergency legislation to give Truss the power to tweak the TRA’s recommendation. Instead of revoking the safeguard for nine product categories, the UK instead revoked the safeguard for four, but temporarily extended the safeguard protection for the other five.
(The TRA is now reconsidering its recommendations following requests both from UK steel makers for more protection (surprise!) and from UK firms that actually use steel for less.)
Anyway, for now the UK has illegally retained a load of safeguard measures … as evidenced by the fact the UK’s own body tasked with determining whether a trade defence measure is justifiable or not has said they are not. (As with lots of things trade law, this only matters if another country cares enough to make it matter. Which so far they haven’t … but it’s not the best position to be in.) It has also undermined the legitimacy and independence of the arms-length body tasked with dealing with trade defence, and in turn its entire approach.
The thing I don’t get is why the government didn’t just lean into the idea the TRA is independent, and accept its recommendations. It’s not as if a case as tricky as this, involving multiple safeguarding duties, comes up very regularly. But then again I am not a politician.
So what next? Given the independent body was kneecapped on pretty much day one, there is now a question of the TRA’s legitimacy. If trade defence isn’t going to be a technocratic, arms-length, evidence-led process after all, why bother with the charade: bring the whole thing back inside of government, get it the hell out of Reading, and levy trade defence tariffs on the basis of what works politically at any given time.
Amirite? (I hope not.)
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Going DEPA and DEPA
South Korea has officially applied to join the Digital Economic Partnership Agreement (DEPA), a trade deal between New Zealand, Chile and Singapore focusing on things like data flows, AI and the like. I know what you’re thinking. This sounds like exactly the sort of thing the UK would like to join, given it is a partnership agreement focusing on digital trade and, importantly, does not have the word ‘European’ in its name.
So why hasn’t it?
You get a range of answers to this question. The usual one is that the UK is prioritising CPTPP accession and its bilateral digital trade negotiations with Singapore in the first instance. Which is fair enough.
But there is a more interesting explanation. Some suggest that the reason the UK does not want to join DEPA yet is because there is some concern about the legality of the agreement. As in, a trade agreement that exclusively covers digital trade clearly doesn’t clear the substantially all trade/substantial sectoral coverage hurdle that trade agreements must jump over if they are to be considered a legal exemption to a country’s WTO obligation to treat all other members the same [edit: I’m thinking specifically about GATS V]. The argument goes that while the existing members of DEPA can treat it as an addition to their existing trade agreements with each other (e.g. CPTPP), the UK wouldn’t be able to do that as it doesn’t currently have a trade agreement with all of them (New Zealand, in particular).
But I’m not so sure about this. Digital trade agreements don’t tend to unlock any new liberalisation, rather they see countries commit to doing/not doing things they were already doing/not doing anyway. So it’s not clear to me that the UK joining DEPA would lead it to offer preferential terms to the DEPA membership, over and above the applied regime it already offers to everyone anyway. So therefore no discrimination, no problem.
But this line of thinking raises another issue. What if joining DEPA, and locking in the UK’s existing applied levels of openness to digital trade, works as a de facto liberalisation of the UK’s WTO services schedule. In that, now the bar has been raised, and the digital measures apply to everyone whether they are a member of DEPA or not … would the UK just be giving away a lot for free? (Some would argue [me] this is exactly what New Zealand wants to happen, and is indeed why they create these small plurilateral agreements.)
Anyhow – I’m keen for more views on this, particularly from trade lawyers. What do you think? Please let me know either in the comments, by email or on twitter …
Meet the new boss, same as the old boss
After careful review of the US-China trade relationship, USTR Katherine Tai used a speech at the think tank CSIS to outline the Biden administration’s new approach, which sounds suspiciously like a continuation of the old approach.
The TL;DR is that the US will keep in place tariffs on hundreds of billions of dollars of Chinese imports up until China meets the weird commitments it made to Trump to purchase fixed amounts of US products. For a more in depth explanation of what’s going on, read this excellent piece by trade rock star, Chad Bown. It contains jazzy charts:
GATT dispute settlement database
The WTO has launched a new database, which will allow people to more easily hunt down information on the 317 GATT disputes brought by contracting parties between 1948 and 1995. Cool.
Find it here.
While we’re on the subject of WTO databases. The WTO and WCO have also just released a new tool allowing people to visualise the history of HS codes [the product numbers assigned to different types of products]. This is more fun than it sounds, and as Lauge Poulsen points out Molluscs and aquatic invertebrates (160590) have been on quite the journey. [Seriously, type it into the tool and check it out]
As ever, do let me know if you have any questions or comments.