Commission Regulation (EC) No 1694/2002 of 27 September 2002 imposing definitive safeguard measures against imports of certain steel products
Date: 2002-09-27
Institutions: European Commission
Subjects: customs duties, developing countries, import, iron and steel product, originating product, protective clause, tariff quota

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I

(Acts whose publication is obligatory)

COMMISSION REGULATION (EC) No 1694/2002

of 27 September 2002

imposing definitive safeguard measures against imports of certain steel
products

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 3285/94 of 22 December 1994 on common rules for
imports and repealing Regulation (EC) No 518/94 (1), as last amended by Council Regulation (EC) No
2474/2000 (2), and in particular Articles 7 and 16 thereof,

Having regard to Council Regulation (EC) No 519/94 of 7 March 1994 on common rules for imports from
certain third countries and repealing Regulations (EEC) No 1765/82, (EEC) No 1766/82 and (EEC) 3420/
83 (3), as last amended by Regulation (EC) No 1138/98 (4), and in particular Articles 6 and 15 thereof,

After consultations within the Advisory Committee established under Article 4 of Regulation (EC) No
3285/94 and of Regulation (EC) No 519/94 respectively,

Whereas:

PROCEDURE

(1)

(2)

(3)

(4)

On 6 March 2002, certain Member States (‘the Member States concerned’) informed the Commission
that trends in imports appeared to call for safeguard measures; submitted information containing the
evidence available as determined on the basis of Article 10 of Regulation (EC) No 3285/94 and
Article 8 of Regulation (EC) No 519/94; and requested the Commission to impose provisional safe-
guard measures and to open a safeguard investigation.

The Member States concerned claimed that there had been recent substantial increases in imports of
certain steel products and that the closure of the US market implied by US trade defence measures
not only substantially denied the Community producers an important outlet for their exports, but
also created the conditions for a huge diversion of steel trade from the US to the European Commu-
nity (‘the Community’). They claimed that steel destined for the US would be re-directed to the
Community. This could lead to a dramatic increase in the existing high level of imports at low
prices, exacerbating the already serious disruption on the Community steel market due to previous
increased imports which threatened serious injury to the Community producers.

The Member States concerned advised that the Community producers had submitted relevant infor-
mation and urged the adoption of Community safeguard measures as a matter of urgency because
any delay in their adoption would cause damage which it would be difficult to repair.

The Commission informed all Member States of the alleged situation and consulted with them on
the terms and conditions of imports, import trends and the serious injury or threat thereof to each
of the sectors concerned, and the various aspects of the economic and commercial situation with
regard to the Community products in question.

(1) OJ L 349, 31.12.1994, p. 53.
(2) OJ L 286, 11.11.2000, p. 1.
(3) OJ L 67, 10.3.1994, p. 89.
(4) OJ L 159, 3.6.1998, p. 1.

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(5)

(6)

(7)

(8)

On 28 March 2002, the Commission initiated an investigation relating to serious injury or threat
thereof to the Community producers of products like or directly competing with certain imported
steel products. The 21 steel products covered by the investigation are (1) non alloy hot rolled coils,
(2) non alloy hot rolled sheets and plates, (3) non alloy hot rolled narrow strip, (4) alloy hot rolled
flat products, (5) cold rolled sheets, (6) electrical sheets (other than GOES), (7) metallic coated sheets,
(8) organic coated sheets, (9) tin mill products, (10) quarto plates, (11) wide flats, (12) non alloy
merchant bars and light sections, (13) alloy merchant bars and light sections, (14) rebars, (15) stain-
less bars and light shapes, (16) stainless wire rod, (17) stainless steel wire, (18) fittings (<609,6 mm),
(19) flanges (other than of stainless steel), (20) gas pipes and (21) hollow sections.

On the same day, on the basis of information gathered and verified prior to the initiation, provi-
sional measures were imposed on 15 of the steel products covered by the investigation. These are
the product numbers 1, 2, 3, 4, 5, 6, 9, 10, 11, 12, 13, 14, 17, 18 and 19 referred to in recital (5)
above.

The Commission proceeded to a full investigation in relation to each of the 21 products. The
Commission officially advised the exporting producers and importers as well as their representative
associations known to be concerned, the representatives of exporting countries and the Community
producers. The Commission sent questionnaires to all these parties and to those who made them-
selves known within the time limits set in the Notice of Initiation. Pursuant to Articles 5 of Council
Regulation (EC) No 519/94 and 6 of Council Regulation (EC) No 3285/94 the Commission also gave
parties directly concerned the opportunity to make their views known in writing and to request a
hearing.

Certain exporting producers, Community producers and importers submitted comments in writing.
All interested parties who requested a hearing within the time limit set and who indicated that they
were likely to be affected by the result of the proceeding and that there were particular reasons why
they should be heard, were granted such a hearing. The oral and written comments submitted by the
parties were considered and taken into account in reaching the definitive findings. The Commission
sought and verified all the information which it deemed necessary for the purpose of a definitive
determination. Verification visits were carried out at the premises of 30 Community producers, 12
exporting producers and 2 importers.

(9)

The results of the investigation in relation to product numbers 1, 2, 3, 4, 5, 18 and 19 are set out
below. The results of the investigation in relation to the remaining products are set out in a separate
regulation relating to those products.

RESULTS OF THE INVESTIGATIONS

1. PRODUCT 1: HOT ROLLED COILS

1.1. Product Concerned and Like or Directly Competing Product

1.1.1. Produc t Conc e rne d

(10)

The product concerned is certain flat rolled products of iron or non-alloy steel, of a width of
600mm or more, not clad, plated or coated, in coils, not further worked than hot-rolled (hereinafter
referred to as ‘hot rolled coils’). The product concerned is currently classified under CN codes
7208 10 00, 7208 25 00, 7208 26 00, 7208 27 00, 7208 36 00, 7208 37 10, 7208 37 90,
7208 38 10, 7208 38 90, 7208 39 10, 7208 39 90.

(11) Hot rolled coils are generally obtained in steel mills by hot rolling semi-finished steel products after
the final rolling pass or after pickling or continuous annealing. Hot rolled coils are wound into a
regular coil.

(12) Hot rolled coils can be of various grades and dimensions. The vast majority of imports from third
countries consist of ‘structural steels’ (such as S235 and S275 according to Euronorm EN 10025)
and ‘mild steels’ (such as DD11, DD12, DD13 according to EN10011 and ‘Deutsche Industrie Norm’
DIN 1614/1). Each of the relevant CN codes listed above corresponds to a specific product type as
differentiated by width and thickness within the above ranges.

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(13)

The product concerned is also classified into two distinct categories according to its finish: black hot
rolled coils, which are the basic product, and pickled hot rolled coils, which, after being hot rolled,
go through an additional surface treatment called pickling. The distinction between black coils and
pickled coils is also reflected in the structure of the Combined Nomenclature as coils classified under
the two categories belong to specific and separate CN codes.

(14) Hot rolled coils are used as a pre-material for manufacturing other steel products (wide and narrow

strips, all cold rolled products, tubes, etc.).

(15) Notwithstanding the fact that each CN code corresponds to a distinguishable type of hot rolled coil,
it was found that they all have identical characteristics or similar physical and technical characteris-
tics, uses and applications. Accordingly, all types of hot rolled coils form one single product falling
under the relevant CN codes listed above.

1.1.2. Like O r Direc tly Comp e ting Produc ts

(16)

The Commission has examined whether the product produced by the Community producers (herein-
after referred to as ‘the like product’) is like the imported product concerned. In the course of the
investigation, the Commission received submissions from certain major exporters and importers of
hot rolled coils which alleged that certain types of hot rolled coil imported into the Community were
not produced by the Community producers and therefore should not be considered as ‘like’ the
product concerned.

(17)

The Commission examined these submissions in detail, and took into account in particular the
following findings of the investigation:

(a) the imported product and the Community product shared the same international classification
for tariff purposes. Furthermore, they shared the same or similar physical properties such as
composition, size, shape and texture and were manufactured to internationally recognised stan-
dards;

(b) the imported product and the Community product were sold via similar or identical sales chan-
nels and price information was readily available (for example, details of prices are published in
industry periodicals, such as the Metal Bulletin and Steel Weekly) and the product concerned and
the product of the Community producers competed mainly on price;

(c) the imported product and the Community product were both capable of serving the same or
similar end-uses, they were, therefore, largely alternative or substitute products and were easily
interchangeable;

(d) the imported product and the Community product were both perceived by consumers as alterna-
tive means of performing particular functions in order to satisfy a particular want or demand, in
this respect the differences identified by the exporter/importer were simply minor variations
manufactured for a particular customer.

(18)

The Commission has concluded that despite the alleged technical differences in the product charac-
teristics and qualities identified in those submissions, the imported product and the Community
product are ‘like or directly competing’.

1.2. Increased Imports

(19)

The Commission has examined whether the product concerned is imported into the Community in
such greatly increased quantities, absolute or relative to Community production and/or on such
terms or conditions as to cause or threaten to cause, serious injury to the Community producers. In
this respect, the Commission has focused on imports of the product concerned in the most recent
period for which data were available in absolute terms and relative to production destined for sales
(excluding ‘captive use’) and total production. The table below shows the development of imports in
absolute terms and against both Community production destined for sales and total Community
production (including captive use) for each of the years 1997 to 2001.

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Product 1

Hot rolled coils

CONSUMPTION

1997

1998

1999

2000

2001

Volume (tonnes)

22 943 397

22 894 274

22 544 897

23 178 301

22 501 555

IMPORT DATA

1997

1998

1999

2000

2001

Total imports (including agree-
ment countries)

Volume (in tonnes)

3 281 808

4 817 109

3 847 708

4 829 175

5 011 290

Rate of increase (in %)

46,8 %

– 20,1 %

25,5 %

3,8 %

Market share (in %)

14,3 %

21,0 %

17,1 %

20,8 %

22,3 %

Ratio between imports and total
production (in %)

Ratio between imports and
production sold (in %)

4,9 %

7,4 %

5,8 %

7,2 %

8,0 %

14,8 %

23,7 %

18,6 %

23,8 %

25,8 %

Unit prices (in euro/tonne)

242

221

223

290

254

1998/1997

1999/1998

2000/1999

2001/2000

Volume as moving averages (in
tonnes)

4 049 459

4 332 409

4 338 442

4 920 233

(20)

(21)

In the period prior to the Asian crisis (1), imports were more or less constant at around 2,4m tonnes
(1995: 2,26m tonnes, 1996: 2,39m tonnes). As a result of the Asian crisis, between 1997 and 1998,
imports increased by around 47 % whilst their average price fell by nearly 9 %. Relative to total
Community production,
imports increased from around 5 % to around 7 %, whilst relative to
production sold, they increased from 14,8 % to 23,7 %. However, the Commission considers that the
level of imports in 1998 was non representative due to the extremely low prices practised by Asian
producers and the resulting influx of imports.

In the following year, as the effects of the Asian crisis began to recede, imports fell back to more
normal levels albeit somewhat higher than in 1997 but their average price remained depressed. In
1999, imports also fell relative to total production and to production sold on the free market. Never-
theless, comparing 1997 and 1999, a progression in import penetration by imports can be observed
in absolute terms, and relative to production destined for sales and total production.

(1) The effects of the Asian crisis were felt around the world in 1998 and 1999. In particular, as Asian steel producers
fought to maintain sales volumes in the face of the collapse of their domestic markets, they sought to open up new
markets by offering low prices, and found the Community market to be an important outlet for their goods. In conse-
quence, imports of the products concerned increased markedly in 1998, and prices fell sharply in 1999.

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(22)

(23)

(24)

Between 1999 and 2000, there was an increase in imports from 3,85m tonnes to 4,83m tonnes, an
increase of 0,98m tonnes or 25 %. Over the same period, production destined for sales fell slightly
(from 20,7mt to 20,3mt) so that the increase relative to free market production was 28 %. Total
production increased by nearly 2 % in 2000, reflecting an increase in production for captive use, so
that the increase in imports relative to total production was smaller, at 24 %.

Between 2000 and 2001, imports increased further to 5,01 million tonnes (an increase of about
0,18m tonnes or 4 %). In 2001, production destined for sales contracted by a further 4,2 % to
19,45m tonnes so that, relative to production sold on the free market, imports increased by around
8 %. Total production also fell in 2001 (by 5,05m tonnes or 7,5 %), reflecting a decrease in produc-
tion for captive use and in production sold on the free market, so that the increase in imports rela-
tive to total production was around 11 %.

The price of the product concerned fell between 1997 and 1998, and remained at a depressed level
in 1999. The fall in 1998 and continuing price depression in 1999 appear to have resulted from the
Asian crisis. Prices rose in 2000 (to 290 EUR/tonne) but fell again in 2001 (by 13 %). The Commis-
sion notes that, although prices increased in 2000, the increase in imports (both absolute and rela-
tive to production) continued in 2001 against a background of falling prices. The average price of
imports fell from 290 EUR/tonne in 2000 to 254 EUR/tonne in 2001. The Commission also notes
that the further increase in imports to the Community occurred at a time when the euro was rela-
tively weak by comparison to the US dollar and, during which prices in the US for hot rolled coils
were between 30 % and 40 % higher than prices for that product in the Community.

1 . 2 . 1 . T w o ye a r mov i n g a v e r a g e

(25)

In order to establish the underlying trend in the level of imports between 1997 and 2001 and deter-
mine whether the recent increases in imports form an established trend, the Commission considered
two year moving averages. These illustrate that, whilst between 1997/98 and 1999/00, imports in
any two year period fluctuated between 4,05m tonnes and 4,34m tonnes, between 1999/00 and
2000/01 they increased by over 13 % from 4,34m tonnes to 4,92m tonnes.

1.2.2. Marke t share of i mp or ts

(26)

The market share of imports increased steeply between 1997 and 1998 as a result of the Asian crisis,
before falling back to 17,1 % in 1999, representing an increase of around 19 % relative to 1997.
From 2000 onwards, the market share of imports increased to 20,8 % and then 22,3 % — increases
of around 22 % and 7 % respectively.

1.2.3. Conclusion

(27) Whilst imports increased sharply in 1998, the Commission considers that that increase was excep-
tional and cannot be considered to represent part of the normal development of imports. This is also
reflected in the fact that imports declined substantially in 1999. Leaving aside 1998, the annual rate
of growth in imports between 1997 and 1999 was 8,6 % in absolute terms (9.2 % relative to total
production and 13 % relative to production sold on the free market). By contrast between 1999 and
2000, the annual rate of growth in imports in absolute terms was 25 % (24 % relative to total
production and 28 % relative to production sold on the free market). By each measure, the annual
rate of growth of imports was more than twice as high between 1999 and 2000 than in the previous
period with a further increase in 2001. It should be noted that the high level of imports according
to the utilisation of the quota set at the provisional stage appears to be confirmed for 2002.

(28)

That recent increases in imports are not attributable to established trends in import levels is demon-
strated by the development of the two year moving average of imports over the five year period of
investigation.

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(29)

It is concluded that the increases in the recent past can be considered sudden, sharp and significant
when comparing them to developments in previous years, in particular bearing in mind that the
increase in imports in 1998, must be considered non representative.

1.3. Unforeseen Developments

1. 3. 1.

Inc r e a se d u se of tr ade de fe nce i nstr ume nt s by th e US

(30)

From 1998 onwards, in reaction to the Asian crisis, the US, which represents around one eighth of
world steel consumption, began to make greater use of trade defence instruments (TDIs) in the steel
sector with a view to protecting their domestic producers from competition. A number of these
measures have been adjudicated in the WTO and some of the methodologies used have been
declared to be WTO incompatible. Nevertheless, many of the measures which remain in force are
based on these same methodologies.

(31)

The table below shows the annual number of anti-dumping and countervailing duty final determina-
tions for one or more countries made by the US between 1997 and 2001 in relation to the steel
sector as a whole, and illustrates the increase in activity in the last three years.

Year

1997

1998

1999

2000

2001

Anti-dumping duty final determinations

Countervailing duty final determina-
tions

5

6

16

14

26

0

1

7

5

5

(32)

(33)

(34)

In the course of 2001, the US also announced further broadly based action in the steel sector. In
January 2001, the US opened an investigation into steel under section 223 of the US Trade Act of
1974. In July 2001, the US ITC announced a broad ranging investigation into steel under section
202 of the Trade Act of 1974; and in December, the ITC recommended safeguard measures across a
broad range of steel products.

These actions, had an increasingly discouraging effect on imports of steel products to the US and led
to a decrease in US steel imports of 33 % between 1998 and 2001, and culminated in the safeguard
measures announced by the US on 5 March 2002. In particular, the safeguard proceeding, which
had been mooted for several months before its initiation, had a restraining effect on imports to the
US due to the uncertainty which it created for economic operators. It is indeed the largest commer-
cial defence action ever initiated by a WTO member covering imports worth some USD 17 billion.

1. 3. 2.

Inc r e a se d u se of TDIs by th e US — r e la ti ng to t h e p r oduct conce r ne d

In relation to hot rolled coils, the US imposed 14 anti-dumping measures (including one suspension
agreement) at high levels of duty and 6 countervailing duty measures between 1999 and 2001. In
particular, in July 1999, the US imposed anti-dumping duties of between 41,27 % and 43,40 % on
imports of the product concerned originating in Brazil. In September 2000, the US imposed anti-
dumping duties of between 40,6 % and 44,59 % and countervailing duties of 41,69 % (some of
which applied cumulatively) on imports of the product concerned originating in Argentina. In
November 2000, the US imposed anti-dumping duties of between 64,20 % and 90,83 % on imports
of the product concerned originating in China. Also in November 2000, the US imposed anti-
dumping duties of between 36,53 % and 44,40 % and countervailing duties of between 8,28 % and
31,89 % (some of which applied cumulatively) on imports of the product concerned originating in
India.

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(35)

(36)

(37)

By 15 March 2002, in relation to hot rolled coils, the US had in force anti-dumping measures
against exporters in 14 countries and countervailing measures against exporters in 6 countries The
countries concerned by these proceedings were Argentina, Brazil, China, India, Indonesia, Japan,
Kazakhstan, the Netherlands, Romania, Russia, South Africa, Taiwan, Thailand and Ukraine. In each
case, after an anti-dumping or countervailing measure has been taken, US imports of the product
concerned from that country have declined. In addition, the dramatic fall in US imports in 2001
occurred in a year in which not only were 14 anti-dumping and 6 countervailing measures relating
to the product concerned in place, but at the start of which the US opened a steel investigation
under section 223 of the US Trade Act of 1974 and in the middle of which the US ITC announced a
broad ranging investigation into steel under section 202 of the Trade Act of 1974.

Between 1999 and 2001, US imports decreased from 5,40m tonnes to 2,56m tonnes. In the same
period imports to the Community increased from 3,8m tonnes to 5m tonnes, an increase of 32 %.

The Commission has also determined that an effect of the US reducing imports of hot rolled coils to
its market was to increase imports to the Community market. On the basis of the available informa-
tion, the Commission has determined that there is a correlation in time between the increased and
extensive use of TDIs by the US in recent years, the dramatic reduction in US imports of hot rolled
coils between 2000 and 2001, and the increase in Community imports of that product in that
period. The Community was the principal export market for hot rolled coils in 2001. Both the
Community and US markets have the same types of industrial users. Many of the exporters affected
by the US TDIs have also exported to the Community for a number of years. At the same time as
US imports fell dramatically, imports into the Community grew to record levels notwithstanding a
fall in GDP growth, production and consumption in the Community in 2001.

(38)

This increased and extensive use of trade defence instruments, a number of which were found to be
WTO incompatible, could not have been foreseen at the conclusion of the Uruguay Round and
constitutes the unforeseen circumstances as required by the Safeguard Agreement.

1.3.3. De cre a se In Imp or ts to the US

(39)

The table below shows imports of goods classified within Harmonised System Code (HSC) 720810,
720825, 720826, 720827, 720836, 720837, 720838, 720839 (which include the product
concerned and the like product) to the US for the period 1997 to 2001.

Year

1997

1998

1999

2000

2001

Imports of the product concerned to the US (tonnes)

5 508 649

9 906 857

5 403 479

6 368 045

2 562 747

Source: Global Trade Atlas

(40)

(41)

Imports to the US increased between 1997 and 1998, before falling back to just below 1997 levels
in 1999. Between 1999 and 2000, they increased to around 6,4 million tonnes. Between 2000 and
2001, imports fell very sharply, by around 60 %.

The decrease in the level of imports of hot rolled coils to the US can be explained, primarily, by
reference to the direct effect of the measures referred to in paragraphs (21) to (26) above on expor-
ters whose goods became subject to anti-dumping and/or countervailing duties; but also by the
indirect dissuasive effect of those measures and the investigations on all exporters of the product
concerned to the US.

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(42)

The table below illustrates the effect of particular anti-dumping/countervailing measures on exports
of the product concerned from certain countries.

Country

Date of imposition of AD
measures

India

Taiwan

China

Romania

Indonesia

Thailand

November 2000

November 2000

November 2000

November 2000

November 2000

November 2000

1.4. Definition of the Community Producers

Exports to the US (volume in tonnes)

2000

745 000

648 000

434 000

369 000

235 000

212 000

2001

46 000

38 000

36 000

52 000

10 000

14 000

(43)

Total Community production of hot rolled coils is around 68 million tonnes per annum. The
Community steel companies which cooperated fully in the investigation are:

— Aceralia Corporacion Siderurgica, Spain;

— Cockerill Sambre SA, Belgium;

— Arbed Sidmar NV, Belgium;

— Sollac SA, France;

— Stahlwerke Bremen GmbH, Germany;

— EKO Stahl GmbH, Germany;

— Corus Strip UK, UK;

— Corus Staal BV, The Netherlands;

— Rautaruukki Oyj, Finland;

— Riva Ilva SpA, Italy;

— Salzgitter AG Stahl & Technologie, Germany;

— SSAB Tunplatt AB, Sweden;

— Thyssen Krupp Stahl AG, Germany.

(44)

These companies are all members of the European Confederation of the Iron and Steel Industry
(‘Eurofer’). They accounted for around 91,4 % of the total Community production of the product
concerned, and represent a major proportion of total Community production within the meaning of
Article 5(3)(c) of Regulation (EC) No 3285/94 and Article 15(1) of Regulation (EC) No 519/94. They
are accordingly considered as the Community producers for the purposes of this proceeding.

1.5. Serious Injury

1 . 5 . 1 .

Int r odu c t i o n

(45)

i.e. a significant overall

In order to determine whether there is serious injury to the Community producers of the like
product,
impairment in the position of the Community producers, the
Commission has evaluated all relevant factors of an objective and quantifiable nature having a
bearing on the situation of the Community producers. In particular, for the product concerned, the
Commission has evaluated the development of production capacity, production, capacity utilisation,
employment, productivity, cash flow, return on capital employed, captive use, stocks, consumption,
sales, market share, price, undercutting and profitability for the years 1997 to 2001. The relevant
economic data are provided at the end of this product analysis.

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(46)

(47)

(48)

(49)

(50)

(51)

The investigation has demonstrated that hot rolled coils can follow one of two distinct destinations.
They can either be sold as hot rolled coils or used internally to make other products. It was found
that around 69 % of the hot rolled coils manufactured by the Community producers are used intern-
ally (i.e. they are further processed by these producers in an integrated process, often on the same
production line, hereinafter referred to as ‘captive use’). These hot rolled coils follow an internal
process of downstream processing for which invoices are not normally issued.

The remaining production is sold as hot rolled coils to both related and unrelated customers at
market prices on the Community market (hereinafter referred to as the ‘free market’). Imports of hot
rolled coils are also sold on the free market. The main purchasers on the free market are independent
cold rolling mills, tube makers, steel service centres, steel merchants and stockholders. Both the hot
rolled coils sold by the Community industry and imported hot rolled coils are sold to the same types
of customers and are used for the same purposes. The sale of hot rolled coils on the free market is
supported by the issuing of commercial invoices.

The investigation demonstrated that there is a clear distinction between hot rolled coils destined for
captive use and those destined for the free market. Hot rolled coils destined for captive use were
found not to be directly affected by the imports. By contrast, production destined for sales was in
direct competition with the imports.

In order to provide as complete a picture as possible of the situation of the Community producers,
the Commission has obtained and analysed data both for hot rolled coils destined for captive use
and those destined for the free market. Because the free market sales are in competition with the
imported products concerned, the Commission focused its attention on the free market. While it
has, to the extent possible, combined free market and captive data, it has also split the analysis
between free market and captive use, where necessary and possible.

1 . 5 . 2 . A n a ly si s of t h e Wh ol e A c t i v i t y for th e P r odu c t Conc e r n e d

1.5.2.1. Production capacity and Capacity utilisation

1997

1998

1999

2000

2001

Capacity (tonnes)

78 500 000

78 500 000

78 500 000

78 500 000

78 500 000

Capacity Utilisation (%)

85,2 %

83,4 %

84,3 %

85,9 %

79,4 %

The investigation showed that there were no significant changes in overall estimated theoretical
production capacity throughout the period of the investigation.

Capacity utilisation remained relatively stable between 1997 and 2000 (varying between 83,4 % and
85,9 %) but fell by nearly 8 % in 2001 (to 79.4 %). The steel industry requires to achieve a high level
of capacity utilisation to make profits, and this sharp fall in capacity utilisation reflects the fall in
production.

1.5.2.2. Total Community Production

1997

1998

1999

2000

2001

Production (tonnes)

66 892 420

65 474 371

66 184 419

67 414 844

62 361 216

(52)

Total Community production fell between 1997 and 1998, but partially recovered in 1999 and
reached a peak in 2000 in line with the increase in demand. In 2001, production fell as sales and
captive use declined. In this respect, reference is made to the analysis of imports in relation to
product 5, the largest of the downstream products.

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1.5.2.3. Employment

Employment (end of period)

34 814

34 644

32 731

32 583

31 181

1997

1998

1999

2000

2001

(53)

Employment in relation to the product concerned was more or less stable in 1997 and 1998. It fell
by nearly 2300 (6,6 %) between 1998 and 1999 amidst reports of plant closures, but stabilised in
2000. Employment fell by a further 1 400 (4,3 %) in 2001, and loss of employment was particularly
felt in 2001 due to further plant closures. Employment is expected to fall further in 2002, and this
expectation was to some extent confirmed by the closure of one facility in the UK which occurred in
the second quarter of 2002.

1.5.2.4. Productivity

Productivity (tonne/employee)

1 921

1 890

2 045

2 069

2 000

1997

1998

1999

2000

2001

(54)

Productivity remained stable at around 1 900 tonnes/employee in 1997 and 1998 before climbing
to over 2 000 tonnes/employee in 1999. It remained stable at about this level throughout 2000 and
2001.

1.5.2.5. Cash Flow

Cash Flow (index)

100

60

– 10

67

36

1997

1998

1999

2000

2001

(55)

Cash flow could only be examined at the level of the cooperating companies which produced the
product concerned rather than in relation to only the product concerned itself. This indicator was
therefore seen as less meaningful than the other indicators shown above. Nevertheless, a negative
situation is evident between 1997 and 2001 and from 2000 to 2001.

1.5.2.6. Return on Capital Employed (ROCE)

ROCE

10,5 %

14,3 %

4,7 %

7,4 %

1,6 %

1997

1998

1999

2000

2001

(56)

(57)

ROCE could only be examined on the level of the cooperating companies which produced the
product concerned rather than in relation to only the product concerned itself. This indicator was
therefore also seen as less meaningful than the other indicators shown above. Nevertheless, a nega-
tive situation is evident between 1997 and 2001 and from 2000 to 2001.

It was not found to be relevant to analyse consumption, sales volume, market share, unit prices,
profitability and stocks under this heading because a complete analysis of these indicators was only
relevant to the free market.

1.5.3. Ana ly sis of t he F ree M arke t

1.5.3.1. Consumption

Consumption (tonnes)

22 943 397

22 894 274

22 544 897

23 178 301

22 501 555

1997

1998

1999

2000

2001

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(58)

(59)

Consumption of hot rolled coils in the Community was established on the basis of the total sales
made by the Community producers on the free market and total imports of the product concerned
into the Community as reported by Eurostat.

Between 1997 and 1999, consumption in the Community declined by nearly 2 % from 22,9m
tonnes to 22,5m tonnes. Between 1999 and 2000, it grew by 2,8 % to reach its highest level for the
five year period (23,2m tonnes), before falling back to 22,5m tonnes in 2001 (a fall of 3 %). The fall
in consumption between 2000 and 2001 is examined under other factors to determine whether, and
if so, to what extent, it contributed to the serious injury suffered by the Community producers.

1.5.3.2. Sales volume

1997

1998

1999

2000

2001

Sales volume in the Community
(tonnes)

19 661 589

18 077 165

18 697 189

18 349 126

17 490 265

(60)

Sales of the like product in the Community fell from 19,66m tonnes to 18,08m tonnes between
1997 and 1998 before recovering to 18,70m tonnes in 1999. Thereafter, between 1999 and 2000,
sales of the like product again fell, this time by 2 %. Between 2000 and 2001, sales fell by a further
4 %, reaching a five year low of 17,49m tonnes in 2001. This reflects the increasing dominance of
imports in a declining market.

1.5.3.3. Market share

1997

1998

1999

2000

2001

Market share (%)

85,7 %

79,0 %

82,9 %

79,2 %

77,7 %

(61)

The Community producers market share fell from 85,7 % to 79 % between 1997 and 1998 as a
result of the significant increase in imports from the South East Asia in 1998 that occurred as a
result of the Asian crisis. In order to regain most of that lost market share the following year (1999),
the Community producers had no choice but to respond to the price decreases initiated by imports
by cutting their own prices. However, since 1999, the Community producers market share has
declined substantially, to 79,2 % in 2000 and 77,7 % in 2001. This demonstrates the increasing
market penetration of imports in that period, which has occurred despite the fact that Community
producers lowered their prices by 8 % between 2000 and 2001. The combination of the fall in prices
and loss of market share to imports had a dramatic effect on the profitability of the Community
producers as discussed below.

1.5.3.4. Price of like product and undercutting

1997

1998

1999

2000

2001

Unit prices of Community sales
(EUR/tonne)

273

290

235

301

277

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Unit prices of Community sales
(EUR/tonne)

283

277

277

270

254

(62)

The average price of the like product rose between 1997 and 1998 before falling to a five-year low
of 235 EUR/tonne in 1999. Prices recovered in 2000, but fell again (by 8 %) to 277 EUR/tonne in
2001. This trend is further confirmed because quarterly prices from Q1 2001 to Q1 2002 show a
fall from 283 EUR/tonne to 254 EUR/tonne in the price of the Community product.

L 261/12

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(63)

(64)

(65)

In order to determine the level of undercutting, price information was examined for comparable time
periods, at the same level of trade and for sales to similar customers. Based on a comparison of
prices invoiced by the Community producers and by exporting producers to the Community,
domestic prices were undercut by an average of 3,9 % in 2001.

The Commission notes that, throughout the whole period of the investigation, the price of imports
was clearly below the price of the Community product. The graph illustrates that the sharp increase
in imports at low prices in 1998 forced the Community producers to reduce their prices in 1999,
leading to a sharp reduction in profitability and the losses sustained by the Community producers in
1999. In 2000, increased consumption and more normal market conditions enabled the Community
producers to increase their prices and their profitability. However, the sharp increase in imports in
that year, led to a fall in prices in 2001. That sharp increase continued into 2001 and its continued
effect is seen in the fall in the price of the Community product.

1.5.3.5. Profitability

1997

1998

1999

2000

2001

Net profit/loss on Community
sales (%)

6,3 %

9,4 %

– 6,5 %

10,8 %

– 3,1 %

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Net profit/loss on Community
sales (%)

1,1 %

– 3,0 %

– 3,2 %

– 8,2 %

– 10,9 %

imports fell

The profitability of the Community producers sales in the Community varied significantly in the
five-year period under consideration. The lowest profitability was recorded in 1999, and the highest
in 2000. In 2001, as imports increased to their highest level in the five-year period, the average price
to
of
277 EUR/tonne. This is mirrored in the undercutting of 3,9 % found for 2001. This fall in prices
taken together with the fall in sales volume led the Community producers profitability to fall from
10,8 % to –3,1 %. This trend is further confirmed because quarterly data for Q1 2001 to Q1 2002,
shows that the profitability of the Community producers sales on the Community market fell from
1,1 % to –10,9 %.

to 254 EUR/tonne and the average price of

the Community product

fell

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Official Journal of the European Communities

L 261/13

(66) Underselling reflects the extent to which the price of the imported product is lower than the price
level which the Community producers could be expected to achieve in a non-injurious situation. The
level of underselling was calculated on the basis of the weighted average non injurious price per
tonne of the Community product. This price was calculated by taking the respective cost of produc-
tion for the Community product to which was added a profit margin of 8 %. This profit margin was
considered reasonable as it refers to profits of the Community producers in a normal trading situa-
tion unaffected by sudden sharp rise in imports. This non injurious price was compared with the
weighted average price per tonne of the imported product concerned during 2001. The difference
between these two prices was expressed as a percentage of the cif/Community border price of the
imported product, and resulted in underselling of 17,5 %.

1.5.3.6. Stocks

1997

1998

1999

2000

2001

Closing stock (tonnes)

3 059 191

2 872 418

3 780 685

4 353 854

4 521 801

(67)

Stock levels fell slightly in 1998, but then increased significantly in 1999 and again (though more
modestly) in 2000 and 2001. The increase in stock between 1998 and 1999 coincided with a fall in
captive use and appears to be chiefly attributable to that fall. However, despite the recovery in
captive use in the following year (2000), stock levels continued to grow. They grew further in 2001
as both production destined for sales and captive use declined.

1.5.4. Ana ly sis of Ca p tiv e Use

1997

1998

1999

2000

2001

Captive use (tonnes)

44 685 095

45 361 899

44 633 623

46 702 238

42 785 150

Some indicators relating to captive use have been shown in global terms, whereby captive use forms
part of the analysis of the whole activity for the product concerned (i.e. capacity and capacity utilisa-
tion, employment and productivity). With respect to certain other factors which are analysed above
in respect of the free market, i.e., sales prices, stocks and profitability, the data received is not, by its
very nature, adapted to an immediate and objective comparison with the data obtained for the free
market for hot rolled coils, but nevertheless does not show evidence that it was more profitable to
produce for captive use than for the free market. Therefore, this analysis focuses on production for
captive use and examines if its trend is comparable to those of the free and total markets.

Production for captive use increased by nearly 700 000 tonnes between 1997 and 1998 before
falling back to 44,6m tonnes in 1999. Captive use increased between 1999 and 2000, from 44,6 to
46,7m tonnes (an increase of 4,7 %). This allowed the Community producers to increase total
production in 2000 despite a fall in production sold in the free market. In 2001, however, captive
use fell. Together with the fall in production sold on the free market, this led to a fall in total produc-
tion to 62,4m tonnes in 2001 (a fall of over 7 % from 2000).

1.5.5. Conclusion

The data shows that while production capacity remained stable and there is a slight increase in
productivity, overall, there is negative development for capacity utilisation, production, employment,
and negative elements can as well be observed for cash flow and ROCE. Overall, the free market data
shows, before the background of a decline in consumption and an increase in stocks, negative devel-
opments for sales, market share, prices and profitability. The data for captive use has demonstrated
that a similar trend was identified in respect of captive use. These findings were indeed supported by
the analysis of the whole activity for the product concerned.

(68)

(69)

(70)

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(71)

(72)

In particular, the Commission notes that whilst, in 2001, as imports reached their highest level for
five years (5m tonnes), the Community producers' sales volume in the Community reached its lowest
level for five years (17,49m tonnes) and profitability fell rapidly. This occurred against the back-
ground of a concurrent fall in production sold on the free market, consumption and falling prices.
Against such a background, imports could have been expected to fall, but instead they rose for the
second consecutive year.

The effect of this combination of factors on the Community producers is reflected in the economic
indicators. The Community producers have lost market share, which reached its lowest level for five
years in 2001. Capacity utilisation has fallen sharply in 2001, and with it productivity. Employment
has also fallen and is expected to fall further in 2002. The overall effect of the falls in production,
Community sales volume and prices was to reduce the profitability of the Community producers
and plunge them into a loss-making situation in 2001. These trends are confirmed by the continuing
deterioration in prices and profitability between Q1 2001 and Q1 2002.

(73)

Taking account of all of these factors and relying, in particular, on its analysis of the free market
activities, the Commission concludes that the Community producers have suffered serious injury.

1.6. Causation

(74)

In order to examine the existence of a causal link between increased imports and the serious injury,
and in order to ensure that injury caused by other factors is not attributed to increased imports, the
Commission has proceeded as follows:

— The injurious effects of factors considered to be causing injury have been distinguished from each

other,

— These injurious effects have been attributed to the factors which are causing them, and,

— After having attributed injury to all causal factors present, the Commission has determined

whether increased imports are a genuine and substantial cause of serious injury.

1.6.1. Effe ct of incr ease d i mp or ts

(75)

(76)

The market for hot rolled coils is a transparent one as regards sources of supply, customers and
prices. As hot rolled coils are essentially a commodity product, the product concerned and the like
product compete mainly on price.

In the period 1999 to 2001, the market share of imports grew from 17,1 % of the market to
22,3 %, whilst the market share of the Community producers fell from 82,9 % to 77,7 %. Over the
same period, imports have grown from 18,6 % to 25,8 % of production sold on the free market.
Thus, imports have also increased relative to production, at the expense of the Community produ-
cers.

(77) As to prices, between 2000 and 2001, the average unit price of the imported product on the
Community market fell from 290 to 254 EUR/tonne. The average unit price of the Community
product fell from 301 to 277 EUR/tonne. In this transparent market, price undercutting had a deci-
sive impact. The effect of the fall in the average unit price of the like product alone on the Commu-
nity producers Community sales revenue would have been a reduction of 8 % (EUR 440m) in 2001.
Taking account of the simultaneous fall in sales volume the actual fall in sales revenue in the
Community was EUR 678m. Fixed costs represent a material proportion of total costs. Therefore,
the reduction in sales revenues created a disproportionately higher fall in profits, and, in 2001, the
Community producers made a loss of -3,1 %. This fall in prices and profitability furthermore must
be seen in the context of a number of plant closures and ensuing reduction in employment.

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(78)

For these reasons, it is considered that there is a correlation between the increase in imports at low
prices and the serious injury suffered by the Community producers, and that the increase in imports
has had injurious effects in particular in terms of pressure on prices and a reduction in the volume
sold by the Community producers on the Community market.

1 . 6 . 2 . E f fe c t of c h a n g e s i n con su m p t i o n

(79)

(80)

(81)

The Commission examined the injurious effects of the fall in consumption between 2000 and 2001.
That fall has to be considered in the context of the overall trend during the 5 year period under
investigation. Consumption decreased from 22,9m tonnes in 1997 to 22,5m tonnes in 1999, but
then grew by 634 000 tonnes to 23,2m tonnes in 2000, before falling back some 677 000 tonnes
to 22,5m tonnes in 2001.

In this particular case, the Commission considers that the apparent rise in consumption in 2000 was
largely due to the large increase in imports and stocks in that year. For this reason, the trend move-
ments present a more accurate picture. Although consumption fell between 2000 and 2001, overall
during the five year period consumption fell by 442 000 tonnes or 2 %. This represents an average
rate of decline of 0,4 % per annum.

In examining this question in this particular case account has to be taken of the reaction of all
market participants to the trend fall in consumption. In this respect, it was found that while Commu-
nity producers were forced to reduce their sales in the Community by roughly 900 000 tonnes in
2001 compared to 2000, imports moved sharply in the other direction. No economic justification
was established which could explain the sharp rise in imports. For example, no exporter claimed that
this was due to lower production costs.

(82) As regards price effects, a fall in consumption of only 0,4 % per annum should not normally lead to
substantial price effects if production is quickly adjusted to the needs of the market. In this respect,
the Community producers appear to have reacted by reducing both production and sales to a greater
extent than that necessary to be in line with the falls in consumption.

(83)

Similarly, if price pressure is reduced then the injurious effects which stem from low prices would
also be kept in check. The most important factor here is profit, where any fall would have been
minimised if prices had not fallen substantially. Therefore, it is reasonable to conclude that in the
absence of the sharp rise in imports at low prices, the fall in consumption would not have led to a
substantial fall in profits.

