The importance of the Economic Interest Test in the UK’s new Trade Remedies Regime

Posted on 24 Sep 2020 by Brick Court

Fergus Randolph QC and Sarah Lee QC

Introduction.

The UK’s new trade remedies regime contained in the Taxation (Cross-border Trade) Act 2018 (“2018 Act”) has an economic interest test which is different from that of any other jurisdiction. Some jurisdictions, e.g. US and Australia, have chosen not to have one at all. The test is designed to ensure that only remedies that are in the UK’s economic interests taken as a whole will be adopted.

The test is similar in nature to the public interest test which applies when the European Commission adopts anti-dumping or anti-subsidy measures. However, it is also unique, having been specifically created for the UK’s purposes, taking into account not only the EU experience but also that of other jurisdictions. There is, as yet, no decision applying the test, nor any judicial consideration of it. The law and practice in this area will therefore develop in the next few years.

This post provides some comments on the test, which will be applied when the UK starts to adopt its own trade remedies at the end of the Brexit transition period on 31 December 2020. We outline some of the test’s features below, as well as explaining how and at what stages according to the Government’s published Guidance the test will be applied, and we discuss briefly how it compares with the EU public interest test.

Brexit Transition

 As explained in the previous blog post of 3 August 2020 (here), the UK’s current trade remedies activity is carried out by the Trade Remedies Investigations Directorate (“TRID”), on behalf of the Secretary of State. At the moment, the TRID is limited to carrying out investigations where the EU already has trade remedies in place affecting UK industries and where there is a desire to replicate them, or else where the EU has opened an investigation into such cases. The TRID’s functions will be transferred to the TRA (a non-departmental public body) when the UK assumes full competence from the EU for its trade remedies at the end of 2020. At that stage, the Trade Remedies Authority (“TRA”) will investigate and will make recommendations to the Secretary of State on the remedies to be adopted in individual cases.

A new inquiry was opened on 30 July 2020 by the House of Commons International Trade Committee to look at the status, powers, operation and extent of parliamentary scrutiny of the TRA under the 2018 Act, as well as its interaction with the Northern Ireland Protocol of the UK-EU Withdrawal Agreement. Evidence could be submitted to the Committee for consideration until 18 September 2020. The House of Lords also discussed the Trade Bill 2019-21 on 8 September 2020, and the House of Lords Committee stage will follow in due course at a date to be arranged.

The Test

The requirements of the economic interest test are set out in paragraph 25 of Schedule 4 (anti-dumping and anti-subsidy) and paragraph 23 of Schedule 5 (safeguarding) of the 2018 Act. These two tests are essentially the same except that there is a presumption in the case of anti-dumping and anti-subsidy measures that the test is met (see paragraph 25(3) and the consequential adjustments in paragraph 25(4)) unless the TRA, or the Secretary of State as the case may be, is satisfied that the application of the anti-dumping or anti-subsidy remedy is not in the economic interest of the UK. There is no such presumption in the case of safeguarding remedies. It follows that where the latter are concerned, it will be necessary for the TRID currently, and the TRA and Secretary of State subsequently, positively to conclude that it is in the economic interest of the United Kingdom to apply them.

Anti-dumping remedies are available where goods are imported into the UK and sold at a price below the sales prices in their domestic market, or below the cost of production, causing injury to a UK industry in the goods. They can take the form of a requirement to give a guarantee under Schedule 4, paragraph 15; applying an anti-dumping duty to goods Schedule 4, paragraphs 17-20; or accepting an undertaking: (Schedule 4, paragraph 23).  Anti-subsidy remedies apply where the production or export of goods is subsidised in a manner which causes injury to the relevant UK industry. The remedies available for anti-dumping are listed in Schedule 4, paragraph 25(5)(a), and those for anti-subsidy cases – which are the same – are listed in paragraph 25(5)(b).

