Select Committee on European Scrutiny Fortieth Report


COM(02) 428

Commission Report to the Council on steel re-balancing action.

COM(02) 532

Commission Report to the Council on steel re-balancing action.

Legal base:Article 133 EC; qualified majority voting
Document originated:(a) 17 July 2002
(b) 24 September 2002
Deposited in Parliament: (a) 22 July 2002
(b) 8 October 2002
Department:Trade and Industry
Basis of consideration: (a) EM of 15 August 2002
(b) EM of 22 October 2002
Previous Committee Report: None, but see footnotes
Discussed in Council: (a) 22 July 2002
(b) 30 September 2002
Committee's assessment:Politically important
Committee's decision:Cleared


  15.1  On 5 March 2002, the United States imposed, with effect from 20 March, a safeguard measure on a wide range of steel products, in the form of tariff quotas and additional duties. According to the Commission, the Community was among those exporting interests most hit by these measures, which it said were causing considerable injury to the producers concerned. The Commission also considered that the steps taken by the US substantially disturbed the balance of concessions and obligations resulting from the World Trade Organisation (WTO) Agreement, and would significantly limit Community exports to the US of the products concerned. It consequently initiated the WTO dispute settlement procedures, and said that, as the Community and the US had failed to agree any adequate means of compensation, the Community had the right to adopt re-balancing measures against the US, up to the level of the adverse trade effect caused by the American safeguard measures.

  15.2  On 19 April 2002, the Commission proposed[20] the measures which it considered the Community should take, comprising additional duties on imports of a selected range of manufactured products of US origin. Some of the measures (covering principally, but not exclusively, US steel exports) would apply within 90 days, whereas the others would apply only after 20 March 2005, or after the WTO Dispute Settlement Body has ruled against the US measures, and to the extent that the latter still remained in place at that stage.

  15.3  We were told in an Explanatory Memorandum of 21 May 2002 from the Minister of State for International Trade and Investment at the Department of Trade and Industry (Baroness Symons of Vernham Dean) that the Government fully supported the Commission in invoking the WTO dispute settlement procedures and in seeking compensation. She also said that the Government's fundamental objective was to secure the early withdrawal of the US measures, and that, if the US made an acceptable offer, the need for retaliatory action — at least in the short term — would be reduced, and indeed might disappear altogether.

  15.4  We subsequently received a letter of 7 June 2002 from the Secretary of State for Trade and Industry, pointing out that the original Commission proposal had been amended in a number of respects[21]. In particular, the imposition on 18 June 2002 of the proposed additional tariffs had been removed, and instead the Commission would be required to report to the Council by 19 July 2002 on what was on offer from the United States. If that report showed that the US might offer compensation as well as "exclusions", the Council would have until 12 October 2002 to decide on its response, but, if the US was offering exclusions only, the Council would decide by 1 August 2002 on whether or not to implement short-term retaliation.

  15.5  Following the publication of a revised proposal[22], which made a number of further, but essentially minor, amendments, we received an Explanatory Memorandum of 28 June 2002 from the Minister of State, which confirmed that the Council had adopted the proposal as Regulation 1031/2002[23]. In the light of this, and of the Regulatory Impact Assessment provided by the Minister of State, we cleared these two proposals on 10 July 2002.

The current documents

  15.6  On 17 July 2002, the Commission produced its Report (document (a)) on the state of the discussions between the Community and the US as regards product exclusions and trade compensation. This concluded that the US steel safeguards were having a significant negative effect on American steel users, though the impact outside the US (and in the Community) had been more limited; that a ruling from the WTO was expected around September 2003; and that the automatic application of rebalancing measures upon a negative ruling was the best guarantee that the illegal safeguard measures would be terminated quickly. The Report also said that the product exclusions granted by the US so far were insufficient, and that, although discussions on the issue of compensation were continuing, the US had yet to accept the principle that it should offer compensation in the form of tariff reductions in products other than steel.

  15.7  In his Explanatory Memorandum of 15 August 2002, the Minister of State for Employment Relations, Industry and Regions at the Department of Trade and Industry (Mr Alan Johnson) said that on 19 July 2002 the Commission had reported further to COREPER, and had recommended that the Council should postpone until September its decision on the application of short-term sanctions, to allow the US more time to grant additional product exclusions. He adds that this was agreed unanimously by the Council on 22 July.

  15.8  The Commission has since produced a further Report (document (b)). This concluded that, whilst the product exclusions decided by the US during August had contributed to mitigating the negative effect of its steel safeguard measures, about 40% of total Community steel exports to the US were still subject to the measures, and that pressure should therefore continue to be applied on the US to reduce further their negative impact by granting more product exclusions. The Report also recommended that the Community should continue to pursue its WTO challenge, and should encourage the US to withdraw its measures immediately after the Panel reports; and it suggested that there should be a broad international initiative to tackle the difficulties faced by the global steel industry. In the meantime, the Report recommended that short-term retaliation should not be introduced at this stage.

  15.9  In her Explanatory Memorandum of 22 October 2002, Baroness Symons of Vernham Dean says that, on 30 September, the Council agreed unanimously with this recommendation. She adds that the Government's fundamental objective, shared by the rest of the Community, is to secure the early withdrawal of the US measures, but that the earlier postponement of the decision to take short-term retaliation has resulted in "significant" additional exclusions being granted, and that these are considered sufficient to remove the immediate need for short-term retaliation.


  15.10  In clearing these two documents, we are pleased to note that, pending further developments within the WTO, the likelihood of short-term retaliation by the Community appears to have receded somewhat as a result of the additional exclusions which have now been granted.

20   (23048) 8219/02: HC 152-xxxi (2001-02), paragraph 7 (22 May 2002). Back

21   (23541) - ; see HC 152-xxxvi (2001-02), paragraph 13 (10 July 2002). Back

22   (23558) 8220/02; see HC 152-xxxvi (2001-02), paragraph 13 (10 July 2002). Back

23   OJ No. L.157, 15.6.02. Back

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