Lord Price with the Department of Trade and Industry's Export Hub truck. Photo: UKTI (under Creative Commons)
What ‘Lord Waitrose’ could do at the European trade ministers’ meeting on Friday
In the midst of the harshest crisis experienced by the UK steel industry in over a decade, last week brought some comforting news about securing the future of the sector. Potentially this week could see further good news if the UK government chooses to lift its opposition to the reform of EU measures to tackle the dumping of under-cost steel onto the global market. This Friday, national trade ministers – including the new UK trade minister Lord Price, former head of Waitrose – will meet in the EU Council of Ministers and the UK government could lift its veto demonstrating that we use our influence in the EU for the benefit of communities across the UK dependent on manufacturing.
Last week, competing bidders confirmed that Tata’s UK assets are still worth fighting for, offering in the process a glimmer of hope to steel communities striving for their survival. Meanwhile another steel giant – ArcelorMittal – revised its global outlook upward, predicting that demand for steel from China would soon stop its free-fall.
However welcome this news is, it cannot eclipse the fact that the government has yet to tackle the root causes of the crisis. China’s steel market remains deeply worrying, with massive overcapacity and competitive distortions. In the face of this unfair competition, the EU’s trade defences are inadequate to offer any lasting relief against unfair market practices, in their current form, largely due to the obstruction of the UK government in the European trade council.
China’s overcapacity represents more than twice the annual consumption of steel in Europe. The Chinese steel sector – which is both massively indebted and subsidised – has been over-stimulated in recent years as part of the Chinese response to the global recession in 2008. Perversely, austerity policies in Europe have hit expected demand for steel but with a planned economy, it is difficult to halt the flow of steel from Chinese mills. Restructuring is painful and creates unwelcome social unrest. Some may see this crisis as a means of winning market share and squeezing out competitors: an opportunity for China to control the steel market.
Against this aggressive strategy, two sensible courses of action are available to level the playing field: diplomacy and rule-based retaliation. The UK government has to date failed to act on both counts.
Amongst European leaders the UK Prime Minister enjoys unmatched leverage with China, the UK being by far the largest recipient of Chinese investment in the EU.
Just as steel companies are calling for action, the Chinese have started intense lobbying efforts to convince MEPs and governments that they are committed to cutting capacity and restoring competition. But official data are notoriously unreliable and we simply cannot take words for evidence. David Cameron is in a position to secure concessions from China, starting from full transparency as to the actual conditions prevailing on the Chinese steel market.
But if China does not follow through on its commitment to correct market distortions, the EU can intervene to correct prices through trade defence instruments. This typically takes the form of extra tariffs added to the price of imported goods to bring them up to the fair market level.
The EU has in fact been extremely proactive in deploying these trade defences since the crisis began. But the effectiveness of these instruments is limited by what the rules set by national governments permit, and they are extremely restrictive: anti-dumping tariffs must remain small. That’s why the Trade Ministers, meeting on Friday, need to act.
The Commission asked for the rules to be relaxed back in 2013 and exemptions to the so-called ‘lesser duty rule’ to be introduced. MEPs endorsed this proposal, and so did governments representing well over two thirds of EU population. But a few governments led by the UK have been blocking the reform. They were so successful in doing so that it was actually dropped altogether from the Council of the European Union’s work programme for 2016. Thanks to the mobilisation of steelworkers, we have managed to put it back on the agenda. It will be discussed this Friday in Brussels.
If the UK government were to adapt its position only slightly, so as to accept limited exemptions to the lesser duty rule, it would deliver the kind of EU reform the UK really needs. It would not just bring real protections to jobs in the steel sector (and other sectors like ceramics and tyres) . It would also send a much needed signal to the UK electorate: the EU can work when everyone involved shows a little bit of goodwill.