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Erika Szyszczak31 March 2021

Erika Szyszczak is Professor Emerita and a Fellow of the UKTPO.

Trade has become a new tool of political and economic warfare.  Recent years have seen a rise in threats and the disruptive use of use tariffs, export and import bans to further political aims by the two economic superpowers, the US and China. Other countries wishing to assert greater political influence, such as Russia or Turkey, have joined the fray. Although the disputes are characterized as being between States, the real impact of trade wars is felt by businesses, workers, consumers and ordinary citizens. The impact is felt in the COVID-19 pandemic, where critical supplies of medical products or Personal Protective Equipment are essential in a health emergency.

Traditional international economic law provides procedures and institutions to address measures impacting on free trade in goods and services. But in recent times the failure of the WTO Appellate Body to function and the bureaucracy surrounding the creation of dispute settlement mechanisms under free trade agreements reveals the need for States and economic trade blocs, such as the EU, to think about more effective ways to deter threats to trade and to address any trade distortion measures effectively and swiftly.

Enforcement and effective remedies in international law are especially difficult. While new procedures are written into trade agreements they may take many years to address an issue and do not provide effective remedies. Tariff wars and export bans merely exacerbate the impact of a trade war. The new approaches to remedial and rebalancing remedies found in the Trade and Co-operation Agreement agreed by the EU and the UK in 2020 signify the need for tailored responses in new trade agreements.

The EU, and the UK, are squeezed in the middle. Two documents published a the end of March 2021 reveal the importance for the UK and the EU of developing effective trade remedies, but also show an emerging chasm between the wide range of legal tools deployed by the EU and the slow, limited response of the UK.

The first document, a report from the House of Commons International Trade Committee (ITC) on UK Trade Remedies Policy outlines the slow progress and comparative lack of resources in the UK as it replaces EU mechanisms to handle trade disputes. Trade remedies are dealt with by the Trade Remedies Investigations Directorate (TRID) within the Department for International Trade (DIT). The Trade Bill, currently before Parliament, proposes to create an independent Trade Remedies Authority (TRA) to investigate trade remedies cases and make recommendations on the imposition of measures. The ITC report shows that the UK was not prepared for the exit from the EU and is still conducting transition reviews. Hampered in its work by the implications of the COVID-19 measures, there has been a large turn-over of staff in the TRID. Witnesses raised concerns that the lack of experience of TRA staff will place them at a disadvantage when dealing with other more experienced stakeholders.

The model adopted in the UK trade defence regime includes an economic interest test and a public interest test, which involves an element of political judgement. The importance of understanding when to trigger a trade remedy, and what kind of trade remedy, alongside the economic and legal consequences of defensive trade measures is acknowledged from Evidence presented to the ITC, showing that the risk of legal challenges to measures taken (or not taken) is high. Concerns are expressed that any UK trade remedies will be more difficult to secure and they will be lower than the EU system.

The UK has reduced the role of trade unions in the UK trade remedies regime, defining them as contributors in the UK trade remedies regime rather than interested parties as in the EU regime. As the trade effects of leaving the EU are being felt, inevitably jobs have been lost and workers and unions will demand a say, as stakeholders, when remedies are considered by the TRA. This correlates with a need for greater involvement from a wider set of stakeholders as the future independent UK trade policy materialises.

The following day, 23 March 2021, the European Commission published a Consultation for an instrument to dissuade or offset “coercive actions by third countries that would force policy choices on the EU” by allowing for “the expeditious adoption of countermeasures triggered by such actions.”

The aim of an Anti-Coercion Instrument is wide, to protect the EU from undue foreign influence over its domestic policy. The consultation aims to collect evidence from a wide range of stakeholders of the impact of coercive threats and measures taken by third countries, in order to understand the triggers, or the circumstances, in which the EU may act. The consultation seeks advice on the countermeasures the EU should employ to tackle coercion and the likely impact of the various options.  The European Commission is able to rely on the exclusive competence of the EU in this area of trade and can act on the basis of Article 207 TFEU, allowing it to take control of the form of appropriate legal instruments adopted.

The primary aim of the proposed measure is of deterrence, but also the ability to act swiftly. The existing EU legislative framework does not provide for a single or comprehensive legal instrument with such an effect, and to date, the EU response to trade threats has been seen as naïve.  The nature of economic threats linked to political ambitions has changed the nature of threats to the EU and the Member States. The EU and its Member States have encountered direct threats, for example, the recently resolved Boeing/Airbus tariff war between the US and the EU, and the threats made by China to individual Member States attempting to ban Huawei.

As reported in The Times, The new US President has inherited the legacy left by President Trump:

“Transatlantic exports including gold necklaces, kitchen tables and chess boards could face US tariffs after Washington drew up plans to target a £236 million catalogue of British goods.

Having inherited a spat over online taxation from the Trump administration, President Biden has opted to hold Britain’s feet to the fire. His officials concluded that Britain’s unilateral digital services levy on the big technology groups was “unreasonable or discriminatory” and placed a burden on companies in the United States.

The administration is also consulting on whether to hit Austria, India, Italy, Spain and Turkey with retaliatory duties over similar digital taxes.

Additionally, the EU is experiencing the indirect undermining of existing trade deals with third parties, seen, for example, in the current trade dispute with Algeria where EU imports have been displaced by imports from China.

By creating a general and wide-ranging measure, the EU does not need to rely on specific Chapters in bilateral and multilateral trade agreements and would have a remedy where there is no trade agreement.  The EU has been adapting and widening its legal toolbox to address the weaknesses of its own and the WTO system of trade remedies. This provides flexibility, but it could be in danger of having too many overlapping legal instruments.

The EU is playing a careful game. It is committed to addressing trade disputes according to the rule of law and is making positive suggestions on the reform of the WTO. But the current reform and modernisation of EU trade remedies is based upon the premise of public international law, of which the WTO is but one part. In doing so, the EU is positioning itself as a global leader in trade remedy standard setting.

The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory.

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