Commission Implementing Regulation (EU) 2021/1029 of 24 June 2021 amending Commission Implementing Regulation (EU) 2019/159 to prolong the safeguard measure on imports of certain steel products

THE EUROPEAN COMMISSION,

Having regard to Regulation (EU) 2015/478 of the European Parliament and of the Council of 11 March 2015 on common rules for imports (1) and in particular Article 19 thereof,

Having regard to Regulation (EU) 2015/755 of the European Parliament and of the Council of 29 April 2015 on common rules for imports from certain third countries (2), and in particular Article 16 thereof

Whereas:

(1) By Commission Implementing Regulation (EU) 2019/159 (3), the European Commission imposed a definitive safeguard measure on certain steel products (‘the safeguard’), which consists of tariff-rate quotas (‘TRQs’) with respect to certain steel products (‘the product concerned’) encompassing 26 steel product categories, set at levels preserving traditional trade flows on a per-product-category basis. A 25 % tariff duty applies only if the quantitative thresholds of these TRQs are exceeded. The safeguard measure was imposed for an initial period of three years, that is to say, until 30 June 2021.

(2) On 15 January 2021, the Commission received a substantiated request by twelve EU Member States to examine, pursuant to Article 19 of Regulation (EU) 2015/478 of the European Parliament and of the Council and Article 16 of Regulation (EU) 2015/755, whether the existing safeguard measure should be prolonged.

(3) The Commission considered that the request contained sufficient evidence to initiate an expiry/prolongation review investigation. Accordingly, it published a Notice of Initiation (4) (‘the Notice of Initiation’) in the Official Journal of the European Union on 26 February 2021.

(4) In order to carry out a proper assessment as to whether the safeguard measure continues to be necessary to prevent or remedy serious injury, whether the Union steel industry is adjusting, and whether such prolongation is in line with the wider Union interest, the Commission collected specific data from the Union industry by means of questionnaires (5). These data included, inter alia, the evolution of key economic and financial indicators for the product concerned during the period 2018-2020 (‘the period considered’), as well as evidence that the industry is adjusting.

(5) The Commission also sought the position of other interested parties on a potential prolongation. To this end, the Notice of Initiation invited interested parties to participate in the investigation by submitting their observations and supporting evidence.

(6) In terms of due process, the prolongation review investigation comprised a two-stage written procedure, under which interested parties, first, submitted their observations and, subsequently, were given the possibility to rebut the other parties’ observations and submit comments on the questionnaire replies. Overall, the Commission received more than 150 individual questionnaire replies and over 160 submissions from interested parties within the established deadlines. The Commission also offered interested parties the possibility of hearings, if duly justified. Only the Government of the Russian Federation made use of this possibility (6).

(7) In its prolongation review investigation, the Commission assessed, first, whether the requirements of necessity and adjustment, mandatory under the rules of both the Agreement establishing the World Trade Organization (WTO Agreement) and Union legislation, were satisfied (see Section 3). Second, it also assessed what length and liberalisation terms for the prolongation would be justified (see Sections 3.3 and 3.4 respectively). Finally, the Commission assessed whether such prolongation would be in line with the interest of the Union (See Section 5). In its assessment, the Commission took due account of the observations and evidence received from interested parties, as well as any other publicly available information, in relation to the above questions. The Commission specifically addressed the relevant claims made by interested parties that deviate from the Commission’s assessment in a dedicated Section (see Section 7).

(8) According to Article 7.1 of the WTO Agreement on Safeguards and Article 19(2) of EU Regulation (EU) 2015/478 on common rules for imports (7), the period of application of a safeguard measure may be extended “provided that (…) the safeguard measure continues to be necessary (…) and that there is evidence that the industry is adjusting”.

(9) The Commission first examined and described the economic situation of the Union industry based on the questionnaire replies received (Section 3.1.1). Subsequently, the Commission assessed whether, and to what extent, import pressure existed or continued during the period considered (Section 3.1.2.). This assessment included a detailed analysis of the evolution of imports and TRQs use over the period of application of the safeguard, as well as a detailed assessment of several other relevant factors to determine the likely behaviour of imports into the Union, if the safeguard measure lapses (‘counterfactual analysis’).

(10) In order to assess the economic situation of the Union steel industry, the Commission issued questionnaires to the known Union steel producers to collect information regarding injury indicators about the product concerned during the period 2018-2020 (‘the period considered’). The Commission also requested the known Union industry associations (EUROFER, ESTA and CET) to distribute the questionnaires among their individual members. In addition, the Commission notified the known Union producers, through the open file system (TRON) (8), of the request to fill in questionnaires, which were also made available on the website of the Directorate-General for Trade (9).

