Sunday

21st Jul 2019

EU still divided on Chinese steel

  • Global overcapacity in steel production has put EU decision-makers in the spotlight (Photo: Thyssengroup)

EU ministers will discuss on Friday (13 May) overcapacity in the steel industry that has been hurting European producers, but they are not expected to move ahead with reinforcing trade defence instruments.

Steel has become a source of tension in EU-China trade relations as Chinese producers are accused of shipping their surplus to Europe at a cheap price.

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China, which produces half of the steel in the world, pledged in January to cut its capacity, but the EU has said that would be inadequate.

Steel "is on everyone’s mind,” said an EU source ahead of Friday's trade ministers' meeting.

Steel production in Europe has an annual turnover of €166 billion. It accounts for 1.3 percent of the EU's GDP and directly provides 328,000 jobs, according to the European Commission.

The issue has become a hot political topic, as thousands of European jobs are at risk because of Chinese dumping.

The commission in March came up with a set of ideas to reinforce trade protection, and has urged countries to adopt a proposal it made in 2013 on reforming trade defence instruments.

Ideas include speeding up the adoption of tariffs on imports that are sold under market prices, and scrapping a controversial rule, the so-called lesser duty rule, that limits the level of duties the EU can apply.

The commission has already put a record 37 anti-dumping and anti-subsidy measures in place on steel products - 16 of which on steel imports from China.

Ahead of the meeting, some hoped that EU countries with strong free trade traditions, which were reluctant to move ahead with reinforced trade measures, will now turn around and help create the momentum to move ahead.

“Countries that two-three years ago were happy with the set of trade defense instruments, now might think they need upgrading,” a source said.

“Whether that leads to decision to amendments, it is too early to say,” he added.

Less duty or more?

One key issue is the lesser duty rule, a principle according to which tariffs are imposed at the lowest level possible to deter dumping.

The commission has been arguing for the removal of the rule in certain circumstances to allow for higher anti-dumping duties.

On Thursday, the European Parliament adopted a resolution urging member states to scrap the lesser duty rule.

But some EU members, such as the UK, believe it should stay and argue it gives enough protection against Chinese imports.

London also says the current tariffs are working and that other tools, namely speeding up anti-dumping investigations, triggering investigations based on a threat of injury to industry, rather than the actual injury, should be sufficient to tackle current challenges.

Others, whose steel industries have been hurting, hoped the UK would soften its position against changes to the lesser duty rule, as the steel industry in Britain also feels the pain of global overcapacity.

In what a source described as a “political call”, France and Germany recently circulated a letter arguing for the partial removal of the rule, and speedier adoption of the commission’s proposals on reforming the EU’s trade defense tools.

“Even the Brits have to come to the conclusion that they are suffering the results of the steel crisis,” added a source, who could only speak on condition of anonymity.

Germany

Germany’s move is also key in the debate. "If a EU country has a large car industry, its interest is to import steel that is not too expensive," said another EU source.

In a sign of growing frustration, the EU’s ambassador to China said earlier this week that Beijing was not doing enough to address overcapacity in its steel industry.

The commission last week launched a system for monitoring steel imports so it can urge restraint by trade partners or impose tariffs more quickly.

The crisis in the steel industry has complicated a debate over whether the EU should formally label China as a market economy by the end of this year, a move required by contested World Trade Organisation (WTO) rules.

If the EU recognises China as a market economy, that would make it more difficult for Europe to impose tariffs on Chinese goods. The commission is expected to have a discussion on the issue before the summer break.

Opinion

Steel overcapacity crisis - from Europe to China

While the debate has escalated about China’s steel overcapacity, it is not exactly new. The first postwar steel crisis occurred in the US and Europe. Beijing seeks to avoid a deja vu of bad policies.

EU envisages China free-trade pact

In a new five-year strategy, the EU executive aims to attract Chinese investment to Europe and to agree a free-trade agreement under conditions.

Agenda

EU goes on holiday as new UK PM arrives This WEEK

Boris Johnson is almost certain to become the UK's next prime minister, and oversee Brexit until the 31 October deadline, as work in the EU bubble is winding down for the summer.

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