Opinion of the European Economic and Social Committee on ‘The repercussions of trade policy on industrial change, with special reference to the steel sector’
Date: 2004-04-29
Institutions: European Economic and Social Committee
Subjects: common commercial policy, industrial restructuring, international competition, iron and steel industry, market access, steel, trade restriction

C 117/58

EN

Official Journal of the European Union

30.4.2004

Opinion of the European Economic and Social Committee on ‘The repercussions of trade policy
on industrial change, with special reference to the steel sector’

(2004/C 117/15)

On 17 July 2003 the European Economic and Social Committee, acting under Rule 29(2) of its Rules of
Procedure, decided to draw up an own-initiative opinion on ‘The repercussions of trade policy on industrial
change, with special reference to the steel sector.’

The Consultative Commission on Industrial Change was instructed to prepare the Committee's work on the
subject.

At its 408th plenary session of 28 and 29 April 2004 (meeting of 29 April 2004), the European Economic
and Social Committee decided to appoint Mr Lagerholm as rapporteur-general and adopted the following
opinion by 46 votes in favour, 16 against and 8 abstentions.

1.

Introduction. Aim and scope of the opinion; defini-
tions

cies but only the interdependencies between the steel sector
and (external) trade policy.

1.1
The steel sector, its process of continuous change and
the impact of trade policy on that process, presents a case
study of great value to other industrial sectors.

For the purpose of

this own-initiative opinion,

‘steel
1.2
sector’ is defined as the total of industrial activities related to
steel production and steel distribution taking into account their
important functions for the European steel-consuming indus-
tries. The scope of this opinion and the recommendations it
contains therefore go well beyond the steel-making industry
only.

In this context it also has to be understood that the EU
1.6
enlargement process is no longer an EU trade policy issue,
which it has been to a considerable extent in the early phases
of the accession negotiations with the then candidate countries.
There will be a single enlarged common market by May this
year leading to the conclusion that any further EU policies
industrial change and especially with the
meant
to assist
restructuring of
the steel sector in the acceding countries,
which is still necessary, are part of the internal EU policy
framework.

In this document, ‘industrial change’ is meant to be the
1.3
normal and continuous process of an industrial sector pro-
actively responding to the dynamic movements in its business
environment in order to remain competitive and create growth
opportunities. Rather than being an objective of that process,
changes to the structure of the sector are understood as a result
of the response to these movements. ‘Restructuring’ refers to a
particular form of industrial change and regularly is an ad hoc
process of (often enforced) adaptation to the conditions in the
business environment
to regain competitiveness,
leading to discontinuities in business activities. Restructuring
has as its prime objective a fundamental change of structures in
that industrial sector.

in order

1.4
It is obvious that industrial change is largely driven by
structural changes in the overall economic environment, espe-
cially by the dynamic change of market needs. Also internal
(national and/or EU) policies of very different nature – i.e. legal,
monetary, environmental, energy and last but not least, social –
have a significant impact on industrial change, sometimes a
decisive one. This of course can be very clearly observed moni-
toring the industrial change in the EU steel sector in the past
20 years. But this opinion only deals with EU trade policy,
which by definition is an external element and sets the political
framework for trade flows between the EU and other countries
or economic regions of the world.

1.5
Consequently it has to be kept in mind that this opinion
does not have as its aim to describe industrial change in the EU
steel sector including all of the above-mentioned (internal) poli-

2. Significance of trade policy in the steel sector

2.1
Companies compete in an increasingly global economy
and the business conditions they face in the world market are
key determinants of their competitiveness and growth opportu-
nities. To a great degree,
these conditions depend on the
market framework put in place by policymakers: e.g. competi-
tion and internal market rules,
international trade rules and
specific rules and agreements on trade disciplines. This frame-
work results from trade policies at both national and interna-
tional levels. Ideally, it should stimulate and facilitate a perma-
nent process of industrial change which reflects the dynamics
of the global economy. It should certainly not have a negative
influence on industrial change and hinder free and fair interna-
tional competition. Indeed, trade policy should have as its main
objective to secure the openness of the world trading system as
well as to enforce ‘fair play’ on a level playing-field.

framework given that

2.2
In this context it has to be pointed out that trade policy
is an extremely important aspect of the European Union's poli-
the EU is an export-oriented
tical
economy showing considerable surplus results in its trade
balance. Consequently trade policy is an important driving
factor for economic growth. The existence of a Commissioner
and the DG Trade within the European Commission fully
reflects the vital interest of the Community in the management
of trade policy. The Lisbon Strategy to support the competitive-
ness of European economy certainly looks at the enhancement
of internal parameters in the first place; but the success of such

30.4.2004

EN

Official Journal of the European Union

C 117/59

efforts will largely show only in global markets which of course
can only be reached by relevant and equally successful trade
policy development.