(84) Nevertheless, even if all market participants acted responsibly and adjusted their production, the
Community producers would still have sold less. Consumption in 2001 was at the same level as in
1999 (i.e. 22,5m tonnes). In 2000, consumption increased by 600 000 tonnes only to fall back to
the 1999 level in 2001. The Community producers' sales, however, decreased in 2000 compared to
1999 by 350 000 tonnes despite the enormous increase in consumption. At the same time, imports
increased in 2000 by 1 000 000 tonnes compared to 1999. Imports therefore took the entire
increase in consumption and considerably more. In 2001, consumption fell back to the 1999 levels
and the Community producers' sales fell by roughly 900 000 tonnes whereas imports continued to
increase. In terms of the trend fall in consumption, the Community producers fall in sales should
have been approximately 70 000 tonnes per annum.

(85)

For the reasons given above, it is concluded that there is a significant, but not substantial, link
between the fall in consumption and the injurious effects observed.

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1 . 6 . 3 . E f fe c t of c h a n g e s i n ca p t i v e u s e

(86)

(87)

(88)

The Commission has also examined the effects of the development of captive use of hot rolled coils.
This was more or less stable between 1997 and 1999 (44,6 million tonnes), but rose considerably in
2000 (46,7 million tonnes) and then fell in 2001 (42,8 million tonnes). The trend fall over the
period was approximately 2 million tonnes. The Commission noted that this trend fall corresponded
with the market conditions for the intermediate and finished products.

The further data received in respect of captive use is not, by its very nature, adapted to an immediate
and objective comparison with the data obtained for the free market for hot rolled coils, but never-
theless does not show evidence that it was more profitable to produce for captive use than for the
free market.

The fall in captive use thus has caused injurious effects in terms of production, which in turn has
affected capacity utilisation, and ultimately profitability. However, the fall in prices and revenues
suffered by Community producers on the free market was created by low priced imports and bears
little or no relation to the fall in captive use.

1 . 6 . 4 . E f fe c t of c h a n g e s i n e x p o r t p e r for m a n c e

(89)

The Commission also examined the effects of a fall in exports.

1997

1998

1999

2000

2001

Exports (tonnes)

2 535 803

2 252 734

1 994 922

1 952 276

1 958 549

(90)

Between 1997 and 1999, the volume of Community producers' exports of hot rolled coils fell from
2,54m tonnes to 1,94m tonnes. Between 1999 and 2001, exports remained relatively stable, with a
decrease in 2000 and a small increase in 2001. Over the five year period, exports decreased by
approximately 580 000 tonnes, although most of this occurred between 1997 and 1999. Since
1999, exports have been stable. Therefore, in the most recent period between 2000 and 2001 they
have not contributed to the injurious effects. In this respect, as the injury resulting from a fall in
exports mainly occurred in the early part of the 5 year period it has to be viewed as less significant
than if it had occurred in the latter part of the 5 year period.

(91)

For the reasons given above, it is concluded that there is some link between the fall in exports and
the injurious effects observed in the earlier part of the 5 year period.

1.6.5. Effe ct of any e xc ess c ap ac ity

(92)

The Commission has further examined whether injurious effects may have resulted from excess capa-
city amongst the Community producers. There were no significant changes in overall estimated theo-
retical production capacity throughout the period of the investigation, and capacity utilisation always
remained above or very slightly below 80 %. Therefore, no correlation between capacity and the
injurious effects was observed.

1.6.6. Effe ct of restr ucturing

(93)

The Commission further examined the injurious effects of the costs of restructuring which the
Community producers have undergone in recent years. In this respect it is noted that restructuring
will as a rule imply short term costs such as redundancy payments, acquisition costs, etc., which are
outweighed by medium term efficiency gains. In view of the ongoing rationalisation process, this
would imply that ongoing short term costs, even if found to be minor, impacted on the cost struc-
ture.

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1 . 6 . 7 . A t t r i b u t i on of i n j u r i ou s e ff e c ts

(94)

(95)

The serious injury suffered by the Community producers took the form mainly of reduced sales and
worsening financial losses. The Commission identified that four factors contributed to the injury
apart from the increase in imports: decline in consumption, decline in captive use, decline in exports,
and ongoing rationalisation efforts.

First of all, there was a small decline in consumption of approximately 0,4 % per annum, although
the fall was more pronounced in 2001 compared to 2000. However, the development of imports
did not follow this consumption pattern at all and the Commission considers that the small decline
in consumption did not play a significant role either in volume or prices.

(96) As to the decline in captive use observed in particular between 2000 and 2001, this has had a nega-
tive impact primarily in terms of volume. Thus, it bears no significant relation to the fall in prices
and revenues suffered by the Community producers on the free market.

(97)

The Commission also examined the decline in exports by the Community producers over the five
year period. There was a decline over the earlier part of the five year period. However, in the latter
part of the period, when serious injury was sustained, exports were stable. Therefore, the develop-
ment in exports had a significantly lesser impact on the Community producers in the period 2000/
01 compared to the surge in imports.

(98) As to the impact of ongoing rationalisation efforts, the Commission likewise considers that the
impact on the cost structure of the Community producers is not significant, in particular by compar-
ison to the price effect of the low priced imports.

(99)

The Commission noted that the decline in the Community producers' sales volume, sales prices and
profitability was due primarily to the increase in imports, which not only increased much faster than
the increase in consumption in 2000 but continued to increase during the fall in consumption in
2001.

1.6.8. Conclusion

(100)

It is concluded that, after having examined the injurious effects of the other known factors and sepa-
rated and distinguished them from each other and from the injurious effects of the increased
imports, and after having ensured that injury caused by other factors is not attributed to imports, it
can be considered that there is a genuine and substantial link between increased imports and serious
injury to the Community producers.

1.7. Further Developments

(101) The Commission has, in addition, analysed a number of elements which justify the conclusion that
the serious injury suffered by the Community producers could be expected to seriously worsen
should imports continue at their current level or increase.

1. 7. 1. Th e US ste e l safe g u ar d me a su r e s

(102)

It is recalled that on 5 March 2002, the US imposed safeguard measures against certain steel
products including hot rolled carbon flat products. Those measures came into effect on 20 March
2002, and consist of an increase in duty on imports to the US of 30 % ad valorem in the first year,
24 % in the second year and 18 % in the third year. The measures do not apply to Canada, Israel,
Jordan and Mexico as well as a number of countries specified as developing countries.

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1. 7. 2. Tr a de di ve r si on ar i si ng fr om US ste e l safe g u a r d me a su r e s

(103) The Commission examined the likely impact of the US measures by analysing the situation of the

major exporting countries to the US.

(104)

In 2001, the US imported 2 562 747 tonnes of goods classified within the same HSC codes as the
product concerned. The principal exporters to the US of these products were the Netherlands (13 %/
340 000 tonnes), France (13 %/320 000 tonnes), Korea (11 %/270 000 tonnes), Canada (9 %/
240 000 tonnes), Turkey (9 %/230 000 tonnes), Mexico (9 %/230 000 tonnes) and Australia (9 %/
230 000 tonnes). India, China, Taiwan, Indonesia, Thailand, Ukraine, Russia, South Africa, Brazil,
Germany and Japan have also been important suppliers to the US market in recent years.

(105) Total exports to the US in 2001 from countries affected by the US safeguard measures (excluding
producers in the Community and in those countries excluded from the US safeguard measures
insofar as it relates to these products) amounted to around 1 million tonnes. Certain products
produced by certain suppliers have also been excluded from the US measures, but these quantities
are not considered to be significant.

(106) The Commission then examined the likelihood that the restricted access to the US market as a result
of safeguard action taken by the US would lead to increased exports to the Community. The
Commission investigated the capacity situation of the cooperating exporting producers. It was found
that they had increased their capacity from its level between 1997 and 1999 of around 123m tonnes
to 140,4m tonnes in 2001. None of the cooperating exporting producers reported an intention to
reduce their capacity in the immediate future and none reported an intention to reduce their produc-
tion in light of the US measures.

(107) Most indicated their aim to make up for any reduction in their exports to the US by selling more on
their domestic markets but this claim was made within the context of static or falling consumption
in these markets. In this respect, it is very unlikely that these producers can increase sales signifi-
cantly on their domestic markets. Neither is it likely that they can increase sales to other export
markets as producers in most of these markets are already suffering from the substantial closure of
the US market and there is no indication that significant extra consumption will be available in these
markets in the short and medium term to permit increased imports.

(108) The potential trade which, in the absence of definitive measures, could be diverted to the Commu-
nity as a result of the US measures therefore amounts to 1 million tonnes. There are reasons why
this potential may not be wholly realized, e.g. the current high levels prices of domestic prices in the
US which may result in a somewhat higher than expected level of imports despite the existence of
30 % duties as well as the fact that third country producers may be able to partially offset the loss of
the US market by selling more on their domestic markets. This may be particularly true to a degree
for those countries which have taken protective measures to counteract the US safeguard action.
Producers may also increase their stocks for a period of time.

(109) However, a very substantial potential for increased exports to the Community will still prevail. The
increase which took place in 2001 had many causes as already identified in the analysis of serious
injury and all of these still apply and can be expected to continue to push imports higher. Moreover,
there is now the new element of the US safeguard action which manifestly leaves a substantial
amount of production for which producers are under enormous pressure to find buyers. In these
circumstances, it can reasonably be assumed that in the absence of definitive measures the very
minimum trade diversion that would occur would be between 25 % and 50 % of the amount calcu-
lated above (1m tonnes) which could be diverted from the US market. In all likelihood, it would be
greater but it is considered prudent to base this analysis on a conservative basis.

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(110)

It is also relevant that in 2001, the major export markets for hot rolled coils was the Community
(5mt). This compares to Korea (4,2mt), the US (2,6mt), China (2,3mt), Japan (1,7mt) and Turkey
(1,6mt). This reflects that fact that the Community was, and following recent measures, remains, one
of the most open markets in the world. The recent appreciation of the euro relative to the US dollar
and other major currencies increases the attractiveness of imports relative to Community production
in the short and medium term.

1. 7. 3. Re du cti on i n Commun i ty e x p or ts ar i si ng fr om th e US ste e l

safe g u a r d

me a su r e s

(111) An immediate effect of US measures has been to reduce sharply the Community exports of hot
rolled coils to the US. The imposition of 30 % ad valorem duties will largely stop these exports
though some small volumes may occur due to the current high level of prices in the US which can
result in duties being worth paying at least to sell any excess stock. After taking account to the
extent possible of the exclusions granted by the US since the imposition of measures that Commu-
nity exports to the US, which were around 820 000 tonnes in 2001, will fall significantly as a result
of the US measures.

(112)

It is also likely that Community exports to other third markets will also fall both because the all
producers worldwide will find it more difficult to export both because of the US measures and the
defensive safeguard actions taken by other third countries and the Community to avoid diversion to
their own markets.

1.7.4. Proj ec ted e ffec ts of US me asure s

(113) The Commission has evaluated the possible impact on the Community producers of not imposing
definitive measures and the consequent trade diversion arising from the US safeguard measures as
well as the effect of these measures on Community exports. In this respect, the Commission has
found that in the absence of Community safeguard measures, imports will inevitably rise substan-
tially with the result that the state of the Community industry will show a very serious and substan-
tial decline. Given the extremely fragile state of the Community producers any significant rise in
imports would have extremely serious consequences. The expected rise of between 250 000 to
500 000 tonnes would immediately lead to a further substantial reduction in the sales of the
Community producers and these reduced sales would very quickly lead to serious negative conse-
quences for the other indicators which identify the state of the industry.

(114) The continued fall in Community exports will also significantly contribute to the worsening state of
the Community producers. It is estimated that since the US measures were taken that Community
exports fell substantially and this position is likely to be maintained or even deteriorate in the
coming months.

(115) The projected increase in imports and the projected fall in Community exports would substantially
worsen the situation of the Community industry in relation to all factors already examined when
determining the existence of serious injury. They would immediately lead to a further sharp fall in
sales and prices, with consequent negative effects on production, increased unit costs and increased
losses. In fact, the overall negative impact would be greatly magnified by the fact that Community
producers are already suffering serious injury from the increased imports of recent years.

1.7.5. Conclusion

(116) Taking due account of the fact that the Community producers are already suffering serious injury, it
is reasonable to conclude that, without definitive measures, the likely further substantial increase in
imports would substantially aggravate the situation of the Community producers. Moreover, this
situation will be worsened by a significant fall in Community exports as a result of US measures.

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Product 1

SITUATION OF COMMUNITY PRODUCERS

1997

1998

1999

2000

2001

Capacity (in tonnes)

78 500 000

78 500 000

78 500 000

78 500 000

78 500 000

Utilisation rate of capacity (in %)

85,2 %

83,4 %

84,3 %

85,9 %

79,4 %

Opening stocks (in tonnes)

2 928 346

3 059 191

2 872 418

3 780 685

4 353 854

Total production (in tonnes)

66 892 420

65 474 371

66 184 419

67 414 844

62 361 216

Purchases (in tonnes)

120 911

30 654

49 582

161 965

40 695

Total sales (in tonnes)

22 197 392

20 329 899

20 692 111

20 301 403

19 448 814

Captive use (in tonnes)

44 685 095

45 361 899

44 633 623

46 702 238

42 785 150

Closing stock (in tonnes)

3 059 191

2 872 418

3 780 685

4 353 854

4 521 801

Sales volume outside the EU (in
tonnes)

Sales volume in the EU (in
tonnes)

Unit prices of EU sales (EUR/
tonne)

Net profit/loss on EU sales (in
%)

2 535 803

2 252 734

1 994 922

1 952 276

1 958 549

19 661 589

18 077 165

18 697 189

18 349 126

17 490 265

273

290

235

301

277

6,3 %

9,4 %

– 6,5 %

10,8 %

– 3,1 %

Market share (%)

85,7 %

79,0 %

82,9 %

79,2 %

77,7 %

Employment (end of period)

34 814

34 644

32 371

32 583

31 181

Productivity (tonne/employee)

1 921

1 890

2 045

2 069

2 000

VOLUME, UNIT PRICES AND PROFITABILITY OF EU SALES ON A PER QUARTER BASIS

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Volume (in tonnes)

4 761 821

4 761 127

4 179 049

3 788 269

4 689 210

Unit prices (in Euro/tonne)

283

277

277

270

254

Profitability (in %)

1,1 %

– 3,0 %

– 3,2 %

– 8,2 %

– 10,9 %

Price undercutting in 2001 =

Price underselling in 2001 =

3,9 %

17,5 %

Data given above on the situation of the Community producers verified by sample check and on-
spot investigations of companies representing the following percentage of total Community produc-
tion:

91,4 %

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2. PRODUCT 2 — NON ALLOY HOT ROLLED SHEETS AND PLATES

2.1. Product Concerned and Like or Directly Competing Product

2.1.1. Produc t Conc e rne d

(117) The product concerned is certain flat rolled products of iron or non-alloy steel, of a width of
600mm or more, not clad, plated or coated, not in coils, not further worked than hot-rolled

— with patterns in relief, or,

— other than with patterns in relief, of a thickness of 4,75mm or more but not exceeding 10mm
and of a width less than 2050 mm, other than rolled on four faces or in a closed box pass and
of a width not exceeding 1250 mm, or,

— other than with patterns in relief, of a thickness of 3mm or more but less than 4,75 mm other
than rolled on four faces or in a closed box pass and of a width exceeding 1250 mm and of a
thickness of 4 mm or more, or,

— other than with patterns in relief, of a thickness of less than 3 mm

(hereinafter referred to as hot rolled sheets and plates). The product concerned is currently classified
under CN codes 7208 40 10, 7208 40 90, 7208 52 99, 7208 53 90, 7208 54 10, 7208 54 90.

(118) Hot rolled sheets and plates are generally obtained in steel mills by hot rolling semi-finished steel

products after the final rolling pass or after pickling or continuous annealing.

(119) Notwithstanding the fact that each CN code corresponds to a distinguishable type of hot rolled
sheets and plates, it was found that they all have identical characteristics or similar physical and tech-
nical characteristics, uses and applications. Accordingly, all types of hot rolled sheets and plates form
one single product falling under the relevant CN codes listed above.

2.1.2. Like O r Direc tly Comp e ting Produc ts

(120) The Commission has examined whether the product produced by the Community producers (herein-
after referred to as the like product) is like the imported product concerned. In the course of the
investigation, the Commission received submissions from certain major exporters and importers of
hot rolled sheets and plates which alleged that certain types of hot rolled sheets and plates imported
into the Community were not produced by the Community producers and therefore should not be
considered as like the product concerned.

(121) The Commission examined these submissions in detail and took into account in particular the

following findings of the investigation:

(a) the imported product and Community product shared the same international classification for
tariff purposes. Furthermore, they shared the same or similar physical properties such as compo-
sition, size, shape and texture and were manufactured to internationally recognised standards;

(b) the imported product and Community product were sold via similar or identical sales channels
and price information was readily available (for example, details of prices are published in
industry periodicals, such as the Metal Bulletin and Steel Weekly) and the product concerned and
the product of the Community producers competed mainly on price;

(c) the imported and Community product were both capable of serving the same or similar end-
uses, they were, therefore, largely alternative or substitute products and were easily interchange-
able;

(d) the imported and Community product were both perceived by consumers as alternative means
of performing particular functions in order to satisfy a particular want or demand, in this respect
the differences identified by the exporter/importer were simply minor variations manufactured
for a particular customer;

(122) The Commission has concluded that despite the alleged technical differences in the product charac-
teristics and qualities identified in those submissions, the imported product and the Community
product are like or directly competing.

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2.2. Increased Imports

(123) The Commission has examined whether the product concerned is imported into the Community in
such greatly increased quantities, absolute or relative to Community production and/or on such
terms or conditions as to cause serious injury to Community producers. In this respect, the Commis-
sion has focused on imports of the product concerned in the most recent period for which data were
available in absolute terms and relative to production destined for sales (excluding captive use) and
total production. The table below shows the development of imports in absolute terms and against
both Community production destined for sales and total Community production (including captive
use) for each of the years 1997 to 2001.

Product 2

Non-alloy hot rolled sheets and plates

CONSUMPTION

1997

1998

1999

2000

2001

Volume (tonnes)

2 038 964

2 291 736

2 469 281

2 220 950

2 209 059

IMPORT DATA

1997

1998

1999

2000

2001

Total imports (including agree-
ment countries)

Volume (in tonnes)

417 598

511 040

477 067

533 107

572 133

Rate of increase (in %)

22,4 %

– 6,6 %

11,7 %

7,3 %

Market share (in %)

20,5 %

22,3 %

19,3 %

24,0 %

25,9 %

Ratio between imports and total
production (in %)

Ratio between imports and
production sold (in %)

19,0 %

21,2 %

18,5 %

23,0 %

26,2 %

23,0 %

25,8 %

22,1 %

28,9 %

32,0 %

Unit prices (in Euro/tonne)

264

248

246

305

229

1998/1997

1999/1998

2000/1999

2001/2000

Volume as moving averages (in
tonnes)

464 319

494 054

505 087

552 620

(124)

In the period prior to the Asian crisis (1), imports were more or less constant at around 400 000
tonnes (1996: 387 176 tonnes, 1997: 417 598 tonnes). However, as a result of the Asian crisis,
between 1997 and 1998, imports increased by 22 % whilst their average price fell by nearly 6 %.
Total Community production and production destined for sales also increased in 1998, so that, rela-
tive to production destined for sales, imports increased from 22,9 % to 25,8 %, whilst relative to
total production, they increased from 19 % to 21,2 %. However, the Commission considers that the
level of imports in 1998 was non representative due to the extremely low prices practised by Asian
producers and the resulting influx of imports.

(1) The effects of the Asian crisis were felt around the world in 1998 and 1999. In particular, as Asian steel producers
fought to maintain sales volumes in the face of the collapse of their domestic markets, they sought to open up new
markets by offering low prices, and found the Community market to be an important outlet for their goods. In conse-
quence, imports of the products concerned increased markedly in 1998, and prices fell sharply in 1999.

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(125)

In the following year, as the effects of the Asian crisis began to recede, imports fell back by around
7 % although they remained higher in absolute terms than in 1997. In relative terms (compared to
production destined for sales and total production),
imports returned to around 1997 levels,
although the price of imports remained depressed.

(126) Between 1999 and 2000, there was an increase in imports from 477 067 tonnes to 533 107 tonnes,
an increase of 56 000 tonnes or 12 %. Over the same period, production destined for sales fell by
over 14 %, from 2,16mt to 1,85mt. In consequence,
imports increased relative to production
destined for sales from 22,1 % to 28,9 %, an increase of 30 %. As a result of the fall in production
destined for sales and a rise in captive use, total Community production fell from 2,58mt to 2,32mt.
Imports increased from 18,5 % to 23 % of total production.

(127) Between 2000 and 2001, imports increased to 572 133 tonnes (a further increase of about 39 000
tonnes or 7,3 %). In 2001, production destined for sales declined by a further 3 % to 1,79m tonnes
so that, relative to production sold on the free market, imports increased by 11 %. Total Community
production also fell in 2001 (by 133 000 tonnes or 6 %), reflecting a decrease in production for
captive use and production sold on the free market, so that the increase in imports relative to total
Community production was 14 %.

(128) The price of the product concerned fell between 1997 and 1998, and remained at a depressed level
in 1999. The fall in 1998 and continuing price depression in 1999 appear to have resulted from the
Asian crisis. Prices rose by 24 % to 305 EUR/tonne in 2000, but fell by 25 % in 2001. The Commis-
sion notes that, although prices increased in 2000, the increase in imports (both absolute and rela-
tive to production) continued in 2001 against the background of a sharp fall in prices. The average
price of imports fell from 305 EUR/tonne in 2000 to 229 EUR/tonne in 2001. The Commission
also notes that the further increase in imports to the Community occurred at a time when the euro
was relatively weak by comparison to the US dollar and, during which, prices in the US for hot
rolled steel and plate were between 30 % and 40 % higher than prices for hot rolled sheets and plates
in the Community.

2 . 2 . 1 . T w o ye a r mov i n g a v e r a g e

(129)

In order to establish the underlying trend in the level of imports between 1997 and 2001 and deter-
mine whether the recent increases in imports form an established trend, the Commission considered
two year moving averages. These illustrate that, whilst between 1997/98 and 1999/00, imports in
any two year period fluctuated between 464 319 tonnes and 505 087 tonnes (i.e. 484 703 tonnes
+/- 4 %); between 1999/00 and 2000/01 they increased by over 9 % from 505 087 tonnes to
552 620 tonnes.

2.2.2. Marke t share of i mp or ts

(130) The market share of imports increased slightly between 1997 and 1998, before falling back to
19,3 % in 1999, representing a slight fall in market share relative to 1997. In 2000 and 2001, the
market share of imports increased significantly, to 24 % and then 25,9 % — increases of 24 % and
8 % respectively.

2.2.3. Conclusion

(131) Whilst imports increased sharply in 1998, the Commission considers that that increase was excep-
tional and cannot be considered to represent part of the normal development of imports. This is also
reflected in the fact that imports declined in 1999. Leaving aside 1998, the annual rate of growth in
imports between 1997 and 1999 was 7 % in absolute terms (and negative relative to total produc-
tion and to relative to production destined for sales). By contrast between 1999 and 2000, the
annual rate of growth in imports in absolute terms was 12 % (24 % relative to total Community

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production and 28 % relative to production destined for sales). By each measure, the annual rate of
growth of imports was higher between 1999 and 2000 than in the previous period, and between
2000 and 2001, notwithstanding that imports had reached a peak in 2000, they continued to grow
at a higher rate than in the period 1997 to 1999. It should be noted that the high level of imports
according to the utilisation of the quota set at the provisional stage appears to be confirmed for
2002.

(132) That recent increases in imports are not attributable to established trends in import levels is demon-
strated by the development of the two year moving average of imports over the five year period of
investigation.

(133)

It is concluded that the increases in the recent past can be considered sudden, sharp and significant
when comparing them to developments in previous years, in particular bearing in mind that the
increase in imports in 1998, must be considered non representative.

2.3. Unforeseen Developments

2. 3. 1.

Inc r e a se d u se of tr ade de fe nce i nstr ume nt s by th e US

(134) From 1998 onwards, in reaction to the Asian crisis, the US, which represents around one eighth of
world steel consumption, began to make greater use of trade defence instruments (TDIs) in the steel
sector with a view to protecting their domestic producers from competition. A number of these
measures have been adjudicated in the WTO and some of the methodologies used have been
declared to be WTO incompatible. Nevertheless, many of the measures which remain in force are
based on these same methodologies.

(135) The table below shows the annual number of anti-dumping and countervailing duty final determina-
tions for one or more countries made by the US between 1997 and 2001 in relation to the steel
sector as a whole, and illustrates the increase in activity in the last three years.

Year

1997

1998

1999

2000

2001

Anti-dumping duty final determinations

Countervailing duty final determina-
tions

5

6

16

14

26

0

1

7

5

5

(136)

In the course of 2001, the US also announced further broadly based action in the steel sector. In
January 2001, the US opened an investigation into steel under section 223 of the US Trade Act of
1974. In July 2001, the US ITC announced a broad ranging investigation into steel under section
202 of the Trade Act of 1974; and in December, the ITC recommended safeguard measures across a
broad range of steel products.

(137) These actions, had an increasingly discouraging effect on imports of steel products to the US and led
to a decrease in US steel imports of 33 % between 1998 and 2001, and culminated in the safeguard
measures announced by the US on 5 March 2002. In particular, the safeguard proceeding, which
had been mooted for several months before its initiation, had a restraining effect on imports to the
US due to the uncertainty which it created for economic operators. It is indeed the largest commer-
cial defence action ever initiated by a WTO member covering imports worth some USD 17 billion.

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2. 3. 2.

Inc r e a se d u se of TDIs by th e US — r e la ti ng to t h e p r oduct conce r ne d

(138)

In relation to hot rolled steel and plate (being the US product categories of which hot rolled sheets
and plates form part), the US imposed 19 anti-dumping measures at high levels of duty (including
one suspension agreement) and 10 countervailing duty measures between 1999 and 2001. In parti-
cular, in February 1999, the US imposed anti-dumping duties of between 10,78 % and 67,14 % on
imports of the product concerned originating in Japan; and anti-dumping duties and countervailing
duties of between 10,21 % and 52,14 % (some of which applied cumulatively) on imports of the
product concerned originating in Indonesia. In July 1999, the US imposed anti-dumping duties of
between 41,27 % and 42,12 % on imports of the product concerned originating in Brazil.
In
September 2000, the US imposed anti-dumping duties and countervailing duties of between 40,6 %
and 44,59 % (some of which applied cumulatively) on imports of the product concerned originating
in Argentina. In November 2000, the US imposed anti-dumping duties of between 64,20 % and
90,83 % on imports of the product concerned originating in China. Also in November 2000, the US
imposed anti-dumping duties and countervailing duties of between 8,28 % and 44,4 % (some of
which applied cumulatively) on imports of the product concerned originating in India.

(139) By 15 March 2002, in relation to hot rolled steel and plate, the US had in force anti-dumping
measures against exporters in 17 countries and countervailing measures against exporters in 9 coun-
tries The countries concerned by these proceedings were Argentina, Brazil, China, France, India,
Indonesia, Italy, Japan, Kazakhstan, the Netherlands, Romania, Russia, South Africa, South Korea,
Taiwan, Thailand and Ukraine. In each case, after an anti-dumping or countervailing measure has
been taken, US imports of the product concerned from that country have declined. In addition, the
dramatic fall in US imports in 2001 occurred in a year in which not only were 19 anti-dumping and
10 countervailing measures relating to the product concerned in place, but at the start of which the
US opened a steel investigation under section 223 of the US Trade Act of 1974 and in the middle of
which the US ITC announced a broad ranging investigation into steel under section 202 of the Trade
Act of 1974.

(140) Between 1999 and 2001, US imports decreased from 6,61m tonnes to 3,63m tonnes. In the same
period imports to the Community of hot rolled sheets and plates increased from 477 067 tonnes to
572 133 tonnes, an increase of 20 %.

(141) The Commission has also determined that an effect of the US reducing imports of hot rolled steel
and plate to its market was to increase imports of hot rolled sheets and plates to the Community
market. On the basis of the available information, the Commission has determined that there is a
correlation in time between the increased and extensive use of TDIs by the US in recent years, the
dramatic reduction in US imports of hot rolled steel and plate between 2000 and 2001, and the
increase in imports to the Community of hot rolled sheets and plates in that period. The Community
was an important export market for hot rolled sheets and plate in 2001. Both the Community and
US markets have the same types of industrial users. Many of the exporters affected by the US TDIs
have also exported to the Community for a number of years. At the same time as US imports fell
dramatically,
imports into the Community grew to record levels notwithstanding a fall in GDP
growth, production and consumption in the Community in 2001.

(142) This increased and extensive use of trade defence instruments, a number of which were found to be
WTO incompatible, could not have been foreseen at the conclusion of the Uruguay Round and
constitutes the unforeseen circumstances as required by the Safeguard Agreement.

2.3.3. De cre a se In Imp or ts to the US

(143) The table below shows imports to the US of those products which the US categorises as hot rolled
steel (including plate in coils) and plate (including cut to length plate and clad plate) for the period
1997 to 2001. Hot rolled sheets and plates are classifiable within these US product categories.

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Year

1997

1998

1999

2000

2001

Imports of the product concerned to the US (tonnes)

7 065 153

12 240 826

6 606 789

7 568 511

3 630 657

Source: Global Trade Atlas

(144)

Imports to the US increased between 1997 and 1998, before falling back to just below 1997 levels
in 1999. Between 1999 and 2000, they increased to around 7,6 million tonnes. However, between
2000 and 2001, imports fell by over 52 % to 3,6m tonnes.

(145) The decrease in the level of imports of hot rolled steel and plate to the US can be explained,
primarily, by reference to the direct effect of the measures referred to above on exporters whose
goods became subject to anti-dumping and/or countervailing duties; but also by the indirect dissua-
sive effect of those measures and the investigations on all exporters of the product concerned to the
US.

(146) The table below illustrates the effect of particular anti-dumping/countervailing measures on exports
to the US of hot rolled steel (including plate in coils) and plate (including cut to length plate and clad
plate) from certain countries.

Country

Date of imposition of AD
measures

India

Taiwan

China

South Korea

Indonesia

Thailand

November 2000

November 2000

November 2000

November 2000

November 2000

November 2000

2.4. Definition of the Community Producers

Exports to the US (volume in tonnes)

2000

751 000

653 000

578 000

883 000

235 000

253 000

2001

57 000

46 000

120 000

452 000

12 000

32 000

(147) Total Community production of the product concerned is around 2,4 million tonnes per annum The

Community steel companies which cooperated fully in the investigation are:

— Cockerill Sambre SA, Belgium

— Sidmar NV, Belgium

— Sollac SA, France

— EKO Stahl GmbH, Germany

— Corus Strip UK, UK

— Corus Staal BV, The Netherlands

— Rautaruukki Oyj, Finland

— Riva/Ilva SPA, Italy

— Salzgitter AG Stahl & Technologie, Germany

— SSAB Tunnplat AB, Sweden

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— Thyssen Krupp Stahl AG, Germany and

— Voest Alpine Stahl GmbH, Austria

(148) These companies are all members of the European Confederation of the Iron and Steel Industry
(Eurofer). They accounted for around 93 % of the total Community production of the product
concerned, and represent a major proportion of total Community production within the meaning of
Article 5(3)(c) of 3285/94 and Article 15(1) of 519/94. They are accordingly considered as the
Community producers for the purposes of this proceeding.

2.5. Serious Injury

2 . 5 . 1 .

Int r odu c t i o n

(149)

In order to determine whether there is serious injury to the Community producers of the like
product, i.e. a significant impairment in the position of the Community producers, the Commission
has evaluated all relevant factors of an objective and quantifiable nature having a bearing on the
situation of the Community producers. In particular, for the product concerned, the Commission has
evaluated the development of production capacity, production, capacity utilisation, employment,
productivity, cash flow, return on capital employed, captive use, stocks, consumption, sales, market
share, price, undercutting and profitability for the years 1997 to 2001. The relevant economic data
are provided at the end of this product analysis.

(150) The investigation has demonstrated that the product concerned can follow one of two distinct desti-
nations. They can either be sold or used internally to make other products. It was found that around
17 % of the product concerned manufactured by the Community producers are used internally (i.e.
they are further processed by these producers in an integrated process, often on the same production
line, hereinafter referred to as captive use). These products follow an internal process of downstream
processing for which invoices are not normally issued.

(151) The remaining production is sold at market prices on the Community market (hereinafter referred to
as the free market). Imports of the product concerned are also sold on the free market. The main
purchasers on the free market are independent cold rolling mills, tube makers, steel service centres,
steel merchants and stockholders. Both the product concerned sold by the Community industry and
by importers are sold to the same types of customers and is used for the same purposes. The sale of
the product concerned on the free market is supported by the issuing of commercial invoices.

(152) The investigation demonstrated that there is a clear distinction between the product concerned
destined for captive use and those destined for the free market. The product concerned destined for
captive use was found not to be directly affected by the imports. By contrast, production destined
for sales was in direct competition with the imports.

(153)

In order to provide as complete a picture as possible of the situation of the Community producers,
the Commission has obtained and analysed data both for hot rolled sheets and plates destined for
captive use and those destined for the free market. Because the free market sales are in competition
with the imported products concerned, the Commission focussed its attention on the free market.
While it has, to the extent possible, combined free market and captive data, it has also split the
analysis between free market and captive use, where necessary and possible.

2 . 5 . 2 . A n a ly si s of t h e Wh ol e A c t i v i t y for th e P r odu c t Conc e r n e d

2.5.2.1. Production capacity and Capacity utilisation

1997

1998

1999

2000

2001

Capacity (tonnes)

3 500 000

3 600 000

3 600 000

3 600 000

3 600 000

Capacity Utilisation (%)

63 %

67 %

72 %

64 %

61 %

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(154) The investigation showed that there were no significant changes in overall estimated theoretical
production capacity, which remained at about 3,6m tonnes throughout the period of the investiga-
tion.

(155) Capacity utilisation increased steadily at a rate of around 7 % between 1997 and 1999, before falling
back to 64 % in 2000. Capacity utilisation then fell to its lowest level in the five year period, in
2001 (61 %). The Commission notes that the fall in captive use and in exports between 2000 and
2001 contributed to this fall in capacity utilisation. However, whilst captive use fell by 64 000
tonnes and exports fell by 9 000 tonnes (in total, 2,7 % of production in 2000), capacity utilisation
fell by 5 %. The steel industry requires to achieve a high level of capacity utilisation to make profits,
and the fall in capacity utilisation reflects the fall in production in 2001.

2.5.2.2. Total Community Production

1997

1998

1999

2000

2001

Production (tonnes)

2 193 175

2 406 637

2 580 125

2 317 395

2 184 078

(156) Total Community production rose from 2,19m tonnes to 2,41m tonnes between 1997 and 1998
and on to 2,58m tonnes in 1999, encouraged by healthy growth in consumption in the Community
market (which increased by about 430 000 tonnes, or 21 %, between 1997 and 1999). Thereafter,
total Community production fell by 10 % in 2000 and by a further 6 %, in 2001 due to the combi-
nation of falling consumption and increasing imports. This reflects the increasing dominance of
imports in 2000 and 2001, which were growing in absolute terms in a shrinking market.

2.5.2.3. Employment

1997

1998

1999

2000

2001

Employment (end of period)

6 461

6 699

6 489

6 229

5 942

(157) Employment in relation to the like product grew between 1997 and 1998 in response to increasing
consumption but then fell back in 1999 as efficiency gains were realised. It fell by 260 between
1999 and 2000, and then by a further 290 in 2001 and this was reflected in reports of job losses
and closures. It is expected to fall further in 2002, and these predictions are to some extent
confirmed by the closure of at least one plant in the UK in the second quarter of 2002.

2.5.2.4. Productivity

1997

1998

1999

2000

2001

Productivity (tonne/employee)

339

359

398

372

368

(158) Productivity increased between 1997 and 1999 as a result of a combination of increased production
and improved efficiency allowing a reduction in the workforce in 1999. However, due to the fall in
production in 2000, notwithstanding a concurrent fall in employment, productivity fell from 398
tonnes per employee to 372 tonnes per employee in 2000. A further fall in production in 2001
caused a further fall in productivity, but Community producers were able to prevent productivity
falling below 368 tonnes per employee as a result of the effect of job cuts both in 2000 and early in
2001.

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2.5.2.5. Cash Flow

1997

1998

1999

2000

2001

Cash Flow (index)

100

17

– 22

149

– 9

(159) Cash flow could only be examined at the level of the cooperating companies which produced the
like product rather than in relation to the like product itself. This indicator was therefore seen as less
meaningful than the other indicators shown above. Nevertheless, a negative situation is evident
between 1997 and 2001 and from 2000 to 2001.

2.5.2.6. Return on Capital Employed (ROCE)

1997

1998

1999

2000

2001

ROCE

7,1 %

11,9 %

4,8 %

9,1 %

3,1 %

(160) ROCE could only be examined on the level of the cooperating companies which produced the like
product rather than in relation to the like product itself. This indicator was therefore also seen as less
meaningful than the other indicators shown above. Nevertheless, a negative situation is evident
between 1997 and 2001 and from 2000 to 2001.

2.5.3. Ana ly sis of t he F ree M arke t

2.5.3.1. Consumption

1997

1998

1999

2000

2001

Consumption (tonnes)

2 038 964

2 291 736

2 469 281

2 220 950

2 209 059

(161) Consumption of hot rolled sheets and plates in the Community was established on the basis of the
total sales made by the Community producers on the free market and total imports of the product
concerned into the Community as reported by Eurostat.

(162) Between 1997 and 1999, consumption in the Community increased from 2,04m tonnes to 2,47m
tonnes. It fell to 2,22m tonnes in 2000 (a fall of 10 %) and remained at about that level in 2001.
The fall in consumption between 1999 and 2000 is examined under other factors to determine
whether, and if so, to what extent, it contributed to the serious injury suffered by the Community
producers.

2.5.3.2. Sales volume

1997

1998

1999

2000

2001

Sales volume in the Community
(tonnes)

1 621 366

1 780 696

1 992 214

1 687 843

1 636 926

(163) Sales of the like product in the Community rose from 1,62m tonnes to 1,78m tonnes between 1997
and 1998 and on to 1,99m tonnes in 1999, encouraged by growing consumption. Thereafter, sales
of the like product fell in 2000 and 2001, by 15 % and 3 % respectively. This decline was faster than
the rate of decline in consumption, and reflects the increasing dominance of imports in a declining
market in 2000, and in a stagnant market in 2001.

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2.5.3.3. Market share

1997

1998

1999

2000

2001

Market share (%)

79,5 %

77,7 %

80,7 %

76,0 %

74,1 %

(164) The Community producers' market share fell from 79,5 % to 77,7 % between 1997 and 1998 as a
result of the significant increase in imports from the South East Asia in 1998 that occurred as a
result of the Asian crisis. The Community producers were forced to cut prices in the following year
(1999) in order to regain market share, and in fact managed to marginally increase their market
share. However, since 1999, the Community producers' market share has fallen significantly, to
76 % in 2000 and 74,1 % in 2001. At the same time the market share of imports increased from
19,3 % in 1999 to 24 % in 2000 and 25,9 % in 2001. This demonstrates the increasing market
penetration of imports in that period, which has occurred despite the fact that Community produ-
cers lowered their prices by 8 % between 2000 and 2001.

2.5.3.4. Price of like product and undercutting

1997

1998

1999

2000

2001

Unit prices of Community sales
(EUR/tonne)

321

347

286

363

334

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Unit prices of Community sales
(EUR/tonne)

343

331

333

330

315

(165) The average price of the like product increased between 1997 and 1998 to 347 EUR/tonne but then
fell to 286 EUR/tonne in 1999 as Community producers fought to regain market share. Prices
recovered in 2000, but fell again (by 8 %) to 334 EUR/tonne in 2001. This trend is further
confirmed because quarterly prices from Q1 2001 to Q1 2002 show a fall from 343 EUR/tonne to
315 EUR/tonne in the price of the Community product.

(166)

In order to determine the level of undercutting, price information was examined for comparable time
periods, at the same level of trade and for sales to similar customers. Based on a comparison of
prices invoiced by the Community producers and by exporting producers to the Community,
domestic prices were undercut by an average of 27,9 % in 2001.

