(1)

By Commission Implementing Regulation (EU) 2019/159 (3) (‘the Definitive Safeguard Regulation’), the European Commission (‘the Commission’) imposed a definitive safeguard measure on certain steel products (‘the safeguard measure’), which consists of tariff-rate quotas (‘TRQs’) with respect to certain steel products (‘the product concerned’) covering 26 steel product categories, set at levels preserving traditional trade flows on a per-product-category basis. A 25 % tariff duty applies only if the quantitative thresholds of these TRQs are exceeded. The safeguard measure was imposed for an initial period of three years, until 30 June 2021.

(2)

By Commission Implementing Regulation (EU) 2021/1029 (4) (‘the First Prolongation Review Regulation’), the Commission concluded that the measure continued to be necessary to prevent or remedy serious injury, and that the Union industry was adjusting. It also concluded that the prolongation of measure was in the interest of the Union. Accordingly, it decided to prolong the safeguard measure until 30 June 2024.

(3)

In recital (161) of the Definitive Safeguard Regulation, the Commission committed to “carry out an assessment of the situation on a regular basis and consider a review at least at the end of each year of imposition of measures”. In this spirit, the Commission conducted three functioning review investigations in 2019 (5), 2020 (6) and 2022 (7) respectively. In June 2023 (8) it also assessed, in a review investigation, whether an early termination of the measure was warranted (9).

(4)

On 12 January 2024, the Commission received a substantiated request by fourteen EU Member States to examine, pursuant to Article 19 of Regulation (EU) 2015/478 of the European Parliament and of the Council (10) (‘EU Basic Safeguard Regulation’) and Article 16 of Regulation (EU) 2015/755, whether the existing safeguard measure should be prolonged. The Commission considered that the request contained sufficient evidence to initiate a prolongation review investigation.

(5)

Accordingly, it published a Notice of Initiation (11) in the Official Journal of the European Union on 9 February 2024 concerning the possible extension of the safeguard measure. The Commission also included in the scope of the Notice a commitment to assess whether any technical adjustment to the functioning of the measure would be necessary in case it concluded that the safeguard measure should be prolonged.

(6)

In order to carry out a proper assessment as to whether the safeguard measure continues to be necessary to prevent or remedy serious injury, whether the Union steel industry is adjusting, and whether such prolongation is in line with the wider Union interest, the Commission collected specific data from the Union industry by means of questionnaires (12). These data included, inter alia, the evolution of key economic and financial indicators for the product concerned during the period 2021-2023 (‘the period considered’), as well as evidence that the Union industry is adjusting.

(7)

The Commission also sought and collected the views of interested parties on a potential prolongation and on any potential necessary adjustments to the functioning of the measure, therefore conducting two different investigations in parallel. To this end, the Notice of Initiation invited interested parties to participate in the investigation by submitting in writing their observations and supporting evidence and also requested known Union producers of the product concerned and their associations to fill in injury questionnaires. Concerning the functioning review, the Commission requested interested parties to make their views known and to submit specific evidence in writing on the following issues:

(8)

In terms of due process, the prolongation and functioning review investigation comprised a two-stage written procedure, under which interested parties, first, submitted their comments and, subsequently, were given the possibility to rebut the other parties’ submissions. Overall, the Commission received over 65 submissions and rebuttals from interested parties within the established deadlines. It also received more than 100 individual questionnaire replies from Union producers.

(9)

In assessing whether the conditions to prolong the safeguard measure were met, the Commission analysed in the first place, whether the legal requirements to prolong a safeguard measure under EU and WTO rules, namely whether the measure is necessary to prevent serious injury (Section 3.2) and whether the Union industry is adjusting (Section 3.3), were satisfied. Second, it assessed whether such prolongation would be in line with the overall interest of the Union (Section 3.4). Finally, in its assessment, the Commission took due account of the observations and evidence received from interested parties, as well as any other available information in relation to the above elements. The Commission specifically addressed the relevant claims made by interested parties relative to prolongation in Section 4.

(10)

Subsequently, the Commission assessed the need to make certain technical adjustments to the measure. This exercise followed the areas set out in the Notice of Initiation (see recital (7)), and also included a technical amendment which brings imports from Mozambique within the scope of the safeguard measure.

(11)

According to Article 7.1 of the WTO Agreement on Safeguards and Article 19(2) of the EU Basic Safeguard Regulation the period of application of a safeguard measure may be extended provided that the safeguard measure continues to be necessary to prevent or remedy serious injury (‘necessity test’) and that there is evidence that the industry is adjusting. In addition, Article 22 of the EU Basic Safeguard Regulation determines that measure has to be in the interest of the Union.

(12)

With regard to the first legal criterion, the Commission first examined the economic situation of the Union industry based on the questionnaire replies received (Section 3.2.1). Subsequently, the Commission assessed several key factors in order to determine how imports would likely evolve and how such evolution would affect Union producers in the absence of a safeguard (‘counterfactual analysis’, see Section 3.2.2.).

(13)

In order to assess the economic situation of the Union steel industry, the Commission issued questionnaires to the known Union steel producers to collect information on injury indicators for the product concerned during the period considered. The Commission requested the known Union industry associations (EUROFER - European Steel Association, ESTA – European Steel Tube Association and CET-Comité Européen de la Tréfilerie) to distribute the questionnaires among their individual members. In addition, the Commission notified the known Union producers of the request to fill in questionnaires through the open file system (TRON). (13) The questionnaires were also made available on the website of the European Commission’s Directorate-General for Trade. (14) All the relevant instructions regarding questionnaires were also included in the Notice of Initiation.

(14)

The Commission received more than 100 individual questionnaire replies from members of the three known Union industry associations as well as from other Union producers not members of any association. In addition, the three industry associations consolidated the data provided individually by their members.

(15)

The Commission consolidated the data directly received from Union producers individually and crosschecked its accuracy with the dataset submitted by the Union industry associations in dedicated remote crosscheck sessions. The Commission then merged the association members’ replies with the replies received from producers not members of an association into a single consolidated dataset, which constituted the basis for the assessment of the economic situation of the Union industry.

(16)

The evolution of the injury indicators during the period considered is shown in Tables 1 to 4 below:

(17)

Over the period considered, the production volume of Union producers steadily decreased by -11 % in 2022 and by -14 % in 2023, when compared to 2021. Production capacity remained stable throughout the period and, thus, capacity utilisation followed a declining trend, reaching a very low level of 67 % in 2023. Lastly, stocks went down by -5 % in 2022 and by -3 % in 2023 as compared to the year 2021.

(18)

Consumption in the Union market started decreasing in 2022 (-8 %), and this trend continued in 2023 (-14 %) when compared to the year 2021. The evolution of domestic sales volume by Union producers followed a very similar trend during the period considered (-8 % in 2022 and -13 % in 2023 respectively when compared to 2021). During the period considered, the Union industry increased its market share by 0,9 percentage points.

