Commission Implementing Regulation (EU) 2022/978 of 23 June 2022 amending Implementing Regulation (EU) 2019/159 imposing a definitive 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 Articles 16 and 20 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 Articles 13 and 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 measure’), 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 (‘the Definitive Regulation’).

(2) By Commission Implementing Regulation (EU) 2021/1029 (4) (‘the Prolongation Regulation’), the Commission prolonged the safeguard measure until 30 June 2024.

(3) In recital (161) of the Definitive Regulation, the Commission committed to “carry out an assessment of the situation on a regular basis, and consider a review at least at the end of each year of imposition of measures”. In this spirit, the Commission conducted two functioning review investigations in 2019 and 2020 respectively.

(4) In recital (85) of the Prolongation Regulation, the Commission stated “in order to keep in the meantime the operation of the safeguard adapted to market evolution and in line with the interest of all stakeholders, the Commission will undertake a functioning review, like those conducted in 2019 and 2020. Such functioning review will be initiated sufficiently in advance to introduce any needed changes from 1 July 2022, after the first year of prolongation”.

(6) Due process took place under a two-stage written procedure, where parties first submitted their comments and supporting evidence, and subsequently, had the opportunity to rebut other parties’ initial submissions. Overall, the Commission received more than one hundred submissions and rebuttals.

(7) While the functioning review investigation was ongoing and before its conclusion, a series amendments to the safeguard measure took place. In March 2022, by Regulation (EU) 2022/428 (6) the EU imposed an import ban on certain steel products from Russia and Belarus (7) as part of the fourth sanctions package in response to the Russian invasion of Ukraine. To avoid any potential shortage of supply in the Union steel market resulting from this ban, by Regulation (EU) 2022/434 (8), the Commission amended the safeguard measure by redistributing the country-specific quotas of Russia and Belarus proportionally among other supplying countries in each product category affected.

(8) In addition, by Regulation (EU) 2022/664 (9) the Commission made South Africa and other Southern African Development Community (SADC) Economic Partnership Agreement (EPA) countries subject to the safeguard measure as of 1 May 2022 following the expiry of the exemption they had been benefitting from under a bilateral EPA.

(9) Lastly, the Commission suspended temporarily the application of the safeguard measure vis-a-vis Ukraine (10). The effect of this suspension is that as long as it remains in place, imports from Ukraine are not accounted for in any quota, either country-specific or residual (11). Similarly, the volumes of imports by Ukraine during the reference period of the original investigation (2015-2017) (12) are not accounted for the calculation of the residual quotas.

(10) Following an in-depth analysis of all the submissions received and the data available to it, the Commission arrived at the following conclusions. These conclusions are organized in the following sub-sections, as per the structure in the NOI.

Comments from interested parties

(11) Some interested parties (certain third countries and users) requested to replace the quarterly administration of quotas by a yearly administration, while others (Union industry) requested to introduce a monthly administration. Some parties (Union industry) also requested to limit the carry-over of unused quotas to 4%, while others (certain third countries and users) requested to redistribute the share of certain unused country-specific quotas (‘CSQ’). In addition, other parties (certain third countries and users) requested to remove the system of CSQ and have the quotas administered globally instead. Lastly, other interested parties requested to remove the quotas of certain countries and to redistribute these quotas among other origins, and that certain countries exporting under the residual quota be allocated a CSQ.

Assessment

(12) The quotas, whether country-specific or residual, were allocated based on the export performance in the reference period of the original investigation (13). The system of quarterly administration of quotas has proven to be effective in bringing about stability to the Union market, avoiding sudden surges of imports that would destabilise the market (14) and ensuring an orderly and predictable flow of imports throughout the year. This system also allows that traditional trade flows in terms of volumes and origins are permitted without any additional duty.

(13) This system strikes a balance among the opposing interests at stake. First, it works to the benefit of the Union industry because it avoids a flood of imports in a short period with the ensuing negative effects on the market. Second, it is also beneficial for certain third countries and certain Union users, which would otherwise be unduly crowded out from the market by other larger suppliers and would not be able to supply Union users, which would be in turn prevented from buying the material they need from these specific origins. Lastly, it allows larger exporting countries to exceed their traditional trade flows in most product categories by accessing the residual quota in the last quarter of a period when the incumbent suppliers were not able to fully use the quotas.

(14) Accepting any of the claims brought forward by interested parties, as summarised in recital (11), would upset this balance and would risk undermining the effectiveness of the measure. Furthermore, in their submissions, parties have not proven by any evidence how the current system would not be appropriate and how the different adjustments they proposed would be in the overall Union interest (and not just in their individual interest) and compatible with the logic and a proper functioning of the measure.

