COMMISSION IMPLEMENTING REGULATION (EU) 2022/978

of 23 June 2022

amending Implementing Regulation (EU) 2019/159 imposing a definitive safeguard measure on imports of certain steel products

THE EUROPEAN COMMISSION,

Having regard to Regulation (EU) 2015/478 of the European Parliament and of the Council of 11 March 2015 on common rules for imports (1) and in particular Articles 16 and 20 thereof,

Having regard to Regulation (EU) 2015/755 of the European Parliament and of the Council of 29 April 2015 on common rules for imports from certain third countries (2), and in particular Articles 13 and 16 thereof,

Whereas:

1. BACKGROUND

(1) By Commission Implementing Regulation (EU) 2019/159 (3), the European Commission imposed a definitive safeguard measure on certain steel products (‘the safeguard measure’), which consists of tariff-rate quotas (‘TRQs’) with respect to certain steel products (‘the product concerned’) encompassing 26 steel product categories, set at levels preserving traditional trade flows on a per-product-category basis. A 25 % tariff duty applies only if the quantitative thresholds of these TRQs are exceeded. The safeguard measure was imposed for an initial period of three years, that is to say, until 30 June 2021 (‘the Definitive Regulation’).

(2) By Commission Implementing Regulation (EU) 2021/1029 (4) (‘the Prolongation Regulation’), the Commission prolonged the safeguard measure until 30 June 2024.

(3) In recital (161) of the Definitive Regulation, the Commission committed to “carry out an assessment of the situation on a regular basis, and consider a review at least at the end of each year of imposition of measures”. In this spirit, the Commission conducted two functioning review investigations in 2019 and 2020 respectively.

(4) In recital (85) of the Prolongation Regulation, the Commission stated “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”.

(5) Accordingly, the Commission initiated a functioning review investigation by means of a Notice of Initiation (‘NOI’) published in the Official Journal of the European Union on 17 December 2021 (5) inviting interested parties to make their views known and submit evidence concerning in particular the following grounds of review: (a) Allocation and management of quotas; (b) Crowding out of traditional trade flows; (c) Update of the list of developing countries subject to the measure; (d) Level of liberalisation; (e) Impact on the measure due to the changes in the US Section 232 measure.

2. PROCEDURE

(6) Due process took place under a two-stage written procedure, where parties first submitted their comments and supporting evidence, and subsequently, had the opportunity to rebut other parties’ initial submissions. Overall, the Commission received more than one hundred submissions and rebuttals.

(7) While the functioning review investigation was ongoing and before its conclusion, a series amendments to the safeguard measure took place. In March 2022, by Regulation (EU) 2022/428 (6) the EU imposed an import ban on certain steel products from Russia and Belarus (7) as part of the fourth sanctions package in response to the Russian invasion of Ukraine. To avoid any potential shortage of supply in the Union steel market resulting from this ban, by Regulation (EU) 2022/434 (8), the Commission amended the safeguard measure by redistributing the country-specific quotas of Russia and Belarus proportionally among other supplying countries in each product category affected.

(8) In addition, by Regulation (EU) 2022/664 (9) the Commission made South Africa and other Southern African Development Community (SADC) Economic Partnership Agreement (EPA) countries subject to the safeguard measure as of 1 May 2022 following the expiry of the exemption they had been benefitting from under a bilateral EPA.

(9) Lastly, the Commission suspended temporarily the application of the safeguard measure vis-a-vis Ukraine (10). The effect of this suspension is that as long as it remains in place, imports from Ukraine are not accounted for in any quota, either country-specific or residual (11). Similarly, the volumes of imports by Ukraine during the reference period of the original investigation (2015-2017) (12) are not accounted for the calculation of the residual quotas.

3. FINDINGS OF THE INVESTIGATION

(10) Following an in-depth analysis of all the submissions received and the data available to it, the Commission arrived at the following conclusions. These conclusions are organized in the following sub-sections, as per the structure in the NOI.

3.1. Allocation and management of quotas

Comments from interested parties

(11) Some interested parties (certain third countries and users) requested to replace the quarterly administration of quotas by a yearly administration, while others (Union industry) requested to introduce a monthly administration. Some parties (Union industry) also requested to limit the carry-over of unused quotas to 4%, while others (certain third countries and users) requested to redistribute the share of certain unused country-specific quotas (‘CSQ’). In addition, other parties (certain third countries and users) requested to remove the system of CSQ and have the quotas administered globally instead. Lastly, other interested parties requested to remove the quotas of certain countries and to redistribute these quotas among other origins, and that certain countries exporting under the residual quota be allocated a CSQ.

Assessment

(12) The quotas, whether country-specific or residual, were allocated based on the export performance in the reference period of the original investigation (13). The system of quarterly administration of quotas has proven to be effective in bringing about stability to the Union market, avoiding sudden surges of imports that would destabilise the market (14) and ensuring an orderly and predictable flow of imports throughout the year. This system also allows that traditional trade flows in terms of volumes and origins are permitted without any additional duty.

(13) This system strikes a balance among the opposing interests at stake. First, it works to the benefit of the Union industry because it avoids a flood of imports in a short period with the ensuing negative effects on the market. Second, it is also beneficial for certain third countries and certain Union users, which would otherwise be unduly crowded out from the market by other larger suppliers and would not be able to supply Union users, which would be in turn prevented from buying the material they need from these specific origins. Lastly, it allows larger exporting countries to exceed their traditional trade flows in most product categories by accessing the residual quota in the last quarter of a period when the incumbent suppliers were not able to fully use the quotas.