(19)

Unit sales price increased by 35 % in 2022 and by 13 % in 2023 when compared to 2021. Cash flow increased by 113 % in 2022 and 57 % in 2023 when compared to the year 2021. Return on capital employed decreased slightly in 2022 and reached negative figures in 2023 (–2,2 %).

(20)

The increase in prices and post-COVID recovery drive turned the Union industry into profit-making in 2021 (9.4 %) with profits slightly increasing in 2022 (10.3 %). In 2023 profitability sharply declined, reaching only a 0.3 % profit.

(21)

Employment remained stable throughout the period considered, with a -1 % decline in 2023 when compared to 2021.

(22)

Injury indicators showed that in 2021 the Union industry reached healthy levels of profitability, largely driven by high prices and a strong recovery in demand after COVID-19. However, as from the second half of 2022, the Union industry started to show signs of deterioration. Some important indicators such as production, sales and capacity utilisation showed a negative trend (16), and energy costs increased significantly (17). The deterioration of most economic indicators became more acute in 2023, with a decline in prices in a context of energy costs higher than past average levels, and a sharp decline in domestic sales and production in the Union market. As a result, the capacity utilisation reached the lowest level in the last decade and profitability went down drastically (reaching break-even level). Whilst the Union industry gained almost one percentage point of market share in 2023 when compared to 2021 at the expense of reducing profitability, this development should be seen in the context of persistent high import pressure (18), with imports reaching a higher market share during the period considered than those of previous periods (19), as it will be explained in Section 3.2.2. below.

(23)

Based on the above indicators (Tables 1 to 4), the Commission concluded that the state of the Union industry had deteriorated between 2021 and 2023 and that it was in a fragile situation at the end of the period considered.

(24)

Following the approach of the original investigation, (20) the Commission also assessed the evolution of injury indicators per product family. (21) The product families covered by the steel safeguard are flat products, long products and tubes.

(25)

Tables 5 to 8 below show the evolution of the injury indicators per product family:

Table 5

Production, production capacity, capacity utilisation, stocks

Table 6

The Union consumption, domestic sales and market share

Table 7

Unit sales price, profitability, cash flow and return on capital employed

Table 8

Employment

(26)

Based on the above indicators, the analysis per product family, corroborates the findings for the product concerned: the Union industry’s economic situation significantly worsened over the period considered and it is currently in a fragile situation. Even for the product family that showed a better performance as regards to profitability and market share developments (tubes), it nevertheless saw a deterioration of other key indicators such as capacity utilisation, levels of production and domestic sales over the period considered.

(27)

The Commission assessed the evolution of imports, both in overall terms and relative to consumption, to determine the extent of pressure they may have exerted on the Union market in the period considered. In addition, the Commission assessed the evolution of TRQs used (See Section 3.2.2(b)).

(28)

Imports into the Union in 2023 decreased by -17 % as compared to 2021, when they had reached the second highest level since 2013 (22).

Table 9

Evolution of imports

(29)

The analysis at the level of product family confirmed this overall trend as shown in Table 10 below.

Table 10

Market share of imports per product family

(30)

The Commission assessed the evolution of imports against the evolution of consumption over the same period. The graph below shows that consumption peaked in 2017-2018. However, in 2023 it saw a drastic reduction, reaching the lowest level since 2013 (23). On other hand, the share of imports saw a steep and continuous increase until 2018, when the safeguard measure was introduced provisionally in July, and moderately decreased in the following two years. However, since 2021, the share of imports increased again, and it remains at levels substantially above those prior to the imposition of the safeguard measure. Therefore, the investigation concluded that the level of import pressure in terms of market share, is even higher than the levels prior to the imposition of the safeguard measure (24) and those established under the First Prolongation Review Regulation (25).

(31)

The Commission also assessed import pressure in light of the evolution of TRQ use. (26) First, the Commission assessed the evolution of TRQ since the First Prolongation Review Regulation. The data in the graph below shows the TRQ volumes available at the end of each of the last two safeguard years (27), showing an average TRQ use of around 46 % at the end of the last quarter of a safeguard year (April-June) with between 7 and 8.5 million tonnes of TRQ unused in years 4 and 5 respectively. Under the current safeguard year (28) (data available until 21 May 2024) the trend of TRQ available seems to be comparable. Therefore, the Commission did not observe a major change when looking at the overall TRQ use at the end of the last two safeguard years, including the ongoing year.

(32)

Second, the Commission assessed the most recent developments by looking into the TRQ use so far in the ongoing safeguard year (29) on a quarterly basis.

(33)

The TRQ use analysis confirmed that there had been significant and increasing volumes of TRQ unused, reaching around 7 million tonnes unused at the end of the quarter January-March 2024. As a result, the TRQ use after three quarters stood at 47%, as shown in the graph below. However, in assessing import pressure, the TRQ use rate needs to be analysed together with the evolution of imports’ share in Section 3.2.2.(a), which showed an average increase compared to previous periods and with a more granular assessment, as the one undertaken further below in this Section. In particular, considering that the TRQ volumes have increased by around 25 % since 2019 on account of liberalisation and initial top-up and that consumption has decreased substantially and is not expected to recover meaningfully in the near future.

(34)

In fact, a more detailed analysis of this data revealed that on average, during the three quarters assessed, 21 individual TRQs (whether country-specific or residual) were exhausted across several product categories. Their combined average volumes represented 32% (nearly two million tonnes per quarter) of the total average volume of imports in the same period.

(35)

In terms of origins, the investigation also confirmed that a relevant number of these TRQs were exhausted by some of the largest steel exporting countries to the Union (30), which were exhausting from one to up to eight of their respective country-specific TRQs in a given quarter (31). Similar export patterns were already identified by the Commission in the First Prolongation Review Regulation. (32) In addition, the largest TRQ under the measure (the residual TRQ in category 1) was consistently exhausted almost immediately during the last three consecutive quarters, showing a continuous opportunistic behaviour from certain third countries. (33)

(36)

The exhaustion of TRQs and the pace of such exhaustion in some cases are an indicator of those TRQs where it was more likely that additional volumes would have penetrated in the Union market absent the safeguard measure. In this regard, the safeguard measure was thus preventing additional import pressure from taking place. Therefore, in view of this data, the Commission concluded that these patterns of TRQ use, which took place to different extents across all product families, further confirmed the high level of import pressure existing on the Union steel market.

(37)

Imports into the Union decreased by -17 % in 2023 as compared to 2021 (34). At the same time, as shown in Table 11 below, during the same period imports into the US market also decreased by -8 % and continued to be substantially lower than the peak reached in 2017, prior to the imposition of the US Section 232 measure. In 2023 imports had reduced by nearly 6 million tonnes as compared to 2017, this is, the last year pre-Section 232.

