Not cleared from scrutiny; previously recommended for debate in European Committee C (decision reported 13 April 2016); drawn to the attention of the International Trade Committee, the Committee on Exiting the European Union, the Business, Energy and Industrial Skills Committee, the Welsh Affairs Committee and the Work and Pensions Committee
Commission Communication: Steel: Preserving sustainable jobs and growth in Europe
Business, Energy and Industrial Strategy
(37608), 7195/16, COM(16) 155
1.1In response to significant challenges for the EU steel industry in recent years—including global overcapacity in steel production and unfair trading practices by China, Russia and various other countries ‘dumping’ their excess steel production on to EU markets—the Commission presented a strategy to ‘preserve jobs and growth’ in the EU steel industry in March 2016.
1.2This non-legislative strategy identified actual and potential short- and longer-term EU wide actions in three broad areas—trade, investment (in technology and people, as well as ensuring the right regulatory framework) and energy and the environment. The strategy did not set out a clear timetable for action.
1.3The then Minister of State for Small Business, Industry and Enterprise (Anna Soubry) broadly welcomed the proposed package of measures, noting the “need for further engagement” in certain areas, such as the free allocation of the EU’s emission trading system (ETS) allowances and the use of the so-called ‘lesser duty rule’ (LDR), which limits the level of duties the EU can apply to ‘dumped’ imports at below market prices.
1.4At its meeting of 12 April, the Committee noted the value and importance of the EU steel industry—a key input into many downstream sectors—and considered that then Minister’s Explanatory Memorandum lacked detail on its position in respect of several key policy measures and instruments, including on the Government’s position on the LDR and China market economy status (MES), and requested an urgent debate in European Committee C.
1.5At its meeting on 11 May, the Committee considered further responses from the then Minister to be rather high-level and noted that there has not been any indication from the Government that it would table a debate in European Committee C urgently, as requested. The Committee called the then Minister to appear before the Committee in order to enable Members to probe the Government further on its position. This evidence session was held jointly with the Business, Innovation and Skills, Welsh Affairs and Energy and Climate Change Committees on 6 July.
1.6The current Minister of State (Nick Hurd MP) now updates the Committee on the issues raised in previous Committee reports, taking into account the evidence session of 6 July and subsequent developments.
1.7We thank the Minister for his update on EU trade, state aid and energy developments applicable to the steel sector and summarise his responses below, focusing on the Brexit-related implications.
1.8Overall, we would welcome further information on how the Minister intends to meet his commitment to secure “the long term viability of the steel sector in the UK, including ensuring that there are effective frameworks in place for when the UK leaves the EU”. Outstanding issues or questions, including further information on the implications of Brexit for the UK steel industry, will need to be addressed by the Government in further correspondence ahead of the debate and/or during the debate. We urge the Government to table the recommended debate in European Committee C as soon as possible (noting the recommendation was made in April 2016).
1.9In the meantime, we retain the Communication under scrutiny and draw the Minister’s response and our conclusions to the attention of the International Trade Committee, the Committee for Exiting the European Union, the Business, Energy and Industrial Strategy Committee, the Welsh Affairs Committee and the Work and Pensions Committee.
1.10Key background documents, a summary of the Communication and the Government’s position on it, are set out in detail in our previous Report chapters, listed at the end of this chapter.
1.11For ease of reference, the Minister’s responses are set out below. On the Brexit implications of this strategy, the Minister states:
“Until the UK leaves the EU, we remain a full member, and all rights and obligations continue to apply. Therefore, the UK will continue to participate fully in decision making on all issues, and to work to deliver outcomes that are in the best interests of the UK economy, including the UK steel sector. Alongside our continued participation in EU decisions, the Government will also consider how the UK can continue to provide necessary support to the UK steel sector following the UK leaving the EU, as part of the exit negotiations.”
1.12In response to the Committee’s detailed list of questions on trade, state aid and environmental and energy issues, the Minister states:
“Until the UK formally leaves the EU, we remain party to the EU’s trade policy arrangements. We continue to play an active role in ensuring that the system provides effective but proportionate action against unfair trade to deliver a level playing field for the UK’s steel industry.
“The UK has supported a range of new measures and renewal of existing measures over the past year. We also supported higher tariffs on Chinese Reinforcing Steel Bar (Rebar) and cold rolled flat products, which the industry asked for, and were successful in both cases.
“Regarding methods for calculating the injury margin, this is one of the areas being looked at as part of the discussions in the EU on trade defence modernisation.
“The UK remains committed to delivering trade defence modernisation and we hope the European Council Conclusions of 21 October, which noted the need for this, will lead to agreement soon. However, the UK’s position on free trade also remains unchanged: effective trade defence responses should be proportionate, not protectionist. Therefore, the UK continues to oppose proposals to restrict the use of the Lesser Duty Rule (LDR). We will fully participate in discussions on these issues and keep the Committee informed of any developments.
“The Government will also need to determine what form of trade defence regime it wishes to have on leaving the EU. We are in the process of looking at the options and the regimes of other WTO members to inform policy considerations.