2.5.3.5. Profitability

1997

1998

1999

2000

2001

Net profit/loss on Community
sales (%)

5,7 %

10,5 %

– 3,7 %

8,5 %

– 1,6 %

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Net profit/loss on Community
sales (%)

2,5 %

– 2,3 %

– 3,2 %

– 4,6 %

– 8,5 %

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(167) The profitability of the Community producers' sales in the Community varied significantly in the
five-year period under consideration. Their lowest profitability was recorded in 1999, when Commu-
nity producers were forced to cut prices to regain market share from imports, which had increased.
The highest was recorded in 1998.

(168)

In 2001, as imports increased to their highest level in the five-year period, the average price of
imports fell to 229 EUR/tonne and the average price of the Community product fell to 334 EUR/
tonne. This fall in the price of the Community product taken together with the fall in sales volume
led the Community producers profitability to fall from 8,5 % to –1,6 %, and this negative trend
appears to be continued in 2002. This trend is further confirmed because quarterly data for Q1
2001 to Q1 2002, shows that the profitability of the Community producers' sales on the Commu-
nity market fell from 2,5 % to –8,5 %.

(169) Underselling reflects the extent to which the price of the imported product is lower than the price
level which the Community producers could be expected to achieve in a non-injurious situation. The
level of underselling was calculated on the basis of the weighted average non injurious price per
tonne of the Community product. This price was calculated by taking the respective cost of produc-
tion for the Community product to which was added a profit margin of 8 %. This profit margin was
considered reasonable as it refers to profits of the Community producers in a normal trading situa-
tion unaffected by sudden sharp rise in imports. This non injurious price was compared with the
weighted average price per tonne of the imported product concerned during 2001. The difference
between these two prices was expressed as a percentage of the cif/Community border price of the
imported product, and resulted in underselling of 56 %.

2.5.3.6. Stocks

1997

1998

1999

2000

2001

Closing stocks (tonnes)

167 389

215 337

232 342

265 431

289 264

(170) Stock levels increased significantly throughout 1997 and 1998 as the predicted increase in demand
in 1998 was absorbed to a greater degree than expected by the significant increase in imports in that
year. This stock over-hang was in part responsible for the fall in prices in 1999. Production again
outstripped consumption in 2000 leading to a further increase in stocks to 232 342 tonnes.
However, despite a significant reduction in Community production in 2000, stock levels continued
to climb as imports increased their market share by 24 % in a single year.

(171) A further reduction in Community production in 2001 (over 120 000 tonnes greater than the
reduction in consumption in that year), also saw stock levels increase, reaching 289 264 tonnes or
13 % of Community consumption in 2001 (compared to 8 % in 1997). This was due to the signifi-
cant increase in market share taken by imports in 2001.

2.5.4. Ana ly sis of Ca p tiv e Use

1997

1998

1999

2000

2001

Captive use (tonnes)

317 941

375 788

405 835

437 013

372 850

(172) Some indicators relating to captive use have been shown in global terms, whereby captive use forms
part of the analysis of the whole activity for the product concerned (i.e. capacity and capacity utilisa-
tion, employment and productivity). With respect to certain other factors which are analysed above
in respect of the free market (i.e., sales prices, stocks and profitability), the data received is not, by its
very nature, adapted to an immediate and objective comparison with the data obtained for the free
market for hot rolled sheets and plates. Nevertheless, there is no evidence that it was more profitable
to produce for captive use than for the free market. Therefore, this analysis focuses on production
for captive use and examines whether its trend is comparable to those of the free and total markets.

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(173) Production for captive use increased by nearly 120 000 tonnes between 1997 and 2000. This
contributed to the increase in total Community production between 1997 and 1999 (from 2,19mt
to 2,58mt), and reduced the effect of the fall in production sold in the free market in 2000. In 2001,
captive use fell by 64 000 tonnes or 15 %. Although the fall in production destined for sales was the
largest factor, this fall in captive use contributed to a fall in total Community production to 2,18m
tonnes in 2001 (a fall of 6 % from 2000).

2.5.5. Conclusion

(174) The data shows that while production capacity remained stable and there is a slight increase in
productivity, overall, there is negative development for capacity utilisation, production, employment,
productivity, and negative elements can also be observed for cash flow and ROCE.

(175) Overall, the free market data shows, in general terms, and before the background of a decline in
consumption and an increase in stocks, negative developments for sales, market share, prices and
profitability.

(176) The data for captive use demonstrates that, notwithstanding an increase in 2000, a similar trend was
identified in respect of captive use, and these findings were supported by the analysis of the whole
activity for the product concerned.

(177)

In particular, the Commission notes that, in 2001, as imports reached their highest level for five
years (572 133 tonnes), the Community producers' Community sales reached their lowest level for
five years (1,64m tonnes), their profitability declined rapidly and they became loss making. This
occurred against the background of a concurrent fall in production sold on the free market, captive
use and consumption. Against such a background, imports could have been expected to fall, but
instead they rose for the third consecutive year.

(178) The effect of the increase in imports on the Community producers is reflected in the performance
indicators. The Community producers have lost market share, which reached its lowest level for five
years in 2001. Capacity utilisation has also fallen in 2001 to its lowest level for five years and so too
has productivity despite substantial job losses in both 2000 and 2001. By 2001, employment had
reached its lowest level for the five-year period, and it is expected to fall further. The overall effect of
the falls in production, Community sales volume and prices was to reduce the profitability of the
Community producers and create a loss-making situation in 2001. The Community producers are
suffering significant losses. These trends are confirmed by the continuing deterioration in prices and
profitability from Q1 2001 to Q1 2002.

(179) Taking account of all of these factors and relying, in particular, on its analysis of the free market

activities, the Commission concludes that the Community producers have suffered serious injury.

2.6. Causation

(180)

In order to examine the existence of a causal link between increased imports and the serious injury,
and in order to ensure that injury caused by other factors is not attributed to increased imports, the
Commission has proceeded as follows:

— the injurious effects of factors considered to be causing injury have been distinguished from each

other,

— these injurious effects have been attributed to the factors which are causing them; and,

— after having attributed injury to all causal factors present, the Commission has determined

whether increased imports are a genuine and substantial cause of serious injury.

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2.6.1. Effe ct of incr ease d i mp or ts

(181) The market for hot rolled sheets and plates is a transparent one as regards sources of supply, custo-
mers and prices. As hot rolled sheets and plates are essentially a commodity product, the product
concerned and the like product compete mainly on price. The increase in imports has had injurious
effects in terms of pressure on prices and a reduction in the volume sold by the Community produ-
cers on the Community market.

(182)

In the period 1999 to 2000, the market share of imports grew from 19,3 % of the market to 24 %.
Over the same period, imports have grown from 22,1 % to 28,9 % of production destined for sales.
Further, in the period 2000 to 2001, the market share of imports increased to 25,9 % and 32 % of
production destined for sales. Thus,
imports have also increased relative to production, at the
expense of the Community producers.

(183) As to prices, between 2000 and 2001, the average unit price of the product concerned on the
Community market fell from 305 to 229 EUR/tonne. The average unit price of the like product fell
from 363 to 334 EUR/tonne. In this transparent market, price undercutting had a decisive impact.
The effect of the fall in the average unit price of the like product alone on the Community producers'
Community sales revenue would have been a reduction of 8 % (EUR 45m) in 2001. Taking account
of the simultaneous fall in sales volume, the actual fall in turnover in the Community was EUR 66m.
Fixed costs represent a material proportion of the Community producers' overheads. Thus, the
reduction in sales revenues created a disproportionately higher fall in profitability, which fell to –
1,6 % in 2001. This fall in prices and profitability furthermore must be seen in the context of a
number of plant closures and ensuing reduction in employment.

(184) For these reasons, it is considered that there is a correlation between the increase in imports at low
prices and the serious injury suffered by the Community producers, and that the increase in imports
has had injurious effects in particular in terms of pressure on prices and a reduction in the volume
sold by the Community producers on the Community market.

2 . 6 . 2 . E f fe c t of c h a n g e s i n con su m p t i o n

(185) The Commission examined the injurious effects of the fall in consumption between 2000 and 2001.
That fall has to be considered in the context of the overall trend during the 5 year period under
investigation. Consumption increased from 2,04m tonnes in 1997 to 2,47m tonnes in 1999, before
falling back some 260 000 tonnes to 2,2m tonnes in 2000, and remaining about that level in 2001.

(186)

In this particular case, the Commission considers that the apparent rise in consumption in 1999 was
largely due to the building of stocks in response to the low prices in that year. For this reason, the
trend movements present a more accurate picture. Although consumption fell between 1999 and
2000, overall during the five year period consumption actually increased by 170 000 tonnes or 8 %.
This represents an average rate of increase of 1,6 % per annum. In terms of the overall trend in
consumption, the Community producers' sales should have increased over the five year period but in
fact they were stagnant.

(187)

In examining this question in this particular case account has to be taken of the reaction of all
market participants to the trend fall in consumption. In this respect, it was found that while Commu-
nity producers were forced to reduce their sales in the Community by roughly 51 000 tonnes in
2001 compared to 2000, imports moved sharply in the other direction. No economic justification
was established which could explain the sharp rise in imports. For example, no exporter claimed that
this was due to lower production costs.

(188) As regards price effects, a modest increase in consumption should not normally lead to substantial
price effects. Neither should a modest fall in consumption of the type which occurred between 1999
and 2000. Similarly, if price pressure is reduced then the injurious effects which stem from low
prices would also be kept in check. The most important factor here is profit, where any fall would
have been minimised if prices had not fallen substantially. Therefore, it is reasonable to conclude that
in the absence of the sharp rise in imports at low prices, the fall in consumption would not have led
to a substantial fall in profits.

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(189) Nevertheless, even if all market participants acted responsibly and adjusted their production, the
Community producers would still have sold less in 2000 compared to 1999. Consumption in 2001
was slightly above the average for 1997 and 1998 (i.e. 2,16m tonnes). In 1999, consumption
increased by 180 000 tonnes only to fall back to the 1999 level in 2001. In 2001, consumption fell
back to the 1997/8 levels and the Community producers' sales fell by roughly 300 000 tonnes
whereas imports continued to increase. Between 1999 to 2001, whilst consumption fell by 10 %,
the Community producers' sales in the Community fell by 18 %.

(190) For the reasons given above, it is concluded that there is a significant, but not substantial, link
between the fall in consumption between 1999 and 2000 and the injurious effects observed.

2 . 6 . 3 . E f fe c t of c h a n g e s i n ca p t i v e u s e

(191) The Commission has also examined the effects of the development of captive use of hot rolled sheets
and plates. This increased between 1997 and 2000 from 317 941 tonnes to 437 013 tonnes, but fell
in 2001 to 372 850. The Commission noted that this fall corresponded with the market conditions
for the intermediate and finished products.

(192) Some indicators relating to captive use have been shown in global terms, whereby captive use forms
part of the analysis of the whole activity for the product concerned (i.e. capacity and capacity utilisa-
tion, employment and productivity). With respect to certain other factors which are analysed above
in respect of the free market, i.e., sales prices, stocks and profitability, the further data received in
respect of captive use is not, by its very nature, adapted to an immediate and objective comparison
with the data obtained for the free market for hot rolled sheets and plates, but nevertheless does not
show evidence that it was more profitable to produce for captive use than for the free market.

(193) The fall in captive use in 2001 thus has caused injurious effects in terms of production, which in
turn has affected capacity utilisation, fixed costs per unit and ultimately profitability. However, the
fall in prices and revenues suffered by Community producers on the free market was created by low
priced imports and bears little or no relation to the fall in captive use.

2.6.4. Effe ct of exp ort p e r formanc e

(194) The Commission also examined the effects of whether the serious injury was caused by a fall in

exports.

1997

1998

1999

2000

2001

Exports (tonnes)

196 354

202 206

165 070

159 450

150 469

(195) Between 1997 and 1999, the volume of Community producers' exports of hot rolled sheets and
plates to third countries fell from 196 354 tonnes to 165 070 tonnes. Between 1999 and 2001,
exports remained relatively stable, with a decrease of only 15 000 tonnes in the two year period.
Thus, over the five year period, exports decreased by approximately 46 000 tonnes, although most
of this occurred between 1997 and 1999. Since 1999, exports have fallen by only 15 000 tonnes or
0,7 % of total sales by the Community producers. Therefore, in the most recent period, between
2000 and 2001, exports have not contributed to any appreciable extent to the injurious effects. In
this respect, as the injury resulting from a fall in exports mainly occurred in the early part of the 5
year period it has to be viewed as less significant than if it had occurred in the latter part of the 5
year period.

(196) For the reasons given above, it is concluded that there is some link between the fall in exports and

the injurious effects observed particularly in the earlier part of the 5 year period.

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2.6.5. Effe ct of any e xc ess c ap ac ity

(197) The Commission has further examined whether injurious effects may have resulted from the serious
injury caused by excess capacity amongst the Community producers. There were no significant
changes in overall estimated theoretical production capacity throughout the period of the investiga-
tion. Therefore, no correlation between capacity and the injurious effects was observed.

2.6.6. Effe ct of restr ucturing

(198) The Commission further examined whether the injurious effects of the costs of restructuring which
the Community producers have undergone in recent years have caused the serious injury. In this
respect it is noted that restructuring will as a rule imply short term costs such as redundancy
payments, acquisition costs, etc., which are outweighed by medium term efficiency gains. In view of
the ongoing rationalisation process, this would imply that ongoing short term costs, even if found to
be minor, impacted on the cost structure.

2 . 6 . 7 . A t t r i b u t i on of i n j u r i ou s e ff e c ts

(199) The serious injury suffered by the Community producers took the form mainly of reduced sales and
worsening financial losses. The Commission identified that four factors contributed to the injury
apart from the increase in imports: decline in consumption, decline in captive use, decline in exports,
and ongoing rationalisation efforts.

(200) First of all, the decline in consumption of approximately 10 % between 1999 and 2000. However,
the development of imports did not follow this consumption pattern at all and the Commission
considers that the decline in consumption did not play a significant role either in volume or prices.

(201) As to the decline in captive use observed in particular between 2000 and 2001, this has had a nega-
tive impact primarily in terms of volume. Thus, it bears no significant relation to the fall in prices
and revenues suffered by the Community producers on the free market.

(202) The Commission also examined the decline in exports by the Community producers over the five
year period. There was a decline over the earlier part of the five year period. However, in the latter
part of the period, when serious injury was sustained, the fall in exports was insignificant in the
context of the Community producers' total sales. Therefore, the development in exports had an insig-
nificant impact on the Community producers in the period 2000/01 compared to the surge in
imports.

(203) As to the impact of ongoing rationalisation efforts, the Commission likewise considers that the
impact on the cost structure of the Community producers is not significant, in particular by compar-
ison to the price effect of the low priced imports.

(204) The Commission noted that the decline in the Community producers' sales volume, sales prices and
profitability was due primarily to the increase in imports, which increased in 2000 as consumption
fell and thereafter continued to increase in the face of stagnant consumption in 2001.

2.6.8. Conclusion

(205)

It is concluded that, after having examined the injurious effects of the other known factors and sepa-
rated and distinguished them from each other and from the injurious effects of the increased
imports, and after having ensured that injury caused by other factors is not attributed to imports, it
can be considered that there is a genuine and substantial link between increased imports and serious
injury to the Community producers.

2.7. Further Developments

(206) The Commission has, in addition, analysed a number of elements which justify the conclusion that
the serious injury suffered by the Community producers could be expected to seriously worsen
should imports continue at their current level or increase.

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2. 7. 1. Th e US ste e l safe g u ar d me a su r e s

(207)

It is recalled that on 5 March 2002, the US imposed safeguard measures against certain steel
products including hot rolled steel and plate. Those measures came into effect on 20 March 2002,
and consist of an increase in duty on imports to the US of 30 % ad valorem in the first year, 24 % in
the second year and 18 % in the third year. The measures do not apply to Canada, Israel, Jordan and
Mexico as well as a number of countries specified as developing countries.

2. 7. 2. Tr a de di ve r si on ar i si ng fr om US ste e l safe g u a r d me a su r e s

(208) The Commission examined the likely impact of the US measures by analysing the situation of the

major exporting countries to the US.

(209)

In 2001, the US imported 3,63 million tonnes of hot rolled steel and plate, of which at least
255 000 tonnes fall within the definition of the product concerned.

(210) Total exports to the US of the product concerned in 2001 from countries affected by the US safe-
guard measures (excluding producers in the Community and in those countries excluded from the
US safeguard measures insofar as it relates to hot rolled steel and plate) amounted to over 200 000
tonnes. Certain products produced by certain suppliers have also been excluded from the US
measures, but these quantities are not considered to be significant in the case of hot rolled steel and
plate.

(211) The Commission then examined the likelihood that the restricted access to the US market as a result
of safeguard action taken by the US would lead to increased exports to the Community. The
Commission investigated the capacity situation of the cooperating exporting producers. It was found
that they had increased their capacity from its level of around 12,2m tonnes in 1999 to 13,2m
tonnes in 2001. None of the cooperating exporting producers reported an intention to reduce their
capacity in the immediate future and none reported an intention to reduce their production in light
of the US measures.

(212) Most indicated their aim to make up for any reduction in their exports to the US by selling more on
their domestic markets but this claim was made within the context of static or falling consumption
in these markets. In this respect, it is very unlikely that these producers can increase sales signifi-
cantly on their domestic markets. Neither is it likely that they can increase sales to other export
markets as producers in most of these markets are already suffering from the substantial closure of
the US market and there is no indication that significant extra consumption will be available in these
markets in the short and medium term to permit increased imports.

(213) The potential trade which, in the absence of definitive measures, could be diverted to the Commu-
nity as a result of the US measures therefore amounts to over 200 000 tonnes. There are reasons
why this potential may not be wholly realized, e.g. the current high levels prices of domestic prices
in the US which may result in a somewhat higher than expected level of imports despite the exis-
tence of 30 % duties as well as the fact that third country producers may be able to partially offset
the loss of the US market by selling more on their domestic markets. This may be particularly true
to a degree for those countries which have taken protective measures to counteract the US safeguard
action. Producers may also increase their stocks for a period of time.

(214) However, a very substantial potential for increased exports to the Community will still prevail. The
increase which took place in 2001 had many causes as already identified in the analysis of serious
injury and all of these still apply and can be expected to continue to push imports higher. Moreover,
there is now the new element of the US safeguard action which manifestly leaves a substantial
amount of production for which producers are under enormous pressure to find buyers. In these
circumstances, it can reasonably be assumed that in the absence of definitive measures the very
minimum trade diversion that would occur would be between 25 % and 50 % of the amount calcu-
lated above (200 000 tonnes) which could be diverted from the US market. In all likelihood, it would
be greater but it is considered prudent to base this analysis on a conservative basis.

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(215)

It is also relevant that in 2001, the major export markets for the product concerned was the
Community (572 133 tonnes). This compares to Russia (258 738 tonnes), the US (255 144 tonnes),
China (209 980 tonnes) and Turkey (99 341 tonnes). This reflects that fact that the Community was,
and following recent measures, remains, one of the most open markets in the world. The recent
appreciation of the euro relative to the US dollar and other major currencies increases the attractive-
ness of imports relative to Community production in the short and medium term.

2. 7. 3. Re du cti on i n Commun i ty e x p or ts ar i si ng fr om th e US ste e l

safe g u a r d

me a su r e s

(216) An immediate effect of US measures has been to reduce sharply the Community exports of hot
rolled sheets and plates to the US. The imposition of 30 % ad valorem duties will largely stop these
exports though some small volumes may occur due to the current high level of prices in the US
which can result in duties being worth paying at least to sell any excess stock. Taking account to the
extent possible of the exclusions granted by the US since the imposition of measures, Community
exports to the US, which were around 20 000 tonnes in 2001, will fall as a result of the US
measures.

(217)

It is also likely that Community exports to other third markets will also fall both because the all
producers world-wide will find it more difficult to export both because of the US measures and the
defensive safeguard actions taken by other third countries and the Community to avoid diversion to
their own markets.

2.7.4. Proj ec ted e ffec ts of US me asure s

(218) The Commission has evaluated the possible impact on the Community producers of not imposing
definitive measures and the consequent trade diversion arising from the US safeguard measures as
well as the effect of these measures on Community exports Community. In this respect, the Commis-
sion has found that in the absence of Community safeguard measures, imports will inevitably rise
substantially with the result that the state of the Community industry will show a very serious and
substantial decline. Given the extremely fragile state of the Community producers any significant rise
in imports would have extremely serious consequences. The expected rise of between 50 000 and
100 000 tonnes would immediately lead to a further substantial reduction in the sales of the
Community producers and these reduced sales would very quickly lead to serious negative conse-
quences for the other indicators which identify the state of the industry.

(219) The continued fall in Community exports will also significantly contribute to the worsening state of
the Community producers. It is estimated that since the US measures were taken that Community
exports have fallen and this position is likely to be maintained or even deteriorate in the coming
months.

(220) The projected increase in imports and the projected fall in Community exports would substantially
worsen the situation of the Community industry in relation to all factors already examined when
determining the existence of serious injury. They would immediately lead to a further sharp fall in
sales and prices, with consequent negative effects on production, increased unit costs and increased
losses. In fact, the overall negative impact would be greatly magnified by the fact that Community
producers are already suffering serious injury from the increased imports of recent years.

2.7.5. Conclusion

(221) Taking due account of the fact that the Community producers are already suffering serious injury, it
is reasonable to conclude that the likely further substantial increase in imports would significantly
aggravate the situation of the Community producers. Moreover, this situation will be worsened by a
fall in Community exports as a result of US measures.

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Product 2

Non alloy hot rolled sheets and plates (continued)

SITUATION OF COMMUNITY PRODUCERS

1997

1998

1999

2000

2001

Capacity (in tonnes)

3 500 000

3 600 000

3 600 000

3 600 000

3 600 000

Utilisation rate of capacity (%)

63 %

67 %

72 %

64 %

61 %

Opening stocks (in tonnes)

109 875

167 389

215 337

232 342

265 431

Total production (in tonnes)

2 193 175

2 406 637

2 580 125

2 317 395

2 184 078

Purchases (in tonnes)

0

0

0

0

0

Total sales (in tonnes)

1 817 720

1 982 901

2 157 285

1 847 294

1 787 395

Captive use (in tonnes)

317 941

375 788

405 835

437 013

372 850

Closing stock (in tonnes)

167 389

215 337

232 342

265 431

289 264

Sales volume outside the EU (in
tonnes)

Sales volume in the EU (in
tonnes)

Unit prices of EU sales (Euro/
tonne)

Net profit/loss on EU sales (in
%)

196 354

202 206

165 070

159 450

150 469

1 621 366

1 780 696

1 992 214

1 687 843

1 636 926

321

347

286

363

334

5,7 %

10,5 %

– 3,7 %

8,5 %

– 1,6 %

Market share (%)

79,5 %

77,7 %

80,7 %

76,0 %

74,1 %

Employment (end of period)

6 461

6 699

6 489

6 229

Productivity (tonne/employee)

339

359

398

372

5 942

368

VOLUME, UNIT PRICES AND PROFITABILITY OF EU SALES ON A PER QUARTER BASIS

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Volume (in tonnes)

452 189

444 231

382 515

357 993

353 998

Unit prices (in Euro/tonne)

343

331

333

330

315

Profitability (in %)

2,5 %

– 2,3 %

– 3,2 %

– 4,6 %

– 8,5 %

Price undercutting in 2001 =

Price underselling in 2001 =

27,9 %

56,0 %

Data given above on the situation of the Community producers verified by sample check and on-
spot investigations of companies representing the following percentage of total Community produc-
tion:

92,8 %

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3. PRODUCT 3 — NON ALLOY HOT ROLLED NARROW STRIPS

3.1. Product Concerned and Like or Directly Competing Product

3.1.1. Produc t Conc e rne d

(222) The product concerned is flat rolled products of iron or non-alloy steel, of a width less than 600mm,

— not clad, plated or coated, not further worked than hot rolled, other than rolled on four faces or
in a closed box pass and of a width exceeding 150 mm and a thickness of not less than 4 mm,
not in coils and without patterns in relief, or,

— clad, but not further worked than clad

(hereinafter referred to as hot rolled narrow strips). The product concerned is currently classified
under CN codes 7211 14 10, 7211 14 90, 7211 19 20, 7211 19 90, 7212 60 11, 7212 60 19,
7212 60 91.

(223) Hot rolled narrow strips are generally obtained in steel mills by hot rolling semi-finished steel

products after the final rolling pass or after pickling or continuous annealing.

(224) Hot rolled narrow strips can be of various grades and dimensions. Notwithstanding the fact that each
CN code corresponds to a distinguishable type of hot rolled narrow strips, it was found that they all
have identical characteristics or similar physical and technical characteristics, uses and applications.
Accordingly, all types of hot rolled narrow strips form one single product falling under the relevant
CN codes listed above.

3.1.2. Like O r Direc tly Comp e ting Produc ts

(225) The Commission has examined whether the product produced by the Community producers (herein-
after referred to as the like product) is like the imported product concerned. In the course of the
investigation, the Commission received submissions from certain major exporters and importers of
hot rolled narrow strips which alleged that certain types of hot rolled narrow strips imported into
the Community were not produced by the Community producers and therefore should not be
considered as like the product concerned.

(226) The Commission examined these submissions in detail and took into account in particular the

following findings of the investigation:

(a) the imported product and Community product shared the same international classification for
tariff purposes. Furthermore, they shared the same or similar physical properties such as compo-
sition, size, shape and texture and were manufactured to internationally recognised standards;

(b) the imported product and Community product were sold via similar or identical sales channels
and price information was readily available (for example, details of prices are published in
industry periodicals, such as the Metal Bulletin and Steel Weekly) and the product concerned and
the product of the Community producers competed mainly on price;

(c) the imported and Community product were both capable of serving the same or similar end-
uses, they were, therefore, largely alternative or substitute products and were easily interchange-
able;

(d) the imported and Community product were both perceived by consumers as alternative means
of performing particular functions in order to satisfy a particular want or demand, in this respect
the differences identified by the exporter/importer were simply minor variations manufactured
for a particular customer.

(227) The Commission has concluded that despite the alleged technical differences in the product charac-
teristics and qualities identified in those submissions, the imported product and the Community
product are ‘like or directly competing’.

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3.2. Increased Imports

(228) The Commission has examined whether the product concerned is imported into the Community in
such greatly increased quantities, absolute or relative to Community production and/or on such
terms or conditions as to cause or threaten to cause, serious injury to the Community producers. In
this respect, the Commission has focused on imports of the product concerned in the most recent
period for which data were available in absolute terms and relative to production destined for sales
(excluding ‘captive use’) and total Community production. The table below shows the development
of imports in absolute terms and against both Community production destined for sales and total
Community production (including captive use) for each of the years 1997 to 2001.

Product 3

Non-alloy hot rolled narrow strips

CONSUMPTION

1997

1998

1999

2000

2001

Volume (in tonnes)

2 139 438

2 196 904

2 234 572

2 239 916

2 129 442

IMPORT DATA

1997

1998

1999

2000

2001

Total imports (including agree-
ment countries)

Volume (in tonnes)

85 864

129 697

146 345

176 854

214 414

Rate of increase (in %)

51,0 %

12,8 %

20,8 %

21,2 %

Market share (in %)

4,0 %

5,9 %

6,5 %

7,9 %

10,1 %

Ratio between imports and total
production (in %)

Ratio between imports and
production sold (in %)

3,1 %

4,7 %

5,5 %

6,4 %

8,4 %

Unit prices (in Euro/tonne)

44

232

208

302

3,6 %

5,4 %

6,1 %

7,4 %

9,8 %

239

1998/1997

1999/1998

2000/1999

2001/2000

Volume as moving averages (in
tonnes)

107 781

138 021

161 600

195 634

(229)

In the period prior to the Asian crisis, imports were below 110 000 tonnes (1996: 108 512 tonnes,
1997: 85 864 tonnes). As a result of the Asian crisis, between 1997 and 1998, imports increased by
over 50 %. Total Community production and production destined for sales increased marginally in
1998, so that, relative to production sold on the free market, imports increased from 3,6 % to 5,4 %,
whilst relative to total production, they increased from 3,1 % to 4,7 %.

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(230)

In the following year, the rate of growth of imports fell back to around 13 %, but imports continued
to increase notwithstanding a fall
in prices to 208 EUR/tonne. In relative terms (compared to
production destined for sales and total production), imports also increased, to 5,5 % of total Commu-
nity production and 6,1 % of production destined for sales. The larger increase recorded relative to
total Community production reflects the fact that a decline in captive use contributed to a decline in
total Community production in 1999, notwithstanding a slight increase in production destined for
sales in that year. It is noted that after imports had increased sharply in 1998 due to the Asian crisis,
they became established at that level in 1999 despite the fall in prices in that year because exporters
were able to retain their enlarged customer base and increase sales.

(231) Between 1999 and 2000, there was an increase in imports from 146 345 tonnes to 176 854 tonnes,
an increase of almost 21 %. Over the same period, production destined for sales was more or less
stable, so that relative to production sold on the free market, there was an increase from 6,1 % to
7,4 % (or around 21 %). As a result partly of an increase in captive use and exports, total Community
production increased from 2,65mt to 2,78mt, so that imports increased from 6,4 % to 8,4 % of total
production.

(232) Between 2000 and 2001, imports increased to 214 414 tonnes (a further increase of about 37 000
tonnes or 21 %). In 2001, production destined for sales declined by 7 % to 1,92m tonnes so that,
relative to production sold on the free market, imports increased by over 32 % (to 9,8 % of produc-
tion sold on the free market). Total Community production also fell in 2001 (by 232 000 tonnes or
8 %), reflecting a marginal decrease in production for captive use, a drop in exports and a fall in
production sold on the free market. The increase in imports relative to total Community production
was over 31 %.

(233) The price of the product concerned rose slightly between 1997 and 1998, but fell in 1999 to
208 EUR/tonne due to oversupply caused by the increase in imports in 1998 which appears to have
resulted from the Asian crisis. Prices rose to 302 EUR/tonne in 2000 but fell by over 20 % in 2001.
The Commission notes that, although prices increased in 2000, the increase in imports (both abso-
lute and relative to production) continued in 2001 against a background of falling prices. The
average price of imports fell from 302 EUR/tonne in 2000 to 239 EUR/tonne in 2001. The
Commission also notes that the further increase in imports to the Community occurred at a time
when the euro was relatively weak by comparison to the US dollar and, during which prices in the
US for hot rolled narrow strips were between 30 % and 40 % higher than prices for that product in
the Community.

3 . 2 . 1 . T w o ye a r mov i n g a v e r a g e

(234)

In order to establish the underlying trend in the level of imports between 1997 and 2001 and deter-
mine whether the recent increases in imports form an established trend, the Commission considered
two year moving averages. These illustrate that imports increased by over 21 % towards the end of
the period.

3.2.2. Marke t share of i mp or ts

(235) The market share of imports increased in each year of the investigation period, increasing from
4,0 % in 1997 to 10,1 % in 2001. From 2000 to 2001, the market share of imports increased by
nearly 28 %.

3.2.3. Conclusion

(236) Whilst imports increased sharply in 1998, the Commission considers that that increase was excep-

tional and cannot be considered to represent part of the normal development of imports.

(237) That recent increases in imports are not attributable to established trends in import levels is demon-
strated by the development of the two year moving average of imports over the five year period of
investigation.

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(238)

It is concluded that the increases in the recent past can be considered sudden, sharp and significant
when comparing them to developments in previous years, in particular bearing in mind that the
increase in imports in 1998, must be considered non representative.

3.3. Unforeseen Developments

3. 3. 1.

Inc r e a se d u se of tr ade de fe nce i nstr ume nt s by th e US

(239) From 1998 onwards, in reaction to the Asian crisis, the US, which represents around one eighth of
world steel consumption, began to make greater use of trade defence instruments (TDIs) in the steel
sector with a view to protecting their domestic producers from competition. A number of these
measures have been adjudicated in the WTO and some of the methodologies used have been
declared to be WTO incompatible. Nevertheless, many of the measures which remain in force are
based on these same methodologies.

(240) Table below shows the annual number of anti-dumping and countervailing duty final determinations
for one or more countries made by the US between 1997 and 2001 in relation to the steel sector as
a whole, and illustrates the increase in activity in the last three years.

Year

1997

1998

1999

2000

2001

Anti-dumping duty final determinations

Countervailing duty final determina-
tions

5

6

16

14

26

0

1

7

5

5

(241)

In the course of 2001, the US also announced further broadly based action in the steel sector. In
January, the US opened an investigation into steel under section 223 of the US Trade Act of 1974.
In July, the US ITC announced a broad ranging investigation into steel under section 202 of the
Trade Act of 1974; and in December, the ITC recommended safeguard measures across a broad
range of steel products.

(242) These actions, had an increasingly discouraging effect on imports of steel products to the US and led
to a decrease in US steel imports of 33 % between 1998 and 2001, and culminated in the safeguard
measures announced by the US on 5 March 2002. In particular, the safeguard proceeding, which
had been mooted for several months before its initiation, had a restraining effect on imports to the
US due to the uncertainty which it created for economic operators. It is indeed the largest commer-
cial defence action ever initiated by a WTO member covering imports worth some USD 17 billion.

3. 3. 2.

Inc r e a se d u se of TDIs by th e US — r e la ti ng to t h e p r oduct conce r ne d

(243)

In relation to hot rolled steel and plate (being the US product categories of which hot rolled narrow
strips form part), the US imposed 19 anti-dumping measures (including one suspension agreement)
and 10 countervailing duty measures between 1999 and 2001. In particular, in February 1999, the
US imposed anti-dumping duties of between 10,78 % and 67,14 % on imports of the product
concerned originating in Japan; and anti-dumping duties and countervailing duties of between
10,21 % and 52,14 % (some of which applied cumulatively) on imports of the product concerned
originating in Indonesia. In July 1999, the US imposed anti-dumping duties of between 41,27 % and
42,12 % on imports of the product concerned originating in Brazil. In September 2000, the US
imposed anti-dumping duties and countervailing duties of between 40,6 % and 44,59 % (some of
which applied cumulatively) on imports of the product concerned originating in Argentina. In
November 2000, the US imposed anti-dumping duties of between 64,20 % and 90,83 % on imports
of the product concerned originating in China. Also in November 2000, the US imposed anti-
dumping duties and countervailing duties of between 8,28 % and 44,4 % (some of which applied
cumulatively) on imports of the product concerned originating in India.

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(244) By 15 March 2002, in relation to hot rolled steel and plate, the US had in force anti-dumping
measures against exporters in 17 countries and countervailing measures against exporters in 9 coun-
tries The countries concerned by these proceedings were Argentina, Brazil, China, France, India,
Indonesia, Italy, Japan, Kazakhstan, the Netherlands, Romania, Russia, South Africa, South Korea,
Taiwan, Thailand and Ukraine. In each case, after an anti-dumping or countervailing measure has
been taken, US imports of the product concerned from that country have declined. In addition, the
dramatic fall in US imports in 2001 occurred in a year in which not only were 19 anti-dumping and
10 countervailing measures relating to the product concerned in place, but at the start of which the
US opened a steel investigation under section 223 of the US Trade Act of 1974 and in the middle of
which the US ITC announced a broad ranging investigation into steel under section 202 of the Trade
Act of 1974.

(245) Between 1999 and 2001, US imports decreased from 6,61m tonnes to 3,63m tonnes. In the same
period imports to the Community increased from 146 345 tonnes to 214 414 tonnes, an increase of
20 %.

(246) The Commission has also determined that an effect of the US reducing imports of hot rolled steel
and plate to its market was to increase imports of hot rolled narrow strips to the Community
market. On the basis of the available information, the Commission has determined that there is a
correlation in time between the increased and extensive use of TDIs by the US in recent years, the
dramatic reduction in US imports of hot rolled steel and plate between 2000 and 2001, and the
increase in Community imports of hot rolled narrow strips in that period. The Community was a
major export market for hot rolled narrow strips in 2001. Both the Community and US markets
have the same types of industrial users. Many of the exporters affected by the US TDIs have also
exported to the Community for a number of years. At the same time as US imports fell dramatically,
imports into the Community grew to record levels notwithstanding a fall in GDP growth, production
and consumption in the Community in 2001.

(247) This increased and extensive use of trade defence instruments, a number of which were found to be
WTO incompatible, could not have been foreseen at the conclusion of the Uruguay Round and
constitutes the unforeseen circumstances as required by the Safeguard Agreement.

3.3.3. De cre a se In Imp or ts to the US

(248) The table below shows imports of hot rolled steel (including plate in coils) and plate (including cut
to length plate and clad plate) to the US for the period 1997 to 2001. Hot rolled narrow strips are
classifiable within these US product categories.

Year

1997

1998

1999

2000

2001

Imports of the product concerned to the US (tonnes)

7 065 153

12 240 826

6 606 789

7 568 511

3 630 657

Sourrce: Global Trade Atlas

(249)

Imports to the US increased between 1997 and 1998, before falling back to just below 1997 levels
in 1999. Between 1999 and 2000, they increased to around 7,6 million tonnes. However, between
2000 and 2001, imports fell by over 52 %.

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(250) The decrease in the level of imports of hot rolled steel and plate to the US can be explained,
primarily, by reference to the direct effect of the measures referred to paragraphs (21) to (26) above
on exporters whose goods became subject to anti-dumping and/or countervailing duties; but also by
the indirect dissuasive effect of those measures and the investigations on all exporters of the product
concerned to the US.

(251) The table below illustrates the effect of particular anti-dumping/countervailing measures on exports
to the US of hot rolled steel (including plate in coils) and plate (including cut to length plate and clad
plate) from certain countries.

Country

Date of imposition of AD
measures

India

Taiwan

China

South Korea

Indonesia

Thailand

November 2000

November 2000

November 2000

November 2000

November 2000

November 2000

3.4. Definition of the Community Producers

Exports to the US (volume in tonnes)

2000

751 000

653 000

578 000

883 000

235 000

253 000

2001

57 000

46 000

120 000

452 000

12 000

32 000

(252) Total Community production of hot rolled narrow strips is around 3,5 million tonnes per annum.

The Community steel companies which cooperated fully in the investigation are:

— Corus Strip UK, UK;

— Corus Staal BV, the Netherlands;

— Rautaruukki Oyj, Finland;

— Riva/Ilva SPA, Italy;

— Salzgitter AG Stahl & Technologie, Germany;

— Sollac SA, France;

— SSAB Tunnplat AB, Sweden;

— Thyssen Krupp Stahl AG, Germany; and

— Voest Alpine Stahl GmbH, Austria.

(253) These companies are all members of the European Confederation of the Iron and Steel Industry
(‘Eurofer’). They accounted for around 72 % of the total Community production of the product
concerned. They represent a major proportion of total Community production within the meaning
of Article 5(3)(c) of Regulation (EC) No 3285/94 and Article 15(1) of Regulation (EC) No 519/94.
They are accordingly considered as the Community producers for the purposes of this proceeding.

3.5. Serious Injury

(254)

i.e. a significant overall

In order to determine whether there is serious injury to the Community producers of the like
product,
impairment in the position of the Community producers, the
Commission has evaluated all relevant factors of an objective and quantifiable nature having a
bearing on the situation of the Community producers. In particular, for the product concerned, the
Commission has evaluated the development of production capacity, production, capacity utilisation,
employment, productivity, cash flow, return on capital employed captive use, stocks, consumption,
sales, market share, price, undercutting and profitability for the years 1997 to 2001. The relevant
economic data are provided at the end of this product analysis.

(255) The investigation has demonstrated that the product concerned can follow one of two distinct desti-
nations. They can either be sold or used internally to make other products. It was found that around
17 % of the product concerned manufactured by the Community producers are used internally (i.e.
they are further processed by these producers in an integrated process, often on the same production
line, hereinafter referred to as ‘captive use’). These products follow an internal process of downstream
processing for which invoices are not normally issued.

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(256) The remaining production is sold at market prices on the Community market (hereinafter referred to
as the ‘free market’). Imports of the product concerned are also sold on the free market. The main
purchasers on the free market are independent cold rolling mills, tube makers, steel service centres,
steel merchants and stockholders. Both the product concerned sold by the Community industry and
importers is sold to the same types of customers and is used for the same purposes. The sale of the
product concerned is supported by the issuing of commercial invoices.

(257) The investigation demonstrated that there is a clear distinction between the product concerned
destined for captive use and those destined for sales. The product concerned destined for captive use
were found not to be directly affected by the imports. By contrast, production destined for sales was
in direct competition with the imports.