Table 11

Imports into United States in tonnes

(38)

After having identified the evolution of import volumes into the two largest steel importing markets (the Union and the USA) (36), the Commission analysed the export performance of the main steel supplying countries to the Union (37) to third countries (other than the EU and the USA).

(39)

Table 12 below shows that, overall, the main exporting countries to the Union of the product concerned substantially decreased their exports to other third markets over the period considered. An individual assessment of these countries’ export performance also confirmed a widespread negative trend of the evolution of exports to markets other than the Union and the USA (38).

Table 12

Evolution of exports (excluding to the EU and USA) of the product concerned from main steel supplying countries to the EU to third markets (excluding China)

(40)

In view of these figures, the Commission concluded that in addition to having lower volumes of exports to the Union market (Table 9) and to the US market (Table 11) these countries were generally not able to replace their export volumes lost in the two largest importing markets by exporting them to other markets. Thus, in overall terms, the main steel exporting countries to the Union had lost substantial amounts of export volumes worldwide.

(41)

The Commission further supplemented its own assessment with the analysis carried out by the OECD on a broader product scope. The OECD data confirmed the Commission’s own assessment that the volume of exports of the main steel exporting countries had overall consistently decreased over the period considered (39).

(42)

The only notable exception from this otherwise consistent trend concerned the performance of Chinese exports, which surged in 2023, reaching around 95 million tonnes of exports. This represented an increase in exports of 24 million tonnes (+40%). (40) The exports increase by China, given its sheer magnitude, would mask the decrease of exports identified for virtually all other large exporting countries. For this reason, China is not included in the aggregated analysis of Table 12 above.

(43)

In fact, the additional pressure exerted by Chinese exports substantially increased competition in other third country markets (41). This has reduced further the availability and size of export markets across the world (42) and contributed to the other countries’ reduction of exports.

(44)

In this regard, OECD data revealed that despite most of the largest steel exporters reducing their exports, imports in many of the large import markets apart from the EU and the USA showed an upwards trend (43). This appears to be, in several of these markets at least (e.g. ASEAN (44), Korea, Türkiye (45), Brazil (46)), driven precisely by the surge of Chinese exports (47). Furthermore, the data from the first months of 2024 does not show signs that this export behaviour from China is reversing (48).

(45)

In connection to this development of Chinese exports, the Commission also assessed the correlation and impact that such drastic increase of Chinese exports to third countries had on the Union market in terms of import flows.

(46)

The Commission confirmed that imports from some of the origins where China had increased substantially its export presence in 2023 (including Vietnam, Indonesia, and Malaysia) (49) as well as other countries usually competing in such Asian markets with China (Japan (50)) had surged in the Union market in 2023 (51). Such increases were even more acute if compared to the period prior to the imposition of the safeguard measure. Hence, the data analysed strongly suggests that, in an overall context of weaker consumption, this strong and increasing import pressure from China in certain third markets pushed producers in some countries into finding other export markets for part of their production, amongst which, the Union market (52).

(47)

As a next step, the Commission assessed the evolution of domestic consumption of the main steel exporting countries (53) over the period considered.

Table 13

Consumption evolution in the main steel-making markets (including the main exporting countries to the EU)

(48)

Table 13 (54) above shows that, in overall terms, consumption in the domestic markets of the main steel exporters went down in 2022 (55) by 61 million tonnes (-4 %) with respect to 2021 (56). Out of this, Chinese consumption experienced the sharpest decline in overall volumes, with a reduction of -34 million tonnes. In 2023 the overall decrease compared to 2021 was -2 % (–29,2 million tonnes).

(49)

The analysis in this Section confirmed that the main steel exporters are experiencing increasing difficulties to export part of their production to third markets (see also Section 3.2.2.(e) and (f) below). In addition, data showed that it would hardly have been possible to direct the lost export volumes to their own domestic markets in view of the consumption evolution. This resulted in a significant loss of volumes sold both domestically and in third countries for many of the largest steel suppliers to the Union.

(50)

The evolution of global overcapacity was a key element in the Commission’s decision underpinning the imposition of a definitive safeguard measure in February 2019 (57) and its prolongation in June 2021 (58). In the current investigation, the Commission assessed the latest developments of steel overcapacity, relying on sources such as the OECD Steel Committee and the Global Forum on Steel Excess Capacity (GFSEC), which confirm, in their most recent reports, that overcapacity remains at very high levels (59).

(51)

According to these sources, in 2023, global steelmaking capacity was estimated to have exceeded production by over 550 million metric tonnes. This is equivalent to the combined steel production of India, the Americas, EU, Japan, and Türkiye in 2023 (60), and it amounts to four times the consumption in the Union market in 2023.

(52)

This data therefore showed that the situation of overcapacity has not improved since the imposition of the steel safeguard in 2019. Rather, it continues to be a serious problem in the steel sector, and it is not expected to improve in the near future. In fact, when assessing the likely developments on global overcapacity, the Commission also confirmed that the situation is poised to deteriorate further. The OECD reported that about 160 million metric tonnes of new capacity is planned to be installed between 2024-2026 (61). Such new capacities, which are larger than the Union’s yearly consumption, would be added in a period where global steel demand is projected to grow modestly, risking increasing the gap between capacity and demand even further and thus, exacerbating the overcapacity situation.

(53)

In addition, the information analysed confirmed that the Union was virtually the only major steelmaking region where installed capacity had decreased in the period 2018-2023 and thus did not contribute to the current trends in global overcapacity (62).

(54)

The Commission further confirmed the information on overcapacity with the data from the CRU database (63) for the main steel-making countries worldwide, which include the main steel-exporting countries to the Union market.

(55)

Therefore, the Commission concluded that overcapacity remained at very high levels and was likely to increase even further.

(56)

In addition to assessing the latest evolution of global overcapacity, the Commission analysed the links between growing excess capacity in some countries and regions, and the evolution of imports into the Union from such origins. This assessment was based on import statistics as well as on the specific research on overcapacity evolution done by the OECD Steel Committee (64) and the GFSEC (65).

(57)

According to GFSEC “in recent years, risks of overinvestment have become increasingly apparent in Southeast Asia, parts of the Middle East and Africa, where such capacity increases exceed local demand for steel by a very wide margin” . The document added that “Viet Nam, Indonesia and Malaysia have experienced capacity growth rates in excess of 35 % to 95 %, while steel demand has either declined or increased marginally (…) and that certain other economies in the Middle East, South Asia and Northern Africa are also registering imbalanced growth (e.g., Iran, Pakistan and Algeria)”  (66).

