The European Parliament’s Committee on International Trade (INTA) released a report illustrating its amendments to the EU’s long-term replacement to its steel safeguard protections last week, proposing various changes to the power and scope of the regulation.
Rapporteur Karin Karlsbro published the report on 3 February, detailing the amendments voted on by the committee in its latest session on 27 January, adopted by a majority of 36 to 2, with 5 abstentions. The report was also informed by submissions from the Committee of Industry, Research, and Energy.
The proposed amendments largely intensify Commission obligations to monitor and review the impacts of the regulation, particularly for downstream steel-consuming industries; as well as limiting Commission powers in tariff-compensation negotiations, and intensifying the scope of melt-and-pour requirements.
INTA’s amendments are not final, and must be approved or further amended by the European Commission, and Council, as the regulatory proposal moves through the EU’s Ordinary legislative procedure.
Downstream Industries
Downstream industries are suffering from many of the same issues as the EU’s primary steel sector – high production costs, and a lack of competition against substitutive imports – but remain relatively unshielded in terms of direct trade defenses. Both domestic distribution, and steel-consuming industries have warned that steel price inflation as a result of increased (or unbalanced) protectionism could turn these pressures existential, especially while demand for domestic downstream products is generally subdued.
As such, the Committee on International Trade has introduced a series of amendments to monitor these pressures – including explicit reference to domestic steel prices – on a more frequent, and expedited basis, requiring an initial review after 6 months, a regulatory proposal on possible scope extensions within a year, subsequent bi-annual reviews, and surveyance of the full steel value chain for stakeholder assessments.
Quota administration
Ultimately, INTA did not recommend the reinstatement of the quota carry-over mechanism, which rolls unused quota volumes into the next quarter, but amended the regulation’s recitals, or contextual clauses, with provisions targeting the “concentration of imports by a few operators and stockpiling practices” – defined by INTA as the delay of imports for release into free circulation to secure unfair access to relevant quotas.
This new requirement appears only in the draft recitals, and is limited to monitoring – presumably to be performed as part of the new review requirements – but illustrates a more proactive approach from European regulators and their increased sensitivity to trading realities.
WTO negotiations, and multilateralism
Overall, the draft report takes a measured approach to WTO compliance, as the European Commission is already on shaky ground in navigating the transformation of its existing temporary steel safeguard system (which reaches its maximum 8-year term in June) to a permanent framework.
The draft text presents this unilateral steel tariff increase by the EU as “restoring conditions for more open and rules-based trade in the future”, presenting overcapacity as a “global problem requiring a global solution […] most effectively addressed through coordinated multilateral action.”
INTA frames the overcapacity proposal as a temporary remedy to shield domestic competitiveness at the sensitive time of its decarbonisation, due to “the absence of meaningful progress at [the global] level”, seemingly recognising the need to regard WTO obligations flexibly, whilst still advocating overall WTO adherence.
The Commission originally proposed to negotiate with WTO trading partners under Article XXVIII of the General Agreement on Tariffs and Trade to secure necessary agreement to increasing the EU’s steel tariff barriers – generally requiring compensatory offsets by the EU in other areas – but INTA have moved to restrict the scope of the Commission’s authority, as well as introduce a new avenue for WTO compliance (or lack thereof).
Previously, the Commission would have been authorised to set country-specific quotas on the basis of these WTO negotiations with trading partners, “equivalent” to 2013 import market shares, but restricted to “equal” to 2013 import market share on INTA’s proposed amendments.
Crucially, on INTA’s proposal, the Commission would be limited in the granting of any tariff concessions to the products covered by the overcapacity regulation, restricting the scope of Article XXVIII negotiations to the rebalancing of tariffs within the iron and steel sector. The amended proposal also introduces new requirements for the Commission to inform and update on the progress of these negotiations – and to inform the WTO of the EU’s intention to regard the new framework as a “General Exception” under GATT Article XX, as it is “necessary to pursue the decarbonisation of the Union steel sector, and […] to preserve the Union public order.”
INTA also amends or introduces various provisions to ensure that subsequent implementing or delegated acts setting country-specific quotas, or varying overall quota levels adhere to certain considerations.
Article 4 – relating to country-specific quota design – generally mandates a degree of reciprocity between the EU’s and the relevant trading partner’s tariff rates; mutual compliance with bilateral or multilateral agreements; and preserves the possibility for quota exemptions (most likely for Ukrainian-origin goods).
Article 6 – on the power to vary overall quota levels – is amended to make “the decarbonisation path of the steel sector in the Union”; the “impact on downstream value chains”; and “security and defence policy,” direct considerations when varying quota volumes down the line.
Melt-and-pour
INTA’s amendments also extend to the new melt-and-pour provisions, which would oblige importers to prove the origin of their steel on the basis of the location of its primary steelmaking.
INTA introduce intensified requirements for the Commission to define the “detailed rules and modalities” determining the sufficiency of evidence for the melt-and-pour criteria, with direct reference to “mill certificates” and “where appropriate, the use of digital verification systems, unique identification numbers, or other control mechanisms to prevent falsification or misuse.” Provisions are also included to mitigate against “disproportionate administrative burdens,” but lack specific detail as to how this will be pursued.
Most importantly, INTA explicitly propose that the allocation of imported volumes to country-specific quotas should be conducted in reference to the “country of ‘melt and pour’” rather than the country of origin. In theory, this would allow the EU to administrate allocations to its steel tariff quotas in alignment with overcapacity factors – for example allocating re-rolled Turkish products to the quota of the country of the intermediate semi-finished goods – but has been criticised as legally dubious as regards existing origin rules.
Illustrating the legal ambiguity, this provision has a delayed application of two years following the entry into force of the wider proposed regulation, and is generally expected by market participants to face challenge as the proposed amendments move to readings of the Commission and Council as the next legislative stage.
