Official Journal of the European Communities No C 194/23 
II 
(Preparatory Acts) 
COMMISSION 
Communication from the Commission on steel policy 
Proposal for a Council Decision on a contribution from the general budget of the Communities 
to the European Coal and Steel Community to finance social measures connected with the 
restructuring of the steel industry 
COM(88) 343 final 
(Submitted by the Commission on 16 June 1988) 
(88/C 194/03) 
I 
Steel policy 
1. Introduction 
At its 'Industry' meeting on 24 June 1988, the Council has to decide the organization of the 
steel market after 1 July 1988. It is therefore worth reviewing steel policy in the light of the 
conclusions of the Council meeting on 29 and 30 October 1985. 
At that meeting it was decided to liberalize the steel market progressively over a transitional 
period of no more than two or three years. The scope of the quota system — set up pursuant 
to Article 58 of the ECSC Treaty — which had been in force since 1980 was then gradually 
reduced by removing quotas on concrete-reinforcing bars (category V) and non-galvanized 
coated sheet (category I d)) on 1 January 1986, galvanized sheet (category I c)) on 1 January 
1987 and wire rod (category IV) and merchant steels (category VI) on 1 January 1988. 
Thus the quota system, which the Council approved (') on 22 December 1987 for a period of 
six months (until 30 June 1988) now covers only flat products in category I a) (hot-rolled wide 
strip), category I b) (cold-rolled sheet) and category II (heavy plate), and heavy sections 
(category III). The Council also considered that it would be possible to extend coverage of 
category II and III products until the end of 1990, provided that by 10 June 1988 at the latest 
the Commission had received commitments to close down at least 75 % of the surplus capacity 
identified by the Commission. For category I products, in respect of which the Commission 
considered that the conditions in Article 58 of the ECSC Treaty were no longer being met, the 
Council agreed that, if the Commission tabled a proposal to continue the system beyond 30 
June 1988, it would be accepted provided commitments had been given to close down at least 
7,5 million tonnes of category I a) capacity. 
2. The market situation for categories still covered by the quota system 
2.1. Pursuant to Article 58 of the ECSC Treaty, the Commission must establish a system of 
production quotas if, in the event of a decline in demand, it considers that the Community 
is confronted with a period of manifest crisis and that the means of action provided for in 
Article 57 are not sufficient to deal with it. Although the Commission has some scope for 
(') In accordance with the Commission's proposals (Doc. COM(87) 640 amending Doc. COM(87) 388). 
No C 194/24 Official Journal of the European Communities 23. 7. 88 
interpretation in this connection, decline in demand is an important condition for the 
establishment or maintenance of a quota system. 
The table below shows production figures for the four categories of products covered by 
the quota system which applied in the first half of 1988 (Decision 194/88/ECSC of 
6 January 1988). It should be noted that 1980 is the year in which the manifest crisis was 
declared and that 1979 is the boom year which preceded it. 
Product (') 
I a): wide and narrow strip 
, of which: wide strip 
I b): cold-rolled sheet 
II: reversing-mill plate and wide flats 
III: heavy sections (not including piling 
and permanent-way material) Steel production in the nine Member States (in '000 tonnes) 
1979 
55 099 
49 792 
28 980 
10 191 
6 497 1980 
50 100 
45 760 
26 193 
9 724 
6 389 1986 
51 323 
49 422 
26 864 
8 141 
5 152 1987 
(provisional) 
53 480 
51 724 
28 156 
7 843 
5 302 
(') As this is production from rolling mills by category, which means that category I a) includes products which have been 
processed to become category I b) products, actual production under quota represents only part of the figures given. 
2.2. The trend in production of category I a) and I b) products shows that there are no grounds 
for claiming a decline in demand since production in 1987 was far higher than in 1980. In 
fact, after a hesitant start in 1987, the Commission was able to report that demand firmed 
up, not only within the Community (particularly in the motor industry which is continuing 
to report record production levels) but also outside (demand from countries other than the 
USA). These developments were accompanied by regular price increases, even on export 
markets, and this in spite of the fall in the dollar. 