(58)

For its part, this information was also in line with that supplied at country-level by the OECD, showing a significant increase in capacity in these (as well as other) origins (67). In this respect, the investigation also revealed that part of these capacity additions was driven by Chinese overseas investments, in particular but not limited to the ASEAN region (68).

(59)

When assessing the evolution of imports into the Union per origin, the Commission identified that in the period 2022-2023, imports from certain origins (69) had surged (70), despite the safeguard measure being in place. Imports from these origins were not amongst the Union’s traditional suppliers and in some cases were almost non-existent prior to the safeguard measure and during its first years of application. As such, they did not qualify for a country-specific quota (CSQ) and therefore they were using the space available under the residual TRQs to penetrate into the Union market at a very fast pace and with high volumes. Such abrupt presence generated significant disturbances on the market and in some instances undermined the effectiveness of the measure (See Section 7.3 below). The graph below shows the evolution of imports into the Union from some of these origins.

(60)

The graph shows that imports from these origins increased by almost 4 million tonnes in 2023 as compared to the year 2017, prior to the safeguard measure.

(61)

Therefore, the analysis of the data available showed a direct correlation between the import evolution from certain origins into the Union market, and the evolution and state of overcapacity these origins, in addition to the increased presence of Chinese exports in some of them. As developed in Section 7.3 below, the investigation confirmed that such aggressive penetration in a market subject to a safeguard was already having a negative impact on the Union industry, and therefore further actions concerning the functioning of the measure to offset such effects were necessary.

(62)

In the Definitive Safeguard Regulation, the Commission found that the US Section 232 measures on certain steel products were likely to cause considerable trade diversion to the Union market of exports originally destined to the US market, if no remedial action was taken by the Union. In its Definitive Safeguard Regulation, the Commission concluded that there was evidence that the first signs of trade diversion had already been taking place in 2018 (71). In the First Prolongation Review Regulation, the Commission confirmed that the risk of trade diversion stemming from this measure remained (72). Furthermore, in the context of the Third Functioning Review Regulation, the Commission conducted a specific detailed assessment of the impact of this measure on potential trade flows into the Union market. In that assessment, the Commission concluded that the risk of trade diversion remained, despite the changes that the US Section 232 had undergone (73).

(63)

In the current investigation the Commission assessed the latest status of the US measure to determine whether the previous findings remained valid. The investigation confirmed that the measure remained in place and that it had not been subject to any substantial changes in terms of scope or functioning since the last time the Commission assessed it in 2023 (74). Furthermore, based on the information available (75), it appeared reasonable to assume that the US Section 232 measure was not going to be removed or substantially modified in the foreseeable future.

(64)

The Commission showed in Table 11 (imports into USA) that the level of imports into the US market had remained substantially lower than in the period prior to the imposition of Section 232. In addition, as shown in Sections 3.2.2 (c) (exports to other markets and domestic consumption) the largest suppliers to the Union have generally not found other markets that would replace the volumes they formerly exported, inter alia, to the US market.

(65)

Accordingly, the risk of trade diversion into the Union market as a result of the US Section 232 measures fully remains if the Union safeguard measure were to lapse.

(66)

In addition to US Section 232, the USA also indicated that it would increase duties on imports of certain steel products from China under Section 301 (76). This measure would increase the difficulties for China to export into the US market, creating a further risk of trade diversion, either from additional volumes of steel directly exported from China to the Union, or indirectly, through displacement of other origins in third markets due to increased Chinese presence, as already observed in Section 3.2.2 (d) above. Such volumes could then be, at least partially, directed to the Union market.

(67)

In addition to the USA, the Commission also identified new measures, other than Trade Defence Instruments (‘TDI’), (77) adopted by other jurisdictions. For instance, in August 2023, Mexico raised from 15 % to 25 % import duties of some steel products (78). In February 2024 Brazil raised import duties on several steel products. (79) In April 2024, Türkiye restricted exports of certain steel products to Israel (80).

(68)

Therefore, the investigation confirmed that the number and scope of measures adopted by third countries has continued to increase, exacerbating the risk of trade diversion as the markets available to exporters have shrunk further.

(69)

The evolution and state of TDI measures on steel products in third countries (81) was assessed in previous investigations (82). In this investigation the Commission looked into the most recent developments and confirmed that the number of TDI measures in place continued to increase and remains at high levels, as shown in the below graph.

(70)

In addition, this graph also shows that a significant share of the measures has been imposed against the main steel exporters to the Union (83). This means that these countries are experiencing increasing difficulties to export their production to third countries also as a result of the growing number of TDI measures against them.

(71)

In addition, the Commission has also observed how other jurisdictions were proposing to extend their existing safeguard measures, such as the United Kingdom (84), or were initiating new safeguard investigations, like South Africa (85). The growing number of trade defence measures proliferating across jurisdictions are reinforcing the difficulties for exporting countries to find outlets for their production, in a context of growing overcapacity (86), which will contribute to increasing the already existing tensions on the market. Furthermore, the market developments observed, in particular the surge of Chinese exports amidst weak market conditions, may result in further TDI actions (87).

(72)

The Union is by far the largest steel importing market in the world in terms of volumes. (88) In terms of price levels, import prices into the Union from its main supplying countries are consistently higher than their export prices to other third markets for a large majority of their steel exports. Based on a price assessment by the Commission, 57% to 93% of the product codes analysed per country showed higher export prices to the Union than to other third markets (89).

(73)

This clearly indicates that exporters have a very strong interest in entering the Union market and sometimes incurring in unfair pricing conduct. In fact, in recent years the Commission has imposed a series of anti-dumping and countervailing measures on imports of steel, including on product categories covered by the safeguard (90). This strong interest in penetrating the Union market is further revealed by some countries trying to circumvent existing TDI measures (91). The statistical trends of imports into the Union confirm the attractiveness of the Union market for exporters. Imports into the Union have, on average, even increased their market share during the period considered as compared to the period prior to the imposition of the safeguard, in a context of decreasing consumption and despite a safeguard in place. Furthermore, in some cases, available TRQs are exhausted very quickly in a given quarter, showing signs of continuous opportunistic behaviour.

(74)

In view of these elements, the Commission concluded that the Union steel market remained attractive in size and prices.

(75)

To complement the assessment of the factors described in Sections 3.2.2. a) to Section 3.2.2. g), the Commission also analysed the most recent market outlooks available. The outlooks pointed at a relatively slow recovery in consumption in 2024 and 2025, as compared to 2023, but still below 2021 volumes.

(76)

In its April 2024 Short Range Outlook (SRO), Worldsteel forecasted world steel demand to grow by 1.7% to 1.793 mmt in 2024 and by 1.2 %, reaching 1.815 mmt, in 2025. This modest recovery in 2024 (barely recovering 2022 figures) and 2025 would still be below demand volumes reached in 2021. The report outlined that “global economic outlook has worsened due to monetary tightening affecting consumption and investment. The construction sector, especially residential, suffers from high interest rates and costs, while infrastructure investment offers some relief. The manufacturing sector slows due to weakened demand, with consumer durables hit hard”  (92).

