Free and fair trade Positions of the steel industry in Germany on foreign trade
3
Contents
4
Introduction
5
Structural changes in the global steel industry
6
Massive shifts in global trade flows
7
Unfair imports endanger the European steel industry
8
The EU is an open and fully liberalised steel market
9
Effective trade defences – indispensable for the EU steel industry
12
EU trade defences – competitive disadvantages in international comparisons
13
The steel industry in Germany – backbone of the economy
14
Conclusions
4
Introduction
Foreign trade is the cornerstone of the economic success of the steel industry in Germany. Furthermore, the sector is the most important supplier of materials for the very industries that are responsible for Germany’s strength as an export nation. Steel therefore also stands for successful products – such as machines or cars – that are “Made in Germany”. So it is all the more important to examine the current economic and political situation regarding foreign trade. The world’s steel market is characterised by massive overcapacities totalling several hundred million tonnes. Two-thirds of these overcapacities are to be found in China. Some nations opt for unfair methods, such as price dumping, in order to export their steel products to other countries. In addition, many countries put up protectionist trade barriers that provide their domestic industry with artificial competitive advantages. Countries such as the USA have long been employing a wide range of measures to combat the massive increase in dumped exports. Europe, too, has not been inactive. The European steel industry has initiated trade defence actions which, however, are of limited effectiveness in international comparisons. The effective and consistent application of the trade defence instruments permitted by the World Trade Organisation (WTO) must be a central component of European foreign trade policy. This is not a matter of protectionism, but restoring fair competitive conditions.
Hans Jürgen Kerkhoff President, German Steel Federation, Chairman, Steel Institute VDEh
5
Structural changes in the global steel industry The unrestrained expansion of steel capacities is driving countries like China to aggressively export their steel products – sometimes using unfair methods. The world steel market is characterised by massive overcapacities amounting to several hundred million tonnes. This is mainly due to the failure of Chinese steel producers to adapt to a dramatic decrease in domestic demand. Steel demand in China will fall again in 2016 – for the third consecutive year. This is compounded by the lack of progress in the capacity reductions announced by the Chinese government. Excess capacities here could therefore rise to a new record level of 430 million tonnes. This alone would be enough to cover the entire steel demand of Europe, NAFTA and the CIS.
The fall in steel demand combined with historically high overcapacities is increasingly driving China to export on the world steel markets. To a large extent this is taking place via dumped, and thus unfair, exports – impacting all the steel regions of the world. China’s own structural problems are thus relocated to other steel regions with anti-competitive consequences. Many countries are therefore forced to defend their markets. In addition to direct exports from China there are also considerable knock-on effects, e.g. Chinese exports to Asian countries displace deliveries by local companies there as well as European exports. The consequences are massive shifts in worldwide steel trade flows – at the expense of the open European steel market, in particular.
Development of supply and demand in China
Steel requirements in selected regions, 2016
Crude steel capacity (effective) Market supply of crude steel
1250 | m. tonnes
Excess capacity 1051
1000
1096
1083
1096
912 750
766
740
688
701
666
500 395
343
430 Steel requirement (m. tonnes) EU 28 Rest of Europe CIS NAFTA Total
285
20 16 *
20 15
20 14
20 12
250
20 13
224
* Forecast
Sources: Worldsteel, OECD, German Steel Federation
2016* 153 41 50 144 388
6
Massive shifts in global trade flows Increased Chinese exports at dumping prices impair global steel markets. Many markets are fighting back. Global steel exports rose to a record level of 355 million tonnes last year. Of this, almost every third tonne came from China. The Chinese steel industry has doubled its steel exports during the last three years to 111 million tonnes, while suppliers elsewhere in the world have seen theirs reduced by about 20 million tonnes. Whereby a great deal of the Chinese material is offered on the markets at dumping prices.
The EU, and thus the steel industry in Germany, is particularly vulnerable. Third-country imports to the EU rose at a doubledigit rate in 2015, while exports to countries outside the EU fell noticeably as a consequence of the cutthroat competition on the international markets – despite favourable exchange rates. The change in the steel foreign trade balance for the EU amounted to more than 6 million tonnes. No other region in the world had to put up with a deterioration of this magnitude in 2015.
Shifts in global foreign trade: the EU was the main loser in 2015 Change in foreign trade balance 2015/2014 (in m. tonnes, steel products*) EU 28
* Rolled steel, semi-finished, tubes, cold-rolled and forged products
-9.1
ASEAN
-6.5
Turkey
-6.4
Ukraine
Development of steel exports (steel products*) 2012 - 2015 Global steel exports (m. tonnes) Rest of the world 400
China
| m. tonnes 355 319
-5.2
355
330
300
0.0
262
USA Russia Brazil
0.3 0.8
264
55
61
20 13
Japan
269
20 12
200
244
100 2.9 4.7
China
Sources: German Federal Statistical Office, German Steel Federation
20.4
93
111
20 15
South Korea
-3.5
20 14
India
7
Unfair imports endanger the European steel industry China, in particular, is flooding the EU market with dumped and subsidised imports. The steel industry in Germany is increasingly coming up against rivals who are subject to few standards regarding, for example, fair competition, environmental protection, social issues and protection of intellectual property. It is ranged against third-country suppliers who strive to make considerable gains in market share through unfair market practices. Thus German producers have long suffered from aggressive predatory competition – particularly from China. The flood of cheap, mainly Chinese, material exceeds the ability of the European steel market to absorb them. Steel exports from China have increased further in recent years despite growing losses among Chinese steel companies. EU imports from China increased by 58 per cent in 2015, following a rise of 50 per cent in 2014.
