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June 6, 2024

Trade Talking Points | Latest insights from EY's Trade Strategy team (May 2024)

  • This edition of Trade Talking Points provides updates on: European Union (EU) forced labor and supply chain due diligence requirements; new EU investigations into medical devices and wind turbines; the US Special 301 Report; and the UK-US Small and Medium-Sized Enterprise Dialogue.

Executive summary

This edition of Trade Talking Points includes updates regarding:

  • Announcement of the United Kingdom (UK) General Election
  • UK’s ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
  • Amendments to the UK-EU Windsor Framework
  • Trade remedies
  • Asia-Pacific Economic Cooperation trade ministers’ meeting
  • US Section 301 tariffs
  • UK consultation on duty suspensions
  • Revisions to the UK extended producer responsibility for packaging legislation
  • UK Export Finance 2024-29 Business Plan
  • United States (US) rules on electric vehicle provisions under the Inflation Reduction Act
  • World Trade Organization (WTO) meeting
  • EU forced labor and supply chain due diligence requirements
  • New EU investigations into medical devices and wind turbines
  • US Special 301 Report
  • UK-US Small and Medium-Sized Enterprise Dialogue

UK election

The next UK general election will take place on 4 July 2024. The outcome of this year’s election could have significant implications for the UK’s trade policy.

There are questions as to both Labour and Conservative parties’ priorities under the existing negotiations with the Gulf Cooperation Council (GCC), India, Israel, South Korea, Switzerland and Turkiye — and whether any new trade negotiations might be pursued. The UK’s Labour Party has expressed ambition to strengthen the UK-EU relationship by pursuing a twin strategy, comprised of a proposed defense and security pact and a veterinary trade arrangement.

During the pre-election period, businesses should scenario-plan for different possible election outcomes and establish strategies to effectively engage with the new government following the elections.

UK ratifies Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

On 17 May 2024, the UK ratified its accession to the CPTPP, with the UK’s domestic procedures completed as the Trade (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) Act received Royal Assent in March 2024 — two months earlier than forecast. For the deal to enter into force by the end of the year, three more of the 11 CPTPP members must ratify the UK’s accession by October 2024; Singapore, Japan and Chile have already ratified the accession.

Businesses trading or seeking to trade with CPTPP-member countries should start to review their supply chains now to assess how to maximize opportunities arising from the tariff-free access that UK businesses will have to CPTPP-member country markets.

Amendment to the UK-EU Windsor Framework on Northern Irish meat imports

On 16 May 2024, the UK and EU agreed on a change to the Windsor Framework. The new deal allows Northern Irish businesses to benefit from UK tariff rate quotas for imports of lamb, beef and poultry into Northern Ireland (NI) from UK Free Trade Agreement (FTA) partners from 30 September 2024.

Previously, NI businesses could benefit from UK FTAs via tariff-free trade on their exports but were not able to import products such as meat into NI under the UK’s tariff rate quotas. The deal is expected to be welcomed, particularly by NI businesses seeking to import meat from Australia and New Zealand.

Businesses in NI that trade or process meat and those with relevant meats in their supply chains should prepare early and assess how to capitalize on the UK FTAs’ benefits. Businesses will want to review the new regulatory requirements and evaluate their supply chains and engage with stakeholders in UK FTA-partner countries.

Trade remedies

In recent weeks, major economic blocs have initiated globally various trade remedy investigations and measures across a range of goods, including products of steel, aluminum, ceramics and wood:

  • US: The US Department of Commerce is set to impose trade remedy measures on imports of boltless steel shelving units from Malaysia, Taiwan, Thailand and Vietnam, as well as brass rods from Brazil, India, Mexico, South Africa and South Korea. The US International Trade Commission (USITC) determined that the sale of these imports at less than a fair value in the US results in a material injury to the US.
  • China: On 19 May 2024, China launched an antidumping investigation into imports of polyformaldehyde copolymer (POM- C) from the EU, US, Japan and Taiwan, after six major Chinese POM-C producers submitted a formal application to China’s Ministry of Commerce on 22 April 2024. POM-C is a thermoplastic used in a range of industries, including automotives, medical devices, electronics and construction.
  • UK: In May 2022, the UK’s Trade Remedies Authority (TRA) initiated transition reviews into antidumping measures on certain ceramic tableware as well as aluminum foil from China. Although antidumping duties on these goods are currently in place, inherited from the EU, the TRA’s transition reviews assess the necessity of these measures post-Brexit.