Safeguarding remedies can be adopted where there is an unforeseen surge in the quantity of imports of particular goods, which causes serious injury to UK producers of those goods. In such cases, the UK authorities can impose a provisional or a definitive safeguarding duty on goods or make goods subject to a provisional tariff rate quota or a tariff rate quota: (see Schedule 5, paragraph 23(4)). This step usually affords temporary relief and gives time to producers to adapt to the new situation.

Paragraphs 25 of Schedule 4 and 23 of Schedule 5 specify those elements which the authorities must have regard to so far as relevant when applying the economic interest test. They also include a “catch-all” requirement to take account of such other matters as the authorities consider relevant. The factors listed specifically are: the injury caused to the relevant UK industry (or, in the case of safeguarding remedies, the serious injury caused to UK producers); the economic significance of the affected industries and of consumers in the UK; the likely impact of the remedies on those parties; the likely impact on particular geographic areas or particular groups in the UK; and the likely consequences for the competitive environment and for the structure of markets for goods in the UK.  The reference to particular groups and the investigations into the structure of markets are amplified in guidance which is referred to below.

Guidance on how the test is to be applied

The UK’s Guidance published by the Department for International Trade (“DIT”) on 28 October 2019, https://www.gov.uk/guidance/trade-remedies-investigations-directorate-trid-dumping-and-subsidisation-investigations-guidance (“2019 Guidance) provides details on how TRID will apply the economic interest test. Further Guidance on the TRID’s approach contains some additional information on the economic interest test and how the TRID will assess the factors it must consider when conducting the test, amongst other things, but it also refers the reader back to the 2019 Guidance, which contains a more detailed overview. This second Guidance, most recently updated on 7 September 2020, is found  at https://www.gov.uk/government/publications/the-uk-trade-remedies-investigations-process/how-we-apply-the-economic-interest-test.

The 2019 Guidance reiterates the point in the legislation referred to above, namely that there is a presumption in anti-dumping and anti-subsidy cases that the economic interest test is met, but no such presumption arises in a safeguard case, where the TRID must positively demonstrate that the application of the measure is in the economic interest of the UK.

The 2019 Guidance goes on to state that a measure is not in the economic interest of the UK if the negative impacts are disproportionate to the positive impacts and explains that the burden of proof lies on TRID to demonstrate that this is the case. It is not enough simply to show that the costs of a measure outweigh the benefits. Presumably, this burden of proof is relevant where the initial presumption has been that the economic interest test has been met, but further considerations have led the TRID to consider that there are serious negative impacts in taking a relevant measure.  Further, as individual circumstances are likely to require different approaches in each case, the TRID will avoid an overly prescriptive approach.

The ‘Detailed factors to consider’ section of the 2019 Guidance expands on the factors listed in the legislation, referring in more detail to the sorts of information that the TRID/TRA will expect to be provided with and will be required to take into account. For example, in assessing the economic significance of affected industries and consumers, they will assess employment information which may come through answers to questionnaires or ONS data, production volumes, UK market share (using, for example, data such as HMRC trade data), value and volumes of exports, numbers and size distribution of firms (which may be sought through questionnaires to consumer groups) and consumer information (which the authorities may need to seek actively).

As regards the benefits of removing injury caused to UK industry, the TRID/TRA will undertake a forward-looking consideration of the proposed measures and of their expected effects on all UK industry regardless of whether a particular producer is also an importer or has any associations with foreign exporters. There may be positive or negative impacts on other industries which might be affected by the proposed measures such as downstream user industries, upstream suppliers, distributors or importers. The magnitude of these impacts, along with any impacts on consumer welfare, is to be assessed.  Short-term welfare impacts may be modelled, although the 2019 Guidance states, without further elaboration, that this may not always be possible or appropriate, and qualitative factors will be looked at alongside quantitative effects. The qualitative assessments referred to in the 2019 Guidance include details of how the market currently functions and the degree of competition (e.g. market shares, degrees of market concentration, pricing behaviour and price competition, profitability and levels of innovation, ranges of goods and quality).

