Memorandum submitted by the UK Steel Association
Thank you for your letter of 15 February requesting
an update on developments in the Central and Eastern European
Countries (CEECs). I am sorry for the delay in replying.
I regret to say that progress since our July
1998 memorandum has been slow.
STEEL RESTRUCTURING
AND PRIVATISATION
Our original memorandum explained how the European
Coal and Steel Community (ECSC) protocols to the Europe agreement
had granted the CEECs a five year "grace period" from
full compliance with their provisions. These grace periods have
expired, and the EU has consistently refused requests for extension.
This means that all CEEC steel companies should
theoretically now be in full compliance with the ECSC Steel Aid
Code, which already applies to EU producers. This Code permits
limited aid in certain circumstances (environmental compliance,
research and development, the social costs of restructuring and
closure aid): more particularly it bans all forms of operating
aid, rescue and restructuring aid and regional aid.
Despite this, the facts that few CEEC steel
companies have yet been privatised while many remain in financial
difficulty suggest that operating aid continues to be given. Certainly,
the debt write-offs that will be necessary for the successful
privatisation of many of the CEEC producers will constitute "banned"
rescue and restructuring aid.
The Commission is extremely concerned at these
possible breaches of the Europe Agreements, but there is little
that the Commission can do directly to control the situation.
The Commission has therefore adopted a strategy aimed at encouraging
restructuring leading to viability and privatisation. This strategy
is however being frustrated by political indecision in most of
the CEECs, and an unwillingness to face up to the social problems
that such restructuring would undoubtedly entail.
To date, only two CEEC governments have submitted
steel restructuring plans to the Commission: Poland and the Czech
Republic. The first Polish restructuring plan was rejected as
making seriously unrealistic assumptions about future demand and
important penetration trends. A revised plan was submitted in
1999. Independent analysis undertaken for the Commission concluded
that:
— On very conservative estimates of
import penetration trends, the "restructured" Polish
steel industry would have excess capacity of over 800,000 tonnes
in 2005.
— Of the individual company plans submitted,
only six out of 13 were deemed capable of leading to viability.
Details of the Czech government's restructuring
plan have not been made available to the EU steel industry, so
it is not possible at present to assess the viability of these
plans. Two major steel companies however are known to be bankrupt,
or virtually bankrupt.
While neither the Bulgarian nor Romanian governments
have submitted restructuring plans, they are both seeking foreign
investment partners and/or purchasers for their steel industries.
Here again though the process has been delayed by government indecision.
The situations in Hungary, Slovenia and (following
last year's change in government) Slovakia give less cause for
concern.
You have asked specifically about the status
of the former British Steel's (now Corus) involvement with Huta
Katowice in Poland. We are not normally able to comment on the
business plans of individual member companies. However Corus have
informed us that despite the internal delays to the privatisation
process in Poland, they remain interested in Huta Katowice.
Although Corus were selected as the preferred
investor by the Huta Katowice management in 1998, it became obvious
that the proper procedures had not been followed in Poland for
privatisation, and that the Minister had not been authorised to
sell any of the assets of Huta Katowice by the Council of Ministers.
Consequently the process was restarted and it was not until September
1999 that Corus were able to take their interest forward officially.
They are now working with Huta Katowice to determine whether they
can find a mutually beneficial means of participating in the privatisation
process.
THE ENLARGEMENT
PROCESS
In our 1998 submission to the Committee, we
drew attention to our concern that each of the CEECs should have
fully adopted the acquis communautaire, and be applying it, prior
to accession. A slower enlargement timetable was preferable to
prolonged post-accession transitional arrangements.
The decision to start assessing separately each
CEEC's progress toward meeting the accession criteria, instead
of treating the first wave of applicants en bloc, is welcome.
This will make it less likely that an individual country will
be allowed early accession, without having achieved full compliance,
for reasons of political expediency.
Nevertheless, we remain concerned about environmental
compliance. While it is likely that each CEEC will have been obliged
formally to adopt the environmental acquis prior to accession,
informal contacts with Commission officials reveal a widespread
expectation that few enterprises will be able to comply with the
acquis. Substantial and lengthy derogations will therefore be
necessary. For an industry such as steel (with the cost of environmental
compliance running at £250 million a year for the UK steel
industry) this would be severely distortive.
8 March 2000
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