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Safeguard Investigation Initiated into Steel Imports Entering EU Market

On 26 March 2018, the EU unleashed its safeguard investigation into certain steel imports entering the EU market. By means of the notice of initiation, which was published in the EU’s Official Journal, the European Commission announced that it will investigate whether European steelmakers, such as ArcelorMittal and ThyssenKrupp, need protection from a boost in global imports.

EU producers fear that certain countries, in response to the US tariffs on steel products which entered into force on 23 March 2018, will redirect their sales to the EU, flooding the market and depressing prices.

The safeguard investigation covers 26 categories of steel products, including hot-rolled and cold-rolled sheets and strips, grain-oriented electrical sheets, rebars, railway material, and different kinds of tubes and pipes. According to the Commission, the products, together, account for 40% (or EUR 22 billion) of the EU's annual iron and steel imports.

Under WTO rules, a WTO Member (such as the EU) may only take safeguard measures (i.e. a temporary restriction on imports of certain products) if it has, through a safeguard investigation, determined that – as a result of unforeseen developments – the products concerned are being imported in such greatly increased quantities so as to cause, or threaten to cause, serious injury to the domestic producers of like or directly competing products.

The information currently available to the Commission – including the information provided by the surveillance system for imports of steel, which has been in place since March 2016 – indicates that the total imports of the products concerned increased from 17.8 million to 29.3 million tonnes in the period between 2013 and 2017.

Moreover, the increase in imports is said to be the result of unforeseen developments, such as the global overcapacity in steel-making and trade measures adopted by a series of third countries in the context of that global overcapacity. The Commission also stated that there is evidence that imports of the products concerned have had a negative impact on the market share of the Union producers and that import prices are lower than the Union industry's sales prices.

The safeguard investigation will, in principle, be concluded within nine months, i.e. by 26 December 2018. If the Commission, pursuant to the investigation, considers that safeguard measures are necessary to protect the EU industry, it can impose definitive safeguard measures for a period of four years. If need be, this period can be extended up to eight years.

The safeguard measures can take the form of tariffs on global imports and may be attached to quotas. Moreover, the measures would have to be applied to imports from all countries in a non-discriminatory manner. Thus, if safeguard measures were to be imposed, these would be applied to imports from Hong Kong and the Chinese mainland just as from any other non-EU country.

Should provisional safeguard measures prove necessary, the Commission could impose such provisional measures on short notice, within six to eight weeks from the initiation of its investigation. The Commission can impose provisional safeguard measures (i) in critical circumstances, where delay would cause damage which would be difficult to repair, making immediate action necessary; or (ii) where a preliminary determination provides clear evidence that increased imports have caused or are threatening to cause serious injury. The provisional measures could last for a maximum of 200 days.

The initiation of the EU safeguard investigation is a direct response to US President Trump’s decision to impose a 25 percent ad valorem tariff on certain steel products and a 10 percent ad valorem tariff on certain aluminium products as of 23 March 2018. The Notice of initiation explicitly refers to “the recent Section 232 measures” taken by the US, and states that “any trade diversion resulting from the US measures” will be investigated.

As previously reported, the safeguard investigation is part of a three-pronged strategy that the EU has drawn up in response to the US restrictions on steel and aluminium. While the EU has obtained a temporary exemption from the US tariffs until 1 May 2018, the bloc is currently negotiating a permanent exemption.

If the EU is not permanently exempted from the US tariffs, the Commission is considering, in addition to the safeguard investigation, (i) a two-stage response to offset the trade losses resulting from such tariffs, placing punitive tariffs on a long list of US products; and (ii) a WTO challenge of the US tariffs in coordination with other trading partners.

While the safeguard investigation does not include aluminium products, it has been reported that the EU is currently gathering solid evidence to initiate a separate safeguard investigation on imports of a number of aluminium products into the EU. For the time being, the available data on aluminium does not yet meet the strict criteria to open a safeguard investigation. However, it appears that EU producers in the aluminium sector are trying to convince the Commission to open a safeguard investigation based on a threat of serious injury, rather than waiting for figures to back a case on injury actually suffered.

Content provided by Picture: HKTDC Research
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