*EPF517 04/19/2002
Text: OECD Talks on Steel Overcapacity to Accelerate
(Participants agree to review capacity cuts, OECD says) (1380)

Steel-producing countries have agreed to accelerate talks aimed at reducing global steel overcapacity, the Organization for Economic Cooperation and Development (OECD) says.

In the final communiqu?issued April 19 at the conclusion of the two-day high-level meeting on steel in Paris, OECD said that progress in the inter-governmental consultations under its aegis would help to diminish pressures for unilateral trade actions over the long run.

But it noted concern that the trade restrictions introduced in recent months could delay international efforts to restructure steel industries.

In March the United States imposed duties ranging to 30 percent on steel imports to give the U.S. steel industry a chance to restructure. Other steel-producing countries criticized the action as unfair and some filed complaint with the World Trade Organization. The European Union introduced its own import restrictions to prevent countries affected by the U.S. tariffs from diverting their steel exports to Europe.

Calling the "frictions" in world steel markets "a symptom of the serious structural problems," participants agreed that they needed to intensify efforts to address market-distorting practices, the communiqu?said. The group urged governments to increase efforts to facilitate industry restructuring and refrain from providing support to inefficient excess capacity.

But while participants discussed "a voluntary commitment" to limit market-distorting measures, the communiqu?said, they agreed only that "the climate was not opportune for the conclusion of such commitment in the short term."

U.S. Under Secretary of Trade Grant Aldonas has blamed other governments' subsidies and other support for their steel industries for perpetuating excess steel-making capacity.

Participants expressed concern whether the closures of excess capacity they had pledged earlier were definitive.

They agreed to define permanent closure better, review closure data and conduct peer reviews of previously agreed cuts to address this concern. The United States offered to be the first country subjected to such review, according to press reports.

At the February OECD high-level meeting participants promised to close up to over 120 million tons of excess capacity by 2005, as compared to the 1998 level.

The high-level group agreed to meet again later this year without specifying a date.

Following is the text of the OECD communiqu?

(begin text)

Organization for Economic Cooperation and Development

High-Level Meeting on Steel, 18-19 April 2002

19/04/02 -- Governments representing virtually all steel-producing areas (1) have voiced their support for the continuation of the inter-governmental High-Level dialogue on steel organised by the OECD. The dialogue was initiated in September 2001, with a view towards addressing immediate and longer-term issues in steel. It has focused on issues related to the elimination of inefficient excess capacity world-wide, and market distortions in the steel sector.

Current situation

The meeting provided participants with an opportunity to exchange views and information on recent developments in their steel markets and their respective steel industries. A tour de table revealed that pressures to take restrictive trade measures exist in many countries and that a number of actions already taken have resulted in disputes that are being addressed in the framework of the WTO [World Trade Organization]. Participants expressed concern that the current expansion of trade restrictions could delay needed industry restructuring. They agreed that the OECD exercise should be accelerated. Progress in inter-governmental consultations would help to diminish pressures for trade actions over the long run, as well as revisions thereof.

Directions for future work

Participants agreed that the frictions currently arising in world steel markets are a symptom of the serious structural problems in the industry. They concurred that they needed to intensify their efforts to address the factors that are distorting markets and contributing to the perpetuation of inefficient excess capacity. They urged that efforts to facilitate industry restructuring be increased, and that governments refrain from providing supports to inefficient excess capacity. They noted that the High-Level Group had made progress in a number of key areas, and agreed that governments should continue to work together, with a view towards identifying sustainable, long-term solutions to the trade and adjustment challenges in steel.

Inefficient excess capacity

Updated information presented at the meeting indicates that some 91 to 95 million tonnes of crude steelmaking capacity are expected to be permanently closed in participating economies by the end of this year, as compared with the 1998 level, with an additional 23 to 33 million tonnes expected to be permanently closed by 2005. While representing a significant reduction, there was concern whether such closures were definitive and how the level of closures would change, given current market conditions.

Participants in the dialogue agreed to:

-- define more precisely what is meant by permanent closure of capacity;

-- review their capacity closure data in view of the refined definition and taking into account present market conditions;

-- submit such data to the OECD Secretariat by end June 2002, at the latest;

-- deepen work on ways to facilitate restructuring and the closure of inefficient excess capacity;

-- examine the financial and regulatory experiences associated with closures and the types of assistance that could be used to support the closure process;

-- proceed to a review process for periodically updating information on changes in capacity in their respective industries.

The reviews by the Capacity Working Group, the first of which will take place in September 2002, will examine to what extent the capacity reductions forecasted by each economy are realised. It will also include assessments of (1) the views of the steel industries on their long-term viability, (2) identification of the economic, social and regulatory issues hindering the closure of uneconomic capacity, and (3) policies and proposals under consideration to encourage industry restructuring, capacity rationalisation and closure of inefficient capacity. Participants agreed to provide updated information on a semi-annual basis, and to complete an initial inter-governmental review of each economy by mid-2003. A future schedule will be worked out at that time.

Market-distorting government measures and industry practices

Participants discussed the work of the Discipline Study Group on market-distorting government measures and industry practices. They decided that the Group should, on the basis of a descriptive paper by the Secretariat, analyse areas where progress towards strengthening disciplines could be achieved, and to report their findings to the next High-Level Meeting.

The scope for a voluntary commitment by governments to limit market-distorting measures in steel was also discussed. Participants agreed that the climate was not opportune for the conclusion of such a commitment in the short-term, but that the matter should continue to be explored, as it could play an important role in the future work of the High-Level Group.

Next steps

The High-Level Group agreed to meet by years-end to evaluate the situation in steel and to discuss the results of the work being conducted on capacity and market-distorting measures. In the meantime, the Capacity Working Group will meet in September and in six-month intervals thereafter. The Disciplines Study Group will meet back to back with the Capacity Working Group, and thereafter, as necessary. It was agreed that industry representatives and specialists could be involved in specific aspects of this work.

The High-Level Group requested the Secretary-General of the OECD to inform the Council, at its Ministerial Meeting in May 2002, about the High-Level discussions in steel and their future directions.

The High Level meeting was held on 18-19 April 2002, in Paris, under the Chairmanship of Mr. Herwig Schl��l, Deputy Secretary General of the OECD. It was the fourth such meeting, with previous sessions held on 17-18 September 2001, 17-18 December 2001 and 7-8 February 2002. Non-Member economies participating in the dialogue do so on an equal basis with OECD Member countries. At the February meeting, a Disciplines Study Group and Capacity Working Party were established to support the work of the High Level Group.

(1) Argentina, Australia, Austria, Belgium, Brazil, Bulgaria, Canada, Czech Republic, Denmark, European Commission, Egypt, Finland, France, Germany, Greece, Hungary, India, Italy, Japan, Korea, Luxembourg, Mexico, Norway, New Zealand, Netherlands, Poland, Portugal, Romania, Russian Federation, Slovak Republic, Slovenia, Spain, Chinese Taipei, Sweden, Switzerland, Thailand, Turkey, Ukraine, United Kingdom, United States, Venezuela.

(end text)

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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