UK trade remedies and the economic interest test
What is the economic interest test (EIT)?
As mandatorily required by the WTO anti-dumping & countervailing duty agreements, the UK legislation has the requirement that dumping/subsidy, injury and causal link must be established before measures can be adopted. In addition, the UK has an additional requirement that any remedy should be in the ‘economic interest of the UK’.
The recent transition review concerning HFP rebar from China is the first case where the TRA has found that a remedy would not be in the UK economic interest, despite the dumping, injury and causality requirements all being met. This is, therefore, a useful indicator to judge how the TRA may be applying the EIT.
Note that the TRA analysis is taken from the statement of essential facts which is, in effect, a form of provisional determination. It is still possible the analysis may change as the case progresses. However, the analysis is still useful in providing an initial indicator of TRA thinking on the EIT.
UK legislation on the EIT
The EIT is set out in paragraph 25 of the Taxation (Cross-Border Trade) Act 2018.
The act sets out the factors that must be taken into account when conducting the EIT;
injury caused to a UK industry in the goods and the benefits to that UK industry in removing that injury
economic significance of affected industries and consumers in the UK
likely impact on affected industries and consumers in the UK
likely impact on particular geographic areas, or particular groups, in the UK
the likely consequences for the competitive environment, and for the structure of markets for goods, in the UK
other relevant matters
An important provision is set out in paragraph 25(3) which states that the EIT:
...is presumed to be met unless the TRA or, as the case may be, the Secretary of State is satisfied that the application of the remedy is not in the economic interest of the UK”.
The Secretary of State (SoS) has issued statutory guidance on this presumption:
...there is a starting presumption that anti-dumping and countervailing measures are in the economic interest of the UK. This is because TRID will have already found that dumped goods or subsidised imports have caused or are causing injury to UK industry.
A measure is not in the economic interest of the UK if the negative impacts are disproportionate to the positive impacts. The burden of proof is on TRID to demonstrate that this is the case. It is not enough to simply show that the costs of a measure outweigh the benefits.
How this compares to other countries that have a public interest is set out in a separate blog post.
The role of the Secretary of State in the EIT
Ultimately it is the SoS that decides whether to accept or reject a TRA recommendation for trade remedy measures. Paragraph 20 of the TCBT Act 2018 sets out some provisions here in relation to the economic interest test. The Act states act the SoS ‘must accept the TRA’s determination’ on economic interest unless they are ‘satisfied that the determination is not one that the TRA could reasonably have made’.
However, the SoS is able to reject the recommendation if “satisfied that it is not in the public interest to accept it”. It can be argued that the EIT is a subset of the public interest. In principle, therefore, the SoS can reject the TRA’s recommendation on the basis of any public interest matter not covered by the EIT. There is some ambiguity here and the overlap between the economic interest and public interest as concepts.
In the case of transition reviews, of course, the SoS is able to call-in a transition reviews if they disagree with the TRA’s recommendations. Thus, the ability of the SoS to have a different view on the EIT is not as contained in transition reviews as it is in other cases.
Recent TRA determination that continuation of rebar anti-duping duties are not in the economic interest
In the transition reviews that have been concluded so far, the TRA has concluded that continuation of measures was in the UK economic interest where the dumping/subsidy, injury and causality requirements have been met. Rebar is the first review where the TRA has determined that continuation of measures is not in the UK economic interest.
The TRA noted that revoking the measures could result in an import price reduction of 16%-18% but that this would only have a negligible effect for importers, users and consumers. For the construction industry, for example, it was found that HFP rebar is only a small proportion of costs and that maintaining the measures is unlikely to have a significant impact on prices.
However, the TRA raised a major concern in relation to ‘risk of insufficient supply of HFP rebar would could significantly impair downstream businesses’. The TRA highlighted the potential impact of the Russian invasion of Ukraine, and the resulting sanctions, as well as the fact that there is only one UK producer.
This resulted in the TRA concluding that “a maintained measure would have a negative impact on the UK economic that is disproportionate to the need to remove injury caused to UK industry”.
It further stated that the “benefits to UK producers are likely to be small and comparable to the costs to prefabricators and importers”. The TRA concluded that the revoking the measure would not affect the overall viability of the UK producer. Finally, it found that, although not currently applied against China, the SG covering this product would limit imports from China.
The TRA therefore finds that maintaining the measure would not be in the economic interests of the UK.
Did the TRA apply the presumption correctly?
As stated above, the legislation provides that the EIT is presumed to be met unless the TRA demonstrates that this is not the case.
The TRA is always going to have considerable discretion in the the way that it weighs up the various factors in the EIT. Based on the TRA’s statements there is a logic to the argument that supply shortages are a legitimate concern and that this could be a significant problem that might be worsened by the maintenece of the remedy on rebar.
However, this relies on the accuracy of findings that the benefits to the UK producer of maintaining the measures will be small, that the overall viability of the UK producer will not be affected, and that there will be a significant supply shortage.
The presumption means that there must be clear evidence establishing that the maintenance of the measures is not in the UK EIT.
