EU tariff plan deals additional blow to Korean steelmakers

Korean steel products are stacked at a port in Pyeongtaek, Gyeonggi Province, Wednesday. Yonhap

The European Union’s plan to introduce stronger tariff measures on imported steel is likely to deal a critical blow to Korean steelmakers, already reeling from increased duties imposed by the U.S.

If the European tariff plan takes effect as proposed, Korean steelmakers are expected to face major challenges in their two largest markets. Seoul, which remains in a dispute with Washington over tariffs on key sectors including steel, now faces the additional task of negotiating with the EU to mitigate the impacts to domestic businesses.

Calling it a safeguard measure to protect its steel industry, the European Commission on Tuesday (local time) proposed cutting tariff-free steel import quotas by almost half to 18.3 million tons, along with a doubling of the out-of-quota duty to 50 percent. The proposal is awaiting approval from the European Parliament and EU governments before it takes effect.

According to the Korea International Trade Association (KITA), Korea last year exported 3.93 million tons of steel worth $4.48 billion to EU nations. The figure tops the country’s global steel markets, outpacing the U.S., Japan, China and India.

Concerns are mounting that the plan targets hot rolled steel, cold rolled steel and galvanized steel, accounting for 55 percent of Korea's total steel exports to EU nations.

“We’re worried the EU’s new 50 percent tariff will deal a blow to the Korean steel industry. It would be another 50 percent tariff slapped on the Korean firms following the U.S.,” KITA said in a press release. Washington in June doubled the tariff to 50 percent based on Section 232 of its Trade Expansion Act of 1962 which entitles a president to regulate tariffs to ensure national security.

The U.S. tariff has already impacted Korea's total exports of steel products, which saw a 12.4 percent year-on-year reduction in May, 8.2 percent in June, 3 percent in July and 15.4 percent in August.

KITA said Korean steel in the European market is comparatively higher priced than other countries’ products, meaning they have a “higher added value” in the market. The organization said Korean products “have earned notable trust in the market for quality and thus will remain irreplaceable for a while.”

A worker stands in a factory as an electric arc furnace operates at the Marcegaglia steel plant in Fos-sur-Mer, France, March 24. AFP-Yonhap

KITA urged the Korean government to leverage the distinguished strength of the country's steel in the EU market to mitigate the impact.

“Finalization of the EU’s tariff measure for each country will come after the region’s negotiation with individual countries. Although it's not easy for Korea to draw an agreement from the EU to earn an exemption from the new tariff plan, we can rely on the 2011 Korea-EU Free Trade Agreement and fact that we export high-quality, low-carbon steel to the region. So there is a chance,” KITA said.

The association said Germany’s anticipated response to the EU’s new tariff plan will serve as a key factor influencing its impact on Korea. With imported steel in EU nations likely to be available at a higher price, German carmakers may see higher manufacturing costs.

Korea is among Germany’s top 10 global auto markets. With BMW and Mercedes-Benz leading German brands here, German car imports to Korea this year accounted for 45 to 50 percent of all imported vehicles.

With the EU tariff coming, Korea’s negotiations with the U.S. continued this week during the Chuseok holiday. Minister of Trade, Industry and Energy Kim Jung-kwan traveled to Washington on Oct. 3 and returned Monday, saying he and his U.S. counterpart Howard Lutnick will continue discussions through a subsequent meeting.

The key issue of contention is the U.S. request for a proposed $350 billion investment fund to be provided in cash. Korea is proposing most of the fund to be in the form of loans and guarantees, because the sudden massive outflow of dollars would destabilize its foreign exchange market.

Without any visible progress, the Korean presidential office on Thursday had a meeting involving top secretaries and trade-related ministers including Kim and Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol over the tariff issue with Washington.