The Future of the European Aluminium Industry is Heavily Conditioned by the Eu Duty Import of Raw Aluminium
By Mario Conserva
FACE, the European Federation of Consumers and Users of Aluminium based in Brussels, has decided to relaunch the suspension campaign on EU tariffs on imports of raw metal with renewed vigor, thanks to the latest results of the LUISS University study of Rome entitled “The European Union Aluminium Industry- The Impact of the Eu Trade Measures on the Competitiveness of Downstream Activities”.
The study was commissioned by FACE in 2014 for establishing a transparent scenario about the EU aluminium value chain, with particular attention to downstream segments, accounting about 70% of the annual turnover of the EU alu industry and for nearly 92% of its total employment. To frame the problem from the origin, it must be said that the EU does not have adequate domestic supply of primary metal, more than 70% of its requirements is imported, and in order to cover this shortage of about 5.1 million tonnes in 2017 and continuing to grow, the downstream industry must attract metal from off-shore suppliers. Similarly to many other goods, a complex system of import tariffs is applied to aluminum products; with regard to unwrought metal, after two successive autonomous temporary suspensions, adopted in 2007 and 2013, the customs duty rates are respectively 3% for aluminum alloys, 4% for aluminum slabs and billets and 6% for foundry alloys. Unwrought aluminum is imported either under duty-paid (DP) or duty-unpaid (DU) regimes, it can be imported duty free from countries having signed Preferential Trade Agreements (PTAs) with the EU and from less developed countries (SPGA) covered by the Generalized Scheme of Preferences (GSP).
The share of dutiable metal will continue to grow together with EU demand for imported metal because the new smelting capacities are being built in countries subject to EU duties. Anyhow, because of the market conditions, the DP price benchmark has become the de facto benchmark for the supply of primary metal to downstream users in the EU, and all DU suppliers have strong incentives to charge DP prices, irrespective of whether they pay the duty or not. As a result, the price paid by the EU downstream customers on both imported and domestic aluminium is the one offered by DP suppliers even where the metal is domestically produced or imported duty free. This DP premium, that is a hidden and useless subsidy for the metal producers, constitutes a tax on EU downstream transformers and users. The increasing international competition from developing countries and limited bargaining power vis-à-vis their customers are progressively squeezing their margins and putting further pressure on their survival, in particular on SMEs. Total estimated cumulative extra costs of the duty sustained by EU aluminium downstream industry is up to €17.8 billion in the period 2000-2017, additional expenses representing up to 75% of the turnover of the European downstream aluminium industry in 2015, with a yearly average extra costs of €1 billion.
The position of Face, an independent organization defending the specific interests of the EU aluminium transformers, final users and their partners, takes its origin from the evident gravity of the aluminium system’s competitive situation: EU import tariffs on unwrought aluminium have been absolutely ineffective to sustain primary aluminium production, whereas they are imposing additional impossible costs to downstream transformers. While the industry compromise set 2023 as the deadline to re-discuss the tariff, the launch of the unique LUISS study shows that Europe’s downstream industry does not have 4 years to wait and needs to transfer into innovation and modernization the billions of euros thrown to the wind in the name of a senseless tariff. Against the backdrop of rising competition from countries such as China, the damages caused by the hidden subsidy mechanism of the tariff may prove too much to bear for Europe’s SMEs and the almost 1 million people depending on it.