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Safeguard Measures to be Imposed on Certain Steel Products

On 4 February 2019, the EU is expected to impose safeguard measures on imports of certain steel products. It will be recalled that, on 26 March 2018, the European Commission had initiated the safeguard investigation, covering imports of certain steel products into the European Union. As the investigation comes to an end, it is likely that the Commission will very shortly impose definitive safeguard measures on imports of the steel products concerned. It is feasible that parties to the investigation could attempt to challenge the measures due to any possible lack of compliance with EU and World Trade Organization (“WTO”) rules.

Pursuant to the EU’s own and WTO rules, the right to apply safeguard measures can only be justified when, as a result of unforeseen developments, a product is being imported in such increased quantities and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products. Relevant case-law has clarified that the concept of “products being imported in such increased quantities” means that there must be evidence of a sudden, sharp, significant and recent enough surge in imports that is causing or threatening to cause serious injury to the domestic industry.

According to the European Commission, the imposition of safeguard measures on imports of the products concerned is necessary, due to the occurrence of two unforeseen developments. First, a general overcapacity experienced by the global steel market. Second, the tariffs imposed by President Trump on steel and aluminium (also known as the US Section 232 measures).

With respect to the first issue, the global overcapacity in the steel sector is not a recent event. For example, arguably, the first global steel crisis took place in the mid-1970s, following the post-World War II economic expansion and the 1973 oil crisis. During this period, global steel production grew by 5% each year. Moreover, significant overcapacity in the global steel sector continued to exist in the 1980s.

Regarding Section 232 measures, it has been argued that the adoption of trade protection measures is not at all a new development. Actors in international trade – such as the US and the EU – have actively participated in the establishment of a multilateral regime for trade protection. Furthermore, the timeline may make it difficult to argue that the US’s Section 232 measures had an effect on the trade levels of some of the products concerned. For example, import volumes of flat steel goods – which fall under the scope of the investigation – increased from 2013 to 2016. However, such imports decreased from 2016 to the first half of 2018. Thus, imports of flat steel goods cannot be considered sudden or recent enough to justify the imposition of the safeguard measures.

Another issue that might be considered controversial is the approach taken by the Commission in its WTO Notification, when grouping the products concerned into three “families”. It may be recalled that in its notice of initiation, the Commission had grouped the products concerned into 28 different product categories. Moreover, during the course of the entire investigation, the Commission conducted the analysis of the increase in imports and in injury – or threat thereof – caused to the EU industry on a product-category by product-category basis. However, in the analysis of import trends and injury indicators shown in its notification of the planned measures to the WTO, the Commission relied on combined data relating to the three product families, re-grouping the initially identified 28 product categories into the three “families”.

The EU is expected to impose the definitive measures on 4 February 2019. The measures will take the form of a tariff of 25% on the products concerned, once the imports of each product have exceeded their respective quotas.

Despite the possibility, experts have commented that it is unlikely that any companies would challenge the measures before EU Courts. The eventual expiry of the measures would limit the benefits of winning a court case. Under WTO rules, safeguard measures are scheduled to last no more than four years (although they can be renewed). In practice, this could be the approximate period a case could take to make its way through the EU Courts.

Rather, a potential challenge could be lodged before the WTO’s Dispute Settlement Body, where countries (rather than companies) have standing. However, there is also an issue of timing for the filing of a complaint before the WTO. It is generally known that the WTO Appellate Body is currently experiencing issues complying with its deadlines to deliver its Reports (WTO law refers to rulings by the Appellate Body as Reports), due to the lack of consent amongst WTO Members to appoint the sitting judges of the Appellate Body. Accordingly, a binding reaction from the WTO adjudicator could stretch beyond the lifespan of the measures.

Content provided by Picture: HKTDC Research
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