7 Feb 2020
European Commission Eliminates End-use Requirements for the Importation of Certain Steel Products
Commission Implementing Regulation 2020/35 (“Regulation 2020/35”) has been published in the Official Journal of the European Union, by means of which the European Commission (“Commission”) has lifted the so-called end-use requirements for the importation of certain steel products.
Hong Kong sellers with interests in the steel industry might recall that on 26 March 2018, the Commission had launched a safeguards investigation as part of the EU’s response to the decision by the Trump administration to impose tariffs on certain steel and aluminum products (the so-called US Section 232 measures). According to the Commission, the trade diversion that followed the imposition of the US Section 232 measures resulted in an unforeseen, sharp and sudden increase of imports of steel products into the EU threatening to cause a serious injury to its domestic market.
By means of Commission Implementing Regulation 2019/159 (“Regulation 2019/159”), the Commission imposed definitive safeguard measures in the form of a tariff-rate quota (“TRQ”) on 26 steel product categories, set at a level high enough to preserve traditional trade flows. Quantitative thresholds were established by reference to the amount of imports during the period 2015–2017, increased by 5% in order to permit enough supply and ensure competition on the EU market. A 25% ad valorem tariff applies only beyond the set quantitative thresholds.
Imports from all origins are covered by the scope of the measures. Certain countries including Hong Kong have been exempt from the scope of the measures. Imports of some of the product categories originating in mainland China fall under the scope of the safeguard measures since mainland China is perceived as one of the most prominent exporters of the products covered.
Following a review investigation, the Commission issued Commission Implementing Regulation 2019/1590 (“Regulation 2019/1590”) amending the definitive measures in order to reflect the intervening changed circumstances during the period of imposition of the measures and to make the measures more effective, based on the Union interest. In the framework of such review investigation interested parties were invited by the Commission to file comments and observations.
The European Automobile Manufacturers’ Association (“ACEA”) claimed that the use of product category 4B by the EU’s automotive industry is vital for the continuation of the normal commercial operations of this industry and requested the exclusion of such product category from the scope of the TRQ system. However, the Commission found no grounds for such an exclusion. Instead of an exclusion, the Commission decided that the use of category 4B (which could also include products for other uses) must be restricted to imports that can demonstrate an end-use in the automotive sector. The automotive sector and its steel suppliers generally welcomed this solution since it would ensure the exclusive use of the TRQ for product category 4B by the Union’s automotive industry, as well as protect traditional trade flows. Therefore, by means of Regulation 2019/1590 imports of product category 4B were placed under the EU end-use procedure.
Following the entry into force of Regulation 2019/1590, the Commission noted that the end-use procedure required a rather burdensome cooperation between all parties involved in the importation process. The Commission was able to conclude that the imposition of the end-use procedure was not functioning as originally expected and caused issues for all parties involved in the importation. The Commission further noted that any solution to implement an effective end-use procedure would still require a considerable amount of time, without any guarantee of adequate and immediate remedies. In the meantime, a significant proportion of product category 4B goods is being held at the EU’s customs borders waiting for clearance. This situation – as explained by the Commission – has seriously and negatively affected, and even disrupted, the supply chains based on a ‘just-in-time’ system, because the EU’s automobile industry heavily relies on highly specialised steel grades. Given the aforementioned negative economic effects, the Commission decided to revoke the end-use procedure for product category 4B. The Commission has also amended the TRQ volumes for product categories 4A and 4B for imports originating in certain countries, such as South Korea.
The end-use procedure has been lifted retroactively from 1 October 2019 allowing the refund of any safeguard duties that could have been paid on the basis of the tariff rate quota established by Regulation 2019/1590. The Commission is expected to conduct a further review investigation in order to implement a specific mechanism, either the end-use procedure – once its issues are resolved – or an alternative system so as to ring-fence imports of automotive steel grades under product category 4B.