BREXIT implies new premises for trading steel in and out of the UK

In connection with the Brexit negotiations regarding a new trade deal between the European Union and the United Kingdom, the UK government, back in September 2020, announced that it would provisionally maintain, until end June 2021, the EU steel safeguards system initiated by the EU Commission.

EU safeguards measures and UK safeguards measures are diverging in content and scope.

Despite this announcement and when comparing presently valid EU safeguards quotas with presently valid UK safeguards quotas, it appears that in fact both systems are diverging in some significant points regarding product groups and regarding quotas by country of origin of steel imports.

In view of the exit by the UK of the EU single market & customs union, the EU Commission did recalculate the volumes of Tariff Rate Quotas (TRQs) and did publish in October 2020, for the first time, specific country quotas for steel imports originating in the UK.

These EU Tariff Rate Quotas, specific for the UK, apply to imports in 28 steel product categories, at the exception of Stainless Hot Rolled Flats, of Stainless Cold Rolled Flats, of Rebars, of Non-Alloy Wire and of Large Welded Tubes from product category 25A. For these product categories there will be no application of a specific UK country quota but only TRQs for all country origins.

On UK side, starting 1. January 2021 the Department for International Trade did introduce Tariff Rate Quotas by countries of origin on only 21 steel product categories.

TRQs will not be applied by the UK on the following product categories: Electrical Sheets(Other than Grain Oriented Electrical Sheets), Stainless Hot Rolled Flats, Stainless Cold Rolled Flats, Stainless Quarto Plates, Sheet Piling, Seamless Stainless Tubes, Other Seamless Tubes.

For the 21 considered product groups the UK government has published specific quotas for imports with origin in EU-27, except for imports of Large Welded Tubes falling under category 25A, where an all country origins quota will be applied.

Non preferential rules of origin apply to safeguards measures.

The EU-UK Trade and Cooperation deal has no impact on steel safeguards measures as they are considered to be trade legislation relating to non-preferential rules of origin despite an EU-UK trade deal focussing on “no tariffs, no quotas”.

Rules of origin regarding ‘EU content’ or ‘UK content’ of steel products, may also constitute a trigger for the application of customs tariffs. This might be an eventuality for steel products which may be manufactured along the blast furnace route implying inputs of third country iron ore and coking coal.

Northern Ireland Protocol and steel safeguards.

Following the Northern Ireland Protocol, Northern Ireland is considered as being part of the single EU market & customs union. Consequently, any steel moving from Great Britain to Northern Ireland will be subject to EU steel safeguard quotas. Any steel moving from Northern Ireland to Great Britain is considered to be subject to UK quotas on steel imports originating in EU-27.

In this respect it may be noted that the future status of the British Overseas Territory of Gibraltar regarding steel safeguards is still pending, Gibraltar joining the Schengen area is an option in discussion.  In such an eventuality Gibraltar would also be considered as being part of the single EU market and the customs union.

EU imports are systemic for UK steel supply.

Reciprocal EU and UK steel safeguards quotas for 1. and 2. Quarter 2021 summarize as follows:

In ‘000 tons            EU QUOTAS FOR IMPORTS UK ORIGIN         UK QUOTAS FOR IMPORTS EU ORIGIN

                                  1.Q.2021          2.Q.2021             TOTAL           1.Q.2021         2.Q.2021            TOTAL

FLATS                         368                      372                     740                   659                   667                 1 326

LONGS                       269                      272                     541                   342                   346                    688

TUBES                          71                        72                     143                     54                      55                    109

TOTAL                       708                      716                  1 434                1 056                1 067                 2 123

UK imports under EU quotas have an only marginal impact on EU steel market supply as they represent less than 2 % of apparent steel consumption in EU-27.

On the contrary, EU-27 imports under UK quotas are systemic for UK steel market supply as they represent more than 40 % of apparent steel consumption in the UK.

Reconduction of steel safeguards on 1 July 2021?

Being valid for three years, EU steel safeguards will be coming to their term on 30 June 2021.

The big question is: Will they be reconducted by EU Commission, what lobbying group EUROFER is already requesting for?

A reconduction would mean that, following WTO rules, the EU Commission would be exposed to compensation requests or to retaliation measures by trade partners if safeguards measures would be applied for more than three years.

Another consideration is US trade measures according to Section 232 which were the trigger to install EU steel safeguards measures. How will the new US administration handle Section 232 measures? Will they be abandoned, will they be softened or will they be continued?

Finally, a very detailed investigation of the EU interest will be more than probably initiated by EU Commission regarding a reconduction of steel safeguards. Latest market data confirm that EU steel producers have not been in a position to comply with higher steel demand in EU in a way to compensate for much lower steel imports in the wake of EU steel safeguards and EU anti-dumping steel trade measures. Low stocks and extended delivery lead times have resulted not only in significantly higher price levels but also in significant disruptions in steel supply chains to European industry and construction sectors, all facts which have not escaped to the eyes and ears of the EU Commission.

On their side, the UK government did announce in September 2020, that it would maintain the steel safeguards measures on a provisional basis until 30 June 2021.

In the meantime, the UK government has launched a transition review among steel market stakeholders about deciding, or not, definitive UK steel safeguards measures to be applied from  July 2021 on.

As a conclusion, the questions of whether to reconduct EU and/or UK steel safeguards on 1 July 2021, will activate very controversial opinions and debates during coming months.

Author: Georges Kirps

Pictures: pixelina and fotolia

The guest commentary reflects the opinion of the author, not necessarily that of the marketSTEEL editorial team.