(77)

For its part, the Chair statement at the March 2024 OECD Steel Committee noted that the most recent forecasts for 2024 and 2025 suggest that global steel demand growth will continue to be very sluggish (93).

(78)

Lastly, EUROFER’s economic outlook was in line with the other outlooks assessed and indicated that the ongoing economic uncertainty is set to continue affecting the steel market growth over the upcoming quarters and that in 2024, steel-using sectors’ growth is projected to further decelerate (+0.2 %, revised downwards from +0.4 %), mainly due to the second recession in a row in the construction sector, before picking up moderately (+1.5 %) in 2025 (94).

(79)

Therefore, the Commission concluded that the situation in the world steel market in general, and in the Union in particular, would continue to be challenging from the demand point of view.

(80)

Based on the foregoing evidence and considerations, the Commission found that the Union steel industry is in a fragile situation.

(81)

The Commission also found that imports from the main steel exporting countries have exerted and still continue exerting very high and increasing import pressure on the Union’s steel market. Import pressure has been exacerbated by the sudden and quick import penetration of a variety of origins which were not present on the Union market in relevant volumes in the past. This added to the import pressure identified in previous investigations.

(82)

The Commission also confirmed high levels of overcapacity and expected capacity increases in the coming years, in a context of expected slow growth in demand. This suggests that the situation of overcapacity is not likely to improve.

(83)

Exporting countries have lost market access not only to the largest importing markets (Union and USA) but also to other third markets. In addition, their domestic consumption has also generally decreased. A surge of exports from China created an additional layer of pressure on competition on third markets, displacing volumes from other exporting countries, a trend which does not show signs of reversing in the near future.

(84)

Trade restrictive and TDI measures were on the rise and remained at high levels, thus creating additional difficulties for exporting countries to find outlets for their production. Lastly, the investigation confirmed that the Union market was attractive in terms of size and prices.

(85)

Considering the degree of global overcapacity, the high number of trade barriers across multiple jurisdictions and the existing market outlooks, the Commission concluded that should the safeguard lapse, imports into the Union would likely increase. Such increase would put additional import pressure on the fragile Union industry and hence, would likely cause serious injury. Therefore, in view of the elements analysed in Sections 3.1 and 3.2 the Commission concluded that the measure continued to be necessary to prevent or remedy serious injury to the Union industry.

(86)

One of the objectives of the safeguard instrument is to allow domestic producers to adjust while measures are in place. Therefore, evidence of industry adjustments is a necessary condition to prolong a safeguard measure.

(87)

In this regard, the Commission already confirmed in 2021 (95) that the Union industry was adjusting. Actually, by the time the Commission introduced the steel safeguard in 2018, the Union industry had already initiated a process of adjustment in response to the serious crisis of the steel sector since mid-2010, when world steel demand slowed down, and capacity worldwide continued growing (96).

(88)

In this investigation, the Commission gathered evidence of numerous adjustments made by the Union industry through questionnaire replies (97), written submissions, and its own research (based on public available information, such as articles reporting industry adjustments in all the categories mentioned below).

(89)

The Union industry documented numerous measures to improve competitiveness in the current challenging market conditions. Since the First Prolongation Review Regulation in 2021, the Union industry continued implementing a number of restructuring measures, such as closing down less efficient or underutilised facilities (98). This was confirmed by the capacity data provided in the questionnaire replies, which shows a slight decrease in production capacity (99). The OECD Steel Committee data also aligned with this information, reporting that in the period 2018-2023 capacity in the Union had gone down by 5.2 million tonnes (100). In connection to this type of adjustment, in April 2024, one of the largest Union producers (thyssenkrupp) announced an upcoming significant reduction of capacity of around 2.5 million tonnes in its largest production site. Thus, the Union industry undertook continuous and significant efforts to adjust to market conditions (101).

(90)

In addition, Union producers have also documented a variety of other adjustments to improve competitiveness, such as expanding the product portfolio, often with higher value-added products (102) and improving process efficiency and plant modernisation (103). In this regard, the efforts of the Union steel industry have been concentrated in improving energy efficiency (104), also with a view to complying with the EU emissions requirements.

(91)

The adjustments undertaken cover all the product families subject to the safeguard measure.

(92)

Therefore, the Commission concluded that the evidence showed that the Union industry has continued to adjust during the period considered.

(93)

The Commission has also examined whether any compelling economic reasons exist which could lead to the conclusion that it is not in the Union interest to prolong the existing safeguard.

(94)

For this purpose, the Commission assessed the impact of possible measures on Union producers, importers and users. The assessment of the evidence available is structured as follows: i) the economic situation of Union steel producers and the possible effect of a removal of the measure; and ii) the interest of Union users and importers assessing amongst other elements, the TRQ use evolution under the safeguard and the overall availability of imports in the Union market in light of existing market outlooks.

(95)

As outlined in the First Prolongation Review Regulation, the Union steel industry has more than 500 production sites operating across 23 EU Member States. The industry directly employs more than 300 000 people, and when including indirect and induced jobs in other sectors, it is estimated that it supports 2.6 million jobs throughout the Union. In addition, different analysis undertaken by the Commission services showed the relevance of the steel industry to the Union economy (105). The current investigation confirmed that there had not been any substantial changes in this respect.

(96)

In this investigation the Commission also concluded that the measure continues to be necessary to prevent serious injury which would be likely to occur if the safeguard lapses. A situation of serious injury would seriously jeopardise the adjusting efforts being undertaken by the Union industry.

(97)

Therefore, the investigation confirmed that prolonging the measure would be in the interest of Union producers.

(98)

The investigation also assessed the impact that a prolongation of the measure would be likely to have on Union users and importers.

(99)

In this respect the investigation concluded that consumption in the Union had drastically decreased, and in line with this market development, there had been large volumes of TRQs consistently and increasingly unused from quarter to quarter. Furthermore, the investigation also confirmed that there had been a very large and increasing gap between the increase in TRQ volumes, on account mostly (106) of regular liberalisation since 2019, as compared to the evolution of consumption (107). The market outlooks also revealed that only moderate growth of Union consumption was expected to take place, and that in any event, such growth would be significantly smaller than the volumes of TRQs that remained available, usually from multiple origins, across product categories and product families.

