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The importance of paradigm in trade remedy investigations

This post was prepared as background to the post containing my analysis of the new call-in provisions. New UK legislation on 'call-in' of trade remedy investigations


Two other posts also provide background to the analysis of the call-in legislation.

The UK trade policy paradigm

The Oxford English Dictionary defines paradigm as follows:

A conceptual or methodological model underlying the theories and practices of a science or discipline at a particular time; (hence) a generally accepted world view.


When I joined the DTI as an economist in 1987, I was assigned to the economist team supporting UK trade negotiators involved in the Uruguay Round that created the WTO. No-one every sat me down and explained the ‘house view’ on trade policy but somehow I quickly picked up the DTI’s way of thinking on trade policy. This time was 8 years into a Thatcher Administration that very much had a free market paradigm but my feeling was that the house view had a longer history than that. There were good links between DTI economists and academics. The hegemony of neoclassical economics, which predates Thatcherism, was very much present amongst UK academic economists.


So UK trade policy was very much grounded in a neoclassical economic approach which placed a high value on free trade and was critical of almost any form of trade restriction. More than once I heard people say things like ‘if countries want to subsidise exports that benefits UK industry’. This was based on a simple cost benefit analysis approach which always showed that any form of trade restriction was more expensive to consumers than any benefit provided to UK industry.


It is this approach that resulted in the UK opposing most trade remedy measures proposed by the European Commission for the past few decades, even though this usually meant little difference in terms of the measures being adopted..


It’s important to stress that I’m not criticising this approach. Although at the time I wasn’t always completely on board with the paradigm in terms of my own thinking (and my views now are very different which I will exploring in this blog in the future), I think that government policy influenced by robust economic thinking is by far preferable to economic policy based on populist or more superficial agendas. For decades, UK trade policy has been consistently rigorous in its approach to trade policy issues.

It’s interesting to think about who the guardian of the paradigm is? I’m not certain that anyone ever sat in DTI discussing what the paradigm was. It’s almost like it was in the DNA of the institution and continued to exist throughout changes of government and as civil servants came and went. Given this, it is important to step back sometimes and ask what the paradigm is? An institution needs to be conscious of the paradigm that influences its decision-making. Otherwise, there is a risk that an important influence on the institution’s decisions will not be understood. The DTI in the 1980s well understood the paradigm within which it was operating and ensured that UK government policy remained in line with that. I’m not sure that UK Government in the following decades has always been so aware of the UK trade policy paradigm. This is definitely the case with Brexit where the UK trade policy paradigm has had to change as discussed further below.


Trade Remedy Paradigms

Trade remedy investigations require sophisticated technical analysis, particularly in terms of dumping, subsidy and injury calculations. The focus of investigations, therefore, is inevitably on whether the criteria for measures (e.g. dumping, subsidy, injury, causal link) are met.

The range of views on trade remedies are extreme. For a neoliberal, radical free trader, all trade remedies are protectionist. Their view would be that, from an economic welfare point of view, trade remedies are never justified. On the other hand, even within WTO rules, it is still possible for a trade remedy authority to be at least somewhat protectionist if they believe that their role is to protect domestic industry from more competitively priced imports. A trade remedies authority has a decision to make on what the technical and methodological paradigm will be.

It is also important to note it would be a mistake to treat trade remedies as purely technical. The justification for trade remedies has both economic and political dimensions (see The role of trade remedies and the myth that they are inherently protectionist for more detail on this point). There is a politics to trade remedies and a trade remedy authority needs to have some clarity on where it stands with the politics in addition to technical aspects of the investigation.

Consequently, I think that it is really important that a trade remedy authority needs to understand the paradigm within which it is operating. Even the most technical aspects of a trade remedy investigations are not black and white. There is always discretion in the treatment of a myriad of issues around the calculations and other analyses. There is not one simple answer to a trade remedy investigation. Completely different analyses could be produced from the same data if analysed by a neoliberal, radical free trade or a protectionist administration. The WTO rules, and the way in which they have been interpreted in dispute settlement, give authorities considerable discretion in the technical analysis. See the posts Is there objective truth to be discovered in a trade remedy investigation? and Standard of review and discretion in trade remedy investigations.

