A robust industrial base is essential for Europe's economic growth, preservation of sustainable jobs and our competitiveness on global markets. A strong steel sector forms the basis of many industrial value chains, for example in the automotive sector. The steel sector in the EU has an annual turnover of €166 billion, is responsible for 1.3% of EU GDP, and provides 328 000 direct jobs and an even greater number of indirect and dependent jobs. The European steel sector is characterised by modern, energy- and CO2-efficient plants, producing high value added or niche products for the world market, based in particular on an outstanding network for research and development. The European Union is the second steel producer in the world after China, producing on average 170 million tonnes of crude steel per year. The European steel industry remains a world leader in certain product segments.
II. What are the urgent challenges for the EU steel sector?
Despite the strong potential of the EU's steel industry, its competitive position on the global market has deteriorated in recent years. The recent economic slowdown in China and other emerging economies has had a negative impact on global steel demand since 2014. At the same time, the spare production capacity in certain third countries, notably in China, has increased dramatically. The overcapacity in China alone has been estimated at around 350 million tonnes, almost the double of the EU's annual production.
The excess production of steel has recently led to a dramatic increase of exports, the destabilisation of global steel markets and depression of steel prices world-wide. Steel imports from China to the EU have surged in the last three years. Market prices for some steel products have collapsed by up to 40% due to the surge of volumes. Some third countries have reacted by imposing trade restrictions and other forms of trade barriers. In addition, the overcapacity has given rise to an unprecedented wave of unfair trading practices distorting the global level playing field. These trading practices are shifting the burden of global overcapacity disproportionately towards European producers and their employees. In 2015 and early 2016 alone, the Commission had to launch 10 new investigations against unfair trading practices relating to steel.
The challenges of the steel sector, and of energy-intensive industries in general, go beyond trade issues. Their long-term competitiveness will depend on their ability to develop breakthrough technologies in areas such as energy efficiency or carbon capture and utilisation. This requires more investment in innovation and people. With the measures announced in the Communication "Steel: Preserving sustainable jobs and growth in Europe", the Commission will help the steel sector to adapt, innovate and use its potential in terms of quality, cutting-edge technology, efficient production and a highly skilled workforce.
III. Which existing EU instruments and measures can support the steel sector?
What is the EU doing to offset the effects of dumping in the steel industry?
The European Commission is aware of the situation in the steel sector, which not only suffers from a global problem of overcapacity but also from unfair trade, i.e. dumped and subsidised exports. Therefore, the Commission is acting and fully applying the trade defence instruments (essentially anti-dumping and anti-subsidy) at its disposal to support and ensure a level-playing field.
The EU currently has over 100 trade defence measures in place, 37 of them targeting unfair imports of steel products, 16 of which from China. On 12 February 2016, the Commission opened three new anti-dumping investigations on steel products originating in China to determine whether they have been dumped on the EU market. On the same day, the Commission imposed provisional anti-dumping duties on another steel product from China and Russia. Currently, there are ongoing investigations for 10 steel products, 6 of which concern China.
What is the Commission doing to address the causes of overcapacity?
In addition to measures aiming at mitigating the effects of global overcapacity, the Commission is tackling the underlying causes of the problem with its main partners. A global problem requires a global solution. Therefore, the Commission undertakes action at both bilateral and multilateral level.
At bilateral level, the Commission has set up Steel Contact group meetings with China, Japan, India, Russia, Turkey, and the United States. During the meeting with Japan on 8 March and that with China on 10 March 2016, the Commission put the issue of overcapacity at the core of the discussions.
At multilateral level, the Commission plays an active role in a number of fora such as the OECD Steel Committee and the WTO. The Commission also intends to raise the issue of global overcapacity in the steel sector at G20 level.
How does the EU support the steel industry in its modernisation path?
The steel sector faces longer-term challenges which require continued investment in breakthrough technologies. Several EU funds actively support the steel industry on its modernisation path by facilitating investment and helping the development and deployment of innovation. These possibilities should be used to the fullest extent:
- The €315 billion European Fund for Strategic Investments (EFSI) can help bring innovation also to the steel sector, by covering higher financing risks of innovative projects. EFSI provides flexible support to concrete projects by addressing market failures or sub-optimal investment situations. Project promoters also obtain assistance in the investment process by the European Investment Advisory Hub, so that the quality of projects can be enhanced and attract financing. In addition, business projects can boost their visibility for investors on a European Investment Project Portal. A first EIB loan under EFSI of €100 million is already helping a mid-sized Italian steel producer attract other investors. The total investment expected to be mobilised amounts to €227 million, enabling the company to modernise and optimise its products, processes and environmental performance, and to remain a leader in its field. Other industrial players have already initiated contacts with the Advisory Hub. Industry is encouraged to explore the possibilities offered by the EFSI.