Cuts in capacity pushed the average utilization rate of category I a) capacity up to 77 % 
in 1987, which was even higher than the 70 % recorded in the boom year of 1979. This 
77 % figure is only an average and in some undertakings the percentage is much higher. 
In fact, when the 'Three Wise Men' were preparing their report at the end of 1987, some 
steel firms were claiming that their capacity was already being fully used. Moreover, if the 
Commission decided to accept the capacity figures reported by some undertakings, which 
are lower than those it actually used, this average would be even higher. 
All available indicators point to this favourable situation continuing in 1988. 
2.3. Although all the undertakings — except one — which produce the four categories of 
products under review are making a profit on category I products, many are making a loss 
on categories II or III. Unlike category I products, the improvement in the market for these 
products has resulted only in price increases. 
Moreover, with these categories of products, utilization rates tend to be under 60 %, 
which shows that the restructuring process has not achieved a satisfactory result and that 
the capacity reductions requested by the Commission and the Council are more necessary 
than ever. 
3. Reductions in capacity 
The conditions which the Commission and the Council required for any extension of the quota 
system beyond 30 June 1988 can be summarized as commitments to close down 7,5 million 
tonnes of category I capacity, 4,4 million tonnes of category II capacity and 2,5 million 
^Bm^ Official journal of the European Communities ^oCr^tB^ 
tonnes ^D of category incapacity ^intheselasttwo categories, thisrepresents 7^^Bo of the 
surplus capacity according to the low assumption in the (General Cobiectives^. These reductions 
in capacity may be achieved only by closing down mills, in other words any indirect effects on 
maximum possible production of mills by closures in the liquid phase are not taken into 
account in the closure obiectives set on^IOecemberl^7.It has to be admitted that closures 
had not reached these levels by the deadline of I0]unet9^.This is further evidence that the 
industry did not make sufficient use of the transitional period to complete its restructuring. 
^ In category I, the industry did not make any real effort to coordinate closures, which 
seems toimplyacceptanceoftheconclusionsreachedbytheCommission andtheThree 
^ise^ien that there is currently no crisis. 
^ In category II, the industry has managed to obtain commitments for closures totalling some 
t,^ million tonnes. This is some way below the objective set as the precondition for 
extension of the quota system. 
^ In category III, the industry has managed to achieve closures totalling ^,1 million, although 
t,^ million tonnes of these are not sufficiently firm commitments. This means that, here 
too, the preconditions for maintenance of the quota system have not been met. 
^, ^e^su^es to be takers 
The Treaty of Paris is based on the principle of free market competition as the normal 
situation, and Article ^ empowersthe oeommissiontoexertdirectinfluenceuponproduction 
only whencircumstances sorequire. Pursuant to Article ^7, thedommissionmust^iveprefD 
erence to indirect means, in particular in its intervention with respect to prices and trading 
policy.TheTreaty stipulates that competition is to take placeundernormalconditions. 
Rurthermore, it must be borne in mind that completion of the internal market int99^ is alsoa 
crucial obiective for the steel market. Preparing for thet99^ deadline requiresaradical change 
of strategy on the part of entrepreneurs, whose thinking is still all too often dominated by 
national market considerations. 
As indicated above, the steel markethas improved, in particular forcate^ory I, to such an 
extent that the difficulties which the steel industry has bein^under^oin^ in recent years have to 
alar^eextentbeen ironedout. dompany resultshave improved, sothatin 19^ some have 
achieveda^ross profit of over l^^Bo,the commissions criterion for viability. 
The steel industry has undertaken to introduce major restructuring measures for the liquid 
phase and to rationalize production. Idowever, their introduction has in many cases been 
delayed, and should be accelerated to brin^ about more appreciable progress in terms of 
productivity. 
