EU continues targeting on Chinese steel imports instead of the revival of its own economy

Visit of Cecilia Malmström, Member of the EC, to Ukraine
Cecilia Malmström, Member of the EC in charge of Trade, travelled to Kiev. At this occasion, the Commissioner met with Taras Kutovyi, Ukrainian Minister for Agrarian Policy and Food, members of factions of the Ukrainian Parliament, Ukrainian Parliament (Verkhovna Rada) and with board members of European Business Association (EBA). Finally, she gave a joint press conference with Ivanna Klympush-Tsintsadze, Ukrainian Vice-Prime Minister for European and Euro-Atlantic Integration, after a meeting.
Date: 30/09/2016. Location: Kiev. © European Union , 2016. Source: EC – Audiovisual Service. Photo: Genya Savilov

It was last Friday when the European Commission (EC) decided to impose temporary anti-dumping duties on imports of two steel products from China. Particularly, the duties concern hot-rolled flat steel and heavy plates of steel with EC’s investigations to show that Chinese products had been sold at extremely dumped prices.

The Commission focuses on finding unfair imports of steel products through trade defence measures. It targets on strengthening these measures in order to prevent jobs in the steel sector within the bloc. Another reason of those imposed duties is the fact that the Commission attempts to deal with the overcapacity problem in the steel industry.

However, China has called these duties “unfair” and expressed its great concern for Europe’s trade protectionism. It is not difficult for anyone to understand that such an action will trigger serious economic consequences for the Chinese businesses.

Are EU’s anti-dumping duties fair enough?

The EU, in an attempt to fight unfair competition, has imposed duties ranging between 65.1% and 73.7% for heavy plates, and 13.2% and 22.6% for hot-rolled steel. In the next six months, the EU has to decide on whether to reconfirm these duties and whether to collect them retroactively for the Chinese heavy steel plates that were imported from August to October 2016.

However, this is not the first time that the EU hits China’s steel imports. The EC imposed duties last August on Chinese cold-rolled steel imports ranging up to 22.1%. As it seems now, the EU is following the US style in the steel industry where high anti-dumping duties are imposed.

On the one hand, these duties are meant to secure European steel jobs, especially in the UK where the steel sector has been affected dramatically. On the other hand though, the interests of Chinese businesses are damaged while EU consumers do not get the cheapest products available.

China’s response

China’s Ministry of Commerce (MOC) stated on the issue that “as the Chinese steel products have a less than five percent share in the EU market, they can have had no serious impact on the EU steel industry”. The MOC mentioned that the EU has used “a variety of unfair and unreasonable surrogate country survey methods to cause serious damage to the interests of Chinese businesses. The Chinese Government has, instead, always advocated prudence and restraint in the use of trade remedy measures. We hope that the EU strictly abides by WTO rules to fully protect the rights of Chinese enterprises.” The Ministry added that the downturn of the EU steel industry is due to its weak economic growth and not because of trade.

The above statement reveals that China has been seeking for a European trade framework with less protectionism in order to be able to invest and provide additional growth to the sluggish European economy.

China further cuts overcapacity

Cutting overcapacity is one of the main goals of the Chinese government because excess capacity in steel and coal is affecting its overall economic performance. G20 governments admitted during last month’s Summit that steel overcapacity was a serious problem with China, the largest steel consumer, underscoring that it is a global issue.

According to Chinese authorities, China has met its 2015 goals regarding overcapacity cuts. The Ministry of Industry and Information Technology and the National Energy Administration stated that “all local governments managed to reduce excess capacity in 16 sectors, including electricity, coal, steel and cement”. In 2015, China reduced production by 31 million tons of crude iron and steel compared to its annual reduction goals of 30 million tons.

In the coming years, China’s plan is to cut steel and coal capacity by about 10% or as much as 150 million tons of steel and half a billion tons of coal.

EU should invest more in its own economic prosperity

EU’s political will to protect European manufacturers and save thousands of jobs in the Old Continent has triggered a monitoring steel imports system around the world, generating freely anti-dumping duties. It seems that the pressure from the EU steel industry has paid off and the EC is attempting to protect EU companies from too cheap imports.

What is more, according to UK steel industry trade body, the anti-dumping duties need to be increased in order to guarantee that Port Talbot, which represents the biggest steel works in Britain, is not affected.

All in all, the EU should build a framework where European steel producers are protected but it is crucial that a broader picture is mainly taken into consideration in order for the EU economy to be mostly benefited from the Chinese trade bonds. Surely though the sluggish limits of the global economy today do not allow for trade wars. Since China is EU’s biggest and strongest trade partner, a more balanced approach is now needed so that both players will continue their lucrative massive trade.

Anti-dumping duties is a tool but every tool when overused often loses its effectiveness and power.