(258)

In order to provide as complete a picture as possible of the situation of the Community producers,
the Commission has obtained and analysed data both for hot rolled narrow strips destined for
captive use and those destined for sales. Because Community production destined for sales is in
competition with the imported product concerned, the Commission focused their attention on the
free market. While it has, to the extent possible, combined free market and captive data, it has also
split the analysis between free market and captive use, where necessary and possible.

3 . 5 . 1 . A n a ly si s of t h e Wh ol e A c t i v i t y for th e P r odu c t Conc e r n e d

3.5.1.1. Production capacity and Capacity utilisation

1997

1998

1999

2000

2001

Capacity (tonnes)

3 810 000

3 810 000

3 810 000

3 810 000

3 800 000

Capacity Utilisation (%)

72 %

73 %

69 %

73 %

67 %

(259) The investigation showed that there were no significant changes in overall estimated theoretical

production capacity throughout the period of the investigation.

(260) Capacity utilisation was reasonably stable in 1997 and 1998 (at 72 %/73 %) but fell in 1999 as a
result of the fall in production. Capacity utilisation recovered to its previous level in 2000 due to a
return to previous levels of production but fell to its lowest level for the five year period in 2001
(67 %). The Commission notes that the fall in exports, and fall in captive use, between 2000 and
2001, contributed to this fall in capacity utilisation. However, whilst captive use fell by 9 000 tonnes
and exports fell by 41 000 tonnes (in total, about 1,3 % of production in 2000), capacity utilisation
fell by over 8 %.

3.5.1.2. Total Community Production

1997

1998

1999

2000

2001

Production

2 736 501

2 763 332

2 646 967

2 784 800

2 553 066

(261) Total Community production remained stable in 1997 and 1998 before falling in 1999 due to a
combination of an increase in imports, and falls in stocks, exports and captive use. In 2000, produc-
tion recovered to just above its previous levels despite increased imports due to increased exports
and captive use and restocking. However, it fell in 2001, as, despite a fall of 5 % in consumption,
imports took a greater share of the Community market in absolute terms.

(262) Production sold on the free market was more or less stable between 1997 and 2000, although it
followed a slight upward curve in the first two years before falling slightly in the third. Thereafter,
production destined for sales fell between 2000 and 2001, by 148 000 tonnes or 7 %, due to the
combination of falling exports and falling Community sales. This shows the increasing dominance of

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imports in a declining market in 2001. Throughout the investigation period, Community exports of
hot rolled narrow strips accounted for about one eighth of production sold on the free market.
Community exports fell from a peak of 330 618 tonnes in 1997 to 273 737 tonnes in 2001. The
fall in production for export is further examined under ‘other factors’ to determine its effect on the
situation of the Community producers.

3.5.1.3. Employment

Employment (end of period)

8 852

9 082

8 727

8 310

7 812

1997

1998

1999

2000

2001

(263) Employment in relation to the like product peaked in 1998 when production was highest. A combi-
nation of efficiency gains in 1999 and 2000, and reduced production in 2001 lead to falls in
employment in each of these years. Employment fell by around 500 (or 6 %) between 2000 and
2001 and this was reflected in reports of job losses and closures. It is expected to fall further in
2002, and these predictions are to some extent confirmed by the closure of at least one plant in the
UK in the second quarter of 2002.

3.5.1.4. Productivity

Productivity (tonne/employee)

309

304

303

335

327

1997

1998

1999

2000

2001

(264) Productivity remained stable from 1997 to 1999 at around 303 to 309 EUR/tonne. It increased to
335 EUR/tonne in 2000 as the Community producers reduced employment in response to effi-
ciency gains. However, it fell in 2001 as, despite a reduction in employment, the fall in production
led to lower efficiency. Assuming no further fall in production, productivity is expected to stabilise
in 2002 as the effect of job losses in the latter part of 2001 feed through fully.

3.5.1.5. Cash Flow

Cash Flow (index)

100

63

– 20

55

67

1997

1998

1999

2000

2001

(265) Cash flow could only be examined at the level of the cooperating companies which produced the
product concerned rather than in relation to only the product concerned itself. This indicator was
therefore seen as less meaningful than the other indicators shown above. Nevertheless, a negative
situation is evident between 1997 and 2001.

3.5.1.6. Return on Capital Employed (ROCE)

ROCE

11,2 %

16,7 %

9,9 %

12,6 %

7,8 %

1997

1998

1999

2000

2001

(266) ROCE could only be examined on the level of the cooperating companies which produced the
product concerned rather than in relation to only the product concerned itself. This indicator was
therefore also seen as less meaningful than the other indicators shown above. Nevertheless, a nega-
tive situation is evident between 1997 and 2001 and from 2000 to 2001.

3.5.1.7. Other indicators

(267)

It was not found to be relevant to analyse consumption, sales volume, market share, unit prices,
profitability and stocks under this heading because a complete analysis of these indicators was only
relevant to the free market.

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3.5.2. Ana ly sis of t he F ree M arke t

3.5.2.1. Consumption

Consumption (tonnes)

2 139 438

2 196 904

2 234 572

2 239 916

2 129 442

1997

1998

1999

2000

2001

(268) Consumption of hot rolled narrow strips in the Community was established on the basis of the total
sales made by the Community producers on the free market and total imports of the product
concerned into the Community as indicated in the Eurostat import statistics and the exporting
producers' replies to the questionnaires.

(269) Between 1997 and 1999, consumption in the Community increased from 2,14m tonnes to 2,23m
tonnes. It remained stable in 2000, but fell back to 2,13m tonnes in 2001. The fall in consumption
between 2000 and 2001 is examined under other factors to determine whether, and if so, to what
extent, it contributed to the serious injury suffered by the Community producers.

3.5.2.2. Sales volume

1997

1998

1999

2000

2001

Sales volume in the Community
(tonnes)

2 053 574

2 067 207

2 088 227

2 063 062

1 915 028

(270) Sales of the like product in the Community rose from 2,05m tonnes to 2,07m tonnes between 1997
and 1998 and on to 2,09m tonnes in 1999, encouraged by some growth in consumption. There-
after, sales of the like product fell in 2000 (to 2,06m tonnes) and 2001 more sharply in 2001 (to
1,92m tonnes). The fall in Community sales of the like product in 2001 was 7 %, somewhat higher
than the 5 % decline in consumption. This reflects the increasing dominance of imports in a market
in which consumption had fallen in 2001.

3.5.2.3. Market share

Market share (%)

96,0 %

94,1 %

93,5 %

92,1 %

89,9 %

1997

1998

1999

2000

2001

(271) The Community producers' market share fell from 96,0 % to 94,1 % between 1997 and 1998 as a
result of the increase in imports from the South East Asia in 1998 that occurred as a result of the
Asian crisis. Despite price cuts the following year (1999), they continued to lose market share,
although at a slower rate. Between 1999 and 2000, the Community producers' market share fell
again, and this occurred again between 2000 and 2001. The Community producers' market share
fell to 89,9 %, 6,1 percentage points lower than its level at the beginning of the investigation period.
It is noted that the loss of market share between 2000 and 2001 continued at an increased rate
despite the fact that Community producers lowered their prices in that period.

3.5.2.4. Price of like product and undercutting

1997

1998

1999

2000

2001

Unit prices of Community sales
(EUR/tonne)

334

347

298

359

343

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2001

Unit prices of Community sales
(EUR/tonne)

349

342

341

337

332

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(272) The average price of the like product increased between 1997 and 1998 to 347 EUR/tonne but then
fell to 298 EUR/tonne in 1999 as Community producers fought to regain market share. Prices
recovered in 2000, but fell again (by 4,5 %) to 343 EUR/tonne in 2001. This trend is further
confirmed because quarterly prices from Q1 2001 to Q1 2002 show a fall from 349 EUR/tonne to
332 EUR/tonne in the price of the Community product.

(273)

In order to determine the level of undercutting, price information was examined for comparable time
periods, at the same level of trade and for sales to similar customers. Based on a comparison of
prices invoiced by the Community producers and by exporting producers to the Community,
domestic prices were undercut by an average of 26,7 % in 2001.

3.5.2.5. Profitability

1997

1998

1999

2000

2001

Net profit/loss on Community
sales (%)

2,3 %

5,8 %

– 3,2 %

5,5 %

– 1,7 %

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2001

1,6 %

– 1,9 %

– 2,8 %

– 5,2 %

– 8,5 %

(274) The profitability of the Community producers' sales in the Community varied significantly in the
five-year period under consideration. Their lowest profitability was recorded in 1999, when,
Community producers cut prices in an attempt to regain market share from imports. The highest
was recorded in 1998. In 2001, as imports increased to their highest level in the five-year period,
the average price of imports fell to 239 EUR/tonne and the average price of the Community product
fell to 343 EUR/tonne. This fall in the price of the Community product taken together with the fall
in sales volume led the Community producers' profitability to fall from 5,5 % to –1,7 %, and this
negative trend appears to be continued in 2002. This trend is further confirmed because quarterly
data for Q1 2001 to Q1 2002, shows that the profitability of the Community producers' sales on
the Community market fell from 1,6 % to –8,5 %.

(275) Underselling reflects the extent to which the price of the imported product is lower than the price
level which the Community producers could be expected to achieve in a non-injurious situation. The
level of underselling was calculated on the basis of the weighted average non injurious price per
tonne of the Community product. This price was calculated by taking the respective cost of produc-
tion for the Community product to which was added a profit margin of 8 %. This profit margin was
considered reasonable as it refers to profits of the Community producers in a normal trading situa-
tion unaffected by sudden sharp rise in imports. This non injurious price was compared with the
weighted average price per tonne of the imported product concerned during 2001. The difference
between these two prices was expressed as a percentage of the cif/Community border price of the
imported product, and resulted in underselling of 53,5 %.

3.5.2.6. Stocks

1997

1998

1999

2000

2001

Closing stock (tonnes)

190 212

198 033

113 383

142 532

138 595

(276) Stock levels were stable through 1997 and 1998 but fell in 1999 due to a reduction in production
by Community producers, in response to the fall in prices experienced in the early and middle part
of that year. In 2000, stocks were rebuilt to 142 535 tonnes and remained stable at about this level
in 2001.

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3 . 5 . 3 . A n a ly si s of Ca p t i v e u se

1997

1998

1999

2000

2001

Captive use (tonnes)

344 566

365 693

351 081

377 552

368 239

(277) Some indicators relating to captive use have been shown in global terms, whereby captive use forms
part of the analysis of the whole activity for the product concerned (i.e. capacity and capacity utilisa-
tion, employment and productivity). With respect to certain other factors which are analysed above
in respect of the free market, i.e., sales prices, stocks and profitability, the data received is not, by its
very nature, adapted to an immediate and objective comparison with the data obtained for the free
market for hot rolled narrow strips, but nevertheless does not show evidence that it was more profit-
able to produce for captive use than for the free market. Therefore, this analysis focuses on produc-
tion for captive use and examines if its trend is comparable to those of the free and total markets.

(278) Production for captive use represented around 13 % of total Community production between 1997
and 2000. However, due to the fall in total production, it increased to around 14 % of total Commu-
nity production in 2001. In absolute terms, captive use remained more or less stable throughout the
five-year period, although on a slight upward curve, varying between 344 566 tonnes and 377 552
tonnes.

3.5.4. Conclusion

(279) The data shows that while production capacity remained stable and there is a slight increase in
productivity, overall there is negative development for capacity utilisation, production, employment,
and negative elements can as well be observed for cash flow and ROCE.

(280) Overall, the free market data shows before the background of stagnant consumption and a decrease

in stocks, negative developments for sales, market share, prices and profitability.

(281) The data for captive use has demonstrated that a stable trend was identified in respect of captive use.
These findings were indeed supported by the analysis of the whole activity for the product
concerned.

(282)

In particular, the Commission notes that whilst, in 2001, as imports reached their highest level for
five years (214 414 tonnes), the Community producers' Community sales volume reached their
lowest level for five years (1,92m tonnes) and their profitability rapidly declined. This occurred
against the background of a concurrent fall in production and consumption. Against such a back-
ground, imports could have been expected to fall, but instead they rose for the fourth consecutive
year.

(283) The effect of this combination of factors on the Community producers is reflected in the perfor-
mance indicators. The Community producers' profitability has fallen from 5,5 % in 2000 to losses of
–8,5 % in Q1 2002. The Community producers have lost market share, which reached its lowest
level for five years in 2001. Capacity utilisation has also fallen sharply in 2001 to its lowest level for
five years and so too has productivity despite substantial job losses in both 2000 and 2001. By
2001, employment had reached its lowest level for the five-year period. These trends are confirmed
by the continuing deterioration in prices and profitability between Q1 2001 and Q1 2002.

(284) Taking account of all of these factors and relying, in particular, on its analysis of the free market

activities, the Commission concludes that the Community producers have suffered serious injury.

3.6. Causation

(285)

In order to examine the existence of a causal link between increased imports and the serious injury,
and in order to ensure that injury caused by other factors is not attributed to increased imports, the
Commission has proceeded as follows:

— the injurious effects of factors considered to be causing injury have been distinguished from each

other,

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— these injurious effects have been attributed to the factors which are causing them; and,

— after having attributed injury to all causal factors present, the Commission has determined

whether increased imports are a genuine and substantial cause of serious injury.

3.6.1. Effe ct of incr ease d i mp or ts

(286) The market for hot rolled narrow strips is a transparent one as regards sources of supply, customers
and prices. As hot rolled narrow strips are essentially a commodity product, the product concerned
and the like product compete mainly on price. In the period 1999 to 2001, the market share of
imports grew from 6,5 % of the market to 10,1 % in 2001. Whilst the market share of the Commu-
nity product fell from 93,5 % in 1999 to 89,9 % in 2001. Over the same period, imports have
grown from 6,1 % to 9,8 % of production destined for sales (5,5 % to 8,4 % of total Community
production). Thus, imports have also increased relative to production, at the expense of the Commu-
nity producers.

(287) As to prices, between 2000 and 2001, the average unit price of the product concerned on the
Community market fell from 302 to 239 EUR/tonne. The average unit price of the like product fell
from 359 to 343 EUR/tonne. In this transparent market, price undercutting had a decisive impact.
The effect of the fall in the average unit price of the like product alone on the Community producers'
Community sales revenue would have been a reduction of about 4,5 % (EUR 33m) in 2001. Taking
account of the simultaneous fall in sales volume the actual fall in turnover in the Community was
EUR 89m. Fixed costs represent a material proportion of the Community producers' overheads.
Therefore, the reduction in sales revenues created a disproportionately higher fall in profits, and, in
2001, the Community producers made a loss of –1,6 %. This fall in prices and profitability further-
more must be seen in the context of a number of plant closures and ensuing reduction in employ-
ment.

(288) For these reasons, it is considered that there is a correlation between the increase in imports at low
prices and the serious injury suffered by the Community producers, and that the increase in imports
has had injurious effects in particular in terms of pressure on prices and a reduction in the volume
sold by the Community producers on the Community market.

3 . 6 . 2 . E f fe c t of c h a n g e s i n con su m p t i o n

(289) The Commission examined the injurious effects of the fall in consumption between 2000 and 2001.
That fall has to be considered in the context of the overall trend during the 5 year period under
investigation. Consumption increased from 2,14m tonnes in 1997 to 2,23m tonnes in 1999, and
then to 2,24m tonnes in 2000, before falling back some 110 000 tonnes to 2,13m tonnes in 2001.

(290) Although consumption fell between 2000 and 2001, overall during the five year period consump-

tion remained stable.

(291)

In examining the fall between 2000 and 2001, account has to be taken of the reaction of all market
participants to the fall in consumption. In this respect, it was found that while Community produ-
cers were forced to reduce their sales in the Community by roughly 150 000 tonnes in 2001
compared to 2000, imports moved sharply in the other direction. No economic justification was
established which could explain the sharp rise in imports. For example, no exporter claimed that this
was due to lower production costs.

(292) As regards price effects, stable consumption not normally lead to falling prices, and even the fall of
4 % in 2001 should not normally lead to substantial price effects if production is quickly adjusted to
the needs of the market. In this respect, the Community producers appear to have reacted by redu-
cing both production and sales to a greater extent than that necessary to be in line with the fall in
consumption.

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(293) Similarly, if price pressure is reduced then the injurious effects which stem from low prices would
also be kept in check. The most important factor here is profit, where any fall would have been
minimised if prices had not fallen substantially. Therefore, it is reasonable to conclude that in the
absence of the sharp rise in imports at low prices, the fall in consumption would not have led to a
substantial fall in profits.

(294) Nevertheless, even if all market participants acted responsibly and adjusted their production, the
Community producers would still have sold less in 2001 than in 2000. The Community producers'
sales decreased in 2001 compared to 2000 by 150 000 tonnes. At the same time, imports increased
by 40 000 tonnes compared to 2000. In terms of the five year trend in consumption, the Commu-
nity producers' sales level should have been maintained.

(295) For the reasons given above, it is concluded that there is a significant, but not substantial, link

between the fall in consumption and the injurious effects observed.

3 . 6 . 3 . E f fe c t of c h a n g e s i n ca p t i v e u s e

(296) The Commission has also examined the effects of the development of captive use of hot rolled
narrow strips. This increased between 1997 and 2000 from 344 566 tonnes to 377 552 tonnes, but
fell in 2001 to 368 239. The Commission noted that this fall corresponded with the market condi-
tions for the intermediate and finished products.

(297) Some indicators relating to captive use have been shown in global terms, whereby captive use forms
part of the analysis of the whole activity for the product concerned (i.e. capacity and capacity utilisa-
tion, employment and productivity). With respect to certain other factors which are analysed above
in respect of the free market, i.e. sales prices, stocks and profitability, the further data received in
respect of captive use is not, by its very nature, adapted to an immediate and objective comparison
with the data obtained for the free market for hot rolled sheets and plates, but nevertheless does not
show evidence that it was more profitable to produce for captive use than for the free market.

(298) The fall in captive use has caused minor injurious effects in terms of production, which in turn
affected capacity utilisation and ultimately profitability. However, the effect was small and the fall in
prices and revenues suffered by Community producers on the free market was created by low priced
imports and bears little or no relation to the fall in captive use.

3.6.4. Effe ct of exp ort p e r formanc e

(299) The Commission also examined the effects of a fall in exports.

1997

1998

1999

2000

2001

Exports (tonnes)

330 618

322 611

292 309

315 037

273 737

(300) Between 1997 and 2001, the volume of Community producers' exports of hot rolled narrow strips
to third countries fell from 330 618 tonnes to 273 737 tonnes. There was a steady fall between
1997 and 1999, with a recovery in 2000 followed by a further decline. Over the five year period,
exports decreased by approximately 57 000 tonnes. Therefore, there were some injurious effects
caused as a result of loss of exports over the five year period.

(301) For the reasons given above, it is concluded that there is some link between the fall in exports and

the injurious effects observed.

3.6.5. Effe ct of any e xc ess c ap ac ity

(302) The Commission has further examined whether injurious effects may have resulted from excess capa-
city amongst the Community producers. There were no significant changes in overall estimated theo-
retical production capacity throughout the period of the investigation. Therefore, no correlation
between capacity and the injurious effects was observed.

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3. 6.6. Effe ct of restr ucturing

(303) The Commission further examined the injurious effects of the costs of restructuring which the
Community producers have undergone in recent years. In this respect it is noted that restructuring
will as a rule imply short term costs such as redundancy payments, acquisition costs, etc., which are
outweighed by medium term efficiency gains. In view of the ongoing rationalisation process, this
would imply that ongoing short term costs, even if found to be minor, impacted on the cost struc-
ture.

3 . 6 . 7 . A t t r i b u t i on of i n j u r i ou s e ff e c ts

(304)

Injury suffered by the Community producers took the form mainly of reduced sales and worsening
financial losses. The Commission identified that four factors contributed to the injury apart from the
increase in imports: decline in consumption, decline in captive use, decline in exports, and ongoing
rationalisation efforts.

(305) First of all, there was a decline in consumption between 2000 and 2001, albeit the five year trend
was stable. However, the development of imports did not follow this consumption pattern at all and
the Commission considers that the decline in consumption did not play a significant role either in
volume or prices.

(306) As to the decline in captive use observed between 2000 and 2001, this had a minor impact in terms
of volume. However, it bears no significant relation to the fall in prices and revenues suffered by the
Community producers on the free market.

(307) The Commission also examined the decline in exports by the Community producers over the five
year period. There was a decline over the five year period. However, that decline must be seen in the
context of the Community producers' total sales. In that context it amounted to a fall of 1 %. There-
fore, the development in exports had a significantly lesser impact on the Community producers in
the period 2000/01 compared to the surge in imports.

(308) As to the impact of ongoing rationalisation efforts, the Commission likewise considers that the
impact on the cost structure of the Community producers is not significant, in particular by compar-
ison to the price effect of the low priced imports.

(309) The Commission noted that the decline in the Community producers' sales volume, sales prices and
profitability was due primarily to the increase in imports, which continued to increase during the fall
in consumption in 2001.

3.6.8. Conclusion

(310)

It is concluded that, after having examined the injurious effects of the other known factors and sepa-
rated and distinguished them from each other and from the injurious effects of the increased
imports, and after having ensured that injury caused by other factors is not attributed to imports, it
can be considered that there is a genuine and substantial link between increased imports and serious
injury to the Community producers.

3.7. Further Developments

(311) The Commission has, in addition, analysed a number of elements which justify the conclusion that
the serious injury suffered by the Community producers could be expected to seriously worsen
should imports continue at their current level or increase.

3. 7. 1. Th e US ste e l safe g u ar d me a su r e s

(312)

It is recalled that on 5 March 2002, the US imposed safeguard measures against certain steel
products including hot rolled steel and plate. Those measures came into effect on 20 March 2002,
and consist of an increase in duty on imports to the US of 30 % ad valorem in the first year, 24 % in
the second year and 18 % in the third year. The measures do not apply to Canada, Israel, Jordan and
Mexico as well as a number of countries specified as developing countries.

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3. 7. 2. Tr a de di ve r si on ar i si ng fr om US ste e l safe g u a r d me a su r e s

(313) The Commission examined the likely impact of the US measures by analysing the situation of the
major exporting countries to the US. Given he volumes of imports into the US which are not exempt
it is concluded that any resulting trade diversion to the
from the measures are not important,
Community is likely to be relatively minor.

3. 7. 3. Re du cti on i n Commun i ty e x p or ts ar i si ng fr om th e US ste e l

safe g u a r d

me a su r e s

(314) The reduction in Community exports to the US as a result of the US measures is also expected to be
minor. Nevertheless, it is likely that Community exports to other third markets will also fall both
because the all producers world-wide will find it more difficult to export both because of the US
measures and the defensive safeguard actions taken by other third countries and the Community to
avoid diversion to their own markets.

3.7.4. Proj ec ted e ffec ts of US me asure s

(315) Nevertheless, the Commission investigated the capacity situation of the cooperating exporting produ-
cers. It was found that they had increased their capacity from its level of around 12,2m tonnes in
1999 to 13,2m tonnes in 2001. None of the cooperating exporting producers reported an intention
to reduce their capacity in the immediate future and none reported an intention to reduce their
production in light of the US measures.

(316) Most indicated their aim to make up for any reduction in their exports to the US by selling more on
their domestic markets but this claim was made within the context of static or falling consumption
in these markets. In this respect, it is very unlikely that these producers can increase sales signifi-
cantly on their domestic markets. Neither is it likely that they can increase sales to other export
markets as producers in most of these markets are already suffering from the substantial closure of
the US market and there is no indication that significant extra consumption will be available in these
markets in the short and medium term to permit increased imports.

(317) The Commission has evaluated the possible impact on the Community producers of not imposing
definitive measures and the consequent trade diversion arising from the US safeguard measures as
well as the effect of these measures on Community exports Community. In this respect, the Commis-
sion has found that in the absence of Community safeguard measures, imports will continue at
current level or above with the result that the state of the Community industry will show a very
serious and substantial decline particularly given the contraction of the market. Given the extremely
fragile state of the Community producers even a continuation of the current level of imports would
have significant consequences, and lead to a further reduction in the sales of the Community produ-
cers and to further negative consequences for the other indicators which identify the state of the
industry.

(318) The continued fall in Community exports will also contribute to the worsening state of the Commu-
nity producers. It is estimated that since the US measures were taken that Community exports have
already fallen and this position is likely to be maintained or even deteriorate in the coming months.

(319) The projections for imports and Community exports would worsen the situation of the Community
industry in relation to all factors already examined when determining the existence of serious injury.
They would lead to a further fall in sales and prices, with consequent negative effects on production,
increased unit costs and increased losses. In fact, the overall negative impact would be greatly magni-
fied by the fact that Community producers are already suffering serious injury from the increased
imports of recent years.

3.7.5. Conclusion

(320) Taking due account of the fact that the Community producers are already suffering serious injury, it
is reasonable to conclude that even a continuation at the current level of imports, would aggravate
the situation of the Community producers. Moreover, this situation will be worsened by a fall in
Community exports as a result of US measures.

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Product 3

Non-alloy hot rolled narrow strips (continued)

SITUATION OF COMMUNITY PRODUCERS

1997

1998

1999

2000

2001

Capacity (tonnes)

3 810 000

3 810 000

3 810 000

3 810 000

3 800 000

Utilisation rate of capacity (in %)

72 %

73 %

69 %

73 %

67 %

Opening stocks (tonnes)

182 468

190 212

198 033

113 383

142 532

Total production (tonnes)

2 736 501

2 763 332

2 646 967

2 784 800

2 553 066

Purchases (tonnes)

0

0

0

0

0

Total sales (tonnes)

2 384 192

2 389 818

2 380 537

2 378 099

2 188 765

Captive use (tonnes)

344 566

365 693

351 081

377 552

368 239

Closing stock (tonnes)

190 212

198 033

113 383

142 532

138 595

Sales volume outside the EU
(tonnes)

330 618

322 611

292 309

315 037

273 737

Sales volume in the EU (tonnes)

2 053 574

2 067 207

2 088 227

2 063 062

1 915 028

Unit prices of EU sales (EUR/
tonne)

Net profit/loss on EU sales (%)

334

2,3 %

347

298

5,8 %

– 3,2 %

359

5,5 %

343

– 1,7 %

Market share (%)

96,0 %

94,1 %

93,5 %

92,1 %

89,9 %

Employment (end of period)

8 852

9 082

8 727

8 310

Productivity (tonne/employee)

309

304

303

335

7 812

327

VOLUME, UNIT PRICES AND PROFITABILITY OF EU SALES ON A PER QUARTER BASIS

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Volume (in tonnes)

565 520

498 165

422 842

428 502

484 470

Unit prices (in Euro/tonne)

349

342

341

337

332

Profitability (in %)

1,6 %

– 1,9 %

– 2,8 %

– 5,2 %

– 8,5 %

Price undercutting in 2001 =

Price underselling in 2001 =

26,7 %

53,5 %

Data given above on the situation of the Community producers verified by sample check and on-
spot investigations of companies representing the following percentage of total Community produc-
tion:

72,1 %

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4. PRODUCT 4 — ALLOY HOT ROLLED FLAT PRODUCTS

4.1. Product Concerned and Like or Directly Competing Product

4.1.1. Produc t Conc e rne d

(321) The product concerned is certain alloy hot rolled flat products (hereinafter referred to as ‘alloy
products’). The product concerned is currently classified under the following CN codes: 7225 19 10,
7225 30 00, 7225 40 80, 7226 19 10, 7226 91 10, 7226 91 90 and 7226 99 20.

(322) Alloy products are manufactured in the same manner as hot rolled coils, sheets and plates but with
an alloying element added to the basic steel. They may be coiled or uncoiled and are used as a pre-
material for manufacturing a wide range of other steel products.

(323) Each of the relevant CN codes listed above corresponds to a specific product type as differentiated

by width and thickness within the above ranges.

(324) Notwithstanding the fact that each CN code corresponds to a distinguishable type of alloy products,
it was found that they all have identical characteristics or similar physical and technical characteris-
tics, uses and applications. Accordingly, all types of alloy products form one single product falling
under the relevant CN codes above.

4.1.2. Like or Di rec tly Comp e ting Produc t

(325) The Commission has examined whether the product produced by the Community producers (herein-
after referred to as the ‘like product’) is like the imported product concerned. In the course of the
investigation, the Commission received submissions from certain major exporters and importers of
alloy products which alleged that certain types of alloy products imported into the Community were
not produced by the Community producers and therefore should not be considered as ‘like’ the
product concerned.

(326) The Commission examined these submissions in detail, and took into account in particular the

following findings of the investigation:

(a) the imported product and the Community product shared the same international classification
for tariff purposes. Furthermore, they shared the same or similar physical properties such as
composition, size, shape and texture and were manufactured to internationally recognised stan-
dards;

(b) the imported product and the Community product were sold via similar or identical sales chan-
nels and price information was readily available (for example, details of prices are published in
industry periodicals, such as the Metal Bulletin and Steel Weekly) and the product concerned and
the product of the Community producers competed mainly on price;

(c) the imported product and the Community product were both capable of serving the same or
similar end-uses, they were, therefore, largely alternative or substitute products and were easily
interchangeable;

(d) the imported product and the Community product were both perceived by consumers as alterna-
tive means of performing particular functions in order to satisfy a particular want or demand, in
this respect the differences identified by the exporter/importer were simply minor variations
manufactured for a particular customer.

(327) The Commission has concluded that despite the alleged technical differences in the product charac-
teristics and qualities identified in those submissions, the imported product and the Community
product are like or directly competing.

4.2. Increased Imports

(328) The Commission has examined whether the product concerned is imported into the Community in
such greatly increased quantities, absolute or relative to Community production and/or on such
terms or conditions as to cause or threaten to cause, serious injury to the Community producers. In
this respect, the Commission has focused on imports of the product concerned in the most recent
period for which data were available in absolute terms and relative to production destined for sale
(excluding captive use) and total production. The table below shows the development of imports in
absolute terms and against both Community production destined for sale and total Community
production (including captive use) for each of the years 1997 to 2001.

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Product 4

Alloy hot rolled flat products

CONSUMPTION

1997

1998

1999

2000

2001

Volume (tonnes)

2 432 368

2 374 912

2 173 281

2 749 210

2 723 826

IMPORT DATA

1997

1998

1999

2000

2001

Total imports

Volume (tonnes)

3 374

5 063

25 719

158 233

468 773

Rate of increase (%)

50,1 %

408,0 %

515,2 %

196,3 %

Market share (%)

0,1 %

0,2 %

1,2 %

5,8 %

17,2 %

Ratio between imports and total
production (%)

Ratio between imports and
production sold (%)

0,1 %

0,2 %

0,9 %

4,5 %

15,1 %

0,1 %

0,2 %

1,1 %

5,7 %

18,9 %

Unit prices (in EUR/tonne)

542

253

314

304

240

1998/1997

1999/1998

2000/1999

2001/2000

Volume as moving averages (in
tonnes)

4 219

15 391

91 976

313 503

(329) Between 1999 and 2000, imports increased from 25 719 tonnes to 158 233 tonnes, an increase of
515 %. Over the same period, production destined for sales increased by 21 % so that the increase
relative to free market production was over 400 %. Total production increased (also by 21 %) so that
the increase in imports relative to total production was around 400 %.

(330) Between 2000 and 2001, imports increased to 468 773 tonnes (a further increase of about 200 %).
In 2001, production destined for sales contracted by an 11 % so that, relative to production sold on
the free market, imports increased by over 232 %. Total production also fell in 2001 (by 12 %) so
that the increase in imports relative to total production was 236 %.

(331) The price of the product concerned only really becomes reliable (due to low volumes) from 1999

onwards. Prices fell significantly from 1999 to 2001 (by 24 %).

4 . 2 . 1 . T w o ye a r mov i n g a v e r a g e

(332)

In order to establish the underlying trend in the level of imports between 1997 and 2001 and deter-
mine whether the recent increases in imports form an established trend, the Commission considered
two year moving averages. These confirm that although imports increased from 1997/98 to 1998/
99, the most important increases were from 1998/99 to 2000/2001.

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4.2.2. Marke t share of i mp or ts

(333) The market share of imports increased steeply throughout the period 1997 to 2001 although the
most important increases were in the period 1999 to 2001 when the market share of imports
increased from 1,2 % to 17,2 %.

4.2.3. Conclusion

(334) The increase in imports between 1999 and 2001 of over 1700 % in absolute terms, and over
1500 % relative to production sold in the free market and relative to total production is sudden,
sharp and significant. Recent increases in imports cannot be attributed to the normal peaks and
troughs in import levels as demonstrated by the two year moving averages over the 5 year period
investigated.

(335)

It is concluded that the increases in the recent past can be considered sudden, sharp and significant
when comparing them to developments in previous years.

4.3. Unforeseen Developments

4. 3. 1.

Inc r e a se d u se of Tr a de De fe nce Instr ume nts by t h e US — G e ne r a l

(336) From 1998 onwards, in reaction to the Asian crisis (1), the US, which represents around one eighth
of world steel consumption, began to make greater use of trade defence instruments (TDIs) in the
steel sector with a view to protecting their domestic producers from competition. A number of these
measures have been adjudicated in the WTO and some of the methodologies used have been
declared WTO incompatible. Nevertheless, many of the measures which remain in force are based
on these same methodologies.

(337) The table below shows the annual number of anti-dumping and countervailing duty final determina-
tions (for one or more countries) made by the US between 1997 and 2001 in relation to the steel
sector as a whole, and illustrates the increase in activity in the last three years.

Year

1997

1998

1999

2000

2001

Anti-dumping duty

Countervailing duty

5

6

16

14

26

0

1

7

5

5

(338)

In the course of 2001, the US also announced further broadly based action in the steel sector. In
January, the US opened an investigation into steel under section 223 of the US Trade Act of 1974.
In July, the US ITC announced a broad ranging investigation into steel under section 202 of the
Trade Act of 1974; and in December, the ITC recommended safeguard measures across a broad
range of steel products.

(339) These actions had an increasingly discouraging effect on imports of steel products to the US and led
to a decrease in US steel imports of 33 % between 1998 and 2001 and culminated in the safeguard
measures announced by the US on 5 March 2002. In particular, the safeguard proceeding, which
had been mooted for several months before its initiation, had a restraining effect on imports to the
US due to the uncertainty which it created for economic operators. It is indeed the largest commer-
cial defence action ever initiated by a WTO member covering imports worth some USD 17 billion.

(1) The effects of the Asian crisis were felt around the world in 1998 and 1999. In particular, as Asian steel producers
fought to maintain sales volumes in the face of the collapse of their domestic markets, they sought to open up new
markets by offering low prices, and found the Community market to be an important outlet for their goods. In conse-
quence, imports of the products concerned increased markedly in 1998, and prices fell sharply in 1999.

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4. 3. 2.

Inc r e a se d u se of TDIs by th e US — r e la ti ng to t h e p r oduct conce r ne d

(340)

In relation to hot rolled flat products, (a product which includes the product concerned) the US
imposed 14 anti-dumping measures (including one suspension agreement) at high levels of duty and
6 countervailing duty measures between 1999 and 2001. In particular, in July 1999, the US imposed
anti-dumping duties of between 41,27 % and 43,40 % on imports of the product concerned origi-
nating in Brazil. In September 2000, the US imposed anti-dumping duties of between 40,6 % and
44,59 % and countervailing duties of 41,69 % (some of which applied cumulatively) on imports of
the product concerned originating in Argentina. In November 2000, the US imposed anti-dumping
duties of between 64,20 % and 90,83 % on imports of the product concerned originating in China.
Also in November 2000, the US imposed anti-dumping duties of between 36,53 % and 44,40 % and
countervailing duties of between 8,28 % and 31,89 % (some of which applied cumulatively) on
imports of the product concerned originating in India.

(341) By 15 March 2002,

in relation to hot rolled flat products, the US had in force anti-dumping
measures against exporters in 14 countries and countervailing measures against exporters in 6 coun-
tries The countries concerned by these proceedings were Argentina, Brazil, China, India, Indonesia,
Japan, Kazakhstan, the Netherlands, Romania, Russia, South Africa, Taiwan, Thailand and Ukraine.
In each case, after an anti-dumping or countervailing measure has been taken, US imports of the
product concerned from that country have declined. In addition, the dramatic fall in US imports in
2001 occurred in a year in which not only were 14 anti-dumping and 6 countervailing measures
relating to the product concerned in place, but at the start of which the US opened a steel investiga-
tion under section 223 of the US Trade Act of 1974 and in the middle of which the US ITC
announced a broad ranging investigation into steel under section 202 of the Trade Act of 1974.

(342) Between 1999 and 2001, US imports of hot rolled flat products decreased from 5,40m tonnes to
2,56m tonnes. In the same period imports of the same products to the Community increased from
2,87m tonnes to 4,20m tonnes, an increase of over 46 %.

(343) The Commission has also determined that an effect of the US reducing imports of hot rolled flat
products to its market was to increase imports to the Community market. On the basis of the avail-
able information, the Commission has determined that there is a correlation in time between the
increased and extensive use of TDIs by the US in recent years, the dramatic reduction in US imports
of hot rolled flat products between 2000 and 2001, and the increase in Community imports of that
product in that period. The Community was one of the principal export markets for hot rolled flat
products in 2001. Both the Community and US markets have the same types of industrial users.
Many of the exporters affected by the US TDIs have also exported to the Community for a number
of years. At the same time as US imports fell dramatically, imports to the Community grew to record
levels notwithstanding a fall in GDP growth, production and consumption in the Community in
2001.

(344) This increased and extensive use of trade defence instruments, a number of which were found to be
WTO incompatible, could not have been foreseen at the conclusion of the Uruguay Round and
constitutes the unforeseen circumstances as required by the Safeguard Agreement.

4.3.3. De cre a se In Imp or ts to the US

(345) The table below shows imports of goods classifiable within Harmonised System Code (HSC) 7225
19, 7225 30, 7225 40, 7226 19, 7226 91 and 7226 99 (which include the product concerned and
the like product) to the US for the period 1999 to 2001.

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Year

1999

2000

2001

Sourrce: Global Trade Atlas

Imports of the product concerned to the US (tonnes)

606 643

561 905

477 434

(346)

Imports to the US decreased between 1999 and 2001. In particular imports fell sharply, by around
15 %, in 2001 (by around 84 000 tonnes).

(347) The decrease in the level of these imports to the US can be explained, primarily, by reference to the
direct effect of the measures referred to above on exporters whose goods became subject to anti-
dumping and/or countervailing duties; but also by the indirect dissuasive effect of those measures
and the investigations on all exporters of the product concerned to the US.

(348) The table below illustrates the effect of particular anti-dumping/countervailing measures on exports

of the above mentioned products from certain countries.

Country

Japan

The Community

Exports to the US ( volume in tonnes)

2000

103 000

250 000

2001

93 000

192 000

4.4. Definition of the Community producers

(349) Total Community production of the product concerned is around 3,1 million tonnes per annum.

The Community steel companies which cooperated fully in the investigation are:

— Corus Staal BV, The Netherlands;

— Riva Ilva SpA, Italy;

— Salzgitter AG Stahl & Technologie, Germany;

— Sidmar NV, Belgium;

— Sollac SA, France;

— SSAB Tunnplat, Sweden;

— Thyssen Krupp Stahl AG, Germany; and

— Lucchini SpA, Italy.

(350) These companies are all members of the European Confederation of the Iron and Steel Industry
(‘Eurofer’). They accounted for around 75 % of the total Community production of the product
concerned. They represent a major proportion of total Community production within the meaning
of Article 5(3)(c) of Regulation (EC) No 3285/94 and Article 15(1) of Regulation (EC) No 519/94.
They are accordingly considered as the Community producers for the purposes of this proceeding.

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4.5. Serious Injury

(351)

i.e. a significant overall

In order to determine whether there is serious injury to the Community producers of the like
impairment in the position of the Community producers, the
product,
Commission has evaluated all relevant factors of an objective and quantifiable nature having a
bearing on the situation of the Community producers. In particular, for the product concerned, the
Commission has evaluated the development of production capacity, production, capacity utilisation,
employment, productivity, captive use, stocks, consumption, sales, market share, cash flow, return
on capital employed, unit price, undercutting and profitability for the years 1997 to 2001. The rele-
vant economic data are provided at the end of this product analysis.

(352) The investigation has demonstrated that the product concerned can follow one of two distinct
routes. They can either be sold or used internally to make other products. It was found that around
22 % of the product concerned manufactured by the Community producers are used internally (i.e.
they are further processed by these producers in an integrated process, often on the same production
line, hereinafter referred to as ‘captive use’). These products follow an internal process of downstream
processing for which invoices are not normally issued.