It should be noted that the world market, despite a certain improvement in the economic 
situation, isstillcharacterized, on theone hand,by very considerable overcapacity and the 
restrictive measures which some countries apply to imports, and onthe other byanumber of 
unfair competitionpractices.UnderthesecircumstancestheCommunityou^httoretainthe 
principalelements of the external measures which have been in force since thelate 1970s. It 
must also continue to implement and even step up its system of antidumping measures in order 
to be able torespond effectively to unfair practices. 
C^ ra^ir^ cor^ct^ tD t^ ^ccD^r of di^ f^cr rh^ ^^ ^illio^ ^ha ^^ ^ni^^^^ly ^^ D^L i^ 
c^t^^rvUM^t^Dfc^^^r^Vl^D^i^lfi^Li^^^^^^^ 
No C 194/26 Official Journal of the European Communities 23. 7. 88 
Within the Community as well, there are some distortions of the market, notably owing to the 
aids granted or likely to be granted, to the Italian steel industry, which infringe Article 4 (c) of 
the Treaty as they do not serve the aims of Decisions 3484/85/ECSC. 
4.1. Quota system 
If the steel industry gives the Commission assurances on capacity reductions of the order 
of 4,4 million tonnes for category II and 2,5 million tonnes for category III, the 
Commission and the Council are bound to maintain the commitments they made on 
22 December 1987. 
The information available up to 10 June suggests that the industry will be unable to attain 
these objectives. If that is so, a quota system cannot be implemented. If the conditions are 
met by 24 June 1988 only for category III, the quota system could then be extended for 
that category. 
4.2. Accompanying document 
Decision 3717/83/ECSC, in which the Commission introduced the accompanying 
document and the production certificate, ought in any case to be abolished. This measure, 
which was introduced at the most acute stage of the crisis, constitutes a major obstacle to 
intra-Community trade. All deliveries from one Member State to the market of another 
are, under this Decision, subject to frontier checks and payment of deposits where these 
documents are incomplete, incorrect or missing. The barriers to trade in steel products 
entailed by this Decision are unacceptable as the 1992 internal market deadline 
approaches. 
4.3. State aid 
The Commission is continuing its vigilance on state aid and is currently reveiwing the 
operation of the present aid code (Decision 3484/85/ECSC) with a view to its extension 
beyond the end of 1988. A proposal will be put forward in the autumn. 
The aid requirements of the Italian public steel sector cannot be dealt with under the aid 
code. The only possibility of obtaining derogation from the general prohibition on 
operating and investment aid in the steel sector is by means of a Decision pursuant to 
Article 95 of the ECSC Treaty. If it considers preparing such a Decision, the Commission 
should envisage substantial reductions in capacity and ensure that the aid granted are not 
used to improve the position of the Italian public steel sector on the market to the 
detriment of other Community enterprises. Without such a discipline, the objective of 
Article 5 of the ECSC Treaty (to 'ensure the ... maintenance and observance of normal 
competitive conditions') would not be achieved. 
5. Accompanying measures 
The steel market has improved to such an extent that the quota system is no longer justified. 
Furthermore, the system has proved inadequate for inciting firms to complete the restructuring 
process, the basic necessity for which is not questioned. While the Commission believes that 
structural adjustment must continue under the influence of normal market forces, it is still 
aware of the world market context in which this adjustment would take place, of the inevitable 
social and regional consequences and of the need to back steel firms' research activities. This is 
why it intends to pursue and even reinforce its activities in four main areas. 
5.1. The system of external measures 
Abandoning the quota system pursuant to Article 58 of the ECSC Treaty does not 
necessarily mean liberalizing the external aspects of steel policy, since restructuring in the 
^.B.88 Cofficial]ournalofthe European Communities ^oCr^tB^ 
Community is not complete andacertain degree of protection against the outside world is 
stillneededinordertoavoiddisturbancescausedbymassivelowpricedimports, which 
chiefly originate, as indicated above, in worldwide overcapacity inaperiod of continuing 
currency fluctuations. 
