Industrial Overcapacity Debate Continues on Domestic, International Fronts

4 May 2017

The international debate over how to address global overcapacity in steel and aluminium continues across multiple fronts, amid new investigations being launched in Washington; another meeting of the new global forum dedicated to steel; and discussions under a WTO committee on subsidies.

Over the past fortnight, US President Donald Trump has issued two memoranda directing his Secretary of Commerce to open investigations into imported steel and aluminium, tying the issue of overcapacity to stated concerns over national security.

Both of these memoranda cite Section 232 of the Trade Expansion Act, a piece of legislation enacted in 1962 that allows for the Department of Commerce to conduct probes over where the import of a certain good has adverse implications for the US’ national security. The information gleaned from this investigation can then be used to determine whether to “adjust” such imports.

“High-strength aluminium alloys have become among the most commonly used materials to make military aircraft and aluminium armour plate is used to protect against explosives and other threats,” said Commerce Secretary Wilbur Ross on 27 April in describing the national security angle being pursued.

Ross also pledged that his office would be “proactive” in both the steel and aluminium reviews, given the “geopolitical” concerns involved.

Under both orders, Commerce will be looking at how much aluminium or steel, respectively, is needed to meet “projected national defence requirements,” along with the impact on US producers of having to compete against foreign players in these markets. The Secretary of Commerce has also been tasked with seeing what this overcapacity may mean for lost jobs, skills, investment, and government revenue – as well as whether US effort to “negotiate a reduction” in global steel and aluminium levels would actually work.

The final reports will also include recommended actions on “adjusting” imports if necessary. Under Section 232, these documents would be due to the President within 270 days of the executive orders.

Global forum meets

Over the past couple of years, tensions have been on the rise over the growing mismatch between steel demand and supply, along with what this means for jobs and growth in major steel-producing countries.

The chairman of the Organisation for Economic Co-operation and Development (OECD) Steel Committee, Ronald Lorentzen, said in March that while there has been a “modest” recovery in the sector, “trade frictions” in this area continue to pose risks for its long-term future. (See Bridges Weekly, 30 March 2017)

China has come under particular scrutiny, given its role as the world’s top steel producers. According to the latest figures issued by the World Steel Association, global production of steel reached 145 million tonnes in March, with China providing near half of that figure at 72 million tonnes.

Given the tension-filled debate last year over the nature of the steel overcapacity problem – along with how to address it – the G20 and other members of the OECD set up the Global Forum last December, with the goal of better understanding the factors behind the steel issue.

The new forum is due to report back to the G20 every year, and currently is operating under a three-year mandate which can be extended further. The Global Forum on Steel held its fourth meeting in Germany late last week.

A press release issued by the German government said that this latest meeting was focused on putting together “a comprehensive information exchange on capacity developments and policy measures in the steel sector,” according to an informal translation of the document.

WTO subsidies committee

The topic of industrial overcapacity was also raised during a WTO meeting of the Committee on Subsidies and Countervailing Measures in late April, sources confirm to Bridges, with some members indicating interest in reviewing the topic more regularly.

Canada, the EU, Japan, and the US issued a communication ahead of the meeting suggesting topics which they say could yield fruitful discussions on the relationship between subsidies and overcapacity.

“Addressing the issue of overcapacity should not be seen as the sole prerogative of one forum,” said the group in their communication. “The relevant and appropriate aspect for the Subsidies Committee is how certain types of subsidies contribute to overcapacity, and how best to address this aspect of the issue.”

The group raised, for example, the need for more consistent notifications on subsidies to the committee, along with noting that these notifications do not include sub-central subsidy programmes.

“The quality of actual notifications, including the attempts by some members to notify subsidy programmes that clearly fall outside the scope of the [Subsidies and Countervailing Measures] Agreement to create the appearance of transparency without subjecting actual industrial subsidies to global scrutiny, also deserve attention,” the group said.

They also suggested that subsidies “to create and maintain excess capacity” can be heavily distorting and have significant effects for export markets, and said that it may be worthwhile to examine whether these require “more stringent disciplines” in the WTO context.

Sources familiar with the meeting said that the communication drew some support and questions from members such as Australia, Israel, Mexico, Russia, South Korea, and Turkey, with a particular interest on the issue of better transparency. China reportedly suggested that overcapacity is best discussed in other forums, given that other factors besides the use of subsidies also have implications for the steel crisis.

ICTSD reporting.

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