- €44 billion will be allocated from the European Structural and Investment Funds (ESIF) to priorities set in regional research and innovation strategies. Regions in Czech Republic, Slovakia, Spain, Finland and Sweden have included support to modernising their steel industry in their priorities. The cooperation between regions with steel-related priorities offers an opportunity for exchange of experiences with policies and new technologies. The Integrated Strategic Energy Technology Plan, launched by the Commission in October 2015, is helping focus existing Research and Innovation support as well as policy action in the area of energy efficiency, e.g. by a more sophisticated use of financial support and regulatory measures.
- Under Horizon 2020, the EU's funding programme for research and innovation, the Commission is making available over €650 million between 2016 and 2020 for research institutes and other stakeholders for innovative industrial projects.
- Modernisation in the steel sector is also driven forward by the Research Fund for Coal and Steel with over €50 million every year. The ultra-low carbon dioxide steelmaking project (ULCOS) and its follow up projects, as well as projects funded within the SPIRE Public-Private Partnership are good examples in this respect. Moreover, through the European Innovation Partnership on Raw Materials, the industry cooperates with relevant actors at EU, national and regional levels to accelerate innovations that ensure secure, sustainable supplies of both primary and secondary raw materials.
- Furthermore, EU State aid has been modernised and allows Member States to support the steel industry in a number of ways, including investments in certain cross-border technology, research and innovation, and renewable energy projects. These possibilities should be used fully. State aid rules allow Member States to support the global competitiveness of efficient and productive steel producers and promote fairness towards efficient manufacturers who restructure with their own resources. In particular they can grant State aid to support cross-border industry research or technology projects of common European interest (IPCEI) and give public support to incentivise the steel industry to bridge gaps with trade partners on private expenditure on research and development investment, as allowed by the 2014 Framework for State Aid for Research, Development & Investment. Some of this support does not even need to be notified to the Commission for approval. The Commission stands ready to assist national authorities in identifying swiftly such support measures.
- In respect of energy costs faced by energy-intensive industries, Member States are encouraged to compensate indirect financing costs of renewable energy support schemes as allowed under the 2014 Energy and Environmental Aid Guidelines. The 2012 Emission Trading System (ETS) guidelines also allow Member States to offset higher electricity costs faced by some energy-intensive industries as a result of ETS rules on electricity generators under certain conditions. The Commission also stands ready to swiftly provide additional guidance on the competition assessment of long-term energy supply contracts upon request by individual companies.
The Commission is ready to give targeted advice to the sector and Member States to make sure that state aid and EU funding possibilities are fully exploited.
What about the people working in the steel industry and the need to ensure workers have the right skills?
As a social market economy, Europe cannot - and does not want to - compete on the basis of low wages, deteriorating working conditions and social standards.
Europe needs to compete on the basis of innovation, cutting-edge technology, premium quality and efficient production.
All this requires people with excellent skills. Building, running and maintaining a modern and competitive steel industry is only possible with a trained workforce. The need to invest in human resources will be at the heart of the forthcoming New Skills Agenda.
The New Skills Agenda will aim to build up a shared commitment to invest in people at all stages of life. This includes experienced workers that may run the risk that their skills become outdated or that their skills are not any longer in demand.
The New Skills Agenda will make the case for continued investments in people, including re-skills and up-skilling policies. It will benefit a broad range of economic sectors, including the steel industry.
How is the Commission supporting steel workers affected by restructuring?
In some cases, restructuring measures may lead to job losses. The European Globalisation Adjustment Fund (EGF) can co-fund up to 60% of the total cost of active labour market measures which aim at helping redundant workers finding new jobs. Approximately 5000 workers have already been targeted by EGF assistance in the whole basic metals sector.
It is important to accompany workers and local economies affected in the case of major relocations of activities. To this end, the EU has developed instruments to support workers' employability and mitigate the adverse social consequences of restructuring. The EU Quality Framework for anticipation of Change and Restructuring can help bring together companies, workers and their representatives, social partners and national and regional authorities to achieve a fair and socially responsible management of change and restructuring. The Commission will involve the social partners in the design and implementation of the necessary measures (e.g. mapping of jobs and skills needs, measures promoting internal and external mobility) through the relevant European (sectoral) social dialogue committees.