(14) Accepting any of the claims brought forward by interested parties, as summarised in recital (11), would upset this balance and would risk undermining the effectiveness of the measure. Furthermore, in their submissions, parties have not proven by any evidence how the current system would not be appropriate and how the different adjustments they proposed would be in the overall Union interest (and not just in their individual interest) and compatible with the logic and a proper functioning of the measure.

(15) For these reasons, the Commission considered that maintaining the current system of quota administration (quarterly administration and a combination of country-specific and residual quota), preserving the carry-over of unused quotas and the access to the residual quota in Q4 continues to be appropriate, and that is fair vis-a-vis all interested parties.

3.1.1. Adjustment to product categories 7 and 17

(16) While the current system of quota allocation and administration is appropriate, the Commission nevertheless considered that it requires some technical adjustments to improve its functioning in light of changed circumstances. These concern product categories 7 (quarto plates) and 17 (angles, shapes and sections).

(17) In these two product categories, Ukraine has been historically an important exporter (15) (representing around 33% of total quotas in each of these categories) and it has consistently used its quotas at rather high levels. However, the Commission observed (16) that since the unprovoked and unjustified military aggression of Russia against Ukraine, there have been virtually no imports of these two categories from Ukraine into the Union. This suggests that Ukraine is currently unable to produce and/or export these product categories in any meaningful volumes to the Union market. Under these circumstances, and having analysed the quota use by other exporting countries subject to the measure, the Commission considered that there would be a risk of potential shortage of supply for Union users in these categories if it did not take any action.

(18) For this reason, in the Union interest, the Commission considered it necessary to globalise the administration of the quotas that remain under the measure (17) in categories 7 and 17. In other words, the existing country specific quotas will be removed in order to make instead a single quota available for all origins, hence substantially increasing the flexibility for users to import the steel they may need from any source available within the quota volume in these categories.

(19) The Commission concluded that given the past track of import volumes (quota use) and origins, this adjustment does not risk undermining the effectiveness of the measure vis-a-vis Union producers and it is unlikely that any crowding out would take place and traditional trade flows will be preserved. This adjustment will be reassessed in view of the development of trade flows in these categories and of the suspension of the application of the safeguard vis-a-vis Ukraine, or if undue crowding out effects are identified.

3.2. Crowding out of traditional trade flows

(20) In the definitive measure, the Commission introduced a mechanism whereby countries having exhausted their CSQ could also access (free-of-duty until its exhaustion) the residual quota initially available in the last quarter (April-June) of every annual period of the measure.

(21) The Commission justified this mechanism in the interest of Union importers and users as this would not only ensure the maintenance of traditional trade flows but also avoid that, as the case may be, parts of the residual tariff-rate quota would remain unused.

(22) Under the first functioning review in 2019, the Commission observed that in two product categories, countries benefiting from a country-specific TRQ had used almost exclusively the full amount of the residual quota in Q4 in a matter of two days. As a result, historical – smaller – suppliers could not export free-of-duty during the last quarter of a period. This negatively affected traditional trade flows in terms of origin to the detriment of certain third countries and certain Union users. To offset this unintended negative effect, the Commission introduced a cap of 30% per country accessing the residual quota Q4 in Category 13 (Rebars) and Category 16 (Wire rod).

(23) Under the second functioning review in 2020, and after identifying more cases of crowding out in several product categories, the Commission devised a system whereby the access to Q4 would depend on the import trends observed and actual use of the residual quota by the smaller suppliers that are the natural beneficiaries of this section of the TRQ (18).

(24) In order to minimize the displacement of traditional origins in the residual quota, while continue allowing additional access in those categories where it is necessary to ensure the maximum use of the quota, the Commission created a system whereby each product category would fall within one of the following three different groups, corresponding to three different access scenarios. This system fulfils one the key principles and objectives of the safeguard measure, namely to ensure that traditional trade flows in terms of origins are preserved.

(25) These three regimes currently in place are: — No access – where incumbent suppliers under the residual were able to use the residual quotas by themselves, and crowding out effects had been identified; — Limited access – where incumbent suppliers were able to use only part of the residual quota available to them, and additional origins were needed, in limited amounts, to exhaust quotas; — No limitation – in those categories where the residual quotas were not highly used and no crowding out effects were identified.

Comments from interested parties

(26) Some interested parties (some third countries and users) requested that access to the residual quota in Q4 be completely removed. Others requested that certain changes be made specific to certain product categories, while others (including some third countries and users, as well as the Union industry) requested the prohibition to larger exporting countries in a given category to access the residual quota altogether or to implement a more restrictive approach.

Assessment

(27) The Commission considered, having examined the submissions received and the functioning of the measure, that the current system continued to be the most appropriate insofar as it ensured that users maximise their chances of using up the residual quota, but also that traditional trade flows in terms of origins are respected (which is equally in the interest of users). The system of allowing access to the residual quota was the rule in all product categories but four.

(28) Accepting the requests from interested parties would amount to either preventing certain users from increasing their imports free of duty where there may be demand for it in the Union market, or it would prevent other Union users from purchasing products from certain origins also necessary for the Union market due to crowding out effects. At the same time, the system ensures that the additional volumes that some countries may export under this system remain within the boundaries that ensure that they do not undermine the effectiveness of the measure as far as Union producers are concerned. Therefore, the current system is the most suitable in the overall Union interest.

