Resurgent Protectionism

Overcapacity should not be blamed for the EU steel industry's decline By Deng Yaqing

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Resurgent Protectionism

Overcapacity should not be blamed for the EU steel industry's decline By Deng Yaqing

China， the world's largest steel producer， is now confronting a predicament en route to going global. Following the decision in late July to place duties ranging from 18.4 to 22.5 percent on imports of Chinese-made deformed steel bars， the European Union （EU）again slapped the country with anti-dumping duties of between 19.7 and 22.1 percent on cold-rolled steel imports on August 4.

As the European Commission suggested，these duties will be in place for fve years， and for the frst time， they will also be levied retroactively on imports registered during the two months preceding the adoption of provisional measures on February 12， 2016.

The move will signifcantly raise the price of related products in the EU and hurt the competitiveness of its downstream manufacturing sector， said China's Ministry of Commerce（MOFCOM） in a statement， adding that the retroactive duty collection has multiplied legal uncertainties and severely hindered normal international trade.

Just this July， G20 trade ministers reached a consensus to stand against trade protectionism at a meeting held in Shanghai. “China regrets these consecutive trade protectionist moves and urges the EU to honor its commitments made under international circumstances，” said the MOFCOM， calling for the EU to avoid abusing trade remedy measures and sending the wrong signals to the outside world.

Who is to blame？

“In the wake of the global steel overcapacity crisis， the Commission is applying the trade defense instruments to re-establish a level playing field between the EU and foreign producers，”said the European Commission， noting that the imposition of anti-dumping duties on Chinesemade steel products is an attempt to cope with the global steel glut largely driven by massive Chinese output.

“Blaming China for global steel oversupply is not fair，” said Li Xinchuang，President of the China Metallurgical Industry Planning and Research Institute， at an event held at Peking University on August 13. He believes excess steel production capacity is a global problem， not an issue just confned to China. In February， the worldwide crude steel capacity utilization rate stood at a mere 66 percent， while that in China exceeded 70 percent， Li cited.

At the same time， China is going all out to cut its excess steel production capacity. In the past three years， the country has reduced its steel capacity by 90 million tons， said Premier Li Keqiang when delivering the Report on the Work of the Government this March. China has pledged to phase out a further 150 million tons by 2020.

As a matter of fact， the expansion of iron and steel production in China has basically been contained. In 2015， the absolute values of pig iron and crude steel output in China decreased by 3.5 and 2.3 percent respectively， according to the National Bureau of Statistics.

“What's worth mentioning is that Chinesemade steel products make up less than 5 percent of the EU market， which can hardly have a big impact on the region's steel industry，” said Shen Danyang， spokesman of the MOFCOM.

What's behind the decline of the steel industry in the EU？ “First of all， it's the global economic downturn that has thrown the entire steel industry into a crisis，” said Li.

If the EU fails to find the root cause of the predicament faced by its steel industry and blindly adopts trade protectionism to restrict fair competition， it will lose direction in steering the industry out of troubled waters，said Shen.

Aside from that， the internal problems of the EU's steel industry have contributed to the decline， which explains why the EU investigations cannot prevent enterprises in the region from purchasing Chinese steel products， Xu Liying， a research fellow from Lange Steel Information Research Center，told Global Times.

Stainless steel roll in Taiyuan Iron and Steel Co. in Taiyuan， Shanxi Province， on July 21

As professor Vera Trappmann， from Otto-von-Guericke University Magdeburg in Germany， has noted in an article， that the fnancial and economic crisis has put the European steel sector under considerable pressure. First and most dramatically， as a consequence of the downturn， European demand has shrunk in steel-consuming industries such as construction and the automotive sectors as well as due to the reduction of local public investment. Second， the EU steel sector also has overcapacity issues.

In addition， Trappmann believes the provision of raw materials has become a considerable problem since the 2008 fnancial crisis. Steelmaking depends on resources that are scarce in Europe， and due to expanded production outside Europe， the demand for such resources has increased，along with prices.

Another challenge to the EU's steel industry is the need to address the issue of environmental protection， according to Trappmann. In relation to environmental issues， the EU pursues the strictest policies in forcing steel producers to buy carbon dioxide emission certifcates， the price of which has risen steadily.

In contrast， the China-EU steel trade generates reciprocal and mutual beneft. On the one hand， China imports large quantities of steel products and equipment from the EU. On the other hand， Chinese steel exports can help the EU push forward infrastructure construction in diffcult times， bring actual beneft to consumers and enterprises， and increase the global competitiveness of related downstream EU industries， said Shen.

Export situation

According to MOFCOM statistics， of the 97 trade disputes China encountered in 2014， 27 involved steel products， accounting for 27.84 percent of the total. In 2015， Chinese-made steel products were subject to 46 trade remedy investigations， accounting for 46.9 percent of the total， indicating that China's steel industry has become severely afficted by trade disputes.

In addition to the EU， the United States International Trade Commission in May launched a Section 337 investigation against certain carbon and alloy steel products from China， which involved roughly 40 Chinese iron and steel manufacturers and their U.S. branches.

Despite the adverse external environment，China's steel manufacturing industry has done well in exploring overseas markets. According to the MOFCOM， the nation's steel exports soared 50.4 percent in 2014 and rose 19.9 percent in 2015. From January to July 2016， steel exports amounted to 67.41 million tons， up 8.5 percent year on year.

“Since the global steel industry as a whole is struggling with excess production capacity， now it's the buyers that call the shots. Therefore，what's behind the rapid growth of China's steel exports is a significant improvement of competitiveness and the favor of international consumers，” said Li.

China's steel exports can not only better meet the demands of global downstream users， but also strengthen the competitive vitality of the international steel market， said Li， noting that the expansion of China's steel exports has a positive infuence.

In fact， according to statistics from the General Administration of Customs， in 2015，China exported 112.4 million tons of steel，about 15 percent of its total output， a proportion that lags far behind the international average of 30 percent.

As Wang Liqun， Vice President of the China Iron and Steel Association， pointed out， the vigorous growth of China's steel exports is due to the improved competitiveness of its steel industry.

“China's steel production is primarily targeted at satisfying domestic demand. The country is not just the largest steel manufacturer， but also the largest steel consumer，” said Zheng Lixin， spokesman of the Ministry of Industry and Information Technology.

Beyond that， in recent years， China's steel exports have shown a new trend—the nation's steel trade with Africa and countries along the Belt and Road has witnessed high-speed growth. Take the steel trade between China and Pakistan for example. From 2011 to 2015，China's steel exports to Pakistan increased from 370，000 tons to 2.56 million tons， up nearly 600 percent.

“The growth was brought about by the two countries' cooperative projects under the Belt and Road Initiative， and can give a leg up to the economic development of Pakistan，” said Lu Feng， a professor from the National School of Development at Peking University， who suggested China unleash new potential demand through cooperation with developing countries.

Copyedited by Chris Surtees

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