The controversy surrounding UK steel safeguards has taken yet another turn with India confirming that it will impose retaliatory import duties in the region of $247.7 million annually on certain UK products.
In previous blogposts, we reported on the UK’s steel safeguard measures which it retained after Brexit (see here and here). In short, safeguard measures imposed by the EU on 19 product categories of steel products were temporarily maintained by the UK following the end of the Brexit transition period on 31 December 2020. The newly established Trade Remedies Authority (TRA) was then required to determine whether or not to extend them by the end of June 2021 (the expiration date of the corresponding EU measures).
On 3 June 2021, the TRA recommended that the steel safeguards only be extended on 10 out of 19 product categories, but the Secretary of State for International Trade (SoS) disagreed with the removal of safeguards on five of the remaining nine categories. Accordingly, while she agreed with the recommendation to retain the measures on the 10 product categories, she created new regulations on 30 June 2021 and used her powers thereunder to extend the safeguard measures on a further five categories (contrary to the TRA’s recommendation). This was because the existing regulations governing recommendations made by the TRA provide that the SoS must either accept or reject the TRA’s recommendation in its entirety – she cannot change it. Rejecting the recommendation would have left all 19 product categories at risk from tariff-free imports.
The TRA’s reconsideration
Following submissions from industry stakeholders, in September 2021 the TRA launched a reconsideration of its earlier recommendation with respect to all original product categories. In early March 2022, the government enacted yet another set of regulations, known as the ‘call-in’ regulations: these regulations provide the SoS with the power to vary, maintain or revoke trade remedies under reconsideration by the TRA by issuing a ‘call-in notice’. They also provide the SoS with the power to direct the TRA in the ‘call-in notice’ to conduct specific analyses and assessments as part of its reconsideration. The TRA’s report of its reconsideration is to assist the SoS in making the decision whether to vary, maintain or revoke the measures in question.
On 22 March 2022, the SoS proceeded to issue such a call-in notice for the steel safeguard reconsideration then being investigated by the TRA. In that notice, she directed the TRA to undertake its analysis on the basis of three product category “groups”, rather than treating each product category separately. Following these directions, the TRA issued its final recommendation in June 2022 to extend the measures on all 15 product categories until 2024 (thus reversing its recommendation from June last year in respect of five product categories). The TRA’s final recommendation is particularly notable, not only due to the reversal of its previous recommendation, but also due to the finding by a World Trade Organization (WTO) Panel in April 2022 that the initial EU safeguard measures on steel did not comply with WTO law.
In June 2022, the SoS adopted the TRA’s recommendation. Reflecting on this in her oral statement to Parliament on 29 June 2022, the SoS recognised that extending the safeguards on the five product categories would depart from the UK’s international obligations under WTO law. However, she justified the decision by explaining that “the national interest requires action to be taken that may be in tension with normal rules”.
India’s retaliatory measures
The TRA’s recommendation and the SoS’s bold statement have unsurprisingly attracted international attention. India voiced its concerns on the extension of the UK’s safeguards and requested consultations at the WTO which took place in August 2022.
The consultations did not yield positive results and India advised the WTO accordingly on 31 August 2022. Thereafter, on 28 September 2022, India informed the WTO that it would impose retaliatory measures up to $247.7 million annually on imports from the UK. These would take the form of additional customs duties of 15% on imports of 22 products, including certain types of whisky, silver, gold and diesel engine parts. The UK has not yet commented on this.
Are these retaliatory measures legal under WTO law?
The imposition of safeguard measures as well as ‘retaliatory measures’ (as they are informally referred to) imposed in response thereto is governed by the WTO Agreement on Safeguards. These retaliatory measures can be contrasted to formal retaliation, which is the final and most serious consequence a WTO member faces in the WTO dispute settlement system, and which requires prior approval by the Dispute Settlement Body.
A WTO member may temporarily apply safeguard measures and thereby restrict imports of a product to protect a specific domestic industry from a sharp and sudden increase in imports of any product which is causing, or which is threatening to cause, serious injury to that industry. To prevent the misuse of these measures, WTO members that apply safeguard measures should generally aim to compensate affected WTO members in order to maintain a substantially equivalent level of market access (although this does not usually occur in practice). To agree on the adequate means of compensation, affected WTO members may request consultations. If the members cannot agree on adequate compensation within 30 days of the consultations, Article 8.2 of the WTO Agreement on Safeguards allows the affected WTO member to impose retaliatory measures. These measures (also known as the suspension of substantially equivalent concessions or other obligations) can be imposed 30 days after notification to the WTO Council for Trade in Goods and generally take the form of an import duty imposed on products exported by the offending WTO country.
Why did India impose these retaliatory measures now?
The UK and India have been in talks over a free trade agreement since May 2021. So far, five rounds of negotiations have taken place. The parties had initially announced their aim to conclude the agreement before Diwali (24 October 2022), but this deadline has slipped due to differences on some key issues. In particular, there have been recent reports suggesting that the talks face a deadlock over data localisation and UK companies being allowed to bid for Indian government contracts.
From the very start of the FTA negotiations, the UK announced that one of its objectives – in addition to creating opportunities for the UK’s services sector and to gain market access to certain protected industries more generally – was to gain access to the Indian whisky market by reducing the Indian tariffs of 150% currently in place for imports of Scotch whisky.
It is possible that India may be seeking to use these retaliatory measures as leverage in the final stages of the FTA negotiations.
What is next?
There are various courses of action which the UK could adopt, such as removing the safeguards in their entirety, removing them only for Indian exports pursuant to the FTA, or challenging India’s actions before the WTO. Time will tell which route the UK chooses to follow. We will continue to monitor developments in relation to the steel safeguards saga as well as the UK-India FTA.
If any of the topics discussed in this blog are of interest to you, please do not hesitate to reach out to a member of our Trade team, or your usual Freshfields contact.