Commission Implementing Regulation (EU) 2019/1590 of 26 September 2019 amending Implementing Regulation (EU) 2019/159 imposing definitive safeguard measures against imports of certain steel products

• (131) The Commission recalled also that as long as the relevant thresholds were met, it had no discretion to decide whether a country should be made subject to the measures or not. Any other interpretation, as suggested by some interested parties, would be in breach of Article 18 of Regulation (EU) 2015/478.

• (132) Lastly, the Commission, assessed whether any of the countries now being made subject to measures in a given product category would qualify for a country-specific TRQ. As noted in recital (117) above, it came to the conclusion that none of these countries satisfied the conditions for a country-specific TRQ.

2.E   Other changes of circumstances that may require an adjustment to the level of allocation of the TRQ

• (133) EUROFER and some Member States requested that the Commission removes or reduces the liberalisation of the definitive safeguard measures because of an alleged stagnation on the Union market for steel. According to EUROFER, these levels of liberalisation largely exceeded the growth outlook for the Union steel sector and would therefore seriously undermine the effectiveness of the measures. ESTA also supported this request by EUROFER and suggested that, in exchange for the removal of the liberalization, the Commission reduce the above-quota tariff from 25 % to 20 %.

• (134) The Commission recalled that the Regulation (EU) 2019/159 established that, in order to liberalise these measures progressively, the levels of all the free-of-duty quotas would be increased by 5 % at the end of the first and at the end of the second year of measures. That is, on 1 July 2019 and 1 July 2020 respectively ²⁴.

• (135) The Commission also recalled that the purpose of the present review was precisely to make any appropriate adjustments to the measures that might be necessary to keep these safeguard measured adapted to the evolution of the EU steel market, on the basis of the Union interest.

• (136) Article 5 (1) of the WTO Agreement on Safeguards provides that: ‘A member shall apply safeguard measures only to the extent necessary to prevent or remedy serious injury and to facilitate adjustment’. This principle is transposed into EU law by means of Article 15 (1) of Regulation (EU) 2015/478. For its part, Article 7(1) of the WTO Agreement on Safeguards specifies that safeguard measures will be applied ‘only for such a period of time as may be necessary to prevent or remedy serious injury and to facilitate adjustment’. Article 19 (1) and (2) of Regulation (EU) 2015/478 transpose this principle into EU law. Article 7 (4) of the WTO Agreement on Safeguards obliges members applying safeguard measures to progressively liberalise it at regular intervals with a view to ‘facilitat(ing) adjustment (…) in a situation where the expected duration of a safeguard measure (…) is over one year’. The same requirement is contained in Article 19 (2) of Regulation (EU) 2015/478.

• (137) Although liberalizing a safeguard measures after its first year of application is a legal obligation under Union and WTO law, those rules do not establish any particular requirement as to the form or concrete pace of liberalisation, other than such liberalisation should occur progressively at regular intervals during the period of application.

• (138) However, in any event, and as a matter of consistency, the liberalisation of any safeguard measures, both in form and pace, should not undermine the intended effect of the safeguard measures themselves. That is because the measures should, shield the domestic market from imports for as long as it is necessary to prevent or remedy serious injury and to facilitate adjustment, as Article 7 (1) of the WTO Agreement on Safeguards allows. It would be incongruous if the terms of liberalisation of the measures concerned were to frustrate this objective.

• (139) In order to assess the consistency of a 5 % + 5 % liberalisation pace of the quantitative threshold of the TRQ with the existing safeguard measures, the Commission considered it necessary to integrate two types of analyses. On the one hand, the Commission performed a backward-looking analysis that sought to assess, in light of all the information collected during the review investigation, the adequacy of the existing quantitative threshold of the TRQ for the prevention of and remedy to serious injury to the EU steel industry. On the other hand, the Commission sought to perform a forward-looking analysis that verified whether the intended liberalisation of 5 % + 5 % would be in line with the prediction of the most recent general economic and industrial outlooks in the Union.

• (140) In this regard, it is recalled that the Regulation (EU) 2019/159 took the average imports of the period 2015-2017 as the basis for the calculation of the quantitative threshold of the TRQ during the first year of measures. This average was topped-up with a 5 % increase to account for increased demand on the EU market. This resulted, de facto, in a quantitative level that was almost the volume of the entirety of imports for the products under measures during the calendar year 2017 (30,1 million tonnes as quantitative threshold in contrast to 30,09 million tonnes of imports during the year 2017). Based on the evidence collected for the period of investigation (that is, for the period 2013-2017), the Commission found that the trend leading to this level of imports had placed the EU steel industry in a situation of threat of serious injury ²⁵.

