Caught up in dumping spat

In January 2017, the European Union (EU) imposed anti-dumping (AD) duties on Chinese steel imports.[i] Two months later, the United States accused the EU of dumping steel on the American market.[ii] As karma catches up with Europe, the EU fears receiving the same kind of response from the US that it gave to China earlier in the year.

REUTERS/Alfred Cheng Jin

Europeans will soon need to sit at several World Trade Organization (WTO) dispute settlements, which will aim to challenge their current standing on the international steel market. The Chinese Ministry of Commerce warned the EU that it will take “necessary measures to protect the legitimate interests of seriously hurt domestic firms.”[iii] The only settlement favorable to the EU steel industry would be the preservation of the status quo.

Currently, the European Commission imposes 29% to 55% AD duties on Chinese steel, which contribute to reducing Chinese competition on the European market in favor of the European steel companies.[iv] To maintain the current level of AD duties, the EU needs to minimize Chinese and American accusations of protecting its own domestic steel industry and dumping its steel in foreign markets.

Nonetheless, the EU should have little cause for concern. Its case should be easy to defend at the WTO for several reasons, including the challenging conditions under which the European steel industry was operating when AD duties were imposed on China, the constraints under which China operates at the WTO and the profit-maximizing motivations of US steel producers.

The WTO agreements allow governments to levy AD measures when there is genuine material injury to the domestic industry.[v] The ongoing economic crisis hit European steel harshly. Plummeting demand, coupled with the loss of 40,000 jobs in the steel sector and rising Chinese competition, culminated in the EU’s market share shrinking from seventeen to ten percent of global steel production in 2016.[vi][vii][viii] European steel companies petitioned for greater protection from cheap Chinese imports, while many frustrated steelworkers took to the streets amid uncertainty over the future of the industry in Europe.[ix]

Under pressure to shield EU steel makers from the effects of Chinese steel dumping, the European Commission imposed AD duties on imports of certain Chinese steel products.[x] In response, China, the world’s largest steel consumer and exporter, expressed concern over “increasing European protectionism.”[xi]

China launched a WTO complaint against the EU and the US, demanding that they remove China’s non-market-economy (NME) status, which forces China to agree to stricter AD duties. The Chinese economy’s NME status gives the EU (and the US) more flexibility when calculating dumping margins and AD measures on steel and other commodities and products.[xii] The Chinese economy’s capacity for overproduction and its failure to implement appropriate market reforms remain a pressing concern for both Europeans and Americans, leaving neither willing to remove China’s NME status in the near future.

WTO settlements of AD duties cases lack a reputation for efficiency. Even if China successfully questions the legitimacy of European AD duties at the WTO, European steel industry could circumvent the settlement in many ways. Countries accused of having illegitimately used AD measures previously have found ways to legally minimize the effect of WTO rulings: they either initiated “a reinvestigation or a review of the original ruling”, or launched a “de novo anti-dumping investigation into the same goods exported from the same countries.”[xiii]

The US Department of Commerce also voiced concern with the European steel industry. In late March, the Department announced its AD investigation of European steel imports and scheduled injury determinations.[xiv]

EU officials fear increased American protectionism of steel, due to the ongoing investigation of the Dept. of Commerce and the “America First” rhetoric of the Trump administration.[xv] However, the US is aware of possible retaliation if it introduced any AD levies on European steel. Retaliation would trigger a tit-for-tat response to the detriment of the steel export industries of each country. The final report is yet to be put together, but through its threats, Washington might have already achieved its aim.

A credible threat of an AD duty “can potentially alter the pricing strategy of the exporting firm from ‘below’ to ‘above’ normal value and create a win-win situation.”[xvi] Studies indicate that only about four percent of anti-dumping notifications results in exporting countries filing requests for consultation to the WTO’s Dispute Settlement Body.[xvii] Thus, when European steel firms perceive such a threat, they should gradually act to increase the price of steel to diminish American retaliation, which over time should be rendered both unnecessary and illegitimate. Consequently, American steel will become more competitive domestically, and Europe will avoid the costs that would have been incurred had it not faced US pressure to increase the price of steel.

European steel industry reaps the benefits of trade with China and the US at status quo. Current international trading relations help Europe soften its domestic steel crisis. Even though both internal and external factors work in their favor, EU and its steel companies must put every effort into continuing to preserve what they have established so far in 2017.

Bibliography

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• Thomas, Andrea, and Urlike Dauer. “Germany Hits Back at U.S. Proposals of Anti-Dumping Tariffs on Steel Imports”. Wall Street Journal, March 31, 2017. https://www.wsj.com/articles/germany-hits-back-at-u-s-proposals-of-anti-dumping-tariffs-on-steel-imports-1490966984
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