The devil in the detail – testing Britain’s mettle

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A test of Britain’s mettle. Photo: Qilai Shen

Tata Steel has been in the news again this week, as talks over its future business in the UK have come to a head in Mumbai.

The company has decided to sell their UK business, at the expense of thousands of jobs.

In Port Talbot and its sister plant in Newport, around 5000 people are employed by the steel producer, and the plants have an output of four million tonnes of steel every year.

The UK government is combating increasing criticism on its indicating the UK plants will not be nationalised as a method to keep the industry alive.

Many have pointed to its bailing-out of RBS (which cost the taxpayer £46bn), asking why they would not do the same for the likes of Port Talbot – a business held, almost romantically, as a remnant of the UK’s history as an industrial powerhouse.

The crisis has resulted in a huge amount of cheap steel being exported by China, where China is “flooding the market” with the material, causing British companies to opt for the cheaper steel over more expensive British steel.

There are several key pieces of the story mainstream media appear to be overlooking, namely: China’s GDP slump, and the EU directive of 2004.

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Sajid Javid refused to rule out nationalisation. Photo: The Guardian

China’s economy remains in growth mode, but not as strongly as it has in the past five years. From highs exceeding 10% annual GDP growth, China is now growing at a rate of 6.8%.

Therefore, the argument exists that China is “flooding international markets” due to a drop in demand within China for steel, due to its gradually slowing economy. With enormous supply and falling demand, the solution for China is to sell.

This theory is backed up by China’s recent decision to place anti-dumping tariffs of 46% on hi-tech steel produced in the UK and EU. This could be due to China’s current over-supply situation, in which it would have nothing to use the imported steel for.

Nevertheless, the specificity of China’s tariff on a particular type of steel – which happens to be produced in Port Talbot – does raise questions.

Secondly, under EU Directives, the UK is obliged to accept contracts from Chinese companies, and so is limited in its ability to use British steel.

Article 53 of Directive 2004/18/EC states:

Contract award criteria

1. Without prejudice to national laws, regulations or administrative provisions concerning the remuneration of certain services, the criteria on which the contracting authorities shall base the award of public contracts shall be either:

(a) when the award is made to the tender most economically advantageous from the point of view of the contracting authority, various criteria linked to the subject-matter of the public contract in question, for example, quality, price, technical merit, aesthetic and functional characteristics, environmental characteristics, running costs, cost-effectiveness, after-sales service and technical assistance, delivery date and delivery period or period of completion, or

(b) the lowest price only.

In essence, if a public body in the UK puts a project out for tender, they are under Directive to accept the best deal for the taxpayer, be that from a Chinese, German, Indian, or British company.

For example, the new South Queensferry Crossing over the Firth of Forth has had its deck built by a Chinese company, which has “been a factor in lowering the cost of building the bridge.”

Thus, we come to the issue of the EU once again, and some indeed argue that, outside of the EU, the UK could set higher tariffs on Chinese steel.

UK Steel, the steel industry’s trade association, points out that the UK currently operates a tariff cap of 9%, with the government saying lifting the cap would hurt other areas of the economy, such as the car manufacturing industry.

However, countries such as Germany and France, both key car manufacturers in the EU, are in favour of lifting the cap.

Another area in which France and Germany are pushing the EU is in the area of procurement when putting projects out for tender. As stated above, choice of company is based on upfront cost, not lifecycle costs, as both France and Germany are pressing the Commission to amend its position of this.

The UK has not.

Within the EU, though, the UK has a number of benefits due to the open market, into which the UK exports three million tonnes of steel every year – without a tariff.

On this latter point, despite the UK’s ability outside the EU to set possibly higher tariffs, it may be faced with EU tariffs in return.

The problems facing the UK steel industry are multifaceted, and the issues facing the UK government and the regional parliaments should not be simply taken as looking for cheap options at the expense of home-grown products.

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