Adjustment

(29) In the ongoing review, the Commission assessed whether crowding out effects had taken place. To do so the Commission, based on the same type of analysis undertaken in the second review, updated the different regimes based on the data available since then. This means that the Commission analysed import data and quota use per origin and category from 1 April 2020 until 31 March 2022.

(30) On the basis of the same methodology applied in the second functioning review, but with updated data, the access regimes per product category are updated as follows (for specific volumes see Annex II): — No access: 5, 9, 21 — Limited access: 12, 13, 14, 16, 20, 27 — No limitation: 2, 3A, 3B, 4A, 6, 10, 15, 18, 19, 22, 24, 25B, 26, 28.

(31) In line with the principles applied in the previous functioning review, the following categories will be subject to a special regime: — 1 and 4B.

(32) In the case of categories 7, 8, 17 and 25A, they will be administered globally. Therefore, the possibility to access Q4 is not applicable, as there are no countries exporting under a country-specific quota.

(33) For categories 1 and 4B, the current regime whereby access is granted in Q4 with a 30% cap per exporting country continues to be deemed appropriate in order to ensure sufficient variety of sources of supply while avoiding crowding out effects through an excessive flow of additional imports beyond traditional trade flows.

(34) Overall, by this feature the measure would continue allowing access to the residual quota in Q4 in the large majority of product categories (in all but three categories).

3.3. Update of the list of developing countries subject to the measure

(35) Any developing country member of the WTO was excluded from the application of the definitive measure, as long as its share of imports remains below 3% of the total imports for each product category. The Commission committed to monitoring the development of imports after the adoption of the measure and to reviewing the list of excluded countries on a regular basis.

(36) The last update took place in the framework of the review investigation following to the Withdrawal Agreement between the Union and the United Kingdom (‘UK’), as of 1 January 2021, and it remained unchanged since 1 January 2021. Thus, to adapt the list of developing countries subject to, and excluded from, the measure the Commission re-run the calculations based on the most recently available consolidated import data, i.e. year 2021 import statistics (19).

Adjustment

(37) The changes resulting from this update are the following (The updated table is available in Annex I). — All developing countries are included in category 4A, because the sum of all imports in 2021 that were below 3% is higher than 9%; — Brazil is excluded in categories 2 and 3A and included in category 6; — China is excluded in category 25A and included in categories 2, 3A, 9 and 14; — Egypt is included in category 1 and 24; — India is excluded in category 3B and included in category 8; — Kazakhstan is included in category 19 and 24; — Malaysia is excluded in category 9; — Moldova is included in category 12; — North Macedonia is excluded in category 5; — Thailand is excluded in category 9; — Turkey is included in category 8; — Ukraine is included in categories 1, 4B and 26 (20); — United Arab Emirates are included in category 16; — Vietnam is excluded in category 2 and included in categories 1, 3A, 3B, 4B.

3.4. Level of Liberalisation

(38) The current liberalisation rate of the safeguard was set at an annual rate of 3%. The Commission assessed in this investigation whether this level of liberalisation continued to be appropriate.

Comments from interested parties

(39) Some interested parties (notably exporting producers and Union users) requested that the Commission increased the level of liberalisation beyond 3% (many of them requested a liberalisation rate of 5%), while the Union industry requested that the liberalisation pace was reduced to 1% instead.

Assessment

(40) The safeguard instrument is intended to be of a temporary nature. As of 1 July 2022, the measure will enter into its fifth year of application. The objective of liberalisation (which is a legal obligation under WTO (21) and EU (22) rules) is to progressively allow more import competition into the market while the domestic industry is adjusting to the increased level of imports. This is to avoid a measure that would not incentivise adjustments for domestic industry while it is in place, and which would create problems of competitiveness when the domestic industry will be exposed to greater foreign competition in a post-safeguard measure scenario.

(41) With this logic in mind, the Commission considered that at this point in time (after four years of measure) a slightly higher level of liberalisation year-on-year should be envisaged in order to encourage the domestic industry to continue its adjustments, while being mindful not to undermine the effectiveness of the measure.

Adjustment

(42) The Commission considered that setting the yearly level of liberalisation at 4% as of 1 July 2022 would be appropriate.

(43) This increase should also contribute to alleviating any tension for Union users in certain product categories, in a context characterised by a high degree of uncertainty in the market. On the other hand, the limited additional increase would not pose a threat to the Union industry and would not undermine the effectiveness of the measure.

3.5. Impact of changes to the US Section 232 measure

(44) In March 2018, the US imposed a 25% duty on imports of certain steel products under the US Section 232 measure. The measure currently remains in place although certain changes have taken place. In this review investigation, the Commission has assessed these changes in order to determine whether they have any impact on the EU safeguard measure, in particular as regards the risk of trade diversion into the Union market.

Comments from interested parties

(45) The requests received in this respect can be split into three types. Under the first two, certain users and third countries claimed that the risk of trade diversion is small (-er) because of the different adjustments to the Section 232 measure. Then, some parties claimed that because of the TRQs allocated to Union exporters, the Union industry would divert sales to the US market at the expense of domestic sales creating a shortage domestically.

(46) On the other hand, the Union steel industry asserted that the risk of trade diversion remains and EU’s improved access to the US market will not affect their ability to supply to the domestic (Union) market.