The changes to internal policy should not call into question the factors which largely 
govern the future of the external aspects 
P Thecommitments whichtheC^ommunity has tomake inline withthespiritofRunta 
delEste — standstill and rollbacks 
^. The attitude of the new United states government at the end of the Rresident^s 
programme t^end of CoctoberP98^ and its plethora of arrangements with ^^ exporting 
countries. 
Even if it is too soon to draw up proposals for negotiating Mirectives for t989, the 
commission, while holding totheprinciplethattrade in steelmust remain asfreefrom 
restrictions and distortions as possible, believes that the Community must, for the next 
year, detain the main features of these contractual and autonomous trade policy measures. 
Regarding non^membercountriesotherthanthosecoveredbythepresent arrangements, 
the commission proposes to negotiate arrangements where the countries concerned 
so request and are clearly unable to prevent their producers causing distortions to 
competition in the Community^ markets, nevertheless, it would be desirable to avoid 
amultiplicity of new arrangements,which should be the exception. 
^viaior improvements to the antidumping procedures and countervailing duties were made 
in t988, but the Commission will continue its every effort to speed up the full application 
of regulations in this area. 
^. ^c^^^^r^ 
^ince the early 1980s the employment situation in the steel industry has been bad enough 
to necessitate additional social support measures, since the conventional aid schemes 
provided for in Article ^D were inadequate to meet the needs created by restructuring. 
The restructuring process, including the liquid phase, will continue to cause maior ^ob 
lossessin!988 and beyond,and these social measures will continue to be an essential part 
of steel policy 
The scale of the social measures necessary to make the planned restructuring acceptable in 
social and human terms means that exceptional financial resources must be tapped. 
In accordance with the conclusions reached at the Council meeting on ^^IOecemberl98B^ 
and in the light of the conclusions reached at the European council on 11 and 1^ 
Eebruary 1988, particularly with regard to customs duties on EC^ products, the 
commission announced,in the course of the!988 budget procedure t^Moc.C^C^^88^^ 
of9]une!988^,the manner in which it intends to finance the social measures in 1988 and 
after. This will require commitments from the three parties concerned, namely the 
Council, the Commission and the steel industry,to, respectively^ 
— a contribution to the EC5C from the revenue accruing to the general budgets for!989 
and 1990 under the head of customs duties on EC^C products, 
— a repayable advance from the EC^C reserves in 1988, and 
— a modest increase in the EC^C levy as froml989. 
No C 194/28 Official Journal of the European Communities 23. 7. 88 
The draft of a decision concerning the abovementioned contribution to the ECSC is 
annexed to this communication. 
At the same time, to provide greater cohesion between the extraordinary measures and the 
conventional redeployment aid, the Commission has taken steps to ensure that such aid is 
more transparent, fair and effective. It has adopted a new common aid system, for which 
the new rules will shortly be negotiated with the governments of the Member States, so 
that Community asistance can be matched as closely as possible to the national context 
within which the supporting social measures are implemented. 
5.3. Residerprogramme 
A Community programme to assist the conversion of steel areas (Resider) was instituted in 
a Council Regulation of 2 February 1988. Two aid programmes are currently under 
consideration and applications relating to several other areas are in the pipeline. 
The present budget for the programme is 300 million ECU for the first three years, 1988 
to 1990. However, in its communication to the Council (COM(87) 388 final) of 17 
September 1987 concerning steel policy, the Commission stated that this sum was 
provisional and was to be increased. The Commission will therefore review the amount 
allocated to the Resider programme in due course and in any case before the end of the 
three-year period. 
