The current Trade Defences case AD635 (Hot-rolled flat products from Brazil, Iran, Russian Federation, Serbia, Ukraine) is of significant concern for the European steel sector. The European Commission took the strange step of not bringing in provisional duties in April, which presents a risk that it will not bring in ‘Definitive Measures’ (final dumping duties) by the October deadline.
UK Steel and its members were extremely disappointed with the decision and as such, along with other members, we asked Eurofer to commission an independent analysis by two experienced trade economists of the previous Commission conclusions. The results of which have only just been made available.
In short, the independent analysis demonstrates that the conclusions drawn as to the impact of duties on users were simply wrong and have no foundation in sound economics. The decision not to impose provisional measures was therefore mistaken given that the key parts of the user interest analysis are wrong.
In sharing the independent analysis with the Department for International Trade, we have called on the UK government to do all it can to ensure the same errors are not made at the definitive stage and that sound economic analysis is followed, therefore definitive AD duties are imposed. As the investigation is at its final stage, we believe that urgent action is required.
We anticipate that Eurofer will be granted a hearing at DG Trade next week, in order to make the sector case and bring out the wider conclusions of this independent analysis, which are:
First, the imposition of duties on the five countries would not have a significant price effect. To quote their conclusions: “Based on accepted and appropriate quantitative analysis for commodity markets, provisional duties based on injury margins would mainly work to allow Union producers to recover the lost volumes and avoid further injury, restoring pre-dumping market positions and lowering unit costs, with only modest price impacts on downstream users.” They add that: “Spare capacity in the EU and internationally is the main factor restricting HRF producer pricing power, given high substitutability of HRF across alternative suppliers.”
They also conclude that (applying standard economic tests used by the European Commission) the EU HRF market is not concentrated and “that the structure of the market could give rise to any significant degree of pricing power”
They analyse recent post-IP price rises and conclude that: “The main observed price swings in HRF in the post-IP period, which took place in a context of sustained high global excess capacity, reflect input prices and are a world-wide phenomenon, unrelated to the trade remedy actions in the EU”
The conclusion of the analysis is that “due to (a) internal rivalry and a high degree of substitutability across suppliers both among Union producers and between Union producers and exporters in third countries in a context of spare capacity; (b) some degree of market power by HRF buyers; (c) effective ceilings on price increases in the Union market from actual or potential imports; and (d) declining unit costs as Union producers reclaim market share from imports facing duties, market dynamics will predictably work to limit price increases by Union producers, which nonetheless are able to improve bottom line performance due to declining unit costs of production.”
Of course the implications of this case go far wider and will have an impact on all future cases. We believe that dumping cases must be decided on the facts, rather than the politics. But the ‘Dumping’ of steel onto the European market is not an opinion, but an action by overseas companies and governments to undermine and destabilise markets in order to gain market share which flies in the face of WTO rules and the ethos of Free Trade. And that is a fact.
Europe must make the right decision on the AD635 case to show that Free Trade is the lifeblood of the global steel sector and long may that continue.