Taxation (Cross-border Trade) Bill (Sixth sitting)

Nicholas Dakin Excerpts

Tuesday 30th January 2018 Public Bill Committees

[Peter Dowd (Bootle) (Lab)]

I will continue not only to move amendment 41, but to look after the interests of parliamentary democracy and British industry. It is good to see you in the chair again, Mrs Main.

I started to talk about the creation of the mandatory lesser duty rule, which instead results in lower duties that in some cases may not reflect the actual injury. It is labour intensive for the investigating authority and it does not reflect the full level of market distortion. It is also worth pointing out that a small minority of World Trade Organisation members use a mandatory lesser duty rule. The EU is moving to a conditional application because it has seen weaknesses in having a mandatory lesser duty rule. If the UK adopts a mandatory lesser duty rule, our trade remedies will be, in effect, an outlier.

The incorporation of amendments 41, 42, 43, 44, 49 and 50, 51 and 52 into the Bill would ensure that UK trade remedies post-Brexit will closely mirror the evolving EU practice, whereby the lesser duty rule will not be applied in anti-subsidy cases, or in fact in anti-dumping cases, where state-distorted raw material markets have been a factor in enabling or aggravating dumping. Reflected in our amendments is the rule that is practised by the EU but not mandatory under the WTO, which states that

“duties should be calculated to remove either the amount of dumping/subsidy found, or the injury found, whichever is the lower.”

The amendments lay out specific circumstances where the margin of dumping would be applied over a lesser duty rule. These circumstances include where the Trade Remedies Authority finds that the dumping of goods is directly linked to market distortions that affect the price of raw materials, for example in the case of Chinese steel, which is heavily subsidised by the state, and where it finds inadequate levels of social and environmental protection in the exporting country. These specific circumstances mirror the current regulation that the EU follows when determining trade remedies. In a sense, the amendments try to be in the spirit of that.

The Government have offered no evidence of why a mandatory lesser duty rule would be beneficial in comparison with the flexibility to exercise a lesser duty rule on a case-by-case basis. We all know from the evidence session that a representative from the trade unions, and others who work in key sectors pointed out that they had seen no evidence that a mandatory lesser duty rule works, is desirable and that the UK needs it. The amendments go to the heart of trying to deal with that particular issue.

Currently, only nine of the 30 remaining anti-dumping users in the WTO have a mandatory lesser duty rule. They include: Australia, Brazil, India, Israel, New Zealand, Turkey and Thailand. Only three have both the public interest test and a mandatory lesser duty rule, which is what schedule 4 proposes. That includes the EU, Brazil and the Eurasian Customs Union. Detailed evidence given by Cliff Stevenson to the Department for Business, Energy and Industrial Strategy using the Eurostat update looked at four cases where the lesser duty rule was applied over the dumping rate. In the case of the dumping of cheap aluminium road wheels from China, to which I referred earlier in relation to TUC evidence, the EU adopted the lesser duty rule in 2010, with the injury margin of 22.3%. It is important to look at that in relation to the amendment.

The dumping margin permitted by the WTO was from 23.8% to 67.7%, meaning that the margin adopted was 1.5% less than the lowest estimation of the dumping margin. According to Stevenson’s study, the EU’s adoption of the lesser duty rule has had no impact on the volume of cheap aluminium road wheels imported into the EU from China. We have tabled the amendments because we do not believe that the framework—skeleton or otherwise—addresses the issue.

In the case of ceramics, the EU introduced trade remedies in late 2010 against the import of continuous filament glass fibre products from China. Again, it chose to adopt a lesser duty rule when investigating the injury level. The injury margin was set between 7.3% and 13.8%, while the dumping margin permitted by the WTO is between 9.6% and 29.7%. The rate adopted by the EU is therefore at least 2.3% below the dumping margin. Stevenson’s research shows that the EU’s trade remedies have had little impact on the importation of continuous filament glass fibre from China; since they were adopted, rates have largely remained consistent. Our amendments are a genuine attempt to deal with that problem.

Some have argued that the adoption of the lesser duty rule protects the consumer against being ripped off when the dumping margin is calculated and added to the price of the products imported. However, the claim that prices do not rise significantly because tariffs are imposed at too high a rate was dispelled clearly, compellingly and authoritatively by Gareth Stace, director of UK Steel, in his evidence to us last week:

“I have an example. In the hot rolled coil case recently—hot rolled flat is used for car bodies…the injury margin was 17.5% and the dumping margin was 29%.”