The likely impact on particular groups is described in the 2019 Guidance as being concerned with groups mainly affected who are “likely to be particular consumer groups, or possibly particular groups of employees”. The likely consequences of measures for the competitive environment and for the structure of the UK market, compared to if they are refused, merits a separate section in the 2019 Guidance, which explains how the TRID will assess competition in the market. The 2019 Guidance notes that the evidence will come primarily from questionnaire responses and submissions from interested parties.

Practicalities

The assessment as to whether measures are in the economic interest of the UK is to be made in new investigations, review, expiry or interim investigations if the authorities have made an affirmative determination (either provisional or final), which means that they consider that a remedy can otherwise be imposed. Where the TRID takes a preliminary decision, making a recommendation to the Secretary of State, the decision will always include findings on the test. Similarly, after the end of 2020, provisional and final determinations by the TRA which find dumping, subsidising or a surge of imports causing injury to a UK industry to have taken place, will be required to include a definitive assessment of the economic interest test.

Information will be sought at different stages of the investigation. Much of it will not be publicly available and the authorities will actively seek it out. Material may be included as part of the information requested from interested parties through the use of questionnaires addressed to them. Interested parties are those who satisfy the definitions in Regulation 2 of the Trade Remedies (Dumping and Subsidisation) (EU Exit) Regulations 2019 and Regulation 2 of the Trade Remedies (Increase in Imports Causing Serious Injury to UK Producers) (EU Exit) Regulations 2019. These are: a government of the relevant foreign country; an overseas exporter or importer of the goods concerned or the goods subject to review; a trade or business association of producers, overseas exporters or importers of the relevant goods; a producer of the like goods (or in the case of safeguards, of directly competitive goods) in the UK; or a trade or business association of UK producers of the like goods.

Questionnaires can be sent to others, including devolved administrations, downstream user industries, distributors, upstream supplier industries, consumer groups, local authorities and trade unions. Others may decide to supply information during the investigation on their own initiative. The authorities can also contact industry experts, consider relevant publications (including on production and price data) and review previous investigations on the industry. They can also refer to official data from HMRC, ONS or other sources.  Although these alternative sources are not specified in the 2019 Guidance, presumably they would have to be of an official and reliable nature.

The impact of the test

The matters to be examined in the economic interest test are set out in the paragraphs of the Schedules to the 2018 Act referred to above, and they are also elaborated on in the two guidance documents we have mentioned.  Combined, these descriptions provide an extensive list of information which could be relevant to an investigation, together with details on how that information may be obtained by the decision-making authorities. This enumeration of factors points to the need for a thorough and detailed examination being conducted, and, at the very least the possibility of remedies being refused in certain cases.

Interested parties, and others who wish to contribute, are able to provide detailed and sophisticated evidence for consideration under the test, if they choose to do so. There will be simplified questionnaires for those possibly without the time or resources to provide lengthy responses to enhance participation. It remains to be seen whether or not the test plays a very active role in practice, and whether those who might contribute information will continue to feel incentivised to do so as a decisions start to be made. This will no doubt be influenced by the effectiveness of past submissions and the rigour of the reviews conducted.

As we said in introduction, the EU has a Union interest test which requires the Commission to examine whether imposing anti-dumping or anti-subsidy measures is in the overall interest of the EU “based on an appreciation of al the various interests taken as a whole, including the interests of the domestic industry and users and consumers”: see Article 21(1) of the Anti-Dumping Regulation (2016/1036) and Article 31(1) of the Anti-Subsidy Regulation (2016/1037).

Those Articles set out procedures to be followed in order to ensure that those who wish to provide information can do so. There is no similar provision in the legislation relating to safeguards (see Regulations 2015/478 and 2015/755), although a recital to the first of these regulations refers to the fact that “it falls to the Commission to adopt the safeguard measures required by the interests of the Union. Those interests should be considered as a whole and should in particular encompass the interests of Union producers, users and consumers” (Recital 11). Article 10(1) of Regulation 2015/478 refers to the fact that certain measures may be taken where the Union’s interest so requires. Article 15 talks of safeguard measures being taken “in order to safeguard the interest of the Union”. Regulation 2015/755 has similar references in Articles 9 and 13.

