Eurofer Position on the Commission’s Proposal to reform Preferential Rules of Origin
On June 11, 2007, the Commission invited European Industry Associations to present their views on its proposal for amending the rules of origin under the EU Generalized system of Preferences introducing the single criterion of value-added based on ex works prices.
The European steel industry cannot support such a proposal for the following reasons:
A regime for conferring preferential origin based on value-added will be disruptive to international trade in steel by introducing an element of uncertainty as to when preferential origin will be changed.
Currently, changes in origin for all steel products are defined by reference to the tariff schedule – specified changes in tariff heading confer origin. This provides predictability and transparency. The steel industry comprises a series of different process stages. Products emanating from each distinct process stage are easily distinguishable from each other, and are widely traded.
The introduction of a single method determining whether non-originating materials have been sufficiently worked or processed, based on a value added in the beneficiary country, are for the steel industry by no way practicable and therefore not acceptable at all.
The main reasons are the following:
Steel prices fluctuate widely, and these fluctuations do not always run in parallel. Temporary shortages of one product in one region of the world may lead to prices for that product in that region rising disproportionately faster than prices for a downstream product in another region – and vice versa.
Thus, if a value added system were to be adopted, a transaction that conferred origin one month may not do so the next month.
As an example, the following table, extracted from published sources, shows movements in price for steel slab exported from Latin American ports compared with European domestic prices for downstream steel products in just a three month period. The intention is to demonstrate how widely price relationships can vary in a short period of time.
| March 2007 | June 2007 | |||
| €/tonne | Value added | €/tonne | Value added | |
| Slab (Latin America Export prices FOB) | 362 | 411 | ||
| Hot rolled coil* | 520 | 43% | 510 | 24% |
| Cold reduced coil/sheet* | 615 | 70% | 580 | 41% |
| Hot dipped galvanized* | 675 | 86% | 620 | 51% |
| *EU domestic price | ||||
| Source: Metal Bulletin | ||||
To further complicate matters, there is a vast range of different grades, sizes, finishes etc for each steel product, each with its own price adjustment.
Furthermore, the development of exchange rates – free floating or even artificially fixed like in China – would increase the uncertainty as to when preferential origin will be obtained for all steel products.
An additional aspect to be taken into account is the sourcing of pre-materials from third countries on the basis of long term contracts, which are necessary to secure a constant supply for production. Due to the nature of long term contracts, pre-material will in many instances be processed into finished products long after the contract with a fixed price has been concluded, in extreme cases even more than one year later. Nobody can foresee the market price for the finished product over such a long period.
The complexity of this aspect is even widened by the fact that there is more than “one” market price for finished steel products worldwide at the same time (for example home market prices differ often substantially from export markets).
These above mentioned examples of uncertainty convincingly show that it is impossible for the steel industry to control the process of obtaining preferential origin or not. No existing data processing system worldwide is able to handle such a complex problem – simply because the necessary details and parameters are changing too quick and too often. The consequence would be that neither the steel industry nor their customers in the EU could benefit from bilateral free trade agreements in many cases. This is a clear contradiction to the targets of the Lisbon agenda to strengthen the competitiveness of the EU industry.
For all these reasons, the Eurofer strongly rejects any threshold added value approach (whether or not based on ex-work price or net production cost) and requests to retain the principle of specified changes in tariff headings to confer preferential origin for steel products (Chapter 72).