(15) For these reasons, the Commission considered that maintaining the current system of quota administration (quarterly administration and a combination of country-specific and residual quota), preserving the carry-over of unused quotas and the access to the residual quota in Q4 continues to be appropriate, and that is fair vis-a-vis all interested parties.

(16) While the current system of quota allocation and administration is appropriate, the Commission nevertheless considered that it requires some technical adjustments to improve its functioning in light of changed circumstances. These concern product categories 7 (quarto plates) and 17 (angles, shapes and sections).

(17) In these two product categories, Ukraine has been historically an important exporter (15) (representing around 33% of total quotas in each of these categories) and it has consistently used its quotas at rather high levels. However, the Commission observed (16) that since the unprovoked and unjustified military aggression of Russia against Ukraine, there have been virtually no imports of these two categories from Ukraine into the Union. This suggests that Ukraine is currently unable to produce and/or export these product categories in any meaningful volumes to the Union market. Under these circumstances, and having analysed the quota use by other exporting countries subject to the measure, the Commission considered that there would be a risk of potential shortage of supply for Union users in these categories if it did not take any action.

(18) For this reason, in the Union interest, the Commission considered it necessary to globalise the administration of the quotas that remain under the measure (17) in categories 7 and 17. In other words, the existing country specific quotas will be removed in order to make instead a single quota available for all origins, hence substantially increasing the flexibility for users to import the steel they may need from any source available within the quota volume in these categories.

(19) The Commission concluded that given the past track of import volumes (quota use) and origins, this adjustment does not risk undermining the effectiveness of the measure vis-a-vis Union producers and it is unlikely that any crowding out would take place and traditional trade flows will be preserved. This adjustment will be reassessed in view of the development of trade flows in these categories and of the suspension of the application of the safeguard vis-a-vis Ukraine, or if undue crowding out effects are identified.

(20) In the definitive measure, the Commission introduced a mechanism whereby countries having exhausted their CSQ could also access (free-of-duty until its exhaustion) the residual quota initially available in the last quarter (April-June) of every annual period of the measure.

(21) The Commission justified this mechanism in the interest of Union importers and users as this would not only ensure the maintenance of traditional trade flows but also avoid that, as the case may be, parts of the residual tariff-rate quota would remain unused.

(22) Under the first functioning review in 2019, the Commission observed that in two product categories, countries benefiting from a country-specific TRQ had used almost exclusively the full amount of the residual quota in Q4 in a matter of two days. As a result, historical – smaller – suppliers could not export free-of-duty during the last quarter of a period. This negatively affected traditional trade flows in terms of origin to the detriment of certain third countries and certain Union users. To offset this unintended negative effect, the Commission introduced a cap of 30% per country accessing the residual quota Q4 in Category 13 (Rebars) and Category 16 (Wire rod).

(23) Under the second functioning review in 2020, and after identifying more cases of crowding out in several product categories, the Commission devised a system whereby the access to Q4 would depend on the import trends observed and actual use of the residual quota by the smaller suppliers that are the natural beneficiaries of this section of the TRQ (18).

(24) In order to minimize the displacement of traditional origins in the residual quota, while continue allowing additional access in those categories where it is necessary to ensure the maximum use of the quota, the Commission created a system whereby each product category would fall within one of the following three different groups, corresponding to three different access scenarios. This system fulfils one the key principles and objectives of the safeguard measure, namely to ensure that traditional trade flows in terms of origins are preserved.

Comments from interested parties

(26) Some interested parties (some third countries and users) requested that access to the residual quota in Q4 be completely removed. Others requested that certain changes be made specific to certain product categories, while others (including some third countries and users, as well as the Union industry) requested the prohibition to larger exporting countries in a given category to access the residual quota altogether or to implement a more restrictive approach.

Assessment

(27) The Commission considered, having examined the submissions received and the functioning of the measure, that the current system continued to be the most appropriate insofar as it ensured that users maximise their chances of using up the residual quota, but also that traditional trade flows in terms of origins are respected (which is equally in the interest of users). The system of allowing access to the residual quota was the rule in all product categories but four.

(28) Accepting the requests from interested parties would amount to either preventing certain users from increasing their imports free of duty where there may be demand for it in the Union market, or it would prevent other Union users from purchasing products from certain origins also necessary for the Union market due to crowding out effects. At the same time, the system ensures that the additional volumes that some countries may export under this system remain within the boundaries that ensure that they do not undermine the effectiveness of the measure as far as Union producers are concerned. Therefore, the current system is the most suitable in the overall Union interest.

