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European Commission to Set Slower Pace in Easing Steel Safeguard Measures

On 14 August 2019, the European Commission published a WTO notification concerning its conclusions on the review investigation on the safeguard measures currently applicable to certain steel products. In brief, the Commission proposes to liberalise the trade-restrictive measures by only 3% a year instead of the 5% that had been previously foreseen. The Commission will also introduce a 30% cap on certain product categories, in order to preserve the traditional trade flows and to make the residual quotas available for all countries. The Commission’s proposals are in line with the EU producers’ demands published in May-June 2019, which aimed to protect the Union Industry’s position against global steel exporters to the EU market.

As is well known by now, the EU’s definitive safeguard measures on steel products, which came into force on 1 February 2019, are currently imposed on 26 different product categories, including hot-rolled and cold-rolled steel and steel plates, used in cars, construction and household appliances. Global exporters can only export limited amounts of these steel products to the EU without paying additional tariffs. The ceilings are divided into country-specific quotas and global (residual) quotas.

As Hong Kong traders may recall, on 17 May 2019, the Commission initiated a review investigation on the existing steel safeguard measures in accordance with the EU Safeguard Regulation, considering that the quotas needed to be readjusted. On 14 August 2019, the results of this review became publicly available on the WTO’s website.

As a result of the review, the Commission has found that the current tariff-rate quota (TRQ) levels did not unduly restrict trade flows but rather ensured that traditional trade flows were maintained. With regard to hot rolled flats under product category 1, as the level of imports affected by the existing trade defence measures was found to be substantially lower than expected and the risk of potential shortage of supply in the EU was substantially reduced, the Commission has decided to keep a global quota although with a limitation of 30% on the usage of the global quota. Similarly, the Commission has proposed a 30% cap for rebars and wire rods (product categories 13 and 16 respectively), to address the problem of crowding out of traditional trade flows. Moreover, for large welded tubes (product category 25), the Commission decided to remove the country-specific quotas and rely only on one global quota, since the main exporter of this category, namely Russia, has not used much of its individual cap.

Importantly, the Commission has decided to lower the pace of the liberalisation of measures to 3% for the second and third period of the measures, rather than 5% as had been previously foreseen. Therefore, the level of the TRQ for all product categories will be increased by 3% for the second period of measures (1 July 2019 – 30 June 2020) and by an additional 3% for the last period of measures (1 July 2020 – 30 June 2021). These changes will enter into force on 1 October 2019 and the measures are expected to be in place until 30 June 2021.

The findings of the Commission should, it would seem, satisfy the European steelmakers’ demands. 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 as well as governments of Italy, Hungary, Poland and Slovakia therefore called on the EU institutions and Member States to urgently consider strengthening the EU’s steel safeguard measures and to freeze tariff-free quotas.

Moreover, although WTO rules require a progressive liberalization of restrictive measures by 5% each year, the European steel industry had expressed serious concerns about the appropriateness of these measures. In a statement from 7 May 2019, the European Steel Association “Eurofer” had 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”.

On the other hand, the results of the review investigation may frustrate global exporters. On 31 July 2019, Turkish steel producers had sent a letter to Trade Commissioner Cecilia Malmström, to request review investigators to remove country-specific quotas on Turkish goods, and to allow Turkish companies to compete instead for larger portions of the global quota.

In sum, it appears from the Commission’s new proposal following the termination of the review investigation, that it has decided in favour of EU producers to slow the pace of liberalisation of the trade-restrictive steel safeguard measures.

Content provided by Picture: HKTDC Research
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