Global Steel Crisis: G-7 Leaders Warn of Trade Risks, Possible Enforcement Action > Newsroom

Global Steel Crisis: G-7 Leaders Warn of Trade Risks, Possible Enforcement Action

Date：06-06-2016 Source：Bridges，Volume 20 - Number 20

Leaders from the G-7 coalition of major economies called for “urgently” addressing the global overcapacity problems facing the steel sector, including through the eradication of any “market distorting” measures.

The leaders’ meeting, held in Ise-Shima, Japan, touched upon a range of other subjects facing the global economy, ranging from climate change to the ramifications of a UK exit from the European Union. (For more on “Brexit,” see related story, this edition)

The struggles facing steel, however, have taken on increasing levels of urgency in light of the growing imbalance between supply and demand in recent years. Figures from the Organisation for Economic Co-operation and Development (OECD) placed global steel capacity at 2.3 billion metric tonnes last year, while global demand was estimated to be significantly lower, with a difference of at least 700 million metric tonnes.

“We recognise that global excess capacity in industrial sectors, especially steel, is a pressing structural challenge with global implications,” said G-7 leaders on 27 May.

Warning of the damage this overcapacity problem could wreak upon trade and workers, the leaders flagged subsidies and other types of market-distorting state aid as potential factors that are exacerbating this problem.

“We are committed to moving quickly in taking steps to address this issue by enhancing market function, including through coordinated actions that identify and seek to eliminate such subsidies and support, and by encouraging adjustment,” said leaders last week.

Enforcement steps?

The group also expressed its readiness to discuss the issue with other major producers, either through the OECD or other options. Furthermore, they also raised the spectre of future enforcement action using “trade policy instruments,” while qualifying that these would be done in line with WTO rules.

At a high-level symposium convened by the OECD and the Belgian government in April, various major players in the steel sector were unable to find common ground on what collective steps to take to tackle the crisis, along with what factors were at the root of the problem. (See Bridges Weekly, 21 April 2016)

Many of the countries involved, including the United States, have argued that China bears the heaviest responsibility in this area, claiming that their expansion in production is at “unsustainable” levels – a charge that Chinese officials have repeatedly countered, arguing that overcapacity is a global problem caused by various factors.

While the G-7 communiqué did not specifically refer to China, the Asian economy continues to face harsh scrutiny from other major players in this sector – an issue that Japanese Prime Minister Shinzo Abe raised with reporters after the leaders’ meeting.

“The Chinese government has said it will cut back on excess capacity,” said the Japanese premier, according to comments reported by Bloomberg. “But our government believes that the size of the reduction is insufficient, considering the state of international markets.”

The EU has been among those most vocal about the steel situation, given that 22 of its member states are producers of the good. European Commission officials have lately warned that China could soon see additional action aimed at tackling allegedly unfair trade practices, such as “dumping.” (See Bridges Weekly, 17 March 2016 and 18 February 2016)

“The global overcapacity in the steel sector is of great concern,” said European Commission President Jean-Claude Juncker at a press briefing on 26 May, prior to the G-7 gathering. “It has cost Europe thousands of jobs since 2008; and the overcapacity in China alone has been estimated at almost the double of the European annual production.”

The Commission chief pledged that the EU’s executive arm would be increasing its use of trade defence measures as a result, while noting that talks on whether to grant China market economy status in anti-dumping probes is still ongoing, pending the results of an impact assessment. (See Bridges Weekly, 19 May 2016)

US agency to investigate imported Chinese steel

Separately, the US International Trade Commission (US ITC) confirmed last week that it would be launching a probe into carbon and alloy steel products imported from China.

The 26 May decision comes one month after the Pennsylvania-based US Steel Corporation complained that various Chinese producers have engaged in an alleged price-fixing “conspiracy,” along with attempting to “control output and export volumes,” among various other charges.

A formal date for concluding the probe has not yet been announced. Chinese officials, for their part, have countered that the allegations are unfounded.

Just one day prior, the US Commerce Department also announced final determinations in its anti-dumping and countervailing duty probes of imported corrosion-resistant steel products from various countries, including China.

For producers in the Asian economy, the US agency found dumping margins of 209.97 percent, while subsidy rates ranged between 39.05 percent and 241.07 percent.

In response, China’s Ministry of Commerce (MOFCOM) cited a series of problems it had with how the US agency’s investigations were conducted, according to an informal translation of the remarks. Among other issues, Beijing warned that the decision could hurt China’s domestic steel producers, along with having damaging effects on trade.

ICTSD reporting; “Japan’s Abe Says China Isn’t Doing Enough to Fix Steel Glut,” BLOOMBERG, 29 May 2016; “China not to blame for Europe steel industry’s flop: Official,” CHINA DAILY, 26 May 2016; “China accuses US of hampering trade with steel duties,” ASSOCIATED PRESS, 26 May 2016.

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