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EU hints at new sanctions on China over steel

[BRUSSELS] China's failure to curb its steel output could prompt the European Union to consider new trade sanctions against Beijing, the European Commission said on Wednesday, joining US calls for over-capacity to be dealt with swiftly.

By far the world's top steel producer, China's annual steel output is almost double the EU's total production. Western governments say Chinese steel exports have caused a global steel crisis, costing jobs and forcing plant closures.

In an EU document aimed at framing the bloc's China policy over the next five years, the Commission said Beijing's pledge to cut up to 150 million tonnes of crude steel production by 2020 was insufficient and the country had to do more.

"The EU is seriously concerned about industrial over-capacity in a number of industrial sectors in China, notably steel production," said the document, which was agreed by top EU officials including EU Trade Commissioner Cecilia Malmstrom and EU foreign policy chief Federica Mogherini on Wednesday.

"If the problem is not properly remedied, trade defence measures may proliferate, spreading beyond steel to other sectors such as aluminium, ceramics and wood-based products," it said, referring to punitive tariffs to limit Chinese imports.

The policy document follows a pledge by the Group of Seven leading industrialised nations in May to take steps after global steel production hit a record high earlier this year.

The European Commission now has seven ongoing investigations into Chinese steel imports after opening a new case into alleged subsidies for hot-rolled flat steel in May.

China's steel exports rose 6.4 per cent to 46.28 million tonnes in the first five months of the year, according to Chinese data. The United States last month imposed import duties on Chinese steel products.

China denies causing a global glut, but the United States and the EU accuse Beijing of keeping unprofitable plants running through subsidies in order to avoid massive job losses as the Chinese economy slows.

"Subsidies and other government support measures that contribute to expanding or exporting steel capacity, or to maintaining structurally loss-making operations, should be eliminated as soon as possible," the EU document said.

"China needs to reform its state-led economy and let market forces naturally address the problem," it said.