EU Penalizes China Steel

[Z-06]

[source: Wall Street Journal]

EU Penalizes China Steel

Bloc's Switch to Pre-Emptive Import Tariffs Signals Growing Protectionism

By JOHN W. MILLER

BRUSSELS -- European Union trade officials approved pre-emptive penalties on imports of steel pipe from China, a precedent-setting move that suggests the trading bloc is growing more protectionist in the face of the economic downturn.

Tuesday's vote by trade officials from the EU's 27 member states is significant, say trade experts, because they accepted an argument from steel producers -- including the world's largest by volume, ArcelorMittal -- that punitive tariffs are needed to protect them from the threat of underpriced imports from China. Previously, complainants have had to prove the imports had already hurt their business.

The case also concerns one of the steel sectors' most important finished products. Seamless steel pipes are key ingredients in housing construction, gas and oil plants and the automotive industry. The vote was close, according to EU officials familiar with the matter, although they declined to reveal the final tally.

The duties, which will range from 17.7% to 39.2%, are expected to take effect in October and last five years, EU officials said. Temporary duties of up to 24.2% have been in place since April.

Chinese officials say they are preparing a case at the WTO against the EU and U.S. over steel tariffs. On Monday, the Chinese Ministry of Commerce issued a statement saying it was "gravely concerned" about antidumping duties on Chinese imports in the U.S. and EU.

"If they impose the tax, that means we will lose the EU market," says Tan Ling, a manager for Hengyang Valin Steel Tube Co, which exports to the EU. The EU currently accounts for 5% to 10% of the company's sales, says Ms. Tan, who has been to Brussels several times to plead her case with EU officials. The company will try to compensate by exporting more to the Middle East and Africa, she says.

European consumers of Chinese steel imports are also upset at the new tariffs. "Consumers have to pay more because the market is protected," says Jan van Meever, the owner and CEO of Jan van Meever BV, a Dutch company that buys steel pipes from China and resells them in Europe. "It's just the way it is these days."

Chinese exports have flooded the EU ever since China joined the World Trade Organization in 2001. Total shipments to the EU from China were $357 billion last year, up from $67 billion in 2000.

The EU's steel sector, a $250 billion-a-year business with 420,000 employees, has been vulnerable to imports because of Europe's high labor and environmental costs. Eurofer, the lobby group that represents European steelmakers, has lobbied hard for higher tariffs.

In the U.S., the steel industry has also been on the front lines of demanding more protection from Chinese imports.

China came into Europe's seamless pipe market only recently. In 2005, it exported only 35,000 tons to the EU. Last year, it shipped 552,368 tons. The surge came at the same time as EU imports of steel pipes from Russia and Ukraine were declining, following the imposition of antidumping duties on imports from those countries in 2006.

But in those years the global economy was booming. The German export machine was firing on all cylinders, easily gobbling up the extra imports from China in 2007 and 2008. That made it difficult for European producers, when they filed their complaint in May 2008, to say they had been "injured" by dumped Chinese imports.

An import is considered to have been "dumped" when it is sold in a foreign market at or below cost, in order to gain market share. Under WTO rules, the importing country may retaliate by applying "antidumping" duties. The country must demonstrate that goods have been dumped, and that its companies have lost substantial sales as a direct consequence.

As the slowdown gathered steam last year, Europe's steel-pipe producers and their lawyers decided to try another tack. They argued that while they couldn't prove past losses, the threat of future injury, in an economic downturn, was so overwhelming that higher tariffs were essential.

"It is likely that low-priced imports will become even more attractive in a market which is increasingly seeking out cost reductions," the EU trade commission wrote in its final report.

Basing a claim on the threat of injury "is a perfectly legal strategy, but it has simply not, until now, been used as a matter of EU policy," says Nikolay Mizulin, a Brussels-based trade lawyer with Hogan & Hartson LLP. This case "is a sign of growing protectionism and could open the floodgates to many more industries who believe they deserve protection."

Mr. Mizulin and other trade lawyers say they expect a host of industries to ask the EU for protective tariffs in August. The number of overall antidumping duties grew last year to 208 from 164 in 2007. Another increase is expected this year.

—Sue Feng in Beijing and Bai Lin in Shanghai contributed to this article.

Write to John W. Miller at [email protected]