(11) The Commission received over 150 individual questionnaire replies. The Commission also received consolidated data submissions from the industry associations known to the Commission. In addition, the Commission received individual questionnaire replies from each producer that had supplied the data to the industry associations individually and by producers that did not belong to any association. The Commission then processed the data received. It first consolidated the data directly received from members of associations, and later crosschecked their accuracy and the consolidation methodology with the dataset submitted by the industry associations in dedicated remote crosscheck sessions that took place on 14 June 2021. The Commission then merged the association members’ replies together with the individual replies received by producers not belonging to any association into a single consolidated dataset. This dataset constitutes the basis for the assessment of the economic situation of the Union industry. The assessment of this dataset (in Tables 1 to 4) showed the following:

(12) Over the period considered production volume steadily decreased year-on-year, with -5 % decrease in 2019 and a sharper reduction -16 % in 2020, when compared to 2018 figures. The 2020 quarterly breakdown (10) shows that this decrease was driven largely by the performance in the second and third quarters, which were the most heavily affected by the effects of the COVID-19 pandemic. Production capacity remained stable throughout the period and, thus, capacity utilisation followed a declining trend in line with the reduction in production (See Table 1). Lastly, stocks went down by 7 % in 2019 and by 15 % in 2020 as compared to the year 2018.

(13) Consumption in the Union market started declining in 2019 (-6 %), and this trend continued in 2020 (-16 %) when compared to the year 2018. The evolution of domestic sales volume by Union producers followed a very similar trend during the period considered (-4 % in 2019 and -14 % in 2020). During the period considered, the Union industry increased its market share by more than 2 percentage points.

(14) Injury indicators related to sales volume (see Table 2) and value saw a continuous decline over the period considered. Unit sales prices went steadily down by 5 % in 2019 and by 12 % in 2020 when compared to 2018. Cash flow and return on capital employed also deteriorated year-on-year during the period considered, the latter reaching negative figures in both 2019 (-2,6 %) and (-19,4 %) in 2020.

(15) The decrease in prices, coupled with the reduction in production and sales volumes described in Tables 1 and 2, turned the Union industry into a loss-making situation already in 2019 (-0,4 %) and the situation further deteriorated in 2020, reaching -3,7 % losses.

(16) Employment remained stable in 2019, but decreased by 6 % in 2020 when compared to 2018.

Conclusion

(17) The data in Section 3.1.1. showed that the economic situation of the Union industry had deteriorated significantly already in the year 2019, when the Union industry already became lossmaking, with virtually all injury indicators showing a sharp negative trend. It should be noted that from 2018 to 2019 the profitability experienced a slump by 6,1 percentage points to reach -0,4 % at the end of 2019. This serious worsening thus took place well before the unexpected onset of the COVID-19 pandemic and its ensuing effects on the market. The financial position of the Union industry further deteriorated in the course of 2020, when the economic effects of the COVID-19 pandemic further complemented the weakening of the Union industry’s financial position produced by the continuation during 2020 of the import pressure exerted by exporters to the Union. The effects of the COVID-19 pandemic came on top of the continuous jeopardy to the financial position of the Union industry caused by import pressure. Imports together with to some extent the COVID-19 pandemic plunged the Union industry into a serious financial situation with losses of -4 %. It should be emphasized that the additional impact of the pandemic-induced crisis on the financial position of the Union industry, which deepened the already undergoing import-induced deterioration, was comparatively smaller. From 2019 to 2020 the profitability decreased 3,3 percentage points to reach the bottom losses of almost -4 %. Therefore, the COVID-19 pandemic has thus amplified a pre-existing and continuing source of serious injury for the Union industry, which is mainly driven by imports.

(18) In conclusion, the Commission therefore found that, during the period of application of the safeguard measure the economic situation of the Union industry continued worsening as a result of import pressure during a period where the important adjustments made by the Union industry have not yet produced positive effects.

Additional analysis per product family

(19) The Commission concluded on the basis of the economic situation and development of injury indicators for the product concerned in Tables 1 to 4 that the Union industry continued worsening between 2018 and 2020 and it is currently in a fragile situation.

(21) Tables 5 to 8 showed the evolution of the injury indicators per product family during the period considered. In particular, they confirmed that the economic and financial situation of the Union industry followed, for each of the product families individually, comparable deteriorating trends as those established for the product concerned as a whole. By means of example, injury indicators such as production volume, domestic sales volume, unit sales price and profitability, consistently deteriorated in 2019 and this trend continued in 2020, showing a negative economic and financial situation. The only exception, in terms of diverging trend when compared to those of the product concerned, has to do with development of cash flow in the tubes family during the period considered.

(22) In view of this, the supplementary analysis undertaken per product family thus corroborates the findings reached for the product concerned, namely that even when assessed on a product family basis, the Union industry’s economic situation significantly worsened over the period considered and that it is currently in a fragile situation.

