21 Nov 2018
EU Safeguard Investigation: Manufacturers from Top Steel Exporting Countries Including Mainland China Could Face Country-specific Quotas
It was reported on 14 November 2018 that steel manufacturers from the biggest steel exporting countries to the EU could face country-specific limits on exports to the EU. The currently imposed provisional safeguard measures take the form of a system of tariff quotas per product category, in excess of which an additional duty of 25% is levied. At this stage the quotas are global, meaning that they apply to all products regardless of their country of origin and are not allocated by individual exporting country. Once the tariff quota is exhausted for a certain product category, an additional duty of 25% is levied.
However, the Commission is considering changing this approach when it imposes definitive safeguard measures. More precisely, it appears that the Commission is considering imposing country-specific quotas for the top three to five exporting countries per product category. Besides the country-specific quotas for the top exporting countries, a separate quota would be imposed for all other countries.
As the ranking of the top exporting countries will depend on the specific category of steel, the country-specific quotas will apply to different countries for each individual product. Amongst others, the imposition of the country-specific quotas could have an impact on steel exporters such as mainland China's Baowu Steel Group, South Korea's POSCO and India's Tata Steel.
The EU steel association EUROFER has been lobbying the Commission to apply country-specific quotas, arguing that this would create more certainty of supply and would maintain the traditional trade flows. EUROFER submits that country-specific quotas would prevent surges of imports from countries that didn’t typically export to the EU in the past.
Critics of this approach argue that country-specific quotas would be too prescriptive for sectors that should be governed by market forces. As the country-specific quotas would be based on the import figures of the most recent years, it can be said that this would force importers to use historical trade paths rather than adapting to changes in the market, thereby leaving little room for newcomers in the market.
In addition, through Commission Implementing Regulation (EU) 2018/1712 dated 13 November 2018, the Commission has excluded South Africa from the scope of the provisional measures. The Commission is of the opinion that the Economic Partnership Agreement (“EPA”) between the EU and the South African Development Community (“SADC”) justifies such exclusion, given that Article 33 of the EPA, entitled “Multilateral safeguards”, states that “the EU shall […] exclude imports from any SADC EPA State from any measures taken pursuant to Article XIX of the GATT 1994 [and] the WTO Agreement on Safeguards”.
Hong Kong traders involved in the steel sector may recall that the EU safeguard investigation on steel products was initiated in response to the US Section 232 measures on steel products. Indeed, as of 23 March 2018, the US has been imposing a 25% ad valorem tariff on certain steel products. While the EU received a temporary exemption from the US tariffs until 1 May 2018, it did not manage to obtain a permanent exemption from the US tariffs on steel.
On 26 March 2018, the Commission initiated ex officio a safeguard investigation concerning imports of certain steel products into the EU. The products subject to the ongoing safeguard investigation are the 28 categories of steel products listed in the Annex to the notice of initiation (as amended by the Commission’s notice of 28 June 2018).
As from 19 July 2018, by means of Commission Implementing Regulation 2018/1013, the EU has been imposing provisional safeguard measures on 23 categories of steel products. The provisional safeguard measures take the form of a system of tariff quotas per product category, in excess of which an additional duty of 25% will be levied. The tariff quotas are based on the average of the annual level of imports in the years 2015, 2016 and 2017 and are allocated on a first come first served basis. At this stage, the quotas are global.
Thus, in principle, the provisional safeguard measures apply with regard to all countries. However, in line with WTO and EU law, imports from developing countries are excluded from the scope of the provisional safeguard measures, provided that these imports do not exceed 3% of imports from that product category, and that imports from all developing countries collectively do not account for more than 9% of imports from that product category.
Annex IV to the abovementioned Regulation 2018/1013 contains a list of 121 countries which the Commission qualifies as “developing countries”. This list includes, amongst others, mainland China, Hong Kong, Brazil, Malaysia, Turkey, and Vietnam. Annex IV also indicates, for each of the 23 categories of steel products, the developing countries to which the provisional safeguard measures apply. These product categories are marked with an “X”. For example, despite being recognised as a developing country, the provisional safeguard measures apply to mainland China for 13 of the 23 product categories. For Hong Kong, the provisional safeguard measures do not apply for any product category, meaning that Hong Kong-origin imports will not be subject to the tariff quota nor the additional duty laid out in the Regulation imposing provisional measures.
The Commission is expected to replace the provisional measures with definitive measure in early 2019. The definitive measures will, in principle, last for a period of four years.