The Government’s rejection of the motion to extend the UK’s Steel Safeguards will will damage sector by £100m and threaten 2,500 jobs, it has been claimed.
UK Steel said the removal of nine product categories, as the TRA is recommending to the Secretary of State, leaves half of steel products exposed to uncontrolled surges in imports.
The UK has had steel safeguards as part of the EU since 2018, these were transitioned into UK law in January 2021. The measures were introduced to limit further increases in imports because of a dysfunctional global trading environment for steel namely: global overcapacity of steel, trade diversions resulting from US introduction of steel tariffs, and increased use of trade defence measures globally.
The measures allow for tariff-free imports equivalent to 115% of historic levels, with further relaxations every year. This provides a balance between different industrial interests.
UK Steel Director-General Gareth Stace said the Government had voted to reject emergency legislation that would have given steelmakers the same protections that have recently been extended to their EU competitors.
“The TRA’s
initial decision to terminate steel safeguards for 9 out of 19 product
categories left the sector exposed to uncontrolled surges in imports,” he
explained and added: “we have had it confirmed that the EU will extend their
entire safeguards measures for three years. This was already a decision which undermined the effectiveness of the remaining safeguards. Now with an EU extension definitely happening, huge diversions of product into the UK are practically guaranteed.
“UK Steel figures show that the proposed weaking of the safeguards could cost the sector an estimated £100 million as a result of increased imports and subsequent reduced market share and profitability for UK producers. This loss in sales is equivalent to 50% of the entire capital investment of steel producers each year, or 2,500 employees, 8% of the total employment in the sector. Such a knock to profits would likely see a mixture of job losses as well as sharp contractions to capital investment made in the sector in future years, jeopardising the sector’s ability to innovate, modernise and decarbonise.
“To make matters worse, the EU and US appear to be moving swiftly towards an agreement to exempt the EU from Section 232 tariffs, with a UK exemption nowhere in sight. UK producers have already suffered a 50% reduction in exports to the US, and with EU competitors looking set to gain a 25% cost advantage over us, the situation is only going to worsen.
“The Government must urgently intervene to support the sector and ensure the right decision is made. Inaction will simply condemn the UK steel industry to competing in an unfair trading environment facing barriers to export while not having adequate defences at home. We would lose share of our home market while not being able to offset this with export gains.
“The government need to make their actions match their rhetoric and ensure UK producers are provided with the same support as our US and European counterparts. We want to work with the Government to level up Britain, instead they are levelling down our steel sector.”
The EU has proposed extending its safeguard measures across all product categories and the US is virtually certain to retain Section 232 tariffs, increasing the likelihood of trade diversion to the UK. The EU and US are also in bilateral negotiations to end tariffs on steel and aluminium products with a deadline of the end of the year, leaving UK producers in an additionally disadvantaged position.
UK Steel says the UK unilaterally weakening its measures will open our market to import surges just as the sector recovers from COVID-19, and, crucially, at a time when our exports to the EU and US will still be subject to tariffs and quotas.
Assuming that importers gained 10% of market share as a result of safeguards being removed on nine product categories, this could result in a loss of £103 million in profitability, taking into account the margin impact of both the reduction in UK sales and the likely downward pressure on prices. This would be equivalent to the wage bill of 2,574 workers, whose jobs would be at risk, let alone the impact on indirect employment.
Such a drop in profits would also likely result in a sharp contraction in investment on a scale of £100 million, as producers will have to focus on the bare minimum statutory and essential replacement as opposed to value-adding investment.