5.4. Research 
One of the best ways of ensuring a future for the steel industry, as for any other, is to 
maintain an intensive R&D activity. The more exacting quality requirements of users 
must be met and Community steel must be made sufficiently competitive against other 
world producers. To this end, the European Community has set up general research 
programmes (Brite, Euram, etc.), which are also accessible to the steel industry, as well as 
the special technical steel research programme. Pursuant to Article 55 of the ECSC Treaty 
the Commission promotes technical and economic research relating to the production and 
increased use of steel. In 1983 pilot and demonstration projects were added to the 
programme. And research has been redirected towards promoting the consumption of steel 
through innovative products or new uses for existing products. 
These trends must be reinforced by concentrating research in the priority areas chosen for 
their potential impact on competitiveness. In order to give these changes their utmost 
impact, cross-border cooperation must be increased between research institutes, steel 
producers and, where appropriate, steel users. These are the ways in which the steel 
industry will prepare itself for completion of the single market in 1992. 
6. Conclusions 
The Council is requested: 
— to endorse the policy guidelines contained in this communication, 
— to adopt the annexed Decision concerning a contribution to the ECSC from the general 
budget. 
23. 7. 88 Official Journal of the European Communities No C 194/29 
II 
Proposal for a Council Decision on a contribution from the general budget of the Communities 
to the European Coal and Steel Community to finance social measures connected with the 
restructuring of the steel industry 
EXPLANATORY MEMORANDUM 
In its steel policy communication of 31 July 1987 (COM(87) 388) the Commission asked the 
Council to authorize a transfer of 50 million ECU from the general budget to the European 
Coal and Steel Community to pay for supplementary social aid to be granted in 1988 in 
connection with the restructuring of the steel industry. This document explained that, at the 
existing levy rate of 0,31 %, ordinary ECSC resources are not able to cover the financing of 
these extra social costs but that it was possible that similar financing needs in 1989 and 1990 
could be met from the reformed structural funds. 
In the three years 1988 to 1990 the Commission now estimates the cost of supplementary social 
aid for some 55 000 workers expected to lose their jobs as a result of restructuring (Article 56 
(2) (b) of the ECSC Treaty) during this period at 50, 55 and 60 million ECU in the three 
successive years, a total of 165 million ECU. The supplementary aid will be needed to help 
finance early retirement for some workers and reemployment premiums for others. 
The Council at its meeting of 22 December 1987 suggested that the Commission take the 50 
million ECU needed for 1988 from ECSC reserves and recorded its readiness to re-examine 
future funding arrangements in the light of requirements and bearing in mind the possibility of 
a transfer of ECSC customs duties to the Community. At this time the Commission noted in a 
declaration that there was no surplus available in the ECSC reserves. 
Parliament, for its part, in a resolution voted on 17 December 1987, supported the proposed 
supplementary aid scheme and wanted to backdate it and increase the size of the 50 million 
ECU transfer. In the previous Parliamentary debate the Commission's representative did not 
consider the moment opportune to increase the request for resources and recalled that the 
Commission was examining further possibilities of financing the measures concerned by 
increasing the ECSC's income (by drawing on customs duties on ECSC products, or by 
increasing the levy on production of coal and steel) or through the reorganization of the 
structural funds. 
Following the February European Council the possibility of financing a fully fledged sectoral 
aid scheme under the Social Fund within the comprehensive proposal for the structural funds 
must be discounted. In its comprehensive proposal (COM(87) 376 final and in its modified 
form COM(88) 144 final) the Commission had proposed that the Social Fund should be able 
to intervene throughout the Community to help restructuring in specific sectors. However, as 
reflected in the February European Council's decision to restrict Structural Fund action under 
the new objective 2 to the reconversion of declining industrial areas, a majority of Member 
States are opposed to using the Funds to support purely sectoral initiatives. 
This means that any Community initiative for ECSC industries would have to be restricted to 
zones meeting the general criteria foreseen for action of the Funds under objective 2, in 
particular the criteria relating to areas which have registered, or are experiencing or are 
No C 194/30 Official Journal of the European Communities 23. 7. 88 
threatened with substantial job losses in industrial sectors crucial to the economic development 
of the zones concerned and leading to a serious increase in unemployment in these zones. 
