Will the EU Safeguard measure be repealed in 2022? – Stainless Cappuccino

30 May 2022 – The current review of the EU Safeguard measure on certain steel products must be completed by 30 June 2022. So far so good, nothing unusual for the most important and largest market protection measure for EU steel producers.

But, as with previous reviews, rumours are circulating that the Safeguard measure could be lifted because conditions have changed. But can the EU suspend Safeguard just like that? Have the conditions that led to the introduction of the measure really changed compared to 2019? Or is this just an attempt to cash in on wishful thinking?

Update 31 May 2022: EU safeguard review 2022 completed, EC submits findings to WTO

What is the current Safeguard review about?

The Notice of Initiation concerning a review of the safeguard measure applicable to imports of certain steel products states:

“Recital (85) of the Prolongation Regulation sets out that the Commission would carry out functioning reviews to the measure to keep its operation adapted to market evolution and in line with the interest of all stakeholders. The Commission committed to concluding a functioning review investigation of the safeguard measure by 30 June 2022.”

C 509/12, OJ EU, 17 December 2022

Safeguard functioning review

The current Safeguard review is a so-called technical review that is intended to check the proper functioning of the current measure and, if necessary, to adjust certain points. This quickly becomes clear when you read through items A to D under point 2 of the Notice of Initiation. It only deals with technical adjustments to the TRQ with regard to current market conditions.

A. Allocation and management of tariff-rate quotas

The EC has already made extensive adjustments here. The war between Russia and Ukraine forced the Europeans to do so. And they immediately reallocated the Safeguard quotas after the sanctions against Russia and Belarus on steel exports.

EU: WTO decision confirms Safeguard measure

The WTO’s decision that the EU must recalculate Turkey’s quotas and better justify the Safeguardmeasure was also received calmly in Brussels. A WTO ruling is currently still awaited. If this is not done soon, the WTO decision will be invalid anyway.

Turkish steel producers demand an end to Safeguard measure

Even though Turkish steel producers are now calling for an end to the EU Safeguard measure, DG-Trade will produce a little more paper here if necessary. And a marginal adjustment of Turkish quotas is likely to be a fair price to pay to the EU that Safeguard will subsequently even be on a solid legal footing.

EC already had to make extensive adjustments

Here the EC could use the adjustments already made as an argument for not wanting to make any further changes. Because these geopolitically forced adjustments must first be observed and the functioning of the measures as a whole must be ensured.

Ukraine out of the market for now, despite tariff lifting

Even the lifting of all tariffs and market protection measures, including Safeguard for one year, for Ukraine, which is under attack from Russia, is unlikely to have much effect, as bad as it is. As long as Ukrainian ports are blockaded by Russia, steel mills there are out of the equation.

And the focus of the Europeans and the global community is likely to be on prioritising the transport of grain to avert a famine catastrophe in the developing world.

Moreover, the EC’s proposal to regulate the suspension sets clear conditions that these market protection measures can be reintroduced at any time should there be damage to EU industry.

B. Crowding-out of traditional trade flows

This involves adjustments because certain countries import too much into the EU too quickly in some categories and their TRQs are quickly used up. As a result of this import surplus spilling over into global TRQs in the last TRQ quarter, traditional trade flows can be disrupted. And smaller nations without their own TRQs will be disadvantaged, but also the choice for European customers will be limited.

C. Update of the list of developing WTO Member countries excluded from the scope of the measures based on their most recent level of imports

The EC has already made this adjustment. South Africa gets its own country-specific quota in the measure. The adjustment, which at first glance appears to be purely technical and legally necessary, is at second glance an argumentative lever that should not be underestimated. Without having to allocate more quota to other countries, the EC has been able to increase the import volumes of an important partner country.

D. Level of liberalisation

When extending the Safeguard measure in 2021, the EC reduced the liberalisation of quotas from the original 5% to 3%. EU steel producers had even demanded that the adjustment of quotas be reduced to 0%. From a purely legal point of view, this would not have been possible, as WTO rules make this liberalisation mandatory and would only have led to further proceedings at the WTO or the EU Court of Justice.

Liberalisation should lead to adjustments

This is because the quota adjustment is supposed to contribute to the producers, who are supposed to be protected by a safeguard measure, also developing further and adapting to changed market conditions.

Unwillingness to adapt can become a boomerang

This unwillingness to adapt, which we had already raised against the EU steel producers, has meanwhile been turned around by the EC, the producers and their lobby associations. The best example of this is the just announced lifting of the anti-dumping suspension against flat-rolled aluminium products from China (AD668) on 12 July 2022.

There, according to insiders, DG-Trade swept away the demand for a 12-month extension of the suspension with the argument that EU aluminium importers had been given nine months to adapt to the changed circumstances and find alternatives for Chinese aluminium.