(353) The remaining production is sold at market prices on the Community market (hereinafter referred to
as the ‘free market’). Imports of the product concerned are also sold on the free market. The main
purchasers on the free market are independent cold rolling mills, tube makers, steel service centres,
steel merchants and stockholders. Both the product concerned sold by the Community industry and
importers is sold to the same types of customers and is used for the same purposes. The sale of the
product concerned on the free market is supported by the issuing of commercial invoices.

(354) The investigation demonstrated that there is a clear distinction between the product concerned
destined for captive use and those destined for the free market. The product concerned destined for
captive use were found not to be directly affected by the imports. By contrast, production destined
for sale was in direct competition with the imports.

(355)

In order to provide as complete a picture as possible of the situation of the Community producers,
the Commission has obtained and analysed data both for the product concerned destined for captive
use and those destined for the free market. Because the free market sales are in competition with the
imported products concerned, attention is focused on the free market. Although, to the extent
possible, free market and captive data have been combined, the Commission has also split the
analysis between free market and captive use, where necessary and possible.

4 . 5 . 1 . A n a ly si s of t h e Wh ol e A c t i v i t y for th e P r odu c t Conc e r n e d

4.5.1.1. Production capacity and capacity utilisation

(356) Estimated theoretical production capacity remained stable at around 4,5m tonnes throughout the
analysis period. Capacity utilisation declined between 1997 and 1999 (from 74,5 % to 65,0 %) but
increased in 2000 (to 78,6 %) and fell by 12 % in 2001 (to 69,1 %).

1997

1998

1999

2000

2001

Production capacity (tonnes)

4 500 000

4 500 000

4 500 000

4 500 000

4 500 000

Capacity Utilisation

74,5 %

71,6 %

65,0 %

78,6 %

69,1 %

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4.5.1.2. Total Production

(357) Total production of the like product in the Community fell from 3,35m tonnes to 2,9m tonnes
between 1997 and 1999. Between 1999 and 2000, production grew to 3,5m tonnes before falling
to 3,1m tonnes in 2001, a fall of 12 %, its lowest level over the five year period.

Total production (tonnes)

3 350 622

3 222 004

2 922 827

3 538 723

3 111 090

1997

1998

1999

2000

2001

4.5.1.3. Employment

(358) Employment in relation to the like product has fallen steadily over the period analysed. It fell from

around 3 170 in 1997 to 2 705 in 2001, a fall of 15 %.

Employment

3 170

3 246

2 829

2 964

2 705

1997

1998

1999

2000

2001

4.5.1.4. Productivity

(359) Productivity fluctuated over the period 1997 to 2001 from 1 057 tonnes per employee in 1997 to

1 150 in 2001.

Productivity

1 057

992

1 033

1 194

1 150

1997

1998

1999

2000

2001

4.5.1.5. Cash Flow

(360) Cash flow could only be examined at the level of the cooperating companies which produced the
product concerned rather than in relation to only the product concerned itself. This indicator was
therefore seen as less meaningful than the other indicators shown above. Nevertheless, a negative
situation is evident between 1997 and 2001.

Cash Flow (index)

100

48

– 76

39

77

1997

1998

1999

2000

2001

4.5.1.6. Return on Capital Employed (ROCE)

(361) ROCE could only be examined on the level of the cooperating companies which produced the
product concerned rather than in relation to only the product concerned itself. This indicator was
therefore also seen as less meaningful than the other indicators shown above. Nevertheless, a nega-
tive situation is evident between 1997 and 2001 and from 2000 to 2001.

ROCE

8,8 %

17,6 %

10,2 %

11,2 %

3,8 %

1997

1998

1999

2000

2001

4.5.1.7. Other indicators

(362)

It was not found to be relevant to analyse consumption, sales volume, market share, unit prices,
profitability and stocks under this heading because a complete analysis of these indicators was only
relevant to the free market.

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4.5.2. Ana ly sis of t he F ree M arke t

4.5.2.1. Consumption

(363) Consumption of the product concerned in the Community was established on the basis of the total
sales made by the Community producers (cooperators plus non cooperators) on the free market and
total imports of the product concerned into the Community as indicated in the Eurostat import
statistics.

(364) As can be seen from the table below, between 1997 and 1999, consumption in the Community
declined by around 11 % from 2,43m tonnes to 2,17m tonnes. Between 1999 and 2000, it grew by
over 26 % to reach its highest level for the five year period (2,75m tonnes), before falling to 2,72m
tonnes in 2001.

1997

1998

1999

2000

2001

Consumption (tonnes)

2 432 368

2 374 912

2 173 281

2 749 210

2 723 826

4.5.2.2. Sales volume

(365) Sales volume of the like product in the Community fell from 2,4m tonnes to 2,1m tonnes between
1997 and 1999. Between 1999 and 2000, these sales grew by 21 % to reach its highest level for the
five year period (2,6m tonnes), before falling to 2,3m tonnes in 2001.

(366) Exports of the product fell from 0,37m tonnes to 0,19m tonnes between 1997 and 1999. However,
Between 1999 and 2001, these sales grew by 19 % but did not reach the levels of exports of either
1997 or 1998.

1997

1998

1999

2000

2001

Sales volume in the Community
(tonnes)

2 428 994

2 369 849

2 147 562

2 590 977

2 255 053

4.5.2.3. Market share

(367) The Community producers' market share fell continuously over the period from 99,9 % in 1997 to

82,8 % in 2001.

1997

1998

1999

2000

2001

Market share (%)

99,9 %

99,8 %

98,8 %

94,2 %

82,8 %

4.5.2.4. Price of like product and undercutting

(368) The average unit price of the Community producers fluctuated between 341 and 302 EUR/tonne
during the period of investigation. Prices have increased overall during the analysis period but, as
shown below, profitability has fluctuated and fell to its lowest point in 2001. This is explained by
the price undercutting by imported alloy products which is mentioned below. This price pressure
has meant that price increases have been suppressed for a product where improvements in product
quality and customer focus have increased costs. This trend is further confirmed because quarterly
prices from Q1 2001 to Q1 2002 show a fall from 340 EUR/tonne to 315 EUR/tonne in the price
of the Community product.

(369)

In order to determine the level of undercutting, price information was examined for comparable time
periods, at the same level of trade and for sales to similar customers. Based on a comparison of
prices invoiced by the Community producers and by exporting producers to the Community,
domestic prices were undercut by an average of 25,9 % in 2001.

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1997

1998

1999

2000

2001

Unit price of Community sales
(EUR/tonne)

314

334

302

332

341

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Unit price of Community sales
(EUR/tonne)

340

337

347

342

315

4.5.2.5. Profitability

(370) As mentioned above, the profitability of the Community producers' sales in the Community has fluc-
tuated over the five-year period under consideration. The lowest profitability was recorded in 2001
and the highest was achieved in 1998 when a combination of adequate prices and no significant
penetration of imports enabled 9,0 % profits to be achieved. The quarterly data shows the downward
evolution from 2000 to 2001 continued into 2002 with losses in quarter 1 of 5,0 % (this evolution
occurred in parallel with a dramatic increase in imports at low prices). This negative situation arose
at the same time as there was a fall in average prices and price suppression. The Community produ-
cers clearly attempted to increase sales prices in 2001 to improve their profitability, but by the
fourth quarter of 2001 this policy had proven unsuccessful and prices were reduced again. It should
be recognised that, as mentioned above, productivity increased overall during the 5-year period.

(371) Underselling reflects the extent to which the price of the imported product is lower than the price
level which the Community producers could be expected to achieve in a non-injurious situation. The
level of underselling was calculated on the basis of the weighted average non injurious price per
tonne of the Community product. This price was calculated by taking the respective cost of produc-
tion for the Community product to which was added a profit margin of 8 %. This profit margin was
considered reasonable as it refers to profits of the Community producers in a normal trading situa-
tion unaffected by a sudden, sharp rise in imports. This non injurious price was compared with the
weighted average price per tonne of the imported product concerned during 2001. The difference
between these two prices was expressed as a percentage of the cif/Community border price of the
imported product, and resulted in underselling of 44,2 %.

1997

1998

1999

2000

2001

Profitability of Community sales

6,4 %

9,0 %

4,1 %

7,2 %

3,2 %

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Profitability of Community sales

6,1 %

2,2 %

4,2 %

– 0,1 %

– 5,0 %

4.5.2.6. Stocks

(372) Stock levels increased during the period of analysis and in particular increased by over 22 % in

2001.

1997

1998

1999

2000

2001

Closing stock (tonnes)

142 675

120 568

127 254

168 856

207 112

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4.5.3. Ana ly sis of Ca p tiv e Use

(373) Some indicators relating to captive use have been analysed in global terms, whereby captive use
forms part of the analysis of the whole activity for the product concerned (i.e. capacity and capacity
utilisation, employment and productivity). With respect to certain other factors which are analysed
above in respect of the free market, i.e., sales prices, stocks and profitability, the data received is not,
by its very nature, adapted to an immediate and objective comparison with the data obtained for the
free market for the product concerned, but nevertheless does not show evidence that it was more to
produce for captive use than for the free market. Therefore, this analysis focuses on production for
captive use and examines if its trend is comparable to those of the free and total markets.

(374) Captive use rose from 540 000 tonnes in 1997 to 699 000 tonnes in 2000, before falling back to
593 000 tonnes in 2001. In relative terms, production for captive use remained at around 18 % of
production levels throughout the period and was, therefore, considered to be material. However,
bearing in mind that captive use remained above its 1999 level in 2001 and stable relative to total
production, it was concluded that this factor did not significantly contribute to the injury analysis.

1997

1998

1999

2000

2001

Captive use (tonnes)

539 014

561 488

579 540

698 505

593 000

4.5.4. Conclusion

(375) The data shows that while production capacity and productivity remained stable there is, overall, a
negative development for capacity utilisation, production, employment, and negative elements can
as well be observed for cash flow and ROCE.

(376) Overall, the free market data shows an increase in stocks, negative developments for sales, market

share and profitability.

(377) The data for captive use demonstrates a similar negative trend. These findings were indeed supported
by the analysis of the whole activity for the product concerned for which captive use forms a signifi-
cant part.

(378)

In particular, the Commission notes that whilst, in 2001, as imports increased, the Community
producers' sales volume in the Community fell by 13 % and profitability fell rapidly.

(379) The effect of this combination of factors on the Community producers is reflected in the economic
indicators. The Community producers have lost market share, which reached its lowest level for five
years in 2001. Capacity utilisation has fallen sharply in 2001, and with it productivity. Employment
has also fallen and is expected to fall further in 2002. The overall effect of the falls in production
and Community sales volume was to reduce the profitability of the Community producers and
substantially reduce profits in 2001. These trends are confirmed by the deterioration in prices and
profitability between Q1 2001 and Q1 2002 where in particular the Community producers began
to make substantial losses.

(380) Taking account of all of these factors and relying, in particular, on its analysis of the free market

activities, the Commission concludes that the Community producers have suffered serious injury.

4.6. Causation

(381)

In order to examine the existence of a causal link between increased imports and the serious injury,
and in order to ensure that injury caused by other factors is not attributed to increased imports, the
Commission has proceeded as follows:

— the injurious effects of factors considered to be causing injury have been distinguished from each

other,

— these injurious effects have been attributed to the factors which are causing them, and,

— after having attributed injury to all causal factors present, the Commission has determined

whether increased imports are a genuine and substantial cause of serious injury.

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4.6.1. Effe ct of incr ease d i mp or ts

(382) The market for the product concerned is a transparent one as regards sources of supply, customers
and prices. As the product concerned is essentially a commodity product, the product concerned
and the like product compete mainly on price.

(383)

In the period 1999 to 2001, the market share of imports grew from 0,1 % of the market to 17,2 %,
whilst the market share of the Community producers fell from 99,9 % to 82,8 %. Over the same
period, imports have grown from 0,1 % to 18,9 % of production sold on the free market. Thus,
imports have also increased relative to production, at the expense of the Community producers.

(384) Between 2000 and 2001, the average unit price of the imported product on the Community market
fell from 304 to 240 EUR/tonne. This caused price pressure on the Community producers which
suffered lower sales volumes which in turn created a disproportionately higher fall in profits, and, in
2001, the Community producers moved into a loss making situation, a trend which has worsened in
the first quarter of 2002 (which shows a loss of 5,0 %). This negative situation must be seen in the
context of a number of plant closures and ensuing reduction in employment.

(385) For these reasons, it is considered that there is a correlation between the increase in imports at low
prices and the serious injury suffered by the Community producers, and that the increase in imports
has had injurious effects in particular in terms of pressure on prices and a reduction in the volume
sold by the Community producers on the Community market.

4 . 6 . 2 . E f fe c t of c h a n g e s i n con su m p t i o n

(386) Between 1999 and 2001 consumption increased by 25 %. The Commission has determined that the

serious injury is not caused by the changes in the level of consumption in the Community.

4 . 6 . 3 . E f fe c t of c h a n g e s i n ca p t i v e u s e

(387) The Commission has also examined the effects of the development of captive use of the product
concerned. It should be stated, however, that captive use for the product concerned represented less
than 20 % of total production. Captive use rose slightly over the period 1997 to 2001. However,
there was a large rise in 2000 and fall back in 2001.

(388) The further data received in respect of captive use is not, by its very nature, adapted to an immediate
and objective comparison with the data obtained for the free market for the product concerned, but
it does not show evidence that it was more profitable by the companies to produce for captive use
than for the free market.

(389) The Commission, therefore, concludes that no injurious effects were caused by captive use between
1997 and 2000. The fall in captive use in 2001 did however, have a minor injurious effect in terms
of production, which in turn has affected capacity utilisation, and ultimately profitability. However,
the fall in prices and revenues suffered by Community producers on the free market was created by
low priced imports and bears little or no relation to the fall in captive use.

4.6.4. Effe ct of exp ort p e r formanc e

(390) Between 1997 and 1999, the volume of Community producers exports fell from 370 000 tonnes to
189 000 tonnes. Between 1999 and 2001, exports increased by 19 %. However, over the five year
period, exports decreased by approximately 145 000 tonnes. Therefore, whilst there may have been
injurious effects caused by loss of exports between 1997 and 1999, in the more recent period
between 2000 and 2001 they have not contributed to the injurious effects. In this respect, as the
injury resulting from a fall in exports occurred in the early part of the 5 year period it has to be
viewed as less significant than if it had occurred in the latter part of the 5 year period.

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(391) For the reasons given above, it is concluded that there is some link between the fall in exports and

the injurious effects observed, at least in the earlier part of the 5 year period.

Volume in tonnes

1997

1998

1999

2000

2001

Export sales of the Community
producers

369 977

312 774

189 038

207 640

224 780

4.6.5. Effe ct of any e xc ess c ap ac ity

(392) The Commission has further examined whether the injurious effects may have resulted from any
excess capacity amongst the Community producers. There were no significant changes in overall
estimated theoretical production capacity throughout the period of the investigation and capacity
utilisation remained at relatively high levels throughout the 5 year period investigated. Nevertheless,
there was a fall in capacity utilisation between 2000 and 2001 which may have contributed to the
injury suffered in respect of profitability by raising unit costs. However, as the serious injury suffered
in respect of the product concerned also involved a reduction in sales volume, price depression and
loss of market share, it was concluded that any excess capacity could not have been a major cause of
serious injury.

4.6.6. Effe ct of restr ucturing

(393) The Commission further examined the injurious effects of the costs of restructuring which the
Community producers have undergone in recent years. In this respect it is noted that restructuring
will as a rule imply short term costs such as redundancy payments, acquisition costs, etc., which are
outweighed by medium term efficiency gains. In view of the ongoing rationalisation process, this
would imply that ongoing short term costs, even if found to be minor, impacted on the cost struc-
ture.

4 . 6 . 7 . A t t r i b u t i on of i n j u r i ou s e ff e c ts

(394) The serious injury suffered by the Community producers took the form mainly of reduced sales
volume and a worsening financial situation. The Commission identified that four factors contributed
to the injury apart from the increase in imports: the decline in captive use, the decline in export
performance, the effect of restructuring and the decline in capacity utilisation.

(395) First of all, there was a decline in capacity utilisation in 2001, however this resulted from a
temporary fall in production and utilisation did not fall to levels which can be considered low. The
Commission considers that the decline in capacity utilisation did not, therefore, have a significant
injurious effect on either volume or prices.

(396) As mentioned above, it is concluded that there is some link between the fall in exports and the injur-
ious effects observed, however, these effects were during the period 1997 to 1999 and are, therefore,
considered to be less significant than if it had occurred in the latter part of the 5 year period.

(397) As to the decline in captive use observed between 2000 and 2001, this has had a negative impact
although the negative effects seen in respect of profitability were calculated on sales on the free
market and the fall in captive use did not impact on this indicator. In addition, the level of captive
use was not a major issue for this product and the effect of a fall of around 20 % in captive use
cannot be said to have had a major cause of the serious injury suffered.

(398) As to the impact of ongoing rationalisation efforts, the Commission likewise considers that the
impact on the cost structure of the Community producers is not significant, in particular by compar-
ison to the price effect of the low priced imports.

(399) The Commission noted that the decline in the Community producers' sales volume, sales prices and

profitability was due primarily to the increase in imports.

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4. 6 . 8 . Co n c l u si on

(400)

It is concluded that, after having examined the injurious effects of the other known factors and sepa-
rated and distinguished them from each other and from the injurious effects of the increased
imports, and after having ensured that injury caused by other factors is not attributed to imports, it
can be considered that there is a genuine and substantial link between increased imports and serious
injury to the Community producers.

4.7. Further Developments

(401) The Commission has, in addition, analysed a number of elements which justify the conclusion that
the serious injury suffered by the Community producers could be expected to seriously worsen
should imports continue at their current level or increase.

4. 7. 1. Th e US ste e l safe g u ar d me a su r e s

(402) On 5 March 2002, the US imposed safeguard measures against certain steel products including alloy
products. Those measures came into effect on 20 March 2002, and consist of an increase in duty on
imports to the US of 30 % ad valorem in the first year, 24 % in the second year and 18 % in the third
year. The measures are claimed to apply erga omnes, but in reality they do not apply to Canada,
Israel, Jordan and Mexico as well as a number of countries specified as developing countries.

4. 7. 2. Tr a de di ve r si on ar i si ng fr om US ste e l safe g u a r d me a su r e s

(403) The Commission examined the likely impact of the US measures by analysing the situation of the

major exporting countries to the US.

(404)

In 2001, the US imported around 480 000 tonnes of goods classifiable within the HSC 6 digit codes
7225 19, 7225 30, 7225 40, 7226 19, 7226 91 and 7226 99 (which include the product
concerned). The principal exporters of these products to the US were the Community (40 %/
192 000 tonnes), Canada (27 %/127 000 tonnes), Japan (20 %/94 000 tonnes), and Brazil
(6 %/
30 000 tonnes). Romania, South Korea and Ukraine also supplied more than 1 % of this product to
the US market in 2001.

(405) Total exports to the US of the above products in 2001 from countries affected by the US safeguard
measures (excluding producers in the Community and in those countries excluded from the US safe-
guard measures insofar as it relates to the product concerned) amounted to around 125 000 tonnes.

(406) The Commission then examined the likelihood that the restricted access to the US market as a result
of safeguard action taken by the US would lead to increased exports to the Community. The
Commission investigated the capacity situation of
the cooperating exporting producers. They
increased their capacity from 3,14m tonnes in 1997 to 3,81m tonnes in 2000. None of the coop-
erating exporting producers reported an intention to reduce their capacity in the immediate future
and none reported an intention to reduce their production in light of the US measures.

(407) Most indicated their aim to make up for any reduction in their exports to the US by selling more on
their domestic markets, but this claim was made within the context of static or falling consumption
in these markets. In this respect, it is very unlikely that these producers can increase sales signifi-
cantly on their domestic markets. Neither is it likely that they can increase sales to other export
markets as producers in most of these markets are already suffering from the substantial closure of
the US market and there is no indication that significant extra consumption will be available in these
markets in the short and medium term to permit increased imports.

(408) The potential trade which, in the absence of definitive measures, could be diverted to the Commu-
nity as a result of the US measures therefore amounts to 125 000 tonnes. There are reasons why this
potential may not be wholly realised, e.g. the current high levels prices of domestic prices in the US
which may result in a somewhat higher than expected level of imports despite the existence of 30 %
duties, as well as the fact that third country producers may be able to partially offset the loss of the
US market by selling more on their domestic markets. This may be particularly true to a degree for
those countries which have taken protective measures to counteract the US safeguard action. Produ-
cers may also increase their stocks for a period of time.

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(409) However, a very substantial potential for increased exports to the Community will still prevail. The
increase which took place in 2001 had many causes as already identified in the analysis of serious
injury and all of these still apply and can be expected to continue to push imports higher. Moreover,
there is now the new element of the US safeguard action which manifestly leaves a substantial
amount of production for which producers are under enormous pressure to find buyers. In these
circumstances, it can reasonably be assumed that in the absence of definitive measures the very
minimum trade diversion that would occur would be between 25 and 50 % of the amount calculated
above (30 000 to 60 000 tonnes) which could be diverted from the US market. In all likelihood, it
would be greater but it is considered prudent to base this analysis on a conservative basis.

(410)

It is also relevant that in 2001, one of the major export markets for the alloy products was the
Community (0,47mt). This compares to China (0,68mt), the US (0,48mt), Mexico (0,18mt), Thailand
(0,17mt) and Russia (0,17mt). This reflects that fact that the Community was, and following recent
measures, remains, one of the most open markets in the world. The recent appreciation of the euro
relative to the US dollar and other major currencies increases the attractiveness of imports relative to
Community production in the short and medium term.

4. 7. 3. Re du cti on i n Commun i ty e x p or ts ar i si ng fr om th e US ste e l

safe g u a r d

me a su r e s

(411) An immediate effect of US measures has been to reduce sharply the Community exports of the
product concerned to the US. The imposition of 30 % ad valorem duties will
largely stop these
exports though some small volumes may occur due to the current high level of prices in the US
which can result in duties being worth paying at least to sell any excess stock. It is estimated, after
taking account to the extent possible of the exclusions granted by the US since the imposition of
measures that Community exports to the US (of 195 000 tonnes in 2001) will fall substantially as a
result of the US measures.

(412)

It is also likely that Community exports to other third markets will also fall both because the produ-
cers world-wide will find it more difficult to export, both because of the US measures and the defen-
sive safeguard actions taken by other third countries and the Community to avoid diversion to their
own markets.

4.7.4. Proj ec ted e ffec ts of US me asure s

(413) The Commission has evaluated the possible impact on the Community producers of not imposing
definitive measures and the consequent trade diversion arising from the US safeguard measures as
well as the effect of these measures on Community exports. In this respect, the Commission has
found that in the absence of Community safeguard measures, imports will inevitably rise substan-
tially with the result that the state of the Community industry will show a very serious and substan-
tial decline. Given the extremely fragile state of the Community producers any significant rise in
imports would have extremely serious consequences. The expected rise of between 30 000 to
60 000 tonnes (corresponding to a rise of around 10 %) would likely lead to a further reduction in
the sales of the Community producers and these reduced sales would lead to negative consequences
for the other indicators which identify the state of the industry.

(414) The continued fall in Community exports will also significantly contribute to the worsening state of
the Community producers. Since the US measures were taken it is inevitable that Community
exports will have fallen substantially and this fall is likely to be maintained or even deteriorate in the
coming months.

(415) The projected increase in imports and the projected fall in Community exports would significantly
worsen the situation of the Community industry in relation to all factors already examined when
determining the existence of serious injury. They would lead to a further fall in sales and prices, with
consequent negative effects on production, increased unit costs and increased losses. In fact, the
overall negative impact would be greatly magnified by the fact that Community producers are
already suffering serious injury from the increased imports of recent years.

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4.7.5. Conclusion

(416) Taking due account of the fact that the Community producers are already suffering serious injury, it
is reasonable to conclude that, without definitive measures, further increases of imports would signif-
this situation will be
icantly aggravate the situation of the Community producers. Moreover,
worsened by a significant fall in Community exports as a result of US measures.

Product 4

Alloy hot rolled flat products (continued)

SITUATION OF COMMUNITY PRODUCERS

1997

1998

1999

2000

2001

Capacity (in tonnes)

4 500 000

4 500 000

4 500 000

4 500 000

4 500 000

Utilisation rate of capacity (%)

74,5 %

71,6 %

65,0 %

78,6 %

69,1 %

Opening stocks (in tonnes)

130 038

142 675

120 568

127 254

168 856

Total production (in tonnes)

3 350 622

3 222 004

2 922 827

3 538 723

3 111 090

Purchases (in tonnes)

0

0

0

0

0

Total sales (in tonnes)

2 798 972

2 682 622

2 336 601

2 798 617

2 479 833

Captive use (in tonnes)

539 014

561 488

579 540

698 505

Closing stock (in tonnes)

142 675

120 568

127 254

168 856

593 000

207 112

Sales volume outside the EU (in
tonnes)

Sales volume in the EU (in
tonnes)

Unit prices of EU sales (Euro/
tonne)

Net profit/loss on EU sales (in
%)

Market share (%)

Employment (end of period)

Productivity (tonne/employee)

369 977

312 774

189 038

207 640

224 780

2 428 994

2 369 849

2 147 562

2 590 977

2 255 053

314

334

302

332

341

6,4 %

99,9 %

3 170

1 057

9,0 %

99,8 %

3 246

992

4,1 %

98,8 %

2 829

1 033

7,2 %

94,2 %

2 964

1 194

3,2 %

82,8 %

2 705

1 150

VOLUME, UNIT PRICES AND PROFITABILITY OF EU SALES ON A PER QUARTER BASIS

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Volume (in tonnes)

667 308

657 477

478 552

451 717

555 739

Unit prices (in Euro/tonne)

Profitability (in %)

340

6,1 %

337

2,2 %

347

4,2 %

342

315

– 0,1 %

– 5,0 %

Price undercutting in 2001 =

Price underselling in 2001 =

25,9 %

44,2 %

Data given above on the situation of the Community producers verified by sample check and on-
spot investigations of companies representing the following percentage of total Community produc-
tion:

74,2 %

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5. PRODUCT 5 — COLD ROLLED SHEETS

5.1. Product Concerned and Like or Directly Competing Product

5.1.1. Produc t Conc e rne d

(417) The product concerned is certain cold rolled sheets (hereinafter referred to as ‘cold rolled sheets’).

The product concerned is currently classified under the following CN codes:

7209 15 00, 7209 16 90, 7209 17 90, 7209 18 91, 7209 25 00, 7209 26 90, 7209 27 90,
7209 28 90, 7209 90 10, 7209 90 90, 7225 20 90, 7225 50 00, 7211 23 10, 7211 23 99,
7211 29 20, 7211 29 50, 7211 29 90, 7219 01 17, 7211 90 90, 7212 60 93, 7212 60 99,
7226 92 10 and 7226 92 90.

(418) Cold rolled sheets are manufactured by the uncoiling and cold rolling of hot rolled coils. These are
used as a pre-material for manufacturing a wide range of other steel products such as metallic coated
sheets, organic coated sheets and tin mill products.

(419) Each of the relevant CN codes listed above corresponds to a specific product type as differentiated

by width and thickness within the above ranges.

(420) Notwithstanding the fact that each CN code corresponds to a distinguishable type of cold rolled
sheet, it was found that they all have identical characteristics or similar physical and technical char-
acteristics, uses and applications. Accordingly, all types of cold rolled sheet form one single product
falling under the relevant CN codes above.

5.1.2. Like or Di rec tly Comp e ting Produc ts

(421) The Commission has examined whether the product produced by the Community producers (herein-
after referred to as ‘the like product’) is like the imported product concerned. In the course of the
investigation, the Commission received submissions from certain major exporters and importers of
cold rolled sheets which alleged that certain types of cold rolled sheets imported into the Community
were not produced by the Community producers and therefore should not be considered as ‘like’ to
the product concerned.

(422) The Commission examined these submissions in detail, and took into account in particular the

following findings of the investigation:

(a) the imported product and the Community product shared the same international classification
for tariff purposes. Furthermore, they shared the same or similar physical properties such as
composition, size, shape and texture and were manufactured to internationally recognised stan-
dards;

(b) the imported product and the Community product were sold via similar or identical sales chan-
nels and price information was readily available (for example, details of prices are published in
industry periodicals, such as the Metal Bulletin and Steel Weekly) and the product concerned and
the product of the Community producers competed mainly on price;

(c) the imported product and the Community product were both capable of serving the same or
similar end-uses, they were, therefore, largely alternative or substitute products and were easily
interchangeable;

(d) the imported product and the Community product were both perceived by consumers as alterna-
tive means of performing particular functions in order to satisfy a particular want or demand, in
this respect the differences identified by the exporter/importer were simply minor variations
manufactured for a particular customer.

(423) The Commission has concluded that despite the alleged technical differences in the product charac-
teristics and qualities identified in those submissions, the imported product and the Community
product are ‘like or directly competing’.

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5.2. Increased Imports

(424) The Commission has examined whether the product concerned is imported into the Community in
such greatly increased quantities, absolute or relative to Community production and/or on such
terms or conditions as to cause or threaten to cause, serious injury to the Community producers. In
this respect, the Commission has focused on imports of the product concerned in the most recent
period for which data were available in absolute terms and relative to production destined for sale
(excluding captive use) and total production. The table below shows the development of imports in
absolute terms and against both Community production destined for sales and total Community
production (including captive use) for each of the years 1997 to 2001.

Product 5

Cold rolled sheets

CONSUMPTION

1997

1998

1999

2000

2001

Volume (tonnes)

15 353 318

15 233 990

14 262 302

14 712 170

13 251 241

IMPORT DATA

Total imports (including agreement
countries)

1997

1998

1999

2000

2001

Volume (tonnes)

1 228 151

1 839 053

1 312 704

2 445 101

2 460 647

Rate of increase (%)

49,7 %

– 28,6 %

86,3 %

0,6 %

Market share (%)

8,0 %

12,1 %

9,2 %

16,6 %

18,6 %

Ratio - imports to total produc-
tion (%)

Ratio - imports to production
sold (%)

2,6 %

3,8 %

2,8 %

4,9 %

5,5 %

7,3 %

11,9 %

8,7 %

17,3 %

19,9 %

Unit prices (EUR/tonne)

362

315

278

346

311

1998/1997

1999/1998

2000/1999

2001/2000

Volume as moving averages
(tonnes)

1 533 602

1 575 879

1 878 903

2 452 874

(425)

In the period prior to the Asian crisis (1), imports were more or less constant at around 1,2m tonnes
(1996: 1,1m tonnes, 1997: 1,2 m tonnes). As a result of the Asian crisis, between 1997 and 1998,
imports increased by around 50 % whilst their average price fell by nearly 13 %. Relative to total
Community production, imports increased from around 3 % to around 4 %, whilst relative to total
production sold, they increased from 7,3 % to 11,9 %. However, it is considered that the level of
imports in 1998 is not representative due to the extremely low prices practised by Asian producers
and the resulting influx of imports.

(1) The effects of the Asian crisis were felt around the world in 1998 and 1999. In particular, as Asian steel producers
fought to maintain sales volumes in the face of the collapse of their domestic markets, they sought to open up new
markets by offering low prices, and found the Community market to be an important outlet for their goods. In conse-
quence, imports of the products concerned increased markedly in 1998, and prices fell sharply in 1999.

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(426)

In the following year, as the effects of the Asian crisis began to recede, imports fell back to more
normal
levels albeit somewhat slightly higher than in 1997 but their average price remained
depressed. In 1999, imports also fell relative to production destined for sale and to total production.
Nevertheless, comparing 1997 and 1999, a progression in import penetration by imports can be
observed in absolute terms, and relative to production destined for sale and total production.

(427) Between 1999 and 2000, there was an increase in imports from 1,31m tonnes to 2,44m tonnes, an
increase of 1,1m tonnes or 86 %. Over the same period, production destined for sales fell slightly
(from 15,1mt to 14,2mt) so that the decrease relative to free market production was 4,3 %. Total
production increased by nearly 6,5 % in 2000, reflecting an increase in production for captive use,
so that the increase in imports relative to total production was smaller.

(428) Between 2000 and 2001, imports increased to 2,4 million tonnes (a further increase of about 0,01m
tonnes or 0,5 %). In 2001, production destined for sale contracted by a further 13 % from 14,2m
tonnes to 12,3 m tonnes so that, relative to production sold on the free market, imports increased
by over 15 %. Total production also fell in 2001 (by 5,69m tonnes or 11,3 %), reflecting a decrease
in the production for captive use and in production sold in the free market, so that the increase in
imports relative to total production was 12,5 %.

(429) Prices of the product concerned fell between 1997 and 1999. Prices rose (to 346 EUR/tonne) in
2000 but fell again in 2001 (by 10 %). It should be noted that, although prices increased in 2000,
the increase in imports (both absolute and relative to production) continued in 2001 against a back-
ground of falling prices. The average price of imports fell from 346 EUR/tonne in 2000 to
311 EUR/tonne in 2001. The Commission notes that the further increase in imports to the Commu-
nity occurred at a time when the euro was relatively weak by comparison with the US dollar.

5 . 2 . 1 . T w o ye a r mov i n g a v e r a g e

(430)

In order to establish the underlying trend in the level of imports between 1997 and 2001 and deter-
mine whether the recent increases in imports form an established trend, the Commission considered
two year moving averages. These illustrate that whilst between 1997/98 and 1999/00, imports in
any two year period fluctuated between 1,49m tonnes and 1,83m tonnes, between 1999/00 and
2000/01 they increased by over 30 % to 2,45m tonnes.

5.2.2. Marke t share of i mp or ts

(431) The market share of imports increased steeply between 1997 and 1998 as a result of the Asian crisis,
before falling back to 9 % in 1999, representing an increase of 1,2 percentage points relative to
1997. From 2000 onwards, the market share of imports increased to 16,6 % and then 18,1 % —
increases of 83 % and 12 % respectively.

5.2.3. Conclusion

(432) Whilst imports increased sharply in 1998, the Commission considers that that increase was excep-
tional and cannot be considered to represent part of the normal development of imports. This is also
reflected in the fact that imports declined substantially in 1999. Leaving aside 1998, the annual rate
of growth in imports between 1997 and 1999 was less than 5 % in absolute terms. By contrast
between 1999 and 2000, the annual rate of growth in imports in absolute terms was 86 % (78 %
relative to total production, and 98 % relative to production sold on the free market). By each
measure, the annual rate of growth of imports was more than three times higher between 1999 and
2000 than in the previous period. Furthermore, a further increase in imports occurred in 2001.

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(433) That recent increases in imports are not attributable to established trends in import levels is demon-
strated by the development of the two year moving average of imports over the five year period of
investigation.

(434)

It is concluded that the increases in the recent past can be considered sudden, sharp and significant
when comparing them to developments in previous years, in particular bearing in mind that the
increase in imports in 1998, must be considered non representative.

5.3. Unforeseen Developments

5. 3. 1.

Inc r e a se d u se of Tr a de De fe nce Instr ume nts by t h e US

(435) From 1998 onwards, in reaction to the Asian crisis the US, which represents around one eighth of
world steel consumption, began to make greater use of trade defence instruments (TDIs) in the steel
sector with a view to protecting their domestic producers from competition. A number of these
measures have been adjudicated in the WTO and some of the methodologies used have been
declared to be WTO incompatible. Nevertheless, many of the measures which remain in force are
based on these same methodologies.

(436) The table below shows the annual number of anti-dumping and countervailing duty final determina-
tions for one or more countries made by the US between 1997 and 2001 in relation to the steel
sector as a whole, and illustrates the increase in activity in the last three years.

Year

1997

1998

1999

2000

2001

Anti-dumping duty

Countervailing duty

5

6

16

14

26

0

1

7

5

5

(437)

In the course of 2001, the US also announced further broadly based action in the steel sector. In
January, the US opened an investigation into steel under section 223 of the US Trade Act of 1974.
In July, the US ITC announced a broad ranging investigation into steel under section 202 of the
Trade Act of 1974; and in December, the ITC recommended safeguard measures across a broad
range of steel products.

(438) These actions, had an increasingly discouraging effect on imports of steel products to the US and led
to a decrease in US steel imports of 33 % between 1998 and 2001, and culminated in the safeguard
measures announced by the US on 5 March 2002. In particular, the safeguard proceeding, which
had been mooted for several months before its initiation, had a restraining effect on imports to the
US due to the uncertainty which it created for economic operators. It is indeed the largest commer-
cial defence action ever initiated by a WTO member covering imports worth some USD 17 billion.

5. 3. 2.

Inc r e a se d u se of TDIs by th e US — r e la ti ng to t h e p r oduct conce r ne d

(439)

In June 1999 the US opened an anti-dumping proceeding against 12 countries and imposed the
preliminary anti-dumping measures in November 1999 and January 2000; the final determinations
began in February 2000. The duty levels ranged from 25 % to 81 %.

(440) The US also opened an anti-dumping proceeding against 20 producing countries in October 2001
and made its preliminary determination in May 2002. The duty levels ranged from below 10 %
(mainly for Community Member States) to 154 % for India.

(441) These measures are examples of the TDI measures imposed by the US on imports of the product
concerned and are in addition to the safeguard measures mentioned above. Some of the countries
involved in the above investigations were also subject to countervailing measures during the period
1999 to 2001.

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(442) This increased and extensive use of trade defence instruments, a number of which was found to be
WTO-incompatible, could not have been foreseen at the conclusion of the Uruguay Round and
constitutes the unforeseen circumstances as required by the Safeguard Agreement.

5 . 3 . 3 . De c r e a s e i n i m p or t s t o t h e US .

(443) The table below shows imports of goods classifiable within the Harmonised System Codes (HSCs)
720915, 720916, 720917, 720918, 720925, 720926, 720927, 720928, 720990, 721123,
721129, 721190, 721260, 722520, 722550, 722692 which include the product concerned.
Between 1998 and 2001, US imports decreased from 3,62m tonnes to 2,75m tonnes, a decrease of
around 0,87m tonnes. In the same period imports to the Community of the product concerned
increased from 1,80m tonnes to 2,40m tonnes, an increase of around 0,6m tonnes.

(444) The Community was a principal export market for the product concerned in 2001. Both the
Community and US markets have the same types of industrial users. Many of the exporters affected
by the US TDIs have also exported to the Community for a number of years. At the same time as
US imports fell, imports into the Community grew to record levels notwithstanding a fall in GDP
growth, production and consumption in the Community in 2001.

1997

1998

1999

2000

2001

Imports to the US (tonnes)

3 207 436

3 618 875

3 022 558

2 463 123

2 750 793

Source: Global Trade Atlas

(445) The decrease in the level of imports of the above products to the US can be explained, primarily, by
reference to the direct effect of the measures referred to above on exporters whose goods became
subject to duties as part of trade defence instruments (TDIs); but also by the indirect dissuasive effect
of those measures and the investigations on all exporters of the product concerned to the US.

(446) The table below illustrates the effect of particular anti-dumping/countervailing measures on exports

of the product concerned from certain countries.

Country

Date of imposition of
measures

Russia

Japan

Thailand

Brazil

November 1999

November 1999

November 1999

November 1999

5.4. Definition of the Community Producers

Exports to the US (volume in 000 tonnes)

1999

378

369

67

283

2000

268

339

22

195

(447) Total Community production of cold rolled sheets was 44,46m tonnes in 2001. The Community

steel companies which cooperated fully in the investigation are:

— Aceralia Corporacion Siderurgica SA, Spain;

— Cockerill Sambre SA, Belgium;

— Sidmar NV, Belgium;

— Sollac SA, France;

— EKO Stahl GmbH, Germany;

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— Corus Strip UK, UK;

— Corus Staal BV, The Netherlands;

— Rautaruukki Oyj, Finland;

— Riva/Ilva SPA, Italy;

— Salzgitter AG Stahl & Technologie, Germany;

— SSAB Tunnplat AB, Sweden;

— Stahlwerke Bremen GmbH, Germany; and

— Thyssen Krupp Stahl AG, Germany.

(448) These companies are all members of the European Confederation of the Iron and Steel Industry
(Eurofer). They accounted for around 75 % of the total Community production of cold rolled sheets.
They represent a major proportion of total Community production within the meaning of Article
5(3)(c) of Regulation (EC) No 3285/94 and Article 15(1) of Regulation (EC) No 519/94. They are
accordingly considered as the Community producers for the purposes of this proceeding.