In the injury analysis, the TRA found that “recent developments with respect to the Russian invasion of Ukraine may impact on supply”. Use of the word 'may' here suggests that this is not a definitive conclusion. The TRA also points out that “due to limitations in data and uncertainty regarding the conflict, we are unable to determine whether these conditions allow for a positive or negative determination of the likelihood of injury to the UK”.
The TRA finds that Chinese production has been increasing while production in the rest of the world has been decreasing. These producers accounted for 83% of global production in 2020 so the capacities in China are massive compared to the size of the market in the UK. The TRA concludes that “PRC exporters have significant levels of production capacity, leading to their ability to dump HFP Rebar if the measure was to be revoked”.
This perhaps raises questions about the extent to which the evidence presented by the TRA establishes that the measures are not in the UK EIT. This is particularly the case given that lack of cooperation from Chinese exporters did not allow any formal analysis based on primary sources to be undertaken for Chinese exports.
There does seem to be some ambiguity here. It does not seem to be established that there will be a supply shortage. Also, without any formal analysis of Chinese production and exports, there is no firm evidence of what will happen to UK imports from China if the measures are revoked. Given that the TRA has concluded that there are significant levels of production, and that dumping is likely if the measure is revoked, it might be questioned whether the TRA has applied the presumption correctly. According to the SoS guidance, “the burden of proof is on the TRA to demonstrate” that “the negative impacts are disproportionate to the positive impacts”.
I am not claiming definitively that the TRA is wrong. I am just raising some questions which do seem to arise out of the findings presented by the TRA in the statement of essential facts. However, in the absence of such a demonstration, the law is clear. The presumption applies and the EIT would be met.
Is there a different approach to deal with possible supply shortages?
Regulation 85 of the Dumping & Subsidy Regulations allows the TRA to recommend to the SoS that an anti-dumping or countervailing duty is suspended if market conditions have changed temporarily. Thus, an alternative possibility to deal with the threat of supply shortages would be to use this provision. The TRA could still highlight the risks of supply shortages in the final determination and invite interested parties to request suspension if the shortages actually materialise.
Once the measures have been revoked, this would be permanent. There would be no possibility to re-introduce the measures if, for example, Chinese exports increased to cover any shortages but at prices causing injury to UK industry (which is what the TRA has found to be likely). It might be questioned whether this meets the requirements of the presumption given the permanence of the dumping/injury that would likely be caused by revocation relative to the temporary nature of supply shortages. There would appear to be strong arguments that alerting interested parties to the possibility that the suspension provision can be applied if there are supply shortages is preferable to permanent revocation of the measure.
What does all this mean for the EIT in future?
As stated above, this post is raising questions rather than making any definitive points. The TRA has made clear conclusions that do have a logic and the thoroughness of the internal analysis of the TRA on the issues is known only to them. I can’t say for certain that the TRA have incorrectly applied the presumption.
However, I do have concerns about the UK EIT and the extent to which it has the potential to become a major obstacle preventing the adoption of legitimate trade remedy measures in the UK. See the post I have also done comparing the UK EIT to public interest tests undertaken by other WTO authorities for some more information in this regard. One of the significant points that arises from looking at the relatively small number of other WTO members that have trade remedy public interest tests is that they are used as a final 'sanity check' that there will not be disproportionate negative consequences for the economy.
I think that the TRA needs to develop a consistent approach to the way that the presumption is applied and this will take some time. However, it is my feeling that the rebar transition review indicates that the TRA wants to proactively use the EIT in a way that goes beyond a ‘sanity check’ approach.
Consideration of environmental issues in the EIT
UK industry claimed that increased steel imports could lead to higher global carbon emissions and that this should be consdiered in the EIT. The TRA estimated that, in a worst-case scenario, an increase in Chinese imports could increase global carbon emissions by around 55,000 tonnes per year with a value of £7m-£20m.
The TRA notes that “the EIT only considers the impacts on the UK economy so only a portion of these benefits are in scope of the EIT”. However, it is interesting that the TRA seems to have accepted that environmental issues can be considered in the UK economic interest test. The legislation does allow the TRA to consider “such other matters as the TRA…considers relevant”. The issue did form part of the TRA’s final conclusions on EIT but did not have any material impact on the outcome. But it does indicate that it is possible for environmental issues to be taken into account in the EIT.
Competition analysis in trade remedy investigations
The legislation requires that the TRA considers “the likely consequences for the competitive environment, and for the structure of markets for goods, in the UK”.
In the rebar transition review the TRA makes the following conclusion:
...we found that the market is highly concentrated and it is likely that maintaining the measure would maintain this situation and be worse for the competitive environment than removing the measure
In terms of a sanity check, it would be relevant to the EIT analysis if a remedy would shut imports out of the market and create an anti-competitive situation. However, I do have some concerns here. The TRA is not a competition authority and is not gathering evidence for a competition analysis. In light of the presumption, therefore, this should not be something that is lightly used.
It is often claimed that trade remedies are anti-competitive and, in a case like rebar where there is only one current UK producer, it is perfectly proper that the TRA takes a look at this. However, I would argue that the idea of trade remedies being anti-competitive and protectionist is over-simplistic. Trade remedies actually protect effective competition by correcting unfair and distorted trade that is causing injury to the UK industry and market.