April 3, 2007 / 1:44 PM / 13 years ago

EU warns China to rein in steel and shipbuilding

BEIJING (Reuters) - The European Union has told China that it will face a growing threat of trade penalties unless it curbs breakneck capacity expansion in steel and shipbuilding, EU diplomats said on Tuesday.

In this file photo a Chinese labourer welds steel bars at a construction site in Huaibei, east China's Anhui province, December 31, 2006. The European Union has told China that it will face a growing threat of trade penalties unless it curbs breakneck capacity expansion in steel and shipbuilding, EU diplomats said on Tuesday. REUTERS/China Daily

The diplomats, who declined to be identified, said EU Industry Commissioner Guenter Verheugen had delivered the warning during a round of high-level meetings in Beijing.

They said feelings were running high over the two sectors because steel was an important industry in nearly all of the EU’s 27 member states and because the EU’s own shipbuilding industry had just been through a painful round of consolidation.

An EU spokesman in Beijing, Michael Jennings, said later that Verheugen strongly distanced himself from any suggestion that the EU was close to initiating any measures on steel or shipbuilding.

Verheugen’s mission to China had been one of dialogue and openness, Jenning said. But he added: “Both sides discussed that overcapacity was an issue.”

Verheugen alluded to the EU’s concerns at a news conference.

“We have discussed already today and yesterday certain areas like shipbuilding and steel, for instance, and others where there is a mutual interest to avoid overcapacity. That is something that is very important,” he said.

Verheugen expressed confidence that the EU-China industrial policy dialogue would allow the EU “to benefit from economic development in China without interference and intervention”.

But one diplomat said Verheugen had urged Beijing not only to rein in capacity but also to issue fewer steel export licenses.

Brussels was alarmed by a surge of Chinese steel exports to the EU last year, when China became a net exporter of the metal for the first time.

China’s steel product exports to Europe jumped to more than 5 million tonnes last year, from 300,000-400,000 tonnes in 2005, and reached one million tonnes this January alone, according to the European Confederation of Iron and Steel Industries.

Although the EU is confident that China’s overall steel export growth will slow this year, it fears China could be displacing it in the important U.S. market, the diplomat said.

On shipbuilding, he said Beijing was aware that Brussels was ready if need be to resort to the Injurious Pricing Instrument, an EU trade protection tool that is the equivalent of anti-dumping measures for shipbuilding.

At his news conference, Verheugen said he regarded growing competition from China not as a threat but rather as an opportunity for EU industry to raise its game and become more innovative.

The number of anti-dumping cases brought against China was minuscule compared with its exports to the EU. And in one high-profile case, involving shoes, the extra duties had not even affected retail prices in Europe, Verheugen said.

“A protectionist attitude towards China will not develop,” he said.

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