Ministers Issue Policy Recommendations to Reduce Steel Overcapacity at Global Forum

7 December 2017

The first ministerial-level meeting of the Global Forum on Steel Excess Capacity was held last week in Berlin, Germany, as that country’s G20 presidency was drawing to a close, with participants publishing a package of principle-based policy recommendations.

These recommendations are targeted to address global steel excess capacity and create a level playing field in global steel markets, for implementation over the course of 2018 and 2019. Members also decided to convene at least three times per year to monitor the implementation process and share information on progress towards eliminating market-distorting subsidies under the incoming Argentine G20 presidency.

"The outcome today is the crowning achievement of a successful German G20 Presidency," said Gabriela Ramos, the OECD Chief of Staff and G20 Sherpa, according to a press release published by the Organisation for Economic Co-operation and Development (OECD).

Conceptualised in the context of the G20 Hangzhou Summit under the Chinese presidency and launched in December 2016, the Global Steel Forum unites 33 member economies, both from the G20 and some additional members from the OECD. These together account for 90 percent of world steel production and capacity. The Global Steel Forum is based on a three-year mandate, due to expire in 2019 but open to extension, to strive to identify and tackle the root causes of global steel overcapacity. (See Bridges Weekly, 7 September 2016)

In 2016, the global surplus in steel-making capacity reached an unprecedented 737 million metric tonnes (mmt), which has largely been credited with lowering steel prices and adversely affecting jobs in the steel sector and related industries. The imbalance between supply and demand in the steel industry puts “at risk the viability of an industry that produces a material which is vital for the functioning of economies and societies,” according the Forum’s latest report.

"I am very pleased with the result agreed today, which confirms the relevance of the G20 in crafting collective solutions to global problems,” said Angel Gurría, Secretary-General of the OECD, the organisation designated as Global Steel Forum’s facilitator. “This will contribute not only to a more stable and sustainable steel sector, but is also an opportunity to reduce trade distortions and improve our trade relations more generally."

"This is a global challenge, and it has to be dealt with accordingly," said EU Trade Commissioner Cecilia Malmström, according to a European Commission press release, which called for the swift application of the agreed principles and solutions and highlighting the importance of action in this area for protecting jobs.

"In the run-up to the World Trade Organization’s 11th Ministerial Conference in Buenos Aires, this success underlines the importance of effective multilateral cooperation to solve global problems,” she said, referring to the high-level meeting due to kick off in the Argentine capital city next week.

Policy solutions

In response to a commitment at this year’s G20 Hamburg Summit to “rapidly develop concrete policy solutions that reduce steel excess capacity,” members agreed on concrete policy solutions to reduce overcapacity based on a reference framework of six guiding principles. They urge members to ensure “market-based outcomes” and avoid using market-distorting subsidies and other state aid in this sector, along with providing a “level playing field” between private enterprises and state-owned enterprises (SOEs).

The report identifies areas of converging views between members, including broad recognition of the universal challenge posed by excess capacity and the need to find a collective solution; the necessity of encouraging adjustment and enhanced market function; and the need for improved transparency on steel policies and developments in the market.

Since the creation of the Forum, members have exchanged disaggregate data on steel capacity, including on new, existing, or closed steel plants in response to the call for increased information-sharing issued at Hangzhou over a year ago.

In addition, a policy inventory has been generated to map government actions with direct or indirect implications for excess steel capacity in place at the national level, and in some cases at the regional or provincial levels. The database aims to level access to information across countries and build trust in order to arrive at collective solutions to the challenge.

Forum members also committed last week to increased transparency on cuts to capacity, acknowledging the importance of regular updates to the information on capacity and policy measures as an integral element to facilitate smooth implementation.

Government officials react

China has come under particular scrutiny, in light of its position as the world’s top steel producer. In 2016, the Chinese government committed to new supply-side reforms, setting the objective to reduce 100 to 150 mmt of crude steel capacity in five years, a move that would entail the resettlement of 500,000 workers.

“Capacity reduction is a painful process, China has had to reallocate hundreds of thousands of workers. We call upon producers in the world to work together and take effective measures to reduce capacity,” Assistant Chinese Commerce Minister Li Chenggang said last week, according to Reuters.

A statement issued by US Trade Representative Robert Lighthizer in response to the forum report emphasised that much work remains. “Progress on recommendations, information sharing plans and additional scheduled meetings must give way to real policy changes,” the statement said. 

“The Forum has not made meaningful progress yet on the root causes of steel excess capacity, and pointing to short-term developments and worn out promises will not cure the fundamental causes of the problem,” it continued, while pledging to continue Washington’s engagement.   

The statement also says that the US “will not hesitate to use the tools available under legal authorities to firmly respond to the causes and consequences of steel excess capacity.”  

The new US administration under President Donald Trump launched an investigation under Section 232 of the Trade Expansion Act into whether imports of steel could pose a risk to national security in April. The probe is to be concluded by US Commerce Secretary Wilbur Ross in early 2018, on the basis of which a determination may be made on potential actions by the executive branch. (See Bridges Weekly, 29 June 2017)

ICTSD reporting; “EU welcomes G20 forum deal on steel over-capacity,” EU BUSINESS, 5 December 2017; “‘Steel's structural shift lost in the political war of words’,” REUTERS, 2 December 2017; “USTR: No ‘meaningful progress’ to curb excess steel capacity,” AMERICAN SHIPPER, 1 December 2017.

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