On 26 March 2018, the European Commission issued a "Notice of initiation of a safeguard investigation concerning imports of steel products". The Commission explained that the rationale for its notice was that imports of certain steel products had recently increased sharply showing that there was sufficient evidence that these trends in imports appeared to call for safeguards measures.
To the casual observer the notice might look like a knee jerk reaction to recent measures taken by the Trump administration coming, as it did, a week after the US announced tariffs on foreign steel and aluminium. This is not the full story, however, and the reasoning is more nuanced than might appear from a glance at the latest news headlines.
Over the course of this article, I will address the content of the notice and its timing, the procedure regarding a safeguard investigation by the Commission, its possible implications for the industry and what steps industry players should be considering.
About the Notice
The products subject to the notice are steel products. The products concerned, together with the CN codes within which they are currently classified, are listed in an annex to the notice and amount to 26 steel product categories. The information currently available to the Commission indicates that the total imports of the products concerned increased from 17.8 million tonnes to 29.3 million tonnes in the period 2013 – 2017. Imports of the products concerned increased by around 65 per cent between 2013 and 2016. The main increases took place in 2015 and especially in 2016 when they reached 28.6 million tonnes and imports of the products concerned have remained at a significant level thereafter. The increase in imports appears to be the result of (i) global overcapacity in steel making and (ii) trade measures adopted by a series of third countries in the context of that global overcapacity including the recent Section 232 measures in the US.
The Commission believes there is sufficient evidence showing that the volume and price of these imports have caused or are threatening to cause significant overall impairment of the position of the EU industry and have had a negative impact on the market share of EU producers.
What will the investigation consider?
- Import trends
- The conditions in which they take place
- Whether the imports cause (or threaten to cause) serious harm to EU producers
The main conclusions of the finished investigation will then be published as a regulation.
Investigation procedure and timeline
A safeguard investigation must normally be completed within 9 months although, in exceptional circumstances, it may be extended to 11 months. If the investigation shows that imports have increased so much that they cause (or threaten) serious harm to EU producers, safeguard measures can be imposed. These can take various forms such as increased customs duties or quotas which are set at least as high as the average level of imports over the last 3 representative years:
provisional measures (these cannot exceed 200 days) may be imposed in critical circumstances and if a preliminary determination provides clear evidence of harm or impending harm; or
definitive measures must not exceed 4 years (including the duration of the above provisional measures) unless extended to a total maximum of 8 years.
The Commission will send questionnaires to the known producers of like or directly competing products and to any known associations of producers, within the EU. The completed questionnaires must reach the Commission within 21 days from the date on which they are sent to the party and it is not yet clear how quickly a preliminary determination will be made such that provisional measures could be deemed necessary.
Politics and consequences
The EU could decide that no measures are necessary. In advance of the issue of the Commission's Notice, in an interview with the Financial Times discussing the Trump administration's decision to levy national security tariffs on imports of metals, Cecilia Malmstrom, the EU trade commissioner, had noted that "imposing sweeping measures [like this] generally is not the way forward … we risk seeing a dangerous domino effect from this". However, EU officials are worried that US tariffs could lead to the diversion of steel intended for the US to the EU and this concern added to an increase in imports has finally led to the launch of a safeguard investigation.
If the Commission does conclude that measures are required, those measures will apply to all non-EU countries without discrimination (save for developing countries with low import shares). This means that leading exporter countries such as China, India, Russia, South Korea and Turkey will be hit with the added possibility of retaliatory measures from those countries most effected (e.g. at present around 40% of Indian steel exports go to EU). Unsurprisingly, China's Ministry of Commerce has said that it does not consider adopting global safeguards to be the right choice.
What should the industry do?
For the moment, it is a case of wait and see as to what measures (if any) are deemed necessary following the Commission's investigation. The Commission has a delicate balancing act and must be seen to balance the various competing interests in this investigation (i.e. the EU steel industry vs those EU industries which rely on steel imports from outside the EU). Clearly this uncertainty has created significant industry concerns given there is no indication from the announcement of the safeguard investigation how quickly the Commission might take action and what form that action could take. Such uncertainty can paralyse a market very quickly.
In addition to closely following the investigation, those dealing in the trade of the relevant steel product would do well to adopt a pessimistic viewpoint and review their standard terms and conditions of sale to ensure these are drafted to take account of any possible additional tariffs (if the Commission does chose to impose them) while optimistically hoping such forward planning is not ultimately necessary.