_ HKTDC Research. Hong Kong, 14 August 2018.
Hong Kong’s trading community will likely be aware that the EAEU is a political and economic union of states located in central and northern Eurasia. Members of the EAEU comprise Russia, Belarus, Kazakhstan, Kyrgyzstan and Armenia. The EAEU has an integrated single market of 183 million people and subscribes to the concept of the free movement of goods, capital, services and people. It provides for common policies in, among others, transport, industry, agriculture, energy, foreign trade and investment, and customs, operating through supranational and intergovernmental institutions.
EAEU producers fear that certain countries, in response to the US tariffs on steel products which entered into force on 23 March 2018, as well as in light of potential EU and Turkish safeguard measures, will redirect their sales to the EAEU, flooding the market and depressing prices.
The safeguard investigation covers three categories of steel products: hot-rolled and cold-rolled sheets and coils, as well as coated flat products. Although some Member States of the EAEU (e.g., Belarus), and the EAEU itself, are not Members of the WTO, the Eurasian Economic Commission aims to follow the WTO’s rules on safeguards. Specific provisions in the WTO agreements, as well as the respective WTO accession commitments of the EAEU Member States that have been implemented by the EAEU as part of the international agreements among its Member States, have become an integral part of the EAEU’s legal order and should prevail over other laws that conflict with it.
Moreover, the Eurasian Economic Commission has already referred to the WTO case law in its report in another safeguard case, quoting the WTO’s Appellate Body and referring to the WTO’s practice generally. Under WTO rules, safeguard measures (i.e., a temporary restriction on imports of certain products) may only be adopted if it has been determined, through a safeguard investigation, that – as a result of unforeseen developments – the products concerned are being imported in such greatly increased quantities so as to cause, or threaten to cause, serious injury to the domestic producers of like or directly competing products.
The information currently available to the Eurasian Economic Commission indicates that the total imports of the products concerned increased significantly in the period between 2015 and 2017.
Moreover, the increase in imports is said to be the result of unforeseen developments, such as global overcapacity in steel-making and trade measures adopted by a series of third countries in the context of that global overcapacity. The Eurasian Economic Commission also stated that there is evidence that imports of the products concerned have had a negative impact on the financial and production performance of EAEU producers and that import prices negatively affected the EAEU’s sales prices. This is despite the fact that import prices of hot-rolled flat products and coated rolled steel were higher than the EAEU’s industry prices during the period 2015-2017.
The safeguard investigation will, in principle, be concluded within nine months, i.e. by 7 May 2019. If the EEC, pursuant to the investigation, considers that safeguard measures are necessary to protect the EAEU industry, it can impose definitive safeguard measures for a period of four years. If need be, this period can be extended up to eight years.
The safeguard measures can take the form of tariffs on global imports and may be attached to quotas. Moreover, the measures would have to be applied to imports from all countries in a non-discriminatory manner. Thus, if safeguard measures were to be imposed, these would be applied to imports from Hong Kong and the Chinese mainland just as from any other non-EAEU country. In this regard it should be noted that, according to the Eurasian Economic Commission, mainland China is among the three top suppliers of coated rolled steel and cold-rolled sheets and coils.
Should provisional safeguard measures prove necessary, the Eurasian Economic Commission could impose these on short notice, but no later than 6 months from the initiation of its investigation. The Eurasian Economic Commission can impose provisional safeguard measures (i) in critical circumstances, where delay would cause damage which would be difficult to repair, making immediate action necessary, or (ii) where a preliminary determination provides clear evidence that increased imports have caused or are threatening to cause serious injury. The provisional measures could last for a maximum of 200 days.
The initiation of the EAEU safeguard investigation is a direct response to the wave of protectionist measures worldwide, including US President Trump’s decision to impose a 25 percent ad valorem tariff on certain steel products and a 10 percent ad valorem tariff on certain aluminum products as of 23 March 2018. The notice of initiation explicitly refers to this global context, stating that “the increase in imports to the EAEU is apparently inevitable” due to, among others, the US Section 232 measures. Furthermore, the Eurasian Economic Commission refers to the on-going steel safeguard investigation in Turkey and the EU. The latter has already resulted in the imposition of provisional measures.