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Negative Impact on Imports Predicted as EU Prepares to Tackle Steel Industry Crisis

On 16 March 2016, the European Commission presented a communication setting out how the European steel sector can overcome its challenges. Despite being the second-largest steel producer in the world after mainland China, the EU’s steel industry has suffered from global overcapacity.

Hong Kong traders will be aware that many in the EU predominantly blame cheap steel imports from mainland China for the current situation. To combat the crisis, the European Commission is working to improve EU trade defences with a particular focus on protecting the EU market from cheap steel imports from mainland China.

It is predicted that the global steel sector crisis may, unfortunately for Hong Kong exporters, impact other industry sectors as well.

In its communication, the Commission announced new short- and long-term measures to strengthen the EU’s trade defences against unfair trade practices, and to ensure the competitiveness and sustainability of the EU’s steel industry.

As a protective measure, the Commission is implementing anti-dumping and anti-subsidy measures on dumped steel. To date, the Commission has imposed such measures on 37 steel products, of which 16 are imported from mainland China. There are ten current ongoing anti-dumping investigations into steel products being imported into the EU, of which six concern imports from mainland China.

Furthermore, to increase its defences, the Commission is mobilising additional tools, for example it is now opening investigations based on the threat of injury.

In addition, the Commission is planning to further accelerate the overall procedure for the adoption of anti-dumping measures and to improve the efficiency of the current system. Currently, the Commission must consult with Member States in the Anti-dumping Committee before it is able to adopt provisional measures against allegedly dumped imports. The Commission has proposed increasing the use of written consultations to further streamline the system. The Commission has also recommended that, in cases of extreme urgency, provisional measures should be imposed on dumped imports after merely informing Member States.

In line with the above, the Commission is encouraging the swift adoption of the Commission’s 2013 proposal to modernise trade defence instruments by the co-legislators, namely, the European Parliament and the EU Council. The Commission hopes that these instruments will increase the speed and effectiveness of the current procedures. The European Parliament adopted the Commission’s 2013 proposal report at first reading; however, Member States have so far prevented it from moving forward in the EU Council.

The Commission needs the Member States to urgently adopt its proposals to modernise EU trade defence instruments in order to make ‘fair’ trade a reality.

The Commission has proposed the removal of the lesser-duty rule for the benefit of the EU steel sector and more generally in situations where the market of the exporting country is subject to significant distortions. The lesser-duty rule restricts EU Member States from imposing punitive tariffs on dumped goods. The rule is not compulsory under WTO guidelines but it is implemented by the EU. If the rule is scrapped, EU Member States would be able to increase tariffs on dumped goods, including cheap steel imports from mainland China.

By way of example, EU Member States would have been able to increase the current tariff on imports of coiled steel from mainland China. The current EU tariff on coiled steel from mainland China is up to 16%, whereas the US tariff is up to 266%.

If the lesser duty rule were to be scrapped, Chinese imports may become subject to higher tariffs and, as such, struggle to sell in the EU.

Despite the UK’s steel industry reaching crisis point, the UK is opposing the Commission’s plan to scrap the lesser-duty rule on dumped goods in favour of maintaining the principle of free trade. Yet, by increasing tariffs on dumped goods, the EU hopes to protect its markets and help the EU steel industry back from crisis.

Independent analysts Fitch, calculated that a tariff of approximately 60% on steel imports from mainland China should be sufficient to deter the bulk of Chinese imports. The analysts also stated that if mainland China were to be given market economy status, then the removal of the lesser-duty rule would be redundant.

Additionally, the Commission has proposed the introduction of a prior surveillance system to allow the EU to safeguard against dumped products. The prior surveillance system would register imports through an automatic import licensing system and when import trends threaten to cause injury to EU producers the Commission can implement the appropriate measures to safeguard the EU market.

The EU steel crisis is negatively impacting other EU industry sectors such as construction, aviation, automotive, textiles and domestic appliances. These industries rely on steel in both the manufacturing process and in their end products. Hong Kong traders should be aware that the steel crisis may, therefore, indirectly affect other industry sectors that export to the EU.

In principle, this may not bode well for Hong Kong traders who supply EU industries with related products, components and spare parts. As these industries suffer, their demand for the foregoing may also reduce.

Additionally, businesses associated with the EU steel industry such as subcontractors and logistics have also suffered losses due to plant closures and a decrease in demand for EU steel.

The steel sector crisis has also caused a number of EU plants to close. As these plants are no longer operating, the demand for imports of machinery, components and products related to the production of steel may also reduce. Furthermore, with plant closures, there have been a significant number of job losses in the EU. It is likely that large scale unemployment will affect Member State economies, a result of which may be a general economic downturn and a decline in demand for other imported goods.

In addition, Hong Kong traders should keep in mind that if the Commission’s proposed trade defence measures were to be implemented, in particular, if the lesser-duty rule is removed, exports of steel and other products exported from mainland China to the EU may become subject to higher tariffs. This may cause a decline in demand for imports of these products from mainland China.

It is clear from its recent communication that the Commission is aware of the challenges facing the EU’s steel industry and is working with Member States to protect the EU’s steel sector. If the Commission’s proposed measures were to be implemented, it is likely that they will have a negative effect on both imports of steel from mainland China and other related and unrelated imports.

Content provided by Picture: HKTDC Research
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