Pascal Lamy, the former Director of the WTO and EU Trade Commissioner was questioned by the Committee for Exiting the EU. I asked about steel, Brexit the WTO and dealing with Chinese dumping; and the implications on trade of the transition deal that the government have signed up to.
Stephen Kinnock: Thank you very much, Monsieur Lamy, for coming in to see us. I wanted to ask about trade defence and anti-dumping measures. You will be aware, I am sure, that 18 months to two years ago the British steel industry was in a deep crisis, and this is a matter that is very close to my heart as I have the largest steelworks in the country in my constituency.
A massive contributing factor to that crisis was the dumping of Chinese steel, with massive overcapacity produced by Chinese steelmakers. Eighty percent of the Chinese steel industry is state-owned, so clearly we are not competing here on a level playing field. Our market economy is competing against a massively subsidised competitor. I wanted to ask you: as and when the United Kingdom leaves the European Union, do you believe that its ability to compete on a level playing field by using trade defence measures when necessary will be strengthened or weakened?
Pascal Lamy: For the moment, as a member of the EU, the UK benefits from the EU trade protection. Half of the people in DG Trade in Brussels are administering trade defence instruments—i.e., anti-dumping, anti-subsidy and safeguards.
If and when the UK leaves, the UK will have to build its own system of trade defence. It will have to recruit the necessary experts and accountants. Trade defence is extremely complex. Notably, in the case of anti-dumping you have to send people to inspect the books of the producer, looking at the books to see what the margin is, what the producing price is, what the selling price is and on which market. It is horribly complex. If my memory is correct, in Brussels you probably have 200 or 250 experts who are doing only that. The UK will have to build this expertise force and then will be bound by the WTO agreement on safeguards, on subsidies and on countervailing measures—the ASCM—like any other WTO member. The UK will be able to impose its own anti-dumping duty, to take its own safeguard measure or to impose its own anti-subsidy measure.
Stephen Kinnock: Just using the steel example as an illustration, do you think that if the United Kingdom was out on its own, perhaps just as a WTO member and not a member of the European Union, the anti-dumping measures that it could have taken against China could in any way have been as effective as the anti-dumping measures that were taken by the European Union, which ultimately led to the reduction in production and dumping of Chinese steel?
Pascal Lamy: Yes and no. Yes, in so far as, in theory, if there is dumping there is a margin of dumping that you calculate and you offset this with an anti-dumping duty. There is only one technical solution, and the UK would not do more than what the EU did, or the other way around.
The “no” part of the answer to your question is that, if I am China, I have less of a problem with the UK with its own market obstructing my steel than the big market of the EU.
In this case, my own technical view is that the real problem we have is that there is a big overcapacity of steel production in China, that China has to cut this and that we have to bring China to reason, which is, by the way, what has happened in the G20 somehow, and the OECD. That is the real problem.
Would the use of UK trade defence be as effective? Yes and no, but the fact that it is a smaller market than part of the bigger market would be less of a problem for others, for sure.
Stephen Kinnock: I just wanted to change tack a little bit and ask about this issue of the United Kingdom’s ability to strike trade deals with non-EU countries during the transition period. It is basically accepted now that the transition period will be a carbon copy of the status quo, minus our representation in the institutions. Assuming that the transition period is a standstill, is it conceivable that non-EU countries will wish to engage with the United Kingdom in any sort of discussion about doing trade deals whilst we are in that transition period?
Pascal Lamy: I have the same answer as to the previous question on this topic: in theory, yes; in reality, third parties and third countries will, in my view, wait to see what the EU-UK trade regime is before they enter if not into the negotiation, at least into the conclusion of the negotiation. Furthermore, there may be, as we all know, a long time from when you start a negotiation. It is like building schools: the time between you cutting the ribbon and the school starting to operate sometimes is decades. Trade negotiations may be very long. Some of them could start, but my guess is that they will wait to see what is given to the EU by the UK and what is given to the UK by the EU, and they will use this as a starting base.
Stephen Kinnock: We have created a Department for International Trade here, which is supposed to be going out and striking these deals. What do you think that Department is doing at the moment? What is the point of that Department?
Pascal Lamy: The first point of the Department is to build a Department: to gather the necessary expertise, which is not there, because rationally the UK, like the other members, from the moment this was pooled in Brussels, disarmed their own expertise on trade deals, which is totally rational behaviour according to taxpayers’ views.
The first thing is to rebuild this expertise and it takes time. Is it two years? Is it three years? Is it five years? The time probably has this order of magnitude. Then you have to look at what trade deals these countries have entered into with other countries, in order to get a sense of what they want or can do, or do not want to do or cannot do, so there is a huge amount of analytics to be done. You also need the UK, in the meantime, as I already said—and I am hoping I have said this in the nicest possible way—to decide on what its trade policy is about. You need a function such as, “I will negotiate trade with this country because I need this or I want that; they want this and I am ready to give that”. This is the content of a trade policy: where you want to be open, where you want protection.
I am talking only in market access terms, leaving aside the technical regulation and recognising that there is sometimes a bit of a grey zone between protecting the producer and protecting the consumer, and maybe there are areas of a bit of manipulation. This inevitably will take a lot of time.