Market Economy Status for China – impact on the steel industry if it is granted by the EU

Market Economy Status for China – impact on the steel industry if it is granted by the EU

Since 2014, many European manufacturing sectors, including steel, have been facing a tremendous surge of under-priced, unfairly traded products from China, flooding into World and European markets.

As of the end of 2015, imports from China were subject to 52 definitive anti-dumping (AD) measures. In terms of value, the share of imports from China to the EU, affected by AD measures is 1.38%. The industries with the most measures in force are (i) chemical and allied, and (ii) iron and steel with 14 and 13 definitive measures in force, respectively.

The largest sectors, in terms of market value, are iron and steel, with turnovers of ca. €29 billion, followed by ceramics, with a €13 billion turnover. The sectors, with the highest number of jobs in the manufacturing of products, subject to AD measures concerning China, are ceramics, iron and steel, other mechanical engineering (bicycles), and electronics (solar panels). 79% of the 234,300 jobs in the manufacturing of products, covered by the AD measures concerning Chinese imports, are in Italy, Germany, Spain, France, Portugal and Poland.

China has emerged as the world’s largest steel industry, as a direct result of the Chinese government’s intervention in the market. The Chinese economy is still predominantly governed by state intervention and planning, at national as well as sectoral levels, such as in the steel sector: Five Year Plans impact upon practically every significant cost factor of production, distribution and trading. Market forces applicable in OECD economies, do not prevail in China.

Excess steelmaking capacity has worsened worldwide, as global steel demand growth softened, whilst new capacity build-up continued, notably in China. Global excess capacity in steel is estimated at almost 700 million tonnes, of which, about 410 million tonnes of steel overcapacity are found in China alone (that figure represents the combined steel output of the EU, USA, Russia and Japan). Chinese finished steel imports into the EU surged by +60% in 2015, YTD, representing 30% of total EU imports.

China's internal steel demand has declined since 2014 (-3.3%), 2015E (-3.5%) and 2016F (-2%). Consequently, Chinese steel exports exploded in 2014 (up to 90 million tonnes), further intensifying in 2015 (up to 110 million tonnes).

Now, if and when steel is dumped, what defence measures are available to European producers to fend off such an unprecedented tsunami of dumped imports? There are some in place at the moment, albeit their efficiency and final implementation leave a vast room for improvement. Alas, even this may end, when China ceases being treated as a Non-Market Economy in December, this year. Such a decision, if made by the European Commission, would have disastrous consequences for many business sectors. Why grant China the MES status when, obviously, there are no objective reasons to treat it in this way?

When China joined the WTO in 2001, it had not completed the transition to becoming a market economy. For this reason, China made various commitments to continue its transition to a market economy, and in particular, agreed in its Protocol of Accession to the WTO, to ensure that all prices were determined by market forces. In the absence of market- based prices, special provisions were introduced in Section 15, to address price comparability for anti-dumping investigations. Notwithstanding the legal discussions, centering on whether or not China must be granted market economy status after 2016, and what methodology could be used by the EU in its anti-dumping investigations into Chinese goods, the change in China's status after 2016, might compromise the EU's ability to ensure that the competition between its’ companies and Chinese ones is fair.

For the steel industry, recognition or treatment of China as a market economy at the end of 2016, would coincide with the peaking of Chinese excess steelmaking capacity, and record levels of exports to international markets, including the U.S., the EU, and Latin America.

There have been many initiatives taken up by concerned industries, who combined forces to form Aegis, a manufacturing industries representative body in Europe, which has called upon the EU and national governments to step-up their actions. The extraordinary Competitiveness Council, held on the 9th of November, resulted in no concrete actions to enable long-term support of the European steel industry. On the 15th of February, more than 5,000 various industries’ workers, employees, officers, and trade unionists, took to the streets in Brussels, to demonstrate their fears on perceived hair-splitting and foot-dragging of EU officials in making the granting of MES for China, subject to that country’s implementation of structural reforms.

Surely, the granting of MES to China, will severely undermine the ability of key sectors concerned, to effectively file anti-dumping cases. The steel sector is one of these key sectors. The risk of no longer being able to effectively file anti-dumping cases, implies that a level playing field between EU producers and Chinese exporters, will no longer be ensured. This, in turn, is a threat to European employment, as the jobs in EU steel mills will be in danger, due to the substantial and sustained imports of dumped Chinese steel.

Therefore, the Commission should be required to carry out a FULLY comprehensive, economic, social and environmental impact assessment, as required under the Better Regulation guidelines, for any major legislative initiative which involves policy discretion - such as a proposal regarding MES for China.

Mirosław Motyka, Director of Government Affairs, ArcelorMittal Poland (CEEP member); Council President of the Polish Steel Association

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