In reality, a pragmatic consensus does seem to have emerged amongst major trading nations that lies between these two extreme views. All major trade remedy authorities have an inclination to impose remedies when the technical criteria are met. On average, since the WTO was created in 1995, around 66% of all anti-dumping initiations resulted in measures (EU 63% and US 69%: WTO statistics 1995-2021). However, it can be argued that a more defensive attitude is adopted in the US than in the EU, evidenced by the fact that the duty rates imposed by US remedies are on average significantly higher than those imposed by the EU. This attitude is influenced by the legislation, particularly as the EU has a public interest test and lesser duty rule whereas the US has neither. However, the general attitude of the authorities does matter.


Thus, I think it is clear that trade remedy authorities operate within paradigms.

Brexit and the change in UK trade policy paradigm


Post-Brexit, the UK Government continues to express a commitment to free trade. For example, Liz Truss (former Secretary of State for Trade) said in a speech on 14 September 2021:


after nearly fifty years of being in the protectionist EU, we lost our trade muscle memory that we’d built up as a sovereign trading nation.....our best way forward is free trade and free enterprise.


At the same time, there is a recognition that free trade requires protection against unfair trade:


...of course we will continue to protect our industries from unfair practices and malign actors. We have shown that we are prepared to operate in trade defence as well.


The current Secretary of State, Anne-Marie Trevelyan, has expressed identical views:


.....Thatcher and other G7 leaders ushered in a new era of trade liberalisation and free market capitalism by agreeing that - and I quote - “Protectionism does not solve problems, it creates them. And ensuring that we do not yield to those who argue that we should put barriers up. Meaning that British firms would lose contracts overseas, higher prices in the shops – and depriving developing countries of vital growth.


Like the previous Secretary, she also acknowledged the importance of fair trade.


To trade freely, we must also trade fairly. To protect our open international order, we must stand against unfair competition and those who seek to undermine our enterprise. So we will proactively address risks to our national security, economic resilience. We will defend our values. And we will challenge tackling the market-distorting practices that put our businesses at an unfair disadvantage.


I think that Brexit has changed the trade remedy paradigm in the UK. Rather than being a purist free trade approach, the UK has shifted to a 'free but fair trade' paradigm. The Secretary of State's actions over the past year confirm that the commitment to protection against unfair trade is meaningful. This includes the Secretary's actions on steel safeguards where she adopted extraordinary legislation to maintain more safeguard measures than the TRA was recommending, It also includes the adoption of 'call-in' powers for transition reviews so that she can intervene in cases if she wants to.


In this context, it is worth observing that there has in recent years been a dramatic change in the UK Government general attitude towards trade remedies. There is a big difference between being one member in a 28 member EU jointly making decisions on trade remedies compared with being an autonomous trade policy regime. The EU is made up of member states across a spectrum of approaches to trade policy, from a free trade position to more protectionist approaches. As stated above, the UK was one of the more liberal member states and opposed most EU trade remedies as a matter of principle. On the whole, the balance between these competing member state paradigms worked well and EU trade remedies are generally seen as reasonable and balanced in relation to other WTO members. The UK had a clear role within this process.

If the UK had taken the same paradigm into the creation of a trade remedies regime it would have created a system that hardly ever permitted measures. This ideological economic position makes no sense in the real world of subsidies, state distortions, trade barriers and other market dysfunctions. Trade policy authorities around the world generally take a pragmatic approach to ensuring that trade is fair, even if they have a free trade policy agenda.

Instead the UK has, therefore, created a system which does permit remedies to be adopted where there is unfair trade or sudden surges in imports. However, it also introduced features such as compulsory lesser duty rule and a comprehensive economic interest test in all cases.