No reference in items A to D to possible repeal of Safeguard

All in all, there is no indication in any of these points that this could be about a possible repeal of the Safeguard measure.

This is clear from Recital (85) of the Safeguard extension from 2021. Prior to 2023, the continued maintenance or termination of Safeguard will not be reviewed at all. This should be immediately clear to any first year law student.

“With a view to guaranteeing that the safeguard measure remains in place only to the extent that it is necessary, the Commission will carry out a review to determine whether, on the basis of the circumstances at that time, the safeguard measure should be terminated by 30 June 2023, namely after two years of prolongation.”

Recital (85) states what the current review is primarily about

“In addition, in order to keep in the meantime the operation of the safeguard adapted to market evolution and in line with the interest of all stakeholders, the Commission will undertake a functioning review, like those conducted in 2019 and 2020. Such functioning review will be initiated sufficiently in advance to introduce any needed changes from 1 July 2022, after the first year of prolongation.”

In summary: A functioning review on possible quota adjustments after one year (2022) and a review on whether the Safeguard measure should be maintained after two years (2023).

E. Changes in the US Section 232 tariffs

From point E onwards, things get a bit more exciting, as this is about the US government’s Section 232 measure, which led to the introduction of the EU Safeguard measure. Here, if there are significant changes, an immediate review of Safeguard should be carried out.

Why are the Section 232 tariffs being considered?

“An immediate review of the safeguard measure will also be triggered if the US introduces changes to its Section 232 measure on steel that may have a significant impact on the unduly diverted trade flows it currently generates.”

LI 225/1, Recital (85), OJ EU, 25 June 2021

In 2021, the United States and the European Union agreed on a tariff rate quota for EU steel exports of approximately 3 million tonnes to the United States in their trade dispute over certain imports. With this agreement, the European Commission was forced to initiate a review. As expected, it has done so.

Has there been a significant change in Section 232?

If one looks at the quantities imported into the European Union in 2021 (approx. 55 million metric tonnes) or into the United States in 2021 (approx. 28 million metric tonnes) despite Safeguard and Section 232 tariffs, it quickly becomes clear how the European Commission and the US government could argue.

EU and US steel imports up significantly

Despite 25% punitive tariffs on imports of certain steel products, volumes in the EU are almost back to 2019 levels and in the US to 2018 levels, with both sides of the Atlantic just under 1 million tonnes away from the volumes when Section 232 and Safeguard were imposed there respectively. Government statisticians and manufacturers’ associations know this too.

This suggests that the Section 232 Tariffs and the EU Safeguard Duties may still be too low in the eyes of the competition authorities. One only has to look at the provisional anti-dumping duties (AD683) recently imposed by the EC on flat-rolled products of iron or non-alloy steel, plated or coated with chromium oxides or with chromium and chromium oxides, originating in the PRC and in Brazil of up to 84.2%. Or the EU anti-dumping (up to 35.3%) and anti-subsidy duties (up to 21.4%) against flat-rolled stainless steel products from India or Indonesia.

Will China get its own Safeguard measure?

The statements made by the stainless steel producer APERAM to the press that they are taking a closer look at the sharp increase in stainless steel imports from China together with the EC should make one prick up one’s ears. The European Commission could even introduce its own Safeguard measure exclusively for stainless steel imports from China. A glance at the WTO Safeguard regulations is sufficient for this.

Effects of the new S232 TRQs not yet known

What impact the changes to the US TRQs or their introduction for the EU27, Japan and the UK will have on the global flow of goods is not even known at the moment. Since the respective TRQs are within the framework of the historical import volumes of the various countries and, in the case of the EU27, have even been broken down to the respective member states, the overall impact is likely to be minimal.

Melt and Pour regulation as an additional control

And with the “Melt and Pour” regulation (MaP = 100% melted and poured in the country of origin), the United States has also put a stop to the clandestine leakage of Chinese steel products from the EU27, Japan and the UK via the Country of Origin regulation.

Do changes to Section 232 mean end of Safeguard measure?

Strange things are likely to happen if the TRQs negotiated with much fanfare by the EU and the US and the lifting of certain punitive tariffs – e.g. on whiskey and motorbikes – lead to the EU Safeguard measure being repealed. This makes no sense from a purely logical point of view. Nor is there any indication so far that the US government plans to repeal S232.

The EC and DG-Trade, as well as the US government, had these changes in mind when the deal was negotiated. And if it was not the government officials themselves, then EU and US lobby groups, such as EUROFER and AISI, will already have brought them to their attention.

F. The Commission will examine whether there are other elements which need to be considered

F is the point that some parties and their lawyers are probably clinging to, wrongly assuming that there is a chance to repeal or suspend the Safeguard measure with the most pithy words possible. And forgetting that this is not about an Expiry Review like 2021, but a Functioning Review, which already existed in 2019 and 2020. The EC also clearly stated in the introduction.