• (141) The analysis in Regulation (EU) 2019/159 (which based itself on the at-the-time most-recent post-2017, that is to say statistical data until September 2018) confirmed that a further increase of imports had worsened the outlook of the Union industry ²⁶.

• (142) That being said, reliable import statistics for the total imports of steel products during the calendar year 2018 were available only after the first quarter of 2019 (that is, about three months after the Commission had decided the definitive safeguard measures). These statistics showed that the total imports of steel products under measures reached a record of 33,4 million tonnes in 2018, far above the total level of imports reached during the year 2017 as well as far above the average quantitative threshold determined on the basis of the period of investigation ²⁷.

• (143) In light of those findings, if the Commission were to confirm the 5 % + 5 % liberalisation pace of Regulation (EU) 2019/159, the total volume of quotas made available for the second and third year of measures (that is, 2019-2020 and 2020-2021) would be 31,6 million tonnes and 33,2 million tonnes respectively. That type of liberalisation scenario would mean that, during the third year of application of safeguard measures (that is, 1 July 2020 – 30 June 2021), the Commission would allow imports to reach almost the same volume as that measured in 2018 (that is, about 33,4 million tonnes). That volume would be 3,3 million tonnes above the 2017 level considered by the Commission as causing a threat of serious injury, and, as such, highly distorting the functioning of the Union market.

• (144) The automatic acceptance of that level of imports, without the ability to assess the potential effects of those imports would, accordingly compromise the effet utile of the measures concerned. Indeed, as the definitive Regulation stressed ²⁸, the 2018 level of imports contain substantial trade diversion caused by the U.S. Section 232 measures, as well as out-of-measures imports that could not have been taken account of in the preparation of the provisional measures in July 2018 (including significant volume levels having entered the Union market under the shipping clause contained in Article 4 of Regulation (EU) 2018/1013 ²⁹.

• (145) In other words, in light of the full dataset of 2018, the 5 % + 5 % liberalisation pace would be inconsistent with the definitive safeguard measures imposed to tackle unforeseen substantial imports of the product concerned. If the liberalisation of the definitive measures were not adjusted, the Commission would permit an unprecedented level of steel imports into the Union during the third year of measures, without the possibility of tackling that distortive import volume, and thus potentially assisting the ‘threat of serious injury’ to further materialize.

• (146) Therefore, the Commission concluded that a cumulative 5 % + 5 % liberalisation, as requested by interested parties, without the possibility of review of the effects arising from that liberalisation, should be considered disproportionate to ‘prevent or remedy serious injury and facilitate adjustments’ within the meaning of Article 7 (1) of the WTO Agreement on Safeguards and Article 19 (1) and (2) of Regulation (EU) 2015/478.)

• (147) Consequently, the Commission considered it necessary to lower the currently-expected liberalisation rate. In this respect a cumulative 3 % + 3 % for the second and third year of application of the safeguard measures is considered to be appropriate. In fact, this less pronounced rate of liberalisation will have the effect that that the total level of quotas during the third year of measures will remain at 31,6 million tonnes, that is to say 1,5 million tonnes below the distorted 2018 record. It should also be noted that this adjustment would fully preserve the liberalisation effect, as, under this rate of liberalisation, the level of quotas during the second year of application of the safeguard measures would be of 31 million tonnes (and so represent about one million tonnes more than the level of imports measured during 2017). The Commission deemed this rate to represent a more evenly distributed effort to facilitate adjustment for the Union industry, with quota increases of 0,9 and 0,9 at the end of the first and second year of measures (that is, on 30 June 2019 and 30 June 2020). Thereafter, imports would be allowed to increase by 1,5 million tonnes to possibly reach the 2018 level only after the complete lifting of the definitive measures after the three-year period foreseen in WTO and Union law.

• (148) It should finally be noted that, forward-looking, this lowered rate of liberalisation is in line with the most-recently published general economy and industrial outlooks, which foresee a growth reduction for the Union and the world economy.

• (149) Thus, in its World Economic Outlook of April 2019, the IMF stated: ‘Global growth is set to moderate from 3,6 percent in 2018 to 3,3 percent in 2019, and then to return to 3,6 percent in 2020. Growth in the euro area is set to moderate from 1,8 percent in 2018 to 1,3 percent in 2019 (0,6 percentage point lower than projected in October) and 1,5 percent in 2020. Although growth is expected to recover in the first half of 2019 as some of the temporary factors that held activity back dissipate, carryover from the weakness in the second half of 2018 is expected to hold the 2019 growth rate down’.

