China Notifies Results of Steel Safeguards Consultations with EU

In late June, the European Commission provided notice that it would be extending for three additional years the safeguard measure in place on imports of certain steel products. In response to this extension, China requested consultations under Article 12.3 of the Safeguards Agreement. China and the EU held consultations on August 18 and 26, and China just recently notified the results -- ultimately no agreement was reached -- of these consultations to the WTO's Council for Trade in Goods, pursuant to Article 12.5 of the Agreement.

As background, the Commission explained the decision to extend the safeguard measure as follows. It said that "[t]he initial safeguard measure was introduced in July 2018 to protect the Union steel market against trade diversion, following the US decision to impose, under its Section 232 legislation, duties on imports of steel into the US market." It then stated, "[i]n accordance with the requirements under EU and WTO rules, the Commission found in its investigation that the safeguard measure continues to be necessary to prevent or remedy serious injury to the EU steel industry, and that the EU industry is adjusting to a market situation in the EU with higher level of imports." It also noted that "[t]he Commission will also initiate a review if the US introduces significant changes to its ‘Section 232’ measure on steel," which is something under negotiation at the moment.

During the consultations, China made the following points:

• "The EU safeguard measure is inconsistent with the WTO rules. There are problems in the analysis of key elements of the safeguard measure, such as import increase, injury, and 'unforeseen developments'. Moreover, the EU's decision to extend the safeguard measure lacks factual and legal basis. It failed to demonstrate that the safeguard measure continues to be necessary to prevent or remedy serious injury and that the domestic industry is adjusting." China also noted that: "In the spirit of maintaining global fair trade and promoting the healthy development of steel trade, several steel-producing countries such as China have elected not to initiate steel safeguard investigations in response to the United States Section 232 tariff measures."
• "Long-term trade remedy protection has led to structural imbalances in the EU steel market. EU steel companies have been allowed to maintain high market shares and product prices, continuously gaining market shares from the imported products and forming oligopolistic structures in many market segments. At the same time, the EU downstream demand is not effectively met due to the impact of both high prices and unstable supply."

As part of the consultations, China also submitted to the EU "its calculation of adverse effects and requested compensation thereof under Article 8.1 of the [Safeguards Agreement]." However, "[n]o agreement was reached in terms of the calculation of adverse effects or the adequate means of compensation under Article 8.1."

China did not indicate what actions it would take now, but did say that it "reserves all its rights under the Agreement Establishing the World Trade Organization and its Annexes, including the Agreement on Safeguards and the Understanding on Rules and Procedures Governing the Settlement of Disputes." Two possibilities in this regard are that China could suspend the application of substantially equivalent concessions or other obligations under GATT 1994 pursuant to Article 8 of the Safeguards Agreement, or file a complaint under the DSU.