The Wall Street Journal-20080202-Politics - Economics- EU Probes Alleged -Dumping- of China-s Steel

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Politics & Economics: EU Probes Alleged 'Dumping' of China's Steel

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BRUSSELS -- The European Union began an investigation into whether Chinese steelmakers are exporting to Europe at below cost, a practice known as "dumping," in a test case of the bloc's determination to shut out cheap imports from Asia.

The inquiry, announced Friday, will take between seven and nine months and will focus on "stainless steel cold-rolled flat products" used to make panels on goods such as automobiles and washing machines. It also will look at steel imports from South Korea and Taiwan. The EU is expected soon to announce separate investigations into three other kinds of steel.

If EU investigators find Chinese, South Korean or Taiwanese steelmakers have been setting prices artificially low to gain market share, the bloc can impose punitive tariffs under global trade rules. China's ministry of commerce voiced "regret" over the steel investigation and said it hoped to resolve the issue through negotiation, according to China's state-controlled news service Xinhua.

The EU's trade deficit with China is on track to surpass that of the U.S. this year, prompting concern that a torrent of Chinese imports will damage jobs and industry within Europe. EU Trade Commissioner Peter Mandelson made several speeches toward the end of 2007 pledging to take a harder line in trade negotiations with Beijing.

Like the U.S., the EU is locked in an array of trade battles with China, over everything from shoes and shirts to pirated movies and the rights of news companies to operate freely. Steel will be a test case, however, analysts said.

China ramped up steel production to supply a building boom for this summer's Olympics. Now that construction is tapering off, China has millions of extra tons of steel to export. Most of the surplus is going to Europe. Chinese steel exports to the EU doubled last year to around 10 million tons.

Every time he has met with Chinese officials over the past two years, Mr. Mandelson has warned them that they must rein in production. Beijing raised the taxes it levies on steel exported from the country, but steel shipments to Europe haven't fallen.

European steel producers like ThyssenKrupp AG and ArcelorMittal filed their request for an investigation to the EU in October. Not everybody in Europe is rooting for higher steel tariffs, though. Danish shipbuilders -- which need low-cost steel to compete globally -- have been campaigning against imposing punitive tariffs.