Assessment

Changes vis-a-vis the EU

(47) In October 2021, the US decided to subject EU imports under the Section 232 measure to a TRQ system. Under this new regime, the EU would be able to export free-of-duty up to a certain level (based on historical export volumes) (23), and only when this level is exhausted, the 25% duty would become applicable. This action aimed to improve the EU exporters’ position in the US market, which until then were subject to a 25% duty on every tonne exported. This new system is applicable as of 1 January 2022.

(48) Some interested parties claimed that because prices in the US are usually higher than in the Union, EU producers would have an incentive to export to the US at the expense of domestic sales, thereby risking creating a shortage in the Union market in some categories.

(49) For a number of reasons, the Commission considered that these claims should be rejected. In the first place, the notion of trade diversion into the Union market cannot encompass the limitation of exports to the US of the EU industry itself. In other words, the Union industry can never be at risk of trade diversion of its own sales. This defies the logic of trade diversion. Therefore, the fact that the EU may be able to improve its presence in the US market is neutral with respect to the risk of trade diversion from exporting countries to the Union market.

(50) Second, the claims that the Union industry would use up its TRQs at the expense (mainly or even exclusively) of domestic sales is not substantiated by evidence. These claims did not consider that, also theoretically, the Union industry could increase its production volume (24), thus not sacrificing domestic sales and creating additional revenue through increased export sales to the US, and that it could also redirect volumes to the US from exports to other markets that may be less attractive for a number of reasons, including price levels (25).

(51) Irrespective of all these theoretical possibilities, the reality has shown that in the first quarter since the entry into force of the TRQ system, the EU has been far from using up its quotas. In fact, over the first quarter it only used around 42% of the quota (26).

(52) Therefore, the key assumption made by some interested parties, and the premise underpinning their argumentation, namely that the EU exporting producers would be able to use up all of its quotas in the US, has proven to be wrong in the first place.

(53) The Commission concluded that the fact that the EU is subject to a TRQ system under the US Section 232 measures does not have any impact on the functioning of the safeguard measure with respect to the risk of trade diversion. Nor has any party demonstrated to any extent that exporting under a TRQ regime under Section 232 would as such create a risk of shortage of supply in the Union market.

Changes vis-a-vis some third countries (excluding the EU)

(54) With regards to the claims pertaining to changes to the US Section 232 vis-a-vis other third countries, the data available to the Commission showed that the following changes to the US Section 232 measure had taken place: — Since March 2018, Australia is exempted from the measure. — Since May 2018, Korea, Argentina and Brazil are subject to absolute quotas (out of which no exports are permitted). — Since May 2019, Mexico and Canada announced separate agreements with the U.S., which led to a lifting of the measure for the two countries. The agreements are subject to a monitoring mechanism. — As of 1 April 2022, the U.S. established tariff rate quotas (‘TRQs’) for Japan. A certain amount of in-quota imports are exempted from the measure, while out of quota imports are subject to the additional 25% duty. — In March 2022, the U.S. announced its intention to establish a TRQ for UK whereby certain amount of in-quota imports will be exempted from the measure, while out of quota imports will remain subject to the additional 25% duty. The TRQ for UK was scheduled to enter into force as of 1 June 2022.

(55) The investigation concluded that these adjustments to the US Section 232 have in overall terms little impact on the functioning and rationale of our safeguard measure for a number of reasons. First, to put these changes into perspective, most of these countries barely export currently any steel to the Union (if at all) (27), and they are not historical suppliers either (28). Amongst the few countries with more meaningful export volumes to the Union, namely UK, Japan and Korea, the three of them continue to be subject to the US Section 232 measure, i.e. they are constrained to export free-of-duty to the US market. In fact, Korea is allowed to export only under a quota (quantitative restriction), without the possibility to export beyond that volume, and the UK and Japan are subject to a TRQ out of which a 25% duty applies. In addition, having a TRQ in place does not necessarily mean that these countries will be able to use effectively the volumes allocated to it, as shown by the example of the TRQ allocated to the EU. Lastly, most of the origins representing the bulk of imports to the Union continue to be subject to a 25% duty on their exports to the US.

(56) In this respect, the risk of trade diversion stems, primarily, from the main steel supplying countries to the Union, which have (in some cases rather large) spare capacities and thus are able to increase quickly (29) their presence in the Union market (30), which as demonstrated in previous investigations is an attractive market in terms of prices and size. (31)

(57) In addition, parties have not shown (or even mentioned) in their submissions how the findings made by the Commission in previous investigations (32) would have changed substantially. Notably the global overcapacity in the steel sector that continues to persist (33), the substantial reduction of imports into the US market as compared to the period prior to the imposition of the US Section 232 measure (34) or the lack of substitute markets for the lost volumes (35), among others.

(58) In any event, the improvement in the access to the US market from certain third countries shown in recital (54) would, if anything, make it even more difficult to the rest of countries to export to the US market as they are comparatively in a worse competitive position by having to pay a 25% duty. In fact, the pace of reduction of imports of the countries not subject to any preferential access under the US Section 232 measure was substantially higher than the average (36). Therefore, the adjustments to the US measure could even further increase the likelihood of trade diversion from those third countries not benefitting from any kind of preferential treatment under the Section 232 measure, some of which are in turn the countries more liable to cause a surge in imports to the Union market.