3.

Industrial change in EU steel production and trade
policy

steel

2.3
In the steel sector, the significance of trade policy is
extremely high. Steel, together with oil, is the most commonly
traded industrial product between nations. Today, approxi-
mately one third of
total world steel production is traded
across borders: almost double the figure of thirty years ago.
Conditions applying to international
trade therefore
present one of the most important factors for competitiveness
in this sector. Similar observations can be made regarding the
almost unlimited variety of steel consuming industries and their
products – i.e. the automotive sector, shipbuilding and mechan-
ical equipment. Trade policy directly affects how the steel
sector with its different segments can respond to competition
on its own domestic markets and how it can access third
country markets. Trade policy is instrumental in shaping the
rules-based system within which world trade operates and the
extent to which it can respond to structural changes in its busi-
ness environment.

2.4
The importance of international steel trade is reflected in
the fact that more than 40 % of current WTO conflict cases are
steel related. That figure reflects the continuing challenges of
the sector in terms of the existence of inefficient capacities,
often funded by state aid, which constitute a distorting influ-
ence on trade flows and it tells us that there exist fundamental
in the application of existing agreements on rules
flaws
governing international trade by WTO members.

2.5
Finally, it has to be kept in mind that the EU steel sector
constitutes an essential element of the European economy and
contributes significantly to economic development. Steel is the
fundamental and still most important industrial material with a
global market volume of more than an estimated EUR 350
billion – more than ten times the market volume of any other
industrial material – and essential for infrastructure develop-
ment as well as for most of the different manufacturing sectors.
A very efficient EU steel production is able to fulfil any market
needs the important steel consuming sectors may develop,
largely helped by equally efficient steel distribution systems
which organise about two thirds of the market supply and
render ever increasing services to steel consumption. Without
its own highly competitive steel production the Community
could not rely on its own resources and own know-how to
develop still further the competitiveness of EU steel consuming
industries among the world's leaders. Maintaining a vibrant
steel sector should therefore be of major political concern to
the EU.

3.1
Steel production in the EU-15 has undertaken extensive
restructuring efforts since the early eighties: a reduction of 50
million tonnes of market-effective steel making capacity, the
closure of more than 50 % of its production sites and the
reduction of the number of employees in the steel-making
industry from 900,000 to 250,000. The EU-15 is the second
largest steel producer in the world after China, producing
about 160 million tons of crude steel per year, representing
approximately 20 % of world steel output. Its turnover is calcu-
lated at about EUR 80 billion.

3.2
Today, European steel production (EU-15) is among the
best, worldwide, in terms of manufacturing skills, equipment
performance, product quality, distribution and service activities
and innovative capacity. It is characterised by the co-existence
of a few very large and truly global players, a number of
smaller and specialised producers and numerous highly efficient
distributors and service centres. The painful process of restruc-
turing in the eighties and first half of the nineties, followed by
a process of privatisation and consolidation, has resulted in a
modern and competitive sector which could rightfully feel
its future and its capacity to successfully
confident about
respond to the challenge of continuous change under free and
fair trade conditions.

3.3
Indeed, in a market truly subject to the rules of free and
fair competition, EU-15 steel production would even be more
competitive than it is today. However, the international compe-
titiveness of EU steel production is seriously threatened by
protectionist measures and market distorting practices in third
countries such as the S. 201 safeguard measures taken by the
US government, which were ruled not to be in conformity with
WTO rules by WTO panels. Also, non-viable excess capacities
worldwide continue to destabilise the balance between supply
and demand and thus steel prices – especially in poor global
market situations.

3.4
In the extensive restructuring of the steel production in
Europe in the 1980s and 1990s, trade policy played a key role.
In response to the increase of third country imports and based
on the European Coal and Steel Community (ECSC) treaty, the
European Commission initiated its ‘Volet Externe’: a series of
measures for peripheral protection which consisted essentially
of bilateral agreements with the main steel exporting countries
to voluntarily restrain their deliveries to the Community and
which complemented the internal measures taken to control
state aid, assist restructuring and for a time regulate the market.
The measures stayed in force throughout the crisis period and
maintained imports at around 10 % of apparent consumption.