No matter how well positioned a steel producer is, ultimately none can operate in a market environment against statesupported – i.e. directly or indirectly subsidised, in particular – competitors. It is one of the original commitments of the EU and its member states to defend their industry from unfair trading practices by third countries.
EU 28: rolled steel imports from third countries
EU 28: rolled steel imports from China
40
8
| m. tonnes
| m. tonnes 7.16
32.14 30
+23 %
29.25
+58 %
6
26.22 23.60
23.48
4.54
21.42
20
4.19
4
18.26 3.16 2.73 10
3.02
2
Sources: German Federal Statistical Office, German Steel Federation
20 15
20 14
20 13
20 12
20 11
20 10
20 09
20 15
20 14
20 13
20 12
20 11
20 10
20 09
1.25
8
The EU is an open and fully liberalised steel market The steel industry in Germany calls for free and fair trade. Germany’s prosperity and development is based on foreign trade. Whereby fairness in international competition is of decisive importance. The steel industry in Germany has therefore always supported free and fair world trade under the aegis of the WTO.
The steel industry in Germany criticises every form of distortion of competition. Open or hidden protectionism does not in any way encourage the solution of problems, but hinders it enormously. The veritable explosion of competition-distorting trade restrictions in other countries shows all too clearly that previous European strategies have failed to halt this trend.
In stark contrast to other steel regions of the world, the EU stands for an open steel market that is entirely free of protectionist measures (such as tariff and non-tariff trade barriers). The steel sector is fully liberalised regarding import duties in the EU. No import duties have been levied on steel imports in the EU since 2004. There is also strict observance of state aid rules.
Examples of tariff and non-tariff trade barriers China:
EU: no import duties on steel products strict observance of state aid discipline Iran:
Turkey: import duties strategy plan
“Buy National” import duties
VAT reductions on exports subsidies ban on direct foreign investments import duties & licences
Russia: import duties
Kazakhstan:
Thailand:
import duties
national product standardisation import duties
Egypt: import duties
Taiwan:
Morocco: import duties
import licences
Tunisia: import duties
Brazil: import duties
Saudi Arabia: import duties “Buy National”
Argentina: import duties import licences
Vietnam:
Pakistan:
import duties import licences
import duties
Malaysia:
India: import duties national certification obligation
Australia: import duties
Indonesia: national certification obligation import duties
Sources: OECD, WTO, EUROFER, EU Commission: DG Trade
import duties import licences
9
Effective trade defences – indispensable for the EU steel industry The instruments provided by the World Trade Organisation (WTO) are intended to ensure fair competitive conditions. The only way to combat unfair competition is to make use of the trade defence instruments provided for this purpose by the WTO. This is not protectionism, but merely the restoration of fair competitive conditions. A consistent and prompt approach regarding trade defence has never been more important. The steel industry in Germany is facing Chinese steel producers who do not manufacture under market economy conditions, are heavily subsidised, and are placing huge amounts of steel on the market at prices below their production cost.
Even the highly competitive steel industry in Germany cannot ultimately survive against such companies. A clear corrective is required to balance out these market distortions. Defence of the European steel market against dumped and/or subsidised steel imports must be constantly available. Trade defence measures in the EU, such as antidumping and anti-subsidy actions, are carried out in strict compliance with WTO rules. In many cases they are actually far milder than is permitted by the WTO.
Overview of trade defence measures
Trade Defence Instruments (TDI)
¾
¾
Antidumping measures
Anti-subsidy measures
¾
¾
¼ Generally in form of duties ¼ Based on the dumping margin (comparison between normal value and export price)
¼ Generally in form of duties ¼ Should be calculated on difference between subsidised and non-subsidised export price ¼ Adjustment to use of state subsidies
The instruments are aimed against the unfair import practices of companies that contravene international trade rules.
Source: German Steel Federation
10 Average level of antidumping duties in effect against China in 2014
ø Average antidumping duty 0% to 50% 50% to 100% 100% to 150% 150% to 300% No information available
Sources: IFO Institute, World Bank, German Steel Federation
11 Number of antidumping and anti-subsidy actions in the steel industry
The number of antidumping and anti-subsidy actions initiated rose about six-fold between 2005 and 2015. The number of actions rose considerably in early 2016.