The lesser duty rule was applied by the EU. Gareth Stace continued:

“That is a difference of 11%...If we think of a luxury car that cost €45,000…if the lesser duty rule was not applied in this case, it would increase the value of the €45,000 car by €16.”––[Official Report, Taxation (Cross-border Trade) Public Bill Committee, 23 January 2018; c. 71-72, Q109.]

Disapplying the mandatory lesser duty and giving the Trade Remedies Authority the flexibility to apply a higher dumping margin if necessary will not mean sudden runaway costs being handed on to the consumer—quite frankly, I consider that a myth that needs to be dispelled, preferably as soon as possible. Importantly, higher dumping margins will be considered only when dealing with heavily distorted economies.

The amendments would ensure that the United Kingdom has trade remedies that maintain free and liberalised trade, as well as providing a safety valve to UK producers and manufacturers. That, in turn, will have a positive impact on consumers. We seek not to introduce protectionist measures, but to ensure a level playing field for UK manufacturers. We want to protect the steel industry, for example; my hon. Friend the Member for Scunthorpe has made that point on many occasions and he is absolutely right, as I know his constituents recognise. Our amendments would provide a remedy to the unfair competition that arises when overseas manufacturers do not play by the same fair rules as UK manufacturers. Giving the Trade Remedies Authority the power to establish the correct level of injury is so important.

I exhort hon. Members to consider our amendments carefully, and the Minister to accept them in the spirit in which they are intended.

[Nic Dakin (Scunthorpe) (Lab)]

It is a pleasure to see you in the Chair again, Mrs Main. In supporting the amendments tabled by my hon. Friend the Member for Bootle, I, too, draw on the evidence of Gareth Stace, director of UK Steel. He was compelling when he said:

“One of the aims of Brexit was to strip things away, make things more simple and have less people employed working on these things”.

If Brexit is about taking the opportunity to get some sort of bounty that makes things better, herein lies an opportunity for us to do that.

Mr Stace went on to say that

“calculating the dumping margin is a really easy process. It can be done fairly quickly. It does not need a lot of people to do it and does not need a lot of work from industry and the Government. Calculating the injury margin does. It is a bit of a black box—you do not know what is going to come out of it—whereas the dumping margin is very transparent.”––[Official Report, Taxation (Cross-border Trade) Public Bill Committee, 23 January 2018; c. 71-2, Q109-10.]

That is why the EU is going for a conditional application of the lesser duty rule, which is the right direction of travel. It makes it slicker and simpler, and still effective. There is an opportunity for the UK to do the same—or even better.

To look at comparators in terms of timeliness, speed and pace of decision making, systems in the US are put in place within 45 days—we all commend the US as a bastion of free trade, yet that is how it ensures its industry is not disadvantaged in particular ways—whereas until recently in Europe it had been after 9 months. There is an opportunity for the UK to get things slicker and faster than for the EU currently, with one such way being to move towards conditional use of the lesser duty rule, as is implicit in the amendments. I hope that the Government are listening and willing to take this opportunity.

[The Parliamentary Under-Secretary of State for International Trade (Graham Stuart)]

It is a pleasure to serve under your chairmanship, Mrs Main, and to be in this reassembled Committee, probing and holding the Government to account on this excellent framework Bill. The amendments in the group look to set the parameters around what the TRA can recommend by way of anti-dumping and anti-subsidy measures. I begin by reassuring the Committee that the UK trade remedies system will provide robust protections for UK industries where they are suffering injury because of dumped or subsidised imports, or because of unforeseen surges in imports.

Amendments 41 and 49, and their consequential amendments, would remove the requirement that provisional anti-subsidy measures recommended by the TRA must not exceed the subsidy margin. WTO rules clearly provide that anti-dumping measures cannot exceed the margin of dumping and anti-subsidy measures cannot exceed the amount of subsidy. That is a strict requirement, applying to both provisional and definitive measures, which is reflected in schedule 4. Let me clarify that our policy intention is simply to incorporate those WTO rules and not to provide that the amount of subsidy somehow offsets the dumping margin, or vice versa—I think there may have been some misunderstanding of the Bill’s phrasing.

