The UK TRA is a new kid on the block among Trade Remedies Authorities around the world. Over the last two years since we were set up, the TRA has been reviewing measures put in place by the European Union and then ‘transitioned’ by the UK Government into UK law. Nobody else in the world conducts transition reviews – they are unique to the UK leaving the EU trading bloc
But one aspect of transition reviews that will be familiar to our international counterparts is likelihood analysis.
A conventional trade remedies investigation looks backwards and determines whether dumping or subsidy took place and whether domestic industry was injured. Those are findings of fact, even if they may involve judgement, for example on whether domestic and export prices are genuinely comparable, or whether imports were the principal or only cause of harm to industry.
For ‘transition’ reviews, we have to look forwards and ask ourselves what would happen if an existing measure were removed. This is the question asked by other global trade remedy authorities in a sunset or expiry review when a measure has been in place for some years. But for us it comes with a twist or two.
First, we do not have evidence from an original investigation to draw on – that investigation was conducted by the European Commission based on data from European industry and in relation to the European market. Even if we had access to all that data (which we don’t) it wouldn’t be relevant as we have to concern ourselves with the UK market only.
Second, we have generally had little or no co-operation from overseas exporters in these cases, so even where there have been imports while the measure has been in force, we can’t assess whether they have been dumped or not.
The Competition & Markets Authority (CMA) tackles similar problems when it predicts the consequences of corporate mergers. Would consumers face higher prices or worse quality if two manufacturers of glass bottles or two chains of supermarkets were to merge? The CMA uses a combination of insight from economics and direct evidence about how markets worked in practice to assess what might happen in future and avoid bad outcomes for consumers.
So, in the case of trade remedies, how do we assess likelihood of dumping, subsidy and injury in the future?
Powers of deduction
We start by asking whether there are imports now. If there are, it’s likely that there would still be imports if measures were removed. If not, we need to assess whether, without measures, the UK would be an attractive market. We assess, as far as the evidence permits, how prevailing prices compare with those available in the domestic or other export markets. Where the UK has a history of fulfilling some of its needs through imports, this can help us conclude that imports are likely.
We then still need to know whether those future imports would be subsidised and/or sold at dumped prices. With subsidies it is relatively easy: either the subsidies originally identified by the EU are still in place or they are not.
In our transition reviews on biodiesel from the USA and rainbow trout from Turkey we found that the subsidies originally identified by the EU are still in place, so in the absence of any evidence that they are shortly to be discontinued, we can safely conclude that they will continue.
Likelihood of dumping is harder to demonstrate. We assess the ability and incentive of producers to dump: do they have excess capacity and/or substantial inventories? Is the UK market open and attractive? If so, importation is likely. We then seek to understand what domestic prices might be and whether exporters would need to sell at a dumped price to capture market share in the UK. And we look at whether there is a track record of dumping in this or other geographies. None of these analyses alone is decisive but taken together they help us build a picture of whether dumping is more likely than not if measures were removed.
Our analysis of imports of cold rolled flat steel from China and Russia found there was a history of dumping into the UK, and that Chinese and Russian producers would need to dump to compete with domestic UK sales prices. This meant that dumping would be more likely than not if the measures were removed.
Evidence and nothing but the evidence
Likelihood of injury is no easier to establish. We assess the vulnerability of UK industry, and what would happen if dumped imports were to be on offer in a market unprotected by the existing tariff:
- At what price would new imports be offered to customers?
- Who would buy them, and instead of what?
- Would the UK industry be harmed, and how?
Sometimes the answer is obvious – in the UK we no longer produce glass fibre mats, so we could safely remove the trade remedy measure on them, reducing prices for UK consumers without harming UK industry, while retaining the measure on glass fibre strands, which the UK does produce.
On the other hand, allowing cheaper import of smoked and frozen rainbow trout from Turkey could harm UK trout farmers because UK retailers would be likely to buy the cheaper Turkish product in preference to UK production.
In other cases, we have to understand the specific market dynamics at work.
So we really need business customers and downstream consumers to talk to us and share their trading data to support our analysis. There could be real advantage to downstream industries of persuading us that we could safely reduce their input costs. But we need evidence of the harm UK industry is likely to suffer, not just assertion that a particular outcome would be bad.
Likelihood analysis is not an exact science. We need to weigh a variety of factors in every unique case. Different patterns of evidence drive different conclusions in different cases.
You can view further information about how we carry out investigations on our website.