The Politization of Trade Defence Instruments

By Victor Crochet and Weihuan Zhou

Trade defence instruments used to be described as dull and technical, of little interest except as a money maker for a handful of trade lawyers in Washington, Brussels and other administrative capitals. There are two main trade defence instruments aimed at protecting Members of the World Trade Organization (“WTO”) from unfair trade practices: anti-dumping and anti-subsidy (technically known as ‘countervailing’) measures. In addition, safeguard measures can also be used as temporary safety valves to target fair trade when an unexpected surge in imports seriously injure a domestic industry. These instruments allow WTO Members to impose customs duties on imports in excess of their agreed WTO bound tariff rates (the maximum import tariffs that a particular WTO Member agreed that it would not exceed when it joined the organization). Investigations leading to the imposition of trade defence measures are usually initiated based on a complaint from the domestic industry requesting protection in the face of import competition. As a result, trade defence instruments have long been perceived as technical tools for import-facing industries to get protection at home rather than devices used by governments for political goals.

As trade wars mounted following the election of Donald Trump as president of the United States of America (“US”) and as overcapacity continued to build up in China’s industrial sector, trade defence measures have attracted growing attention. While they continue to be perceived as technical instruments, their role has started to shift due to the escalating geopolitical tensions and the rise of industrial policies worldwide. Over the last couple of years, trade defence instruments have been increasingly used for national policy goals. This is particularly notable in two respects: China’s use of trade defence measures for political reasons and the European Union (“EU”)’s reliance on these measures as industrial policy tools. We analyse these two developments in turn below to demonstrate how trade defence instruments are increasingly taken out of the technical, and into the political, realm.

China was not a major user of trade defence instruments until it joined the WTO in 2001. Since then, China took massive effort to build trade law capacity and expertise, with trade remedies being one of the major focuses. China is now one of the world’s largest user of anti-dumping following India, the US, the EU, Argentina and Brazil. Apart from import protection, China has used anti-dumping measures mainly to retaliate against policies by key partners. This shift – i.e. from a technical trade tool to a political device – started when its diplomatic relationship with Australia deteriorated largely during the COVID19 pandemic. China imposed anti-dumping and countervailing measures on Australian barley and wine, and some other trade measures on a range of major Australian exports to China. While China defended these actions as a typical trade defence investigation, they are widely criticised as coercive actions seeking to push Australia to change position on certain politically sensitive matters regarding the pandemic. China did not remove these measures until the bilateral relations started to improve in 2023. These actions suggest that trade defence instruments can be used for political strategic goals, as part of China’s responses to a changing external geopolitical environment. Indeed, while many governments are concerned with import dependencies on China, China is also in a position to utilise its position as a major importer in global supply chains to affect foreign policies by third countries.

China is not the only player which has used trade defence measures to pursue governmental policies. In the EU, a similar shift started to occur in 2018, when the European Commission decided to initiate ex officio (although the EU Basic Safeguard Regulation does not expressly provide for this possibility) a safeguard investigation on steel products, leading to the imposition of safeguard measures on steel imports the following year. This move was largely a response to the Trump’s administration Section 232 measures on imports of steel and aluminium products as the EU feared that such measures would lead to exports being redirected from the US to the EU market. This transition, however, really took off following the reappearance of industrial policies in the EU as a response to the Biden’s administration’s own move in that direction, which culminated in the enactment of the Inflation Reduction Act and the Chips Act. Indeed, as part of its Green Deal Industrial Plan, the EU announced its intention to use trade defence instruments as industrial policy tools.

The European Commission actually did just that when it recently initiated ex officio an anti-subsidy investigation into imports of electrical vehicles originating in China. This investigation came in response to mounting pressure, in particular from the French government, despite opposition by most European car makers which feared retaliation. The fact that the European Commission initiated solely an anti-subsidy investigation (which often does not lead to very high duties) without also initiating an anti-dumping investigation (which usually results in much higher duties) might be a sign that the European Commission listened to some of these concerns. However, in order to impose countervailing duties on Chinese imports, the European Commission will still need to demonstrate that a sufficient share of the domestic industry supports this investigation. Indeed, launching the investigation ex officio does not absolve the European Commission from the obligation to show that the measures would be in the interest of the domestic industry, users and consumers.

Despite the EU’s balanced approach, China still reacted by initiating an anti-dumping investigation on imports of brandy from originating in the EU in early 2024. While this investigation was not open ex officio but based on a complaint from the Chinese industry, it is understood that there was at least some degree of political motivation behind it. Yet, this case seems more like a warning shot to the EU rather than full on retaliation. This is so first because brandy is mostly exported from France, hence signalling that Chinese actions may target the EU Member State behind the EU’s trade defence investigations. Second, although China is one of the largest export markets for French brandy producers, this investigation will not create an economic fall down in France nor negatively impact Chinese consumers, thus indicating that more painful action from China is possible.

However, the Chinese action does not seem to have exerted sufficient influence on the European Commission, and hence the shift in the use of trade defence instruments for political purposes seems set to continue. Reportedly, the European Commission is contemplating a safeguard investigation on imports of solar panels, despite strong opposition from the few remaining EU manufacturers of such products. Similar discussions with regard to wind turbines are also happening in EU circles. As such, the EU views trade defence instruments as one of the industrial policy tools to preserve its green industrial base and will continue to use them for such purposes when it deems it necessary regardless of the wishes of its domestic industries. However, trade defence instruments are only effective at protecting EU industries’ sales in the EU market. They do not provide any assistance to these industries in competing in export markets. To do so, subsidies are much more efficient. Yet, on that point, the EU is confronted with a clear lack of budget as EU Member States continue to hold firm on the purse’s strings.

The politization of trade defence instruments is unlikely to slow down anytime soon and might be taken up by other governments. Indeed, Türkiye similarly opened an anti-dumping investigation on imports of chemical products originating in Saudi Arabia following a political spat over the assassination of a journalist on its territory. This investigation was, however, terminated without the imposition of measures following a diplomatic rapprochement between the two countries. While the WTO used to serve as a platform to limit governments’ abuses of such instruments for political purposes, it has recently lost the ability to do so. Indeed, the WTO’s dispute settlement system is losing its credibility and effectiveness, largely due to the demise of its Appellate Body which has stopped functioning as a result of the US blocking the appointment of new Appellate Body members. This has effectively expanded the boundaries for permissible use of trade defence instruments, leaving governments’ hands untied to use these instruments for any preferred policy goals. For example, in the case of China’s trade defence measures against Australian barley and wine, the WTO proceedings brought by Australia against these measures did not cause a substantive change of the Chinese position. These disputes were instead settled through diplomatic exchanges between the two sides. Given the current geopolitical environment and global race for industrial policies, it thus seems that the escalation of trade defence measures as political tools will continue and that resulting disputes will be resolved through power-based relations and diplomacy rather than a rules-based manner. One can only hope that it will not take too long for governments to realise that tit-for-tat trade policies, regardless of their purposes, are mutually destructive, and cooperation is the sensible way forward.