International trade in a changing world: are you up to speed?

In the fast-paced global trade landscape, businesses must navigate shifts in geopolitics, regulation and enforcement. This article explores recent trends in international trade law, including changing geopolitical relations, supply chain due diligence regulation, trade remedies and more.

Geopolitical shifts affect trade relations

Faced with coordinated sanctions from G7 nations, Russia has pivoted toward alternative trading partners, including China and India.

China’s stance on Russia has further strained relations with the EU, which recently unveiled a ‘diplomatic de-risking’ plan to move away from Chinese supply chains. This follows the shelving of the EU-China Comprehensive Agreement on Investment earlier in the year.

Meanwhile, the US is taking steps to reduce its dependency on Chinese technology manufacturing, including introducing domestic subsidies under the Chips and Science Act and establishing stringent export controls. New circumvention inquiries peaked in 2022, primarily involving circumvention of anti-dumping (AD) and countervailing duty (CVD) orders on Chinese imports.

The BRICS coalition is set to expand in January 2024 with the addition of six new member countries. Presently comprising Brazil, Russia, India, China and South Africa, the coalition is positioning itself to counterbalance the influence of the G7 and other Western-led economic organisations.

Switching supply chains to allied nations rather than the most efficient trading partners could drive up costs and escalate conflicts, according to the World Trade Organisation’s latest annual report. Despite an observed slowdown in trade flows between hypothetical allied blocs, the report stresses that talk of ‘deglobalisation’ remains premature.

Supply chain compliance in the regulatory spotlight

Businesses in the EU could soon be accountable for human rights and environmental harms within their global supply chains, with the adoption of the Corporate Sustainability Due Diligence Directive (CSDDD) expected in 2024. The CSDDD is the latest in EU efforts to improve supply chain due diligence and transparency, following the Corporate Sustainability Reporting Directive (CSRD) and regulation addressing deforestation and forced labour.

Following the US-Mexico-Canada Agreement (USMCA), Mexico has now banned businesses from importing goods produced through forced labour. This move reflects a concerted effort across the region to combat forced labour: Canada recently introduced a suite of reporting requirements, and the US has prohibited the importation of goods produced in the Xinjiang Uyghur Autonomous Region.

Authorities step up use of trade remedies

Trade defence instruments have become increasingly popular in many countries, including Canada, China, Pakistan, Thailand and Vietnam.

In the US, AD and CVD orders have increased twofold since 2015. This trend will likely continue, with regulators looking to expand the Department of Commerce’s enforcement authority. Among the proposed changes is the power to countervail subsidies from foreign governments outside the recipient firm’s location, notably those tied to China’s Belt and Road initiative.

Canada recently updated its trade remedy framework, enabling trade unions to file trade remedy complaints and expanding the investigative functions of the Canadian International Trade Tribunal (CITT).

In Japan, trade remedy investigations could become more common following the enactment of the Economic Security Promotion Act (ESPA) (Japanese language only). ESPA permits ministers to request investigations concerning ‘critical’ goods such as rare earth minerals and semiconductors.

Conversely, authorities in India have recently refrained from imposing AD duties in many cases. Although India remains a primary user of AD and CVD duties, this downswing has led local producers to seek safeguard measures such as quantitative restrictions.

As a part of efforts to open up the Brazilian economy, the country has consolidated its trade remedy mechanisms. The Department of Trade Remedies (DECOM) has also committed to increased transparency on its decisions, including publishing summaries of each final determination.

US trading partners adapt to the Inflation Reduction Act

The US Inflation Reduction Act (IRA) allocated US$369 billion in clean energy subsidies and tax credits, stirring controversy among trading partners, particularly the EU.

To counter the effects of the IRA and similar legislation, the EU has enacted the Foreign Subsidies Regulation. The European Commission can now investigate financial contributions granted by non-EU governments and impose redressive measures.

Japanese companies may soon have access to the IRA’s electric vehicle tax credits under the Japan-US Critical Minerals Agreement. The Biden administration has indicated that, if successful, the agreement may act as a ‘new framework’ for negotiations with other trading partners such as the EU.

The UK’s post-Brexit trade agenda takes shape

Since leaving the EU in 2020, the UK has pursued an ambitious foreign trade agreement agenda, most recently agreeing to join the Comprehensive and Progressive Trans-Pacific Partnership. However, negotiations with the US have gone into abeyance, leading the UK to focus on agreements with individual states, including Indiana, North Carolina, Oklahoma and South Carolina.

Some conformity assessments and sanitary and phytosanitary (SPS) requirements under the UK-EU Trade and Cooperation Agreement were initially delayed by the UK government. Businesses can expect SPS requirements to be implemented fully by the end of 2023 and conformity assessments for most products to follow in 2024.   

Source: Lexology