Korean media: EU imitates the US to build steel trade barriers, South Korean steel faces "tariff, exchange rate, domestic demand" triple squeeze

After the United States, Europe has also decided to significantly increase steel tariff barriers. The EU plans to greatly reduce the import steel quota that enjoys zero tariff benefits, and will impose a 50% high tariff on the excess part, which is the same as the US tariff level. This is undoubtedly adding insult to injury for the already exhausted South Korean steel industry due to US tariff policies.

The European Commission officially announced on the 7th (local time) that it would replace the current steel safeguard measures with a low-tariff quota system (TRQ). European Trade Commissioner Maros Sefcovic said, "Global steel overcapacity is distorting the market and eroding the EU's industrial base, and the new trade defense measures are a necessary means to maintain fair competition."

TRQ is a "dual tariff" system where a low tax rate (or zero tax rate) applies within a certain import volume, and a high tariff is imposed on the excess part. It is a protectionist trade measure that allows imports while alleviating market shocks. According to the EU's new TRQ system, the current annual zero-tariff import quota of 30.53 million tons will be reduced by 47% to 18.3 million tons, and the tariff on the excess part will be doubled from 25% to 50%. The quota calculation benchmark uses the import data from 2013, when the supply surplus phenomenon had not yet fully emerged.

In addition, the EU has added a "obligation to prove the country of origin of raw steel" for all steel products. This means that only steel products clearly indicating the actual country of production can enjoy the low-tax rate benefit. If the legislative procedure is completed before the expiration of the existing safeguard measures in June next year, this system may be implemented in advance.

This TRQ is essentially an enhanced version of the existing safeguard measures. Unlike safeguard measures under WTO regulations, which can only be temporarily implemented, TRQ is limited to a long-term implementable "tariff system," aiming to ensure policy continuity. Professor Lee Jae-min from Seoul National University's Law School pointed out, "This is the first case where the US high tariff measures have prompted the EU to take similar actions, and other countries are likely to follow suit," "For a country like South Korea that is highly dependent on trade, it is a blow to the head."

The steel industry is in a state of shock. After the US, the EU also announced the implementation of high tariffs, increasing concerns about the possible blockage of export channels. According to the statistics of the Korea Trade Association, the value of South Korean steel exports to the EU last year was $4.48 billion (about 6.4 trillion won), comparable to its largest single export market, the US ($4.35 billion). Last year, South Korea exported approximately 3.93 million tons of steel products to the EU, of which 2.63 million tons were allocated to South Korea, and the rest were exported at zero tariff through global quotas. However, since the EU adjusted its safeguard measures in April this year, the industry has been severely hit. From January to August this year, South Korea's steel exports to the EU amounted to $2.62 billion, a decrease of 15.7% compared to the previous year.

A steel industry insider said, "The EU and the US are major export markets for high-value-added products, and once exports are blocked, the impact will be very large," "Markets such as India and Southeast Asia mainly offer low-priced steel plates, which are difficult to become alternative markets." He also added that the EU may link TRQ with environmental regulations such as carbon content standards or "green steel certification" in the future, which could further strike high-carbon product exports.

Currently, the South Korean steel industry is facing a triple困境 caused by protectionist measures leading to export difficulties, the depreciation of the Korean won (a significant rise in the exchange rate of the Korean won against the US dollar), and a shrinking domestic demand. Export markets are not doing well, and the domestic demand market is also not prosperous. Affected by the downturn in the construction industry and the impact of Chinese low-cost products, the domestic steel demand market is in crisis.

Data from the Korea Steel Association shows that the sales volume of rebar in the first half of this year was 3.549 million tons, a decrease of 9.8% compared to the previous year, which is the lowest value since the association began publishing relevant data in 2010. Compared to the highest sales volume in 2017 (5.077 million tons), it decreased by 30.1%. Rebar is the most widely used steel product on construction sites and is regarded as the "barometer" of the South Korean domestic economy.

The Ministry of Industry, Trade, and Energy has started to develop response measures. Since the EU explicitly stated that it will consider countries that have signed free trade agreements (FTAs) when allocating national quotas, the South Korean government plans to promote related work through bilateral consultations with the EU. The Director General of the Office of International Trade Negotiations, Yeo Han-kyu, will push for a meeting with Commissioner Sefcovic, and the Deputy Minister, Moon Seon-hak, will visit steel export sites this week to hear opinions from the industry. On the 10th, the government will also hold a joint government-industry meeting to discuss the "Steel Industry High-level Plan" and the "EU Quota Struggle Strategy." An industry representative said, "Single companies have limited negotiation power in negotiations with the EU, but since the subsequent details published by the EU have not yet been determined, we will closely monitor the situation and actively respond."

Professor Park Sung-hun, honorary professor at the Graduate School of International Studies, Korea University, pointed out, "The EU is very vigilant about China's capacity, so it is still necessary to observe whether South Korea will be treated equally," "However, countries such as Germany believe that these measures will increase production costs, thus weakening the competitiveness of the automotive and machinery industries."

Professor Lee added, "The US previously adopted a model of unilaterally formulating policies and exerting pressure, but the EU values restoring the multilateral system and strengthening international norms, so there is still room for negotiation in the talks."

Sources: Central Daily News

Original: www.toutiao.com/article/1845468958862666/

Statement: This article represents the views of the author.