(100)

Therefore, the Commission concluded that even if the measure is prolonged, in overall terms Union users and importers would continue to have the possibility to source free-of-duty steel across product categories from a variety of origins. In addition, the investigation also confirmed that Union producers had room to increase their capacity utilisation and could thus supply additional quantities to Union customers. Hence, the Commission confirmed that a prolongation of the measure would in overall terms not prevent Union users and importers from sourcing sufficient volumes of steel free-of-duty both from importing sources as well as from Union producers.

(101)

Furthermore, as in the First Prolongation Review Regulation (108), the Commission cross-checked the potential impact that the safeguard measure (109) may have had on the level of steel prices on the Union market, by comparing the trends in the Union with those in other main steel markets worldwide (110). The analysis showed that the evolution of prices on the Union market was following the same or a very similar trend than that of other markets, thus indicating that the safeguard measure was not creating an anomaly in terms of price trends on the Union.

(102)

Thus, based on these findings, the Commission concluded that the submissions made by Union users and importers did not show that the prolongation would be against the overall Union interest.

(103)

The Commission has established that the legal requirements of necessity and adjustment required to prolong a safeguard measure are met. In addition, the Commission has established that the measure would not be against the overall Union interest.

(104)

Therefore, the Commission concluded that it is appropriate to prolong the steel safeguard measure beyond 30 June 2024.

(105)

The Commission received over 65 submissions of observations and rebuttals from interested parties, including Union steel producers, Union steel users and importers, as well as their respective associations, exporting producers and third country governments. In this section, the Commission will address the claims made by these interested parties on prolongation. For the sake of administrative economy, the Commission grouped the claims by nature and content. Where appropriate, the Commission referred to findings in this Regulation (Sections 3 and 4) that already addressed in detail most of the claims made by interested parties. The Commission concluded that none of the arguments raised could change the Commission’s conclusion as to the appropriateness of prolonging the steel safeguard measure.

(106)

Some interested parties referred to the Dispute Settlement Body (‘DSB’) Report of 29 April 2022 in the dispute DS595 European Union – Safeguard measures on certain steel products, claiming that the Commission should have automatically terminated the measure as it was inconsistent with certain provisions of the WTO Agreement on Safeguards and the General Agreement on Trade and Tariffs (‘GATT’).

(107)

In this respect, as done in previous reviews where this claim was made, the Commission refers to the Implementing Regulation (EU) 2023/104 of 13 January 2023 (111) whereby it implemented the DSB ruling, thus bringing the steel safeguard measure into conformity with WTO rules in the few aspects where the Panel had identified inconsistencies.

(108)

Therefore, the claims pertaining to that dispute are not pertinent in the context of the ongoing review as they were already addressed by means of a separate legal act. In any event, and as it stemmed from the logic behind Regulation (EU) 2023/104, the Commission disagreed with the claims that the findings of the Panel in that dispute would have required it to terminate the measure.

(109)

One party alleged that, according to WTO rules, WTO members had the opportunity to extend safeguard measures once. This is because the relevant text in the WTO (Article 7.3) Agreement on Safeguards refers to the word “extension” in singular. So far, there is no substantive interpretation by the Dispute Settlement Body (DSB), however, the word “extension” in Article 7.3 is preceded by the word “any”, which may suggest that more than one extension is possible. Moreover, Article 19(3) of the Basic Safeguards Regulation uses the term “extensions” in plural.

(110)

Some interested parties argued that, because of some changes in the US Section 232 measure, the risk of trade diversion would have been allegedly reduced to the point that the safeguard measure would no longer be necessary on these grounds.

(111)

This is a recurrent claim made by interested parties also in previous reviews. Therefore, the Commission assessed this issue in different occasions in the past, including the review of June 2023. (112) In all instances, the Commission concluded that the changes in the US Section 232 measure did not alter the assessment regarding the risk of trade diversion into the Union market stemming from the US Section 232 measure (113).

(112)

In the context of the current review, the changes to the US Section 232 measure referred to by interested parties took place before June 2023 and were therefore already part of the Commission’s assessment in that investigation. Therefore, no additional evidence was provided to the Commission that would make it depart from its assessment in 2023.

(113)

Furthermore, as explained in Section 3.2.2.(e) the information available to the Commission suggested that not only the US Section 232 measure would very likely remain in place, but that the USA and other third countries were increasing the number of trade actions against imports from third countries. Thus, increasing the risk of trade diversion from such measures, including US Section 232 measure.

(114)

Some parties claimed that the Union steel industry is already sufficiently protected by means of numerous anti-dumping and countervailing measures on a wide range of products. In this regard, the cumulative effect of the different trade defence instruments creates a situation of overprotection for the Union industry.

(115)

The Commission notes that each of the different trade defence instruments serve a different purpose. The safeguard is an erga omnes measure which deals with import surges resulting from unforeseen developments causing or threatening to cause serious injury and anti-dumping and countervailing measures are oriented to protect a domestic industry from unfair trade practices (injurious dumping or subsidisation). When the legal conditions corresponding to the imposition (or extension) of the different instruments are met, the EU or any other WTO member is entitled to use different instruments simultaneously.

(116)

In the EU, as recalled in previous investigations (114), the safeguard instrument is compatible with the application of other Trade Defence Instruments without producing excessive protection since the EU legal framework (115)provides for a mechanism to avoid double remedy on the same product. This mechanism ensures that when imports under the safeguard exceed the volume of free-of-duty TRQ, then the 25 % is not cumulated to the applicable anti-dumping and/or countervailing duty so that it does not lead to an effect on trade greater than desirable. Furthermore, the EU’s General Court confirmed the legality of the Commission’s practice in this respect in a challenge concerning the steel safeguard measure (116). On these grounds, the Commission rejected the above claims.

(117)

Some interested parties argued that there is less import pressure due to decreased demand and low TRQ use.

(118)

However, despite a reduction in the level of TRQ use in a situation of lower consumption (-14 % in the period 2021- 2023) and lower imports (-17 % in the same period), data shows that import pressure in terms of market share of imports remains high. Even while declining slightly in 2023, the market share of imports continued to be close to record levels, with a 21.5 % share. This level is significantly higher than the average market share before the adoption of definitive safeguard measures in early 2019 (16.4 %).

(119)

Moreover, as explained in Section 3.2.2.(a) the combined average volumes of exhausted TRQs represented 32 % (nearly two million tonnes per quarter) of the total average volume of imports in the ongoing safeguard year. In terms of origins, the continued import pressure from certain origins in some product categories (117) despite the overall availability of TRQ volumes, contributed to the overall increase in market share of imports in the period considered in a context of decreasing demand.

(120)

Therefore, the Commission considers that the lower use of TRQs does not necessarily imply a reduction in the import pressure which could justify the termination of the measure by 30 June 2024.

(121)

Some interested parties (mainly exporters and users) claimed that some TRQs are exhausted quickly or consistently and that therefore the free of duty quota volumes are insufficient. This creates allegedly shortage of supply.

