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Is there objective truth to be discovered in a trade remedy investigation?

This post provides useful background to some of the key points made in the post New UK legislation on 'call-in' of trade remedy investigations. Two other posts also provide background to the analysis of the call-in legislation.

I caused some consternation in a workshop with my answer to this question!

During a recent workshop that I was giving, I was asked whether ‘truth’ exists in a trade remedy investigation. In other words, given the existence of national laws and WTO rules on trade remedies, is there a 'right' answer to whether trade remedies should be adopted or not?

I answered that, in my opinion, sufficient discretion exists for trade remedy authorities that a ‘correct' answer does not exist. I would go so far as to say that, in a large number of cases, a trade remedy authority could justify either imposing or rejecting measures while maintaining conformity with WTO rules and national legislation.

This led to a discussion around whether the facts matter. And the answer to this question, again in my opinion, is a resounding yes!

I think that I caused some confusion for some of the workshop participants in the apparent contradictions of the above stated views. In order to clarify this position it's really important to consider the nuances. So it seemed useful to use this new trade remedies blog to address this point.

This article will focus on dumping but the points equally apply to countervailing duty and safeguard investigations.

There is not a 'correct' answer to the key substantive elements of a dumping investigation

My starting point is the experience that I have had over the decades trying to predict and influence the outcomes of trade remedy investigations, Most of this experience is within the EU system but I do have some experience of other trade remedy authorities. I have calculated many dumping margins from clients' completed questionnaires and cannot recall that I ever produced the exact calculation that the European Commission did. However, I did often successfully predict the range within which it would fall.

Another starting point is that I am a technical nerd that loves the fine legal and economic detail of trade remedy investigations! My expertise is in preparing expert evidence on the substantive elements of the case. I have a lot less interest in the political aspects of a case because it's often too unpredictable and I like working within clearly defined rules and procedures. I state this because I have no agenda in trying to make trade remedies unnecessarily political.

Taking all this into account, my experience is that trade remedy authorities have considerable discretion in terms of deciding a) whether a measure will be adopted and b) the level of that measure.

There are actually many areas of discretion but I will give two specific examples to make the point:

  • Scope of the investigation/data - legislation on product definition, definition of domestic industry and sampling all leave considerable discretion to authorities. For the product, the precise tariff codes covered must be identified. Further, a decision must be made on the individual characteristics that will be taken into account for the purposes of making like with like price comparisons (i.e. a coding system for the purpose of the dumping calculation). The definition of the product concerned will affect the definition of the domestic industry that will be assessed for injury and there are additional decisions to make in terms of whether any companies should be excluded from domestic industry or not (e.g. if a domestic producer is also importing the dumped product). Finally, if sampling is used (for domestic industry and/or exporters), the companies selected to be in the sample will also affect the actual data used to conduct the analysis. All of these factors taken into account mean that a trade remedy authority is making many decisions which can greatly affect the outcome of the analysis.

  • Fine detail of the dumping calculation - the WTO anti-dumping agreement sets out detailed provisions on how the dumping margin should be calculated. This has been backed up by the evolution of some robust WTO jurisprudence on aspects of the calculation and forms the basis of all WTO Members' trade remedy legislation including in the UK. However, considerable room for discretion remains in the way in which many key issues are dealt with in the calculation. There are many points in the calculation where discretion must be used. I will give a couple of specific situations for the purposes of making this point;

    1. Areas of fine detail not specified in the legislation - There are many parts of the calculation where the precise methodology is not specified. An example of this is the 5% domestic sales test. For the 5% test, the US applies the test only at a global level (i.e. if the total domestic sales are at least 5% of the export sales, all domestic transactions will be used). The EU applies the 5% test in two stages (i.e. at the global level and then for each 'product control number (PCN)'). In the EU calculation, the global 5% test is applied but then transactions of individuals PCNs that do not meet the 5% test will not be used in the calculation of normal value.

    2. Areas where the legislation says what to do but considerable discretion remains in terms of accounting issues - For example, adjustments to normal value and export price must be made to ensure a fair comparison. There are often many factors that affect price comparisons which could be taken into account and there is a lot of scope for discretion in deciding which adjustments will be made and how they will be valued. Another example is the allocation of costs in the calculation of cost of production and sales. It is often the case that cost allocations at the level of individual PCNs are not made in the normal accounting procedures of a company. The company will make its own allocations in the completion of the questionnaire but a trade remedy authority has considerable discretion to adjust these cost allocations.

These are just some of the specific examples that could be given in terms of the discretion that trade remedies have in calculating a dumping margin. There are many others. Taking all of them into account means that, from the same data set, it is usually possible to produce a whole range of dumping calculations.