Given these limitations on the action of the Structural Funds, the Commission is of the view 
that the ECSC's budget must be reinforced in order to meet the special needs in the social area 
which have arisen from the restructuring of ECSC industries. 
It therefore proposes to finance the total of 165 million ECU mentioned above by means of: 
— an increase in the levy in 1989 and 1990 (80 million ECU, equally divided between the two 
years), 
— the grant to the ECSC in 1989 and 1990 of the equivalent of a part of the new receipts of 
customs duties on ECSC products (85 million ECU: 65 million to cover 1988 and 1989 
commitments; 20 million to cover 1990 commitments). The total of these receipts is now 
estimated at 80 million ECU a year net of collection costs, 
— an advance on ECSC reserves, of 50 million ECU maximum, could be made available, 
exceptionally and for one year only, to cover commitment requirements in 1988, it being 
understood that this amount will only be made available if the decisions in the two 
paragraphs above are adopted. 
The present draft Decision accordingly provides the legal basis for transferring the equivalent 
of a part of the ECSC customs duties from the Communities general budget to the ECSC 
operating budget. 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European 
Economic Community, and in particular Article 235 
thereof, 
Having regard to the proposal from the Commission, 
Having regard to the opinion of the European 
Parliament, 
Having regard to the opinion of the Economic and 
Social Committee, 
Whereas the Commission has decided to restore normal 
market conditions in the steel industry and therefore to 
re-establish free competition between undertakings in the 
Community; whereas the accompanying social measures 
must consequently be stepped up; 
Whereas to achieve this objective a set of measures will 
be taken by undertakings to help rationalize production 
and bring productivity in this sector up to the level 
required to enable the undertakings to compete both 
within the Community and throughout the world, in accordance with the 'General Objectives for Steel — 
1990' within the meaning of Article 46 of the ECSC 
Treaty; 
Whereas restructuring will lead to substantial job losses 
and must therefore be supported by exceptional social 
measures to cushion the adverse impact on the workers 
involved; whereas in this respect, it has proved necessary, 
within the range of measures available under Article 56 
(2) (b) of the ECSC Treaty, to support in particular aid 
for early retirement and the framework measures for re­
employment, which will continue to be preponderant 
among the accompanying social measures for steel-
workers ; 
Whereas if no action were taken to counter the diffi­
culties caused by the widespread lay-offs in the steel 
industry, this situation, in particular through its 
secondary effects, would be likely to produce a marked 
worsening in the general employment situation in the 
Community and compromise the harmonious devel­
opment of economic activity, thereby hampering the 
Community in one of its most essential objects; 
Whereas the resources available under the ECSC Treaty 
are not sufficient to finance the proposed measures; 
whereas an exceptional contribution will thus be needed 
from the general budget of the Communities in 1989 and 
23. 7. 88 Official Journal of the European Communities No C 194/31 
1990, totalling 85 million ECU (65 million ECU in 1989 
and 20 million ECU in 1990); 
Whereas Article 2 (1) (b) of Council Decision 
88/376/EEC, Euratom of 1988 (') on the system 
of own resources lays down that customs duties on 
ECSC products (hereinafter referred to as 'ECSC 
customs duties') constitute Community own resources; 
whereas the abovementioned exceptional contribution 
can be made by payment of an amount equal to part of 
these duties, HAS DECIDED AS FOLLOWS: 
Sole Article 
To guarantee the Community financing of social 
measures to support the restructuring of the steel 
industry, the ECSC shall be allocated 65 million ECU 
from the general budget of the Communities in 1989 and 
20 million ECU in 1990, constituting a part of the ECSC 
customs duties. 
(») OJ No L 185, 15. 7. 1988, p. 24.