European steel producers are unhappy with the EU’s administrative rules for tariff-rate quotas following their revision in July. In particular, Dow Jones Energy sources point to the prorated allocation of duties among shipments processed on a first-come, first-served basis.
In July, the EU tightened safeguards for the steel industry. The market is now in the second trading quarter since the new rules took effect.
Market participants have had time to assess the complexities of the new system. It roughly halved duty-free import volumes and raised the duty on imports above quota to 50%. Steel producers are increasingly saying that certain provisions can be exploited. In particular, they are concerned about how first-come, first-served quotas interact with duties when initial applications exceed the available volume.
EU quotas open at the start of each trading quarter. The first period, from July to September, was an exception: an 11-day transition period applied, during which customs clearance was blocked. Global quotas, which suppliers from different countries compete for, become available only after a country-of-origin quota has been exhausted. Importers whose goods are already at port typically try to clear them as quickly as possible to access duty-free volumes and avoid the 50% duty.
However, competition for duty-free volumes and the fragmented operation of customs authorities in the 27 EU member states mean that clearance applications submitted on the first day are treated equally. As a result, the duty is prorated across all eligible shipments. This allows volumes above the quota limit to be imported without paying the full 50% duty: the duty is applied to the entire volume at a reduced rate.
Under this approach, no shipment is entirely duty-free. But prorating the duty reduces import costs and could result in more steel entering the EU market than was envisaged when quotas were cut, at a price local producers may struggle to compete with.
How duty reduction works: Product Category 24
A case in point is the quota for Product Category 24, “other seamless tubes.” China has an annual duty-free limit of 52,635.36 t, or 13,158.84 t per quarter.
Market participants say that a significant volume of Chinese tubes was cleared into the EU after the fourth-quarter quota opened in October. As a result, the 50% duty was prorated across all shipments that cleared customs.
Data from the EU quota balance counter in the TARIC system show that China’s Category 24 quota has been exhausted. The last shipments recorded on October 8 were allocated 0% of the quota, indicating that at least some imports above quota are subject to the full 50% duty.
However, EU quota data do not make it possible to determine the duty actually paid. It can be calculated or estimated using the figures for “total volume awaiting allocation” and “quota share allocated in the latest allocation.” But this information is available only for the latest registered import declaration and is not retained in EU customs databases.
Without continually collecting and retaining TARIC data, market participants lose the ability to track not only volumes that may have exceeded the EU limits, but also the actual duty rate on those products.
In this case, weekly reports from the European Steel Tube Association (ESTA) on the use of the Category 24 quota help clarify the situation. They include up-to-date figures for the volume awaiting allocation. In ESTA’s October 2 report, the remaining Chinese quota stood at 13,159 t, while another 23,948 t was awaiting allocation—almost twice the EU limit.
However, ESTA’s report does not include data on the quota share allocated in the latest allocation. It is therefore impossible to confirm that the duty was in fact reduced through prorated allocation: some import declarations may have been withdrawn, as can happen, for example, in Italy. Nevertheless, a cost analysis points to the benefit of clearing such shipments.
If 23,948 t were cleared at once when the initial balance stood at 13,159 t, the quota would be exhausted and the 50% duty would have to be applied to 10,789 t. But EU member states’ customs authorities have no mechanism to distribute the quota fairly among all applications received on the first day. As a result, the 50% duty is prorated across the entire volume of 23,948 t, giving an effective rate of 22.53%.
Cost of deliveries
Market participants surveyed by Dow Jones Energy reported an offer from China at 568 euros per tonne FCA. Including delivery, the CIF price is 768 euros per tonne. With a prorated duty of 22.53% and costs under the Carbon Border Adjustment Mechanism (CBAM), the total delivered cost reaches 1,071 euros per tonne. The offer estimate includes CBAM costs of 130 euros per tonne—the same figure shown by Dow Jones Energy’s CBAM default values calculator.
According to EU suppliers, the typical price for a comparable domestically produced product is 1,350 euros per tonne. Thus, even with tighter safeguards for the steel industry and CBAM costs calculated using default values, imports may cost almost 300 euros per tonne less than local offers. Moreover, even with the 50% duty applied to the CIF price, the total cost remains almost 100 euros per tonne below indicative domestic prices. This suggests that, at least for Category 24, the EU’s new measures do not fully protect producers from either import volumes or price competition.
Steel producers note that when a high duty is needed to close such a cost gap—as is often the case with shipments from China—it may not deter low-cost exports to the EU above quota, but instead encourage them.
Trader sources confirm that the opacity surrounding prorated duties and volumes awaiting allocation in the TARIC database makes it difficult to assess import availability after initial shipments have been registered.
“The EU does not keep this data publicly available, so we don’t even know how much volume is awaiting allocation—what has already been recorded and what has been withdrawn,” one trader said. “It is very difficult to assess the situation.”
Importers, however, consider the current system of prorated allocation the most workable option: with customs services fragmented across EU member states, it is difficult to track the order in which applications are submitted. In their view, it makes little sense to demand the full duty if quota space was clearly available when an application was filed.
Market participants say the combination of the first-come, first-served principle and prorated duty allocation has been in place for a long time and was also used under the previous safeguard system, introduced before July. However, its effects previously fell mainly on imports of flat-rolled products. Now that overall steel quota volumes have been reduced, lower duties could become a problem for new product categories as well. Producers would like to see this shortcoming addressed, especially if the new tariff-rate quotas become a permanent feature of EU steel trade policy.
By Benjamin Stephen
opisnet.com
