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Beware the “Unfair Trade” Trap in Any Brexit Deal

August 14, 2018 in Economics

By Simon Lester

Simon Lester

Understandably, the Brexit talks are hung up on big questions
such as the UK’s trade relationship with the EU Single Market and
what to do about the Irish border. Tariffs, the traditional focus
of trade policy, have played only a small role in the debate. UK-EU
tariffs are already at zero, so the typical trade negotiating
exercise of phasing out tariffs on particular products has not been
followed. The apparent assumption that any Brexit deal will
maintain zero tariffs is reassuring.

But this assumption may only apply to ordinary tariffs. There is
also a special category of “trade remedy” tariffs that apply to
so-called “unfair trade”, and the approach of a Brexit deal to
these tariffs has been less clear. Brits received a crash course in
the use and abuse of “trade remedies” last year, when there was the
prospect of the United States imposing tariffs on Bombardier
aeroplanes in amounts close to 300% — although, ultimately,
the US agency responsible decided not to impose them.

Trade remedies include tariffs imposed in response to import
prices that are deemed too low (anti-dumping duties) and to foreign
government subsidies (countervailing duties).

With regard to dumping, when people hear this word, they may
assume that it means something like the predatory pricing that
competition policy usually deals with. In reality, though, dumping
calculations do not assess actual predation; they often rely on
dubious facts or methodologies; and they are mainly an excuse for
protectionism. Any actual unfair pricing practices related to
foreign goods can be taken into account by domestic competition
policy laws; special anti-dumping laws for foreign goods are not
needed.

As for subsidies, they can be a source of market distortions,
but a better response is to address them directly in complaints at
the WTO, under its Agreement on Subsidies and Countervailing
Measures. National countervailing duty laws are subject to the same
political pressures that distort anti-dumping measures. If the goal
is to police global subsidies and get them removed, rather than
just impose a new tariff, the WTO may be the better forum.

Nevertheless, trade remedies are an established part of domestic
trade policy. Prior to Brexit, the UK relied on the EU to carry out
trade remedies. Now, the UK is setting up a Trade Remedies
Organisation of its own to oversee a domestic trade remedies
regime.

That takes us to Brexit, where negotiators need to decide what
to do with this issue in the context of UK-EU trade. Are tariffs on
this trade going to remain at zero for all products, or will an
exception be made for trade remedies? This exception would mean
that high tariffs could be imposed …read more

Source: OP-EDS

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