“In addition, in order to keep in the meantime the operation of the safeguard adapted to market evolution and in line with the interest of all stakeholders, the Commission will undertake a functioning review, like those conducted in 2019 and 2020. Such functioning review will be initiated sufficiently in advance to introduce any needed changes from 1 July 2022, after the first year of prolongation.”

Can’t the Safeguard measure just be suspended for a few months?

The EU Safeguard measure on certain steel products is not an existing anti-dumping (AD) measure that can be suspended under the anti-dumping basis regulation.

Safeguard measure is not anti-dumping

Otherwise, one could refer to Regulation (EU) 2016/1036 of the European Parliament and of the Council of 8 June 2016 on protection against dumped imports from countries not members of the European Union.

In the Union interest, measures imposed pursuant to this Regulation may be suspended by a decision of the Commission in accordance with the advisory procedure referred to in Article 15(2) for a period of nine months. The suspension may be extended for a further period, not exceeding one year, by the Commission acting in accordance with the advisory procedure referred to in Article 15(2).

Measures may only be suspended where market conditions have temporarily changed to an extent that injury would be unlikely to resume as a result of the suspension, and provided that the Union industry has been given an opportunity to comment and those comments have been taken into account. Measures may at any time be reinstated in accordance with the advisory procedure referred to in Article 15(2) if the reason for suspension is no longer applicable.

Regulation (EU) 2016/1036, Article 14(4)

Safeguard is safeguard and anti-dumping is anti-dumping

If one reads the wording carefully, it becomes clear that “measures imposed pursuant to this Regulation may be suspended”. Measures imposed pursuant to the anti-dumping basis regulation can only be suspended temporarily and due to temporarily changed market conditions. An anti-dumping measure is different from a Safeguard measure.

And anti-subsidy is anti-subsidy.

Regulation (EU) 2016/1037 on protection against subsidised imports (CVD) from countries not members of the European Union also provides for the possibility of temporary suspension. This is another strong indication that AD & CVD cannot be used as a basis for a temporary safeguard measure suspension.

But there must be something in the common rules of imports!

Regulation (EU) 2015/478 on common rules of imports (In which the EU regulations for a Safeguard measure can also be found.) also makes no reference to the possibility of a temporary suspension of Safeguard. A pause or suspension is simply not provided for in this highly complex market protection measure. It can be modified or repealed, but it cannot be paused.

But that is just a side note. This should be about point F – which, like the other EC regulations, simply has to be read correctly.

Interested parties are also invited to raise any other issues not falling under sections A-E above to the extent that they concern lasting changes of circumstances as compared to the situation prevailing during the original investigation – whose effects may need to be reviewed and may justify, inter alia, an adjustment to the level or allocation of the tariff-rate quotas in specific product categories.

Interested parties wishing to raise additional issues are requested to provide sufficient evidence substantiating their submissions, as well as specific proposals on how to address any developments affecting a product category.

Item F

What is left as an argumentation for F?

It should be relatively undisputed that items A-E cannot lead to a repeal, but if necessary to an adjustment of the current Safeguard measure. Which has already happened at various points.

Quota adjustments due to sanctions

Quota shifts due to sanctions against Russia and Belarus. A planned lifting of import restrictions for Ukraine. A possible correction of Turkish TRQs due to the WTO ruling. The inclusion of a country TRQ for South Africa. Just to briefly repeat and remind you. The EC has also already included a 3% liberalisation in the new quotas for 2022/2023. And point E on the Section 232 tariffs will also not provide a reason, as already described above.

It is possible that there will still be a necessary adjustment here, which could be pushed through by other parties for argument’s sake. Possibly with regard to crowding-out, as countries such as India have frequently exceeded their quotas here in recent months.

What permanent circumstances are there that could have an impact on Safeguard?

And here we also found the biggest difficulty with point F. Are there demonstrable enduring circumstances that would justify changes to Safeguard? Looking at the regulations of anti-dumping and countervailing, the issue there is also that only special temporary circumstances allow an AD or CVD measure to be suspended for a short period of time.

In the case of Safeguard, the problem is compounded by the fact that the changes must be permanent compared to the circumstances of introduction.

Is there a persistent shortage in the market?

One of the main arguments against a Safeguard extension in 2021 was the acute shortage of certain steel products, especially stainless steel. Other raw materials, such as nickel, steel scrap, energy, zinc or mangesium have also been scarce and expensive in recent months. Steel and stainless steel prices continue to be at a very high level.

Overcapacities without significant changes

But there have been no significant changes in the actual overcapacities in crude steel production – neither in Europe nor in the rest of the world. Rather, capacities continue to expand.