Like the UK’s economic interest test, the EU’s test is also designed to balance the various concerns of interested parties, effectively requiring the Commission to consider whether or not taking the step of introducing remedies would be proportionate. It seems that it has usually been carried out after the Commission had already provisionally determined the existence of a dumping or subsidy injury.

There appear to have been very few decisions refusing remedies on grounds that they are not in the interests of the Union: see the recent comments of Advocate General Tanchev in Case C-461/18 P Changmao Biochemical Engineering Co v Distillerie Bonollo SpA at paragraph 99. Rather, the Commission may, for example, decide that measures should only be for a limited duration looking at the negative effects of measures on consumers and other Community producers if they were continued for a longer period: see e.g. Case T-459/07 Hangzhou v Council at paragraph 190.

The UK authorities will also assess whether they should vary any elements of a proposed measure in order successfully to minimize any negative effects whilst retaining its benefits. In other words the test is not simply a pass/fail test, but it allows for readjustment or fine-tuning of the measures being considered. The elements of the remedy that can be varied are the duration, the type of duty or the scope of the goods on which the measure is imposed.

The UK’s test appears to place a very strong emphasis on gathering evidence which may well occur throughout the period of the investigation, although provisional or final determinations will only set out the TRID/TRA’s conclusions in relation to the test when and if an affirmative view on conduct leading to injury has been taken. It is not clear currently whether the investigations and decision-making in relation to the test will nonetheless occur in tandem with the investigations on conduct and injury, or only once an affirmative decision on remedy has been reached. It is possible that there may be some differences in approach therefore between the UK and the EU’s practice.  Whether this is so will emerge as the TRID and TRA begin to make their decisions.

The UK’s test has the potential to play a strengthened and more prominent role than has been the case to date with the EU test. Further, the fact that the issues will be considered thoroughly can only enhance the decision-making, generating confidence in the system and in the remedies imposed.

As with EU Commission findings, there is an opportunity for judicial challenge of UK decisions. Unlike the EU situation, there is also the opportunity to ask the TRA to reconsider its decision first: see Trade Remedies (Reconsideration and Appeals) (EU Exit) Regulations 2019, Regulations 10-15. The decisions that the authorities can be asked to reconsider include the refusal of requests to start an investigation, the rejection of an application following investigation and determinations on the amounts of anti-dumping or anti-subsidy duties. Where the request is unsuccessful (and also where the decision to be challenged is a decision of the Secretary of State), appeal lies to the Tax and Chancery Chamber of the UK’s Upper Tribunal, which will apply a judicial review rather than the “on the merits” test under consideration at the time the draft legislation was consulted on: see Regulations 16-18. The Upper Tribunal is likely to sit in a panel with some specialist members and be more inclined than the Administrative Court to hear oral evidence.

The case law of the Court of Justice shows the difficulties of mounting a successful challenge to a decision of the EU Commission on the public interest test. The assessment is regarded as an appraisal of complex economic situations, which it is not generally justiciable in the EU courts; see e.g. Case T132/01 Euroalliages at paragraphs 47-50; Hangzhou at paragraphs 181-3. It will be interesting to see how the Upper Tribunal approaches challenges to the assessments made under the UK economic interest test. This will no doubt be the subject of submissions and findings  as and when the Tribunal begins to apply judicial review principles in the particular circumstances of TRID, TRA or Secretary of State findings.

Conclusions

There is considerable scope under the UK’s new test for representations and evidence as to the effects of applying or not applying proposed remedies. In the case of anti-dumping and anti-subsidy remedies, it will be necessary to displace a presumption in order to persuade the relevant body not to impose a remedy. In the case of safeguarding remedies, the TRID or the TRA / Secretary of State will need positively to conclude that the test is met. It seems likely that the test will involve a careful and detailed substantive exercise with wide participation encouraged. It will be interesting to follow in due course the developing approaches of the TRID, the TRA, the Secretary of State and the Upper Tribunal to the new test as it starts to be applied.