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European Union Should Impose Limits On Imports of Brazilian Steel

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The European Commission has notified the WTO that investigations have revealed that products imported into the steel sector were negatively affecting the market

Brazil’s steel exports are expected to be subject to barriers in Europe, further deepening the tension in international markets in the face of global over-supply of raw materials and the trade war between China and the United States.

On Jan. 4, the European Commission notified the World Trade Organization (WTO) that investigations initiated in March 2018 revealed that products imported into the steel sector were negatively affecting the bloc’s market and competition.

The European Commission’s proposal, which goes to the polls this week, faces resistance from sectors that fear they see their end products made expensive by the trade barrier. If approved, the fees will take effect until February 4. Until then, affected governments will be able to negotiate with Brussels, which should be the case in Brazil.

The investigation was opened after the government of Donald Trump decided to erect barriers to the steel world, creating distortions and flooding Europe with a production that would have the American market as a destination. The European bloc claims that the import of steel into Europe has increased significantly and that the trend is for that volume to grow even more.

The block informed, through a statement, that 26 steel products will be overtaxed. For each country, a quota will be offered. If the excess volume exceeds the quotas, an extra fee of 25 percent will apply. China, for example, will be restricted in 16 different products, compared to 17 in Turkey and 15 in India. In the case of Brazil, the notification sent by the European Union to the WTO cites seven products out of the 26 possible ones. Even so, diplomats confirmed the report was disturbing.

These latest EU decisions confirm the dominating effect of the global surplus capacity (around 530 million tonnes of steel) and the trade war between China and the United States, said Marco Polo of Mello Lopes, president of the Steel Institute Brazil (IABr). With the closing of the market of several countries, Brazil ends up being affected.

Brazil exports about 15 million tons of steel per year (US $ 9.5 billion), of which 25 percent go to Europe. In 2017, 3.9 million tons were exported to the block. Part of this volume is semi-finished products which were not included in the restriction list.

The impact on Brazilian exports will be on the sales of cold rolled products (used by the automobile industry, machinery, and equipment), heavy plates (shipbuilding) and metal (packaging) and other types of steel.

The quota offered for rolled products, for example, would start with 168 thousand tons/year and in three years would increase to 176 thousand tons. In the sheet metal sector, the quota is about 50 thousand tons  China will earn a quota of more than 400,000 tons. Steel profiles will have a ceiling of 22 thousand tons.

The largest volume exported by Brazil to the EU is semi-finished steel (2.4 million tons in 2017), which was left out. The country will compete for a global quota of 1.2 million tons to export plate, for example, Lopes said. Since 2015, the steel industry has been through a crisis. The industry uses 69 percent of its production capacity, while the ideal is 80 percent. The imposition of more barriers affects the industry.

Consulted regarding the topic, Itamaraty did not pronounce itself.