(122)

The Commission has assessed this claim in previous investigations and confirms also for the current review that the quick exhaustion of some TRQs cannot lead to the conclusion that the safeguard measure creates a shortage of steel for users in general. In this respect, the Commission noted that the claims by some interested parties referred to the exhaustion of some specific TRQs in isolation, without referring to the overall availability of steel outside a specific origin that may have exhausted its country-specific TRQ quickly. Thus, the Commission confirmed that, whilst some specific origins were exhausted at a given moment in time in certain product categories, in general terms access to other origins remained largely available for those product categories (see Section 3.2.2. b).

(123)

Moreover, evidence from different parties was not conclusive of the allegation that the Union industry is not able to supply. To the contrary, the low utilisation rates in most of product categories would suggest that the sourcing from the Union industry is a real possibility.

(124)

Therefore, the Commission rejected this claim.

(125)

Some interested parties claimed that the there is no evidence that the Union industry is in a vulnerable state and others raised that the injury factors identified are not attributable to an increase in imports (or a potential increase in imports), but rather to global conditions. In particular, other factors affecting the performance of the Union industry are allegedly the increase of energy costs and the increase of transportation costs. Finally, other parties mentioned that the injury has not been checked across all product categories.

(126)

In this respect, the Commission notes that the requirements to prolong a safeguard measure under Article 7.1 of the WTO Agreement on Safeguards and Article 19(2) of the Basic Safeguards Regulation, namely the necessity to prevent or remedy serious injury and that the domestic industry is adjusting, do not require that an increase in imports takes place during the period considered. The Commission established that there is a likelihood that, should the safeguard lapse, imports would increase resulting in serious injury to the Union industry.

(127)

With regard to the alleged necessity to demonstrate injury in all product categories, the Commission reminds that the product scope englobes all product categories as a single product, and therefore the injury assessment is done over the product covered by the investigation as whole and not per product categories. When appropriate, the Commission has shown that an analysis per product family does not change the conclusions reached at the level of the product as a whole.

(128)

Therefore, the Commission rejected the above claims.

(129)

Some users claimed that the safeguard measure has caused an increase of prices, which is eroding the competitiveness of downstream steel using industries. Users have also claimed that imports of finished and semi-finished products have increased since they have gained competitiveness compared to the same products produced by these users in the EU, due to an increase of input costs caused by the safeguard.

(130)

The Commission did not receive evidence supporting price or competitiveness claims. However, according to price information assessed by the Commission (see Section 3.4.2 on Union interest), prices in the Union market followed the same or a very similar trend than that of other markets, thus indicating that the safeguard measure was not creating an anomaly in terms of price trends in the Union.

(131)

Therefore, the Commission rejected the above claims.

(132)

A number of parties challenged the adjustment efforts made by the Union industry since the application of the safeguard measure. Based on that, they considered that the safeguard measure could not be extended since one of the legal requirements for extension was not met. Parties claimed that the adjustments were mainly focusing on decarbonization of the EU steel industry and also that these plans were not yet implemented.

(133)

Union producers have submitted to the Commission numerous examples of adjustments that have been decided recently and that are currently in different phases of implementation. Moreover, the Commission has found that, in addition to the examples provided by the Union industry, there were a large number of actions undertaken by Union producers of all sizes to improve competitiveness, even if market conditions were challenging. Some of these examples are mentioned in Section 3.3 of this Regulation.

(134)

Therefore, the Commission rejected the above claims.

(135)

Several interested parties argued that most of the adjustment measures of the Union industry were induced by the environmental obligations imposed by EU legislation and policies and therefore, they could not be considered as adjustments to improve competitiveness against imports.

(136)

In this respect, the Commission found that the adjustment actions undertaken by companies in whatever context normally respond to different reasons and are at the same time serving multiple objectives. Often, an adjustment to improve the environmental performance of a certain installation would bring about energy efficiency improvements or a new range of green products would also cater for growing demand. In any case, all the adjustments assessed by the Commission, either oriented at plant modernisation, process efficiency or closing down of underutilised facilities, would bring about competitiveness improvements that in a market such as the Union market equals to being better prepared to facing import competition.

(137)

The Commission found that the Union steel safeguard continues to be necessary to prevent serious injury and that there is evidence that the Union industry continues implementing measures to adjust to a market situation characterised by a higher import pressure. However, according to Article 19 of the Basic Safeguards Regulation, transposing Article 7.2 of the WTO Agreement on Safeguards, the duration of a safeguard measure “must be limited to the period of time necessary to prevent or remedy serious injury and to facilitate adjustment on the part of Union producers” .

(138)

The maximum duration of a safeguard measure is 8 years, except for developing country WTO members. This means that the Union can only extend the existing safeguard measure until 30 June 2026 as a maximum.

(139)

In this investigation, the Commission has found that the prolongation of the measure is necessary. Some of the elements that motivated the imposition of measures in 2019 are still present, namely high level of steel overcapacity, the high number of trade defence measures applied by other countries and the risk of trade diversion from the US Section 232 measure as well as from other measures taken by third countries since 2019.

(140)

Moreover, the situation of the Union industry is currently fragile while it continues to adjust amidst high and increasing import pressure from exporting countries. The information analysed did not show any signs that any of the key elements justifying the prolongation of the measure would disappear or substantially improve in the near future.

(141)

In addition, the latest market outlooks on world steel consumption only foresee a modest recovery of +1.7% in 2024 (barely recovering 2022 figures) and of +1.2% 2025 (resulting in consumption levels remaining below 2021 volumes).

(142)

Against this background, to ensure that the measure provides an effective and meaningful safety net to Union producers, the Commission considers it appropriate to prolong the measure for two additional years until 30 June 2026. The measure will automatically lapse at the end of the 8-year period.

(143)

Under the EU-Southern African Development Community Economic Partnership Agreement, the EU committed to exclude imports from the Southern African Development Community (‘SADC’) countries from the application of multilateral safeguards for a period of 5 years. As such, when that deadline expired, the EU included imports from South Africa and most SADC members within the scope of the steel safeguard measure. (118) In the case of Mozambique, this exemption expired at a later stage.

(144)

As a result, the Commission considered it appropriate to bring Mozambique within the scope of the safeguard measure as from 1 July 2024 to comply with the Most Favoured Nation (‘MFN’) obligation under WTO rules.

(145)

Due to the exclusion, the import data of Mozambique was not used in the original findings made by the Commission in the Definitive Safeguard Regulation concerning evidence on the existence of an increase of imports. (119) This was a result of the application of the principle of parallelism, (120) whereby the investigating authority cannot consider in its analysis those origins excluded from the application of the measure.

(146)

Since imports from Mozambique will not be excluded from the measure any longer, the Commission needs to reassess the original findings which led to the application of definitive measures, by incorporating the import data from Mozambique already available at the time of the original investigation.

