APPENDIX 2
Memorandum submitted by the UK Steel Association
The UK Steel Association is the trade association
for the UK steel industry. It represents 95 per cent of UK steel
producing companies, together with a large number of downstream
steel processors.
BACKGROUND
Steel melting and hot rolling within the European
Union is subject to the European Coal and Steel Community (ECSC)
Treaty. (Downstream steel processors are subject to the normal
EC Treaty.) The ECSC expires on 23 July 2002. At that point steelmakers
will also fall within the scope of the EC Treaty.
Trade relations with Turkey on ECSC steel products
are covered by the ECSC/Turkey Free Trade Agreement of 1996. Like
the wider EC/Turkey Customs Union, this provided for the phasing
out of customs duties (achieved in respect of trade into the EU
in 1999) and the elimination and prohibition of quantitative restrictions.
The agreement provides for the possible imposition of safeguards
specific to EU/Turkey trade flows in the event of trade disruption;
and the creation of a Mixed Committee and through it an ECSC/Turkey
Contact Group. The latter enables consultations between the Commission,
Member State governments and the EU steel industry on the one
hand, and the Turkish Government and industry on the other hand.
This Group has provided a useful focus for attempts to resolve
trade disputes, and the EU steel industry would wish to see it
retained after the Free Trade Area (FTA) lapses on the ECSC's
expiry in July 2002.
The other major difference between the ECSC
FTA and the Customs Unions relates to the state aid rules. Under
the ECSC regime, Turkey is required to apply the ECSC Steel Aid
Code to its own industry. The Steel Aid Code imposes tighter rules
and disciplines on the steel industry than apply to manufacturing
in general, by establishing a blanket ban on state aid in all
forms, other than for a number of specified exemptions. Thus under
the ECSC FTA, banned aids cannot be paid, even if they do not
distort trade. Under the Customs Union however, aid is only prohibited
insofar as it affects trade between the EU and Turkey. This regime
is clearly weaker and, given the continuing state ownership of
parts of the Turkish steel industry, potentially damaging to steelmakers
in the UK and other EU countries.
STRUCTURE OF
THE TURKISH
STEEL INDUSTRY
Steel production can in broad terms be categorised
between flat products and long products. Flat products typically
might be used in the automotive and white goods industries, whereas
non-specialist long products (such as those produced by the Turkish
industry) are used primarily in the construction industry and
general manufacturing.
The total capacity of the Turkish steel industry
is about 18 million tonnes—marginally below that of the
UK. Turkey has one producer of flat products (Erdemir) with a
hot rolling capacity of 3 million tonnes. Erdemir is controlled
by the Turkish Government with a 52 per cent shareholding. (Erdemir
together with another semi-independent company, Borc"elik,
also produces cold rolled flat products; while there are a number
of independent companies making galvanised steel sheet.) The other
80 per cent of the Turkish industry comprises producers of long
products, primarily for concrete reinforcement. Roughly 20 per
cent of the long product capacity is state-owned.
The Turkish steel industry therefore suffers
from a structural imbalance: while it is currently a net importer
of flat products, it has significant excess capacity for long
products. The Turkish Government has a long-stated objective to
correct this imbalance by increasing flat product capacity. This
can only be achieved through investment in new rolling mills.
It will be essential for the European Commission to monitor developments
closely, and ensure that Government plans do not result in the
use of state aid. The Turkish industry has exported large quantities
of hot rolled and cold rolled flat products to the EU in the past,
and any expansion of subsidised capacity would risk injuring the
EU steel industry. Any such aid would not be permissible under
the terms of the ECSC/Turkey FTA.
TRADE PROBLEMS
The following table summarises steel trade flows
between the UK and Turkey:
Thousand metric tonnes
| | | |
| UK Exports | UK Imports
| Balance |
| Flat products1 | |
| |
| 1998 | 44.7 | 74.9
| ¸30.2 |
| 1999 | 25.2 | 25.3
| ¸0.1 |
| 2000 (annual equivalent)2 | 38.1
| 19.5 | +18.6 |
| Long products | |
| |
| 1998 | 28.7 | 38.3
| ¸9.6 |
| 1999 | 15.6 | 245.3
| ¸229.7 |
| 2000 (annual equivalent)2 | 7.6
| 180.3 | ¸172.7 |
| Further processed products |
| | |
| 1998 | 2.4 | 123.0
| ¸120.6 |
| 1999 | 3.0 | 118.8
| ¸115.8 |
| 2000 (annual equivalent)2 | 2.7
| 160.8 | ¸158.1 |
| Total finished steel products |
| | |
| 1998 | 75.8 | 236.2
| ¸160.4 |
| 1999 | 43.8 | 389.4
| ¸345.6 |
| 2000 (annual equivalent)2 | 48.4
| 360.6 | ¸312.2 |
| | |
|
Source: ISSB Ltd.