5.5. Serious Injury

5 . 5 . 1 .

Int r odu c t i o n

(449)

i.e. a significant overall

In order to determine whether there is serious injury to the Community producers of the like
product,
impairment in the position of the Community producers, the
Commission has evaluated all relevant factors of an objective and quantifiable nature having a
bearing on the situation of the Community producers. In particular, for the product concerned, the
Commission has evaluated the development of production capacity, production, capacity utilisation,
employment, productivity, cash flow, return on capital employed, captive use, stocks, consumption,
sales, market share, price, undercutting and profitability for the years 1997 to 2001. The relevant
economic data are provided at the end of this product analysis.

(450) The investigation has demonstrated that the product concerned can follow one of two distinct desti-
nations. It can either be sold or used internally to make other products. It was found that around
67 % of the product concerned manufactured by the Community producers is used internally (i.e. it
is further processed by these producers in an integrated process, often on the same production line,
hereinafter referred to as ‘captive use’). These products follow an internal process of downstream
processing for which invoices are not normally issued.

(451) The remaining production is sold at market prices on the Community market (hereinafter referred to
as the ‘free market’). Imports of the product concerned are also sold on the free market. The main
purchasers on the free market are independent cold rolling mills, tube makers, steel service centres,
steel merchants and stockholders. Both the product concerned sold by the Community industry and
importers is sold to the same types of customers and is used for the same purposes. The sale of the
product concerned on the free market is supported by the issuing of commercial invoices.

(452) The investigation demonstrated that there is a clear distinction between the product concerned
destined for captive use and those destined for the free market. The product concerned destined for
captive use was found not to be directly affected by the imports. By contrast, production destined
for sales was in direct competition with the imports.

(453)

In order to provide as complete a picture as possible of the situation of the Community producers,
the Commission has obtained and analysed data both for cold rolled sheets destined for captive use
and those destined for the free market. Because the free market sales are in competition with the
imported products concerned, the Commission focussed its attention on the free market. While the
Commission has, to the extent possible, combined free market and captive data, the Commission has
also split the analysis between free market and captive use, where necessary and possible.

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5 . 5 . 2 . A n a ly si s of t h e Wh ol e A c t i v i t y for th e P r odu c t Conc e r n e d

5.5.2.1. Production capacity and capacity utilisation

(454) Production capacity has declined in general over the period 1997 to 2001 by 2 % from 59,0m

tonnes in 1997 to 57,8m tonnes in 2001.

(455) Capacity utilisation remained relatively stable between 1997 and 1999 (varying between 79,6 % and
78,9 %) but increased in 2000 (to 84,0 %) and fell by over 8 % in 2001 (to 76,9 %). The utilisation
rate in 2001 was the lowest rate seen in the 5-year period analysed. The steel industry requires to
reach a high level of capacity utilisation to make profits, and this latter sharp fall in capacity utilisa-
tion reflects the fall in production.

1997

1998

1999

2000

2001

Production capacity (tonnes)

59 059 300

60 630 200

59 571 800

59 703 500

57 815 300

Capacity Utilisation

79,6 %

78,9 %

79,0 %

84,0 %

76,9 %

5.5.2.2. Total Community production

(456) Total Community production remained stable at between 47 to 47,8m tonnes between 1997 and
1999, before increasing to 50,15m tonnes in 2000 and then falling to 44,5m tonnes in 2001 (a fall
of around 11 % from 2000). The production level in 2001 was the lowest rate seen in the 5-year
period analysed, in line with the fall in sales and captive use.

Total production (tonnes)

47 011 191

47 837 266

47 061 756

50 150 980

44 460 000

1997

1998

1999

2000

2001

5.5.2.3. Employment

(457) Employment in relation to the like product has fallen steadily and continuously over the period of
investigation. It fell from just under 24 000 in 1997 to just under 22 000 in 2001, a fall of 9 %.
One sharp fall occurred between 1998 and 1999, and another between 2000 and 2001.

Employment

23 766

23 514

22 546

22 412

21 739

1997

1998

1999

2000

2001

5.5.2.4. Productivity

(458) Productivity increased over the period 1997 to 2000 from 1978 tonnes per employee in 1997 to
2238 tonnes per employee in 2000. However, productivity fell by 9 % in 2001 reflecting the large
fall in production in that year.

Productivity (tonnes/employee)

1 978

2 034

2 087

2 238

2 045

1997

1998

1999

2000

2001

5.5.2.5. Cash Flow

(459) Cash flow could only be examined at the level of the cooperating companies which produced the
product concerned rather than in relation to only the product concerned itself. This indicator was
therefore seen as less meaningful than the other indicators shown above. Nevertheless, a negative
situation is evident between 1997 and 2001 and from 2000 to 2001.

Cash Flow (index)

100

104

96

99

80

1997

1998

1999

2000

2001

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5.5.2.6. Return on Capital Employed (ROCE)

(460) ROCE could only be examined on the level of the cooperating companies which produced the
product concerned rather than in relation to only the product concerned itself. This indicator was
therefore also seen as less meaningful than the other indicators shown above. Nevertheless, a nega-
tive situation is evident between 1997 and 2001 and from 2000 to 2001.

ROCE

10,1 %

10,1 %

3,1 %

7,4 %

3,8 %

1997

1998

1999

2000

2001

5.5.2.7. Other indicators

(461)

It was not found to be relevant to analyse consumption, sales volume, market share, unit prices,
profitability and stocks under this heading because a complete analysis of these indicators was only
relevant to the free market.

5.5.3. Ana ly sis of t he F ree M arke t

5.5.3.1. Consumption

(462) Consumption of the product concerned in the Community was established on the basis of the total
sales made by the Community producers (cooperators plus non cooperators) on the free market and
total imports of the product concerned into the Community as indicated in the Eurostat import
statistics.

(463) Between 1997 and 1999, consumption in the Community declined by around 7 % from 15,4m
tonnes to 14,3m tonnes. Between 1999 and 2000, it grew by 2,8 % to reach its highest level for the
five year period (14,7m tonnes), before falling to 13,2m tonnes in 2001. The fall in consumption
between 2000 and 2001 is examined under other factors to determine whether and if so to which
extent it has contributed to nay injury suffered by the Community producers.

Consumption (t)

15 353 319

15 233 991

14 262 302

14 712 171

13 251 242

1997

1998

1999

2000

2001

5.5.3.2. Sales volume

(464) Sales volume of the like product in the Community fell from 14,1m tonnes to 10,8m tonnes

between 1997 and 2001. This continuous decline is of the magnitude of 23,6 %.

1997

1998

1999

2000

2001

14 125 168

13 394 938

12 949 598

12 267 070

10 790 595

Sales volume (t)
In the EU

5.5.3.3. Market share

(465) The Community producers' market share also fell continuously over the period from 92 % in 1997
to 81,4 % in 2001, with an increase between 1998 and 1999, but with a particularly sharp decrease
between 1999 and 2000.

1997

1998

1999

2000

2001

In terms of volume
Market share

92,0 %

87,9 %

90,8 %

83,4 %

81,4 %

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5.5.3.4. Price of the like product and undercutting

(466) The average price of the like product sold in the Community fell to 305 EUR/tonne in 1999 before
recovering in 2000. However, prices fell again (by 3 %) to 360 EUR/tonne in 2001 as a result of the
low price of import (whose prices fell by 10 %). This trend is further confirmed because quarterly
prices from Q1 2001 to Q1 2002 show a fall from 386 EUR/tonne to 328 EUR/tonne in the price
of the Community product.

(467)

In order to determine the level of undercutting, price information was examined for comparable time
periods, at the same level of trade and for sales to similar customers. Based on a comparison of
prices invoiced by the Community producers and by exporting producers to the Community,
domestic prices were undercut by an average of 10 % in 2001.

(468) The Commission notes that, as from 1998, the price of imports was clearly below the price of the

Community product.

1997

1998

1999

2000

2001

Unit price of Community sales
(EUR/tonne)

354

370

305

371

360

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Unit prices of Community sales
(EUR/tonne)

386

363

351

342

328

5.5.3.5. Profitability

(469) The profitability of the Community producers' sales in the Community has fallen significantly in the
five-year period under consideration. The lowest profitability was recorded in 1999 when prices
were at their lowest and the highest profitability was achieved in 1998 when prices were almost at
their 5 year high. The Community producers' profitability fell to -7,9 % in 2001, in the face of the
average price undercutting found for that year, and the quarterly data confirms the negative trend
getting even worse in 2002 with losses of nearly 18 %. This situation has arisen as a result of
reduced sales volumes and lower prices. It should be noted that, as mentioned above, these losses
have been incurred despite the fact that productivity has increased overall during the 5-year period.
Price suppression as a result of low priced imports has been a significant factor in creating the
Community producers' current loss making situation and it is noted that the price of the Community
product has been depressed in 2001 and the first quarter of 2002.

(470) Underselling reflects the extent to which the price of the imported product is lower than the price
level which the Community producers could be expected to achieve in a non-injurious situation. The
level of underselling was calculated on the basis of the weighted average non injurious price per
tonne of the Community product. This price was calculated by taking the respective cost of produc-
tion for the Community product to which was added a profit margin of 8 %. This profit margin was
considered reasonable as it refers to profits of the Community producers in a normal trading situa-
tion unaffected by a sudden, sharp rise in imports. This non injurious price was compared with the
weighted average price per tonne of the imported product concerned during 2001. The difference
between these two prices was expressed as a percentage of the cif/Community border price of the
imported product, and resulted in underselling of 32 %.

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1997

1998

1999

2000

2001

Profitability of Community sales

1,8 %

3,4 %

– 11,6 %

1,9 %

– 7,9 %

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Profitability of Community sales

– 0,8 %

– 9,7 %

– 9,8 %

– 14,5 %

– 17,9 %

5.5.3.6. Stocks

(471) Stock levels remained relatively stable during the period of analysis; in absolute terms levels of
closing stock were in the range of 2,0 to 2,3m tonnes. In relative terms closing stocks were around
4,5 % of production levels throughout the period. Bearing in mind this stability it was concluded that
stock levels did not add anything further to the injury analysis beyond what is stated in relation to
production.

1997

1998

1999

2000

2001

Closing Stock (tonnes)

2 044 553

2 202 337

2 000 325

2 337 687

2 165 350

5 . 5 . 4 . A n a ly si s of c a p t i v e u s e

(472) Some indicators relating to captive use have been shown in global terms, whereby captive use forms
part of the analysis of the whole activity for the product concerned (i.e. capacity and capacity utilisa-
tion, employment and productivity). With respect to certain other factors which are analysed above
in respect of the free market, i.e., sales prices, stocks and profitability, the data received is not, by its
very nature, adapted to an immediate and objective comparison with the data obtained for the free
market for cold rolled sheets, but nevertheless does not show evidence that it was more profitable to
produce for captive use than for the free market. Therefore, this analysis focuses production for
captive use and examines if its trend is comparable to those of the free and total markets.

(473) Production for captive use remained relatively stable over the period 1997 to 1999. It increased
significantly in 2000 before falling back to levels earlier in the period in 2001. This analysis reflects
a similar overall trend to that seen above in respect of total production.

1997

1998

1999

2000

2001

Captive use (tonnes)

30 611 562

32 714 240

32 495 657

36 022 989

32 565 915

5.5.5. Conclusion

(474) The data shows that while productivity remained stable there is, overall, a negative development for
production capacity, capacity utilisation, production, employment, and negative elements can as well
be observed for cash flow and ROCE. The free market data shows, in particular, negative develop-
ments for sales volume and prices, market share and profitability. The data for captive use demon-
strates a similar negative trend. These findings were indeed supported by the analysis of the whole
activity for the product concerned for which captive use forms a large element.

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(475)

In particular, the Commission notes that whilst, in 2001, as imports reached their highest level for
five years (2,5m tonnes), the Community producers' sales volume in the Community reached its
lowest level for five years (10,8m tonnes) and profitability fell rapidly. This occurred against the
background of a concurrent fall in production sold on the free market, consumption and falling
prices. Against such a background, imports could have been expected to fall, but instead they rose
even above the very high level reached in 2000.

(476) The effect of this combination of factors on the Community producers is reflected in the economic
indicators. The Community producers have lost market share, which reached its lowest level for five
years in 2001. Capacity utilisation has fallen sharply in 2001, and with it productivity. Employment
has also fallen and is expected to fall further in 2002. The overall effect of the falls in production,
Community sales volume and prices was to reduce the profitability of the Community producers
and plunge them into a loss-making situation in 2001. These trends are confirmed by the continuing
deterioration in prices and profitability between Q1 2001 and Q1 2002.

(477) Taking account of all of these factors and relying, in particular, on its analysis of the free market

activities, the Commission concludes that the Community producers have suffered serious injury.

5.6. Causation

(478)

In order to examine the existence of a causal link between increased imports and the serious injury,
and in order to ensure that injury caused by other factors is not attributed to increased imports, the
Commission has proceeded as follows:

— the injurious effects of factors considered to be causing injury have been distinguished from each

other,

— these injurious effects have been attributed to the factors which are causing them; and,

— after having attributed injury to all causal factors present, the Commission has determined

whether increased imports are a genuine and substantial cause of serious injury.

5.6.1. Effe ct of incr ease d i mp or ts

(479) The market for the product concerned is a transparent one as regards sources of supply, customers
and prices. As the product concerned is essentially a commodity product, the product concerned
and the like product compete mainly on price.

(480)

In the period 1999 to 2001, the market share of imports grew from 9,2 % to 18,6 %, whilst the
market share of the Community producers fell from 90,8 % to 81,4 %. Over the same period,
imports have grown from 2,8 % to 5,5 % of production sold on the free market. Thus, imports have
also increased relative to production, at the expense of the Community producers.

(481) As to prices, between 2000 and 2001, the average unit price of the imported product on the
Community market fell from 346 to 311 EUR/tonne. The average unit price of the Community
product fell from 371 to 360 EUR/tonne. In this transparent market, price undercutting had a deci-
sive impact. The effect of the fall in the average unit price of the like product alone on the Commu-
nity producers' Community sales revenue would have been a reduction of 3 % (EUR 137m) in
2001. Taking account of the simultaneous fall in sales volume the actual fall in sales revenue in the
Community was EUR 670m. Therefore, the reduction in sales revenues created a disproportionately
higher fall in profits, and, in 2001, the Community producers made a loss of -7,9 %. This fall in
prices and profitability furthermore must be seen in the context of a number of plant closures and
ensuing reduction in employment.

(482) For these reasons, it is considered that there is a correlation between the increase in imports at low
prices and the serious injury suffered by the Community producers, and that the increase in imports
has had injurious effects in particular in terms of pressure on prices and a reduction in the volume
sold by the Community producers on the Community market.

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5 . 6 . 2 . E f fe c t of c h a n g e s i n con su m p t i o n

(483) The Commission examined the injurious effects of the fall in consumption. Consumption decreased
from 15,4m tonnes in 1997 to 14,3m tonnes in 1999, but then grew to 14,7m tonnes in 2000,
before falling back to 13,3m tonnes in 2001.

(484)

In examining this question account has to be taken of the reaction of all market participants to the
trend fall in consumption. In this respect, it was found that while Community producers were forced
to reduce their sales in the Community in 2001, imports moved sharply in the other direction. No
economic justification was established which could explain the sharp rise in imports. For example,
no exporter claimed that this was due to lower production costs.

(485) A fall in consumption should not normally lead to substantial price effects if production is quickly
adjusted to the needs of the market. In this respect, the Community producers appear to have
reacted by reducing both production and sales volume to a greater extent than that necessary to be
in line with the falls in consumption.

(486) Similarly, if price pressure is reduced then the injurious effects which stem from low prices would
also be kept in check. The most important factor here is profit, where any fall would have been
minimised if prices had not fallen substantially. Therefore, it is reasonable to conclude that in the
absence of the sharp rise in imports at low prices, the fall in consumption would not have led to a
substantial fall in profits.

(487) For the reasons given above, it is concluded that there is a significant, but not substantial, link

between the fall in consumption and the injurious effects observed.

5 . 6 . 3 . E f fe c t of c h a n g e s i n ca p t i v e u s e

(488) The Commission has also examined the effects of the development of captive use of the product
concerned. This rose considerably in 2000 as compared to earlier years and then fell in 2001. This
trend corresponded with the market conditions for the intermediate and finished products.

(489) The further data received in respect of captive use is not, by its very nature, adapted to an immediate
and objective comparison with the data obtained for the free market for the product concerned, but
nevertheless does not show evidence that it was more profitable to produce for captive use than for
the free market.

(490) The fall in captive use (which is only applicable in 2001) thus had injurious effects in terms of
production, which in turn has affected capacity utilisation, and ultimately profitability. However, the
fall in prices and revenues suffered by Community producers on the free market was created by low
priced imports and bears little or no relation to the fall in captive use.

5.6.4. Effe ct of exp ort p e r formanc e

(491) The Commission also examined the effects of a fall in exports.

1997

1998

1999

2000

2001

Exports (tonnes)

2 677 024

2 122 206

2 150 840

1 907 032

1 546 528

(492) Between 1997 and 2001, the volume of Community producers' exports of the product concerned
fell from 2,68m tonnes to 1,55m tonnes. However, it should be noted that as profitability has been
measured by reference to the Community producers' turnover in the Community, that indicator is
not influenced by the level of exports. Over a five year period the injury suffered that can be ascribed
to loss of exports can clearly be distinguished from that caused by increased imports. Also the fall in
the level of export sales (of around 1,1m tonnes) is around 2,5 % of total production.

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(493) Nevertheless, for the reasons given above, it cannot be excluded that there is a significant link

between the fall in exports and the injurious effects observed.

5.6.5. Effe ct of any e xc ess c ap ac ity

(494) The Commission has further examined whether injurious effects may have resulted from excess capa-
city amongst the Community producers. There were no significant changes in overall estimated theo-
retical production capacity throughout the period of the investigation, and capacity utilisation always
remained above 75 %. Therefore, no correlation between capacity and the injurious effects was
observed.

5.6.6. Effe ct of restr ucturing

(495) The Commission further examined the injurious effects of the costs of restructuring which the
Community producers have undergone in recent years. In this respect it is noted that restructuring
will as a rule imply short term costs such as redundancy payments, acquisition costs, etc., which are
outweighed by medium term efficiency gains. In view of the ongoing rationalisation process, this
would imply that ongoing short term costs, even if found to be minor, impacted on the cost struc-
ture.

5 . 6 . 7 . A t t r i b u t i on of i n j u r i ou s e ff e c ts

(496) The serious injury suffered by the Community producers took the form mainly of reduced sales and
worsening financial losses. The Commission identified that four factors apart from the increase in
imports which have contributed to the injury: changes in consumption, changes in captive use,
changes in export performance, and ongoing rationalisation efforts.

(497) There was a decline in consumption between 1997 and 2001. However, the development of imports
did not follow this consumption pattern and the Commission considers that the decline in consump-
tion, although contributing particularly to the fall in sales volume, clearly did not play as significant
a role as the large increase in low priced imports.

(498) As to the decline in captive use observed between 2000 and 2001, this has had a negative impact
although the negative effects seen in respect of profitability were calculated on sales on the free
market and the fall in captive use did not impact on this indicator. In addition the effects felt would
be limited to volume and would not have contributed to the concurrent fall in prices in 2001.

(499) As mentioned above, it is concluded that there is some link between the fall in exports and the injur-
ious effects observed, however, this factor did not influence the fall in profitability which was calcu-
lated on the basis of Community sales. Nevertheless, this factor did contribute significantly to the
injury suffered in respect of other injury indicators.

(500) As to the impact of ongoing rationalisation efforts, the Commission likewise considers that the
impact on the cost structure of the Community producers is not significant, in particular by compar-
ison to the price effect of the low priced imports. The Commission noted that the decline in the
Community producers' sales volume, sales prices and profitability was due primarily to the increase
in imports, which not only increased much faster than the increase in consumption in 2000 but
continued to increase during the fall in consumption in 2001.

5.6.8. Conclusion

(501)

It is concluded that, after having examined the injurious effects of the other known factors and sepa-
rated and distinguished them from each other and from the injurious effects of the increased
imports, and after having ensured that injury caused by other factors is not attributed to imports, it
can be considered that there is a genuine and substantial link between increased imports and serious
injury to the Community producers.

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5.7. Further Developments

(502) The Commission has, in addition, analysed a number of elements which justify the conclusion that
the serious injury suffered by the Community producers could be expected to seriously worsen
should imports continue at their current level or increase.

5. 7. 1. Th e US ste e l safe g u ar d me a su r e s

(503) On 5 March 2002, the US imposed safeguard measures against certain steel products including the
product concerned. Those measures came into effect on 20 March 2002, and consist of an increase
in duty on imports to the US of 30 % ad valorem in the first year, 24 % in the second year and 18 %
in the third year. The measures do not apply to Canada, Israel, Jordan and Mexico as well as a
number of countries specified as developing countries.

5.7.1.1. Trade diversion arising from US steel safeguard measures

(504) The Commission examined the likely impact of the US measures by analysing the situation of the

major exporting countries to the US.

(505)

In 2001, the US imported 2,75m tonnes of goods classified within the HSC codes 720915, 720916,
720917, 720918, 720925, 720926, 720927, 720928, 720990, 721123, 721129, 721190,
721260, 722520, 722550, 722692 (which include the product concerned). The principal exporters
of these products to the US were the Community (18,2 %/500 000 tonnes), South Korea (18,5 %/
509 000 tonnes),
(7 %/
195 000 tonnes), Canada (6,5 %/178 000 tonnes) and Mexico (6 %/168 000 tonnes). Argentina,
Taiwan, China, South Africa, Turkey, Venezuela and Australia also supplied more than 1 % of
imports of this product to the US market in 2001.

Japan (12,3 %/340 000 tonnes), Russia (10 %/268 000 tonnes), Brazil

(506) Total exports to the US of the above products in 2001 from countries affected by the US safeguard
measures (excluding producers in the Community and in those countries excluded from the US safe-
guard measures insofar as it relates to the product concerned) amounted to 1,9m tonnes.

(507) The Commission then examined the likelihood that the restricted access to the US market as a result
of safeguard action taken by the US would lead to increased exports to the Community. The
Commission investigated the capacity situation of the cooperating exporting producers following the
US measures. They increased their capacity from 63,5m tonnes in 1997 to 70m tonnes in 2001.
None of the cooperating exporting producers reported an intention to reduce their capacity in the
immediate future and none reported an intention to reduce their production in light of the US
measures.

(508) Most indicated their aim to make up for any reduction in their exports to the US by selling more on
their domestic markets, but this claim was made within the context of static or falling consumption
in these markets. In this respect, it is very unlikely that these producers can increase sales signifi-
cantly on their domestic markets. Neither is it likely that they can increase sales to other export
markets as producers in most of these markets are already suffering from the substantial closure of
the US market and there is no indication that significant extra consumption will be available in these
markets in the short and medium term to permit increased imports.

(509) The potential trade which, in the absence of definitive measures, could be diverted to the Commu-
nity as a result of the US measures therefore amounts to 1,9m tonnes. There are reasons why this
potential may not be wholly realised, e.g. the current high levels of prices of domestic prices in the
US which may result in a somewhat higher than expected level of imports despite the existence of
30 % duties, as well as the fact that third country producers may be able to partially offset the loss
of the US market by selling more on their domestic markets. This may be particularly true to a
degree for those countries which have taken protective measures to counteract the US safeguard
action. Producers may also increase their stocks for a period of time.

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(510) However, a very substantial potential for increased exports to the Community will still prevail. The
increase which took place in 2001 had many causes as already identified in the analysis of serious
injury and all of these still apply and can be expected to continue to push imports higher. Moreover,
there is now the new element of the US safeguard action which manifestly leaves a substantial
amount of production for which producers are under enormous pressure to find buyers. In these
circumstances, it can reasonably be assumed that in the absence of definitive measures the very
minimum trade diversion that would occur would be between 25 % to 50 % of the 1,9m tonnes
mentioned above or between 475 000 to 950 000 tonnes. In all likelihood, it could be greater but it
is considered prudent to base this analysis on a conservative basis.

(511)

It is also relevant that in 2001, one of the major export markets for the cold rolled products was the
Community (2,5mt). This compares to China (5,7mt), the US (2,75mt), Hong Kong (0,9mt), Malaysia
(0,8mt) and Japan (0,7mt). This reflects that fact that the Community was, and following recent
measures, remains, one of the most open markets in the world. The recent appreciation of the euro
relative to the US dollar and other major currencies increases the attractiveness of imports relative to
Community production in the short and medium term.

5.7.1.2. Reduction in Community exports arising from the US steel safeguard measures

(512) An immediate effect of US measures has been to reduce sharply the Community exports of the
product concerned to the US. The imposition of 30 % ad valorem duties will
largely stop these
exports though some small volumes may occur due to the current high level of prices in the US
which can result in duties being worth paying at least to sell any excess stock. It is estimated, after
taking account to the extent possible of the exclusions granted by the US since the imposition of
measures that Community exports to the US will fall substantially as a result of the US measures.

(513)

It is also likely that Community exports to other third markets will also fall both because the produ-
cers world-wide will find it more difficult to export, both because of the US measures and the defen-
sive safeguard actions taken by other third countries and the Community to avoid diversion to their
own markets.

5.7.1.3. Projected effects of US measures

(514) The Commission has evaluated the possible impact on the Community producers of not imposing
definitive measures and the consequent trade diversion arising from the US safeguard measures as
well as the effect of these measures on Community exports. In this respect, the Commission has
found that in the absence of Community safeguard measures, imports will inevitably rise substan-
tially with the result that the state of the Community industry will show a very serious and substan-
tial decline. Given the extremely fragile state of the Community producers any significant rise in
imports would have extremely serious consequences. The expected rise of between 475 000 to
950 000 tonnes would very likely lead to a further reduction in the sales of the Community produ-
cers and these reduced sales would lead to serious negative consequences for the other indicators
which identify the state of the industry.

(515) The continued fall in Community exports will also significantly contribute to the worsening state of
the Community producers. Since the US measures were taken it is inevitable that Community
exports will have fallen substantially and this fall is likely to be maintained or even deteriorate in the
coming months.

(516) The projected increase in imports and the projected fall in Community exports would substantially
worsen the situation of the Community industry in relation to all factors already examined when
determining the existence of serious injury. They would immediately lead to a further sharp fall in
sales and prices, with consequent negative effects on production, increased unit costs, increased
losses with an immediate threat of plant closures and redundancies. Increased pressure on prices
would in particular be enormous and this at a time when losses are running at 7,9 % in 2001. The
overall negative impact would be magnified by the fact that Community producers are already
suffering serious injury from the increased imports of recent years.

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5.7.2. Conclusion

(517) Taking due account of the fact that the Community producers are already suffering serious injury, it
is reasonable to conclude that a further substantial influx of imports which is extremely likely to
occur if definitive safeguard measures are not confirmed, will substantially aggravate the situation of
the Community producers. Moreover, this situation will be worsened by a significant fall in Commu-
nity exports as a result of US measures.

Product 5

Cold rolled sheets

SITUATION OF COMMUNITY PRODUCERS

1997

1998

1999

2000

2001

Capacity (in tonnes)

59 059 300

60 630 200

59 571 800

59 703 500

57 815 300

Utilisation rate of capacity (%)

79,6 %

78,9 %

79,0 %

84,0 %

76,9 %

Opening stocks (in tonnes)

1 953 514

2 044 553

2 202 337

2 000 325

2 337 687

Total production (in tonnes)

47 011 190

47 837 264

47 061 755

50 151 111

44 460 000

Purchases (in tonnes)

493 602

551 903

332 326

383 474

270 700

Total sales (in tonnes)

16 802 191

15 517 144

15 100 438

14 174 102

12 337 122

Captive use (in tonnes)

30 611 562

32 714 239

32 495 656

36 023 121

32 565 915

Closing stock (in tonnes)

2 044 553

2 202 337

2 000 325

2 337 687

2 165 350

Sales volume in the EU (in
tonnes)

Sales volume outside the EU (in
tonnes)

Unit prices of EU sales (Euro/
tonne)

Net profit/loss on EU sales (in
%)

Market share (%)

Employment (end of period)

Productivity (tonne/employee)

14 125 167

13 394 937

12 949 598

12 267 069

10 790 594

2 677 024

2 122 206

2 150 840

1 907 032

1 546 528

354

370

305

371

360

1,8 %

92,0 %

23 766

1 978

3,4 %

– 11,6 %

87,9 %

23 514

2 034

90,8 %

22 546

2 087

1,9 %

83,4 %

22 412

2 238

– 7,9 %

81,4 %

21 739

2 045

VOLUME, UNIT PRICES AND PROFITABILITY OF EU SALES ON A PER QUARTER BASIS

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Volume (in tonnes)

3 033 232

2 753 871

2 501 207

2 502 287

2 618 223

Unit prices (in Euro/tonne)

386

363

351

342

328

Profitability (in %)

– 0,8 %

– 9,7 %

– 9,8 %

– 14,5 %

– 17,9 %

Price undercutting in 2001 =

Price underselling in 2001 =

10 %

32 %

Data given above on the situation of the Community producers verified by sample check and on-
spot investigations of companies representing the following percentage of total Community produc-
tion:

75,2 %

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6. PRODUCT 18: FITTINGS (< 609,6 mm)

6.1. Product Concerned and Like or Directly Competing Product

6.1.1. Produc t Conc e rne d

(518) The product concerned is certain tube and pipe fittings (other than cast fittings, flanges and threaded
fittings), of iron and steel
(not including stainless steel), with a greatest external diameter not
exceeding 609,6 mm, of a kind used for butt-welding (hereinafter referred to as ‘fittings’). The
product concerned is currently classified under CN codes 7307 93 11 and 7307 93 19.

(519) Fittings are essentially manufactured by cutting and forming tubes and pipes. They are used to join
tubes and pipes and come in different shapes: elbows, reducers, tees and caps, as well as different
sizes and material grades. They are mainly used in the petrochemical industry, in energy generation,
in shipbuilding and industrial installations. When sold for use in the petrochemical industry, the
global standard used is the ANSI standard. For other purposes the most common standard used in
the Community is the DIN standard.

(520) Notwithstanding the fact that each CN code corresponds to a distinguishable type of fittings, it was
found that they all have identical characteristics or similar physical and technical characteristics, uses
and applications. Accordingly, all types of fittings form one single product falling under the relevant
CN codes listed above.

6.1.2. Like O r Direc tly Comp e ting Produc ts

(521) The Commission has examined whether the product produced by the Community producers (herein-
after referred to as ‘the like product’) is like the imported product concerned. In the course of the
investigation, the Commission received submissions from certain major exporters and importers of
the product concerned which alleged that certain types of fittings imported into the Community
were not produced by the Community producers and, therefore, should not be considered as ‘like’
the product concerned.

(522) The Commission examined these submissions in detail, and took into account in particular the

following findings of the investigation:

(a) the imported product and the Community product shared the same international classification
for tariff purposes. Furthermore, they shared the same or similar physical properties such as
composition, size, shape and texture and were manufactured to internationally recognised stan-
dards;

(b) the imported product and the Community product were sold via similar or identical sales chan-
nels and price information was readily available and the product concerned and the product of
the Community producers competed mainly on price;

(c) the imported product and the Community product were both capable of serving the same or
similar end-uses, they were, therefore, largely alternative or substitute products and were easily
interchangeable;

(d) the imported and Community product were both perceived by consumers as alternative means
of performing particular functions in order to satisfy a particular want or demand, in this respect
the differences identified by the exporter/importer were simply minor variations manufactured
for a particular customer.

(523) The Commission has concluded that despite the alleged technical differences in the product charac-
teristics and qualities identified in those submissions, the imported product and the Community
product are ‘like or directly competing’.

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6.2. Increased Imports

(524) The Commission has examined whether the product concerned is imported into the Community in
such greatly increased quantities, absolute or relative to Community production and/or on such
terms or conditions as to cause serious injury to the Community producers. In this respect, the
Commission has focussed on imports of the product concerned in the most recent period for which
data were available in absolute terms and relative to production destined for sales (excluding ‘captive
use’) and total production. The table below shows the development of imports in absolute terms and
against both Community production destined for sales and total Community production (including
captive use) for each of the years 1997 to 2001.

(525) Between 1997 and 1999, imports into the Community fell by around 4,3 % whilst their average
price fell by over 13 %. However, due to falling Community production, imports increased from
11,4 % to 11,9 % of both total production and production sold.

Product 18

Fittings

CONSUMPTION

1997

1998

1999

2000

2001

Volume (in tonnes)

70 077

70 096

64 804

61 658

63 077

IMPORT DATA

1997

1998

1999

2000

2001

Concerned imports:

Volume (in tonnes)

9 910

9 520

9 487

10 127

13 646

Rate of increase (in %)

– 3,9 %

– 0,3 %

6,7 %

Market share (in %)

14,1 %

13,6 %

14,6 %

16,4 %

34,7 %

21,6 %

Ratio between imports and total
production

Ratio between imports and
production sold

11,4 %

11,2 %

11,9 %

12,7 %

17,2 %

Unit prices (in Euro/tonne)

1 247

1 184

1 083

1 042

11,4 %

11,2 %

11,9 %

12,7 %

17,2 %

1 005

1998/1997

1999/1998

2000/1999

2001/2000

Volume as moving averages (in
tonnes)

9 715

9 504

9 807

11 887

(526) Between 1999 and 2000, there was an increase in imports from 9 500 tonnes to 10 100 tonnes, i.e.
by 600 tonnes or 6,7 %. Over the same period imports as a percentage of total production and
production destined for sales increased from 11,9 % to 12,7 %.

(527) Between 2000 and 2001, imports increased a further 3 500 tonnes or by 34,7 %. Relative to total
production and production sold on the free market, imports also increased by around 35 %.

(528) Prices of the product concerned fell each year between 1997 and 2001 and by a total of 242 EUR/

tonne or 19,4 % over the whole period considered.

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6 . 2 . 1 . T w o ye a r mov i n g a v e r a g e

(529)

In order to establish the underlying trend in the level of imports between 1997 and 2001 and deter-
mine whether the recent increases in imports form an established trend, the Commission considered
two year moving averages. These illustrate that, whilst between 1997/98 and 1998/99, imports fell
from 9 700 tonnes 9 500 tonnes, between 1999/00 and 2000/01 they increased by over 21 % from
9 800 tonnes to 11 900 tonnes.

6.2.2. Marke t share of i mp or ts

(530) The market share of imports fell between 1997 and 1998 from 14,1 % to 13,6 % before increasing
year on year to reach 21,6 % in 2001, representing an increase of around 53 % relative to 1997.

6.2.3. Conclusion

(531)

Imports increased between 1999 and 2000 by 6,7 % in absolute terms, relative to total production
and to production sold in the free market followed by another rise in 2001 when imports increased
by a further 34,7 % in absolute terms (35,4 % relative to total production and to production sold).

(532) That recent increases in imports are not attributable to established trends in import levels is demon-
strated by the development of the two year moving average of imports over the five year period of
investigation.

(533)

It is concluded that the increases in the recent past can be considered sudden, sharp and significant
when comparing them to developments in previous years.

6.3. Unforeseen Developments

6.3.1.

Inc r ea sed u se of Tra de defenc e inst rume nts by the US

(534) From 1998 onwards, in reaction to the Asian crisis (1), the US, which represents around one eighth
of world steel consumption, began to make greater use of trade defence instruments (TDIs) in the
steel sector with a view to protecting their domestic producers from competition. A number of these
measures have been adjudicated in the WTO, and some of the methodologies used have been
declared to be WTO incompatible. Nevertheless, many of the measures which remain in force are
based on these same methodologies.

(535) The table shows the annual number of anti-dumping and countervailing duty final determinations
for one or more countries made by the US between 1997 and 2001 in relation to the steel sector as
a whole, and illustrates the increase in activity in the last three years.

Year

1997

1998

1999

2000

2001

Anti-dumping duty

Countervailing duty

5

6

16

14

26

0

1

7

5

5

(536)

In the course of 2001, the US also announced further broadly based action in the steel sector. In
January 2001, the US opened an investigation into steel under section 223 of the US Trade Act of
1974. In July 2001, the US ITC announced a broad ranging investigation into steel under section
202 of the Trade Act of 1974; and in December, the ITC recommended safeguard measures across a
broad range of steel products.

(1) The effects of the Asian crisis were felt around the world in 1998 and 1999. In particular, as Asian steel producers
fought to maintain sales volumes in the face of the collapse of their domestic markets, they sought to open up new
markets by offering low prices, and found the Community market to be an important outlet for their goods. In conse-
quence, imports of the products concerned increased markedly in 1998, and prices fell sharply in 1999.

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(537) These actions had an increasingly discouraging effect on imports of steel products to the US and led
to a decrease in US steel imports of 33 % between 1998 and 2001. They culminated in the safeguard
measures announced by the US on 5 March 2002. In particular, the safeguard proceeding, which
had been mooted for several months before its initiation, had a restraining effect on imports to the
US due to the uncertainty which it created for economic operators. It is indeed the largest commer-
cial defence action ever initiated by a WTO member covering imports worth some USD 17 billion.

6. 3. 2.

Inc r e a se d u se of TDIs by th e US — r e la ti ng to t h e p r oduct conce r ne d

(538) The Commission's provisional safeguard measures and their related investigation consider carbon
fittings and carbon flanges separately, as two different like-products. In particular, the Commission
has considered in its action only steel fittings (not including stainless steel fittings) with an outside
range diameter not exceeding 609,6 mm. Consequently, in relation to the fittings concerned, the US
investigation and the US measures have a much broader scope than the Commission's action.

(539) Based on official information on the US governments web page, the US had enforced five anti-
dumping measures of fittings against Brazil, China, Japan, Taiwan and Thailand; and one counter-
vailing duty measure against Turkey. The level of these duties, which were re-imposed as late as
December 1999 following a full ‘sunset’ review, ranged up to 154,72 % for one company in China.

(540) The Commission notes that between 1999 and 2001 imports into the Community market of carbon
fittings of diameter not exceeding 609,6 mm increased by 4 159 tonnes (43,8 %). This sudden
increase appears in large part due to imports from China, Thailand, and Japan, which have been
under investigation by the US and are currently subject to US anti-dumping measures.

(541) The Commission has analysed the evolution of imports of fittings into the US from those countries
covered by anti-dumping and countervailling measures. Between 1999 and 2001, as imports into
the Community from these sources was rising, imports in to the US of goods classified within the
same HSC code as fittings fell by 3 419 tonnes (24,2 %).

(542) The Commission considers that there exists a correlation in time between the US announcement of
the safeguard investigation on steel products (which was anticipated as early as January 2001 in the
US market in a number of press articles speculating on imminent disruption both to the US and the
Community market) and the increase in imports of fittings into the Community market.

(543) This increased and extensive use of trade defence instruments, a number of which were found to be
WTO incompatible, could not have been foreseen at the conclusion of the Uruguay Round and
constitutes the unforeseen circumstances as required by the Safeguard Agreement.

6.4. Definition of the Community Producers

6.4.1. Total Commu nity p rodu cti on

(544) Total Community production of fittings is approximately 80 000 tonnes per annum. The 3 Commu-

nity steel companies which cooperated fully in the investigation are:

— Virgilio CENA & Figli S.P.A., Italy

— Interfit, France

— Erne Fittings, Austria.

(545) These companies are all members of the Defence Committee of Community Butt-welding Fittings
Industry. They account for around 60 % of the total Community production of the product
concerned. They represent a major proportion of total Community production within the meaning
of Article 5(3)(c) of Regulation (EC) No 3285/94 and Article 15(1) of Regulation (EC) No 519/94.
They are accordingly considered as the Community producers for the purposes of this proceeding.

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6.5. Serious Injury

6 . 5 . 1 .

Int r odu c t i o n

(546)

In order to determine whether there is serious injury or threat of serious injury to the Community
producers of the like product, the Commission has evaluated all relevant factors of an objective and
quantifiable nature having a bearing on the situation of the Community producers. In particular, for
the product concerned, the Commission has evaluated the development of imports, consumption,
production, productivity, capacity, capacity utilisation, sales, market share, prices, profitability and
employment for the years 1997 to 2001. The relevant economic data are provided at the end of this
product analysis.