• (150) For its part, in its recent Spring Economic Forecast, the Commission observed as follows: ‘From 1,9 % in 2018, euro area GDP growth is forecast to moderate to 1,2 % this year and to pick up to 1,5 % in 2020, when the growth rate will be flattered by a higher number of working days. GDP in all Member States is expected to grow over the forecast horizon. However, given the weakness in late 2018, these projections are markedly lower than last autumn and slightly below the winter interim forecast’.

• (151) As regards the industrial outlook, the slowdown in the EU manufacturing activity in the recent months is predicted to be worse than forecasted at the beginning of the year. These deteriorating business conditions in the industrial sector are reducing the demand for steel. EUROFER Steel Outlook 2019-2020 of 18 July 2019 furthermore forecasts a decrease in EU steel real consumption of – 0,4 % for 2019, which would be the first year-on-year fall since 2013.

• (152) Recent industry reports also confirm a deepening of the manufacturing downturn. The Global Steel Users Purchasing Managers Index (PMI) report released on 5 July 2019 by IHS Markit notes in this regard as follows: ‘Steels users in Europe are still in the midst of a deep slowdown, prompted by weak automotive output and deteriorating global trade conditions’. Similarly, in its Flash Eurozone PMI of release of 24 July 2019, IHS Markit further describes economic conditions as follows: ‘The manufacturing sector has become an increasing cause for concern. Geopolitical worries, Brexit, growing trade frictions and the deteriorating performance of the autos sector in particular has pushed manufacturing into the deeper downturn with the survey indicative of the goods-producing sector contracting at a quarterly rate of approximately 1 %.’

• (153) As a result, in the last months, consumers of steel continued to see new orders decline due to weaker demand of durable goods. The lower output in steel using industries and the contraction of their demand are driving the steel demand down.

• (154) As regards demand in the automotive industry, the outlook is no different. Annual output growth indicators published by Oxford Economics and FERI for Q2 2019 showed the weakest performance in the automotive industry since the global financial crisis with a likely negative output growth during first half of 2019 both globally and in Western Europe and also in car registration in Western Europe. FERI also highlights that ‘consumers remain on the sidelines because of heightened sense of uncertainty about the future of transportation’. The lack of clarity in the transition from traditional combustion engines towards new fuel forms represents an outstanding challenge that is delaying the pick-up expectations for the automotive industry. In the meantime, the output drop in the automotive industry is driving the overall downturn in manufacturing activity. Recent surveys signal ‘a sustained downturn in the global automobile & auto parts sector. Output fell for the eight month running, as did new orders. Purchases of inputs by makers of autos and auto parts contracted at the fastest rate in nearly seven years. Five other sectors registered lower output in May, all manufacturing-related except for real estate. The most notable in this group were industrial goods and metals & mining, where production declined for the fifth and eight successive months respectively’.

• (155) For its part, Oxford Economics and FERI also describe that growth has continued to slow down significantly in the engineering and metal goods industries during the first half of 2019, in line with weaker demand because of slower global trade and capital expenditure in Europe. Finally, although, with strong variations from country to country, the construction sector is outperforming other steel-using industries in Europe with continued growth, but its growth is moderate and its strength is being held back in Europe by a series of constraints, such as the lack of skill labour and the gradual lending tightening as a result of raising interest rates.

• (156) Accordingly, the Commission considered that it would be in the Union interest to lower the liberalisation rate to a cumulative 3 % + 3 % for the second and third year of measures. For this purpose, on 1 October 2019 (i.e. the beginning of the second quarter of the second year of measures) the remaining quotas for the second year of measures will be adjusted downwards, so that the total increase for the year is 3 %. In addition, on 1 July 2020, that is, at the end of the second year of measures, all the free-of-duty quotas should be further increased by an additional 3 %.

Other comments

• (157) In addition to the comments on the level of liberalization, the Commission also received submissions concerning other matters falling within this section. These are addressed as follows:

• (158) Some interested parties claimed that their individual exports to the Union could not cause or threaten to cause injury to the Union producers. In addition, they claimed that one country alone is not liable to pose a risk of trade diversion.

• (159) In this respect, the Commission recalls that, in line with Union and WTO rules, the current measures are erga omnes and therefore cover imports from all origins, except for the very few duly justified exemptions granted. The analysis on whether there was an absolute increase of imports, a threat of serious injury, or a risk of trade diversion cannot thus be done individually per exporting country but is done on the basis of all the imports aggregated. Therefore, this claim is considered to be unfounded.