(25) When the decrease in the volume of imports shown in Table 9 is assessed against the evolution of consumption in the Union market, the Commission noted that although the market share of imports gradually decreased over the period concerned, the market share of imports nevertheless remained at the same level in 2020 when compared to 2017, that is to say, the year just prior to the imposition of the safeguard measure (17). Furthermore, the average market share of imports during the period under the safeguard was higher than in the years prior to its imposition (whether individual years, or averaged). This shows that, despite the safeguard, the presence of imports on the Union steel market has not diminished. Rather, it has increased in relative terms compared to the period prior to the imposition of the safeguard (18).

(26) The Commission also undertook a closer look on import pressure by assessing the evolution of TRQ use under the safeguard (19).

(27) This analysis shows that the main steel exporting countries have exhausted a large number of the country-specific quotas allocated to them and, quite often, in a rather short time frame within the relevant periods of application of the safeguard measure. In some extreme cases, large volumes of annual quotas were exhausted within the first day of the period or within a few weeks. This trend continued under the quarterly administration of country-specific quotas introduced on 1 July 2020. The analysis also showed that some of those countries also exhausted extremely quickly some residual quotas in several categories after previously exhausting their own, thus crowding out other historical suppliers. This is a consistent pattern, which can be observed across product categories and origins, and in large volumes.

(28) The main exporting countries not only demonstrate capacity to supply large volumes within a short period of time, creating significant disturbances on the market, but also appear ready to increase their presence on the Union market further, whenever the design of the measure gives them an opportunity to do so (for instance, through the exceptional access to the residual quota). Therefore, as found during the second functioning review of the safeguard measure (20), the exporters of the main exporting countries clearly show an opportunistic behaviour seeking to maximise their market presence under the safeguard measure, by all possible means.

(29) Before the adoption of the US tariff measures under Section 232 of the Trade Expansion Act of 1962 (‘Section 232 measures’) measure on certain steel products in March 2018, the US was the largest steel importing market. After imposing a 25 % upfront duty on imports, the US lost this position to the Union, which is at present the world’s largest steel importing country, followed by the US (21). In order to shield the Union market from the ensuing trade diversion, the Union imposed its safeguard, provisionally in July 2018 and in its definitive shape in February 2019, by means of TRQs on the product concerned that, unlike the US measure, preserve historical trade flows and deter additional imports, including diverted trade.

(31) Therefore, these data prove a close and significant correlation between the strong reduction in import volumes into the US after the imposition of the US Section 232 measures and the parallel increase of imports into the Union, partially cushioned by the safeguard measure. This correlation is confirmed for all safeguard periods up to the impact of the COVID-19 pandemic.

(33) The Commission undertook a statistical analysis of the exporting trends of the product concerned for the main steel exporting countries based on data from the Global Trade Atlas (24). Table 8 shows that, overall, the main exporting countries to the Union of the product concerned substantially decreased their export volumes to other third markets over the period considered. An individual assessment of these countries’ export performance confirmed that most of these countries also experienced a decline in their export volumes for every country (other than the Union and the US). Therefore, this means that during a period where the world’s two main largest steel importing countries (the Union and the USA) saw a significant decline in imports when their respective measures were in place, the main exporting countries to the Union also decreased their export volumes to other third markets.

(34) The Commission further supplemented its own assessment with the analysis carried out by the OECD. The OECD data confirmed the Commission’s own assessment that the export performance of the main steel exporting countries had overall consistently decreased over the period considered (25).

(36) Table 13 shows that, overall over the period considered, consumption (28) in the domestic market of the major steelmaking countries (encompassing the main steel supplying countries to the Union) increased. However, this overall trend is driven by the exceptional consumption surge experienced in China, by far the largest steel-making market in the world. With this exception, all the other countries saw a continuous decline in domestic consumption.

(37) Therefore, the simultaneous decrease of exports and domestic consumption over the period considered in the majority of the main steel-making countries unequivocally witnesses to the increasing difficulties they experience to find outlets for their traditional export operations. These difficulties strongly enhance competitive tension and induce a forceful conduct of exporters in third markets.

(38) The Commission also assessed the most recent developments related to global overcapacity in the steel sector that it had already considered in its Provisional and Definitive Safeguard Regulations.

(39) An analysis of various authoritative sources referred to in this Regulation show that the situation of overcapacity in the global steel market has worsened over the period considered. The OECD noted that “the latest available information (as of December 2020) suggests that global steelmaking capacity increased in 2020 for the second year in a row (Figure 10). The net capacity change in 2020, taking into account new capacity additions and closures, brings current global steelmaking capacity up to 2 453,2 mmt, representing a 1,6 % increase from the level at the end of 2019” (29).

(40) Furthermore, the OECD added that “Global steelmaking capacity rose to 2 453,2 mmt in 2020, while crude steel production declined to 1 827,8 mmt, with the gap between the two increasing to 625,4 mmt from 568,7 mmt in 2019. Global steel production as a share of capacity, as a rough indicator of the global utilisation rate, declined from 76,5 % in 2019 to 74,5 % in 2020” (30).