Select Committee on European Scrutiny Thirty-Sixth Report



13. US DUTIES ON STEEL PRODUCTS: COMMUNITY RESPONSE

 

 

(a)

(23541)

COM(02) 285

 

Draft Council Regulation establishing additional customs duties on imports of certain products originating in the United States of America.

(b)

(23558)

8220/02

COM(02) 316

 

Amended draft Council Regulation establishing additional customs duties on imports of certain products originating in the United States of America.

Legal base:

Article 133 EC; qualified majority voting

   

Document originated:

(a) 31 May 2002

(b) 6 June 2002

Deposited in Parliament:

(a) 11 June 2002

(b) 13 June 2002

Department:

Trade and Industry

Basis of consideration:

Minister's letter of 7 June 2002 and EM of 28 June 2002

Previous Committee Report:

None; but see (23048) 8219/02 HC 152-xxxi (2001-02), paragraph 7 (22 May 2002).

Discussed in Council:

10 June 2002

Committee's assessment:

Politically important

Committee's decision:

Cleared

 

Background

    1. On 5 March 2002, the United States imposed, with effect from 20 March, a safeguard measure on a wide range of steel products, in the form of tariff quotas and additional duties. According to the Commission, the Community is among those exporting interests most hit by these measures, which it says are causing considerable injury to the producers concerned. The Commission also considers that the steps taken by the US substantially disturb the balance of concessions and obligations resulting from the World Trade Organisation (WTO) Agreement, and will significantly limit Community exports to the US of the products concerned.
    2. It has consequently initiated the WTO dispute settlement procedures by requesting consultations, and has said that, as the Community and the US have failed to agree any adequate means of compensation, the Community has the right to adopt re-balancing measures against the US, up to the level of the adverse trade effect caused by the American safeguard measures.
    3. On 19 April 2002, the Commission proposed[44] the measures which it considered the Community should take, comprising additional duties on imports of a selected range of manufactured products of US origin on which it is not substantially dependent, but which are likely to have an impact on the US equivalent to that of the US measures on the Community. Some of the Community's measures (covering principally, but not exclusively, US steel exports) would apply within 90 days, to reflect the extent to which the US measures are not based on an absolute increase in imports: the others would apply only after 20 March 2005, or after the WTO Dispute Settlement Body has ruled against the US measures, and to the extent that the latter still remained in place at that stage.
    4.   13.4  We were told in an Explanatory Memorandum of 21 May 2002 from the Minister of State for International Trade and Investment at the Department of Trade and Industry (Baroness Symons of Vernham Dean) that the Government was "deeply disappointed" by the US action, and fully supported the Commission in invoking the WTO dispute settlement procedures and in seeking compensation. She also said that the Government's fundamental objective was to secure the early withdrawal of the US measures, and that, if the US made an acceptable offer, the need for retaliatory action — at least in the short term — would be reduced, and indeed might disappear altogether. The Minister added that a final decision would be delayed until the last moment so as to reflect any compensation offered by the US, and to take account of any products which the US may decide to exclude from the measure.

    5. The Minister also pointed out that, in order to meet the timetable set by the WTO, the Commission had notified the proposed suspension of concessions on 14 May 2002, but that the consequential legal instrument had to be taken within 90 days of the imposition of original US safeguard measures (that is, by 18 June 2002). The proposal was therefore due to be considered by the Council on 10 June 2002.
    6. In our Report of 22 May 2002, we commented that, whilst an all-out trade war would be a matter of concern, it seemed entirely reasonable for the Community to take the sort of steps contained in this proposal, if only as a means of exerting some kind of pressure on the US authorities. In view of this, and the strict timetable for such action laid down in the relevant WTO procedures, we cleared the document, but we said that would be glad if the Government could keep us informed of any subsequent developments.
    7. The current documents

    8. We next received a letter of 7 June 2002 from the Secretary of State for Trade and Industry (The Rt. Hon Patricia Hewitt), pointing out that the original Commission proposal had been amended in a number of respects (document (a)). In particular, this would:

    • enable the Council to "suspend concessions" as from 18 June 2002 (which the Secretary of State said was a necessary first step to imposing higher tariffs, but not in itself a change in the terms of trade);

    • remove the imposition on that date of the proposed additional tariffs, and instead require the Commission to report to the Council by 19 July 2002 on what was on offer from the United States in terms of a response (including exclusions from the increased tariffs for Community steel producers or compensation in terms of reduced tariffs on other products);

    • provide that, if that report showed that the US might offer compensation as well as "exclusions", the Council would have until 12 October 2002 to decide on its response, so as to give the US time to complete its procedures);

    • provide that, if by 19 July 2002, the US was offering exclusions only, the Council would decide by 1 August 2002 on whether or not to implement short term retaliation.

    1. The Secretary of State added that, because these steps had to be adopted by 18 June 2002 if the Community was to retain the right under WTO rules to respond, and were thus to be considered by the Council on 10 June (or shortly thereafter), she intended to lift the UK's Parliamentary Scrutiny reserve on the new document. She added that the Government regarded these amendments to the original proposal as satisfactory because they would have the effect of maintaining the pressure on the US to respond to Community concerns, but give additional time for a response, and leave the final decision on the timing and extent of retaliation with the Council.
    2. Following the publication of document (b), which made a number of further, but essentially minor, amendments, we received an Explanatory Memorandum of 28 June 2002 from the Minister of State, which confirmed that the Council had adopted the proposal as a Regulation[45] on 13 June, and that it had come into force on its publication two days later in the Official Journal.
    3. The Minister of State also enclosed with her Explanatory Memorandum a Regulatory Impact Assessment. This points out that the aim of the proposal is to bring pressure to bear on the US to remove its safeguard measures, or, failing that, to increase the chances of the Community securing a favourable outcome in negotiations on compensation, with an additional more general objective being to deter the US (and others) from imposing such measures in the future. Withdrawal of the present measures would benefit UK steel exporters, who (after successful exclusion requests) currently face additional duties approaching $50 million on 203,000 tonnes of trade worth about $166 million (together with the risk of exports from other Community Member States being diverted from the US to the UK). Any gains from compensation would of course be more widely spread, and, since Community exports would as things stand pay additional duties of $602 million as a result of the US safeguard measures, this could, depending on the outcome, result in an offsetting compensation for the Community as a whole of up to that amount. The Minister says that, although UK exports would undoubtedly benefit from this, it is not possible to estimate their share, as this will depend upon the products involved.
    4. On the other hand, costs to Community importers and consumers would arise in the event of re-balancing measures being applied, with the main sectors affected including food, clothing, steel and machinery. In that case, a wide range of companies in the UK purchasing such products from the US would be adversely affected, in terms of higher input prices and lower profits, as a result of the increased tariffs and/or switching sources of supply (though part of the costs of this would be borne by US exporters, and some UK firms competing with US imports might gain an advantage). The extent of these effects would depend upon the proportion of the total UK supply represented by US exports, but, overall, the Assessment estimates that the additional duty on UK imports from the US included in any immediate retaliation would amount to $113 million, whilst those payable under any eventual retaliation would be around $163 million.
    5. The Assessment also makes the point that, in so far as additional duties are applied in the course of rebalancing, the Community budget would benefit. According to the Commission, the increased duties in that event across the Community as a whole could amount to _189 million in 2002, _493 million in 2003 and _607 million in both 2004 and 2005.
    6. Conclusion

    7. As the Secretary of State has recognised in her letter of 7 June 2002, UK agreement to these documents strictly speaking represented a breach of the scrutiny arrangements. That said, we recognise that there were particular timing factors in this instance if the Community was to take the necessary action within the WTO, and we have also noted that the measures now in force provide a greater flexibility of response than those in the original Commission proposal, which we cleared on 22 May 2002. In view of these considerations, we are now clearing the current two documents.

 


44   (23048) 8219/02: see headnote. Back

45   Council Regulation (EC) No. 1031/2002. OJ No. L.157, 15.6.02. Back

 
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