Steel firms bid to defuse trade tensions

Date: 17/02/2000

By Peter Chapman

EUROPE'S steel industry is calling for urgent action to ease trade tensions in the sector, amid fears that they could trigger a worldwide wave of protectionism.

The move follows a year marred by a string of disputes with Washington over its treatment of steel imports and by the US Congress stepping up demands for a tougher trade regime after domestic suppliers felt the heat from increased foreign competition.

Relations worsened last month when the EU won a battle in the World Trade Organisation over anti-dumping and anti-subsidy duties imposed on UK manufacturer British Steel, and plummeting to new depths this week when Washington risked fresh WTO action by announcing restrictions on imports of EU steel wire-rod and welded lead pipes.

Christian Mari, director of the EU steel manufacturers' lobby group Eurofer, insists that firms must act now to stop the rot - before trade relations worsen.

He says industry groups and policy makers on both sides of the Atlantic have been locked in behind-the-scenes talks to try to agree on a new system aimed at nipping potential trade rows in the bud, long before cases reach the WTO.

The linchpin of the plan under discussion is a proposal to make the Paris-based Organisation for Economic Cooperation and Development (OECD) responsible for setting up a trade row early-warning system.

The OECD, which already has an influential steel committee, would in future be tasked with combating the tendency towards over-production on the world market, which often leads to huge temporary surpluses of cheap imported steel and inevitably prompts accusations of dumping. It would keep track of market trends and urge firms to take action to cut output before dumping cases loom.

"This is a very cyclical industry. Swings in demand are very big from high to low. If you can limit the amplitude of the cycle, then you have a very clear and positive impact. It means prices would not fall as much as they would in other circumstances," explains Mari.

Supporters of the plan argue that such a system could have averted much of the damage caused by the Asian economic crisis in 1997, when a collapse in demand in the Far East led to the world being flooded with cheap steel.

"Existing trade tools have proved themselves useless to combat the crisis," adds Mari, although he says most of the problems caused by the meltdown have disappeared now that the region's economies have recovered.

Mari says talks on the OECD plan are at a "delicate" stage, but insists it has many supporters in the US. But as Union companies move to avert a raft of trade rows with Washington, they are themselves seen as the villains by a string of steel producers from developing countries such as India, China, South Africa, Taiwan, Bulgaria and Yugoslavia, all of which recently have been hit by Union anti-dumping and anti-subsidy measures.

The penalties were introduced after Eurofer lodged a number of complaints against foreign producers whose under-priced exports had caused injury to European companies. Under EU rules, it is injury and not the actual dumping of goods at below-market prices which triggers punitive trade measures.

Mari insists the number of complaints made by European industry were relatively small compared with those lodged by US competitors. "In some countries, steel complaints make up 50% or more of the total. In the EU it is very low," he says.

But Jim Searles, a trade lawyer with US firm Oppenheimer, Wolff and Donnelly, rejects claims that the Union industry - aided and abetted by the EuropeanCommission - was any less aggressive in pursuing action than its trade partners across the Atlantic. "They are quick to point to the US. But once complaints are generated, the EU is equally ready to take the case up," he argues.

Worse still, he claims, the Union's system for analysing the merits of such cases is much less transparent than that of the US, leaving the Commission wide open to attack from victims of trade measures who question the evidence used to justify the imposition of penalties.

Searles, who has represented developing country clients in dumping cases in the past, also questions the use of such measures at all in many steel cases, pointing out that the injury caused by alleged dumping may have occurred during a temporary blip in the economic cycle when production was high and had yet to catch up with falling demand.

"The market is very cyclical, so does it make sense to impose duties that last for five years and are generally extended?" he asks.

Critics point out that the Commission has also risked undermining its efforts to persuade India to support the launch of a new round of global trade liberalisation talks by imposing anti-dumping duties on Indian exports of hot-rolled coil steel.

Indian Commerce and Industry Minister Omar Farooq Abdullah told Trade Commissioner Pascal Lamy that the measures were unjustified, and warned they could affect bilateral trade relations at a crucial time for the WTO after the collapse of last December's Seattle talks.

But Eurofer's Mari has little patience with opponents of the EU's approach, although he concedes that the anti-dumping measures, and the anti-subsidy penalties which the Union imposes on firms able to charge lower prices because of state aid, are blunt instruments.

"People who criticise these dumping cases are living in dreamland," he argues. "Unfair trade exists, even if it is not as widespread as some people would paint it. When it takes place, you have to have the means to deal with it. You could say of anti-dumping that it is the worst system, but there is none better. We have nothing else at hand."

But as trade tensions escalate, doubts remain over whether the OECD would be able to set up the early-warning system which Union industry is pushing for quickly enough. There is also a question mark over whether the OECD, which has often been dubbed as the 'rich countries' club', would embrace exporters from developing countries who bear the brunt of complaints.

Major feature. Europe's steel industry is calling for urgent action to ease trade tensions in the sector, amid fears that they could trigger a worldwide wave of protectionism.