“Tackling global overcapacity
“Over the past few months, the UK has participated in intensive international engagement which culminated in agreement at the G20 Leaders’ Summit in Hangzhou on 4–5 September to create a Global Forum on Steel Excess Capacity. The Forum will comprise G20 countries and interested OECD member countries, and will aim to agree effective steps to reduce steel overcapacity, and monitor and exchange information on steel capacity and subsidies or other forms of public sector support that contribute to overcapacity.
“I believe that this Global Forum will present a significant opportunity to tackle the serious challenge of global overcapacity over the coming years and the UK Government will fully contribute to ensuring that it is a success. It is also worth noting that once the UK leaves the EU, we will continue to play a full part in international negotiations and fora to reduce global overcapacity through our continued membership of the G7, G20 and the OECD, and also through bilateral contacts with China.
“The Government recognises that there are concerns regarding the EU granting Market Economy Status (MES) to China. The Commission is undertaking a detailed assessment of the economic impacts of granting MES as part of its consideration of this issue, which we welcome. We expect the Commission to publish a proposal shortly, which the Government will consider. In doing so, it will be important to take into account the wider trade and international context including China’s compliance with international commitments.
“Reintroduction of prior surveillance
“Following the Commission’s decision to reintroduce prior surveillance, the UK has implemented an effective system. The impact on consumers and importers has been minimal. Government’s Import Licensing Branch (ILB) continues to work with the European Commission to simplify and improve the licensing process. Most licences are issued within 24 hours of receipt and ILB is planning further automation to speed up the licensing process. Within the next year, we will also press for a review of the operation and effectiveness of the measure.
“Investment and modernisation of the EU industry:
“UK businesses and public sector organisations are eligible to apply for EU funding and to receive this until the point we leave the EU. The Chancellor has announced that EU funding granted before we leave the EU will be guaranteed by the Treasury after the UK leaves.
“There are a large number of EU funding programmes. Each has its own purpose and applicants have to meet the specific criteria for each fund and to go through the appropriate application process. Funds cannot necessarily be easily combined and each fund has to be looked at on its merits in terms of its potential to achieve specific objectives. Government is happy to discuss with companies looking to access European funding to explore which funds are likely to be most suitable, and to provide them with information about accessing particular funding programmes.
“The EU’s rules regarding public sector support for the steel industry will continue to apply while the UK is a member of the EU. This means that the steel sector cannot receive rescue and restructuring aid, or regional aid. This is because the European Commission considers that there is currently overcapacity in the steel market and there is no justification for providing support that could maintain or increase this.
“However, the steel industry is eligible to receive most other forms of State Aid. Aid can legally be given for environmental protection, research, development and innovation (RD&I) and training, as well as to energy intensive industries in some circumstances, for example when they would face a very significant increase in their costs as a result of policy changes. This is why the UK has been able to secure State Aid compensation for UK Energy Intensive Industries for the impact of renewables and climate change policy on electricity costs. This has provided the UK steel community greater certainty around energy costs and saved the sector hundreds of millions of pounds. We continue to look at all possible ways of supporting energy intensive industries within the State Aid framework.
“Future of Tata Steel UK
“Tata announced in July that they will explore strategic alternatives for their Tata Steel UK (TSUK) business, including entering discussions with ThyssenKrupp to explore a potential European joint venture. These commercial negotiations are ongoing and we continue to work with Tata, the Welsh Government and Trade Unions to support these discussions and the future of their UK steel business. The package of support offered by the Government is still available to a future owner, provided there is a viable plan and investment for securing the long term sustainability of the business. Any support Government provides would be made on commercial terms and the buyer’s business plan will have to demonstrate a clear plan for the long-term sustainability of the business.
“Energy and environmental actions:
“The UK remains an active participant in negotiations on Phase IV of the EU Emission Trading System (ETS). Key elements of the UK’s position in relation to the steel sector include support for better targeted provision of free allowances to mitigate the risk of carbon leakage, through a tiered approach, which is supported by UK Steel, and reduced administrative burdens on operators, especially small emitters. Slovakia, as the current EU Presidency, is keen to progress negotiations further, and is aiming to agree a General Approach by the end of the year.”
Thirty-third Report 342-xxxii (2015–16),(11 May 2016); Twenty-eight Report 342-xxvii (2015–16), (13 April 2016).
1 The term ‘dumping’ refers to the export by a country or company of a product at a price that is lower in the foreign market than the price charged in the domestic market.
2 The ‘lesser duty rule’ means that the EU imposes trade defence duties that are sufficient to remove the injury to the EU industry (i.e. at the ‘injury margin’), which may be below the actual dumping margin. The lesser duty rule is recommended under WTO rules, but many of the EU’s trade partners do not apply it.
3 Transcript of evidence session on 6 July.
4 See letter from Nick Hurd MP to the Chairman of ESC dated 13 September 2016.
5 See on EU Trade Defence Instruments.
6 Single Market Commissioner, Elzbieta Bienkowska, stated “[w]e have to discuss whether we can’t be more flexible in our judgment of state aid”, adding that “[we cannot push [the steel] industry any further”.
16 December 2016