The UK Government’s weakening attachment to the rule of law is also present in less prominent areas of government than the previous examples, and in ways that are less likely to be undone in future. This section documents the breaking of the law and the subsequent ad hoc adjustment of the law to undermine an institution of economic governance: the Trade Remedies Authority (TRA). Such behaviour violates the implicit contract with trading partners to behave fairly and also undermines property rights in the sense that investments in developing trading links with the UK might be undone by arbitrary UK action without due process.
Having taken responsibility for its trade policy from the European Commission, the UK Government immediately faced the question of the institutional and legal framework under which it would exercise that responsibility. One aspect concerned how to manage trade remedies - the imposition of temporary restrictions on imports in the face of unfair trade (resulting from dumping or subsidies) or unforeseen shocks which cause injury to UK producers (where governments can introduce temporary trade restrictions known as safeguards). There was effectively no discussion of whether to have a trade remedies regime. The EU had one, which had long been pretty active, and nearly all major economies also had such regimes.
To try to ensure that trade remedies responded to real needs rather than just meeting politically convenient requests for protection, World Trade Organization (WTO) rules impose (mild) technical and procedural requirements on their introduction, but the details are determined by national governments and are written into national law. In the main economies of the world, the technical and procedural tests are carried out by arms-length bodies or largely autonomous branches of government, which then make recommendations to the ministries governing trade politically. The recommendations always refer to very precisely defined commodities rather than general issues of trade policy. While most administrations give ministers the right to override trade-remedy recommendations on ‘public interest’ (political) grounds, this is usually made rather public and inconvenient to discourage it from being done casually. This is the case in the UK.
Economists generally dislike the administrative structures that manage trade remedies. These involve extensive investigation of the case for imposing restrictions on a specific import, and thus inevitably pit the import-competing sector, which would get protection against its customers which would face higher prices. Investigations are almost always initiated in response to requests from the potential beneficiaries of the restrictions and are detailed and costly and thus place small firms and consumers at a disadvantage. Large firms and those that would gain heavily from protection can afford the resources to operate the system in their favour by collecting and presenting evidence and employing smart lawyers.
On the other hand, trade remedies are often seen as a necessary political evil, because permitting occasional trade restrictions in the name of fairness or compassion is seen as an important safety net which allows import-competing interests to agree to general trade liberalisation on the grounds that if it gets too uncomfortable, relief is possible – Bhagwati (1988).
A leading critic of trade remedies was Michael Finger – starting from Finger et al (1982). Trade remedies create winners and losers and Finger argued that delegating much of the decision-making analysis to arms-length bodies and making it highly elaborate were designed to offer politicians a partial shield against lobbying and to take the political sting out of granting petitioners the protection they sought (or not). He demonstrated that, as noted above, most systems were heavily biased towards large producer interests. Eventually, however, with his co-authors, Finger concluded that the system does have one virtue – Baracat et al (2015): by codifying and making public the process of making one-off protection decisions, it can help to avoid political ad hocery and its eventual descent into favouritism, clientelism and chaos.
It is not clear that a Smithian trade policy would include anti-dumping or anti-subsidy actions: he believed that if foreign producers were more competitive than domestic ones, one should import, and he also abhorred any system that facilitated the ‘monopolisation’ of trade as anti-dumping duties are often said to do – Messerlin (1990). We can, on the other hand, find a parallel with safeguards in his comments on the occasional need for choosing gradual liberalisation. Independent of such detail, though, Smith’s broader comments seem to suggest providing a policy environment that offers predictability, security and robust defences against political interference.
The UK Government started off along this Smithian line: it consulted widely on trade remedies and eventually came up with a regime that was explicitly WTO-compatible, provided procedural limits on the introduction of import restrictions and established a credible appeals process. It required investigation of a case for introducing a trade remedy against stated criteria, including an Economic Interest Test (EIT) which attempts to balance the benefits to the protected sector against the costs to users/consumers and the wider effects of the remedy – Serwicka et al (2023). The regime was initially embodied in the Trade Remedies Investigations Directorate (TRID) of the Department of International Trade and eventually, from 1 June 2021, in the independent non-departmental public body, the Trade Remedies Authority (TRA), when the Trade Act was finally passed in 2021. The TRID’s and TRA’s powers and operating rules were defined by Statutory Instrument 2019/449 (Department for International Trade, 2019) under the Taxation (Cross-border Trade) Act of 2018. The undermining of the TRA began within a month of its formal entry into operation!
