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European Commission Notifies WTO of Proposed Definitive Steel Safeguard Measures: Some Mainland Chinese Exports to Fall Within Their Scope

The investigation was launched on 26 March 2018 as part of the EU’s response to the decision by the United States to impose tariffs on steel products (the so-called US Section 232 measures). It showed that imports of steel products into the EU increased significantly in recent years and that these imports are likely to increase further. The situation was aggravated, it is claimed, by the trade diversion resulting from the US restrictive measures on steel. The EU steel industry has not yet, according to the Commission, fully recovered from the global steel crisis. It is still exposed to further increases in imports and the ensuing downward pressure on prices.

The proposed measures will be imposed erga omnes (i.e., against imports from all origins). However, certain countries, considered as developing for the purposes of the investigation, are excluded from the measures. Traders may be relieved to learn that the list of such countries includes Hong Kong.

It is proposed that the definitive safeguard measure will take the form of a tariff-rate quota in order to prevent serious injury, but at the same time preserve traditional trade flows as much as possible. This level of tariff-rate quota shall be set at the average level of imports over the last three representative years. The Commission considered it necessary to modulate the tariff-rate quota level above the average import level for the last three years to take account of the competing interests between users and importers, on the one hand, and the Union industry, on the other hand. On this basis, the Commission considers that the quantitative level of the tariff-rate quota should be based on the average imports in the period 2015-2017 plus 5%. The additional duties to be paid above the quota shall be 25%.

Furthermore, the level of the tariff-rate quota will, it is proposed, be increased by 5% each year during which the measures are in force.

A country-specific tariff-rate quota will be allocated to countries having a significant supplying interest, based on their imports over the last 3 years. A global tariff-rate quota ('the residual quota') based on the average of the remaining imports over the last three years will be allocated to all other supplying countries. This residual tariff-rate quota will be divided quarterly in order to ensure that imports are evenly distributed over the year and prevent significant imports of standard products being stockpiled at the beginning of the period in order to avoid possible duties. Unused quarterly tariff-rate quota allocations would also be automatically transferred to the next period.

A country-specific tariff-rate quota should however not be allocated to those countries whose export level – for each product category concerned – has substantially diminished in the recent past because of any anti-dumping/countervailing duty measures in place. These countries will fall within the residual tariff-rate quota.

Finally, the Commission considers that it is in the Union interest that when a supplying country has exhausted its specific tariff-rate quota, it should be allowed to have access to the residual tariff-rate quota. This possibility would, however, only be applied during the last quarter of the period, in order to strike a balance between the interests of the countries endowed with a country-specific tariff-rate quota and the countries drawing on the global tariff-rate quota. This would not only ensure the maintenance of traditional trade flows but also avoid, as the case may be, parts of the residual tariff-rate quota that remain being left unused.

The final determination made by the Commission shows that the product categories concerned, originating in a number of developing countries, may be excluded. While both Hong and mainland China are listed as developing countries in Annex III.1 of the notification to the WTO, only Hong Kong is seen to escape the proposed measures completely. As seen in Annex III.2 of the notification, mainland China will see several of its product categories exported to the EU become subject to the definitive measures.

The injury assessment was conducted on a global basis, namely for the product concerned under assessment, thereby including the 26 product categories where the Commission found an increase in imports. The Commission also supplemented its analysis with an assessment for three product families regrouping these product categories, i.e. flat products, long products and tubes. The injury analysis was based on the questionnaire replies submitted by the EU industry.

The analysis showed that the Union industry – both globally and for each of the three product families mentioned above – was in a difficult economic situation until 2016, and only partially recovered in 2017. The industry is thus still felt to be in a vulnerable position.

For each and every month in 2018, import volumes into the Union in 2018 were higher than import volumes in 2017. Indeed, imports increased significantly from March 2018. The differences with 2017 were more substantial in June and July 2018, a few months after the imposition of the US Section 232 measures. In August and September 2018, the increase was still significant but less pronounced than in the preceding two months. This may be due to the provisional safeguard measures that were imposed on 18 July 2018.

Once adopted, these measures are expected to remain in place for a period of three years – including the period of imposition of the provisional measures – thus they are scheduled to expire on 16 July 2021. The measures can be reviewed in case of changed circumstances.

The notification to the WTO is a necessary step under the WTO Safeguards Agreement and allows time for affected WTO members to hold consultations with the EU. The notification is published on the WTO website.

Content provided by Picture: HKTDC Research
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