08/02/02

1. The OECD convened a third High-Level Meeting on steel on 7-8 February 2002, in Paris, under the Chairmanship of Mr. Herwig Schlögl, Deputy Secretary General of the OECD. Senior Government officials from most major steel-producing areas participated in the discussions (1). The purpose of the meeting was to continue to review and to refine the self-assessments made by steel-producing countries world-wide on likely capacity reductions and to discuss their implications for the industry, to determine how information on such market based reductions could best be collected and to explore what could be done in a multilateral context to strengthen the adjustment process.

2.Participants welcomed the progress that was made in these areas, and expressed their strong support for the outcome of the meeting. In this context, they welcomed the adoption of a mandate for a Disciplines Study Group which will analyse the nature and scope of government interventions and other market distortions in steel and commitments that governments might make to limit such interventions and distortions. They similarly welcomed the establishment of a Capacity Working Group to examine approaches that could be used to follow the closure of inefficient excess capacity, restructuring developments in the industry and to explore financing issues.

Current situation

3.The current situation in steel is viewed as difficult, but promising in some respects. Steel firms in economies participating in the dialogue are seen as making significant progress in improving competitive structures, as evident in the scope and number of mergers and acquisitions and strategic alliances that are taking place, or are being explored. The cross-border character of many of these initiatives is seen as an encouraging sign that suggests that the firms are assessing their situations increasingly in a global context. Delegates welcomed these developments. They agreed that governments need to support the process in a proactive fashion, and should refrain from taking measures that would impede or discourage the restructuring, and should eliminate those measures already taken. They noted, however, the continuing imbalance between steel capacity and global demand and emphasised the need for further restructuring. On the other hand, they stressed the importance of providing assistance to workers and communities adversely affected by facility closures.

4.Delegates agreed further that open markets are key to effective restructuring. They therefore pledged to continue to consult with each other to find ways to address trade and adjustment challenges, and to seek solutions which minimise any adverse effects, either direct or indirect, on trade. In this context, they reaffirmed that any actions that are taken would be consistent with the commitments that they had made in multilateral and bilateral trade agreements.

Capacity closure

5.The meeting provided delegates with an opportunity to provide further information on the consultations that they had had with their steel producers, and to discuss the implications. The discussion revealed that the competitive situation of steel industries varies considerably among countries. While overall financial performance is slipping, firms in some areas remain profitable and little restructuring is envisioned. In others, the financial situation is serious and has resulted in a growing number of bankruptcies. Most areas, however, expected that ongoing restructuring would result in the closure of facilities over the next several years, as follows:

• 1998-2002 -- at least 78.6-82.6 million tonnes;
• 2003-2005 -- at least 24.9-34.9 million tonnes;
• 2006-2010 -- at least 18.8-20.8 million tonnes.

Participants who had not provided complete reports according to the agreed structure were urged to do so prior to the March meeting of the Capacity Working Group.

6.Participants agreed that the 103.5 to 117.5 million tonnes of closures expected through 2005 would eliminate a substantial volume of inefficient capacity, but that there would continue to exist a sizeable amount of capacity which, in the absence of special conditions or support, would not be viable. The participants therefore agreed that it was important to continue to encourage the closure of such capacity. Enhanced transparency would help to clarify the situation. With this in mind, they agreed to regularly update and improve information on capacity and restructuring developments in their respective steel industries, and to share this information with each other. In support of this process, they agreed to establish a Capacity Working Group to identify the best means how this could be done. The Group, which will comprise government officials only, will meet on 13 March, and will report its findings to the next High-Level Meeting, in April. Among the options to be considered will be the organisation of inter-governmental peer reviews at six month intervals, commencing in the latter half of 2002. The Group will also address financing issues (see below).

Financing closures and restructuring

7.Previous High-Level discussions have highlighted closure costs as one of the principal impediments to industry restructuring. As agreed at the December meeting, delegates, on their own responsibility, had contacted international financial institutions to explore the role that they could play in providing support for closures. According to the discussion at the current meeting, their inquiries are still being studied by these organisations. Participants also noted that the OECD Secretary-General in a letter to the President of the World Bank had informed the Bank about the conclusions reached at the December High-Level Meeting; he recalled, that several countries had raised the possibility that the World Bank may want to consider whether it would be appropriate for the Bank to play a supportive role in addressing the issue of inefficient excess capacity and the social costs of closing facilities.

8.It was agreed that other mechanisms, including the possibility of levies, that could be used to help finance social and environmental costs associated with closures would continue to be explored.

Strengthening disciplines

9.At its December meeting, delegates decided to establish a group to discuss concepts and explore an analytic framework for disciplines on government interventions and other market distortions in steel. The modalities and terms of reference for this Disciplines Study Group were discussed at the current meeting, with delegates agreeing that the Group should begin its work immediately. The mandate for the Group's initial work is:

• to explore the scope for a political commitment by participants to voluntarily limit or, where possible, eliminate market-distorting government measures related to the steel industry, except for the purpose of facilitating closures;
• to examine which of the existing multilateral disciplines do not appear to be achieving the desired results in the case of steel and why;
• to establish an inventory of measures that distort steel markets;

and, in light of the above,

• to develop options for the strengthening of disciplines on government interventions and other market distortions in steel, feeding the results, as appropriate, into wider-ranging discussions at the WTO.

10. The Disciplines Study Group will meet on 14-15 March 2002, and will report on its work at the forthcoming High-Level Meeting.

Next Steps

11.The High-Level group agreed to meet again on 18-19 April 2002 to take stock of conditions in world steel markets, and to confirm the future directions of its work.

For further information journalists may contact Meggan Dissly, Media Relations Division (tel (33) 1 45 24 80 94 oror Wolfgang Hübner, OECD Science Technology and Industry Directorate (tel 33 1 45 24 91 32).

More information on steel.

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(1) Argentina, Australia, Austria, Belgium, Brazil, Bulgaria, Canada, Czech Republic, Denmark, Egypt, European Commission, Finland, France, Germany, Greece, Hungary, India, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Russian Federation, Slovak Republic, Spain, Sweden, Switzerland, Chinese Taipei, Thailand, Turkey, Ukraine, United Kingdom, United States.