Round 1: Safeguards on certain steel products
In March 2018, President Trump introduced 25% tariffs on US imports of steel and aluminium. The EU introduced safeguards on steel in order to forestall exports excluded from the USA being diverted to the EU. The EU investigated 28 categories of steel (covering over 300 8-digit product codes) and introduced tariff rate quotas (TRQs) on 26 of them definitively on 31st January 2019 – European Commission (2019a). The UK inherited these TRQs at the end of the transition period on 1st January 2021 and decided to maintain 19 of them until their expiry on 30 June 2021, the remaining ones being deemed to have no UK production to protect, and hence no case for a safeguard.
In October 2020, the TRID was asked to investigate whether the inherited safeguards were appropriate (and implicitly legal) for the UK to extend beyond 30th June 2021. It did so by examining whether the UK had experienced a significant increase in imports during the investigation period used by the EU (2013-17), whether more recent data suggested that imports would surge if the TRQs were abolished and the extent of injury if they did surge.
The TRA published its analysis, which was seriously done, and its final recommendation on 11th June 2021. Using a slightly altered classification of 19 categories, it recommended the extension of the safeguard on 11 categories for three years. Of the remainder, one was deemed to fail the Economic Interest Test, which basically balances the benefits to the producers against the costs for purchasers of the products, and the rest failed to meet the government’s criteria for safeguards (i.e. no UK production, or no increase in UK imports, or no significant increase in UK imports, or no likelihood of injury to UK industry).
On the day before the transitioned safeguards were due to expire, 30th June 2021, the Secretary of State rejected part of the TRA’s recommendation and implemented her own variant, partly underpinned by a bespoke Statutory Instrument (2021/783) made at 5:40pm and coming into force at 6:00pm on that day! It extended the 11 TRQs the TRA recommended on the terms it proposed , extended the TRQs on five categories for one year, despite the TRA’s recommendation to the contrary, and revoked the remaining ones as recommended. In addition, the Government announced a review to see if the TRA was ‘fit for purpose’ – Truss (2021).
This does not sound like a grievous blow to the trade strategy, but it was to the rule of law. The Secretary of State’s ‘pick and mix’ approach violates TRA Regulation 52: the TRA made just one recommendation and the article requires that ‘Where the TRA makes a recommendation …., the Secretary of State must accept or reject [it]’, the latter only if he/she believes the Economic Interest Test is not satisfied or ‘is not otherwise in the public interest’. The reasons for rejection must be published and made in a statement to the House of Commons. The ‘all or nothing’ requirement is designed to try to oblige the Government to recognise the need for balance and to decide matters on principle rather than on the political expediency of favouring some interests over others. And the publication of the reasoning behind a rejection is basically the price for adopting it.
To compound the damage, the extension decisions were also contrary to the WTO Agreement on Safeguards because, as shown by the TRA’s investigation, there was no increase in UK imports or credible injury to UK firms. All this occurred on the TRA’s first significant decision and within one month of its creation as an independent body!
Round 2: Transitioned trade remedies
All new institutions take time to bed down and not all reviews are serious attempts to change things, so it was possible on 1st July 2021 to believe that steel safeguards were just a teething trouble and that the government really did believe in independent advice and WTO-compliance. One can no longer plausibly believe that.
On 9th February 2022 the (new) Secretary of State for Trade laid a statutory instrument before the House of Commons, 2022/113 ‘The Trade Remedies (Review and Reconsideration of Transitioned Trade Remedies) Regulations 2022’, which stated that where the TRA has not completed its processes, the Secretary of State will decide matters in relation to a review or a reconsideration of a transitioned trade remedy [ i.e. those inherited from the EU]. Moreover, s/he ‘may do anything that [s/he] considers appropriate for the purposes of making a decision’, notably define the timescale for representations to be made on the issue and seek information from whomever s/he wishes. The TRA must analyse the evidence and its views must be ‘taken into account’ but may be ignored.
On 22nd March, the Secretary of State used the new instrument to ‘call in’ the decision on the five categories of steel that received only a year’s relief in 2021, and in doing so redefined the way in which she wished the TRA to reach its (non-binding) advice. The latter reported on 23rd June and, rather bravely, stated that while its original mandate would lead it to reject an extension of those TRQs, analysis under the revised instructions suggested that the TRQs could be extended.
On 29th June, the Secretary of State announced to Parliament extensions for two years for the five categories. But perhaps more importantly, she added that ‘The Government wishes to make it clear to Parliament that the decision to extend the safeguard on the five product categories departs from our international legal obligations under the relevant WTO agreement. …. . However, from time to time, issues may arise where the national interest requires action to be taken which may be in tension with normal rules or procedures.’ Moreover, we know she spoke on behalf of the government, because the Prime Minister had asked his ethics advisor to bless the breach of international obligations in advance! (The latter refused and resigned, ostensibly over this issue, although in time it became known that he had several other concerns about Mr Johnson’s behaviour.)
