20 May 2019
EU Steelmakers Dissatisfied with Planned ‘Relaxation’ of Safeguard Measures on Steel Imports
European steel producers have openly disapproved of the EU’s apparent intention to increase duty-free safeguard quotas in the context of uncertain prospects for the domestic market, rising competition from non-EU importers and loss of market share. The planned enlargement of the quotas by 15% over a period of three years risks further squeezing the EU steel sector, the European Steel Association “Eurofer” said on 7 May 2019. It is reported that alternative measures have, therefore, been suggested.
As is well known by now, on 1 February 2019 the European Commission imposed safeguard measures on imports of certain steel products by means of Commission Implementing Regulation 2019/159 (“Regulation 2019/159”). Country-specific quotas were established for 26 product categories, based on average yearly imports between 2015 and 2017 plus a mark-up of 5%. Once the tariff-rate quotas are used up, a 25% ad valorem duty will become payable. Various developing countries, including Hong Kong, were excluded from the scope of Regulation 2019/159, while imports of some of the products originating in mainland China are subject to the application of the safeguard measures.
In view of the World Trade Organization (“WTO”) requirements for progressive liberalization of restrictive measures, Regulation 2019/159 provides that as of July 2019, the volume of the free-of-duty quotas will be enlarged by 5% each year. However, the European steel industry has recently expressed serious concerns about the appropriateness of these measures. In a statement from 7 May 2019, the European Steel Association “Eurofer” recalled the impact of the significant growth in steel imports on the loss of market share for EU producers and opined that raising tariff-free quotas by 5% “operates out of step with the anticipated decline of the EU steel market in 2019”.
Eurofer claims that its position is supported by the fact that, in 2018, imports increased by 12.6% against the backdrop of a mere 1.7% growth of domestic deliveries, as pointed out by Axel Eggert, Director General of the trade association. At the same time, apparent steel consumption is expected to fall by 0.4% in 2019, with relatively weak prospects for production activity in EU steel-using sectors in 2019 and 2020. Decreasing EU exports and worldwide steel overcapacity further contribute to the competitive pressures in global steel markets, according to the last Eurofer economic report from 7 May 2019.
The statement of the EU steel industry association came shortly after the announcement of ArcelorMittal, the world’s largest steel producer, regarding its plan to temporarily halt production at its steelmaking facilities in Kraków, Poland and to reduce production in Asturias, Spain. The reasons indicated for these actions are the present low-demand environment in Europe and the “increased imports despite the safeguard measures introduced by the European Commission”. Consequently, the annual production of the company will decrease by around three million tonnes.
In view of the serious concerns, it is reported that EU steel producers believe it would be more apposite to retain the current duty-free quotas but to reduce the rates due after their exceedance. Alternatively, it is said that limiting the forthcoming increase of the quotas to 2.5% would also mitigate the supposed detrimental effect. In this respect, it is important to consider that anti-dumping and anti-subsidy measures are also presently in place for some of the affected steel product categories. Upon exhaustion of the quotas established under the safeguard measures, both the safeguard duties and the anti-dumping or countervailing duties would thus become payable in respect of the same goods.
Due to the possible undesirably onerous effect of the combination of these measures on certain producers exporting to the EU, the Commission has proposed on 26 April 2019 to amend certain existing anti-dumping and anti-subsidy measures. According to the proposal, where there is overlap with steel safeguards for a given period, duties below or equal to the safeguard tariff of 25% will be suspended. In the event that the level of duties is higher, solely the part exceeding the 25% threshold will be due. Consequently, if the Commission’s proposal is adopted, reducing the tariff under the safeguard measures as suggested by the EU steelmakers, might not affect the total amount payable on imports of products for which substantial anti-dumping or anti-subsidy measures are in place.
In the words of Eurofer, it appears that the weakness in the steel industry will “at least persist” during the first half of 2019, which poses a particular risk for investments in the context of rising global protectionism and a deteriorating economic environment.