Conclusion

(59) For the reasons set out in this subsection, the Commission concluded that the changes to the US Section 232 measure do not affect the functioning of the EU steel safeguard and do not alter the basis underpinning its assessment regarding the risk of trade diversion.

4. COMMENTS FROM INTERESTED PARTIES

(60) In addition to the issues addressed in Section 3, interested parties made other claims that are addressed in this section.

4.1. Claims to terminate or suspend the measure due to steel price developments in the Union

(61) In the course of the investigation and after the written stage of the proceeding finished, several interested parties reached out to the Commission spontaneously claiming that the safeguard measure should be suspended or terminated due to an increase of steel prices in the Union. These parties argued that terminating or suspending the safeguard would be the solution to bring steel prices to lower levels.

(62) In the first place, the scope of the review did not include a potential termination or suspension of the measure. Therefore, the type of evidence gathered and the analysis undertaken during the investigation was not of the same kind that a potential termination of a safeguard measure would have required. Thus, the termination of the safeguard measure was out of the scope of the present review.

(63) Nevertheless, and for the sake of completeness, the Commission considered it appropriate to put these claims into context and to provide a factual analysis of recent market developments in the present regulation. In this regard, the Commission established that the evolution of steel prices in the Union showed an upwards trend in the early months of 2022, peaking just following the unprovoked and unjustified military aggression of Russia against Ukraine, and that they showed signs of a continuous decline (with a 21% decrease as compared to the peak reached in 2022 (37)) as of end-April 2022 (38).

(64) This trend in prices took place in an overall inflationary context, affecting also steelmaking raw materials and energy. In its Short Range Outlook (39)for 2022 and 2023, the World Steel Association (WSA) noted that the unprovoked and unjustified military aggression of Russia against Ukraine will increase further the inflationary pressure, on the one hand, via higher energy and raw materials prices for steel production and, on the other hand, via continued supply chain disruptions. This was further confirmed by the most recent information available on steelmaking raw materials’ price evolution (including energy) from sources such as the OECD (40), World Bank (41) and S&P Platts (42), showing a price surge and an overall upwards trend with levels substantially higher than in previous periods.

(65) The Commission’s own statistical assessment (43)also confirmed that the price trends in the main steel market worldwide had shown a similar trend to that of the Union, and thus, the price trend observed in the Union market was fully consistent with that prevailing in the main markets across the world. Against this background, the Commission concluded that in any event, the safeguard measure could not have been the cause behind the evolution of prices in the Union.

4.2. Alleged shortage of steel in the Union

(66) Some interested parties claimed that there was a shortage of steel in the Union market and that the steel safeguard measure was aggravating it as certain quotas were exhausted. Thus, in the context of increased steel prices, they claimed that the measure should be suspended or terminated.

(67) The Commission noted that the TRQ use in the first three quarters of the fourth year of the measure (1 July 2021 – 31 March 2022) was at 77%, i.e. more than 5.6 million tonnes of quota remained unused, as shown in the table below. Thus, showing that Union users had generally the possibility to further increase the imports of free-of-duty steel during each period. While this did not preclude that there may have been more tensions in the quota use in certain categories as compared to others, the majority of product categories have had free-of-duty quota available in every quarter. Table 1 Evolution of TRQ use in the first three quarters of year 4 (44)

(68) The Commission also observed that the level of imports in 2021 was very close to the peak of imports reached 2018 (45). In addition, the World Steel Association (WSA) Short Range Outlook (46) for 2022 and 2023 highlighted the uncertainty in the economic outlook. The steel market outlook for 2022 has weakened notably as a result of the war and steel demand is expected to grow by 0.4% in 2022 and by 2.2% in 2023.

(69) Against this background, and considering that the level of quotas will be increased further by 4% as of 1 July 2022, as explained in Section 3.4, the Commission considered that any of the alleged pressure in certain segments of the market should in any event be alleviated, while preserving the effectiveness of the measure.

4.3. Claims to suspend the measure due to the impact of the import ban on imports from Russia and Belarus on certain users

(70) Some interested parties argued that the import ban on Russia and Belarus was affecting substantially their ability to import, claiming that the Commission should terminate the measure on these grounds.

(71) In this regard the Commission observed that the instability caused by the unprovoked and unjustified military aggression of Russia against Ukraine and by the ensuing sanctions on steel imposed by the EU are unavoidable factors present in the market and to which all stakeholders need to adjust progressively.

(72) The Commission nevertheless took immediate action under the safeguard measure to minimise as much as possible the collateral damage of the import ban by redistributing the quotas effective since April 2022. This adjustment to the measure will alleviate largely the disturbances caused to certain users by the import ban on Russia and Belarus, by allowing them to access those free-of-duty volumes from other origins. However, inevitably it will necessarily take some time for Union users to adapt to this situation and switch to suppliers of other origin (47). In particular, the Commission acknowledged that in some instances, certain users would require a virtually complete change of suppliers, as their dependence on Russian and/or Belarussian steel imports was very high. However, the existence of these sanctions in the field of steel cannot by themselves question the validity or necessity of the safeguard measure.

4.4. Requests to redistribute quotas from Ukraine

(73) Some interested parties requested the Commission to redistribute the country-specific quotas allocated to Ukraine because due to the unprovoked and unjustified military aggression of Russia against Ukraine, Ukraine would not be in a position to export to the Union in meaningful volumes. Some of these parties suggested the Commission to follow the same approach used when redistributing the quotas from Russia and Belarus.

