Select Committee on Trade and Industry Fourth Report


State of steel industry
(a)The symptoms of the state of the UK steel industry are all too apparent. Some companies are trading at a loss. Levels of capital investment are reported to be disturbingly low. The workforce is shrinking. There is nothing to be gained from papering over the problems facing the UK steel industry, nor their wider significance for the UK manufacturing base (paragraph 4).
Erosion of home market and euro
(b)UK steel producers have seen their share of a declining home market steadily eroded: a trend which began before the recent difficulties caused by the weakness of the euro. Despite high productivity and a full product range, UK producers find themselves increasingly unable to compete with imported steel in simple price terms in the UK domestic market. The weakness of the euro has been one of the biggest obstacles confronting the UK steel industry in the short term. The euro has however strengthened in recent months (paragraphs 6, 7 and 10).
Capital investment
(c)We await with interest further announcements from Corus regarding the remaining £282 million investment. We urge Ministers and officials to go beyond the role of dispassionate observers and compilers of scorecards and, within the constraints of the European Commission's increasingly rigid interpretation of state aid and competition rules, to bring forward and implement measures to encourage and facilitate capital investment in key manufacturing sectors, including steel (paragraphs 13 and 15).
Logistic costs
(d) The logistic costs to UK industry of exporting deserve further examination, in the context of their impact on the competitiveness of UK exporters (paragraph 16).
(e)We recommend a Ministerial review of DTI's voting on anti-dumping cases, to ensure that the department is not pursuing a fixed departmental line at odds with national interests (paragraph 20).
Trade with USA
(f)None of this should discourage the Government from mounting at least as vigorous a defence of principles of free trade and transparency in dealing with the USA as is demonstrated within the relative privacy of the EU Anti-Dumping Committee, nor from lending its full weight within the EU to bringing US anti-dumping provisions in line with international norms (paragraph 22).
Energy costs: electricity
(g)Ministers must redouble their efforts to bring the industrial price of electricity in the UK to below the EU average, and together with Ofgem identify any structural failures which account for the dramatically higher prices for electricity paid by UK steel makers compared to their French, German and Benelux competitors (paragraph 24).
Energy costs: gas
(h)We welcome the referral to the European Commission of the recent sharp rise in the price of gas to UK industrial consumers to establish if it is a genuine market-driven phenomenon and not the result of anti-competitive practices, while regretting that such action was not taken earlier (paragraph 26).
Energy costs: Climate Change Levy
(i)As the introduction of the Climate Change Levy approaches, we recommend that the DTI commit itself to assist the principal sectors affected by the Levy to produce objective reports on its impact after the first year, including progress made towards energy efficiency and emissions reductions targets made by those sectors eligible for a rebate; the distribution of the associated energy efficiency package; and the take-up by sector of enhanced capital allowances for energy saving investments. We would hope that the impact of the Climate Change Levy will be less damaging than the steel and other manufacturing sectors have suggested to us in evidence over the past 18 months; and that the concerns we have expressed in past reports on the effects on recycling and on the price of industrial gases will eventually find some positive response (paragraph 29).
Review of redundancy law and practice
(j)In our recent Report on Vehicle Manufacturing in the UK, we welcomed the proposed terms of reference of the review of redundancy law and practice announced on 13 December 2000, subject to it going beyond "fine-tuning" of the law and practice of redundancy, and to it ruling nothing out, including primary legislation. We also called for the review to be conducted transparently and swiftly, and for the early publication of a date for the conclusion of the review. The Government's review of redundancy law and practice announced following the Vauxhall decision to bring car manufacture at Luton to an end must also explicitly cover the lessons of the recent Corus announcements (paragraph 32).
EU enlargement and steel
(k)If the steel industries in accession states are granted excessively long or wide derogations from EU state aid and environmental rules, a further element of unfair competition would be introduced into an already imperfect market. It is disappointing that so little progress seems to have been made over such a long period in obliging the accession states to go beyond mere expressions of intent to reform their steel industries. The Government must continue to exert its influence on the negotiations with the accession states to ensure that a genuine programme of restructuring of the protected steel industries of central and eastern Europe has begun prior to accession to the EU, and that any derogations granted are short and limited in scope. It is improbable that accession to the EU of any state would be ratified which had not put its act in order on its steel industry. The same applies to countries further east which may be contemplating application for membership of the EU (paragraphs 36 and 37).
Corus: consultation
(l)We regret that Corus felt unable to take Ministers more fully into their confidence in December while they were preparing the proposals announced on 1 February. We are not however convinced that there was much that Ministers could have done to help the process (paragraph 46).
Corus: remediation of contaminated sites
(m)A clear statement by Government of the legal and financial framework for remediation of steel-making sites, including the powers to enforce clean-up of a vacated site, would be helpful. We would also welcome the prompt publication by Corus of plans for their evacuation of redundant sites, and a proposed timetable for their remediation, so that they can be put to other uses as soon as possible, in consultation with the regional and local authorities (paragraph 51).
Corus: 1 February cuts
(n)Nothing we heard from Sir Brian Moffat has led us to believe that the cuts announced on 1 February are part of a long-term strategy for the company's survival, nor that there have been Government economic policies which could have produced a different short-term outcome (paragraph 52).
Corus: Workington and long rail
(o)Whether a good thing or not, the decision by Railtrack to seek longer rolled lengths of rail was scarcely a bolt from the blue. Bearing in mind the likely changes noted in the mid-1990s in the probable demand for long rail, we are surprised at the decision by British Steel not to invest in conversion of the Workington plant to long rolled rail in the 1990s, when it was making substantial profits. The purchase by Corus of the Hayange long rail plant in France in 1999, in response to Railtrack's express requirement for longer lengths of rolled rail, was the consequence of that earlier misjudgement, resulting in the company spending at least £83 million in acquiring a French plant rather than investing £50 million in the Workington facility (paragraphs 65 and 68).
Corus: Workington's future
(p)We urge Corus to consider making Workington the company centre of excellence in short rail and sleeper production for the domestic and international market. We also urge Railtrack to give proper weight to the advantages of having a viable domestic rail producer close at hand when considering its future policy on ordering (paragraph 71).

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