Separately, the TRA has found that keeping the current anti- dumping and anti-subsidy measures on Chinese e-bikes would not be in the economic interest of the UK.

  • EU: The European Commission (EC) has launched two antidumping investigations on Chinese imports — one on tinplate steel products and the other on multi-layered wood flooring. The EC further extended antidumping measures on imports of birch plywood from Russia to include imports from Kazakhstan and Turkiye, following a circumvention review. Finally, the EC has extended its anti-subsidy measures on imports of cold-rolled stainless steel from Indonesia to also cover Taiwan, Turkiye and Vietnam due to circumvention of the anti-subsidy measures through these jurisdictions.

Trade remedy investigation processes vary across jurisdictions and businesses should be aware of any opportunities to engage with the relevant authorities to contribute and provide their views to investigations.

Asia-Pacific Economic Cooperation (APEC) trade ministers’ meeting

APEC trade ministers met on 17-18 May in Arequipa, Peru to promote stronger ties in areas such as trade liberalization. In a joint statement, the ministers highlighted that trade has been facing challenges in recent times and vowed to strengthen their commitment to open markets and the removal of unnecessary trade barriers. The ministers further reiterated the importance of continuing to advance the Free Trade Area of the Asia-Pacific and to promote the trade of and investment in products with a positive environmental impact.

During the meeting, APEC countries further set out actions on trade and gender through the Joint Statement of APEC Ministers Responsible for Trade and Ministers Responsible for Women, respectively. To assist the implementation of these actions, APEC-member economies are encouraged to utilize the APEC Women and the Economy Sub-Fund and continue to identify areas where further research is required concerning the economic empowerment of women.

US Section 301 tariffs

On 14 May 2024, US Trade Representative Katherine Tai announced that the US will be taking further action to counter China’s technology transfer-related policies that continue to negatively impact US commerce.

The US will increase tariffs for certain Chinese products already subject to Section 301 tariffs and add further products to this list, targeting strategic sectors. For example, the tariff rate for electric vehicles will increase from 25% to 100% in 2024 (estimated to be effective around August 2024), and the rate for semiconductors will increase from 25% to 50% in 2025. Rates will also increase for certain steel and aluminum products, certain medical supplies, certain critical materials and batteries, among other items.

The tariff increases come after the release of the four-year review statutory report on Section 301 tariffs. Businesses in the US’s strategic sectors and engaged in trade with the US should assess how the tariff increases may affect their supply chains and business operations. These businesses should also identify what actions they may be required to take to mitigate associated risks or access opportunities, including through supply chain diversification.

UK consultation on duty suspensions

The UK government is running its third application window to invite stakeholders to apply for temporary duty suspensions on certain goods, typically those used in domestic production. The suspension of these import duties enables UK businesses to remain competitive in the global marketplace. Goods benefitting from duty suspensions can be imported into the UK at a reduced tariff rate and with no limit on the quantity imported.

Applications are open until 3 July 2024 for businesses to request new duty suspensions. Businesses considering applying should consult the related guidance released by the UK government prior to applying. Separately, UK businesses may share their views (here) on the existing suspensions that are due to expire on 31 December 2024.

Revisions to UK extended producer responsibility for packaging (pEPR) legislation

The UK government announced revisions to the Draft Producer Responsibility Obligations (Packaging and Packaging Waste) Regulations, setting recycling targets for 2025–2030 and inserting a new provision for producers of drink containers, among other changes. The new provision to the Regulations stipulates that if a Deposit Return Scheme (DRS) has not been established by 1 January 2028, producers of drink containers made of polyethylene terephthalate (PET) plastic, aluminum and steel will be subject to pEPR obligations until a DRS comes into operation. These obligations include registering with an appropriate agency as a producer, assuming responsibility for paying disposal and administration costs, and keeping up-to-date production records. The labeling provisions under pEPR have also been amended to now come into force from 1 April 2027, allowing businesses a suitable amount of time to adapt to the new requirements.

