Steel Forum: Ministers Review Progress in Tackling Overcapacity Challenge, Call for “Swift” Action

27 September 2018

Ministers from a host of steel-producing economies convened on Thursday 20 September at the Global Forum on Excess Steel Capacity in Paris, France, adopting a consensus report which took stock of the progress made to date and called for swift action on implementing various pledges for addressing the long-standing overcapacity issues that have dogged the global steel sector. 

At the high-level meeting, ministers also called for global cooperation to combat this challenge, which has been a source of significant trade tensions in recent years. The report says, for example, that “neither the steel sector, not the world economy, can afford to repeat the costly mistakes of the past – losing the political impetus to genuinely tackle excess capacity as soon as cyclical upturns kick in.”

The meeting, chaired by Argentina, the current holder of the G20 presidency, was held at the headquarters of the Organisation for Economic Co-operation and Development (OECD), which has its own Steel Committee that meets regularly. Due to the significant gap between crude steel demand and production, the G20 announced this forum in 2016 under the Chinese presidency, aiming to combine the efforts of all the world’s major producers to address the problem head-on. 

The new forum has 33 member economies, which together make up the vast bulk of the world’s steel producers. While they meet on multiple occasions throughout the year, only some of those gatherings are at ministers’ level, with other meetings being held among working groups. 

Priority issues: Building on Berlin

At the meeting in Paris, ministers outlined a set of overarching priority issues for the rest of this year for 2019. More specifically, they called for putting into action recommendations from the Berlin ministerial report, which was issued last November, deeming this an “urgent” task. They also urged members of the forum to meet their prior information-sharing commitments. 

The 72-page joint report issued last week consolidates the results from information shared to date, as well as policy recommendations and voluntary commitments made by members. The report is split into an initial section on the Paris meeting, numbering 16 pages, with the rest involving annexes that include last year’s Berlin ministerial report, results from information-sharing efforts, terms of reference for the forum, and other related documents. 

The Paris report is also meant to build upon the progress made at the previous working group meetings held throughout the year. It was also meant to provide an opportunity for forum members to see how far they are in implementing the policy recommendations endorsed nearly a year ago in Berlin, as well as its related guiding principles. 

The policy recommendations from Berlin cover the following overarching sections: seeing how to ensure “framework conditions” support the steel market’s “proper functioning”; avoiding the use of market-distorting subsidies and exchanging relevant data on these; and avoiding subsidies that could alter firms’ competitiveness. It also calls on members to help workers who have lost jobs due to sectoral “restructuring”; establish and publicise capacity reduction targets at the domestic level; make sure mergers and acquisitions, as well as export credits, do not exacerbate the overcapacity challenge; continue to provide more detailed information and analyse it accordingly; and maintain the forum’s momentum through regular meetings held at least three times per year. 

Along with implementing the existing recommendations from the Berlin report, the consensus document endorsed in Paris last week ultimately calls on forum members to “identify measures” such as market-distorting subsidies or those that boost capacity and commit towards their “swift” eradication, along with putting in place the above-mentioned recommendations involving framework conditions, support of workers affected by restructuring, mergers and acquisitions, export credits, and select others. 

The report formalised at this ministerial meeting will be submitted to the Buenos Aires G20 Leaders’ Summit on 30 November and 1 December. After ministerial talks concluded in Paris last week, Miguel Braun, Argentine Secretary of Trade and the meeting’s chair, welcomed the document as “a very positive signal regarding the possibility of working together to solve the challenges the global community faces.” 

European Trade Commissioner Cecilia Malmström similarly said that “progress in this Forum at this sensitive time demonstrates that multilateral cooperation is not only possible, but that it is actually the best tool to tackle global challenges,” according to a press release issued after the gathering. The event was co-chaired by a fellow member of the European Commission, Vice-President for Jobs, Growth, Investment, and Competitiveness Jyrki Katainen. 

The EU is the second-largest producer of steel after China, when looking at the bloc’s production overall. The European Union “will now follow closely” the identified policies, Malmström said.  “Our workforce and our industry depend on these commitments being carried out.” 

US questions the work of the Forum 

Soon after the Global Forum, the Office of the US Trade Representative (USTR) released a statement expressing a mixed assessment of the meeting’s results, welcoming some of the effort made to date but questioning the overall approach’s viability for effecting the necessary change. 

“Unfortunately, what we have seen to date leaves us questioning whether the Forum is capable of delivering on these objectives,” the USTR statement said. “We do not see an equal commitment to the process from all Forum members.” 

The USTR had made a similar assessment after last year’s ministerial meeting, and mentioned that though the policy recommendations in the report provide a useful point of departure, “we have yet to see any concrete progress toward true market-based reform in the economies that have contributed most to the crisis of excess capacity in the steel sector.” It also warned that the report is insufficient for addressing “the fundamental causes of the problem.” 

The comments also come amid tensions between the US and many of its trading partners over the Trump Administration’s move to impose additional import tariffs on steel and aluminium, at 25 percent and 10 percent respectively, on national security grounds. 

The USTR statement suggests that the situation will change “only when those that have created this problem act to remove subsidies and other measures that distort markets and create serious global imbalances, and take action to eliminate excess capacity.” The US is part of a group, together with the EU and Japan, that have discussed at ministers’ level possible approaches to tackle industrial subsidies and “non-market oriented” practices that may contribute to overcapacity, with a meeting in this “trilateral” format held this week on the margins of the UN General Assembly. (For more on the UN General Assembly, see related story, this edition) 

China has repeatedly come under US scrutiny for its steel production, with Washington raising questions in the past over whether Beijing’s trade practices could lead to an unfair competitive advantage, a charge that the Asian economy has denied. 

Next steps

With prices plummeting and the overcapacity crisis persisting, various governments raised questions in recent years over whether some of this steel was benefitting from unfair subsidies or from dumping, where goods are sold abroad at prices below their normal value. The ensuing trade defence measures that were imposed fuelled concerns that the resulting tensions would be counterproductive to solving the core issues at play, and would not be as effective as undertaking a collaborative approach that would address the capacity issues while easing the potential impact for top producers such as China as they moved to cut down plants. 

While China has taken steps to curb production, the country’s metal exports grew in April, according to statistics cited by Reuters. In August, the country produced some 80.3 million tonnes of crude steel, an increase from the same figures one year ago, according to monthly figures issued by the World Steel Association this week. 

The Global Forum on Steel Excess Capacity, which was created in 2016 and is facilitated by the OECD, was meant to help tamp down on these tensions, and reports its findings to the G20 every year. For example, last year countries issued the first report with guiding principles and policy recommendations – the above-mentioned Berlin Ministerial report.

With more than 90 steel producing economies, annual output accounts for around 1.6 billion tonnes. Meanwhile, demand keeps growing, though output continues to outpace demand. Referring to the current dynamics, Ángel Gurría, the OECD Secretary-General, said at last week’s Global Forum ministerial that waiting for demand to improve is not a viable strategy: “the numbers are telling us that we have to look at the question of capacity very seriously.” 

ICTSD reporting; “US slams global steel forum for lack of results on curbing rising output in China,” SOUTH CHINA MORNING POST, 21 September 2018; “China April aluminum, steel exports rise, defying U.S. tariffs,” REUTERS, 8 May 2018. 

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