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Consumer Interests (Likely) To Prevail over Producer Interests in UK Trade Remedies Case

Clark Packard

e-bike

As Cato trade scholars have long lamented, the United States is much more protectionist than our relatively low average tariffs indicate, and one of the biggest offenders in this regard is a US “trade remedy” regime that imposes high duties on imports without regard to how they might harm American consumers, the broader US economy, or other strategic national interests. A recent case in the UK shows just how important such a safety valve could be.

On his Substack, Most Favoured Nation, British trade analyst Sam Lowe highlighted a recent decision by the United Kingdom’s Trade Remedies Authority (TRA) to recommend lifting existing trade remedies (antidumping and anti‐​subsidy duties) on imported Chinese electric bicycles (e‑bikes). The TRA based its decision (largely) on the grounds that the existing trade remedies don’t meet a cost‐​benefit analysis—that is, they hurt consumers more than they help UK e‑bike producers. For American trade watchers, such a decision is basically unheard of—but it’s worth emulating.

Here’s the backstory as laid out by the TRA’s Statement of Essential Facts in the antidumping and countervailing duties cases: As the British government was preparing to leave the European Union, the TRA analyzed whether existing EU trade remedies should be scrapped, adopted, or modified by the post‐​Brexit government. (The TRA has the authority to investigate existing as well as prospective trade remedies). As part of that process, the UK adopted the EU’s antidumping and countervailing duties (AD/​CVDs) on e‑bikes from China at the end of 2020. As Lowe notes, the current antidumping duties range from 10.3 percent to 70.1 percent and the countervailing duties range from 3.9 percent to 17.2 percent on covered e‑bikes. It was estimated that imports of Chinese e‑bikes into the EU fell by more than 90 percent after the imposition of the AD/​CVDs.

In late May of 2023, TRA began a probe into whether the e‑bike AD/​CVDs continue to make sense. In its recently published findings, the TRA noted that if the tariffs were lifted, it is likely the subsidization and dumping of e‑bikes would recur; that such subsidization and dumping would cause injury to UK e‑bike producers; but—most importantlyon net, “keeping [the tariffs] in place would not be in the economic interest of the UK” under the TRA’s ability to make determinations about the broader economic impact of trade remedies known as the Economic Interest Test (EIT).

The TRA determined that revoking the trade remedies would “benefit the UK economy by an average of £51m per year; save consumers an average of £260 per e‑bike; and result in an average of 31,000 more e‑bikes being bought per year in the UK.” In other words, the TRA determined that the consumer benefits and broader economic benefits of lifting the tariffs outweighed the gains for producers that would continue to accrue if the AD/​CVDs were kept in place. What a novel concept!

Following the TRA’s publication of the Statement of Essential Facts, other UK government agencies will have twenty‐​one days to weigh in on the proposed revocation of the e‑bike AD/​CVDs. If no other agencies oppose the TRA’s decision, the duties will be terminated by a final decision in September.

As Lowe notes, the case has wider implications for the UK, particularly with respect to Chinese electric vehicles (EVs). Could the TRA make a similar recommendation that AD/​CVDs on imported Chinese EVs fail a cost‐​benefit analysis under the EIT? Though there are substantial differences between e‑bikes and EVs, it’s possible.

Implications for US Trade Policy

Unlike the UK, the United States’ AD/CVD regime specifically prohibits consideration of the broader economic effects of imposing such trade remedies like the TRA’s EIT utilized in the case of the Chinese e‑bike. Instead, it is limited to questions of whether a product was subsidized and/​or dumped into the US market and whether such subsidization and/​or dumping injured a domestic industry (with no regard for other considerations). As a result, US trade remedies are often at odds with wider policy goals—and their costs frequently outweigh their benefits.

Solar panels in warehouse

Two examples: The US continues to levy aggressive AD/​CVDs on imported solar products—stunting deployment by raising prices—even though politicians argue that climate change poses a grave risk to the United States and the world. Likewise, the Biden administration has recently argued the US needs to build more housing to help alleviate soaring costs, but it continues to maintain decades‐​long AD/​CVDs on Canadian softwood lumber imports, an essential component of residential housing. And it’s not just softwood lumber. A 2022 Cato paper from Alessandro Barattieri and Matteo Cacciatore found that the US levies numerous AD/CVD measures on a wide range of construction inputs with median duties ranging from 28 percent to 134 percent, all of which inflate the cost of residential building. If policymakers were truly serious about addressing climate change and housing affordability challenges, nixing these duties would be a priority. There are countless other examples.

More broadly, the US AD/CVD regime imposes significant costs on the economy. A 2020 working paper from Barattieri and Cacciatore found US AD/CVD actions between 1994 and 2015 largely targeted industrial inputs; depressed employment in downstream industries like those utilizing steel; and provided little long‐​term benefits for the jobs protected, such as in steel production.

Not only that, the use of trade remedies has also skyrocketed in recent years. As my Cato colleague Scott Lincicome has noted, there were about 300 AD/CVD orders in place as of 2016. Today, there are more than 675 orders on the books with 123 cases pending. In the next year or so, the US could have more than 800 AD/CVD duties on the books—a massive increase in a short period. See Figure 1 for the composition of current AD/CVD orders, by commodity.

The US trade remedy regime is in desperate need of reform. Permitting a true cost‐​benefit analysis of potential and existing trade remedies—similar to the UK’s system—is an ideal place to start.

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