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01/10/2016

Can this son of steel save the industry in Europe?

Trade & Society

Can this son of steel save the industry in Europe?

European Commission President Jean-Claude Juncker visits EU embassy in Washington on April 15, 2016. Photo by Yuri Gripas

[Yuri Gripas]

Policymakers are struggling to find the way forward to preserve a future for the European steel industry, once a bedrock of the bloc’s industrial economy, which is currently facing the most serious crisis in its history.

It’s become a cliché but one that is worth restating — Europe’s reconciliation after World War II was built on the vision of a unified coal and steel industry, working beyond national borders for the continent’s prosperity.

Almost seventy years later, a lethal cocktail of low prices and demand, combined with overcapacity in the sector and policies at international and EU levels, threaten to overwhelm a once-proud industry that still employs 360,000 people across Europe.

“The steel industry has problems. Problems we should take seriously,” said Jean-Claude Juncker, President of the European Commission, as he addressed MEPs in Strasbourg last week.

The son of a Luxembourg steel worker, Juncker has intimate knowledge of the sector. “Steel isn’t just any old industry,” he said. “Steelworkers are highly skilled specialists and they deserve our unconditional support,” he told Parliament.

Last month the Commission put forward a series of measures to bring European steel back from the brink.

Employment in the steelworks offered working-class men and women honest, skilled and well-paid labour for generations.

The many businesses that would spring up to service them only added to a unique cultural identity in the many steel regions of Europe.

But that local heritage is now struggling to survive. Buffeted by global forces it faces becoming nothing more than a memory, leaving behind a profound sense of loss, unemployment and desperation.

No one knows this better than Juncker himself. He attributes his rise to Prime Minister in Luxembourg and the top job in the Commission to the solidity his father could rely on through steel.

“If my father had had to fear for his job every six months, I would never have seen the inside of a Strasbourg law faculty,” he said in 2014.

Crisis

The financial crisis, which itself highlighted the crucial importance of industry and manufacturing rather than simply relying on services such as banking, has hit demand for steel.

Worldwide only two-thirds of the steel being produced is actually being used.

Despite this, steel is vital for just about everything Europe uses. Buildings, clothes, cars, drink cans, lamps — all require steel at some point.

A failing steel industry will hit linked sectors such as metal traders or product manufacturers. It could escalate into a full-blown manufacturing crisis, some say.

The industry faces a number of challenges simultaneously.

Demand for steel worldwide has not returned to pre-crisis levels, leading to lower global prices as the EU economy continues to be weighed down with sluggish growth.

Competition

That situation is further exacerbated by China, the world’s biggest producer, and its economic slowdown. With its lower domestic demand, the Chinese are exporting their overcapacity – at even lower prices.

Such trade, the European industry argues, is unfair competition. European steel accuses China of not just taking advantage of lower production costs but actually selling its products at a loss – “dumping” them on overseas markets.

Trade instruments, such as higher tariffs on products, exist to protect domestic markets from such practice.

But, as this Special Report will go on to explain, it has not been that simple, with some EU countries blocking moves to strengthen the measures.

There are also fears that the EU will grant China ‘market economy status’, making it even harder to impose anti-dumping duties.

“Free trade should be fair trade,” Juncker told MEPs, “We are now investigating steel products from China to determine whether they were dumped on the market, and we will take other measures if necessary.”

Then why not offer national state support to the industry, some wonder? It’s not as simple as that with even those governments willing to bailout or subsidies the industry having to negotiate EU state aid rules.

Brussels urges member states to regulate Chinese steel imports

The European Commission announced plans on Wednesday (16 March) to speed up trade defence cases against cheap imports from China and urged EU member states to stop blocking measures that could set higher duties against dumped and subsidised products.

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Climate

Another challenge is energy prices, which are compounded by climate change policies.

Steel is an energy-intensive and heavily polluting business. But climate policies have piled up on top of the industry’s woes, adding a carbon emission constraint to the sector’s already high energy cost structure.

While the industry recognises that times have changed, it argues for less draconian treatment — and  lower carbon emissions targets.

The Commission’s plan includes speeding up the adoption of tariffs on dumped products, and the ditching of rules that limit duty levels on steel imports.

One eye-grabbing measure is a surveillance mechanism that will be triggered if imports threaten to harm EU producers.

This is supported by EU money channeled through the so-called Junker Investment Plan and Horizon 2020 funds for innovation and research, part of a further push to modernise the industry by ‘investing in people’.

The plan also calls for ‘focused policies’ in competition, energy, emissions trading and the circular economy.

Background

The European steel association, Eurofer, says China has a domestic steel overcapacity of around 400 million tonnes, almost three times the total demand in the EU (155 million tonnes). The overcapacity is largely due to persistent state intervention in the Chinese economy.

The European Commission proposed in April 2013 to limit the use of the so-called "lesser duty rule" as part of a wider package to modernise the EU's trade defence instruments. The ‘lesser duty’ rule keeps the additional tariff within the limit of what is strictly necessary to prevent an injury for EU industry.

Following the Commission’s footsteps, the Parliament adopted its position on the modernisation of the trade defence instruments in April 2014, including the limitation of the lesser duty rule.

When the steel crisis hit Europe, seven member states (Germany, Italy, the United Kingdom, France, Poland, Belgium and Luxembourg) sent a letter urging the Commission “to use every means available and take strong action" to respond to "unfair trade practices".

The initiative avoided entering into the details of the lesser duty rule, as this point was the bone of contention in 2014 to modernise the trade defence instruments as a whole.

The letter only said that the reform of these instruments should “further streamline and expedite the procedures, increase transparency, predictability, effectiveness and enforcement for all economic operators in order to enhance the protection of the European steel industry against unfair practices”.

Further Reading