(74) The Commission’s analysis of Ukraine’s quota use prior to the suspension of the safeguard regulation as explained in recital (9) showed that in the majority of product categories where it had a country-specific quota, it had continued making use of the quotas. For those categories where it did not record exports, the Commission globalized the quotas from all other origins subject to the measure in each of those product categories, as explained in Section 3.1.1 above. The Commission recalled that quotas that would belong Ukraine (in the absence of a suspension), would not be available as long as the suspension of the measure vis-a-vis this country remains in place.

4.5. Requests for differential treatment among certain product categories

(75) Several interested parties made requests pertaining to specific product categories (these categories varied depending on the party making the request). These requests included the exclusion of a given product category from the measure, a differential treatment of a given origin within a certain product category, and the application of different level of liberalisation depending on the product category.

(76) As the Commission explained in previous regulations, the scope of the measure concerns a single product, namely certain steel products. As such, the Commission cannot treat the product categories comprising the product concerned as if they were individually a product concerned in themselves. The Commission, in the management and quota administration, and where it was in the Union interest, adjusted the measure to ensure that the objectives of the safeguard could be met. However, the Commission cannot change the basic architecture of the measure, e.g. definition of the product scope, to accommodate requests from interested parties that would lead to a discriminatory treatment vis-a-vis other product categories and interested parties, and more importantly, would be inconsistent with the design of the measure and the product scope defined by the Definitive Regulation.

4.6. Requests to remove the safeguard in those categories subject to anti-dumping and/or countervailing measures

(77) Some interested parties claimed that the Commission lifted the safeguard measure for those product categories that are subject to anti-dumping and/or countervailing duties as, they claimed, they would grant the Union industry sufficient protection.

(78) The Commission recalled that the rationale and objective of the safeguard instrument and that of other trade defence instruments is different, as they do not address the same issues. While safeguards deal with increase imports being the result of unforeseen developments, anti-dumping and countervailing instruments deal with unfair trading practices. One can consider a situation where a country is found to be dumping in a given product category at a point in time, and that later on, a surge of imports resulting from unforeseen developments nevertheless takes place from a combination of origins. In addition, the scope of both instruments in terms of the origins covered is usually substantially different, as so are the types of investigations conducted, including procedural rules. Applying both instruments on a given product category simultaneously is thus fully compatible under both WTO and EU rules (48).

4.7. Request to increase UK TRQs to include Great Britain-Northern Ireland trade

(79) Some interested parties argued that the quotas allocated to the UK should increase to take into account the historical trade between Great Britain and Northern Ireland.

(80) In this respect, the Commission recalled that the Protocol on Ireland/Northern Ireland (‘the Protocol’) (49) is the relevant legal act governing the status of Northern Ireland vis-a-vis EU trade and customs rules. Therefore, and in line with the provisions of the Protocol, sales of steel into Northern Ireland (whether from Great Britain or any other third country) were not counted as historical imports into the Union and hence were not part of the quota calculation (50). This approach ensured that the EU implementing legislation in the field of safeguards remains fully consistent with the Protocol. Therefore, this claim was rejected.

4.8. Claims on alleged circumvention

(81) Some parties pointed to possible cases of circumvention of the measure. In particular, some parties pointed to alleged circumvention from Russia in categories 12 and 13, and in general, in category 28.

(82) In this respect, the Commission notes that Russia is currently subject to an import ban. Thus, any attempts to circumvent the current measures are monitored by the EU and national customs authorities.

(83) Finally, the Commission notes that the present review amending the ongoing safeguard measure also complies with the obligations arising from the bilateral Agreements signed with certain third countries.

(84) The measures provided for in this Regulation are in accordance with the opinion of the Committee on Safeguards established under Article 3(3) of Regulation (EU) 2015/478 and Article 22(3) of Regulation (EU) 2015/755 respectively,

HAS ADOPTED THIS REGULATION:

Article 1 Regulation (EU) 2019/159 is amended as follows: (1) paragraph 5 of Article 1 is amended as follows: ‘5. Where the relevant tariff-rate quota under paragraph 2 is exhausted for one specific country, imports from that country for some product categories can be made under the remaining part of the tariff-rate quota for the same product category. This provision shall only apply during the last quarter of each year of application of the definitive tariff-rate quota. For product categories 5, 9, and 21 no further access to the remaining part of the tariff-rate quota will be allowed. For product categories 12, 13, 14, 16, 20 and 27 only access to a specific volume within the tariff-rate quota volume initially available in the last quarter, will be allowed. In product categories 1 and 4B no exporting country shall be allowed to use, on its own, more than 30 % of the residual tariff-rate quota volume initially available in the last quarter of each year of application of measures. For product categories 2, 3A, 3B, 4A, 6, 10, 15, 18, 19, 22, 24, 25B, 26 and 28 the access will be allowed over the total tariff-rate quota volume initially available in the last quarter in the respective product categories’; (2) point III.2 in Annex III is replaced by the text of Annex I to this Regulation; (3) Annex IV is replaced by the text of Annex II to this Regulation.

Article 2 This Regulation shall enter into force on the day following that of its publication in the Official Journal of the European Union. It shall apply as of 1 July 2022.

This Regulation shall be binding in its entirety and directly applicable in all Member States. Done at Brussels, 23 June 2022. For the Commission The President Ursula VON DER LEYEN

(1) OJ L 83, 27.3.2015, p. 16.