In the UK, there is the possibility for the Secretary of State to narrow the discretion of the TRA by producing more specific legislation or guidance on details of the dumping calculation. However, even if this was attempted, it is inevitable that a degree of discretion would always be left to the TRA in terms of how the fine detail is treated.

Standard of review used in judicial review confirms a high level of discretion that exists for trade remedy authorities

The extent to which courts and adjudicating bodies are able to review determinations made by a trade remedies authority influences the level of discretion that exists for that authority.

This section started becoming too big for this post so I allowed it to overflow into a separate post Standard of review and discretion in trade remedy investigations. The key points from that post are:

  • In US law, the doctrine of Chevron Deference requires that a court should defer to the findings of an administrative agency and may not substitute its own interpretation for that of the agency if their interpretation was a permissible one under the statute.

  • In the WTO context, panels must not conduct a de novo review of the evidence or substitute their judgement for that of the investigating authority. It is explicitly recognised that the evaluation of an authority should not be overturned just because the panel might have reached a different conclusion.

  • When reviewing trade remedies, the EU courts considers whether laws/procedures have been followed and whether the facts have been accurately stated. In terms of reviewing substance, it would only intervene if there are manifest errors of assessment.

  • In all of the above cases, it is clear that investigating authorities have considerable discretion in producing the detailed analysis of their investigations. There is explicit recognition that there may be more than one conclusion and more than one interpretation of the law.

  • In terms of the UK, the standard of review that will apply for Upper Tribunal review of TRA determinations is based on the same principles as would be applied by a court on application for judicial review. Initial analysis suggests that this will be a similar standard of view to that applied in the US, WTO and EU as outlined above.

Thus, it is clear that the TRA has considerable discretion in interpreting UK law and in its analysis of data and conclusions reached in UK investigations. The explicit acceptance that a reviewing body might reach a different conclusion than that of the agency, yet the agency's decision may nevertheless be compliant with the relevant legislation, is a strong indication that there is no 'correct' answer in a trade remedy investigation.

Are there no cases where there is a correct answer?

There is one possible situation where there is a clear correct answer answer. This is where the data clearly shows that there is no dumping or injury. For example, in a case where the export price is significantly higher than the normal value across all transactions, it may well not be possible to get a positive dumping margin regardless of all the different permissible calculation methodologies and adjustments that might be tried. Likewise, if all of the injury indicators are positive, and the future looks good so that there is no apparent threat of injury, it will be hard to determine that injury is occurring. Note that I don't say it would be impossible in such situations. There is enough discretion within the rules that a protectionist investigating authority could have a go at adopting a measure that would meet all legal requirements even in these extreme situations.

Of course, in most cases, such a situation would be unlikely to reach the stage of an investigation due to the fact that an applicant would not be able to provide prima facie evidence in an application. Once an investigation has been initiated it should mean the prima facie test has been met. This creates a situation where, unless key facts were missing from the application, it will almost always be possible to justify the adoption of measures if the prima facie evidence was accurate. Cases that clearly have not dumping or injury will normally be identified in the pre-application stage and will never be initiated. Thus, it is my view that, in most cases, once a trade remedy investigation has been initiated, the facts and technical analysis could be used by the authority to adopt or reject measures.

There may be cases the other way round, where the evidence of dumping and injury is so strong that it might be difficult for a trade remedy authority to determine that measures should not be adopted. However, I think that it is easier for a trade remedy authority to make a strong case weak than it is to make a weak case strong.

So is there any truth in trade remedy investigations?

The above comments may seem shocking, especially that they are made someone who has worked for decades producing detailed technical analysis in trade remedy investigations!

I think that 'truth' in trade remedy investigations must be understood in a different way to the truth that 1+1=2. Straightforward, mathematical truth does not exist in trade remedy investigations. However, I do think that there is 'truth' in trade remedies but, in many cases, it is a truth in terms of a range of answers rather than a single, correct outcome.

Take the example of movies or poems. Is there truth in interpreting the meaning of a movie or a poem? I think that the answer to this question is yes. There is truth but your truth might be different than mine. There is a range of truths and the broadness of the range will be determined by how much ambiguity there is in the work. The author may narrow the range of interpretations by making explicit statements but even these will be open to different interpretations. You, me and the author may have completely different interpretations of the work but all may be reasonable.