The UK Government has shared the draft pEPR legislation with the EU, as required for implementation under the Windsor Framework. The Government has also notified the WTO of the labeling requirements under the Regulations, bringing the UK closer to implementing pEPR by 1 January 2025.

Businesses that may be in scope of pEPR should assess the data they have available to determine whether they are affected by the changes to the Regulations. Packaging producers must report packaging data for 2024 by 31 May 2025 to comply with the Regulations. Businesses in scope that do not complete reports by the deadline will be liable to face enforcement action.

The UK Government has stated it will release a call for evidence to support the development of its approach to modulation. Businesses should consider responding to this call for evidence and gathering key points of information they wish to share.

UK Export Finance 2024-29 Business Plan

UK Export Finance (UKEF) published its new 2024-29 Business Plan on 30 April 2024, setting out its aim to support UK businesses in winning over £12.5b in new exporting opportunities by 2029. UKEF aims to provide £10b in clean growth financing and an additional £10b in financing for UK exports to developing markets. The plan aims to support 1,000 small and medium-sized enterprises (SMEs) annually by 2029, with a view to encourage enterprise growth across all regions of the UK.

Businesses in clean growth sectors and developing markets, and SMEs across all regions of the UK, should familiarize themselves with the plan, take advantage of financing available and engage with UKEF to capitalize on any new export opportunities that arise.

US rules on electric vehicle provisions under Inflation Reduction Act

On 3 May 2024, the US Department of the Treasury and the Internal Revenue Service (IRS) issued final rules under the Inflation Reduction Act on electric vehicle (EV) provisions, intending to continue boosting US manufacturing of batteries and EVs. The final rules include restrictions on content from a “foreign entity of concern” (FEOC) — EVs containing battery components manufactured or assembled by FEOCs will be ineligible for the Act’s tax credits of up to US$7,500 as of 2024; EVs with batteries containing critical minerals extracted, processed, or recycled by an FEOC will be ineligible starting in 2025.

The IRS and Department of Energy (DOE) will conduct upfront reviews to ensure compliance with material sourcing reporting requirements. Compared to the proposed rules that have been in effect since December 2023, the final rules include graphite among the battery materials and critical minerals that are exempt from the FEOC restriction until 2027. Separately, the US DOE released final guidance on the definition of an FEOC.

Businesses involved in the EV supply chain in the US should review the final rules issued to ensure they can best leverage the tax credits available to them under the Act. Businesses should also prepare for the upfront review process by ensuring compliance with the material sourcing requirements and maintaining accurate supply chain documentation.

WTO meeting updates

A range of WTO meetings have been held over the last month on topics including clean energy transition, pandemic preparedness and non-trade barriers:

  • Meeting of the Committee on Trade and Environment (CTE): On 23 April, a CTE thematic session was held to discuss the role of trade in the clean energy transition, before the regular meeting of the CTE was held on 24-25 April 2024. At the regular meeting, participants further discussed the green transition, and the Committee was briefed on the UK’s forest risk commodities regulation and consultations on a carbon border adjustment mechanism (CBAM), among other environmental developments.
  • Meeting of the Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS): On 25-26 April 2024, WTO members continued to review what could be learned from the COVID-19 pandemic, with an emphasis on preparedness for future pandemics. Members also showed interest in resuming a review of the implementation of the TRIPS Agreement every two years, as this is a requirement under TRIPS Article 71.1 but no review has been held since 1999.
  • Meeting of the Committee on Rules of Origin (RoO): On 29 April 2024, WTO members explored the use of digital tools to facilitate the work of delegates and improve the functioning of the committee. The committee also evaluated progress on preferential RoO for least developed countries (LDCs), and considered a potential new strategy to enhance transparency in the reporting of non-preferential RoO.
  • Meeting of the Council for Trade in Goods (CTG): From 30 April

to 1 May 2024, WTO members reviewed 37 specific trade concerns previously raised by members, covering non-tariff barriers, environmental policies and subsidy investigations, among other measures. The CTG also provided updates on the recent actions taken to improve its functioning, such as training for delegates and a new Trade Concerns Database. The next CTG meeting is due to be held on 2-3 July 2024.

