Vidya Ram

Brexit may strengthen EU’s steel sector

Vidya Ram | Updated on January 19, 2018

The UK is trying to dilute Europe’s anti-dumping rules in order to please its trade partners, imperilling its own steel industry

In early 2016, the British government, then led by David Cameron, faced criticism from politicians, industry and unions; this was over the decision to veto attempts at a European level to bolster protection for the region’s under-pressure steel industry. This included speeding up the process by which anti-dumping measures could be brought in, and removing the so-called lesser duty rule, which limited the ability to raise tariffs.

It emerged that Britain, along with a handful of other states, had attempted to block a toughening EU regime, which would have followed moves by other countries such as the US, which dropped the lesser duty rule. According to the WTO, which presses the need for the lesser duty, authorities impose duties at a level lower than the margin of dumping if this level is adequate to remove injury).

A high price

Europe’s maintenance of that principle meant its defences were far lower than the US, which according to a comparison conducted by the European steel body Eurofer in 2016, was applying in some cases over 10 times the anti-dumping tariff that Europe was able to. In evidence to a parliamentary committee in 2016, Tata Steel warned the lesser duty route was a “black box approach” that nine times out of ten led to a lower penalty rate than one based on price-to-price comparisons, and needed to be reconsidered.

While the government defended its position arguing that it was in the best interests of industry, businesses, and consumers (to whom there was a danger of the costs being passed on to under an overly punitive tariff regime), some suggested it was more a sign of Britain’s eagerness to pander to trade partners and China, in particular, whose government the Cameron administration has sought to closely tie up with.

They also suggested it was an unnecessary one given the EU’s clout. “As part of the largest economic bloc in the world, Britain is in a much stronger position to stand up to those who refuse to play by the rules of the game, damaging our future economic prosperity and putting at risk the jobs and livelihoods of families in our close-knit steel communities. We need a Government who are willing to make that case by standing up to China,” said Labour MP Angela Eagle in a debate at the time.

New concerns

Two years on, the issue has resurfaced as Britain attempts to prepare the legal and regulatory landscape for life after the European Union. Concerns that Britain would push for a light-touch approach, in a bid to curry favour with potential trading partners, were given some weight amid the passage of two pieces of legislation through Parliament. The Trade and Taxation (Cross Border Trade) Bills currently making their way through Parliament are an important part of the Brexit legislation, and the shape of Britain’s tariffs, customs, and trade remedies regime.

Earlier this month, industry body UK Steel warned that despite efforts by industry to engage with the Government there was a danger that the new regime would not adequately defend the sector, and could even water down existing anti-dumping and anti-subsidy measures, particularly given that Europe was on the verge of reforming its regime and the way dumping margins were calculated. “The UK market will.. be highly susceptible to diversions of unfair trade away from the EU 27 if its trade remedies practices were to diverge to the extent that significant differences in the levels of duty applied were to emerge,” they warned in a briefing paper, contrasting the EU’s current “finely balanced’ approach with that indicated in the legislation. “There are... a number of provisions in the Bill where the government appears intent on tipping the balance in favour of the exporters/importers.” Among their concerns are the introduction of “interest tests” including an “economic” and “public” interest test.

“Instead of free trade, the ‘Customs Bill’ will create a free-for-all! If the UK has the world’s weakest trade remedies, many thousands of high quality jobs in manufacturing are at risk across the country,” warned the unions.

“Why do the Government seem to be set on leaving our manufacturing sector completely exposed to the dumping of Chinese steel, for example?,” asked Labour MP Stephen Kinnock, during the parliamentary debate.

A sector under stress

The Government continues to insist that it’s is a balanced approach that considers the interests of consumers of imported goods and businesses that used them in their processes. Nevertheless, the legislation in its current shape has tied into wider concerns about Brexit — during the parliamentary debates some MPs sough to link it to concerns around the potential lowering of food safety standards, and workers rights in order to boost its attractiveness to potential trade partners.

Last year, Labour Party leader Jeremy Corbyn accused Prime Minister Theresa May of pushing Britain to become a “bargain basement economy.” In any case, it comes at a crucial time for the industry, which saw a battering in 2015 and 2016, with the reduction of capacity and the closure of sites. 2017 was a far more positive year for the sector, with a recovery in demand and prices (as well as the UK steel export sector being helped by the weakening of sterling).

However, pressure remains high, highlighted by the actions of the EU to date: over a third of its anti-dumping measures focus on the steel sector.

Ironically, Brexit may prove good news for continental steel producers: Britain was seen as one of the major stumbling blocks when it came to toughening the EU regime (the compromise found, enables the EU to depart from the lesser duty rule in some circumstances but does not do away with it entirely). With Britain’s exit set to take place in just over 14 months, they could be on course for the more rigorous anti-dumping regime that industry has long sought.

Published on January 19, 2018

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