18 June 2019
European Commission Speeds Up Review of Steel Import Caps in Response to Calls for Urgent Protection Measures
The EU’s steel industry is still endangered by the surge in cheap imports and needs urgent measures to ensure that the sector survives, the European Steel Association “Eurofer” has stated. The European Commission has thus agreed to accelerate its review of the safeguard measures which have been imposed on certain steel products from July 2018 onwards. Furthermore, within the framework of the review, both producers and Member State governments have underlined the necessity to consider the extraordinary state of affairs and halt any planned increase in duty-free quotas.
In an open letter from 4 June 2019, 45 leading executives of the European steel industry expressed serious concerns about the industry’s prospects. Global overcapacity and the resulting surge in imports of steel into Europe, as well as increasing costs for raw materials, energy and carbon dioxide (CO2) emissions in the EU, were pointed out as core reasons for the negative trend. Steel producers have therefore called on the EU institutions and Member States to urgently consider strengthening the EU’s steel safeguard measures as of 1 July 2019 and to convene an emergency meeting with the industry to find other relevant and swift solutions.
According to Eurofer in an earlier statement, steel imports into the EU have risen by 12% in 2018, i.e., to about 30 million tonnes, as a result of a deflection of global exports caused by the US’s imposition of steel import tariffs. Imports into the EU have, in addition, more than doubled since 2013. EU steel demand, however, does not correspond to these developments and is even expected to decrease slightly in 2019, in the words of Axel Eggert, who is the Director General of Eurofer. Eurofer indicated, moreover, that carbon costs have increased five times since the beginning of 2018, a burden that is said not to be borne by foreign steelmakers. Slowing demand in downstream sectors, such as the automotive sector, unstable EU economic performance and fluctuating prices of raw materials are said to be contributing to the difficulties that European steelmakers are currently facing. Low-cost exporting producers from countries neighbouring the EU, such as Russia and Turkey, have moreover reportedly exerted significant competitive pressure in the region.
According to Mr. Eggert’s estimate, the negative developments result in an immediate risk for over 10,000 jobs, whereas the potential loss of indirect employment in the supply chain exceeds 100,000. As reported earlier, ArcelorMittal, the world’s biggest steel producer, announced production cuts at its European steelmaking facilities. In addition, British Steel, the UK’s second largest producer, sunk into liquidation. It has also been reported that, during the last 12 months, EU producers have lost over $40 billion in combined market value.
European steelmakers are thus insisting on measures to curb imports which they strongly feel are distorting the EU market. As is well known, the EU imposed a safeguard measure on certain steel products in 2018 (with the ceilings divided into country-specific and global quotas), which, critics claim, is not effective enough in view of the recent developments. The European Commission is currently conducting a review of its steel import caps which was intended to be completed by the end of September 2019. It is, however, reported that the Commission has decided to accelerate the process in response to the calls being made, and to conclude its work as soon as possible, although this is unlikely to be before the end of June 2019.
Hong Kong and Chinese mainland traders may recall that a core concern among EU producers, in the context of the ongoing review, is the EU’s intention to increase the volume of duty-free safeguard quotas on certain steel products by 5%. This was planned in view of the World Trade Organization (“WTO”) requirements for progressive liberalisation of restrictive measures, along with further 5% enlargements scheduled to take place in 2020 and 2021. European producers consider that it would be more apposite to either retain the current quotas but reduce the duty rates that become due after they are exceeded or to increase the quotas only by 2.5%. Other recent proposals apparently include ostponement of the 5% quota increase as well as the establishment of country-specific quotas for hot-rolled flat steel products.
In line with the industry’s demands, some EU Member States, including the governments of Italy, Hungary, Poland, and Slovakia, have reportedly written letters to EU Trade Commissioner Cecilia Malmström, with requests to freeze the tariff-free quotas. This step is seen as necessary to rebalance the changes brought to the market by external factors. In addition, it is said that some Member States are proposing that the EU establish country-specific caps within the existing global quotas. According to them, this should prevent the exhaustion of large portions of these global quotas by certain producers (e.g., from Turkey) which export vast volumes of steel to the EU, thereby preventing producers located in more distant countries from selling steel to Europe under equal conditions.
While the European steel market has indeed changed since the introduction of safeguard measures, it will be interesting to see how the EU will reconcile the strong demands to protect its steel market with the WTO requirements for progressive liberalization of trade restrictive measures.