The European Social Fund (ESF) can also assist in this context. Workers affected by restructuring are likely to qualify for professional training, re-skilling and up-skilling under the ESF, in the framework of regional and national operational programmes. The EU supports financially Member States to assist unemployed people to get new qualifications, to modernise public employment services and promote partnerships between labour market actors. Already today, the European Social Fund has allocated €27 billion for measures in field of education, training and lifelong learning. By 2023, over 10 million unemployed participants are expected to benefit from the ESF and 2.9 million people are expected to gain a qualification thanks to an ESF intervention.
Where do we stand in the implementation of the Steel Action Plan?
In February 2016, the Commission hosted a High Level Conference on steel and other energy-intensive industries to take stock of the measures taken in the sector, including the implementation of the 2013 Steel Action Plan. By now, most of the actions of the Steel Action Plan have been implemented. Amongst others, these include cumulative cost assessment for steel, the strengthening on inspection and control of waste shipments and the Commission proposal for the modernisation of Trade Defence Instruments, on which progress in the Council is strongly encouraged. The Commission is working on the implementation of the remaining actions of the Steel Action Plan.
How will the EU help the industry overcome its energy challenges?
Energy efficiency and competitive energy prices are essential factors for sustainable energy-intensive industries. Wholesale energy prices, the proxy for energy prices paid by energy intensive industries, are now at historically low levels. They however continue to vary across Europe, often as a result of taxes and levies which are in the hands of Member States. Relevant energy price gaps with trading partners still exist, but they have been evolving favourably over the past months, particularly with regard to the US.
Energy prices are however very volatile and could rise again. A fully integrated single market in energy and a diversification of energy sources will contribute to increased competition and more competitive energy prices. The Commission will soon present several initiatives under the Energy Union Framework Strategy, e.g. proposals on the electricity market design, governance, renewable energy and energy efficiency. In summer 2016 the Commission intends to submit 'The energy prices and costs report' which will further contribute to increasing transparency and understanding on energy costs. The energy prices and costs will also assess the predictability of electricity prices over the period of high-capital investments in energy- and CO2-efficient technologies by energy-intensive sectors and further contribute to increasing transparency and understanding on energy costs.
Furthermore, promoting large scale innovative technologies will benefit the energy efficiency of key industrial sectors, including the energy intensive industries, which currently account for a quarter of CO2 emissions in the EU. Different EU funding opportunities like EFSI and ESIF funds support energy efficiency. For instance, the ESIF will support EU industry's energy efficiency, environmentally-friendly production processes and resource efficiency with €5.7 billion over the period 2014-2020.
What do the Paris agreement and EU climate policy mean for the steel sector?
The Paris Agreement is a historic achievement reflecting the opportunity that the global low-carbon transition presents for many sectors of the economy, including the steel industry. Its key element is the legally binding obligation on all parties to pursue domestic climate policies aiming to reduce emissions, thus sending a clear signal to investors, businesses and industry that the global transition to clean energy is here to stay.
However, temporarily less ambitious climate policies in third countries could create a risk of competitive disadvantage for EU industries, if there would be an uneven level playing field. To address this risk, European leaders have decided to continue free allocation of emission allowances to 2030. This offers tangible support to energy intensive industries, including steel, continuing to reward the best performers and incentivising innovation. This strategic decision strikes the right balance at this point of time.
The revision of the Emission Trading System as proposed by the Commission caters even more for innovation, which is essential to support the efforts of the EU, Member States and industry. It foresees specific low-carbon funding mechanisms to support innovation: by the end of the decade an Innovation Fund with 450 million allowances will be made operational and allow companies to apply for funding of projects to support large scale demonstration of breakthrough low-carbon technologies.
How can the circular economy package help?
With the Circular Economy package the Commission has proposed to increase waste recycling rates, require sorting of construction and demolition waste and improve the functioning of the Extended Producer Responsibility schemes. It will develop targeted guidelines for use on demolition sites and facilitate the shipment of waste between Member States. These measures should result in more efficient supply chains and help create a real single market for secondary raw materials, such as ferrous scrap and recycled steel.