C 117/60

EN

Official Journal of the European Union

30.4.2004

Steel production in the new member states of the EU as
3.5
of May 2004 is still
in a process of structural change, key
elements of that change process being cutting of non-viable
excess capacities, bringing steel-making technologies up to
modern standards, enhancing economic and market synergies
through consolidation efforts and making the paradigm shift
from a production-oriented approach to one which is market-
oriented and based on customer oriented entrepreneurship. The
EU-15 supported this process through a series of bilateral
agreements with the candidate countries in the years before
accession,
implementing the EU rules based on the ECSC
instruments. These regulations went as far as giving the Euro-
pean Commission the right of control and approval of national
restructuring plans.

As a result, EU steel production in the enlarged Union
3.6
will present itself in a different form on the world market. On
one hand its position will be strengthened by the accession of
the new member countries and the Union again becoming a
more important net exporter of steel. On the other hand, the
structures of EU steel production will be weakened by the sheer
fact that steel undertakings in these countries are still
in a
process of restructuring. Trade policies will have to take the
above circumstances into account, albeit within a rules-based
system.

— As compared to other industrial sectors, steel is still highly
fragmented on a world scale; the process of consolidation
has taken place solely in few regions such as the EU. It is,
however, to be expected that in the coming years steel
firms will increasingly be looking for cross-regional mergers
and alliances, following the process of globalisation and
consolidation in their industrial markets. Multilateral trade
agreements should take account of that dynamic move-
ment, lifting barriers to foreign investment as well as to in-
company trade.

— In a global economy, the concept of ‘home market’ no
longer exists. Already a large number of steel producing
and distributing companies have operations
in other
regions and approach customers in these regions as an ‘on-
shore’ supplier. Future trade policies will not only have to
take into account this trend towards internationalisation,
but will also have to encounter other dynamics of this
industry with new steel producing regions looking for a
position on the world steel planet. Many steel firms located
in developing countries are already modern and competitive
and their preferential treatment in the world trade system
therefore cannot be justified.

4. Future challenges for trade policy and industrial change

Today, European steel production seems considerably vulner-
able to policies and practices that breach trade disciplines. The
European market for steel
is the most open in the world.
Following the zero-for-zero agreement on steel in the Uruguay
round, tariff rates for imports of steel in the EU are eliminated
in 2004. Imports of steel in Europe have grown very fast in
recent years, rising from 14.5 million tonnes in 1997 to 24.6
million tonnes in 2002 - a 70 % increase - and turning the EU,
which had been a net exporter for decades, into a net importer
of steel in 1998. (In 2003 exports were again slightly larger
than imports.)

From here on, looking into the future, a number of challenges
can be identified that set the context of trade policy in relation
to ongoing changes in the steel sector in the coming few years:

— The former CIS countries Russia, Ukraine and Kazakhstan –
which are not WTO members - represent a region where
EU trade policy is still steel-specific given the bilateral
agreements regulating trade in steel products with these
countries. These agreements represent a mature and prag-
matic response to the challenges presented by these econo-
mies in transition: permitting a controlled development of
trade and avoiding trade surges and an anti-dumping reac-
tion during a period in which the industries of these coun-
tries are adjusting their capacities and developing their
internal consumption. The possible accession of Russia to
the WTO is another very important element for the EU
steel industry.

5. The EESC's comments on key trade policy issues in the

steel sector

Given its present position and the future challenges it faces, the
EU steel sector, in order to successfully respond to the dynamic
movements in its business environment, will want to see the
same openness and fairness in steel markets around the world
as is the case for third country imports into the EU. Despite the
negative outcome of
the WTO meeting in Cancun in
September 2003, the Doha Round still provides an opportunity
to make significant progress in unrestricted market access
It also permits discussions on
between WTO members.
improvements to existing rules,
fine-tuning and reinforcing
existing disciplines, notably anti-dumping. In a wider perspec-
tive, an effective launch of negotiations on the so-called Singa-
pore issues, such as trade facilitation and trade and competi-
tion, would bring real benefits to the steel sector in Europe and
indeed world-wide.

