EU Goes To (Trade) War With China: Could Relieve Steel Companies

Well, not quite, but certainly battle lines are being drawn between the world’s largest consuming block and the world’s largest exporter.

According to an article in the FT, the European Commission has concluded that China is providing illegal subsidies to its steel manufacturers, paving the way for European companies to seek higher import tariffs on a wide range of Chinese products, from white goods to automobiles.

The EU executive arm has accused Beijing of helping makers of organic coated steel obtain materials at below-market prices, principally (but not exclusively) by restricting exports and thereby lowering domestic prices.

A similar argument has been made in US trade cases against China. In addition, the article says the commission concluded that Chinese coated-steel producers benefit from subsidized land, water, electricity and loans.

In addition, the article states the EU report recommends hitting imports of Chinese coated steel with countervailing duties of up to 50%. Last year, the commission imposed provisional anti-dumping duties of up to 58% on Chinese steel producers over a related complaint.

If adopted, the measures would provide some much-needed respite to the likes of ArcelorMittal and ThyssenKrupp, who — on top of facing a depressed local market — have lost market share to Chinese competitors.

In their defense, Beijing points to a range of support schemes employed by the EU and European governments to support European companies. The case could widen if the investigation finds subsidies have been given to rolled steel rather than just coated steel, opening the door for European companies to challenge the import of any goods containing flat rolled steel.

EU Getting on China’s Case Lately
During 2012, the EU has become increasingly aggressive in challenging China on trade practices.

Karel De Gucht, the EU trade commissioner, has launched an investigation into high-end telecommunications equipment made by the likes of Huawei Technologies and ZTE, whose rapid rise in just the last decade has caused serious problems for the likes of Nokia and Alcatel.

The commission’s case is these firms, as with so many other Chinese firms, could not have grown so rapidly without Beijing’s overt and covert support. The EU’s trade deficit with China more than tripled to €168 billion between 2000 and 2010, and has increasingly moved from low-end textiles and toys to high-end products like telecommunications.

Although the EU’s application of tariffs against China is limited, when tariffs are imposed, they tend to be set at high levels and are very effective at limiting imports.

In an article from last year, the FT said Europe has maintained tariffs on Chinese bikes since 1993 for “dumping,” or selling goods below their production cost. The commission last year chose to extend the 48.5% duty to 2016.

Thanks in large part to those tariffs, China has gained only a 3.3% share of the €5 billion EU bike market, even as it has dominated the US and Japanese markets.