• (160) Some interested parties pointed at the recent developments regarding measures on steel in other jurisdictions to show that the risk of trade diversion was reduced. In this regard, they referred to the exclusions from the U.S. Section 232 measures of Mexico and Canada, the termination without measures of the Turkish steel safeguard investigation, and the imposition of safeguard measures by Canada on a more limited scope than initially expected.

• (161) The Commission did not consider that the risk of trade diversion stemming from the U.S. Section 232 measures had been reduced or even disappeared as a result of the recent developments. On the one hand, Canada and Mexico were not amongst the main historical suppliers of steel to the Union. This was corroborated by the fact that none of the two countries had country-specific TRQ. On the other hand, such development under the US measures could have just the opposite effects. In fact, if two of the largest steel suppliers to the US can resume exported free-of-duty to the US market, this would further reduce the possibilities for other competing exporting countries to supply to the US market. Hence, the risk of trade diversion towards the Union could arguably be even greater. With respect to the Turkish and Canadian steel safeguard investigations, the Commission notes that this development did not have any substantial impact on the findings about the risk of trade diversion in the Union. In fact, as regards Turkey, the non-imposition of measures by this country leaves the situation unchanged.

• (162) Certain interested parties submitted that the Commission should include and/or exclude certain product categories and/or subcategories from the scope of the measures.

• (163) The Commission notes that the product scope of the existing safeguard measures is defined by Regulation (EU) 2019/159 and that amending the scope falls outside this review.

• (164) Some parties also insisted that the measures in place did not meet the standards of the WTO Agreement on Safeguards and, hence that they should be terminated.

• (165) The Commission highlights that the Regulations imposing provisional and definitive safeguard measures were sufficiently substantiated as regards their legal grounds. The Commission refers to the explanations provided in such legal acts.

• (166) Lastly, several interested parties asked the Commission to provide a mechanism place to deal with the withdrawal of the United Kingdom from the Union (‘Brexit’).

• (167) The Commission notes that at the stage of adoption of the adjustments under this review, the terms under which the United Kingdom will withdraw from the Union are still uncertain. Therefore, no adjustments related to the withdrawal of the United Kingdom from the Union can be made at this stage. The Commission will re-examine promptly the situation in view of any developments concerning Brexit.

• (168) Finally, the Commission noted that the present review amending the ongoing safeguard measures also complies with the obligations arising from the bilateral Agreements signed with certain third countries,

HAS ADOPTED THIS REGULATION:

Article 1

Regulation (EU) 2019/159 is amended as follows:

• 1) Article 1 is amended as follows:

• (a) Paragraphs 2 and 3 are replaced by the following:

‘2   For each of the product categories concerned, and with the exception of product category 1 and product category 25, a part of each tariff-rate quota is allocated to the countries specified in Annex IV. In order to benefit from the relevant tariff-rate quota, steel products falling under category 4B shall be placed under the end-use procedure referred to in Article 254 of Regulation (EU) No 952/2013 in order to demonstrate that they are used for the manufacturing of automotive parts.

3 The remaining part of each tariff-rate quota, as well as the tariff-rate quota for product category 1, shall be allocated on a first-come-first-served basis, based on a tariff-rate quota established equally for each quarter of the period of imposition. For category 1, no country shall be allowed to use more than 30 % of the tariff-rate quota available in each of the quarter.’

• (b) Paragraph 5 is replaced by the following:

‘5   Where the relevant quota under paragraph 2 is exhausted for one specific country, imports from that country can be made under the remaining part of the tariff-rate quota for the same product category. This provision shall only apply during the last quarter of each year of application of the definitive tariff-rate quota. For product categories 13 and 16, no exporting country shall be allowed to use, on its own, more than 30 % of the residual tariff-rate quota of the last quarter of each year of application of measures.’

• 2) The Annexes are amended as follows:

• (a) Annex III.2 replaced by Annex I to this Regulation.

• (b) Annex IV is replaced by Annex II to this Regulation.

Article 2

Article 3

This Regulation shall enter into force on 1 October 2019.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, 26 September 2019.

For the Commission

The President

Jean-Claude JUNCKER

ANNEX I

‘ANNEX III.2

III.2 – List of product categories originating in developing countries to which the definitive measures apply

’.

ANNEX II

‘ANNEX IV

IV.1 – Volumes of tariff–rate quotas