Adjustment

(29) In the ongoing review, the Commission assessed whether crowding out effects had taken place. To do so the Commission, based on the same type of analysis undertaken in the second review, updated the different regimes based on the data available since then. This means that the Commission analysed import data and quota use per origin and category from 1 April 2020 until 31 March 2022.

(32) In the case of categories 7, 8, 17 and 25A, they will be administered globally. Therefore, the possibility to access Q4 is not applicable, as there are no countries exporting under a country-specific quota.

(33) For categories 1 and 4B, the current regime whereby access is granted in Q4 with a 30% cap per exporting country continues to be deemed appropriate in order to ensure sufficient variety of sources of supply while avoiding crowding out effects through an excessive flow of additional imports beyond traditional trade flows.

(34) Overall, by this feature the measure would continue allowing access to the residual quota in Q4 in the large majority of product categories (in all but three categories).

(35) Any developing country member of the WTO was excluded from the application of the definitive measure, as long as its share of imports remains below 3% of the total imports for each product category. The Commission committed to monitoring the development of imports after the adoption of the measure and to reviewing the list of excluded countries on a regular basis.

(36) The last update took place in the framework of the review investigation following to the Withdrawal Agreement between the Union and the United Kingdom (‘UK’), as of 1 January 2021, and it remained unchanged since 1 January 2021. Thus, to adapt the list of developing countries subject to, and excluded from, the measure the Commission re-run the calculations based on the most recently available consolidated import data, i.e. year 2021 import statistics (19).

Adjustment

(38) The current liberalisation rate of the safeguard was set at an annual rate of 3%. The Commission assessed in this investigation whether this level of liberalisation continued to be appropriate.

Comments from interested parties

(39) Some interested parties (notably exporting producers and Union users) requested that the Commission increased the level of liberalisation beyond 3% (many of them requested a liberalisation rate of 5%), while the Union industry requested that the liberalisation pace was reduced to 1% instead.

Assessment

(40) The safeguard instrument is intended to be of a temporary nature. As of 1 July 2022, the measure will enter into its fifth year of application. The objective of liberalisation (which is a legal obligation under WTO (21) and EU (22) rules) is to progressively allow more import competition into the market while the domestic industry is adjusting to the increased level of imports. This is to avoid a measure that would not incentivise adjustments for domestic industry while it is in place, and which would create problems of competitiveness when the domestic industry will be exposed to greater foreign competition in a post-safeguard measure scenario.

(41) With this logic in mind, the Commission considered that at this point in time (after four years of measure) a slightly higher level of liberalisation year-on-year should be envisaged in order to encourage the domestic industry to continue its adjustments, while being mindful not to undermine the effectiveness of the measure.

Adjustment

(42) The Commission considered that setting the yearly level of liberalisation at 4% as of 1 July 2022 would be appropriate.

(43) This increase should also contribute to alleviating any tension for Union users in certain product categories, in a context characterised by a high degree of uncertainty in the market. On the other hand, the limited additional increase would not pose a threat to the Union industry and would not undermine the effectiveness of the measure.

(44) In March 2018, the US imposed a 25% duty on imports of certain steel products under the US Section 232 measure. The measure currently remains in place although certain changes have taken place. In this review investigation, the Commission has assessed these changes in order to determine whether they have any impact on the EU safeguard measure, in particular as regards the risk of trade diversion into the Union market.

Comments from interested parties

(45) The requests received in this respect can be split into three types. Under the first two, certain users and third countries claimed that the risk of trade diversion is small (-er) because of the different adjustments to the Section 232 measure. Then, some parties claimed that because of the TRQs allocated to Union exporters, the Union industry would divert sales to the US market at the expense of domestic sales creating a shortage domestically.

(46) On the other hand, the Union steel industry asserted that the risk of trade diversion remains and EU’s improved access to the US market will not affect their ability to supply to the domestic (Union) market.

Assessment

Changes vis-a-vis the EU

(47) In October 2021, the US decided to subject EU imports under the Section 232 measure to a TRQ system. Under this new regime, the EU would be able to export free-of-duty up to a certain level (based on historical export volumes) (23), and only when this level is exhausted, the 25% duty would become applicable. This action aimed to improve the EU exporters’ position in the US market, which until then were subject to a 25% duty on every tonne exported. This new system is applicable as of 1 January 2022.

(48) Some interested parties claimed that because prices in the US are usually higher than in the Union, EU producers would have an incentive to export to the US at the expense of domestic sales, thereby risking creating a shortage in the Union market in some categories.