OECD countries
Non-OECD countries
80 72
70 60 50 41
40 30 25
23
25
20 16 *
20 15
20 14
20 13
20 12
13
20 11
16
20 10
13
20 09
5
6
15
20 08
20 05
7
20 07
10
20 06
20
* 2016: annualised on basis of January and February Source: OECD
12
EU trade defences – competitive disadvantages in international comparisons The EU’s trade defence instruments urgently require comprehensive modernisation. Whether the trade policy instruments available are able to at least offset the worst distortions in international trade will be decisive in the current market environment. The European steel industry, however, has a considerably weaker range of defence instruments available than other countries. Trade defence in the EU is clearly too unwieldy. Both the number of measures in operation and the level of the average duties are substantially higher in countries outside the EU. This weakness of the EU’s antidumping instruments represents a serious threat in the current environment. The so-called Lesser Duty Rule, in particular, frequently leads to defensive duties in the EU that do not actually make up for the real level of dumping determined. Compared to other industrial regions, Euro-
pean industry is disadvantaged because only the EU applies this rule. It would be all too grotesque to further weaken the legitimate defence interests of European industry against unfair competition by the EU Commission granting China market economy status in the current situation. In this case, the trade defence instruments against China would completely lose their defensive effect regarding trade actions. The steel industry in Germany is convinced that there is a solution that meets the requirements of the WTO whilst simultaneously enabling the steel industry to achieve fair competitive conditions.
USA
EU
Lodging of the complaint
Lodging of the complaint
20 days
45 days
DOC: acceptance of complaint
Opening of proceedings
25 days Max. 9 months4
ITC: interim determination of damage 165 days2
115 days1
DOC: interim determination of dumping3
Interim measures
Min. 75 days Max. 6 months
DOC: final determination of dumping Min. 45 days
ITC: final determination of damage
Final measures
1) Normal process 2) Complicated process 3) Possible retroactive application of 90 days 4) Complete time is generally required
Source: German Steel Federation
10.5 months
Min. 5.2 months
The length of time required for legal action – US TDIs offer a clear advantage
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The steel industry in Germany – backbone of the economy Steel is a cornerstone of prosperity and economic success in Germany. The steel industry is also of central importance for the industrial value-creation networks in Germany – with annual production of approximately 43 million tonnes of crude steel and about 87,000 directly employed workers. It is the most important material supplier for key sectors, such as the automotive industry, machine construction and electrical engineering, which also stand for this country’s export strength. Overall, almost 4 million workers are employed in the largest steelintensive sectors – representing more than half the industrial jobs in Germany.
One of the main strengths of the steel industry in Germany is its innovative power. This is driven, in particular, by the close collaboration between material suppliers and their customers. Company boundaries overlap and products undergo application-oriented development within the value-creation chains. The close interconnections are the basis for the worldwide success of steel products. If the steel industry loses its competitiveness as a result of the massive increase in unfair imports this would also damage the steel-purchasing sectors. The consistent application of antidumping and anti-subsidy processes is necessary to retain these innovation partnerships.
Crude steel production in Germany
Sales and employment, 2015 Steel-intensive
Automotive industry
Hamburg Bremen
Eisenhüttenstadt
Peine
Gröditz
13 %
793
Machine construction
224
21 %
941
Electrical engineering
159
10 %
639
Riesa
Witten Siegen Wetzlar
Jobs, 2015 in 1,000s
Brandenburg Salzgitter
Duisburg
404 | bn. euros
Proportion of steel used in products
Hennigsdorf
Lingen
Georgsmarienhütte
Not steel-intensive
Food industry
150
1%
463
Chemical industry
136
1%
312
Freital Unterwellenborn
Dillingen Bous
Construction industry
101
10 %
772
Steel & metalworking
97
59 %
525
Völklingen
Kehl
Processing sectors overall (incl. construction)
Herbertshofen
Integrated iron and steel mill (blast furnace, steelworks and rolling mill)
Source: German Steel Federation
Electric steelworks
Sources: RWI, German Federal Statistical Office, German Steel Federation
1781 6126
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Conclusions › A powerful steel industry is indispensable for the success of Germany as an industrial location. › There is no alternative to effective trade defences to enable the open EU market to restore fair competitive conditions. › The steel industry supports the careful and responsible application of trade defence instruments. › EU trade defence instruments are less effective in international comparisons. Modernisation of trade defence measures is urgently required. › Modernisation would undoubtedly also focus on the so-called Lesser Duty Rule, which often leads to defensive duties being lower in the EU than in countries outside it. This rule disadvantages the EU compared to other industrial regions. › China must not be prematurely awarded market economy status. The aim must be to fulfil the requirements of the WTO whilst guaranteeing efficient trade defences. › The commitments included in the Chinese WTO accession protocol must be implemented so that the EU’s defence possibilities against unfair Chinese imports are not impaired.
Wirtschaftsvereinigung Stahl | German Steel Federation Postfach 105464 40045 Düsseldorf Sohnstraße 65 40237 Düsseldorf Tel. Fax
+49 (0) 211 67 07- 0 +49 (0) 211 67 07- 310
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Version: May 2016