India wants to expand crude steel capacity to 300 million tonnes per year

Although China is massively restructuring its steel industry, and in some cases dismantling it, India in particular wants to increase its crude steel capacity from 100 million to 300 million tonnes per year in the next few years. This should negate the reduction in China.

Section 232 tariffs still in force

The Section 232 tariffs, on the basis of which the EU had introduced the market protection measure in the first place, are also still in force.

New EU market protection measures

In addition, several anti-dumping and anti-subsidy cases have been concluded in recent months – all with the result that steel imports into the EU were to the detriment of the domestic industry. Measures against China, Brazil, Indonesia, India, Taiwan, Russia, etc. etc. have thus been confirmed or prolonged.

Now there is also talk that new measures are already being planned against the sharp rise in Chinese stainless steel imports. Initiated by the EU manufacturers and a compliant Commission.

CJEU: Lawsuits without a chance

At the same time, the Court of Justice of the European Union (CJEU) has dismissed several lawsuits to annul the Safeguard measure or finally lost for the plaintiff parties after many years. Even lawsuits against anti-dumping measures – not only for steel – could not be won against the EC. Even EUROFER has had to accept one or two defeats here – most recently at the beginning of 2022.

Conclusion: Safeguard measure will most probably NOT be lifted

In the end, a look at Regulation (EU) 2015/478 on common rules for imports will help. There you will find a detailed description of the circumstances and conditions under which Safeguard might be terminated.

And since the European Commission has cleverly separated the review of the functioning and the review of the general necessity of the Safeguard measure, the probability that the EC will advise member states to end the Safeguard measure is not zero, but close.

Tariff rate quota adjustment imperative

There will be an adjustment in the quotas. This is already based on regulation and the principle of liberalisation.

However, if we look at the import volumes from 2021, we see an increase in iron and steel and iron and steel products (not only in the Safeguard categories) of about 10% compared to 2019. Not compared to 2020 – that is not a representative year – there the increase would be even more significant.

The Safeguard relevant figures are likely to be in a similar range. With such a strong increase in steel imports, it is more likely that the EC will only increase the quotas by the prescribed 3%.

Safeguard measure is politically motivated

The serious miscalculation in the main justification for the extension of the EU Safeguard measure in 2021 and the tacit correction with subsequent watering down of the justification has more than clearly shown that the EU Safeguard measure on certain steel products has a huge political dimension.

A dimension that goes beyond logical arguments, correct figures and legal requirements. As long as there is no political will in the EU to repeal the measure, Safeguard will continue. With the minimum of absolutely necessary liberalisation.

The barbarians at the gates: Fortress Europe is tottering

In view of Fit for 55, the European Green Deal, the Green Steel Initiative, the Carbon Border Tax CBAM and the discussion about the free allocation of ETS certificates, the scrap export ban in the new Waste Shipment Regulation and the primary focus of EUROFER on lobbying in these projects important to them, it is clear that Safeguard is unlikely to remain in danger.

Billions in revenue from surplus ETS allowances

Overall, however, the European steel lobby has shown with its extensive media work how much the steel producers are on the drip of the EU taxpayer. Without Safeguard measure, CBAM, scrap export bans, anti-dumping and countervailing duties, the steel producers would have been finished for a long time – they have apparently not been economically competitive for years. Now they are also threatened with losing the billions in profits from the sale of the free and generous surplus ETS certificates. A supposed tragedy.

2026: Safeguard will not be lifted before CBAM introduction

Of course, 2026 is still a while away. By then, several billion tonnes of steel will have flowed out of the blast furnaces. And so far the Safeguard measure has only been extended until 2024 and is due to be reviewed in 2023. Taking all periods into account, the measure can run for a maximum of 8 years, i.e. until mid-2026. The Safeguard measure will then officially “end” at about the time when the European Carbon Border Tax CBAM changes from the soft launch to the previously planned hard launch. Whoever thinks evil of this?

Note on our own behalf

We are, of course, not lawyers, judges or otherwise politicians entrenched in the law. We are stainless steel and aluminium traders. Therefore, this analysis on the future of the EU Safeguard measure is of course a legally non-binding assessment of the current situation. But it is part of our daily business to keep an eye on such developments, especially for our customers.

And especially the future of the EU Safeguard measure has been exposed to a lot of unfounded rumours, half-truths, lack of knowledge and half-baked assumptions in the last months.

But we have also seen pigs puking (if we may use this German phrase) and cannot read the minds of the European Commission and the member states. As long as the EC has not made a final decision, we can therefore only give an opinion on the basis of the facts at hand.

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Disclaimer: Many things here represent our opinion. Others are information from the Internet. We can therefore never claim to be correct or complete. And never base a business decision solely on the news you receive from us.