(2) OJ L 123, 19.5.2015, p. 33.

(3) Commission Implementing Regulation (EU) 2019/159 of 31 January 2019 imposing definitive safeguard measures against imports of certain steel products, (OJ L 31, 1.2.2019, p. 27).

(4) Commission Implementing Regulation (EU) 2021/1029 of 24 June 2021 amending Commission Implementing Regulation (EU) 2019/159 to prolong the safeguard measure on imports of certain steel products (OJ L 225 I, 25.6.2021, p. 1).

(5) Notice of Initiation concerning a review of the safeguard measure applicable to imports of certain steel products (2021/C 509/10) (OJ C 509, 17.12.2021, p. 12).

(6) Council Regulation (EU) 2022/428 of 15 March 2022 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine (OJ L 87 I, 15.3.2022, p. 13).

(7) For Belarus all steel products were subject to the import ban (i.e. all those subject to the safeguard measure were thus included), while for Russia the ban applied only to those steel products subject to the steel safeguard measure.

(8) Commission Implementing Regulation (EU) 2022/434 of 15 March 2022 amending Regulation (EU) 2019/159 imposing a definitive safeguard measure against imports of certain steel products (OJ L 88, 16.3.2022, p. 181).

(9) Commission Implementing Regulation (EU) 2022/664 of 21 April 2022 amending Implementing Regulation (EU) 2019/159 imposing a definitive safeguard measure against imports of certain steel products (OJ L 121, 22.4.2022, p. 12).

(10) Regulation (EU) 2022/870 of the European Parliament and of the Council of 30 May 2022 on temporary trade-liberalisation measures supplementing trade concessions applicable to Ukrainian products under the Association Agreement between the European Union and the European Atomic Energy Community and their Member States, of the one part, and Ukraine, of the other part (OJ L 152, 3.6.2022, p. 103).

(11) For this reason, even if in certain categories Ukraine appears listed in the Annex, those country-specific quotas having an order number linked to them are not applicable.

(12) Including the subsequent increases on account of liberalisation.

(13) See recital (33) of Commission Implementing Regulation (EU) 2020/894 of 29 June 2020 amending Implementing Regulation (EU) 2019/159 imposing definitive safeguard measures against imports of certain steel products (OJ L 206, 30.6.2020, p. 27): “Lastly, the Commission also notes that the reference period used to calculate the TRQs constitutes one of the pillars in the design of the measures set ab initio by the definitive Regulation, and that the scope of the Review does not cover the substantial modification of the basic structure of the measures”.

(14) Ibid at Section 3.2.1.

(15) Category 7 is also affected by the import ban on a historically important supplier: Russia.

(16) Source: Tariff Quota Consultation, accessible at:

https://ec.europa.eu/taxation_customs/dds2/taric/quota_consultation.jsp

(17) Quotas corresponding to Ukraine are not part of the safeguard measure, and hence, not available to any other country as long as the temporary suspension referred to in recital (9) remains in place.

(18) See Section 3.2.3 of Implementing Regulation (EU) 2020/894.

(19) Source: Eurostat.

(20) This will not apply as long as the safeguard measure is suspended vis-a-vis Ukraine.

(21) Article 7.4 of the WTO Agreement on Safeguards.

(22) Article 19(4) of Regulation (EU) 2015/478.

(23) The level of TRQ allocated to the EU is around 3.3 million tonnes per year, which amounts to around 2.5% of Union industry’s average volume of domestic sales in the Union market (years 2018-2019).

(24) Both the Definitive and the Prolongation Regulations showed that in overall terms the Union industry had certain additional capacity available.

(25) Several interested parties argued that the US tends to have generally the highest level of prices.

(26) US Report on TRQ consumption.

(27) In 2021, the import share of Canada, Mexico, Brazil, Australia and Argentina in the Union market was 0.9%.

(28) The combined share of imports into the Union from Canada, Mexico, Brazil, Australia and Argentina in the period 2013-2021 was 2.25% of total imports (and reaching a peak of only 3.7% in 2016).

(29) In past functioning reviews it was shown that certain countries were able to substantially and rapidly increase their presence in the Union market, e.g. with very quick exhaustions of quotas, including additional quotas in Q4.

(30) It is relevant to point out that the largest exporting countries to the Union have consistently claimed (including in the submissions of this review) that the existing quotas would be severely constraining their ability to export to the Union, thus suggesting that they would be able to increase their presence in the Union market in the absence of a safeguard measure.

(31) See Section 3.1.2.g of Prolongation Regulation for a more detailed assessment. In terms of volumes, the Union market continues to be the main steel importing market worldwide. See OECD’s Steel Market Developments – Q2 2022, (DSTI/SC(2022)1), table 8.

(32) See, for instance, the Commission’s findings in Section 3.1.2 and 3.1.3 of the Prolongation Regulation.

