UK Government Report
Description of sector
The steel sector consists of a wide range of activities, from primary steelmaking at large steel works through to the production of advanced steel-based components for specialised applications. It supplies key materials and components across the supply chain for many other sectors, including construction, automotive, energy, rail, defence, aerospace and packaging.
European Structural and Investment Funds (ESIF)
The two ESIF funds most relevant to the steel sector are the European Regional Development Fund (ERDF) and the European Social Fund (ESF).
European Regional Development Fund (ERDF)
ERDF cannot be used for direct investments in large steel companies but could be relevant to the steel industry because of its capacity to stimulate the local economy through investment in innovation or SMEs.
Decisions on funding are made by the Managing Authority (in England, DCLG; in Wales, the Welsh Government) within the framework of an Operational Programme agreed with the European Commission.
European Social Fund (ESF)
ESF is also a grant scheme and it focuses on employment, skills and social inclusion. It is Europe’s main instrument for supporting jobs, helping people get better jobs, and ensuring fairer job opportunities for all EU citizens. ESF could potentially play a supporting role in relation to steel as it can be used to retrain local workers or helpthem find another job or self-employment.
It funds projects which support individuals to get back to work or improve their skills in work, and so could potentially be used to support individuals who are affected by the changes in the steel industry to retrain.
As with ERDF, funding decisions are made by the Managing Authority (in England, DWP; in Wales, Scotland and Northern Ireland, the Devolved Administrations) within the framework of an Operational Programme agreed with the European Commission.European Globalisation Adjustment Fund (EGAF)
The European Globalisation Adjustment Fund (EGAF) can provide a financial contribution towards active labour market measures (such as job search support, careers advice and training) to support workers reintegrate in the labour market. It is only of use if a company fails and therefore is a fund of last resort, although it has been used by steel companies elsewhere in Europe.
The current EU regulatory regime
The steel industry is subject to a number of measures under the existing regulatory regime. The EU Trade Defence Framework, arrangements for trading between EU and non-EU States under WTO rules, and EU State Aid rules, which are specific to this sector, are amongst the most significant measures.EU Trade Defence Framework
The EU’s trade defence framework ensures that unfair trade is tackled through a range of measures, including anti-dumping and anti-subsidy investigations,imposition of tariffs, registration of imports and prior surveillance. The UK has taken a leading role in pressing for the effective use of this framework to provide UK steel companies with a level playing field through which they can compete effectively, where this is justified by evidence – notably in tackling illegal dumping of Chinesesteel products.
Within negotiations on modernisation of trade defence instruments, the UK has supported the retention of the “Lesser Duty Rule” (LDR), which limits the tariffs that can be imposed on dumped products to the injury margin – rather than using thedumping margin where this is higher than the injury margin. This means that the injury to steel producers can be addressed without disproportionately impacting onend users.
The EU’s trade defence framework is conducted in accordance with WTO Agreements on Anti-Dumping and Subsidies. The EU’s trade defence regulations and practice include a number of additional features, not required by WTO rules, but which ensure a more economically balanced approach to trade defence, these include the use of a public interest test and the lesser duty rule.
WTO Trade Arrangements for EU and Non-EU States
World Trade Organisation agreements are the main source of international rules for trade between the UK/other MS and non-EU countries. The most well-known of these agreements, the General Agreement on Tariffs and Trade and the General Agreement on Trade in Services, cover tariffs (import duties) on goods and market access for services.
There are more than 20 WTO agreements to which the EU is a party which cover, amongst other matters, rules of origin, technical barriers to trade, anti-dumping, subsidies, dispute settlement and government procurement. In addition to the WTO agreements, the EU has entered into a range of agreements such as free-trade agreements, association agreements and economic partnership agreements which contain further rules governing trade between the parties to theagreement.
EU legislation has been adopted which implement “domestic” (i.e. within the EU) obligations and/or procedures to be followed in relation to those international agreements. This legislation includes Regulations providing for rules on common customs tariffs (2658/87), anti-dumping (1225/2009), anti-subsidies (597/2009) andtrade barriers (3286/94).