Moreover, the Circular Economy package contains several measures aiming to incentivise innovative industrial processes. For example, industrial symbiosis allows waste or by-products of one industry to become inputs for another and in the process creating new market opportunities. Another innovative example is the use of the content of blast furnace waste gases through carbon capture and utilisation. By stimulating these innovative models, the package will help increase material and energy efficiency of industrial processes. Moreover, facilitating the use of by-products such as steel slag, saves costs for companies, which otherwise would have to pay for waste disposal costs on these materials.
IV. What additional measures and initiatives does the Commission advocate in the new Communication?
Can the Commission carry out anti-dumping investigations faster?
It can, is already doing so and it will go even further. However, anti-dumping investigations have to be conducted within the framework of EU law. A certain amount of time is needed to ensure that any action taken is in line with European legislation and international obligations, since these decisions may be challenged in the European Court of Justice and in some instances at the WTO. Therefore, a careful investigation of the facts is needed to ensure that our measures will not be annulled.
That said, the Commission has recently taken steps to allow for faster relief to the EU steel sector through 'registration' and 'threat of injury'. The mechanism of 'registration' can be applied in case of evidence of continuing increase of dumped products, which allows applying anti-dumping measures retroactively, where warranted. For this purpose, the Commission has registered imports of high fatigue rebars and cold rolled flat steel until the imposition of provisional measures. The Commission also conducts where warranted an investigation based on 'threat of injury' – without waiting for the injury to materialise – as in the recently opened investigation on hot rolled flat steel, if the conditions are met.
But there is scope for more and the Commission will immediately use the available margins to further accelerate the adoption of provisional measures by reducing investigation procedures by one month (from nine to eight months).
What else can be done to strengthen the EU's trade defence against unfair practices?
To further improve the efficiency and effectiveness of our action, the Commission's trade defence instruments (TDI) need to be modernised. In 2013, the Commission presented a proposal which would greatly help to streamline and expedite TDI procedures and to impose higher duties in certain circumstances. The European Parliament adopted its report in first reading. Member States are strongly encouraged to move this file forward in the Council.
Recent experience shows that additional reforms are needed. Among other things, the rationale for the removal of the lesser-duty rule should apply also to the steel sector and more generally to situations where the market of the exporting country is subject to significant distortions. With regard to the calculation of the injury margin it may also be appropriate to better define the target profit to ensure that injury is adequately removed.
Will the Commission consider setting up a prior surveillance mechanism?
The Commission will propose a prior surveillance system on steel products. Prior surveillance measures are foreseen in the EU's safeguard instrument and are based on an automatic import licensing system. They can be introduced when import trends threaten to cause injury to Union producers.
Is the EU granting China market economy status (MES), thereby making it more difficult to impose anti-dumping duties?
In the light of the upcoming expiry of certain provisions in China's Protocol of Accession to the WTO, the Commission is analysing whether, and if so how, the EU should change the treatment of China in anti-dumping investigations after December 2016.
Before taking a view on this matter, the Commission is conducting an in-depth impact assessment and is consulting stakeholders.
The impact assessment will carefully analyse the potential economic and social effects of any change in the treatment of China, with a particular focus on jobs and taking into account differences across Member States as well as the potential impact on individual Member States.
The public consultation launched in February 2016 aims at collecting stakeholders' input regarding the options identified by the Commission.
For the Commission, it is clear that no decision can be taken in this context without significant transitional periods and substantial attenuating measures.
How will the Commission tackle the causes of overcapacity in the future?
At bilateral level, the Commission will multiply and intensify existing contacts with the EU’s main trade partners.
At multilateral level, the Commission will raise this matter specifically in the G20 and other relevant fora with the aim of addressing global overcapacity. This is important, since problems in the EU are to a large extent due to action taken outside Europe.
In the WTO, the EU will remind partners of the need to enforce their WTO obligations on transparency and the notification of subsidies. It will actively raise this issue at the WTO peer-Trade Policy Reviews, starting with China in June 2016. It will use any relevant means available and raise the issue within the G20 with the aim of addressing overcapacity.
The Commission encourages third countries to apply the appropriate policy measures which respect the current needs of the market. The Commission is negotiating rules on the behaviour of state-owned enterprises and subsidies under Free Trade Agreements and investment agreements, following closely the subsidy notifications in the WTO. The intention to negotiate a chapter on energy and raw materials in each trade agreement is of particular interest for the steel and other energy-intensive industries.
The Commission will also continue playing an active role in the OECD Steel Committee, which will organise a symposium on overcapacity following concerns expressed by the EU and like-minded countries on 18 April in Brussels.
See also IP/16/804