Without totally excluding the possibility of improving market
access through a bilateral or regional approach with those
regions or countries with which the EU has the greatest
economic interest in terms of trade, the interests of the EU steel
sector are served best in a multilateral trade system (WTO).
This should be based on rules that are consistently transposed
into national law by all countries and provides for instruments
that are applied objectively with no political interference and
implemented on an equal basis by all countries. Given the steel
related trade policies and practices of certain countries in the
past years, the efforts of the EU should focus strongly on the
following points:

— priority to improving market access and removing barriers

to trade;

30.4.2004

EN

Official Journal of the European Union

C 117/61

— stronger rules on fair trade: anti-dumping, subsidies, safe-

5.2 Anti-dumping

guards;

— targeted and responsible use of WTO instruments: speedy,
measured and proportionate redress only for combating
unfair imports;

— above all: ending the abuse of trade instruments for nation-
alist and protectionist reasons, judging trade cases on their
economic/technical rather than on their political merits;

5.2.1
Anti-dumping measures are still necessary to defend
the European industry against unfair trade practices but the
operation of anti-dumping instruments must be impartial and
non-discriminatory, the rules being applied to all equally and
without exception unless especially provided by WTO rules.
For that, discussions should be pursued to achieve a greater
harmonisation of the implementation of the existing WTO
agreement on anti-dumping, preferably towards EU ant-
dumping standards.

— widely differing social and environmental standards in
different parts of the world affect trade flows not only in
steel but in many other sectors as well. The differences
between economic regions regarding conditions to guar-
antee fundamental social rights and the protection of the
environment lead to economic distortions in world-wide
competition and have to be considered as problems not
only of the industrial sectors involved but of all policy-
makers
important
including trade policy.The most
elements of these basic statements can be further evaluated
taking into account the following aspects.

-

5.1 Market access

5.1.1
As stated above, the European market for steel is the
most open in the world and European steel production is
considerably vulnerable to policies and practices that breach
trade disciplines. Consequently the European steel sector needs
to see the same openness in markets around the world. Both
European and multilateral trade policy instruments need there-
fore to remain mobilised with a view to removing obstacles to
market access in third countries while providing effective reme-
dies to unfair trade practices by those third countries accessing
the EU steel market. The effective use of trade policy instru-
ments is a legitimate interest of the steel industry.

5.2.2
Important objectives for a harmonised application and
the anti-dumping agreement should focus,
strengthening of
above all, as the efficiency and effectiveness of the instrument:
fair and expeditious timetables, early provisional determination
of injury, mandatory adoption of the so-called ‘lesser duty’ rule,
just to mention the most important.

5.2.3
If the main objective of an world-wide adaptation of
EU standards regarding anti-dumping procedures cannot be
achieved, the EU should optimise its own anti-dumping appli-
cation, enhancing its effectiveness, efficiency, transparency and
objectivity. The European steel sector must be enabled to fight
effectively against dumped or subsidised imports from third
countries. EU legislation on anti-dumping and anti-subsidy
procedures is considerably more liberally organised than laid
down by the WTO or is the case in other countries, notably
the USA. This is true for example for the ‘Community interest’
clause and the ‘lesser duty’ rule. Practical implementation in the
EU also exhibits weaknesses in comparison with other coun-
tries, the European Commission refusing to open proceedings
to react to threat of injury, instead demanding proof of injury
that has already occurred. Also, the Commission makes use of
the maximum time periods for investigation in EU rules,
leading to further delays. Finally, the EU needs of more rapid
and effective monitoring of trade flows. These and other short-
comings should be corrected

through tariff

in market access

The priority of the EU is that the Doha Round delivers
5.1.2
reductions
effective gains
accompanied by the simultaneous elimination of non-tariff
barriers. As to the special and differential treatment (SDT) for
developing countries, SDT should apply only on a case by case
basis and distinguish between countries and sectors, according
to their level of competitiveness. SDT in itself should not
prevent tariff elimination by those developing countries with
highly competitive steel industries.

5.1.3
Effective market access gains will only be achieved if
tariff reductions are accompanied by the elimination of non-
tariff barriers. Furthermore, the application of existing WTO
rules can constitute a barrier to market access. The Doha
Round provides an opportunity for governments to clarify
existing rules and to harmonise their application on the basis
of best practice.

5.3 Subsidies

5.3.1
Subsidies are discussed within the Doha Round as well
as within the OECD, the latter having as its main objective the
conclusion of a specific steel subsidies agreement (SSA). The
pending OECD discussions are of extreme importance. An
international agreement on a general prohibition of any kind of
(direct or indirect) state aid for steel undertakings, with only a
very limited number of green-lighted exemptions, would have a
very strong positive impact on trade relations between coun-
tries.
the agreement on subsidies should above all
address the root causes of steel trade disputes: subsidised excess
and inefficient production capacities. These inefficient capaci-
ties intensify the trade problems of the industry, pressing more
material than can be absorbed on international markets and
certainly on the most open markets such as the EU.