Schedule 4 relates to both anti-dumping and anti-subsidy investigations, which are largely identical. That is why the provisions refer to both the margin of dumping and the amount of subsidy. By removing the requirements around the maximum amount of anti-subsidy measures, the amendments would mean that the Bill would not be compatible with WTO rules. I am sure that was not the intention.

Amendments 43 and 51 would restrict the application of the lesser duty rule in cases of raw material distortions and when the exporting country does not respect adequate levels of social and environmental standards. The lesser duty rule achieves our objective of protecting UK industry by ensuring that it can operate on a fair playing field without causing unnecessary injury to UK consumers and downstream industry.

The evidence shows that trade remedy measures are effective and have a lasting impact even with a lesser duty rule in place. Anti-dumping duties on a range of important steel products determined under the lesser duty rule have been very effective in curtailing dumped imports from China. For example, in the year to August 2017, UK imports from China of rebar hot-rolled and cold-rolled flat products were down by more than 90% compared with the year leading up to their respective anti-dumping investigations. There is, therefore, no evidence of a need to remove the lesser duty rule in the case of raw material distortions. Measures are already clearly effective in addressing the injury caused by those practices.

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[Graham Stuart]

We have not heard any evidence of the lesser duty rule not working in practice. I have been able to rebut any suggestions. The hon. Member for Scunthorpe said that the US imposes measures in 45 days. As everyone on this Committee who is not as busy as he is will know from reading their papers, that is simply not true. The WTO rules prevent the imposition of provisional anti-dumping and anti-subsidy measures before day 60 of the investigation. The US makes a preliminary injury determination in 45 days, but that does not mean the imposition of measures. That was completely incorrect, and I am sure the hon. Gentleman will want to correct the record. The average time that the US takes to impose provisional measures is just under five months, and in most steel cases it takes around six months.

[Nic Dakin]

The Minister is absolutely right that, after 45 days, an interim decision is made. That essentially gives confidence to the industry. The amendments are an opportunity for the Government to take measures quicker. At the height of the steel crisis, the lesser duty rule did not help. It took a long time for things to come in. The problem is time and space. The other thing is that the UK will be one of very few countries in the world that apply the lesser duty rule without exception if it goes ahead in this way—out of step and out of place. This is an opportunity to be in the right place.

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New clause 15 seeks a review of transitioning existing EU measures. It is unclear whether the clause asks for the Trade Remedies Authority to review each transition measure, or whether it seeks to review the Government’s policy approach. If the aim is for the Trade Remedies Authority to determine which measures should be maintained and to review the maintained measures, we intend those decisions to be determined through the call for evidence launched on 28 November 2017. That call for evidence seeks to capture information from UK producers who benefit from existing EU trade remedies measures.

[Nic Dakin]

Am I right that the Minister is essentially saying that current trade remedies will stay in place unless there is a very strong reason for them not to?

[Graham Stuart]

The hon. Gentleman is precisely right. As ever, he represents the steel interests in his constituency with assiduity, hard work and focus. He is right to say that we must ensure that measures in place to protect British industry continue smoothly after we depart the EU. That is exactly what the Government intend.

The Trade Remedies Authority will have the important role of reviewing the maintained measures so that they reflect the UK domestic market. The precise timing of reviews being carried out will depend on the terms of any agreement with the European Commission about an implementation period and on the outcome of the call for evidence, which will confirm the number and type of measures that will be maintained.

If the aim is to look again at the general policy to transition the existing EU measures that matter to the UK, that does not need to be revisited. If we take no action to maintain those measures when we leave the EU, they will no longer apply to products arriving into the UK with immediate effect. That would leave important UK industries, including the steel, ceramics and chemicals sectors, vulnerable to dumped and subsidised imports. A review of the policy approach would create uncertainty for UK industry as to whether measures will be maintained. Stakeholders have been clear that it is vital to transition existing measures to maintain protection against injury from dumping.

To return to schedule 4, having an effective trade remedies system in place is crucial to protect our industries from unfair trading practices that cause injury. It is vital to the UK’s interests that the system is transparent, balanced, impartial, efficient and works for the UK as a whole. The system proposed by this schedule and the secondary legislation that will be made under it achieves that, and is the best way to protect UK industries when we are outside the EU. I will respond to new clause 15 when I have heard the arguments made for it by hon. Members.