UK extends safeguards as “free trade” argument persists
The United Kingdom’s withdrawal from the European Union, two years ago, was heralded as the start of a new era.
In the post-Brexit environment, the British authorities have attempted to forge economic partnerships with many countries, around the world, away from the purported bureaucracy of the regional trading bloc.
Central to its sales pitch has been the mantra of free trade. The UK is looking to portray itself as a global-looking nation that is open for business.
The recent decision to extend tariffs on steel imports for a further two years – until June 2024 – is, arguably, at odds with these principles.
Protectionism has been a key feature of the global steel scene since 2018. Section 232 restrictions, in the United States, were introduced by the Trump administration. In response, the EU – when the UK was still a member – implemented measures of its own.
Following the country’s departure from the EU, the UK government had to examine the case for maintaining or ending such measures.
In June 2021, the UK Trade Remedies Authority (TRA) proposed that safeguards on ten product categories should be extended for three years. Additionally, the UK government chose to enact emergency legislation to temporarily extend restrictions, for one year, on five of the categories for which the TRA had recommended measures should be repealed.
Approaching the expiry of the temporary measures, many domestic steel consumers hoped that the country may finally move away from protectionism. This would enable them to buy from all corners of the world at competitive rates.
Given that the United States and the EU have made few moves to remove existing barriers to trade, the UK government, perhaps unsurprisingly, decided to extend these temporary measures until June 2024.
With the exception of certain exemptions for developing nations, the restrictions add a twenty-five percent duty to the price of steel imports, once a certain quota limit has been reached.
This is seen as controversial by some in the UK. To avoid challenges at the World Trade Organisation, governments must perform an “investigation to determine whether increased imports have caused or are threatening to cause serious injury to a domestic industry” before enacting safeguarding legislation.
The TRA recently completed this task. It determined that there is no evidence that unrestricted imports of these five product categories will affect the UK steel industry – hence its initial recommendation to suspend the measures on these products.
The UK government has subsequently argued that any removal or weakening of trade legislation would leave domestic steel manufacturers hugely exposed to an influx of cheap steel entering the country.
Steel prices fall
The arrival of imported material purchased in the period shortly after Russia’s invasion of Ukraine, alongside a recent slowdown in buying activity, has prompted a fall in local steel prices – with figures now returning to pre-war levels.
The United Kingdom remains an attractive proposition for traditional and would-be exporters. The ongoing impact of Covid-19, and poor end-user trading activity, is resulting in continued weakness in their home markets. A shortage of components is hampering car-related demand, and the construction sector is suffering, due to inflationary pressures, in many countries.
Moreover, freight disruption is easing, to an extent. Transport rates are falling, albeit from sky-high peaks, and availability of break bulk vessels and container shipping capacity is improving.
Many East Asian steel suppliers – often with the benefit of cheap Russian-origin feedstock – are able to offer material, at attractive prices.
Turkish flat and long product prices remain highly competitive, given the recent drop in scrap costs, and the lack of activity, domestically. It is understood that Indian hot rolled coil – with boron additions – is still being widely offered, despite the recent introduction of an export tax. Meanwhile, Vietnamese mills are keen to sell surplus stock, at every opportunity.
Steel manufacturers, in the UK, have successfully lobbied that they would struggle to compete against low-priced competition, if importers had “carte blanche” to supply the market, at will. Domestic output, which is already restricted, could be withdrawn further, owing to soaring energy costs.
The strategic importance of the steelmaking sector, in the UK, cannot be questioned. Many domestic buyers bemoan a lack of reliable and consistent supply, from home outlets. They cite these problems, in argument against protectionist measures.
The UK has decided to maintain its position, by extending the trade measures. While this ‘restriction of choice’ may frustrate many steel-users, it may just help local producers to remain competitive amid turbulent and extraordinary times.