6 . 5 . 2 . A n a ly si s of t h e Wh ol e A c t i v i t y for th e P r odu c t Conc e r n e d

6.5.2.1. Production capacity and capacity utilisation

1997

1998

1999

2000

2001

Total estimated production
capacity (t)

170 000

170 000

169 983

165 000

149 607

Capacity utilisation (t)

51,0 %

50,0 %

47,0 %

48,3 %

53,0 %

(547) Total estimated production capacity has decreased from 1998 to 2001 by 20 400 tonnes. The
decrease in Community capacity at the end of the period is directly linked to the closure of 3
Community production plants in 2001.

(548) Due to the closure of Community production plants, the capacity utilisation rate increased from
48,3 % in 2000 to 53 % in 2001. Had these closures had not taken place, the capacity utilisation rate
would have remained at 48 % for 2001.

6.5.2.2. Total production and captive use

1997

1998

1999

2000

2001

Total production (tonnes)

86 619

84 932

79 892

79 729

79 292

(549) Total Community production decreased by 7 300 tonnes during the period of investigation, from
86 600 tonnes in 1997 to 79 300 tonnes in 2001. This represents a decrease of 8,4 %, and reflects
the loss of sales volumes on the Community market.

(550)

It should be noted that, for many steel products, a clear distinction must be made between produc-
tion for captive use and sales to the free market. For fittings, the investigation has demonstrated that
the production for captive use is non-existent and is irrelevant for the injury analysis. Thus, the total
of the production destined for sales has been in direct competition with the imports.

6.5.2.3. Employment and productivity

1997

1998

1999

2000

2001

Employment (end of period)

Productivity (tonne/employee)

834

104

824

103

791

101

808

99

800

99

(551) The number of employees and productivity among the Community producers has remained more or

less stable since 1999.

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6.5.2.4. Cash Flow

Cash flow (index)

100

47

54

23

40

1997

1998

1999

2000

2001

(552) Cash flow could only be examined at the level of the cooperating companies which produced the
product concerned rather than in relation to only the product concerned itself. This indicator was
therefore seen as less meaningful than the other indicators shown above. Nevertheless, a negative
situation is evident between 1997 and 2001 and from 1999 to 2001.

6.5.2.5. Return on Capital Employed (ROCE)

ROCE

36 %

24 %

8 %

4 %

16 %

1997

1998

1999

2000

2001

(553) ROCE could only be examined on the level of the cooperating companies which produced the
product concerned rather than in relation to only the product concerned itself. This indicator was
therefore also seen as less meaningful than the other indicators shown above. Nevertheless, a nega-
tive situation is evident between 1997 and 2001.

6.5.2.6. Consumption

Consumption (tonnes)

70 077

70 096

64 804

61 658

63 077

1997

1998

1999

2000

2001

(554) Consumption of fittings in the Community was established on the basis of the total sales made by
the Community producers and total imports of the product concerned into the Community as
reported in the Eurostat statistics.

(555) Between 1997 and 2000, consumption in the Community declined by 12 %, from 70 100 tonnes to
61 700 tonnes. In 2001, the level of consumption increased by 2,3 % in relation to 2000, but it was
still 10 % below the level of 1997. The fall in consumption between 1997 and 2001 is examined
under ‘other factors’ to determine whether it contributed to the serious injury suffered by the
Community producers.

6.5.3. Sales Volume

1997

1998

1999

2000

2001

Sales volume in the Community
(t)

60 167

60 576

55 617

51 531

49 431

(556) Sales in the Community fell by 10 800 tonnes from 60 200 tonnes to 49 400 tonnes between 1997
and 2001. This is a reflection partly of decreasing Community consumption, but more important of
an increasing impact of higher import volumes on this market.

6 . 5 . 4 . M a r k e t s h a r e

Market share

85,9 %

86,4 %

85,4 %

83,6 %

78,4 %

1997

1998

1999

2000

2001

(557) The Community producers' market share of the Community market decreased from 1998 onwards,
the most radical decrease, from 83,6 % to 78,4 % (or a loss of 5,2 percentage points), occurring
during the last years of the investigation period, from 2000 to 2001. It is recalled that in the same
period the market share of imports increased from 16,4 % to 21,6 %.

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6.5.5. Stoc ks

1997

1998

1999

2000

2001

Closing stocks (t)

10 070

10 525

11 309

11 679

12 508

(558) Whereas the stock remained between 700 and 800 tonnes up to 1999, a decrease in stocks was
noted for 2000, followed by a sharp increase in 2001. The level of stocks in 2001 is 25 % above the
level of 1997. The increase in stock levels should also be seen in the light of a decreasing level of
production and sales.

6.5.6. Pric e of th e like p r oduct and u nde r cu tting

1997

1998

1999

2000

2001

Unit price of Community sales

1 585

1 561

1 493

1 453

1 405

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Unit prices (in Euro/tonne)

1 420

1 409

1 401

1 390

1 378

(559) The Community producers cut their average prices from 1997 to 2001, from 1585 EUR/tonne to
1405 EUR/tonne. At the same time, average import prices had fallen from 1247 EUR/tonne in
1997 to 1005 EUR/tonne in 2001. This trend is further confirmed because quarterly prices from
Q1 2001 to Q1 2002 show a fall from 1420 EUR/tonne to 1378 EUR/tonne in the price of the
Community product.

(560)

In order to determine the level of undercutting, price information was examined for comparable time
periods, at the same level of trade and for sales to similar customers. Based on a comparison of
prices invoiced by the Community producers and by exporting producers to the Community,
domestic prices were undercut by an average of 14,8 % in 2001.

(561) The Commission notes that, throughout the whole period of the investigation, the price of imports
was clearly below the price of the Community product. The graph illustrates that imports were made
at increasingly lower prices from 1997 through to 1998. This in turn forced the Community produ-
cers to reduce their prices in parallel, leading to a sharp reduction in profitability and the losses
sustained by the Community producers.

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Profitability

1997

1998

1999

2000

2001

Net profit/loss on Community
sales

4,4 %

4,3 %

2,0 %

1,9 %

– 1,0 %

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Net profit/loss on Community
sales

0,9 %

– 0,6 %

– 1,8 %

– 2,5 %

– 3,0 %

(562) The profitability of the Community producers' sales in the Community fell from 4,4 % in 1997 to –
1,0 % in 2001, reflecting an ever decreasing sales volume and the decreasing prices at which these
sales was made. It is to be noted that in light of the quarterly profitability figures for 2001 and 2002
there is a clear indication that the negative trend of profitability for Community producers is conti-
nuing.

(563) Underselling reflects the extent to which the price of the imported product is lower than the price
level which the Community producers could be expected to achieve in a non-injurious situation. The
level of underselling was calculated on the basis of the weighted average non injurious price per
tonne of the Community product. This price was calculated by taking the respective cost of produc-
tion for the Community product to which was added a profit margin of 8 %. This profit margin was
considered reasonable as it refers to profits of the Community producers in a normal trading situa-
tion unaffected by sudden sharp rise in imports. This non injurious price was compared with the
weighted average price per tonne of the imported product concerned during 2001. The difference
between these two prices was expressed as a percentage of the cif/Community border price of the
imported product, and resulted in underselling of 23,7 %.

6.5.7. Conclusion

(564) The data shows that there is, in general terms, a negative development for capacity, utilisation,
production, employment, productivity, and negative elements can as well be observed for cash flow
and ROCE.

(565) The data also shows, in general terms, and against a background of a decline in consumption and an
increase in stocks, there were negative developments for sales, market share, prices and profitability.

(566)

In particular, the Commission notes that whilst, in 2001, as imports reached their highest level for
five years (13,6km tonnes), the Community producers' sales volume in the Community reached its
lowest level for five years (49 400 tonnes) and profitability fell rapidly. This occurred against the
background of a concurrent fall in production sold on the free market, consumption and falling
prices. Against such a background, imports could have been expected to fall, but instead they rose
for the second consecutive year.

(567) The effect of this combination of factors on the Community producers is reflected in the economic
indicators. The Community producers have lost market share, which reached its lowest level for five
years in 2001. Employment has also fallen and is expected to fall further in 2002. The effect of the
falls in production, Community sales volume and prices was to reduce the profitability of the
Community producers and plunge them into a loss-making situation in 2001. The full extent of the
damage incurred is perhaps best
illustrated by the continuing deterioration in profitability
throughout 2001 and into Q1 2002.

(568) Taking account of all of these factors, the Commission concludes that the Community producers

have suffered serious injury.

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6.6. Causation

(569)

In order to examine the existence of a causal link between increased imports and the serious injury,
and in order to ensure that injury caused by other factors is not attributed to increased imports, the
Commission has proceeded as follows:

— the injurious effects of factors considered to be causing injury have been distinguished from each

other,

— these injurious effects have been attributed to the factors which are causing them; and,

— after having attributed injury to all causal factors present, the Commission has determined

whether increased imports are a genuine and substantial cause of serious injury.

6.6.1. Effe ct of incr ease d i mp or ts

(570) The market for fittings is a transparent one as regards sources of supply, customers and prices. The

product concerned and the like product, therefore, compete mainly on price.

(571)

In the period 1999 to 2001, the market share of imports grew from 14,6 % of the market to
21,6 %, whilst the market share of the Community producers fell from 85,4 % to 78,4 %. Over the
same period, imports have grown from 11,9 % to 17,2 % of production sold on the free market.
Thus, imports have also increased relative to production, at the expense of the Community produ-
cers.

(572) As to prices, between 2000 and 2001, the average unit price of the imported product on the
Community market fell from 1,042 to 1,005 EUR/tonne. The average unit price of the Community
product fell from 1,453 to 1,405 EUR/tonne. In this transparent market, price undercutting had a
decisive impact. The effect of the fall in the average unit price of the like product alone on the
revenue would have been a reduction of 3,3 %
Community producers' Community sales
(EUR 2,47m) in 2001. Taking account of the simultaneous fall in sales volume the actual fall in sales
revenue in the Community was EUR 5,42m. Fixed costs represent a material proportion of total
costs. Therefore, the reduction in sales revenues created a disproportionately higher fall in profits,
and, in 2001, the Community producers made a loss of –1,0 %.

(573) For these reasons, it is considered that there is a correlation between the increase in imports at low
prices and the serious injury suffered by the Community producers, and that the increase in imports
has had injurious effects in particular in terms of pressure on prices and a reduction in the volume
sold by the Community producers on the Community market.

6 . 6 . 2 . E f fe c t of c h a n g e s i n con su m p t i o n

(574) The Commission examined the injurious effects of the fall in consumption between 2000 and 2001.
That fall has to be considered in the context of the overall trend during the 5 year period under
investigation. Consumption decreased from 70 100 tonnes in 1997 to 61 100 tonnes in 2000, but
then grew by 1 400 tonnes to 63 100 tonnes in 2001.

(575)

(576)

In this particular case, the Commission considers that the apparent rise in consumption in 2001 was
due to the large increase in imports that year. For this reason, the trend in movements presents a
more accurate picture. Although consumption increased between 2000 and 2001, overall during the
five year period consumption fell by 7 000 tonnes or 10,0 %. This represents an average rate of
decline of 2,0 % per annum.

In examining this question in this particular case account has to be taken of the reaction of all
market participants to the trend of a fall in consumption. In this respect, it was found that while
Community producers were forced to reduce their sales in the Community by roughly 2 100 tonnes
in 2001 compared to 2000, imports moved sharply in the other direction. No economic justification
was established which could explain the sharp rise in imports. For example, no exporter claimed that
this was due to lower production costs.

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(577) As regards price effects, a fall in consumption of 2,0 % per annum should not normally lead to
substantial price effects if production is quickly adjusted to the needs of the market. In this respect,
the Community producers appear to have reacted by reducing both production and sales in line with
the falls in consumption.

(578) Similarly, if price pressure is reduced then the injurious effects which stem from low prices would
also be kept in check. The most important factor here is profit, where any fall would have been
minimised if prices had not fallen substantially. Therefore, it is reasonable to conclude that in the
absence of the sharp rise in imports at low prices, the fall in consumption would not have led to a
substantial fall in profits.

(579) Nevertheless, even if all market participants acted responsibly and adjusted their production, the
Community producers would still have sold less. Consumption in 2001 was below the level in
1999. In 2000, consumption fell by 3 100 tonnes only to increase by 1 400 tonnes in 2001. The
Community producers' sales, however, decreased in 2000 compared to 1999 by 3 800 tonnes, and
again by a further 2 100 tonnes in 2001. At the same time, imports increased in 2000 by 600
tonnes and 3 500 tonnes respectively. Therefore the fall in consumption between 1999 and 2001
did not effect imports which continued to rise. Over this two-year period Community producers'
sales fell by 5 900 tonnes. In terms of the trend fall in consumption, the Community producers fall
in sales should have been approximately 700 tonnes per annum.

(580) For the reasons given above, it is concluded that there is a significant, but not substantial, link

between the fall in consumption and the injurious effects observed.

6.6.3. Effe ct of exp orts p e r formanc e

(581) The Commission also examined the effects of a fall in exports.

1997

1998

1999

2000

2001

Exports (in tonnes)

27 133

24 624

24 583

28 369

30 069

(582) Between 1997 and 1999, the volume of Community producers' exports of fittings fell from 27 100
tonnes to 24 600 tonnes. Between 1999 and 2001, exports increased by 5 500 tonnes. Over the five
year period, exports increased by approximately 3 000 tonnes. Therefore, in the more recent period
between 1999 and 2001 they have not contributed to the injurious effects. In this respect, as the
injury resulting from a fall in exports mainly occurred in the early part of the 5 year period it has to
be viewed as less significant than if it had occurred in the latter part of the 5 year period.

(583) For the reasons given above, it is concluded that there is some link between the fall in exports and

the injurious effects observed, at least in the earlier part of the 5 year period.

6.6.4. Effe ct of any e xc ess c ap ac ity

(584) The Commission has further examined whether injurious effects may have resulted from excess capa-
city amongst the Community producers. Between 1997 and 2001 the Community industry reduced
overall estimated theoretical production capacity from 170 000 tonnes to 150 000 tonnes, whilst
utilisation of that capacity varied around the 50 % mark. It should first be noted that fittings are a
finished product comprising a very wide range of types. A capacity utilisation of 50 % is, therefore,
not considered particularly low for this kind of product. Against a background of reducing capacity
and relatively stable capacity utilisation, it is considered that any injurious effects would be of minor
impact.

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6.6.5. Effe ct of restr ucturing

(585) The Commission further examined the injurious effects of the costs of restructuring which the
Community producers have undergone in recent years. In this respect it is noted that restructuring
will as a rule imply short term costs such as redundancy payments, acquisition costs, etc., which are
outweighed by medium term efficiency gains. In view of the ongoing rationalisation process, this
would imply that ongoing short term costs, even if found to be minor, impacted on the cost struc-
ture.

6 . 6 . 6 . A t t r i b u t i on of i n j u r i ou s e ff e c ts

(586)

Injury suffered by the Community producers took the form mainly of reduced sales, lost market
share, and worsening financial losses. The Commission identified that four factors contributed to the
injury apart from the increase in imports: decline in consumption, decline in exports, excess capa-
city, and ongoing rationalisation efforts.

(587) Consumption declined by approximately 2,0 % per annum, although the fall was more pronounced
in 2001 compared to 2000. However, the development of imports did not follow this consumption
pattern at all and the Commission considers that the small decline in consumption did not play a
significant role either in volume or prices.

(588) There was also a decline in export sales between 1997 and 1999. However, as these falls occurred at
the beginning of the period considered, and as over the whole five year period, export sales actually
increased, the Commission considers that export sales performance did not play a significant role
either in volume or prices.

(589) Capacity fell between 1997 and 2001, whilst at the same time utilisation of that capacity by the
Community industry remained at approximately 50 %. Given that the utilisation rate did not vary
significantly, and was at its highest level at the end of the period (53 %), and that efforts had been
made to reduce capacity, the Commission considers that capacity utilisation did not play a significant
role either in volume or prices.

(590) As to the impact of ongoing rationalisation efforts, the Commission likewise considers that the
impact on the cost structure of the Community producers is not significant, in particular by compar-
ison to the price effect of the low priced imports.

(591) The Commission noted that the decline in the Community producers' sales volume, sales prices and
profitability was due primarily to the increase in imports, which not only increased much faster than
the increase in consumption in 2001 but which had also increased during the fall in consumption in
2000.

6.6.7. Conclusion

(592)

It is concluded that, after having examined the injurious effects of the other known factors and sepa-
rated and distinguished them from each other and from the injurious effects of the increased
imports, and after having ensured that injury caused by other factors is not attributed to imports, it
can be considered that there is a genuine and substantial link between increased imports and serious
injury to the Community producers.

6.7. Further Developments

(593) The Commission has, in addition, analysed a number of elements which justify the conclusion that
the serious injury suffered by the Community producers, could be expected to seriously worsen
should imports continue at their current level or increase.

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6. 7. 1. Th e US ste e l safe g u ar d me a su r e s

(594)

It is recalled that on 5 March 2002, the US imposed safeguard measures against certain steel
products including fittings. Those measures came into effect on 20 March 2002, and consist of an
increase in duty on imports to the US of 13 % ad valorem in the first year, 10 % in the second year
and 7 % in the third year. The measures do not apply to Canada, Israel, Jordan and Mexico as well as
a number of countries specified as developing countries.

6. 7. 2. Tr a de di ve r si on ar i si ng fr om US ste e l safe g u a r d me a su r e s

(595) The Commission examined the likely impact of the US measures by analysing the situation of the

major exporting countries to the US.

(596)

In 2001, the US imported 48 180 tonnes of goods classified within the same HSC code as fittings.
The principal exporters to the US were Mexico (18 %/8 591 tonnes), Thailand (18 %/8 442 tonnes),
Italy (13 %/6 426 tonnes), South Korea (12 %/5 631 tonnes), Malaysia (10 %/4 599 tonnes), and
France (8 %/3 609 tonnes).

(597) Total exports to the US of these goods in 2001 from countries affected by the US safeguard
measures (excluding producers in the Community and in those countries excluded from the US safe-
guard measures insofar as it relates to these goods) amounted to approximately 21 000 tonnes.
Certain products produced by certain suppliers have also been excluded from the US measures, but
these quantities are not considered to be significant in the case of hot rolled coils.

(598) The Commission then examined the likelihood that the restricted access to the US market as a result
of safeguard action taken by the US would lead to increased exports to the Community. The
Commission investigated the capacity situation of the cooperating exporting producers. It was found
that their capacity had remained stable between 1997 and 2001. However, capacity utilisation rate,
which exceeded 100 % in 1997, was at only around 67 % in 2001. Given the substantial closure of
the US market to a number of traditional suppliers, all else being equal, the average rate of capacity
utilisation of those suppliers could be expected to fall even further in 2002 unless they find new
markets.

(599) None of the cooperating exporting producers reported an intention to reduce their capacity in the
immediate future and none reported an intention to reduce their production in light of the US
measures.

(600) Most indicated their aim to make up for any reduction in their exports to the US by selling more on
their domestic markets but this claim was made within the context of static or falling consumption
in these markets. In this respect, it is very unlikely that these producers can increase sales signifi-
cantly on their domestic markets. Neither is it likely that they can increase sales to other export
markets as producers in most of these markets are already suffering from the substantial closure of
the US market and there is no indication that significant extra consumption will be available in these
markets in the short and medium term to permit increased imports.

(601) The potential trade which, in the absence of definitive measures, could be diverted to the Commu-
nity as a result of the US measures therefore amounts to 21 000 tonnes. There are reasons why this
potential may not be wholly realized, e.g. the current high levels prices of domestic prices in the US
which may result in a somewhat higher than expected level of imports despite the existence of 30 %
duties as well as the fact that third country producers may be able to partially offset the loss of the
US market by selling more on their domestic markets. This may be particularly true to a degree for
those countries which have taken protective measures to counteract the US safeguard action. Produ-
cers may also increase their stocks for a period of time.

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(602) However, a very substantial potential for increased exports to the Community will still prevail. The
increase which took place in 2001 had many causes as already identified in the analysis of serious
injury and all of these still apply and can be expected to continue to push imports higher. Moreover,
there is now the new element of the US safeguard action which manifestly leaves a substantial
amount of production for which producers are under enormous pressure to find buyers. The
Commission first assumed that between 25 % and 50 % of the amount calculated above (21 000
tonnes) could be diverted to the Community from the US market. This would result in between
approximately 5 000 and 10 000 additional tonnes being imported into the Community. This would
result in imports increasing by around 50 % on top of the already historically high level experienced
in 2001. Therefore, the Commission has assumed that in the absence of definitive measures the very
minimum trade diversion that would occur would not be less than the increase in Community
imports between 2000 and 2001, i.e. around 3 500 tonnes. In all likelihood, it would be greater but
it is considered prudent to base this analysis on a conservative basis.

(603)

It is also relevant that in 2001, the major export markets for fittings were Malaysia (127kt), the US
(48kt), the Community (14kt), Canada (12kt), and Japan (10kt). This reflects the fact that the
Community market was, and following recent measures, remains, one of the most open markets in
the world. The recent appreciation of the euro relative to the US dollar and other major currencies
in the first two quarters of 2002 increases the attractiveness of imports relative to Community
production in the short and medium term.

6.7.3. Proj ec ted e ffec ts of US me asure s

(604) The Commission has evaluated the possible impact on the Community producers of not imposing
definitive measures and the consequent trade diversion arising from the US safeguard measures anti-
dumping as well as the effect of these measures on Community producers. In this respect, the
Commission has found that in the absence of Community safeguard measures, relevant imports will
inevitably rise substantially with the result that the state of the Community industry will show a very
serious and substantial decline. Given the extremely fragile state of the Community producers any
significant rise in imports would have extremely serious consequences. The expected rise of around
3 500 tonnes would immediately lead to a further substantial reduction in the sales of the Commu-
nity producers and these reduced sales would very quickly lead to serious negative consequences for
the other indicators which identify the state of the industry.

(605) The projected increase in imports would substantially worsen the situation of the Community
industry in relation to all factors already examined when determining the existence of serious injury.
They would immediately lead to a further sharp fall in sales and prices, with consequent negative
effects on production,
increased losses with an immediate threat of plant
closures and redundancies. Increased pressure on prices would in particular be enormous and this at
a time when losses are currently running at an unsustainable -3,0 %. In fact, the overall negative
impact would be greatly magnified by the fact that Community producers are already suffering
serious injury from the increased imports of recent years.

increased unit costs,

6.7.4. Conclusion

(606) Taking due account of the fact that the Community producers are already suffering serious injury, it
is reasonable to conclude that, without definitive safeguard measures, the likely further increase of
imports would significantly aggravate the situation of the Community producers.

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L 261/99

Product 18

Fittings (continued)

SITUATION OF COMMUNITY PRODUCERS

1997

1998

1999

2000

2001

Capacity (in tonnes)

170 000

170 000

169 983

165 000

149 607

Utilisation rate of capacity (in %)

51,0 %

50,0 %

47,0 %

48,3 %

53,0 %

Opening stocks (in tonnes)

9 955

10 070

10 525

11 309

11 679

Total production (in tonnes)

86 619

84 932

79 892

79 729

79 292

Purchases (in tonnes)

796

724

792

541

1 037

Total sales (in tonnes)

87 300

85 200

79 900

79 900

79 500

Captive use (in tonnes)

0

0

0

0

0

Closing stock (in tonnes)

10 070

10 525

11 309

11 679

12 508

Sales volume outside the EU (in
tonnes)

Sales volume in the EU (in
tonnes)

Unit prices of EU sales (EUR/
tonne)

Net profit/loss on EU sales (%)

27 133

24 624

24 583

28 369

30 069

60 167

60 576

55 317

51 531

49 431

1 585

4,4 %

1 561

4,3 %

1 493

2,0 %

1 453

1,9 %

1 405

– 1,0 %

Market share (in %)

85,9 %

86,4 %

85,4 %

83,6 %

78,4 %

Employment (end of period)

Productivity (tonne/employee)

834

104

824

103

791

101

808

99

800

99

VOLUME, UNIT PRICES AND PROFITABILITY OF EU SALES ON A PER QUARTER BASIS

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Volume (in tonnes)

19 259

18 805

18 064

17 887

16 086

Unit prices (in EUR/tonne)

1 420

1 409

1 401

1 390

1 378

Profitability (in %)

0,9 %

– 0,6 %

– 1,8 %

– 2,5 %

– 3,0 %

Price undercutting in 2001 =

Price underselling in 2001 =

14,8 %

23,7 %

Data given above on the situation of the Community producers verified by sample check and on-
spot investigations of companies representing the following percentage of total Community produc-
tion:

60,9 %

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7. PRODUCT 19: FLANGES

7.1. Product Concerned and Like or Directly Competing Product

7.1.1. Produc t Conc e rne d

(607) The product concerned is iron and steel flanges (not cast),

(hereinafter ‘flanges’). The product

concerned is currently classified under CN code 7307 91 00.

(608) Flanges are metal parts that provide an ability to connect and disconnect piping system components,

produced generally by forging carbon steel billets or rounds and subsequent machining.

(609)

It was found that all flanges have identical characteristics or similar physical and technical character-
istics, uses and applications. Accordingly, all types of flanges form one single product falling under
the relevant CN code listed above.

7.1.2. Like O r Direc tly Comp e ting Produc ts

(610) The Commission has examined whether the product produced by the Community producers (herein-
after referred to as ‘the like product’) is like the imported product concerned. In the course of the
investigation, the Commission received submissions from certain major exporters and importers of
the product concerned which alleged that certain types of the product concerned imported into the
Community were not produced by the Community producers and, therefore, should not be consid-
ered as ‘like’ the product concerned.

(611) The Commission examined these submissions in detail, and took into account in particular the

following findings of the investigation:

(a) the imported product and the Community product shared the same international classification
for tariff purposes. Furthermore, they shared the same or similar physical properties such as
composition, size, shape and texture and were manufactured to internationally recognised stan-
dards;

(b) the imported product and the Community product were sold via similar or identical sales chan-
nels and price information was readily available (for example, details of prices are published in
industry periodicals, such as the Metal Bulletin and Steel Weekly) and the product concerned and
the product of the Community producers competed mainly on price;

(c) the imported product and the Community product were both capable of serving the same or
similar end-uses, they were, therefore, largely alternative or substitute products and were easily
interchangeable;

(d) the imported product and the Community product were both perceived by consumers as alterna-
tive means of performing particular functions in order to satisfy a particular want or demand, in
this respect the differences identified by the exporter/importer were simply minor variations
manufactured for a particular customer.

(612) The Commission has concluded that despite the alleged technical differences in the product charac-
teristics and qualities identified in those submissions, the imported product and the Community
product are ‘like or directly competing’.

7.2. Increased Imports

(613) The Commission has examined whether the product concerned is imported into the Community in
such greatly increased quantities, absolute or relative to Community production and/or on such
terms or conditions as to cause or threaten to cause, serious injury to the Community producers. In
this respect, the Commission has focussed on imports of the product concerned in the most recent
period for which data were available in absolute terms and relative to production destined for sales
(excluding captive use) and total production. The table below shows the development of imports in
absolute terms and against both Community production destined for sales and total Community
production (including captive use) for each of the years 1997 to 2001.

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L 261/101

Product 19

Flanges

CONSUMPTION

Volume (in tonnes)

187 483

187 413

169 424

152 884

172 836

1997

1998

1999

2000

2001

IMPORT DATA

1997

1998

1999

2000

2001

Concerned imports

Volume (in tonnes)

Rate of increase (in %)

Market share (in %)

Ratio between imports and total
production

Ratio between imports and
production sold

Unit prices (in Euro/tonne-Euro-
stat)

69 555

37,1 %

77 754

11,8 %

41,5 %

76 781

– 1,3 %

45,3 %

76 575

– 0,3 %

50,1 %

96 754

26,4 %

56,0 %

33,4 %

41,9 %

44,0 %

47,1 %

60,2 %

35,9 %

44,1 %

45,4 %

47,6 %

61,4 %

837

876

887

910

932

1998/1997

1999/1998

2000/1999

2001/2000

Volume as moving averages (in
tonnes)

73 655

77 268

76 678

86 665

(614)

In the period 1997 to 2000, imports were more or less constant at around 70 000 to 77 000
tonnes. As a result, over this period, imports increased by around 10 %. Relative to total Community
production, imports increased from around 36 % to around 48 %, whilst relative to production sold,
they increased from 35,9 % to 47,6 %.

(615) Between 2000 and 2001, there was a significant increase in imports from 76 600 tonnes to 96 800
tonnes, an increase of 20 200 tonnes or 26,4 %. Over the same period the increase relative to free
market production was likewise very significant at 29,0 %, whilst the increase in imports relative to
total production was 27,8 %.

(616) Prices of the product concerned, which rose each year between 1997 and 2001, increased by a total

of 11,4 % to reach 932 EUR/tonne in 2001.

7 . 2 . 1 . T w o ye a r mov i n g a v e r a g e

(617)

In order to establish the underlying trend in the level of imports between 1997 and 2001 and deter-
mine whether the recent increases in imports form an established trend, the Commission considered
two year moving averages. These illustrate that, whilst between 1997/98 and 1999/00, imports in
any two year period fluctuated between 73 700 tonnes and 77 300 tonnes, between 1999/00 and
2000/01 they increased by over 13 % from 76 700 tonnes to 86 700 tonnes.

7.2.2. Marke t share of i mp or ts

(618) The market share of imports increased between 1997 and 1999 from 37,1 % to 45,3 %. From 2000
onwards, the market share of imports increased more markedly, first to 50,1 % and then to 56,0 %,
increases of around 11 % and 12 % respectively.

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7.2.3. Conclusion

(619)

Imports increased in 1997, 1998, and 1999. The annual rate of growth in imports in this period
was 5,2 % in absolute terms (15,9 % relative to total production and 13,2 % relative to production
sold on the free market). By contrast between 1999 and 2001, the annual rate of growth in imports
in absolute terms was 13,0 %. Thus the annual rate of growth of imports was more than twice as
high between 1999 and 2001 than in the previous period.

(620) That recent increases in imports are not attributable to established trends in import levels is demon-
strated by the development of the two year moving average of imports over the five year period of
investigation.

(621)

It is concluded that the increases in the recent past can be considered sudden, sharp and significant
when comparing them to developments in previous years.

7.3. Unforeseen Developments

7. 3. 1.

Inc r e a se d u se of tr ade de fe nce i nstr ume nt s by th e US

(622) From 1998 onwards, in reaction to the Asian crisis (1), the US, which represents around one eighth
of world steel consumption, began to make greater use of trade defence instruments (TDIs) in the
steel sector with a view to protecting their domestic producers from competition. A number of these
measures have been adjudicated in the WTO and some of the methodologies used have been has
been declared to be WTO incompatible. Nevertheless, many of the measures which remain in force
are based on these same methodologies.

(623) The table below shows the annual number of anti-dumping and countervailing duty final determina-
tions for one or more countries made by the US between 1997 and 2001 in relation to the steel
sector as a whole, and illustrates the increase in activity in the last three years.

Year

1997

1998

1999

2000

2001

Anti-dumping duty

Countervailing duty

5

6

16

14

26

0

1

7

5

5

(624)

In the course of 2001, the US also announced further broadly based action in the steel sector. In
January 2001, the US opened an investigation into steel under section 223 of the US Trade Act of
1974. In July 2001, the US ITC announced a broad ranging investigation into steel under section
202 of the Trade Act of 1974; and in December, the ITC recommended safeguard measures across a
broad range of steel products.

(625) These actions, had an increasingly discouraging effect on imports of steel products to the US and led
to a decrease in US steel imports of 33 % between 1998 and 2001, and culminated in the safeguard
measures announced by the US on 5 March 2002. In particular, the safeguard proceeding, which
had been mooted for several months before its initiation, had a restraining effect on imports to the
US due to the uncertainty which it created for economic operators. It is indeed the largest commer-
cial defence action ever initiated by a WTO member covering imports worth some USD 17 billion.

(1) The effects of the Asian crisis were felt around the world in 1998 and 1999. In particular, as Asian steel producers
fought to maintain sales volumes in the face of the collapse of their domestic markets, they sought to open up new
markets by offering low prices, and found the Community market to be an important outlet for their goods. In conse-
quence, imports of the products concerned increased markedly in 1998, and prices fell sharply in 1999.

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7. 3 . 2 .

In c r e a se d u se of TD I s b y th e U S — r e la ti n g to t h e p r odu c t c o n c e r n e d

(626) The Commission's provisional safeguard measures and their related investigation consider carbon
flanges and carbon fittings separately, as two different like-products. Consequently, in relation to
flanges, the US investigation and the US measures have a much broader scope than the Commis-
sion's action.

(627) The Commission notes that in 2001 imports into the Community market of flanges increased by
21 % compared to the stagnant trend of the imports in 1999 and 2000. This sudden increase
appears in large part due to imports from China, which have been under investigation by the US
and are currently subject to US safeguard measures.

(628) The Commission considers that there exists a correlation in time between the US announcement of
the safeguard investigation on steel products (which was anticipated as early as January 2001 in the
US market in a number of press articles speculating on imminent disruption both to the US and the
Community market) and the increase in imports of flanges into the Community market. This correla-
tion is particularly evident for flanges. Between 1997 and 2000, Community imports of flanges were
stable at around 70 to 75 000 tonnes. Suddenly in 2001, and in tandem with the US safeguard
investigation, imports jumped by over 26 % from their 2000 level.

(629) Analysis of the evolution of imports of carbon flanges to the US between 1999 and 2001 did not
prove to be informative, as US import data covers additional products other than flanges as defined
by the Commission.

(630) Such a use of the safeguard instrument could not have been foreseen at the conclusion of the
Uruguay Round and constitutes the unforeseen circumstances as required by the Safeguard Agree-
ment.

7.4. Definition of the Community Producers

(631) Total Community production of flanges is around 160 000 tonnes per annum. The Community

producers which cooperated in the investigation were:

— Melesi & C. SRL, Italy

— Metalfar Prodotti Industriali S.P.A., Italy

— Ulma Forja S. Coop, Italy

— Friedrich Geldbach GmbH & Co, Germany

— Bifrangi S.P.A., Italy

— Bebitz GmbH, Germany.

(632) These companies, which are all members of the Fachvereinigung Stahlflanschen e. V., accounted for
around 53 % of the total Community production of the product concerned. They, therefore, repre-
sent a major proportion of total Community production within the meaning of Article 5(3)(c) of
Regulation (EC) No 3285/94 and Article 15(1) of Regulation (EC) No 519/94. They are accordingly
considered as the Community producers for the purposes of this proceeding.

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7.5. Serious Injury

7 . 5 . 1 .

Int r odu c t i o n

(633)

In order to determine whether there is serious injury or threat of serious injury to the Community
producers of the like product, the Commission has evaluated all relevant factors of an objective and
quantifiable nature having a bearing on the situation of the Community producers. In particular, for
the product concerned, the Commission has evaluated the development of imports, consumption,
production, productivity, capacity, capacity utilisation, sales, market share, prices, profitability and
employment for the years 1997 to 2001. The relevant economic data are provided at the end of this
product analysis.

7.5.2. Produc tion ca p aci ty a nd cap a city u tilisati on

1997

1998

1999

2000

2001

Production capacity (t)

263 000

238 000

233 000

230 000

220 000

Capacity utilisation (%)

79 %

78 %

75 %

71 %

73 %

(634) Total estimated production capacity has decreased by 16,3 % from 1997 up to 2001, or from
263 000 tonnes to 220 000 tonnes. The decrease of Community capacity is partly linked to the
closure of Community production plants, the latest one in 2001. As outlined below, production
decreased faster than the reduction in capacity. Therefore, the capacity utilisation rate decreased from
79 % in 1997 to 71 % in 2000. In 2001, the utilisation rate increased to 73 %. However, this was
the result of a plant closure, and not an increase in production.

7.5.3. Total p roduc tion a nd ca p tiv e u se

1997

1998

1999

2000

2001

Production (t)

208 218

185 520

174 412

162 581

160 818

(635) Community industry production decreased from 208 200 tonnes in 1997 to 160 800 tonnes in
2001. This represents a decrease of 22,7 %, and is directly linked to the decrease in Community
sales, as outlined below.

(636)

It should be noted that, for many steel products, a clear distinction must be made between produc-
tion for captive use and for sales to the free market. For flanges, the investigation has demonstrated
that the production of captive use is so small (2 % in 2001) that it is considered not to have had any
impact on the injury analysis. Thus, the total of the production destined for sales is considered to
have been in direct competition with the imports.

7 . 5 . 4 . E m p l oy me n t a n d p r od u c ti v i t y

1997

1998

1999

2000

2001

Employment (end of period)

Tonne/employee (t)

963

216

953

195

879

198

858

189

846

190

(637) The number of employees among the Community producers has declined steadily throughout the

investigation period, from 963 persons in 1997 to 846 persons in 2001.

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(638) A significant drop in productivity was noted for 1998, after which the situation has stabilised to

around 190 tonnes per employee.

7.5.4.1. Cash Flow

Cash flow (index)

100

579

136

317

489

1997

1998

1999

2000

2001

(639) Cash flow could only be examined at the level of the cooperating companies which produced the
product concerned rather than in relation to only the product concerned itself. This indicator was
therefore seen as less meaningful than the other indicators shown above. However, a positive situa-
tion is evident between 1997 and 2001 and from 1999 to 2001.

7.5.4.2. Return on Capital Employed (ROCE)

ROCE

1,53 %

1,92 %

– 0,83 %

0,34 %

– 1,63 %

1997

1998

1999

2000

2001

(640) ROCE could only be examined on the level of the cooperating companies which produced the
product concerned rather than in relation to only the product concerned itself. This indicator was
therefore also seen as less meaningful than the other indicators shown above. Nevertheless, a nega-
tive situation is evident between 1997 and 2001 and from 1999 to 2001.

7.5.5. Consump tion

Consumption (t)

187 483

187 413

169 424

152 884

172 836

1997

1998

1999

2000

2001

(641) Consumption of flanges in the Community was established on the basis of the total sales made by
the Community producers and total imports of the product concerned into the Community as indi-
cated in the Eurostat statistics.

(642) Between 1997 and 2000, consumption in the Community dropped by more than 18 %, from
187 500 tonnes to 152 900 tonnes. In 2001, it increased by 13 % in relation to 2000, but was still
7,8 % below the level of 1997.

7.5.6. Sales volu me

1997

1998

1999

2000

2001

Sales volume in the Community
(t)

117 928

109 659

92 643

76 309

76 082

(643) Sales in the Community fell over the whole period by 41 800 tonnes (from 117 900 tonnes to

76 100 tonnes) i.e. by more than 35 %.

7 . 5 . 7 . M a r k e t s h a r e

Market share

63 %

59 %

55 %

50 %

44 %

1997

1998

1999

2000

2001

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(644) The Community producers' market share of the Community market show a steady decline, from a

63 % market share in 1997 to a 44 % market share in 2001.

7.5.8. Stoc ks

1997

1998

1999

2000

2001

Closing stocks (t)

26 685

31 607

31 123

30 032

31 138

(645) Stocks rose in 1998, after which they remained stable in absolute terms. However, in relation to the
decreasing production, the stocks have increased slightly, from 17 % in 1998 to 19 % in 2001.

7.5.9. Pric e of like p roduc t and u nde r cu tti ng

1997

1998

1999

2000

2001

Unit price of Community sales

1 481

1 435

1 445

1 125

1 061

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2001

Unit prices (in EUR/tonne)

1 064

1 078

1 066

1 036

978

(646) Between 1997 and 1999 the Community producers' average prices were between 1 400 and
1 500 EUR/tonne. In 2000 the price fell 320 EUR/tonne (22,1 %) and by a further 64 EUR/tonne
(5,7 %) in 2001. In order to determine the level of undercutting, price information was examined for
comparable time periods, at the same level of trade and for sales to similar customers. Based on a
comparison of prices invoiced by the Community producers and by exporting producers to the
Community, domestic prices were undercut by an average of 10,3 % in 2001.

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7 . 5 . 1 0 . P r ofi t a b i l i t y

1997

1998

1999

2000

2001

Net Profit/loss on Community
sales

4,1 %

5,3 %

3,2 %

1,7 %

– 1,1 %

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2001

Net Profit/loss on Community
sales

0,0 %

– 0,9 %

– 1,3 %

– 2,2 %

– 4,1 %

(647) The profitability of the Community producers' sales in the Community decreased considerably since
1998, to become negative in 2001. This negative evolution is further confirmed because quarterly
data for Q1 2001 and Q1 2002 shows that the profitability of the Community producers sales on
the Community market fell from 0,0 % to –4,1 %.