Notes:
1 Includes coated sheets.
2 Based on January to July.
Traditionally, the Turkish long products producers had disposed
of their excess capacity in markets where there was a shortfall
in local capacity—notably the Far East. However, demand
in these markets collapsed in the wake of the 1997-98 financial
and economic crises with the result that Turkish sales of long
products into the EU surged, causing serious injury to EU domestic
producers. In 1999 Eurofer (the European Steel Association) filed
an anti-dumping complaint against Turkish steel rod used for making
mesh for concrete reinforcement (known as recoil). This complaint
was subsequently withdrawn following a drop in Turkish sales.
However, at the same time Turkish sales of the other sort
of steel used for concrete reinforcement (steel bars known as
rebar) also surged. The UK market was particularly badly affected,
with Turkish imports now taking nearly 30 per cent of the market.
After consultations in the ECSC/Turkey Contact Group, the Turkish
government indicated that sales would reduce to non-injurious
levels. Unfortunately, while Turkish exports to the EU have shown
an overall decline, the Turkish industry has continued to target
the UK market, which has taken a disproportionate share of the
EU total. One problem has been that the Turkish Government has
been slow in approving new building standards, which has delayed
post-earthquake reconstruction, which should otherwise have absorbed
part of the structural over-capacity in rebar. The UK rebar market
is extremely fragile, and there is no doubt that the injury being
caused by the Turkish imports threatens to jeopardise the recovery
strategy of the principal UK manufacturer of this product, ASW
Holdings PLC. UK Steel has requested the Government to use the
ECSC/Turkey Contact Group systems to try to resolve this problem.
The growth in imports of further processed steel products
shown in the above table relates to certain types of welded steel
tube. It is believed that these tubes are being manufactured in
Turkey using hot rolled flat products imported from Ukraine and
Russia. Ukrainian and Russian sales of flat products into the
EU are capped by quota agreements with the ECSC. Furthermore both
countries' access to many other markets around the world has been
blocked by anti-dumping duties. With Ukraine and Russia being
in need of foreign exchange, and with few markets open to them,
the Turkish tube producers are thus able to procure Ukrainian
and Russian material at extremely low prices. This in turn means
that the Turkish steel tube sales into the EU can be made at seriously
disruptive prices. The European Steel Tube Association is evaluating
possible anti-dumping cases against two categories of welded tube
(general purpose round tubes and rectangular hollow sections),
where the Turks have taken 18 per cent and 30 per cent respectively
of the UK market.
EU ENLARGEMENT
UK Steel's policies with regard to Turkey's future access
to the EU are the same as for the other candidate countries (although
we recognise that for political reasons Turkey is unlikely to
be in the first wave of new entrants). In order to avoid competitive
distortions after accession, it is vital that Turkey should have
both adopted and implemented the acquis communautaire in
full prior to accession. This relates in particular to state involvement
in the restructuring of the industry (which could potentially
involve state aid) and to compliance with EU environmental and
health and safety standards. Environmental compliance is a major
and growing cost for EU steel producers. (We estimate it costs
the UK steel industry alone some £250 million a year—and
that is without counting the Climate Change Levy which will impose
a direct tax burden on UK steel producers.) To allow new entrants
to the Community to have temporary derogations from EU standards
would place the existing EU companies at a serious competitive
disadvantage.
CONCLUSIONS
UK Steel seeks support for the following policies and measures:
— The Commission should monitor closely Turkish
compliance with the state aid provisions of the ECSC/Turkey Free
Trade Agreement, particularly in the context of any restructuring
of the Turkish industry.
— The ECSC Contact Group system should be maintained
after the ECSC's expiry, and extended to cover all steel products.
— The Government should use the ECSC Contact Group
to persuade the Turkish Government to secure a reduction in their
rebar exports to non-injurious levels. If this fails, the Government
should support anti-dumping action against these imports.
— The Government should support anti-dumping measures
against imports of Turkish tubes.
— The Commission and government must ensure that
Turkey is in full compliance with the acquis communautaire
(including the environmental acquis) prior to EU accession.
29 September 2000
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