Hopefully the parallels with trade remedies are obvious. The truth is a range of outcomes. The facts and the legislation/guidance may narrow down the range of truth. In addition, WTO dispute settlement has narrowed the range of discretion in some cases. Trade remedies is by far the most active area of WTO dispute settlement. Many measures have been successfully challenged and a robust jurisprudence has emerged. Despite this, there will always be room for different interpretations and analyses. The legal standard of review in all jurisdictions implicitly recognises this (see Standard of review and discretion in trade remedy investigations).

Over the years I have come to understand my work more as advocacy rather than trying to establish a single truth. Earlier in my career I worked for exporters trying to prove that they were not dumping. More recently I have focused on domestic producers seeking relief from unfairly priced imports. In each case I have worked, I could have switched sides and presented a different truth. No-one can pay me to say something this is untrue. But, given the discretion that an investigating authority has, it is possible to advocate by producing the best possible arguments for either side. I can work to high professional standards and yet still work at either end of this range of truths.

The truth does really matter to me. When I was working for exporters it happened more than once where a client tried to get me to present arguments that were objectively not true. There is no inconsistency between the importance of truth and the fact that there is a legitimate exporters truth and likewise a legitimate domestic industry truth in trade remedies.

On a personal note I can record that my own truth now lies more with helping UK domestic industries due to as strong belief that the UK benefits from having a strong manufacturing sector (which I will be exploring a future blog post). This explains why I now tend to work for UK industries seeking protection (not protectionism!) from unfair imports.

How does a trade remedy authority find its truth?

If there is not one 'truth', how does a trade remedy authority make decisions based on a version of the truth that satisfies the requirements of the law?

The fact that there are range of possible outcomes does not mean that each case is a free for all and that outcomes will widely vary in different cases. The major trade remedy authorities, such as the EU and US, are consistent in their approach and, although it is still difficult to precisely estimate the exact dumping margin, are relatively predictable in the way that they use their discretion.

The key factor that determines how a trade remedy authority reaches its own truth given the discretion it is afforded by the law is the paradigm within which the investigating authority is working. The paradigm will be determined by

  • Politics - political elements of the decision-making and adoption of new laws/guidance. In a separate blog post, I look at the role of trade remedies (It's a myth that trade remedies are inherently protectionist) and identify that there are both economic and political justifications for trade remedies. It can be argued that the trade remedy 'safety valves' built into the WTO agreements allowed the WTO to be created and the ensuing trade liberalisation to occur.

  • Institutional practices and procedures (the 'house view').

In the context of the UK, the TRA has sometimes been discussed as if it is an objective, arms-length body that has no explicit agenda of its own. Whilst this is factually true, understanding the extent to which the TRA exercises its discretion is critical. The TRA has to make decisions on its practices, some of which may have significant impact on outcomes. This needs to be understood otherwise there may be unintended influence on determinations. The discretion is employed whether there is awareness or not.

The UK trade remedy paradigm

So what is the UK trade remedy paradigm? As with the standard of review issue above, I started writing about trade remedy paradigms in this post and it became too large. So I have created an additional post on paradigms The importance of paradigm in trade remedy investigations.

  • There are different trade policy paradigms and this determines the approach to trade remedies.

  • The UK trade policy paradigm for decades has been based on an orthodox economic approach which placed a high value on free trade and was critical of almost any form of trade restriction. The UK opposed most trade remedies proposed by the European Commission, even though this did not stop the measures being adopted.

  • Brexit has changed the UK trade policy paradigm. Whilst there is still an emphasis on free trade, there is now an explicit recognition that free trade requires protection against unfair trade.

  • The UK was of 28 members in an EU decision-making process on trade remedies. Member states range from liberal free trade positions to more protectionist approach. The UK had a clear role in ensuring that the decision-making was balanced and the EU system works quite well.

  • As an autonomous trade remedy regime the UK is taking a more pragmatic view in line with all other major trading nations who use trade remedies.

  • The UK paradigm is perhaps a more liberal one than other regimes. The UK is the only major trade remedy authority to have both a mandatory lesser duty rule and public interest test in all cases.

  • In terms of the paradigm within the TRA, it is still early days but it appears that the TRA’s approach is similar to other major trade remedy authorities, albeit that there may be nuance towards a slightly more liberal approach than, say, the US and EU.

As I say, it is still early days to determine what the UK trade remedy paradigm is. In addition, the situation is changing with the adoption of powers allowing the Secretary of State to take over decision-making in transition reviews (see New UK legislation on 'call-in' of trade remedy investigations). Further, DIT is currently reviewing aspects of UK trade remedies policy and its relationship with the TRA. It is fair to say that the system is a little in flux as it will adjust to existing and possible future changes. However, understanding that the TRA has considerable discretion, and the extent to which any 'TRA paradigm' may have political implications, is critical.

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