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World Trade Organisation - Committee on Safeguards

by- O P Verma, Suchitra Sengupta Jul-26-2002

Notification under article 12.1(A) of the agreement on safeguards on initiation of an investigation and the reasons for it notification under article 12.4 of the agreement on safeguards before taking a provisional safeguard measure referred to in article 6 and notification pursuant to article 9, footnote2 of the agreement on safeguards the people's republic of China.

The following communication, dated 20th May 2002, has been received from the Permanent Mission of China.

Upon instructions from my Government, I am pleased to forward you three notifications from China under the Agreement on Safeguards. The first one is made pursuant to Article 12.1 (a) of the Agreement on Safeguards, on initiation of a safeguard investigation on some of the steel products. The second one is made pursuant to Article 12.4 of the same Agreement, on a provisional safeguard measure to be taken on some of the steel products. The third one is made pursuant to Article 9 of the same Agreement, on non-application of the proposed provisional safeguard measure on some developing members.

Notification Pursuant to Article 12.1 (A) of the Agreement on Safeguards

1.   Date of initiation of the investigation 20 May 2002.

2.   Products subject to the investigation Certain steel products, specifically non alloy plates, non alloy sheets and coils, electrical sheets, stainless steel plates and sheets, other non alloy steel strips, non alloy wires, non alloy bars and rebars, non alloy sections, seamless pipes, welded pipes, slabs.

3.   Reasons for initiation of the investigation The investigation was initiated pursuant to the application from China Steel Industry Association, Shanghai Baoshan Steel and Iron Group Corporation, Anshan Steel and Iron Group Corporation, Wuhan Steel and Iron Corporation (Group), Capital Steel and Iron Corporation, and Handan Steel and Iron Company Ltd. (Hereinafter referred to as the Applicants), submitted on 19 April 2002. Information provided by the Applicants indicated a recent dramatic increase in imports of the steel products under investigation, and that repressed sales, stagnant and declining utilization of capacity, market prices, profitability and market share of the like and directly competitive products are prevalent. Therefore, critical circumstances do exist, and delay would cause damage, which would be difficult to repair.

4.   Further information A copy of the Public Notice on initiation of Safeguard Investigation will be submitted to the WTO Committee on Safeguards for reference.

Notification Pursuant to Article 12.4 of the Agreement on Safeguards

1.   Product subject to the proposed provisional safeguard measure Certain steel products, specifically non alloy plates, non alloy sheets and coils, electrical sheets, stainless steel plates and sheets, non alloy wires, non alloy bars and rebars, non alloy sections, seamless pipes, and slabs. Tariff lines of the products and their descriptions are listed in Annex 1 of this notification.

2.   The proposed provisional safeguard measure Tariff quotas shall be applied as of 24 May 2002 to the above-mentioned 9 categories of steel products. The existing import tariff rates shall be applied to imports within the quotas, while an additional duty of 7 per cent-26 percent over the current import tariff rate shall be levied on imports exceeding the quotas. The tariff quotas shall be established on a global basis. Detailed information of the measure is found in Annex 2 of this notification.

3.   Proposed date of introduction of the provisional safeguard measure 24 May 2002.

4.   Expected duration of the provisional safeguard measure, if any decision on the duration has been made Duration of the provisional safeguard measure will be 180 days.

5.   Reasons for taking the provisional safeguard measure Basis for making preliminary determination that increased imports have caused or are threatening to cause serious injury.

(i)   Unforeseen developments

The US ITC initiated a safeguard investigation on steel products in July 2001, and the US proclaimed on 5th March 2002 the imposition of safeguard measure against steel imports, which was to be applied as of 20 March 2002. The US measure further impeded the steel imports into the US market. The recent years witness that the US has been repeatedly taking trade measures against steel imports resulting in a 33 per cent decrease of steel imports during the period from 1998-2001.

The European Union (EU) proclaimed, on 27 March 2002, that provisional safeguard measures be imposed against steel imports as of 29 March 2002.

(ii)   Import increase

Statistics submitted by the Applicants indicate that the import volume of the steel products subject to investigation has kept increasing in absolute terms in 1999, 2000 and 2001.

Statistics submitted by the applicants also indicate that import of the 9 categories of steel products increased dramatically recently. The 9 categories of steel products are non alloy plates, non alloy sheets and coils, electrical sheets, stainless steel plates and sheets, non alloy wires, non alloy bars and rebars, non alloy sections, seamless pipes and slabs (hereinafter referred as the "9 investigated products").

The increase of import volume of the 9 investigated products is demonstrated in the table below.

Year Total Import of the 9 Investigated Products (in 10,000 tons) 1997 1072.6 1998 1072.32 1999 1504.93 2000 1876.37 2001 2320.7

The total import volume of the 9 investigated steel products in 2000 grew by 24.68 per cent compared with 1999, and it grew by 24.16 percent in 2001 compared with 2000. The import volume of each of the 9 categories of products has been increased in absolute terms.

(iii)   Serious injury or threat thereof

Evidence provided by the Applicants shows that the increase of steel imports causes serious injury or threat thereof to the domestic industry.