In sum, the government used secondary legislation to overrule procedures defined by primary legislation after considerable debate; it altered the rules of analysis to ensure it got the answer it wanted; and it was happy to violate WTO commitments. Baldly stated, the Secretary of State was saying that in this small area (transitioned remedies are just one element of the TRA’s work and will eventually disappear) decisions will be purely political and pay little regard to rules or institutions. Institutions sometimes need to ‘duck and weave’ to avoid political hostility in order to stay alive, so maybe the TRA’s report was a pragmatic tactical retreat in the face of overwhelming odds.
Round 3: All trade remedies
Round three commenced on 9th March 2023. The Secretary of State for Business and Trade announced that the review was completed (but not published or debated) and that it had concluded that new regulations for Trade Remedies giving Ministers more power were required – Badenoch (2023). These extend to the whole of the TRA’s domain. I quote extensively because there are few UK examples and such an unashamed emasculation of a supposedly independent body:
The proposals I am announcing today maintain the TRA’s expert independent analytical and investigative role, while also giving Ministers greater power to look at wider public interest considerations and flexibility to make decisions that balance the interests of UK producers, importers and consumers. More specifically, the updated framework will do the following.
1. Require the TRA to notify Ministers before initiating new investigations.
Comment: It is basically inconceivable that the contrary could happen, so this is just a standard bit of controlling behaviour.
2. Provide Ministers with the power to request the TRA to reassess a recommendation to apply a trade remedy where there is justification to do so. For example, where there is new evidence which the TRA has not previously considered or to correct an error.
Comment: having set up an ‘expert independent’ body, Ministers will use their own insight to identify errors and require the work to be revisited.
3. Give Ministers the flexibility to apply an alternative remedy to that recommended by the TRA, where there is supporting evidence to do so, and it is in the public interest.
Comment: this removes any assurance that exporters to the UK have of due process, because the body that can independently assess evidence and the public interest will be bypassed.
4. Give the power to the TRA to provide alternative options within its recommendation to Ministers, where justified.
Comment: this sets the TRA up to validate the decision that will be taken by the Minister in advance – a fig leaf.
5. Make the TRA’s assessment of the economic interest test (EIT) advisory so that the Ministers will still be able to apply measures if the TRA determines that the EIT is not met.
Comment: this is just an assurance that an assessment of aggregate gains/losses will not impede support for politically significant interests.
6. Give Ministers the power to revoke trade remedy measures without the need for a TRA recommendation if retaining a measure is no longer in the public interest. Ministers may request that the TRA provide advice, support and assistance before deciding to revoke measures.
Comment: this removes any security that the beneficiaries of trade remedy largesse may feel.
According to the press release, there will be meetings with ‘interested stakeholders’ to ‘explain’, but not to consult on, the new regime.
The Secretary of State’s statement does not mention the appeals process. In the original legislation, this permits appeals to the Upper Tribunal over decisions by the Secretary of State, but it is unclear what its purpose would be under a politicised system. Moreover, even if it survives, unless there is an obligation for the Secretary to explain her reasoning so that the appellant has something concrete to challenge, the appeals process will become just a location for examining the TRA’s analysis, but with little by way of a yardstick against which the Tribunal can judge the matter. This will further muddy the waters for any traders caught up in the process.
One interesting contextual feature of this announcement is that, with the exception of the steel safeguards discussed here, the government has accepted every other recommendation made by the TRA. So, does the announcement reflect the accumulation of unfettered political discretion just in case, that the government plans a change of tack or that the current institutional structure really did constrain it?
The government is now working on the legislation to implement these proposals. It has a majority of around 70 in the House of Commons and so one has to presume that they will pass into law. Politicians rarely give power away, and so until they have got themselves into trouble a few times they will not appreciate the benefits of having a technical and independent cut-out between them and interest groups. For the foreseeable future, UK trade remedies will be a field of political rather than investigatory activity.
Unfettered trade remedies are a setback in the regulation of international trade. But the much larger issue is Adam Smith’s concerns about the need for sound institutions and ‘the tolerable administration of justice’ and the trend of which this example is a part. If a relatively narrow issue like trade remedies can be treated so cavalierly by a British government, with unlawful action knowingly taken, the ad hoc modification of laws and the eventual emasculation of an independent institution in favour of naked politics, what message does that send about other issues in which economic agents seek stability and assurance in policy areas that do not suit the political tastes of the day?
One cannot plausibly argue that the UK has entirely lost ‘the tolerable administration of justice’, but neither can one argue that it has not been diminished. And perhaps the most famous economist ever, Adam Smith, believed that such diminution has economic costs.
What shines out from the matters discussed in this paper is the astonishing breadth of Adam Smith’s vision. Over 250 years after he wrote them, his words bear on so many of the trade-policy decisions and debates of the 2020s.