Britain risks trade war as steel tariffs extended

·4 min read
steel-making plant in Redcar, U.K - Chris Ratcliffe /Bloomberg News
steel-making plant in Redcar, U.K - Chris Ratcliffe /Bloomberg News

The UK has extended tariffs on imported steel by two years in a probable breach of World Trade Organisation rules.

Trade secretary Anne-Marie Trevelyan announced tariffs inherited from the European Union would be extended again in a move to “protect the steel sector.”

Ms Trevelyan said the move was “in the public interest” but admitted it “departs” from WTO rules. Critics say the move breaks international law and risks igniting a legal row or even a trade war.

The move was also criticised by customers of the steel industry, particularly those who import steel not made in the UK and who still face being taxed on it.

Britain carried over measures to protect the steel industry when it left the European Union. These rules apply to 15 categories of steel, restricting how much can be imported before a 25pc tax is imposed.

Without an extension, UK steel mills were at risk of “serious injury or the threat of serious injury,” Ms Trevelyan said.

She blamed high energy prices in the wake of Russia’s attack on Ukraine together with the “aftershocks” of the pandemic and too much supply in steel markets.

“On balance, we have therefore decided that it is in the vital public interest that Government acts to protect the steel sector, which is why we have taken the steps that we have,” the minister said. “We believe that this approach is in the public interest.”

Five categories of steel will have a two-year extension on their tariffs. Tariffs on 10 more types of steel, which include railway parts, will expire.

Ms Trevelyan admitted that the decision to extend tariffs “departs” from WTO rules, which means legal challenges could follow.

steel works british steel steel tariffs trade - PA Wire/John Giles
steel works british steel steel tariffs trade - PA Wire/John Giles

Gareth Stace, the director of trade body UK Steel, said the move protected jobs and the investment needed to decarbonise one of the UK’s most energy intensive industries.

But in protecting the steel industry, the government has added costs for its UK customers, which manufacturing bodies insist employ far more people.

Steve Morley, president of the Confederation of British Metalforming (CBM), said: “It is very welcome that the Secretary of State has listened to some of our requests and, importantly, acknowledges the importance of our members and downstream steel users to the UK economy.”

However, the increased tariff-free quota approved by the government falls short of manufacturers’ needs, he said, which “leaves companies in jeopardy still.”

“Downstream manufacturing accounts for over 290,000 jobs, nine times the number of people directly employed by the steelmakers. It’s time to protect everyone and not just a select few," Mr Morley said.

The move risks fights in court between producers and buyers, according to lawyer Jonathan Cohen, senior associate at Mayer Brown.

The extension “is likely to keep the price of steel higher than it would otherwise be and put further pressure on supply chains – many of which are already distressed as a result of the COVID-19 pandemic and the war in Ukraine,” he said. Commercial disputes are likely buyers quibble over the small print of contracts in an effort to get a better deal, he said.

Steel is central to the UK’s car, shipbuilding, aviation and defence industries, yet output has been dropping steadily for the last few decades, meaning that for specialist steels, buyers have to look abroad.

Last year the government could only obtain less than a third of the steel needed by large defence and nuclear projects in the UK, according to government data.

Users of steel had asked for the government to greatly expand exemptions on category 12a steel, an alloy that has not been made in the UK for some years.

Protecting what is left is critical, said Alasadair McDiarmid, operations director of the steelworkers' union Community.

"Government made the right call because giving up our safeguards, when the EU and US are maintaining theirs, would leave us exposed to import surges threatening thousands of jobs,” he said.

“Britain needs a strong steel industry for a prosperous and resilient economy, to deliver net zero, for our national security, and to safeguard high quality jobs in places that really need them.”

The UK will exclude Ukrainian steel from the rules in an effort to assist Ukraine’s ailing economy.

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