Historical overcapacity, not Trump, at heart of EU steel safeguard probe

29 March 2018 12:48pm
EU flags in the wind

28 March 2018. By Poppy Carnell.

The timing may look telling: The US announces tariffs on foreign steel and aluminum, and a week later the EU opens an investigation into the need for defensive “safeguard” measures against a surge in steel imports. But the legal backbone of Europe’s case may have more to do with recent historical global oversupply than with the threat of displacement following America’s actions.

The European Commission on Monday announced it was investigating whether European steelmakers, such as ArcelorMittal and ThyssenKrupp, needed protection from a boost in global imports. Producers fear that, in response to the 25 percent tariffs the US imposed on steel last week, countries would redirect their sales to Europe, flooding the market and depressing prices.

A safeguard measure could result in the EU imposing tariffs on global imports, which may be attached to quotas.

To launch such a case, investigators must show that there’s an “unforeseen, sharp and sudden increase” in imports, and that this influx is causing — or threatens to cause — serious injury to EU industry.

While the commission mentioned the US duties in its regulation to open the new case, the focus of the document was rather on damage to the markets from a global steel glut from the past five years.

This, in itself, isn’t surprising, since using import data from the past five years is part of the criteria set down in trade rules when it comes to opening this type of case. But the commission has much more to say about overcapacity on the global market, and the subsequent surge in EU imports, than it does about the US tariffs in the paper.

Ferrous flood

The commission looks at data between 2013 and 2017 on EU steel imports, noting a jump in this time from 17.8 million tons to 29.3 million tons.  The sharpest increases were in 2015 and 2016; between 2013 and 2016 imports of the goods included in the probe shot up by 65 percent.

The commission puts this down to "unforeseen developments such as the global overcapacity in steel making and trade measures adopted by a series of third countries during the last years in the context of that global overcapacity," according to the probe’s notice of initiation.

The executive says in the paper that it already has evidence showing damage to EU producers' market share, as well as either a depression in prices or a loss of profits for the sector. That’s in line with what the commission was already telling EU governments weeks ago, before the US had officially imposed its tariffs.

This perhaps shows that, even though markets will only now begin to see any rebounding exports entering the EU, the commission already had solid data up its sleeve to consider opening a safeguard probe without the consequences of Trump's measures.  

While the probe has only just begun, and officials will say the outcome cannot be pre-judged, investigators already have a more solid, legal base if they can prove that import increases already injure EU companies. That's because a case based on actual injury, rather than the prediction of future injury, is considered more legally watertight.

One of the main difficulties, in this instance, may instead be in proving there has been a sudden surge in imports — in accordance with trade rules — since officials are relying heavily on data from a couple of years ago, rather than recent months.

The commission still has the option to impose measures based on the threat of injury, and it will be keeping a very close eye on the market response to the US tariffs to help build its case.

No aluminum probe
But it's clear from the lack, so far, of an aluminum safeguard case that the commission is hesitant to root such a case in prospective harm, rather than actual harm.

The commission opened a probe against steel because it already had the data from the past five years showing an increase in imports and damage to the EU industry. But aluminum producers have not been able to prove the same situation, so far. In the eyes of the commission, the data don't meet the strict criteria to open a safeguard probe, meaning producers are now trying to convince the executive to open one based on the threat of harm to come.

It could be argued that Trump’s tariffs are also linked to the global overcapacity of steel, so the root issue is the same. Either way, the steel sector isn’t likely to fuss over which justification the EU uses, so long as it gets protective measures as soon as possible.

But the EU sees itself as an example in following global trade rules and will want to make sure the case is as legally watertight, and as fair, as possible. The bloc also tends to prefer to avoid tensions with trading partners as far as possible. Trump’s measures may have just given EU trade officials the excuse to act against, in particular, China, while pointing the blame at the US.