Exclusive: EU mulls linking China market status to deal on steel

BRUSSELS (Reuters) - The European Union is considering making the lowering of trade defenses to Chinese imports conditional on China sharply reducing the amount of steel it exports to Europe, an EU official involved in the talks told Reuters.

Piles of steel pipes to be exported are seen in front of cranes at a port in Lianyungang, Jiangsu province March 7, 2015. REUTERS/Stringer

A draft document from the European Commission seen by Reuters also suggests China’s market economic status be viewed in the context of strengthening EU’s defenses “against unfair trade practices” in the steel sector

The Commission, the EU executive, has to decide by December whether to grant China market economy status, a status that would limit the EU’s power to impose duties on excessively cheap Chinese imports.

The overcapacity of steel is a major bone of contention and will be the subject of a meeting in Beijing next week between EU and Chinese negotiators.

“Negotiators are considering linking the EU’s decision on granting China market economy status to a higher drop in Chinese steel overcapacity,” an EU official involved in the talks said, conceding that no final decision has been taken on the negotiating strategy.

A spokesman for the Commission declined comment.

EU data shows it has imposed sanctions in 37 cases of steel exported to Europe at dumped prices, of which 16 are on products coming from China.

China has an overcapacity in the steel sector of 400 million tonnes, the EU document shows, more than double the total annual EU steel production of around 170 million tonnes.

Much of the surplus is exported to Europe, with a 53 percent increase of steel imports from China last year, according to an EU draft communication on EU steel industry challenges, which the Commission plans to release on March 16.

China has already made some moves. Trade minister Gao Hucheng said China has committed to decrease the steel output “by between 100 and 150 million tons” in a letter sent in February to the EU trade commissioner Cecilia Malmstrom, a copy of which Reuters has seen.

“This is too little. Even if China respected the engagement in full, it would still have an overcapacity that is larger than the total EU steel output,” the EU official said.

EU countries are urging the Commission to enhance defenses against cheap steel imports. Ministers from Germany, Britain, France and Italy, EU’s four biggest economies, were among the signatories of a joint letter in February calling for increased action to relieve the ailing steel industry.

Europe has lost 85,000 steel jobs since 2008, over 20 percent of the workforce, according to industry body Eurofer, as prices crashed to decade lows due to overcapacity, shrinking demand and a flood of cheap imports, mostly from China.

Reporting by Francesco Guarascio; editing by Philip Blenkinsop/Jeremy Gaunt