The EU imposes no Most Favoured Nation (MFN) tariffs (i.e. they are zero) on all semi-finished and finished steel products.18 However, the picture is more varied across the end goods which steel products are processed into, and some of these will have non-zero MFN tariffs.
Access to the EU market for some non-EU countries is also affected by Free Trade Agreements that the EU has negotiated with selected third countries. Any goods imported under tariff preferences provided for by a Free Trade Agreement are likely to need to comply with preferential Rules of Origin. Trade defence tariffs are imposed on imports where appropriate to tackle unfair trade.
EU State Aid Rules
EU state aid rules govern the way that Member States can support economic activities. This is not limited to grants or subsidised loans and can include sale of land at below market value or particular tax advantages. Article 107 provides for a general prohibition on giving state aid and the Treaty, along with various Frameworks and Guidelines provide for exemptions for types of aid that can be judged compatible with the single market.
The four tests of aid are:
1) The assistance is granted by the state or through state resources.
2) It favours certain undertakings or the production of certain goods.
3) It distorts or threatens to distort competition.
4) It affects trade between Member States.
Aid that is covered by a block exemption regulation is “pre-approved” but must still be notified to the Commission. All other aid must be notified and individually approved by the Commission before it can be given as only the Commission can decide if aid is compatible.
Aid which is considered incompatible with the Treaty, must be recovered from the beneficiary with interest.
There are specific and more rigorous State Aid rules that apply to the steel sector, which prohibit the steel sector being provided with rescue & restructuring aid and regional aid. However, they do allow aid for training, R&D and environmental protection under the General Block Exemption Regulation.
Aid schemes that compensate or exempt Energy Intensive Industries from the costs of energy policy are also relevant to the steel industry. These schemes are notified and approved individually by the Commission and in general must comply with the Environmental and Energy Aid Guidelines (EEAG).
In line with the rules of the EEAG, the UK Government submitted a state aid prenotification in October 2014, notified in November 2015 and secured state aid approval in December 2015. This gives clearance for HMG to pay compensation to UK Energy Intensive Industries including steel for, or in some cases to exempt them from, the impact of energy and climate change policies on electricity costs. The first compensation payments following state aid clearance were made in early 2016.
EU Customs Union and Single Market
Articles 28-37 of the Treaty on the Functioning of the European Union (TFEU) set out the Treaty provisions on the free movement of goods, including the establishment of the Customs Union. This has been achieved by establishing the Customs Union within the EU and by preventing Member States imposing customs duties or formalities on goods imported from other Member States. In addition, these rules prevent Member States imposing restrictions on the quantity of imports and exports of a particular item (e.g. quotas or an import or export ban).
This legal framework also prevents non-tariff barriers that may restrict imports and exports in less direct ways, for example, by applying product standards and regulations that make it harder in practice for goods coming from one Member State to be sold within another. The exception is where those restrictions can be justified on certain grounds. The legal framework has been achieved by establishing a common set of product rules, underpinned in many cases by voluntary standards.
For goods not covered by those rules and standards, the principle of mutual recognition has been developed( whereby once goods have been lawfully manufactured and marketed in one Member State, another Member State cannot then require it to comply with additional product rules. Finally, goods imported from other Member States must be treated in the same way as goods produced nationally.
EU Industrial Emissions Directive
The Industrial Emissions Directive (2010) commits EU Member States to control and reduce the impact of industrial emissions on the environment, including from major industrial plants like steel in the UK. As a result of a derogation, parts of the steel sector have until June 2020 – an additional four years – to meet emission requirements.
EU Emissions Trading System
EU Emissions Trading System (EU ETS): a cap-and-trade scheme to limit emissions of greenhouse gases, which requires heavy industry, power and aviation operators to surrender allowances annually equivalent to their emissions. Sectors covered by the EU ETS account for over 50 per cent of the emissions reductions needed to meet UK targets between 2013 and 2020. The current framework runs to 2020, and negotiations covering the framework from 2021-2030 are ongoing. Steel mills fall within the EU ETS and will be affected by the future relationship the UK has with the scheme.