(648) Underselling reflects the extent to which the price of the imported product is lower than the price
level which the Community producers could be expected to achieve in a non-injurious situation. The
level of underselling was calculated on the basis of the weighted average non injurious price per
tonne of the Community product. This price was calculated by taking the respective cost of produc-
tion for the Community product to which was added a profit margin of 8 %. This profit margin was
considered reasonable as it refers to profits of the Community producers in a normal trading situa-
tion unaffected by sudden sharp rise in imports. This non injurious price was compared with the
weighted average price per tonne of the imported product concerned during 2001. The difference
between these two prices was expressed as a percentage of the cif/Community border price of the
imported product, and resulted in underselling of 23,0 %.

7.5.11. Conc lu sion

(649) The data shows a negative development for production capacity, capacity utilisation, production,

employment, productivity, and negative elements can as well be observed for cash flow and ROCE.

(650) Furthermore, an increase in stocks, negative developments for sales, market share and profitability

occurred.

(651)

In 2001, as imports reached their highest level for 5 years (96 754 tonnes), the Community produ-
cers' Community sales volume reached their lowest level and they suffered a significant fall in market
share. Prices also fell to a five-year low and the Community producers suffered a fall in profitability.

(652) The effect of this combination of factors is reflected in the economic indicators. In particular, capa-
city utilisation, after going down, increased again following a reduction of capacity. Employment
went down, while productivity remained relatively stable. While cash flow showed positive elements,
ROCE showed negative elements. Whilst consumption declined up to 2000,
it increased again
towards 2001. Sales suffered a serious downturn in particular between 1999 and 2000, and market
share declined heavily. While stocks remained relatively stable with a slight increase, prices declined,
with an undercutting found of 10 %. At the same time, profitability decreased.

(653) The Community producers have suffered from both decreasing sales volumes and decrease in prices.
Whereas the overall consumption has also decreased, the Community producers' volumes in the
Community market have decreased even further, leading to significant loss in market share and most
important to continuous losses.

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(654) Taking account of all of these factors and relying, in particular, on its analysis of the free market

activities, the Commission concludes that the Community producers have suffered serious injury.

7.6. Causation

(655)

In order to examine the existence of a causal link between increased imports and the serious injury,
and in order to ensure that injury caused by other factors is not attributed to increased imports, the
Commission has proceeded as follows:

— the injurious effects of factors considered to be causing injury have been distinguished from each

other,

— these injurious effects have been attributed to the factors which are causing them, and,

— after having attributed injury to all causal factors present, the Commission has determined

whether increased imports are a genuine and substantial cause of serious injury.

7.6.1. Effe ct of incr ease d i mp or ts

(656) The market for flanges is a transparent one as regards sources of supply, customers and prices. The

product concerned and the like product, therefore, compete mainly on price.

(657)

In the period 1999 to 2001, the market share of imports grew from 45,3 % of the market to
56,0 %, whilst the market share of the Community producers fell from 54,7 % to 44,0 %. Over the
same period, imports have grown from 45,5 % to 61,4 % of production sold on the free market.
Thus, imports have also increased relative to production, at the expense of the Community produ-
cers.

(658) As to prices, between 1999 and 2001, the average unit price of the imported product on the
Community market actually rose from 887 to 932 EUR/tonne, whilst the average unit price of the
Community product fell from 1 125 to 1 061 EUR/tonne. It would seem that during the early part
of the period considered, the Community industry were able to maintain their price levels. However,
as imports continued to increase their market penetration, the Community industry was forced to
reduce their prices. Nevertheless, despite increased import prices and reducing Community industry
prices, there was still significant price undercutting in 2001 (10,3 %). In this transparent market, this
price undercutting had a decisive impact. The effect of the fall in the average unit price of the like
product alone on the Community producers' Community sales revenue would have been a reduction
of 26,6 % (EUR 35,6m) in 2001. Taking account of the simultaneous fall in sales volume the actual
fall in sales revenue in the Community was EUR 53,1m. Fixed costs represent a material proportion
of the Community producers' overheads. Therefore, the reduction in sales revenues created a dispro-
portionately higher fall in profits, and, in 2001, the Community producers made a loss of –1,1 %.

(659) For these reasons, it is considered that there is a correlation between the increase in imports at low
prices and the serious injury suffered by the Community producers, and that the increase in imports
has had injurious effects in particular in terms of pressure on prices and a reduction in the volume
sold by the Community producers on the Community market.

7 . 6 . 2 . E f fe c t of c h a n g e s i n con su m p t i o n

(660) The Commission examined the injurious effects of the fall in consumption between 1997 and 2001.
It is noted both that the fall was of a low magnitude representing only 14 600 tonnes, and that
consumption actually increased between 1999 and 2001.

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(661) Therefore, whilst there may have been injurious effects caused by declining consumption between
1997 and 1999, in the more recent period between 1999 and 2001 it has not contributed to the
injurious effects. In this respect, any resulting injury occurred mainly in the early part of the 5 year
period and has to seen as less significant than if it had occurred in the latter part of the 5 year
period.

7.6.3. Effe ct of exp ort p e r formanc e

(662) The Commission also examined the effects of a fall in exports.

1997

1998

1999

2000

2001

Exports (in tonnes)

75 714

66 585

76 537

84 646

81 519

(663) Between 1997 and 1998, the volume of Community producers' exports of flanges fell from 75 700
tonnes to 66 600 tonnes. Between 1998 and 2000, exports increased by 18 000 tonnes, before
falling 3 100 in 2001. Over the five year period, exports increased by approximately 5 800 tonnes.
Therefore, between 1999 and 2001 as a whole, loss of exports has not contributed to the injurious
effects.

(664) For the reasons given above, it is concluded that there is some link between the fall in exports and

the injurious effects observed, at least between 2000 and 2001.

7.6.4. Effe ct of any e xc ess c ap ac ity

(665) The Commission has further examined whether injurious effects may have resulted from excess capa-
city amongst the Community producers. Between 1997 and 2001 the Community industry reduced
overall estimated theoretical production capacity from 263 000 tonnes to 220 000 tonnes, whilst
utilisation of that capacity varied between 71 % and 79 %. It should first be noted that, as with
fittings, flanges are a finished product. Against a background of reducing capacity and relatively
stable capacity utilisation, it is considered that any injurious effects would be of minor impact.

7.6.5. Effe ct of restr ucturing

(666) The Commission further examined the injurious effects of the costs of restructuring which the
Community producers have undergone in recent years. In this respect it is noted that restructuring
will as a rule imply short term costs such as redundancy payments, acquisition costs, etc., which are
outweighed by medium term efficiency gains. In view of the ongoing rationalisation process, this
would imply that ongoing short term costs, even if found to be minor, impacted on the cost struc-
ture.

7 . 6 . 6 . A t t r i b u t i on of i n j u r i ou s e ff e c ts

(667)

Injury suffered by the Community producers took the form mainly of reduced market share and
worsening financial losses. The Commission identified that four factors contributed to the injury
apart from the increase in imports: decline in consumption, decline in exports, excess capacity, and
ongoing rationalisation efforts.

(668) Consumption declined by approximately 1,6 % per annum, although the fall was more pronounced
between 1997 and 2000. Indeed consumption actually increased between 2000 and 2001 However,
the development of imports did not follow this consumption pattern at all and the Commission
considers that the small decline in consumption did not play a significant role either in volume or
prices.

(669) There was also a decline in export sales in 2001 compared to 2000. However, as overall between
1999 and 2001 there was an increase in Community industry export sales, any impact is considered
to be minor in nature. The Commission, therefore, considers that export sales performance did not
play a significant role either in volume or prices.

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(670) Capacity fell between 1997 and 2001, whilst at the same time utilisation of that capacity by the
Community industry remained at approximately 70 to 80 %. Given that the utilisation rate did not
vary significantly, had increased between 2000 and 2001, and that efforts had been made to reduce
capacity, the Commission considers that capacity utilisation did not play a significant role either in
volume or prices.

(671) As to the impact of ongoing rationalisation efforts, the Commission likewise considers that the
impact on the cost structure of the Community producers is not significant, in particular by compar-
ison to the price effect of the low priced imports.

(672) The Commission noted that the decline in the Community producers' sales volume, sales prices and
profitability was due primarily to the increase in imports, which not only increased much faster than
the increase in consumption in 2001 but which had also increased during the fall in consumption in
2000.

7.6.7. Conclusion

(673)

It is concluded that, after having examined the injurious effects of the other known factors and sepa-
rated and distinguished them from each other and from the injurious effects of the increased
imports, and after having ensured that injury caused by other factors is not attributed to imports, it
can be considered that there is a genuine and substantial link between increased imports and serious
injury to the Community producers.

7.7. Further Developments

(674) The Commission has, in addition, analysed a number of elements which justify the conclusion that
the serious injury suffered by the Community producers could be expected to seriously worsen
should imports continue at their current level or increase.

7. 7. 1. Th e US ste e l safe g u ar d me a su r e s

(675)

It is recalled that on 5 March 2002, the US imposed safeguard measures against certain steel
products including flanges. Those measures came into effect on 20 March 2002, and consist of an
increase in duty on imports to the US of 13 % ad valorem in the first year, 10 % in the second year
and 7 % in the third year. The measures in reality not apply to Canada, Israel, Jordan and Mexico as
well as a number of countries specified as developing countries.

7. 7. 2. Tr a de di ve r si on ar i si ng fr om US ste e l safe g u a r d me a su r e s

(676) The Commission examined the likely impact of the US measures by analysing the situation of the

major exporting countries to the US.

(677)

In 2001, the US imported 96 900 tonnes of goods classified within the same HSC code as flanges.
The principal exporters to the US of these products were the Community (52,0 %/50 400 tonnes),
India (28,5 %/27 600 tonnes), and China (6,7 %/6 500 tonnes).

(678) Total exports to the US of these goods in 2001 from countries affected by the US safeguard
measures (excluding producers in the Community and in those countries excluded from the US safe-
guard measures insofar as it relates to flanges) amounted to 12 500 tonnes. Certain products
produced by certain suppliers have also been excluded from the US measures, but these quantities
are not considered to be significant in the case of flanges.

(679) The Commission then examined the likelihood that the restricted access to the US market as a result
of safeguard action taken by the US would lead to increased exports to the Community. The
Commission investigated the capacity situation of the cooperating exporting producers. It was found
that they had slightly increased their capacity between 1999 and 2001. None of the cooperating
exporting producers reported an intention to reduce their capacity in the immediate future and none
reported an intention to reduce their production in light of the US measures.

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(680) Most indicated their aim to make up for any reduction in their exports to the US by selling more on
their domestic markets but this claim was made within the context of static or falling consumption
in these markets. In this respect, it is very unlikely that these producers can increase sales signifi-
cantly on their domestic markets. Neither is it likely that they can increase sales to other export
markets as producers in most of these markets are already suffering from the substantial closure of
the US market and there is no indication that significant extra consumption will be available in these
markets in the short and medium term to permit increased imports.

(681) The potential trade which, in the absence of definitive measures, could be diverted to the Commu-
nity as a result of the US measures therefore amounts to 12 500 tonnes. There are reasons why this
potential may not be wholly realized, e.g. the current high levels prices of domestic prices in the US
which may result in a somewhat higher than expected level of imports despite the existence of 30 %
duties as well as the fact that third country producers may be able to partially offset the loss of the
US market by selling more on their domestic markets. This may be particularly true to a degree for
those countries which have taken protective measures to counteract the US safeguard action. Produ-
cers may also increase their stocks for a period of time.

(682) However, a very substantial potential for increased exports to the Community will still prevail. The
increase which took place in 2001 had many causes as already identified in the analysis of serious
injury and all of these still apply and can be expected to continue to push imports higher. Moreover,
there is now the new element of the US safeguard action which manifestly leaves a substantial
amount of production for which producers are under enormous pressure to find buyers for. In these
circumstances, it can reasonably be assumed that in the absence of definitive measures the very
minimum trade diversion that would occur would be between 25 % and 50 % of the amount calcu-
lated above (12 500 tonnes) could be diverted from the US market. In all likelihood, it would be
greater but it is considered prudent to base this analysis on a conservative basis.

(683)

It is also relevant that in 2001, the major export markets for flanges were the Community (96 800
tonnes) and the US (96 900 tonnes). This compares to Japan (40 300 tonnes), Canada (25 500
tonnes), Malaysia (13 600 tonnes) and South Korea (9 300 tonnes). This reflects that fact that the
Community was, and following recent measures, remains, one of the most open markets in the
world. The recent appreciation of the euro relative to the US dollar and other major currencies
increases the attractiveness of imports relative to Community production in the short and medium
term.

7.7.3. Proj ec ted e ffec ts of US me asure s

(684) The Commission has evaluated the possible impact on the Community producers of not imposing
definitive measures and the consequent trade diversion arising from the US safeguard measures. In
this respect, the Commission has found that in the absence of Community safeguard measures,
imports will inevitably rise substantially with the result that the state of the Community industry will
show a very serious and substantial decline. Given the extremely fragile state of the Community
producers any significant rise in imports would have extremely serious consequences. The expected
rise of between 3 000 and 6 000 tonnes would immediately lead to a further substantial reduction
in the sales of the Community producers and these reduced sales would very quickly lead to serious
negative consequences for the other indicators which identify the state of the industry.

(685) The projected increase in imports would substantially worsen the situation of the Community
industry in relation to all factors already examined when determining the existence of serious injury.
They would immediately lead to a further sharp fall in sales and prices, with consequent negative
effects on production,
increased losses with an immediate threat of plant
closures and redundancies. Increased pressure on prices would in particular be enormous and this at
a time when losses are currently running at an unsustainable –4,1 %. In fact, the overall negative
impact would be greatly magnified by the fact that Community producers are already suffering
serious injury from the increased imports of recent years.

increased unit costs,

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7.7.4. Conclusion

(686) Taking due account of the fact that the Community producers are already suffering serious injury, it
is reasonable to conclude that, without definitive safeguard measures, the likely increase of imports
would significantly aggravate the situation of the Community producers. Moreover, this situation
will be worsened by a significant fall in Community exports as a result of US measures.

Product 19

Flanges (continued)

SITUATION OF COMMUNITY PRODUCERS

1997

1998

1999

2000

2001

Capacity (tonnes)

263 000

238 000

233 000

230 000

220 000

Utilisation rate of capacity (%)

79 %

78 %

75 %

71 %

Opening stocks (tonnes)

19 346

26 685

31 607

31 123

73 %

30 032

Total production (tonnes)

208 218

185 520

174 412

162 581

160 818

5 126

6 748

4 756

3 441

1 205

193 643

176 244

169 180

160 955

157 602

Purchases (tonnes)

Total sales (tonnes)

Captive use (tonnes)

Closing stock (tonnes)

Sales volume outside the EU
(tonnes)

12 362

26 685

11 102

31 607

75 714

66 585

Sales volume in the EU (tonnes)

117 928

109 659

Unit prices of EU sales (EUR/
tonne)

Net profit/loss on EU sales (%)

Market share (%)

Employment (end of period)

Productivity (tonne/employee)

1 481

4,1 %

63 %

963

216

1 435

5,3 %

59 %

953

195

10 472

31 123

76 537

92 643

1 445

3,2 %

55 %

879

198

6 157

30 032

84 646

76 309

1 125

1,7 %

50 %

858

189

3 315

31 138

81 519

76 082

1 061

– 1,1 %

44 %

846

190

VOLUME, UNIT PRICES AND PROFITABILITY OF EU SALES ON A PER QUARTER BASIS

Q1 2001

Q2 2001

Q3 2001

Q4 2001

Q1 2002

Volume (in tonnes)

19 228

19 008

18 951

18 895

13 541

Unit prices (in Euro/tonne)

Profitability (in %)

1 064

0,0 %

1 078

1 066

1 036

978

– 0,9 %

– 1,3 %

– 2,2 %

– 4,1 %

Price undercutting in 2001 =

Price underselling in 2001 =

10,3 %

23,0 %

Data given above on the situation of the Community producers verified by sample check and on-
spot investigations of companies representing the following percentage of total Community produc-
tion:

63,5 %

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8. COMMUNITY INTEREST

8.1. Preliminary remarks

(687) The purpose of safeguard measures is to remedy serious injury which has occurred as a result of
unforeseen developments and prevent a further deterioration of the situation of the Community
producers of the product concerned. In addition to unforeseen developments, increased imports, and
serious injury, the Commission has examined whether any compelling economic reasons exist which
could lead to the conclusion that it is not in the Community interest to impose measures. For this
purpose, the impact of possible measures on all parties involved in the proceedings related to
products 1, 2, 3, 4, 5, 18 and 19 and the likely consequences of taking or not taking measures, were
considered on the basis of the evidence available.

8.2. Interest of the Community producers

(688) The Community producers of all 7 products are viable and competitive in normal market conditions.
During the period examined, many Community producers undertook important rationalisation and
restructuring projects in order to maintain their competitiveness in view of the globalisation of the
world steel market and of its customers markets. This activity of the Community producers at a
worldwide level demonstrates their adaptability and its viability. Such progress would clearly be put
at risk should further increases of imports at low prices not be prevented by the imposition of defini-
tive safeguard measures, and may even lead to a number of them ceasing their activities.

8.3. Interest of users and importers in the Community

(689)

In order to evaluate the impact on importers and users of taking or not taking measures, the
Commission sent questionnaires to the known importers and users of all 7 products on the Commu-
nity market. 7 responses were received from importers, but only 1 was received from users other
than those related to importers. On the spot investigations took place at the premises of 2 importers
of the product concerned.

(690) Some importers of the products concerned claimed that the imposition of measures would be unduly
disruptive, costly to administer and unnecessary. In their view, anti-dumping regulations already
provide adequate controls on disruptive surges in imports and further legislation would be an unwel-
come additional obstacle to free trade. Others cautiously welcomed the prospected measures on the
basis that they would bring stability to the market.

(691)

In addition, certain importers, who did not cooperate in the safeguard proceedings, sought to chal-
lenge the provisional safeguard measures on the basis that they were unjustified and would under-
mine the financial viability of their businesses. No evidence was produced in support of these claims
which, in light of the form of the measures proposed, appear implausible.

(692)

In this respect, it should be noted that the measures proposed consist of tariff quotas which reflect
higher than the traditional levels of imports. Furthermore, by increasing the quota, and reducing the
level of duty payable in excess of the quota, progressively throughout the duration of the definitive
measures, it is unlikely that users' and importers' interests will be unduly impaired, especially since it
is only beyond those tariff quotas that any additional duties become payable. Therefore, disadvan-
tages likely to be suffered by users and importers, if at all, are not considered such as to outweigh
the benefits expected to accrue to the Community producers as a consequence of the proposed
measures, which are the minimum necessary to prevent further deterioration in the situation of the
Community producers.

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9. FINAL CONSIDERATIONS

(693) Analysis of the findings of the investigations for the products specified in Annex 1 demonstrates that
the conditions for definitive safeguard measures are met and confirms the need for such measures in
order to remedy the serious injury suffered by the Community producers and prevent a further
dramatic increase in imports.

9.1. Form and level of safeguard measures

(694)

(695)

In order to keep the Community market open and ensure the availability of supply to meet any addi-
tional demand, it is appropriate to establish tariff quotas in excess of which an additional duty
requires to be paid so that even imports in excess of those quotas can still enter the Community,
albeit upon payment of an additional duty. In accordance with the relevant provisions of Community
legislation, which refer to the Community's obligations under Article XIX of the GATT and the
WTO Safeguards Agreement, these measures should be liberalised progressively during the period of
their validity.

In order to preserve traditional trade flows, such tariff quotas should be based on the volume of
imports during the last three years plus 10 %. It is considered that this limited increase is such as to
allow the Community producers to adjust whilst avoiding further deterioration in their situation. In
view of the obligation to liberalise the measures, and taking account of the moderate nature of the
measures, that amount should be increased by 5 % in each year following, during which the
measures are in force. In calculating the quota for any period, it must be recalled that the provisional
measures took effect on 29 March 2002, and form six months of the three year duration of the safe-
guard measures. Therefore, the quota for the period 29 September 2002 to 28 September 2003
should be the aggregate of (1) one half of the average volume of imports during the last three years
plus 10 % and (2) that sum plus 5 %; the quota for the period 29 September 2003 to 28 September
2004 should be (3) the quantity calculated at (2) and (4) that sum plus 5 %; and, the quota for the
period 29 September 2004 to 28 March 2005 should be (5) the sum calculated at (4).

(696) The additional duties should be fixed at a level which is consistent with the aim of preventing serious
injury to the Community producers, and the initial rate of duty should therefore be the level of the
underselling margins in 2001 (subject to a maximum of 26 %). The provisional measures have
shown that, in relation to the products concerned, 26 % is sufficient to prevent a rapid increase in
imports. In view of the obligation to liberalise the measures, the rate of duty should be decreased by
10 % in each year following during which the measures are in force. Therefore, taking account of
the fact that the provisional measures took effect on 29 March 2002, and form six months of the
three year duration of the safeguard measures, the rates of duty should be as follows. For the six
month period 29 September 2002 to 28 March 2003, the initial rate of duty should apply; for the
period 29 March 2003 to 28 March 2004, the rate of duty should be the initial rate less 10 %; and,
for the period 29 March 2004 to 28 March 2005, the rate of duty should be the rate for the imme-
diately preceding period less 10 %.

(697) The Commission considers that the tariff quotas imposed in relation to product numbers 2, 3, 4, 5,
18 and 19 should be allocated amongst those countries having a substantial interest in supplying
those products to the Community market. After consultation with all countries having such a
substantial interest, the Commission considers it appropriate to allocate a specific part of each quota
to each country having such a substantial interest, based on the proportions of the total quantity of
the product supplied by that country during a previous representative period (namely 1999 to
2001), due account having been taken of any special factors.

(698) However, the circumstances in relation to product number 1 (hot rolled coils) are different. Hot-
rolled coils are the most important product for steel producers, representing 38 % of the Community
production and 30 % of imports. A large number of supplying countries have a substantial interest
in supplying hot rolled coils so that, were the tariff quota to be allocated amongst those countries
having a substantial interest in its supply, there would be a large number of relatively small quota
allocations and only a small percentage (less than 7,5 %) of the global quota tariff quota would
remain available for exporters in other countries. The Commission considers that a higher percen-
tage should be made available to exporters in other countries in order to preserve their traditional
level of trade and maintain accessibility to the Community market for other potential suppliers.
Therefore, the Commission considers that the tariff quota in relation to hot rolled coils should take
the form of a single global quota.

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(699) The tariff rate quotas resulting from these safeguard measures apply to all countries. As far as the
quota allocation for Russia, Kazakhstan, and Ukraine is concerned, the Commission considers that,
due to a number of country specific elements, the quota allocation foreseen in the bi-lateral agree-
ments, and uni-lateral measures vis a vis Ukraine pending conclusion of an agreement for the
products subject to these agreements and measures, should be maintained. In particular, these
specific elements are that the steel industries in these three countries are still undergoing far-reaching
restructuring processes and still require considerable modernisation. This is a unique position that
cannot be compared in scope or depth to the situation in any other countries. In addition, these
three countries are already subject to severe quantitative restrictions which may not be exceeded,
and which have been in place for many years. These quantitative restrictions have always been set at
a level substantially below the countries' export potential, and the existence of such quantitative
restrictions have limited the opportunity for the countries to export to the Community. The
Commission considers that the quota allocations concerning these three countries, which are not
WTO members at present, gives them no more favourable treatment, for any of the products, than
other countries/WTO members.

(700)

In conformity with Community legislation and the international obligations of the Community, the
safeguard measures should not apply to any product originating in a developing country as long as
its share of imports of that product into the Community does not exceed 3 %.

(701) The determination made by the Commission on a product by product basis shows that certain of the
products in respect of which safeguard measures should be adopted originating in certain developing
countries, do not meet the requirements to benefit from the above mentioned derogation. For each
of the products concerned, the developing countries to which the measures apply should therefore
be specified. Annex 2 specifies the developing countries for the purposes of this Regulation; and, for
each of the products concerned, the developing countries to which the measures apply.

(702) Certain of the products concerned are subject to existing trade defence measures by the Community.
In the regulation imposing provisional measures, the Commission indicated that the combined effect
of the safeguard measures and anti-dumping/countervailing measures could lead to a level of protec-
tion higher than that which is necessary to prevent or remedy serious injury. On 30 August 2002,
the Commission published a notice (1) in relation to those products in respect of which there are
such existing trade defence measures. The Commission will examine the position expeditiously in
relation to those products.

9.2. Administration of the quotas

(703) The best way of ensuring optimal use of the tariff quotas is to allocate them in the chronological
order of the dates on which declarations for release for free circulation are accepted, as foreseen in
Commission Regulation (EEC) No 2454/93 of 2 July 1993 laying down provisions for the imple-
mentation of Council Regulation (EEC) No 2913/92 establishing the Community Customs Code (2).
Equal and continuous access to the quotas should be ensured for all Community importers.

(704) The eligibility of imported goods from developing countries to be excluded from the tariff quotas is
dependent on the origin of the goods. The eligibility of imported goods for a part of a tariff quota
allocated to a specific country, and for the remainder of a tariff quota, is also dependent on the
origin of the goods. The criteria for determining origin currently in force in the Community should
therefore be applied, and in order to ensure that the tariff quotas are administered efficiently, presen-
tation of a certificate of origin at the Community frontier should be required for imports of the
products concerned.

(1) OJ C 206, 30.8.2002, p. 7.
(2) OJ L 253, 11.10.1993, p. 1.

L 261/116

EN

Official Journal of the European Communities

28.9.2002

9.3. Duration

(705) The measures should last for three years (including the period of provisional measures), expiring on
28 March 2005. A tariff quota should be opened for the period 29 September 2002 to 28
September 2003; thereafter for the period 29 September 2003 to 28 September 2004 and thereafter
for the period 29 September 2004 to 28 March 2005 as specified in Annex 1 for each product. It is
recalled that the safeguard measures are imposed in the context of the effect of increased imports
caused by the US trade defence measures, culminating in the US safeguard measures. Should circum-
stances change, the Commission will re-examine the need for measures,

HAS ADOPTED THIS REGULATION:

Article 1

1.
A tariff quota is hereby opened in relation to imports into the Community of each of the 7 products
concerned (defined by reference to the CN codes specified in relation to it) and each of the periods specified
in Annex 1.

In relation to those products concerned other than hot rolled coils, the part of each tariff quota specified in
Annex 1 is allocated to the countries specified in that Annex.

The conventional rate of duty provided for these products in Council Regulation (EC) No 2658/87 (1),

2.
or any preferential rate of duty, shall continue to apply.

3.
Imports of those products which are in excess either of the volume of the relevant tariff quota speci-
fied in Annex 1 or of the volume of the part specified in relation to the country from which that product
originates (as the case may be), or without a request for benefit, shall be subject to an additional duty at the
rate specified in Annex 1 for that product and that period. That additional duty shall apply to the customs
value of the product being imported.

4.
During the period to which these measures apply, if the Commission considers that imports in any
month are substantially higher than imports in the corresponding month in 2001, the Commission may
review the form and/or level of these measures.

Article 2

The origin of any product to which this Regulation applies shall be determined in accordance with

1.
the provisions in force in the Community.

2.
Qualification for any tariff quota opened under Article 1, or for any part thereof, or for the exemp-
tion under Article 7 shall be subject to presentation of a certificate of origin meeting the conditions laid
down in Article 47 of Regulation (EEC) No 2454/93 (2).

3.
The certificate of origin referred to in paragraph 2 shall not be required for imports of products
covered by a proof of origin issued or made out in accordance with the relevant rules established in order
to qualify for preferential tariff measures.

Proof of origin shall be accepted only if the products meet the criteria for determining origin set out

4.
in the provisions in force in the Community.

(1) As last amended by Commission Regulation (EC) No 2031/2001.
(2) Regulation as last amended by Regulation (EC) No 444/2002 of 11 March 2002 (OJ L 68, 12.3.2002, p. 11).

28.9.2002

EN

Official Journal of the European Communities

L 261/117

Article 3

The tariff quotas shall be managed by the Commission and the Member States in accordance with the
management system for tariff quotas provided for in Articles 308a, 308b and 308c of Regulation (EEC) No
2454/93, as last amended by Regulation (EC) No 993/2001. However, for the purposes of Article 248 of
Regulation (EEC) No 2454/93, each tariff quota or part thereof (as the case may be) shall be considered to
be non-critical within the meaning of Article 308c of that Regulation until 75 % of the initial volume of
that tariff quota or part thereof (as the case may be) has been used. This provision may be adapted if the
Commission considers it desirable, as a result of experience gained during the period of validity of the
measures.

Article 4

Imports originating in Russia, Kazakhstan, and Ukraine are subject to this Regulation. The quantitative
restrictions for products covered by the bi-lateral agreements and uni-lateral Commission measures, will
remain entirely those set out in the following instruments:

— the Decision of the Representatives of the Governments of the Member States meeting within the
Council of 19 December 2001 on certain measures applicable with regard to Ukraine concerning trade
in certain steel products (1), as amended by Decision 2002/476/ECSC of 17 June 2002 (2) or an agree-
ment such as is referred to in Article 4 of the former Decision; or

— the Agreement referred to in Commission Decision 2002/654/ECSC on the conclusion of an Agreement
between the European Coal and Steel Community and the Government of the Republic of Kazakhstan
on trade in certain steel products (3); or

— the Agreement referred to in Commission Decision 2002/603/ECSC on the conclusion of an Agreement
between the European Coal and Steel Community and the Government of the Russian Federation on
trade in certain steel products (4).

Article 5

1.
Subject to paragraph (2), imports of the 7 products concerned originating in one of the developing
countries specified in Annex 2 shall not be subject, or allocated, to the tariff quotas, or subject to the addi-
tional duty specified in Annex 1.

For each of the 7 products concerned, Annex 2 specifies the developing countries to which the provi-

2.
sional measures apply.

Article 6

Any amounts paid in respect of additional duties imposed under Regulation (EC) No 560/2002 in relation
to the products specified in Annex 1 of this Regulation shall be definitively collected at the level fixed in
Annex 3 of Regulation (EC) No 560/2002.

The Member States and the Commission shall cooperate closely to ensure compliance with this Regulation.

Article 7

This Regulation shall be published in the Official Journal of the European Communities and enter into force on
the day following its publication. This Regulation shall apply until 28 March 2005.

Article 8

(1) OJ L 345, 29.12.2001, p. 75.
(2) OJ L 164, 22.6.2002, p. 37.
(3) OJ L 222, 19.8.2002, p. 19.
(4) OJ L 195, 24.7.2002, p. 54.

L 261/118

EN

Official Journal of the European Communities

28.9.2002

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

Done at Brussels, 27 September 2002.

For the Commission

Pascal LAMY

Member of the Commission

ANNEX 1

Tariff quotas referred to in Article 1

Product
number

Designation
of the product

CN codes

Allocation by
Country
(Where Applicable)

Volume of
tariff quota
(tonnes net) (1)

Additional duty rate

Volume of
tariff quota
(tonnes net) (1)

Additional duty rate

Volume of
tariff quota
(tonnes net) (1)

Additional
duty rate

Order
numbers

From 29.9.2002 to 28.9.2003

From 29.9.2003 to 28.9.2004

From 29.9.2004 to 28.3.2005

1

2

3

4

Quota

From
29.9.2002 to
28.3.2003

From
29.3.2003 to
28.9.2003

Quota

From
29.9.2003 to
28.3.2004

From
29.3.2004 to
28.9.2004

Quota

N/A

3 199 240

17,5 %

15,7 %

3 359 234

15,7 %

14,1 %

1 720 583

14,1 %

09.0410

Non Alloy Hot Rolled
Coils

7208 10 00, 7208 25 00,
7208 26 00, 7208 27 00,
7208 36 00, 7208 37 10,
7208 37 90, 7208 38 10,
7208 38 90, 7208 39 10,
7208 39 90

Non Alloy Hot Rolled 7208 40 10, 7208 40 90, Total of which
Sheets and Plates

7208 52 99, 7208 53 90,
7208 54 10, 7208 54 90

Slovakia
Poland
Hungary
Bulgaria
others

Non Alloy Hot Rolled 7211 14 10, 7211 14 90, Total of which
Narrow Strip

7211 19 20, 7211 19 90,
7212 60 11, 7212 60 19,
7212 60 91

Bulgaria
Slovakia
Switzerland
Czech Rep.
Turkey
others

Alloy Hot Rolled Flat 7225 19 10, 7225 30 00, Total of which
Products

Yugoslavia

7225 40 80, 7226 19 10,
7226 91 10, 7226 91 90,
7226 99 20

Romania

others

26,0 %

23,4 %

26,0 %

23,4 %

26,0 %

23,4 %

554 286
179 723
120 061
90 404
61 195
102 903

198 365
45 263
57 922
28 385
30 074
8 721
28 000

50 832
26 600

15 055

9 177

23,4 %

21,0 %

23,4 %

21,0 %

23,4 %

21,0 %

581 999
188 709
126 064
94 924
64 254
108 048

208 283
47 526
60 818
29 804
31 578
9 157
29 400

53 374
27 930

15 808

9 636

21,0 %

21,0 %

21,0 %

298 098
96 656
64 569
48 620
32 911
55 342

106 680
24 342
31 150
15 265
16 174
4 690
15 059

27 339
14 306

8 097

4 936

09.0430
09.0431
09.0432
09.0433
09.0434

09.0440
09.0441
09.0442
09.0443
09.0444
09.0445

09.0450

09.0451

09.0452

.

.

2
8
9
2
0
0
2

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
C
o
m
m
u
n
i
t
i
e
s

L

2
6
1
/
1
1
9

Product
number

Designation
of the product

CN codes

Allocation by
Country
(Where Applicable)

Volume of
tariff quota
(tonnes net) (1)

Additional duty rate

Volume of
tariff quota
(tonnes net) (1)

Additional duty rate

Volume of
tariff quota
(tonnes net) (1)

Additional
duty rate

Order
numbers

From 29.9.2002 to 28.9.2003

From 29.9.2003 to 28.9.2004

From 29.9.2004 to 28.3.2005

Quota

From
29.9.2002 to
28.3.2003

From
29.3.2003 to
28.9.2003

Quota

From
29.9.2003 to
28.3.2004

From
29.3.2004 to
28.9.2004

Quota

5

Cold Rolled Sheets

18

Fittings
(< 609,6 mm)

7209 15 00, 7209 16 90, Total of which
7209 17 90, 7209 18 91,
7209 25 00, 7209 26 90,
7209 27 90, 7209 28 90,
7209 90 10, 7209 90 90,
7225 20 90, 7225 50 00,
7211 23 10, 7211 23 99,
7211 29 20, 7211 29 50,
7211 29 90, 7211 90 11,
7211 90 19, 7211 90 90,
7212 60 93, 7212 60 99,
7226 92 10, 7226 92 90

Turkey
Slovakia
S. Korea
Bulgaria
Yugoslavia
Argentina
Hungary
S. Africa
others

2 107 210
333 175
347 363
161 809
126 105
94 582
158 055
104 735
83 767
697 619

7307 93 11, 7307 93 19 Total of which

26,0 %

23,4 %

23,7 %

21,3 %

23,0 %

20,7 %

2 212 571
349 833
364 731
169 900
132 410
99 311
165 958
109 972
87 956
732 500

12 632
1 906
1 246
797
1 117
1 188
2 175
618
741
495
513
417
1 419

95 014
26 705
26 234
19 647
6 413
16 015

23,4 %

21,0 %

21,3 %

19,2 %

20,7 %

18,6 %

21,0 %

19,2 %

18,6 %

1 133 269
179 183
186 814
87 022
67 820
50 867
85 003
56 327
45 050
375 183

6 469
976
638
408
572
608
1 114
317
379
254
263
213
727

48 666
13 678
13 437
10 063
3 285
8 203

09.0460
09.0461
09.0462
09.0463
09.0464
09.0465
09.0466
09.0467
09.0468

09.0470
09.0471
09.0472
09.0473
09.0474
09.0475
09.0476
09.0477
09.0478
09.0479
09.0480
09.0481

09.0490
09.0491
09.0492
09.0493
09.0494

Slovakia
Thailand
Vietnam
Russia
Malaysia
Taiwan
Romania
Czech Rep.
Poland
S. Korea
Switzerland
others

Total of which
China
Poland
Romania
Czech Rep.
others

12 031
1 815
1 186
759
1 064
1 131
2 071
589
706
472
489
397
1 352

90 490
25 434
24 985
18 711
6 107
15 253

19

Flanges
stainless steel)

(other

than 7307 91 00

(1) The tariff quotas do not apply to products originating in the developing countries listed in Annex 2, apart from those marked with an ‘X’

in relation to that product.

Note: Notwithstanding the rules for the interpretation of the combined nomenclature, the description of products is to be considered as indicative, the scope of the measures being determined by the CN codes.

L

2
6
1
/
1
2
0

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
C
o
m
m
u
n
i
t
i
e
s

.

.

2
8
9
2
0
0
2

28.9.2002

EN

Official Journal of the European Communities

L 261/121

ANNEX 2

List of products originating in developing countries to which the measures apply

1

2

3

4

5

18

19

AE

AF

AG

AO

AR

BB

BD

BF

BH

BI

BJ

BN

BO

BR

BS

BT

United Arab Emirates

Afghanistan

Antigua and Barbuda

Angola

Argentina

Barbados

Bangladesh

Burkina Faso

Bahrain

Burundi

Benin

Brunei Darussalam

Bolivia

Brazil

Bahamas

Bhutan

BW Botswana

BZ

CD

CF

CG

CI

CL

CM

CN

CO

CR

CU

CV

CY

DJ

DM

DO

DZ

EC

EG

ER

ET

FJ

FM

GA

GD

GH

GM

GN

Belize

Democratic Republic of Congo

Central African Republic

Congo

Côte d'Ivoire

Chile

Cameroon

People's Republic of China

Colombia

Costa Rica

Cuba

Cape Verde

Cyprus

Djibouti

Dominica

Dominican Republic

Algeria

Ecuador

Egypt

Eritrea

Ethiopia

Fiji

Federated States of Micronesia

Gabon

Grenada

Ghana

Gambia

Guinea

X

X

X

X

X

L 261/122

EN

Official Journal of the European Communities

28.9.2002

1

2

3

4

5

18

19

GQ

GT

Equatorial Guinea

Guatemala

GW Guinea-Bissau

GY

HN

Guyana

Honduras

Hong Kong

HT

Haiti

ID

IN

IQ

IR

JM

JO

KE

KH

KI

KM

KN

Indonesia

India

Iraq

Iran (Islamic Republic of)

X

Jamaica

Jordan

Kenya

Cambodia

Kiribati

Comoros

St Kitts and Nevis

KW Kuwait

LA

LB

LC

LK

LR

LS

LY

MA

MG

MH

ML

Lao People's Democratic Republic

Lebanon

St Lucia

Sri Lanka

Liberia

Lesotho

Libyan Arab Jamahiriya

X

Morocco

Madagascar

Marshall Islands

Mali

MM Myanmar

MN

MR

MU

MV

Mongolia

Mauritania

Mauritius

Maldives

MW Malawi

MX

MY

MZ

NA

NE

NG

NI

NP

NR

Mexico

Malaysia

Mozambique

Namibia

Niger

Nigeria

Nicaragua

Nepal

Nauru

OM

Oman

PA

PE

PG

Panama

Peru

Papua New Guinea

X

28.9.2002

EN

Official Journal of the European Communities

L 261/123

1

2

3

4

5

18

19

PH

PK

Philippines

Pakistan

PW Palau

PY

QA

Paraguay

Qatar

RW Rwanda

SA

SB

SC

SD

SL

SN

SO

SR

ST

SV

SY

SZ

TD

TG

TH

TN

TO

TP

TT

TV

TZ

UG

UY

VC

VE

VN

VU

WS

YE

ZA

ZM

Saudi Arabia

Solomon Islands

Seychelles

Sudan

Sierra Leone

Senegal

Somalia

Suriname

Sao Tomé and Principe

El Salvador

Syrian Arab Republic

Swaziland

Chad

Togo

Thailand

Tunisia

Tonga

East Timor

Trinidad and Tobago

Tuvalu

Tanzania (United Republic of)

Chinese Taipei

Uganda

Uruguay

St Vincent and Northern Grenadines

Venezuela

Viet Nam

Vanuatu

Samoa

Yemen

South Africa

Zambia

ZW Zimbabwe

X

X

X

X

X