Trade Cases

Forum on Excess Steel Capacity Draws Mixed Reaction

November 30, 2017

The Global Forum on Steel Excess Capacity agreed on a framework Thursday for collectively solving the world’s steel overcapacity problem. The 33 members worked together to develop specific policy recommendations using six agreed-upon principles to formulate solutions for bringing steel capacity in line with demand and reducing trade distortions.

Notable is a new sharing of detailed information on current steel plants in existence, new steel plants and expansions, and closures of facilities. The transparency will allow the group to “map” policy landscape in a “fairly exhaustive manner and have information on a broad spectrum of policies that can directly or indirectly affect excess steelmaking capacity,” said the Organization for Economic Cooperation and Development (OECD), which served as facilitator for the meeting. The six principles:

Members agreed in their final report to the closure of inefficient plants and setting targets for reducing individual country steelmaking capacity.
Members agreed to work under market principles and refrain from providing “market distorting subsidies and other types of support measures to steel producers,” including encouraging investment in new and unnecessary steelmaking capacity that facilitates the export of steel products.
All steel enterprises, whether privately owned or state-owned, should not receive any subsidies that distort competition and should follow the same regulations and rules, including bankruptcy procedures. “A level playing field should be ensured among steel enterprises of all types of ownership.” The Global Forum also should fight protectionism, while recognizing the role of legitimate trade defenses.
The market should be based on supply and demand, which would result in more efficient use of resources and benefit overall productivity and economic performance.
Steelmaking facilities that consistently report financial loss, “zombie” firms, and those that fail to meet safety, quality and environmental standards, should be closed, leading to a net reduction in capacity. The workers who are displaced should be offered retraining and relocation to minimize social costs to workers and communities.
Governments should regularly exchange data and concrete policy solutions among the Global Forum. This includes information on steelmaking capacity developments; supply and demand conditions; policy responses; and information on “the nature and extent of export credit agency support for new steel projects.”

Reaction to the Report

“I am very pleased with the result agreed today, which confirms the relevance of the G20 in crafting collective solutions to global problems. Ministers agreed on a roadmap to reduce steel excess capacity. 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,” said OECD Secretary-General Angel Gurría.

The American Iron and Steel Institute reacted to the Global Forum report with appreciation, but said promises must be followed through with action.

“The report of the Global Forum issued today properly focuses on the need for governments to eliminate market-distorting subsidies and other measures that contribute to excess capacity and to ensure a level playing field between private sector steel producers and state-owned enterprises,” said Thomas J. Gibson, President and CEO of AISI. “However, these and the other policy recommendations presented by the Global Forum will only be meaningful if they are actually implemented by governments. Promises alone will not solve the problems facing the global steel industry; concrete actions by governments must follow in short order.”

Gibson also stressed that the U.S. must continue to aggressively enforce the full range of U.S. trade laws, including Section 232 and antidumping and countervailing duty laws.

Gibson added, “In our view, a trade policy that couples vigorous enforcement with continued international engagement offers the best opportunity for successfully addressing the global overcapacity crisis in steel.”

Jamieson Greer, the USTR chief of staff that attended the meeting instead of trade representative Robert Lighthizer, said the Global Forum failed to make “meaningful progress” in confronting the “root causes” of excess steel capacity.

“The report also suggests — erroneously in our view — that simply setting capacity reduction targets has been an effective response to the crisis, when in fact meaningful progress can only really be achieved by removing subsidies and other forms of state support and simply letting markets do their work,” he asserted.

European Union Trade Commissioner Cecilia Malstrom called the forum important, “but it will not solve all the questions. Now we need to start walking the talk, as well.”

China took the heat as the largest steel producer and contributor to excess steel capacity. Lighthizer said the forum should be used as a way “to obtain information about China’s capacity and practices and confer with trading partners about effective steps to address excess steel capacity.” In the report, Global Forum members agreed to provide information and transparency about their steel industries.

Li Chenggang, China Assistant Minister of Commerce, said China is doing its part to cut back on capacity. “We have very clear goals, robust measures and very effective results,” Li said. “China’s steel capacity reduction was more than 120 percent of the world’s total cut. We have taken a very responsible approach to the forum.” Li added that China’s supply-side structural reforms have made progress.

A bipartisan group of senators ahead of the meeting sent President Trump a letter urging the administration “to develop a comprehensive enforcement plan to address the global steel crisis.”

“We know diplomacy alone will not convince countries, particularly China, to permanently reduce steel production capacity. But it is critical that we continue to grow and maintain a coalition of our trading partners who agree this is a top global economic priority and who will commit to take meaningful action to address it,” wrote Sens. Rob Portman (R-OH), Sherrod Brown (D-OH), Todd Young (R-IN), Joe Donnelly (D-IN) and Joe Manchin (D-WV).

“Until net steel capacity in China and other countries is reduced, unfairly traded steel imports will continue to flood into the U.S., and domestic steel companies and American steelworkers will be at risk for more layoffs and idled facilities,” wrote the senators.

The United Steelworkers called the 52-page report “another sign that political leaders are fiddling while Rome burns.”

“The USW appreciates the hard work that U.S. negotiators put into this process and the strong stances they took on key principles. Yet as attacks on the U.S. steel sector continue, only further dialogue is scheduled. The new report fails to identify specific disciplines, timelines or targets for resolving the problem. A real plan for action is the only thing that will work,” said the USW in its statement.

The USW expressed its discontent with the delay of the Section 232 action on steel imports:

“Protecting our national security and the jobs of those in the steel sector should not be held hostage to a tax cut for the rich. It is time for the Administration to do what it promised.”