(33) See, for instance, the Chair’s Statement at the 91st Session of the OECD Steel Committee (29-31 March 2022): “excess capacity, which stood at 544 million tonnes in 2021 and has remained at persistently elevated levels since 2018, highlighting the need for further capacity reductions in the relevant jurisdictions”. Accessible at: 91st Session of the OECD Steel Committee - Chair's Statement - OECD;

See also OECD’s Latest Developments in Steelmaking Capacity, p.4 and 6 (DSTI/SC(2022)3: “Global excess capacity in steel continues to grow. Global crude steelmaking capacity increased by 6.0 million metric tonnes (mmt), or 0.2%, to 2 454,3 mmt in 2021”;

See also G7’s Trade Ministers’ Joint Communiqué of 21 October 2021: “We reaffirmed the importance of the Global Forum on Steel Excess Capacity (GFSEC) as a forum that can help address the issue of global steel excess capacity in a multilateral framework. We will continue to support and work with the OECD to build on their excellent work undertaken to date, including a continued focus on the analysis of the incidence and magnitude of market-distorting practices and the impacts these may have on issues such as creating and maintaining overcapacity”; available at: https://www.g7uk.org/g7-trade-ministers-communique-2/

(34) Imports into the US in 2021 were in overall terms 21% lower than in the year 2017, i.e. pre-US Section 232 measure.

(35) Volumes of exports lost, inter alia, to US and Union markets, as well as to other third markets. For more details see Section 3.1.2 of Prolongation Regulation.

(36) The reduction of imports among countries with relevant exports to the Union which are not benefitting from any preferential treatment under the US Section 232 measure, including inter alia China, India, Russia, Taiwan, Turkey, Ukraine and the UK was of -48% as opposed to an overall reduction in imports of -21% (see footnote 34). Source: United States International Trade Commission - https://dataweb.usitc.gov

(37) Taking Hot-Rolled Flat price in the Union as a reference (comparing the peak reached in mid-March with data in mid-May 2022).

(38) Source: S&P Platts Global and Steel Business Briefing (SBB) (available upon subscription).

For evidence from publicly available sources on the evolution of prices in the Union, see, inter alia: MEPS International - https://mepsinternational.com/gb/en/news/buying-panic-subsides-in-european-steel-market (20 April 2022); EUROMETAL -Lower import offers, poor demand drags down EU HRC prices - EUROMETAL (2 May 2022); Metal Bulletin - https://www.metalbulletin.com/Article/5097739/HRC-prices-across-Europe-continue-to-slide- on-weak-demand.html (10 May 2022) and https://www.metalbulletin.com/Article/5098015/hot-rolled-coil/European-HRC-buyers-continue-to-be-held-back-by-sufficient-stocks-weak-demand.html (12 May 2022)

(39) See WorldSteel Association, Short Range Outlook, April 2022, available at: worldsteel Short Range Outlook April 2022 - worldsteel.org

(40) See OECD’s Economic and Social Impacts and Policy Implications of the War in Ukraine, 29 March 2022, pages 7 and 8, available at: https://www.oecd.org/industry/ind/Item_3.1_Economic_and_financial_market_Impacts.pdf

See also 91st Session of the OECD Steel Committee - Chair's Statement, available at: https://www.oecd.org/sti/ind/91-oecd-steel-chair-statement.htm; “Increased stress on global supply chains, including semiconductor chip shortages, rising energy costs and the prospects for higher interest rates due to accelerating inflation were dampening industrial activity and global demand for steel. (…) The impacts are being felt directly as a significant negative supply shock on steel and raw materials from Russia and Ukraine, affecting the European steel industry in particular, leading to surging steel and raw material prices. The global steel industry is also suffering from indirect impacts such as higher energy and production costs as well as a slowdown in global economic growth that will dampen steel demand considerably going forward.”

(41) See World Bank’s Commodity Prices, May 2022, at: CMO-Pink-Sheet-May-2022.pdf (worldbank.org)

(42) See price evolution of steel products at S&P Platts Global, April 2022 Global Market Outlook (available upon subscription).

(43) Source: Global Trade Atlas – analysis focused on the comparison (year 2021 v. 2019) of the level of export prices by some of the main steel-producing worldwide for the categories subject to the EU steel safeguard measure. The analysis showed the following evolution of export prices from some of the main steel-producing countries in the world of the product subject to the EU Safeguard measure: China (+43%), India (+32%), Japan (+14%), Russia (+28%), South Korea (+27%), Turkey (+43%), and the UK (+21%).

(44) Source: https://ec.europa.eu/taxation_customs/dds2/taric/quota_consultation.jsp

(45) The volume of imports in 2021 was only 1.5% lower than that in 2018.

(46) See World Steel Short Range Outlook, accessible at: worldsteel Short Range Outlook of 14 April 2022 - worldsteel.org

(47) In this respect, Article 3.g of Regulation (EU) 2022/428 allowed to continue importing from Russia and Belarus, under the residual quota, as long as contracts concluded before 16 March 2022, or ancillary contracts necessary for the execution of such contracts, were executed by 17 June 2022.

(48) In this respect, the Commission recalled that Regulation (EU) 2015/477 of the European Parliament and of the Council of 11 March 2015 on measures that the Union may take in relation to the combined effect of anti-dumping or anti-subsidy measures with safeguard measures (OJ L 83, 27.3.2015, p. 11), properly deals with the interaction of safeguard and anti-dumping and countervailing measures. See also judgment of 20 October 2021, Novolipetsk Steel PAO v. Commission, T-790/19, ECLI:EU:T:2021:706.

(49) Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (‘Withdrawal Agreement’), OJ L 63, 31.1.2020, p. 7.

(50) See Commission Implementing Regulation (EU) 2020/2037 of 10 December 2020 amending Implementing Regulation (EU) 2019/159 imposing a definitive safeguard measure against imports of certain steel products (OJ L 416, 11.12.2020, p. 32).