According to the relevant document submitted by the Applicants, all relevant factors of an objective and quantifiable nature from 1997 to 2001 are evaluated, in particular, the import trend of each product, the share of the domestic market taken by increased imports, changes in the level of sales, production, productivity, capacity utilisation, profit and losses, and employment. The evaluation shows:

1.   During the period from 2000 to 2001, imports of the 9 investigated products showed an increase in absolute terms. Import increases of the investigated products vary from 10 thousand tons to 3.49 million tons, with an increase rate of 0.24 per cent - 89.36 per cent. In comparison to the increasing imports, the production of domestic like products grew slowly.

2.   In terms of the capacity utilisation, the non-alloy bars and rebars sector showed a downturn in the period from 2000 to 2001, and the other products remain roughly unchanged.

3.   Growth of the sales of the domestic like products was seriously suppressed by the dramatic increase of the imports of the investigated products. Sales of the domestic like products should have been growing given the continuous increase of consumption of the products. However, the fact is that the growth rates of sales of the domestic like products have fallen below those of consumption (except slabs).

4.   Domestic demand for steel products has been on the rise. However, the market share of domestic like products remains unchanged or even decreases slightly. Market share for domestic produced slabs experienced a most rapid decrease, from 81.49 percent in 1998 to 51.67 percent in 2001. In addition, market share of domestically produced stainless steel plates and sheets declined from 26.02 percent in 2000 to 22.57 percent in 2001.

5.   During the period from 2000 to 2001, import prices for 7 out of the 9 investigated products recorded a rapid decline with the only exception of electrical sheets and seamless pipes, which However, the surge of low-price steel imports suppressed the prices of domestic like products and even led to the decrease.

6.   During the period from 2000 to 2001, except for seamless pipes (with a slight increase of 0.9 per cent), Chinese domestic industries producing the like products suffered from a substantial drop of profitability rate. In particular, the profitability rate of non-alloy wires industry decreased from 4.18 per cent to l .3 percent that of slabs form 6.1 percent to 3.3 percent. More seriously was the stainless steel plats and sheets industry where the profitability rate plummeted from 2.8 percent in 2000 to -8.8 percent in 2001, representing a negative growth rate of 11.6 percent. Prior to the period (between 1997 and 1999), the profitability rates of domestic industries were extremely modest. Some had already suffered from losses. For example, the profitability rate of electrical sheets plunged from 25.5 percent in 1997 to -14.99 percent in 1999.

7.   Regarding the profits or losses per unit (RMB Yuan/ton) of the 9 investigated products, profits dropped sharply in recent years. Particularly, the unit profit of stainless steel plates and sheets plummeted from 338.27 yuan per ton in 2000 to =845 yuan per ton in 2001. The decrease margin reached 349.8 per cent.

8.   In terms of the change in employment of the domestic industries of the like product, during the period from 2000 to 2001, except for electrical sheets, employment of all the other 8 investigated products experienced dramatic decrease. For example, the number of employees for non-alloy sheets and coils industry decreased by 189,114, that of the non-alloy bars and rebars by 414,466 that of non alloy plates by 8097 and that of non alloy wires by 64,521.

9.   Based on the above evaluation and analyses, it is preliminarily determined that Chinese domestic industries manufacturing the 9 investigated products suffered from serious injury or threat thereof, and that the threat is clearly imminent.

(iv)   Causal link

Based on the information available, there is a reason to believe that there is a linkage between the decrease of the US steel imports and the increase of the steel imports to China.

The import increase of the investigated products resulted in stagnant sales and lingering or even shrinking market share of domestic like products. Since imported products and domestic like products have basically same physical characteristics, end-use and are interchangeable, they were mainly competing by prices. Import surge suppressed the domestic like products in terms of the increase of their sales level and market share.

With suppressed increase of the sales level and market share of the domestic like products, sales income of the domestic industries decreased. Low capacity utilisation with added unit production cost brought down profitability.

As a result, the import surge of the 9 investigated products has already caused and is still leading to the decrease in sales volume, prices and sales income of the like products in China, which in turn -caused rapid decrease of profitability. Import surge has already caused serious injury to domestic industries and is still threatening to cause serious injury.

(v)   Other relevant factors

In order to find whether there are any factor(s) other than important increase causing serious injury or threat thereof to domestic industries, preliminary evaluation was conducted on other factors that may the short-term economic slowdown resulted from the 9.11 Event, and the reduced exports of the domestic producers to the US market.

The preliminary analyses find that the import increase has been the substantial cause of the serious injury or threat thereof to the domestic industry.

Basic for determining that there are critical circumstances where delay would cause damage which would be difficult to repair.

(vi)   Critical circumstances

The critical circumstances refer to circumstances where delay would cause damage, which would be difficult to repair. As analyzed above, the serious injury is clearly imminent. As a result of import increase of the 9 investigated products, the domestic industry is undergoing a very hard time.

The imposition of safeguard measure against steel imports by the US hampers the steel products from entering the US market. The EU followed suit in adopting provisional safeguard measures against steel imports. With a preliminary evaluation on the possible destinations of the large volume of steel trade diverted from the US market, it is determined that no other market can absorb such a large volume of trade diversion. As the world third largest steel market after the US and the EU, the open Chinese market might become the main destination, which the steel product kept away from the US, market may choose.

As a result, there are critical circumstances in domestic steel industries where delay would cause damage, which would be difficult to repair.

(vii)   Other Information

A copy of the Public Notice on Provisional Safeguard Measures on Certain Steel Products will be submitted to the Committee on Safeguards for reference.

The countries against whom safeguard action is applicable are: Republic of Korea, India, Iran, Argentina, Mexico and Ukraine.