Select Committee on Trade and Industry Appendices to the Report


Memorandum submitted by the UK Steel Association

The UK Steel Association is the trade association for the UK steel industry. It represents 95 per cent of UK steel producing companies, together with a large number of downstream steel processors.


  Steel melting and hot rolling within the European Union is subject to the European Coal and Steel Community (ECSC) Treaty. (Downstream steel processors are subject to the normal EC Treaty.) The ECSC expires on 23 July 2002. At that point steelmakers will also fall within the scope of the EC Treaty.

  Trade relations with Turkey on ECSC steel products are covered by the ECSC/Turkey Free Trade Agreement of 1996. Like the wider EC/Turkey Customs Union, this provided for the phasing out of customs duties (achieved in respect of trade into the EU in 1999) and the elimination and prohibition of quantitative restrictions. The agreement provides for the possible imposition of safeguards specific to EU/Turkey trade flows in the event of trade disruption; and the creation of a Mixed Committee and through it an ECSC/Turkey Contact Group. The latter enables consultations between the Commission, Member State governments and the EU steel industry on the one hand, and the Turkish Government and industry on the other hand. This Group has provided a useful focus for attempts to resolve trade disputes, and the EU steel industry would wish to see it retained after the Free Trade Area (FTA) lapses on the ECSC's expiry in July 2002.

  The other major difference between the ECSC FTA and the Customs Unions relates to the state aid rules. Under the ECSC regime, Turkey is required to apply the ECSC Steel Aid Code to its own industry. The Steel Aid Code imposes tighter rules and disciplines on the steel industry than apply to manufacturing in general, by establishing a blanket ban on state aid in all forms, other than for a number of specified exemptions. Thus under the ECSC FTA, banned aids cannot be paid, even if they do not distort trade. Under the Customs Union however, aid is only prohibited insofar as it affects trade between the EU and Turkey. This regime is clearly weaker and, given the continuing state ownership of parts of the Turkish steel industry, potentially damaging to steelmakers in the UK and other EU countries.


  Steel production can in broad terms be categorised between flat products and long products. Flat products typically might be used in the automotive and white goods industries, whereas non-specialist long products (such as those produced by the Turkish industry) are used primarily in the construction industry and general manufacturing.

  The total capacity of the Turkish steel industry is about 18 million tonnes—marginally below that of the UK. Turkey has one producer of flat products (Erdemir) with a hot rolling capacity of 3 million tonnes. Erdemir is controlled by the Turkish Government with a 52 per cent shareholding. (Erdemir together with another semi-independent company, Borc"elik, also produces cold rolled flat products; while there are a number of independent companies making galvanised steel sheet.) The other 80 per cent of the Turkish industry comprises producers of long products, primarily for concrete reinforcement. Roughly 20 per cent of the long product capacity is state-owned.

  The Turkish steel industry therefore suffers from a structural imbalance: while it is currently a net importer of flat products, it has significant excess capacity for long products. The Turkish Government has a long-stated objective to correct this imbalance by increasing flat product capacity. This can only be achieved through investment in new rolling mills. It will be essential for the European Commission to monitor developments closely, and ensure that Government plans do not result in the use of state aid. The Turkish industry has exported large quantities of hot rolled and cold rolled flat products to the EU in the past, and any expansion of subsidised capacity would risk injuring the EU steel industry. Any such aid would not be permissible under the terms of the ECSC/Turkey FTA.


  The following table summarises steel trade flows between the UK and Turkey:
Thousand metric tonnes
UK ExportsUK Imports Balance
Flat products1
199844.774.9 ¸30.2
199925.225.3 ¸0.1
2000 (annual equivalent)238.1 19.5+18.6
Long products
199828.738.3 ¸9.6
199915.6245.3 ¸229.7
2000 (annual equivalent)27.6 180.3¸172.7
Further processed products
19982.4123.0 ¸120.6
19993.0118.8 ¸115.8
2000 (annual equivalent)22.7 160.8¸158.1
Total finished steel products
199875.8236.2 ¸160.4
199943.8389.4 ¸345.6
2000 (annual equivalent)248.4 360.6¸312.2

  Source: ISSB Ltd.


