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DOCUMENTS "COM"
COM(81)277
Vol.1981/0091

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COMMISSION OFTHEEUROPEAN COMMUNITIES
Reportonthestateofthesteelindustry
RequestfortheCouncil'sassenttotheintroduction ofa
systemofproduction quotasforcoilsandderivative pro­
ducts
(Communication fromtheCommission totheCouncil )COM(81)277 final
Brussels -25thMay1981
Α
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SortiJ t
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STEEL
COM(81)277final

INTRODUCTION
Sinceithadbeenestablished bytheCommission thattherewasamanifest
crisisintheEuropean steelindustry,theCouncil gaveitsassenton
30thOctoberlastyear,inaccordance withArticle 58oftheESCSTreaty,
totheintroduction ofasystemofproduction quotasfortheCommunity
steelindustry .
Th.isdecision wasprompted by:
a)thesevereandwidespread slumpindemandontheCommunity andworldmarkets;
b)theseriousdeclineintherateofutilization ofproduction capacities to
closeto70%inthefirstquarteroflastyearandto58Xbytheendof
lastsummer;
c)adropofnearly13%inpricesbetweenJanuary andSeptember oflastyear;
d)theproducers' inability toenterintoavoluntary commitment vis-a-vis
theCommission toreducetheirproduction ofrolledfinished andcrude
steelproducts .
Sincethemachinery whichhadbeensetupin1977underArticle 57oftheECSC
Treatywasnolongereffective,therewasnootherchoicebuttomakeuseof
themeasures providedforbyArticle 58oftheTreaty.Bytakingthisaction,
theCouncil andCommission soughttoachievethefollowing objectives :
a)tomaintain theunityofthe >European steelindustry andthus,Community
solidarity ;
b)tocreatetherighteconomic climatefortherestructuring ofthisindustry,
whichisessential ;
c)tore-establish amorebalancedrelationship betweensupplyanddemandso
thatmarketpricescanreturntothelevelofAmerican andJapanese prices;
d)togiveproducers timetoreturntovoluntary arrangements inkeepingwith
theTreaty.

2.-
I.iQQ^Q3î:k==^S :=iQkî^k:=i|:ïy^îî:Q^=i^=ÏSI=iyBQEi^y =SIEEL_INBySIRï
a)Steelmarketanalysis andoutlook
Therehasbeennochangeinthesituation onthesteelmarketsincethesecond
halfoflastyear(adropincrudesteelproduction ofalmost20Xoverthe
year)although notallproducts havebeenaffected tothesameextent.In
thelightoftheresultsofsurveyscarriedoutwithsteelfirmsandtheir
associations ,theCommission hashadtosubstantially increase theabatement
rateforthecalculation ofquotasforthefirstandsecondquarters ofthis
year.Theverylowlevelofproduction inthisperiodispartlyduetothe
largestocksbuiltupbysteelusersbeforethesystemofproduction quotas
wasintroduced .
TheCommission 'smonthly economic surveyandproduction forecasts inthemain
steel-consuming sectorscontinue topointtoadownward trend.Thebottom
oftherecession shouldhowever,bereachedtowardsthemiddleofthisyear.
-Theproduction ofcoilsandcoil-derived products (mainlycold-rolled thin
sheets)hasbeenparticularly hitbytheslowing-down inproduction inthe
carindustry .Anotherfactoristhelackofdiscipline amongproducers in
thissectorwhichhasresulted inmassivestockpiling prompted bythevery
lowpriceswhichwereoffereduntiltheendofSeptember ;
-severereductions wererecorded throughout lastyearinheavyplate
production .The.difficulties intheshipbuilding industry weretosome
extentoffsetbytherelatively lesssevereslumpinsomeconsumer sectors
(metalworkingindustry,mechanical engineering andoffshore platform
industry )butproduction hastendedtostabilize atanunsatisfactory level;
-therehasbeenaslightupturnintheproduction ofconcrete reinforcing
rodsandmerchant barsmainlyasaresultofseasonalfactorsinthebuilding
industry.Therehas,however,notyetbeenanyrecovery inwirerod
production orinthewire-drawing industry andironmongery sectors.

b)Financial position ofsteelfirms
Ratesofutilization havegenerally beenlowandincoilandthin-plate
millstherewasasharpdropincapacityutilization .Thistrendhashad
adverserepercussions onpricesdespite someminorincreases (exceptfor
coils)andconsequent ly,bytheendofthefirstquarter,therewasno
improvement inthefinancial position oftheundertakings .Eventhemost
productive producers cannotcovertheirproduction costswithpresentprices.
Areasonable increase inpricesisavitalobjective .
c)Effects onemployment
Thedeterioration infirms'financial position isaffecting restructuring
programmes andtheindustry'sfuture.Thismakesitimpossible toensure
anorderlyimplementation ofthelong-term strategy recommended bythe
Councilatitsmeeting on26Marchandputsjobsseriously atrisk.
Thenumberofjobsaffected byreductions inworkinghoursandthenumberof
workinghourslostaremuchhigherinthefirsthalfoflastyear.Insome
casestheyhaveevendoubled.

MEASURES WITHREGARD TOPRICING POLICY
Tore-establish orderandpricediscipline intheCommunity steelmarket,itis
essential toadjustthelistprices,sothattheycorrespond totherealities of
themarket.Thismustbedonebytheproducers themselves ,andbedonesoon.
Theproducers havebeentoldthat,from1stJuly1981,therulesofArticle 60
mustbeobservedstrictly .Toensurethis,theCommission willstepupits
inspections and,shouldtherulesbebroken,willapplythepenalties laiddown
inArticle 64.
Theconditions ofsalepublished ornotified bytheproducers constitute the
legalbasisofthesemeasures-whencetheneedfortheproducers toadjust
theirpriceliststomarketconditions andtomaketheconditions ofsalemore
transparent inordertoavoiddistortions .
Orderandpricediscipline canbeestablished intheCommunity steelmarketonly
ifstockholders tooaresubjecttosimilarobligations .Inthisrespect,a
distinction shouldbemadebetweenstockholders tiedtoasteel-producing firm
andindependent dealers.TheCommission planstotakethefollowing measures
withregardtostockholders :
Tiedstockholders
Ithastobeadmitted that,insomeoftheiractivities ,tiedstockholders fulfil
thesamefunction assalesorganizations ,andshouldtherefore betreated as
such.TheCommission willaccordingly supplement Decision N°30/53,Article 1
ofwhichdefinessalesorganizations ,byaddingasentence totheeffectthat
distribution undertakings ororganizations controlled directly orindirectly by
aproducer withinthemeaningofDecision 24/54shallberegarded assales
organizations whentheyareinvolved indirectsalesonbehalfoftheproducer
inquestion .Transactions caughtbythisprovision shallconsequently besubject
totheruleslaiddowninArticle 60oftheECSCTreaty.Theproducer istobe
responsible forthebehaviour ofthestockholder whichhecontrols,andthe
lattershallbesubjecttoinspection byofficials orauthorized agentsofthe
Commission .

Independent stockholders
TheCommission hasnodirectmeansofinfluencing independent stockholders or
thoseactivities oftiedstockholders involving steelmanufacturers otherthan
thecontrolling producer.Itisessential,however,thatthisstockholding
sector,whichisbyfarthemostimportant,shouldalsobesubjecttocertain
pricingrules.
TheCommission willtherefore issueaRecommendation totheMemberStates,pursuant
toArticle 63(3)oftheECSCTreaty,designed toensurethatanyundertaking or
organization distributing steelshallbesubjecttorulessimilartothoseimposed
onproducers byDecision N°30/53onunfaircompetition anddiscriminatory
practices andN°31/53onpublishing listpricesandconditions ofsale.
Thesemeasures willintroduce obligations forfirst-hand stockholders ,thatisfor
undertakings ororganizations distributing steelproducts andprocuring thesame
directfromaproducer intheCommunity oranon-member country.
Theywillrelatetoallcategories ofsteelcoveredbytheECSCTreatyandall
formsofsale,bothexstockanddirect.Theywillalsocomprise pricingrules
fortheresaleofproducts fromaCommunity steelmaker orofproducts imported from
anon-member country,regardless ofanyagreement .
Theprovisions applicable tostockholders delivering products unprocessed shall
applytothesameextenttodistribution undertakings whichreduceorchangea
productintoanotheronelistedinAnnex1oftheECSCTreaty(SteelServiceCentre)
Aswellasdrawing upanoutlineRecommendation ,theCommission willalsostate
themeansitwouldliketoseeappliedtoensureacoherentpricingpolicyfor
thewholeCommunity .
TheMemberStateswillbeaskedintheRecommendation totakeanyappropriate ;
stepsregarding thenotification ofstockholders' pricelists,theinspection
measures forensuring thatstockholders fulfiltheirobligations andthe
penalties tobeappliediftherulesarebroken.

Communication tobepublished' intheOfficial Journal
TheCommission ispublishing acommunication intheOfficial Journalrecapitulating
theDecisionsithastakenovertheyears,inordernotablytomakepricechecks
easier.
Thiswillcontain aspecial reminder thatthedocuments listedinDecision N°1A64
aretheminimumrequired tobekeptandsubmitted toitsofficials orauthorized
agentsatinspections .
Anyambiguities relating totheinterpretation ofcertain documents listedin
thatDecisionwillbeexplained inthiscommunication .
Thecommunication willalsostressthat,underArticle 47oftheECSCTreaty,
officials andauthorized agentsmusthaveaccesstoallcommercial ,technical
oraccounting documents ofundertakings inordertocheckwhethertheprices
invoiced to,andpaidby,customers complywiththerulesinforce.
Finally,thecommunication willstatewhatdocuments mustbeprovided,where
necessary,toprovethatsteelproducts allegedly exported tonon-member
countries haveinfactbeenso.
Individual inspections involving customers
Pursuant toArticle 86oftheECSCTreaty,theCommission willalsoaskMember
States,onacasebycasebasis,tocarryoutcertaincheckson(thecustomers'
premises .Suchrequestswillbemadebyletterinspecific cases,whenthe
Commission hasreasontosupposethataproducer isinfringing therulesbut
hasbeenunabletoestablish thisduringtheinspection atthesteelproducer .
Carrying outchecksattheconsumer'spremises ispurelydesigned toseewhetherthe
steelproducer hascomplied withthepricingrules.Obviously,anyfollow-up can
involveonlytheproducer inquestion andnottheconsumer .

7.-
m.PôyBôiOBï =|yâmiâiiv|=5ïS
A)Légalbase
a)WhereGroupII(heavyplateanduniversal plate)andGroupIII(heavysections )
oftheproduction quotasystemareconcerned,theconditions whichwill
trigger areturntocrisismeasures basedonArticle 57oftheECSCTreaty
havebeenagreed,evenifdemandfortheseproducts remains low.The
Commission hasreceived assurances thattheleadingmanufacturers ofthese
productswillacceptanyvoluntary production anddelivery quotasthe
Commission proposes .Inthisthesituation therefore differs fromSeptember
1980.
Voluntary undertakings ofthistypebysteelmanufacturers ,backedby
measures tocreatetheconditions necessary forreviving prices,will
givethemanufacturers theessential conditions forimproving theoperation
ofthemarket.
Ithasalsoprovedpossible tosetupavoluntary systemforcoiledwire
becausetherearerelatively fewmanufacturers ofthisproduct.
Wheretheremaining GroupIVproducts (concrete reinforcing barsandother
merchant bars)areconcerned ,thelargenumberofmanufacturers andthe
production techniques involved makeforadifferent situation ;asaresult
themanufacturers havenotbeenabletoreachsufficient agreement tobeable
toproposecriteria foravoluntary arrangement totheCommission .Neverthe­
less,inspiteofthecurrentdifficulties ,theCommission feelsthatenough
progress hasbeenmadeinrestructuring andadjusting coststopricesto
justifyreplacing theimposedquotasystembyavoluntary systeminwhich
manufacturers givetheCommission certainundertakings .Clearly,the
Commission willintervene ifthemarketsituation deteriorates .
b)Inviewofthelargevolumeofproduction notcovered,thepartial
arrangement betweenmanufacturer 'sofGroupIproducts (coilsandstrip
rolledonspecialmills)andtheCommission cannotguarantee animprovement
inthemarket.Also,demandinthiscrucialsectorhasdropped sofarthatany
furtherdeterioration willhavethemostserious consequences forthesteel
industry asawhole.Suchcircumstances callforasystembasedonArticle 58
oftheECSCTreaty.
J.

c)Asystem based onArticle 58solely foronegroup ofproducts should be
such astoenalbe theCommunity 'smanufacturers tofind therequisite
basis foreffective cooperation inthis area too .Itsmain objective
should betoraise prices andensure that ,inline with theconditions
faced bytheir main competitors outside theCommunity ,thecompanies
become financially viable .
B.PRINCIPLES OFAPPLICATION
a)Voluntary arrangement
1)Scope
Thevoluntary system covers thefollowing products :
-heavy plate anduniversal plate ,excluding plate for large welded tubes ;
-heavy sections ,excluding special sections ,mining sections and sheet
piling ;
-light sections :coiled wire ,concrete reinforcing bars andother
merchant bars .
With theexception oflow-alloy steels (Sonderbaustahl ),thevoluntary
system does not include alloy steels .
2)Reference production figures
Based ontheexperience gained bytheCommission during tneperiod of
quota restrictions andonthe work done bymanufacturers ,reference
production figures will beestablished asfollows :
-1974
-thebest twelve months during theperiod from July 1977
toJune 1980
-the twelve months from July 1979 toJune 1980
II-thequotas resulting from theapplication ofthecurrent
Article 58Decision converted into annual reference figures .
These -^products correspond respectively toGroups II,IIIand IVoftheArticle 58
production quota sy.-"'a.

9.-
Thereference figureswillbecalculated asfollows:
firsttaketheaverageofthethreesetsoffiguresarrivedatunderIabove
thencalculate thefigureforIIabove.Thereference baseistheaverage
ofthesetwosub-totals .
Themainobjectofthesystemistore-establish thebalancebetweensupply
anddemandinthemarketandthiswouldbeundermined if,evenwhilethe
production quotaswerebeingcomplied with,thevolumeofsupplies tothe
marketwasrelatively biggerthanthequotas.Infixingtheproduction
quotastheCommission istakingmarketrequirements infinished rolled
products asabasis.Theserequirements aremetbyasupplyprogramme
whicheachcompanydrawsupforitself.Thisprogramme doesnot
necessarily coincide withthecompany'sshort-term rollingprogramme but
thelattermustreflecttheproduction quota.Tomakesurethatthesystem
iseffective,thecompanies mustsoarrangethingsthatthequantity
supplied inonequartercorresponds withtheproduction quotas.Thismeans
thatanycompanysupplying themarketfromstocks(netdecrease duringthe
quarter)shouldreduceitsrolling programme forthequarter bythesame
amount.
Similarly,toavoidthequantities marketed intheCommunity exceeding those
forthereference period,production quotasmustbedividedintoquotasfor
supplies totheinternal marketandquotasforsupplytoworldmarkets.
Asinthecaseofreference production figures,thereference supply
figureswillbecalculated onthebasisofafixedseriesofhistoric
data.
Inordertocontinue therestructuring process,therewillbenochanges
tothereference figures onthebasisofnewcapacitycriteria duringthe
periodofapplication .
Finally,theindustry willhavetheoption,asunderthecurrentsystem
ofproduction quotas,ofsellingorexchanging quotas.

10.-
b)Systemprovided forinArticle 58
1)Scope
Themandatory systemonlyconcerns GroupIproducts underthecurrent
production quotasystem(coilsandhoopandstriprolledonspecialmills).
Inviewoftheimportance ofcoilproductin forthemetal-working market
(sinceonly20%ofproduction issoldasproduced),itisnecessary to
includecoilderivatives inthissamemandatory system.
Thesederivatives fallwithinfourgroups:
1)Hot-rolled sheetatleast3mmthickandhoopandstripproduced by
slitting;
2)Hot-andcold-rolled sheetlessthan3mmthick;
3)Galvanized sheet;
A)Othercoatedflatproducts .
Notincluded are:-coilsforelectrical sheet,tinplate andstainless
sheet;
-coilsandhoopandstripfortheproduction oflarge
weldedtubes;
-alloysteels,withtheexception of"Sonderbaustahl ".
Allproducers of(a)coilsorrough-edged hoopandstripand(b)derived
products shallbesubjecttothemandatory system.
2)Reference production
Thereference production ofcoilsshallbelaiddowninaccordance withthe
samemethodasthatset-outinB.a)2,page8.
Theseriesofderivedproducts notsubjecttothesystemunderDecision
2794/80/ECSCtobeconsidered inlayingdownreference production figures
shallberestricted tothefirstthreereferred toinItemB.a)2(1),
page8.

t
11.-
However,asundertheprevious systemandinordertoensureitseffective­
ness,non-compliance withthesubdivision ofdeliveries intothoseonthe
domestic andworldmarketswill,pursuant toArticle 58ECSC,betreated
asanoverstepping oftheproduction quotas.

12.-
C.ESTABLISHMENT OFMANDATORY QUOTAS ANDVOLUNTARY RESTRICTIONS
Whetherthearrangement isvoluntary ormandatory ,thefinalresponsibility
forlayingdownorsuggesting totalproduction anddelivery ratesperproduct
groupandtheirdistribution atcompanylevelresideswiththeCommission .
Itwilltherefore ensurethatthequotastakeaccountofbothproducer and
consumer interests andthatthepricetargets canbemet,andinordertodo
thistheCommission willconsultallparties concerned beforelayingdownquotas
orrestrictions .
Asunderthepresent system,theCommission willinformeachundertaking ofits
production anddelivery quotasorrestrictions .
Wherethearrangements arevoluntary theCommission willaskeachundertaking
foranindividual commitment .
D.MONITORING SYSTEM
.Asalsoprovided forunderthepresent system,theCommission willintroduce
statistical monitoring anddirectsupervision ontheundertakings' premises .
CheckswillbecarriedoutbytheCommission viastatistics tobeprovided
bytheundertakings themselves andcompliance withthequotasandrestrictions
willbeverified monthly.
S->nceoneoftheobstacles tothevoluntary systemisthesecuring ofoptimum
prices,theCommission willexamine morecloselyrigidcompliance withthe
pricingrules(Artie*:160).
Whereacompany hasexceeded thepriceslaiddownorhasbrokentherules,the
Commission willascertain whetherithasreceived stateaidenablingittodo
so.
Thechecksontheundertakings' premisesshallbeperformed bntheCommission 's
responsibility byitsowninspectors ,assisted byaccountants andproduction
engineers .

13.-
IV.SOCIAL MEASURES
––– • *4
Itisafundamental aimoftheCommunity 'ssteelrestructuring policy
tocreateconditions intheindustry,inparticular therestoration
ofitscompetitivity intheinternational market,whichwillprovide
stability ofemployment inthelongterm.TheCommission isacutely
conscious ofthesocialburdens whichtheprocessofrestructuring
isimposing andwillimposeforsometimeyet,especially oncertain
communities .Theseburdens areincreasingly difficult tobearina
contextofhighoverall unemployment andofpoorshortandmedium
termprospects foremployment growthinotherindustrial sectors.
Againstthisbackground ,theCommission reiterates itsconviction
thattheCommunity itselfshouldundertake measures toalleviate
theseburdens which,although bynomeansadesired endofitsre­
structuring policy,arenevertheless aninevitable consequence of
them.
TheECSChasalreadyplayedanimportant roleinsupporting the
arrangements whichthememberGovernments havemadetocushionin
various waystheeffectsofmassredundancies inthesteelindustry .
Thisactionwillbecontinued ,buttheCommission nowproposes in
addition toconcentrate moreclosely onmeasures designed tohelp
generate newemployment inparticular inareaswheretherehasbeen
asubstantial lossofsteeljobs.
FirsttheCommission isexamining waysofincreasing itsactivity
underArticle56.2(a)oftheECSCTreaty.Theaimistoincrease
thevolumeofloansforreconversion andthetotalamountofinte­
restrebatesgrantedtoinvestors inareasofcoalandsteeldecline.
Second,theCommission isconsidering arangeofaidsmorespecifi­
callyaimedatjobcreation,including directemployment subsidies .
Itisintended thatsuchaidsshouldbeintroduced foralimited
periodunderECSCauspices forthebenefitofformersteelworkers
(andwhereappropriate formercoalworkers).Inthelongerrun
theCommission envisages thatsimilarmeasures,amongotheraids

tojobcreation,willbecomepart-oftheSocialFund'sregularacti­
vitiesandwillbenefitareasofgenerally highunemployment ,which
areinmanycasesthosewhereunemployment isattributable toorhas
beenaggravated bysteelindustry restructuring .

PROCEDURES
PRICING POLICY MEASURES
1.Readjustment andrestructuration ofproducers' listprices
Thisworkwillbecarriedoutbytheproducers withthehelpofthe
relevant departments intheCommission .
2.Monitoring theproducers' compliance withArticle60
TheCommission istakingthenecessary stepstointensify,from1stJuly1981,
themonitoring oftheundertakings' compliance withtheir,,listprices.
3.Supplement toArticle 1ofDecision N°30/53toincludethestockholder tied
byhisdirectsalesonbehalfofthecontrolling producer
-consultation betweentheproducers andthererollers
-consultation withthestockholders
-consultation withtheConsultative Committee
-consultation withtheCouncil
-drawupafinaltextwiththeLegalService andinterested departments .
4.Recommendation totheMemberStatesconcerning Article63-3inorderthat
theytakethenecessary stepstoobligethe independent stockholder toadopt
rulessimilartothoseimposedforArticle 60andthedecisions forits
application
-informtheproducers
-informthestockholders
-informtheConsultative Committee
-informtheCouncil
-drawupthefinaloutlinewiththeLegalService,including themotivation
(grounds).
5.Communication tobepublishedintheO.J,inordertodefinetheinterpretation
ofDecision 14/64regarding themimimumofcommercial andaccounting documentation
theundertakings shouldkeepandsubmittotheCommission 'sagentsandofficials
Simpleinformation totheproducers andfinalisation oftheCommunication
withtheLegalService andinterested departments .
N.B.Possibility ofcallingtheMemberStatestocollaborate (baseArt.86)onthe
consumer checks
Byletterperspecific case.

2.-
II.QUANTITATIVE RESTRICTION MEASURES
6.Decision regarding Article58forcoils ,hoopandstrip rolled onspecial
mills andalso forcoil derivatives
-consultation with producers ,rerollers andstockholders
-consultation with Consultative Committee
-assent from theCouncil .
^ecisio7u!!der nArticLe 47fixing thestatistical declarations tobesubmitted
toThe Commission forthose products excluded fromArticle 58
Neither theConsul-tat ive .Committee northeCouncil needbeconsulted for
this decision .
III .SOCIAL MEASURES
8.Set ofpreliminary ideas foraddition :.!
tocreate iobs
-notification ofConsultative Cotnr.-i ttc~e
-notification ofCouncil
-drawing -upofdetailed proposals either fordecision '
bytheCommission orforsubmission totheCouncil