(147)

As to the assessment of the increase of imports, the table below shows the total imports into the EU covered by the steel safeguard in the period considered in the Definitive Safeguard Regulation (2013-2017), including imports from Mozambique:

Table 14

Import volume (after inclusion of Mozambique) and market share

(148)

Imports increased in absolute terms by 71% during the original period of analysis, as well as the import market share (from 12.78% in 2013 to18.19% in 2017).

In view of the updated figures, the Commission confirmed that the original assessment on increased imports remains unchanged. In addition, given the insignificant amount of imports from Mozambique into the Union in relation to total imports, the Commission considered that the original findings on threat of serious injury, causation, Union interest and unforeseen developments still prevail. The updated list of developing countries included in or excluded from the measure containing Mozambique is part of the current review (Annex III.2).

(149)

Based on the above assessment, the new TRQs applicable form 1 July 2024 (Annex IV) will include imports from Mozambique.

(150)

Once the Commission concluded that the prolongation of the measure was appropriate and that imports of Mozambique should fall within the scope of the measure, the Commission examined whether technical adjustments to the functioning of the measure would be necessary. Following a detailed analysis of all the submissions received, the Commission reached the following conclusions. These conclusions are organized in the following sections, as per the structure in the Notice of Initiation.

(151)

In this section, the Commission analysed the evolution and patterns of the use of tariff rate quotas and the comments parties made in that respect. On that basis, it determined whether any adjustment resulting from changed circumstances was warranted in the Union interest.

(152)

Some parties (Union industry) requested to eliminate the quarterly carry-over of unused quotas to the next quarter (at least for the last quarter) or alternatively, to cap the carry over to a maximum of 4 % of the TRQ unused on a quarterly basis, while others (certain exporting countries and users) requested to shift the unused country-specific quotas (‘CSQ’) to the residual quota of the following quarter.

(153)

In addition, certain exporting countries and users requested to remove the system of CSQ for certain categories (or even for all categories) and have the quotas administered globally within each quarter to maximize the use of quotas. Others requested that some of the TRQs currently being administered globally be administrated with CSQ and residual TRQs.

(154)

The Commission also received requests to recalculate all quotas, based on a new reference period in order to capture a recent change in trade flows and requests to increase the level of quotas. Some interested parties also requested to eliminate the quotas for certain countries and to redistribute these amounts among other origins.

(155)

The Union industry requested to remove the pro-rata splitting of the 25% out-of-quota duty volumes on the day of exhaustion of a particular TRQ, among all declarations accepted on that day.

(156)

As a preliminary observation, the Commission noted that many of the above claims were contradictory with each other. In particular, the Commission did not identify a coherent and widespread substantiated claim that would justify reassessing the existing core structure of the TRQ administration, in particular as regards the time period used for the calculation of TRQ volumes and the combination of CSQ and residual TRQs in most product categories.

(157)

The safeguard measure has been in place for about six years. The TRQ structure has proven to be effective and consistent throughout the years. Where justified, the Commission has made the necessary adjustments to the quota management in order to keep the quotas effective and up to date with market developments. However, there are basic elements of the TRQ structure that are core and provide predictability and coherence to the measure and that, therefore, the Commission does not see any reason to amend.

(158)

In this regard, as explained in previous reviews of the measure, the TRQs, whether country-specific or residual, were allocated based on the export performance in the reference period of the original investigation (121). This reference period cannot be changed, as suggested by a number of parties, since recalculating all TRQs based on more recent flows which are covered by the measure would be against the objective of maintaining traditional trade flows that existed before the measure was introduced.

(159)

The system of quarterly administration of TRQs has proven to be effective in bringing about stability to the Union market, avoiding overall sudden surges of imports that would destabilise the market and ensuring an orderly and predictable flow of imports throughout the year. This system also allows that traditional trade flows in terms of volumes and origins are permitted without any additional duty, and where appropriate, it has given the possibility for certain origins to increase their free-of-duty exports beyond their traditional trade flows (122).

(160)

The current system of TRQ administration is designed to strike a balance among opposing interests. First, it works to the benefit of the Union industry because it avoids a flood of imports in a short period with the ensuing negative effects on the market. Second, it is also beneficial for certain third countries and certain Union users, which would otherwise be unduly crowded out from the market by other larger suppliers and would not be able to supply Union users, which would be in turn prevented from buying the material they need from these specific origins. Lastly, it allows larger exporting countries to exceed their traditional trade flows in most product categories by accessing the residual quota in the last quarter of a period when the incumbent suppliers were not able to fully use the quotas.

(161)

Implementing some of the changes requested by interested parties would severely disrupt the balance of interests among interested parties and would thus be against the overall Union interest and the effective functioning of the measure. This includes the Union industry request concerning the pro-rata splitting of the duty on the day of quota exhaustion. In this regard, the provisions of Article 51.4 of Commission Implementing Regulation (EU) 2015/2447 defining the pro-rata basis are applicable and do not provide for any flexibility.

(162)

Furthermore, in their submissions, parties have not provided evidence as to how the current TRQ system would not be appropriate and how the different adjustments they proposed would be in the overall Union interest (and not just in their individual interest) and compatible with the logic and a proper functioning of the measure.

(163)

For these reasons, the Commission considered that maintaining the current system of quota administration (quarterly administration and a combination of country-specific and residual quota save for few justified exceptions in the Union interest), as well as preserving the carry-over of unused quotas and the access to the residual quota in the last quarter of the safeguard year (Q4) continue to be appropriate, and that is fair vis-a-vis all interested parties.

(164)

However, while the current system of TRQ administration is appropriate, the Commission nevertheless considered that it requires some technical adjustments to adapt to recent market developments, such as changes in trade flows, and to improve its effectiveness. These changes will be explained further below and will be assessed together with some claims made under Section 7.2 “Crowding out of traditional trade flows” and Section 7.6 “Other changes of circumstances”.

(165)

Due to the system of carry-over of unused quotas from quarter to quarter within a safeguard year (123), the last quarter of the safeguard year (April-June) is usually the quarter where unused volumes are the highest. In order to maximize the use of quotas at the end of the safeguard year, the Commission introduced in the Definitive Safeguard Regulation a mechanism whereby larger exporters having exhausted their CSQ could also access the residual quota volumes in the last quarter.

(166)

Under the first functioning review in 2019, the Commission observed that this system could result in undue crowding out of smaller suppliers in the residual quotas. This trend expanded to more categories after 2019. Therefore, in the functioning review of 2020, the Commission devised a system whereby the access of CSQ countries to the residual quota in the last quarter of a safeguard year would be based on the actual use of the residual quota in the previous quarters by those countries subject to the residual TRQ. T