EU forced labor and supply chain due diligence requirements

On 23 April 2024, the European Parliament approved a regulation to ban the sale, import and export in the EU of goods produced through forced labor. Member States’ authorities will be enabled to conduct 30- day investigations into suspicious goods, supply chains and manufacturers. Goods subsequently found to have been made using forced labor will not be able to be sold on the EU market, including via online platforms, until the business eradicates forced labor from its supply chains. The regulation awaits final formal approval from the Council of the EU. EU Member States will then begin applying the regulation in three years’ time.

Additionally, on 24 April 2024, the European Parliament approved the Corporate Sustainability Due Diligence Directive (CS3D). The CS3D will require businesses in scope to conduct the necessary due diligence and take relevant steps to identify and prevent any human rights and environmental issues in their supply chains. The rules of the CS3D will apply to EU businesses and parent companies and will apply gradually:

  • From 2027, the CS3D will apply to businesses with more than 5,000 employees and worldwide turnover exceeding €1,500m.
  • From 2028, the CS3D will apply to businesses with more than 3,000 employees and worldwide turnover exceeding €900m.
  • From 2029, the CS3D will apply to businesses with more than 1,000 employees and worldwide turnover exceeding €450m.

The rules will also apply to non-EU businesses with franchising or licensing agreements in the EU that meet specific global turnover thresholds. The CS3D is currently awaiting formal endorsement by the Council of the EU.

Businesses should familiarize themselves with the requirements under the new supply chain regulations, consider undertaking a comprehensive supply chain review and identify potential risks or gaps in existing practices. A monitoring and reporting process should be put in place to continuously review business operations to ensure the appropriate due diligence is carried out.

New EU investigations into medical devices and wind turbines

On 24 April 2024, the European Commission launched an investigation into the Chinese procurement of medical devices. This is the Commission’s first investigation under the International Procurement Instrument (IPI), the EU’s trade tool aimed at promoting reciprocity in access to international public procurement markets. The EU believes there is evidence to indicate that China’s market for public procurement of medical devices unfairly discriminates against foreign businesses, including European businesses.

The probe aims to determine if European medical device suppliers have been given fair access to the Chinese market, following measures implemented by China that appear to place more stringent rules on the procurement of imported products and impose conditions that lead to bids too low to enable profit-oriented companies to compete. The EC will invite the Chinese authorities to provide a response and will open a consultation to remove the discriminatory measures if required. The investigation and relevant consultations will be concluded within nine months, but this may be extended by five months if justified by the Commission.

The investigation comes amid an ongoing EU probe into subsidies received by Chinese wind turbine suppliers. The probe was initiated amid concerns that the EU wind industry could be undercut by Chinese imports.

US Special 301 Report

On 25 April 2024, the Office of the United States Trade Representative (USTR) released the 2024 edition of its annual Special 301 Report, reviewing the adequacy and effectiveness of intellectual property (IP) protection and enforcement in the US’s trading partner countries.

Some of the report’s key elements include:

  • Removal of the Dominican Republic and Uzbekistan from the USTR’s “Watch List” of trading partners whose IP protection regimes present a concern
  • Argentina, Chile, China, India, Indonesia, Russia and Venezuela remaining on the “Priority Watch List” of trading partners whose IP protection regimes present the most significant concern
  • The continued suspension of Ukraine’s Special 301 review
  • Risks posed by counterfeit products and medicines, and online piracy

UK-US Small and Medium-Sized Enterprise Dialogue

On 16 April 2024, the UK and US held the 8th UK-US Small and Medium-Sized Enterprise (SME) Dialogue in Belfast to enhance SME participation in the UK-US trading relationship.

Talks focused on the creative industries, with participants discussing opportunities for SMEs, particularly through harnessing digitalization and protecting IP. During the Dialogue, the launch of UK and US IP toolkits was announced, providing SMEs with information on the support available to help protect their IP within the other country. SME barriers to entry were also discussed, such as access to financing.

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Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young LLP (United Kingdom), London

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor