Draft COMMISSION DECISION amending Commission Decision No 2136/97/ECSC of 12 September 1997 on administering certain restrictions on imports of certain steel products from the Russian Federation

EXPLANATORY MEMORANDUM

In October 1997, under the Agreement on partnership and cooperation establishing a partnership between the European Communities and their Member States, of one part, and the Russian Federation, of the other part, the European Coal and Steel Community and the Russian Federation concluded a sectoral agreement on trade in certain steel products. This agreement prepared the way for the gradual and conditional liberalisation of bilateral trade in steel.

Several declarations are attached as integral parts to the agreement. In particular, Declaration No 3 states that the Parties agree that they shall not apply with respect to the other Party quantitative restrictions, customs duties, charges or any similar measures on the export of ferrous waste and scrap.

On 16 April, despite this commitment, the Russian Government adopted a decree imposing, for a period of six months, a 15% customs duty (with a minimum charge of EUR 15 / tonne) on exports of iron and steel scrap. According to the decree, this measure was intended to prevent diversion of the raw materials needed for steel production and to maintain minimum levels of production from Russian steel plants.

On several occasions, the Community formally drew the attention of the Russian authorities to the incompatibility of the decree with the provisions of the Steel Agreement and demanded that the export tax on iron scrap be dropped forthwith.

Notwithstanding all these consultations, on 28 October the Russian Government extended the original decree imposing a customs duty on exports of iron and steel scrap by six months.

The aim and effect of the decrees is to restrict exports of the products concerned from the Russian Federation, and they are therefore prejudicial to the Community's steel industry in that they intensify significantly the pressure on the international price of scrap, which rose sharply in the last few months of 1999. An increase of EUR 1 in the price of a tonne of scrap represents additional costs to the Community industry of around EUR 60 million.

Appropriate trade sanctions are clearly necessary, therefore, for as long as the Russian Federation persists in this breach of the Steel Agreement. This proposal is for a reduction in 2000 of 20% in the quantitative limits originally set out in the Steel Agreement for Community imports of certain steel products from the Russian Federation. This corresponds to a nominal reduction of 15% from 1999 levels - a trade sanction of the order of EUR 30 million. The measure therefore constitutes a proportionate response to the infringement.

The proposed measures are based on Article 107(2) of the Partnership and Cooperation Agreement, which lays down the procedure allowing one Party to take appropriate measures if it considers that the other has failed to fulfil one of its obligations.

Draft

COMMISSION DECISION

amending Commission Decision No 2136/97/ECSC of 12 September 1997 on administering certain restrictions on imports of certain steel products from the Russian Federation

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Coal and Steel Community, and in particular the first paragraph of Article 95 thereof,

After consulting the ECSC Consultative Committee and obtaining the unanimous agreement of the Council,

Whereas:

(1) Commission Decision No 2136/97/ECSC of 12 September 1997 on administering certain restrictions on imports of certain steel products from the Russian Federation [1] implements in Community law the provisions of the Agreement between the European Coal and Steel Community and the Russian Federation on trade in certain steel products [2] (hereinafter the "Steel Agreement"). The Steel Agreement was concluded in the wider framework, and provided for in Article 21, of the Agreement on partnership and cooperation (PCA) establishing a partnership between the European Communities and their Member States, of one part, and the Russian Federation, of the other part [3].

[1] OJ L 300, 4.11.97, p. 15.

[2] Commission Decision of 12.9.97 - OJ L 300, 4.11.97, p. 51.

[3] OJ L 327, 28.11.97, p. 3.

(2) Several declarations are attached as integral parts to the Steel Agreement. Declaration No 3, in particular, states that "in the context of the Agreement [...], the Parties agree that they shall not apply with respect to the other Party quantitative restrictions, customs duties, charges or any similar measures on the export of ferrous waste and scrap under the Combined Nomenclature heading 7204 [...]".

(3) On 16 April 1999, the Russian Government adopted a decree [4] imposing a 15% customs duty (with a minimum charge of EUR 15 / tonne) on exports of iron and steel scrap for a period of six months. The intention, as stated in the decree, was to prevent diversion of the raw materials needed for steel production and to maintain minimum levels of production from Russian steel plants.

[4] Decree No 441.

(4) At the 17 May meeting of the Cooperation Council, the Community delegation passed a memorandum to the Russian delegation expressing its concerns regarding the decree. This memorandum called for the export tax on iron scrap to be dropped forthwith on the grounds of its incompatibility with the Steel Agreement.

(5) At the request of the Russian authorities, the Partnership and Cooperation Agreement coal and steel contact group and the sub-committee on steel, coal, mining and raw materials were convened in Brussels in June for consultations focusing particularly on Russia's export duty on iron scrap. The Commission delegation clearly stated that it regarded the measure as a violation of both the Steel Agreement and the Partnership and Cooperation Agreement. In the absence of a satisfactory solution, it reserved the right to make use of the dispute settlement provisions and take retaliatory measures under the latter.

(6) The Community delegation expounded the same objections regarding the decree at the meeting of the EU/Russia Cooperation Committee in Brussels on 8 October 1999.

(7) Notwithstanding all these consultations, on 28 October 1999 the Russian Government extended by six months the original decree imposing a customs duty on exports of iron and steel scrap. [5]

[5] Decree No 1198.

(8) The aim and effect of the decrees is to restrict exports of the products concerned from the Russian Federation, and they are therefore prejudicial to the Community's steel industry. Against a background of economic recovery in world steel production, the tax on Russian scrap exports means that the current pressure on the price of scrap is further intensified. The international price for scrap rose by some EUR 8 per tonne in the last few months of 1999. Each additional euro represents extra costs to the Community industry of around EUR 60 million.

(9) Appropriate trade sanctions are clearly necessary, therefore, for as long as the Russian Federation persists in this breach of the Steel Agreement.

(10) The Steel Agreement was concluded in the overall framework of the Partnership and Cooperation Agreement. For the purposes of dispute settlement and trade sanctions, therefore, the relevant procedures in the latter apply in areas covered by the former.

(11) In particular, under Article 107(2) of the Partnership and Cooperation Agreement, "if either Party considers that the other Party has failed to fulfil an obligation under the Agreement, it may take appropriate measures. Before so doing, except in cases of special urgency, it shall supply the Cooperation Council with all relevant information required for a thorough examination of the situation with a view to seeking a solution acceptable to the Parties."

(12) In accordance with that article, the Community wrote on ... December 1999 to the President of the Cooperation Council supplying all relevant information required for a thorough examination of the situation with a view to seeking a solution acceptable to the Parties, and also informing the Cooperation Council of the Community's intention to adopt appropriate sanctions against its obligations under the bilateral Steel Agreement and the PCA unless a solution - i.e. withdrawal of the tax on exports of scrap of Combined Nomenclature heading 7204 - was found within one calendar month of the date on the letter.

(13) Annex IV of Decision No 2136/97/ECSC determines the quantitative limits applicable to Community imports of certain steel products from the Russian Federation.

(14) A reduction of 20% in these limits for 2000 represents a trade sanction of the order of EUR 30 million. Such a measure therefore constitutes a proportionate response to the infringement. In accordance with Article 107(2) of the PCA, priority has been given in the selection of these measures to those which least disturb the functioning of the Agreement,

HAS ADOPTED THIS DECISION:

Article 1

The quantitative limits for 2000 in Annex IV of Commission Decision No 2136/97/ECSC on administering certain restrictions on imports of certain steel products from the Russian Federation are replaced by those set out in the annex to this Decision.

Article 2

The Commission shall take appropriate measures to repeal this Decision once the Russian Federation has taken the necessary measures to meet its obligations under Declaration No°3, attached to the Agreement between the European Coal and Steel Community and the Russian Federation on trade in certain steel products.

Article 3

This Decision shall enter into force the day following that of its publication in the Official Journal of the European Communities.

It shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels,

For the Commission

Member of the Commission

ANNEX

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FINANCIAL STATEMENT

1. BUDGET HEADING INVOLVED

Chapter 12

2. LEGAL BASIS

Article 95 ECSC

3. TITLE OF OPERATION

Commission Decision amending Commission Decision No 2136/97/ECSC of 12 September 1997 on administering certain restrictions on imports of certain steel products from the Russian Federation.

4. OBJECTIVE

To respond to the Russian Federation's persistent breach of the provisions of the bilateral agreement on trade in certain steel products by reducing by 20% the quantitative limits applying to the Community's imports of certain steel products from the Russian Federation.

5. METHOD OF CALCULATION

Given the rate of utilisation of the quotas, a reduction of 20% in the quantitative limits applying to the Community's imports of the products concerned corresponds in real terms to a reduction of around 140 000 tonnes of steel products (the prices for which range between EUR 175 and EUR 325 / tonne).

The duties on the products in question for 2000 are generally between 1.5% and 2.4%. Using the average of these rates, the theoretical loss for Community resources in terms of duties not collected is around EUR 530 000.