Indeed,

C 117/62

EN

Official Journal of the European Union

30.4.2004

5.3.2
The cornerstone of a new international agreement
should be the prohibition of all specific subsidies but for a
limited set of exemptions as they were foreseen in the Euro-
pean Steel Aid Code, the most important being subsidies for
permanent closures including state aid to help with social
consequences. All generic subsidies should be allowed, with the
exception of those that contribute to the creation of new capa-
city or the maintaining in activity of uneconomic capacity.
Special and differential treatment (SDT) can be envisaged for
developing countries respectively for steel sectors facing the
need to restructure. Temporary derogations for these countries
and sectors should be conditioned by the long-term viability of
the beneficiaries and to a reduction of capacity commensurate
with the amount of subsidies received.

should be managed so as to anticipate developments and avoid
abrupt deterioration and structural damage with unacceptable
social consequences.

6. EESC conclusions

Considering the findings of this own initiative opinion on the
repercussions of trade policy on industrial change, with special
reference to the steel sector, the EESC reaches the following
conclusions:

5.3.3 Negotiations should further aim to establish more
effective (pre-)notification rules to strengthen a preventive
approach and to establish a dissuasive system of sanctions,
including the incorporation of automatic sanctions in case of
violation of the obligation to pre-notify.

The EU steel sector has a vital and strategic interest for
6.1
the European Union given the competitive technological
knowledge base on which it is built and its strategic importance
for the development of infrastructure within the EU and for
most manufacturing sectors.

5.3.4 However,
taking into consideration the number of
participants and their until now widely divergent positions,
there are strong concerns that the OECD negotiations will end
up in a compromise ‘window dressing’ agreement and will not
really improve on the current disciplines. Such an agreement
should not be supported by the EU.

5.4 Trade policy, industrial change and the social dimension

5.4.1
The restructuring of the European steel sector in the
eighties and early nineties had dramatic consequences for
employment. Trade policy instruments used by the European
Commission during that episode were used to support the
restructuring process. Then and now social and employment
policies have a role to play in ensuring that the promotion of
competitiveness and growth is part of the balanced implemen-
tation of trade policies in the context of industrial change
processes. By constantly upgrading the skills of workers and
the quality of work, they greatly contribute to a smooth and
successful process of industrial change, serving the interests of
all stakeholders.

Also,

5.4.2
the increasing demand for corporate social
responsibility may ultimately make a positive contribution to
the competitiveness of the European steel sector in the context
of the European Social and Economic Model.

5.4.3 Workers' interests are best met by an industry that can
firmly stand on its own feet and has no need to hide behind
the back of national governments to protect itself against fierce
but fair competition. Steady employment, good labour condi-
tions, sound future perspectives: the winds of free and fair
trade can only help to achieve these goals. Finally, the steel
sector today understands that its process of industrial change

6.2
Industrial change in the EU steel sector has been effec-
tively enhanced by the use of the ECSC instruments in the
restructuring process - not least by the social dialogue that has
been an integrated part of that process. While this was not able
to prevent the restructuring process having profound repercus-
sions for employment, compared with other sectors the impact
was substantially alleviated by diverse social measures. Trade
policy, the subject of this opinion, has, together with trade
policy measures undertaken to support other
instruments,
played an important role in this restructuring process. The EU
steel sector therefore may well serve as a case study on the
implications of industrial change as well as the repercussions of
trade policy on the potential success of change management
and may provide lessons to be learnt
for other industrial
sectors.

6.3
Trade policy is an essential part of the market framework
put in place by policymakers and has to ensure a level playing
field and fair play on that field, on which the competitiveness
and future growth opportunities of the sector largely depend.

6.4
In the EU steel sector there are considerable interdepen-
dencies between industrial changes designed to maintain
existing, achieve missing or regain lost competitiveness and
trade policy strategies designed to ensure the necessary success
of change management in both domestic as well as in interna-
tional markets. As a result, the EESC makes the following
trade policy to help with industrial
recommendations for
change in the future:

— being an export-oriented economy, the European Union
should continue a general policy of open market access,
provided that common rules of fair trade are respected;

— the European Union should initiate and improve the devel-
the
subsidies agreement but not endanger

trade regulations

opment of multilateral
intended steel
existing high EU standards;

such as

30.4.2004

EN

Official Journal of the European Union

C 117/63

— the European Union should continue to conclude bilateral
agreements with important trading partners as far as multi-
lateral regulations do not yet cover Community interests;

— in all cases of unfair trade practices the European Union
should make effective use of existing trade defence instru-
ments and support the use of the WTO dispute-settlement
rules.

Brussels, 29 April 2004.

The President

of the European Economic and Social Committee

Roger BRIESCH