  1 Includes coated sheets.

  2 Based on January to July.

  Traditionally, the Turkish long products producers had disposed of their excess capacity in markets where there was a shortfall in local capacity—notably the Far East. However, demand in these markets collapsed in the wake of the 1997-98 financial and economic crises with the result that Turkish sales of long products into the EU surged, causing serious injury to EU domestic producers. In 1999 Eurofer (the European Steel Association) filed an anti-dumping complaint against Turkish steel rod used for making mesh for concrete reinforcement (known as recoil). This complaint was subsequently withdrawn following a drop in Turkish sales.

  However, at the same time Turkish sales of the other sort of steel used for concrete reinforcement (steel bars known as rebar) also surged. The UK market was particularly badly affected, with Turkish imports now taking nearly 30 per cent of the market. After consultations in the ECSC/Turkey Contact Group, the Turkish government indicated that sales would reduce to non-injurious levels. Unfortunately, while Turkish exports to the EU have shown an overall decline, the Turkish industry has continued to target the UK market, which has taken a disproportionate share of the EU total. One problem has been that the Turkish Government has been slow in approving new building standards, which has delayed post-earthquake reconstruction, which should otherwise have absorbed part of the structural over-capacity in rebar. The UK rebar market is extremely fragile, and there is no doubt that the injury being caused by the Turkish imports threatens to jeopardise the recovery strategy of the principal UK manufacturer of this product, ASW Holdings PLC. UK Steel has requested the Government to use the ECSC/Turkey Contact Group systems to try to resolve this problem.

  The growth in imports of further processed steel products shown in the above table relates to certain types of welded steel tube. It is believed that these tubes are being manufactured in Turkey using hot rolled flat products imported from Ukraine and Russia. Ukrainian and Russian sales of flat products into the EU are capped by quota agreements with the ECSC. Furthermore both countries' access to many other markets around the world has been blocked by anti-dumping duties. With Ukraine and Russia being in need of foreign exchange, and with few markets open to them, the Turkish tube producers are thus able to procure Ukrainian and Russian material at extremely low prices. This in turn means that the Turkish steel tube sales into the EU can be made at seriously disruptive prices. The European Steel Tube Association is evaluating possible anti-dumping cases against two categories of welded tube (general purpose round tubes and rectangular hollow sections), where the Turks have taken 18 per cent and 30 per cent respectively of the UK market.


  UK Steel's policies with regard to Turkey's future access to the EU are the same as for the other candidate countries (although we recognise that for political reasons Turkey is unlikely to be in the first wave of new entrants). In order to avoid competitive distortions after accession, it is vital that Turkey should have both adopted and implemented the acquis communautaire in full prior to accession. This relates in particular to state involvement in the restructuring of the industry (which could potentially involve state aid) and to compliance with EU environmental and health and safety standards. Environmental compliance is a major and growing cost for EU steel producers. (We estimate it costs the UK steel industry alone some £250 million a year—and that is without counting the Climate Change Levy which will impose a direct tax burden on UK steel producers.) To allow new entrants to the Community to have temporary derogations from EU standards would place the existing EU companies at a serious competitive disadvantage.


  UK Steel seeks support for the following policies and measures:

    —  The Commission should monitor closely Turkish compliance with the state aid provisions of the ECSC/Turkey Free Trade Agreement, particularly in the context of any restructuring of the Turkish industry.

    —  The ECSC Contact Group system should be maintained after the ECSC's expiry, and extended to cover all steel products.

    —  The Government should use the ECSC Contact Group to persuade the Turkish Government to secure a reduction in their rebar exports to non-injurious levels. If this fails, the Government should support anti-dumping action against these imports.

    —  The Government should support anti-dumping measures against imports of Turkish tubes.

    —  The Commission and government must ensure that Turkey is in full compliance with the acquis communautaire (including the environmental acquis) prior to EU accession.

29 September 2000

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