EU division dilutes efforts against steel dumping

Two flags, one economy. Chinese New Year's celebrations, Brussels. [Joel Schalit/Flickr]

Over 5,000 steel employers and workers will take to the streets in Brussels today (15 February) calling for more protection from Chinese imports, as the European Commission and Dutch EU presidency passed the buck on increasing tariffs.

The EU missed the opportunity of having stronger trade defence instruments two years ago, when half of member states rejected amending rules to calculate duties imposed on unfair trading.

Now the steel industry is paying the price.

Contrary to other World Trade Organisation members, the EU still operates under the “lesser duty rule”. According to this principle, the EU cuts the tariff imposed to the level of the injury caused by the dumping if it is lower than the level of the dumping.

Despite the steel industry’s renewed calls to get rid of this rule, the Commission and the Council are reluctant to take the lead as the issue remains highly contentious.

>> Read: EU ministers pledge concrete action for embattled steel sector

“The aim of the application of the Lesser-Duty rule has clearly missed its objective,” said Axel Eggert, Director General of Eurofer, the European steel association. “Duties as low as 9% are a drop in the ocean in terms of safeguarding EU industry from the flood of unfair imports from China,” he added.

In the most recent case, the Commission imposed duties of between 9 % to 13% on Chinese high-fatigue performance steel for concrete reinforcement (rebars), instead of the full dumping margin of up to 66%.

Getting the full margin will be part of the demands of demonstrators today (15 February) in Brussels. “Dumped steel imports from China, volumes of which have doubled in 18 months, are flooding the EU market and directly causing irreversible closures and job losses across the EU steel sector,” said Mr Eggert in a statement.

Modernisation of instruments

The Commission proposed in April 2013 to limit the use of the lesser duty rule as part of the package to modernise the trade defence instruments.

But the attempts of the Italian presidency in the second half of 2014 to gain support for this revision were blocked by half the member states.

“There is a clear division as a result of different ideologies” and a “lack of willingness to pull together”, complained the Italian Deputy Minister for Economic Development, Carlo Calenda during the debate in the Council. The outcome is that “we find ourselves in a weak position versus unfair practices” coming from other countries, he added.

But the backers consider that the lesser principle rule is the “cornerstone” of a “balanced” approach.

In their view, restricting the use of this principle would harm other parts of the value chain, meaning that, at the end, the price would be paid by importers, users and consumers.

Ireland, Finland, Estonia, Austria, Belgium, Cyprus, Czech Republic, Denmark, Latvia, Malta, the Netherlands Slovenia, Sweden and the United Kingdom are part of this group.

In the opposite camp, a small group led by France supported the efforts of the Italian Presidency, the Commission and the European Parliament to impose higher tariffs.

“This is not a debate about protectionism, but about reciprocity and fair competition, and the best way to achieve that,” said Matthias Fekl, French Minister of State for Foreign Trade. He reminded that the EU “systematically” applies lower duties and argued to get rid of this rule in cases where a state distorts the prices of raw materials and energy or in the case of state subsidies. There are “flagrant” examples in the world today, he said in 2014.

The main concern for the European economies was the difficulties to have access to raw materials as third countries kept them for their own downstream producers.

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

The MEPs defined the distortion to raw materials as “the outcome of interference from third countries, which includes, inter alia, export taxes, export restrictions and dual pricing schemes”.

The severe crisis affecting the steel sector has opened a window of opportunity for the member states to narrow their differences over the lesser duty rule.

EU officials in various institutions contacted by EURACTIV admitted that if the Commission’s proposal would have been adopted by the member states in 2014, the EU could have acted “more rapidly” and with more robust defence instruments to protect the steel sector.

Against this backdrop, the same sources pointed out that the difficult situation of the steel sector could help bring some momentum to the debate.

New efforts

Seven member states, including some of the staunch defenders of this rule such as the United Kingdom, sent a letter to three commissioners on 5 February “to use every means available and take strong action in response to this new challenge”, including trade defence instruments within the WTO.

The initiative, led by France, called for “new efforts” but avoided entering into the details of the lesser duty rule, as this point was the bone of contention in 2014 to modernise the trade defense 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”.

However, it seems difficult to strike the right balance between the interest of the industry, importers and users, as the UK position illustrates.

The UK business secretary, Sajid Javid, insisted on 10 February that scrapping the lesser duty rule would hurt the industry as a whole.

“I think when we look at this, a responsible government would look at the impact overall to British industry and British jobs. If duties are applied that are disproportionate, it would have an impact, in Britain and elsewhere, on the consumers of steel as well,” he said.

In the letter, the ministers said that the high level stakeholder conference to be held today (15 February) in Brussels should represent an opportunity to address this issue. However, the Commission and Council are reluctant to bring this dossier up as the two camps remain unwilling to compromise on the conditions to impose higher tariffs.

The Commission considers that the ball is “clearly” in the Council’s court to find the way forward.

But a spokesperson for the Dutch presidency said that both camps in favour and against removing the lesser duty rule have “strong blocking minorities”. He said the Council was waiting for a new proposal from the executive to reach a compromise.

The calls to review the lesser duty rule came against the backdrop of EU efforts to bolster its protection against unfair trade practices from China.

The Commission launched a public consultation on 10 February on whether the EU should consider China as a market economy in its anti-dumping investigations after December 2016.

The College of Commissioners is expected to assess again this summer the impact of a possible change of treatment of China in anti-dumping investigations.

>> Read: Commission calls for input to prevent dumping from China

According to the 'lesser duty rule' defined in the basic EU antidumping regulation, the EU imposes trade defence measures below the dumping margin if such lesser duty is sufficient to remove the injury to the EU industry (i.e. at the level of 'injury margin').

Eurofer stressed that China has domestic steel overcapacity of around 400 million tonnes, almost three times the total EU steel demand of 155 million tonnes. This overcapacity has arisen as a result of persistent state intervention in the Chinese economy.

The organisation also pointed out that dumped products from China have much larger environmental footprint – about 50% greater – than equivalents produced in the EU. Therefore, calling for a EU Emissions Trading System after 2020 that does not bring competitive disadvantage against global competitors.

In their letter to the Commission, Germany, Italy, the United Kingdom, France, Poland, Belgium and Luxembourg echoed the European Council conclusions to stress that “the most efficient industrial installations in sectors at risk of carbon leakage should not be subject to undue carbon costs.

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