Table 1 - Use of lesser duty rule and public interest test by major trade remedy authorities (brackets mean that the provision is not applied in all cases)

Lesser Duty Rule (LDR)

Public Interest

US

​No

​No

​Canada

No

​(Yes)

EU

(Yes)

​Yes

Australia

​Yes

No

UK

​Yes

​Yes

No other major trade remedy authority has a mandatory LDR and public interest test in every case. The extraordinary events of the Secretary of State intervention in the safeguards transition review indicates that politicians may take a different view of a case taking into account broader considerations, whereas the system has been set up in a way that may limit the legitimate use of trade remedies in some cases. There may be more tension between the free trade and fair trade goals of the government given the current set up of the system.


Is there any evidence of the paradigm within the TRA?

It is still early days to be making a judgement about the prevailing paradigm within the TRA. However, a number of points can be identified in considering a general attitude within the TRA.

The TRA corporate plan for 2021/22-2023/24 sets out the following mission: “To defend UK economic interests against unfair international trade practices”.

Further, it sets out 4 guiding principles:

  • Impartiality: to be objective and fair to all parties and provide a route for interested parties to appeal decisions made by the TRA.

  • Efficiency: to ensure that cases are investigated swiftly and effectively, avoiding unnecessary burdens on complainants as well as the subjects of the complaint.

  • Proportionality: to have recommendations based on clear evidence, targeted at addressing the injury caused, taking into account the interests of domestic producers and regional impacts, as well as those of other interested parties, such as user industries and consumers.

  • Transparency: to balance the need to protect commercially confidential data whilst ensuring that relevant information about cases is accessible to interested parties and that there is accountability for decision-making.

These are reasonable principles and create an attitude of objectivity but do not, in themselves, reveal anything of more nuanced attitudes within the TRA that will have an influence on decision-making.

Around the time of the TRA becoming independent in June 2021, the Financial Times ran an article based around quotes from TRA Chief Executive Oliver Griffiths and the TRA Chair Simon Walker. The extract of the article below made the conclusion that the UK will have less protection from trade remedies than they had under the EU regime.

UK to have less protection from cheap imports, trade regulator warns (FT 13.6.21) British manufacturers are likely to have less protection against cheap imports from the UK’s post-Brexit trade regulator than they had under the EU regime, those running the new body have said.

The Trade Remedies Authority (TRA) had already scrapped “safeguard” tariffs in more than 50 areas since the UK left the EU, Oliver Griffiths, its chief executive, told the Financial Times, “We have built into our business plan an expectation we will have about four cases a year,”

If this article correctly reflects the discussions that the FT had with the TRA, this does indicate something of a general attitude that the UK TRA may be more liberal in its approach than the European Commission in the EU.

We have only seen a small number of TRA determinations at the time of writing, all of which have been in the context of transition reviews. However, I would make a tentative conclusion that the TRA does have an agenda of trying to somewhat liberalise the remedies transitioned by the EU in terms of reducing the scope of the measures in terms of products or countries covered. This would be consistent with the attitude reported by the FT.

That said, in all TRA decisions so far, the TRA has recommended that the transitioned measures be continued. Thus, the evidence is that the TRA’s approach in terms of paradigm is similar to other major trade remedy authorities, albeit that there may be a nuance towards a slightly more liberal approach than, say, the US and EU.

It might be questioned whether the attitudes reported by the FT article are consistent with the four guiding principles of the TRA set out in the corporate plan? I don’t think that they are are. However, I can’t blame the TRA for trying to find some clarity around these nuances. As previously stated, I don’t think that trade remedy investigations are ever black and white with only one clear answer. Attitudes and nuances do affect the analysis. It can perhaps be argued that it is unfair to ask the TRA to be independent and objective when there clearly are political aspects to the discretion that the TRA has to exercise even within the constraints it has to operate. This is why a re-consideration of the SoS powers in trade remedy investigations is timely (see the post New UK legislation on 'call-in' of trade remedy investigations).



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