Trade experts appeal for global deal on state company trading to fight aluminium overcapacity

A global meeting of senior aluminium executives has heard calls for a multilateral solution for the problem of overcapacity. The goal would be integrating China and its state-owned enterprises into the world trading system in a way that is acceptable to major market economy regulators.

Debates were held on Monday June 4 at an aluminium summit in Montreal. It was staged in the Canadian city days before this week’s G7 meeting in Québec City, where US President Donald Trump is expected to be criticized by world leaders for imposing 10% Section 232 tariffs last week on US aluminium imported from the European Union (EU), Mexico and Canada.

But speakers at the meeting stressed that bilateral tariffs, such as those imposed by Washington, were not the answer to overcapacity. They highlighted how Chinese steel production remained high, despite having been largely pushed out of the American market by anti-dumping and countervailing duties - which are now a focus of US bilateral action over aluminium trades.

Chad Bown, senior fellow at the Peterson Institute for International Economics in Washington, stressed that Chinese metal trades were simply being pushed elsewhere, depressing world prices regardless. And with China’s domestic demand cooling as its past breakneck growth abates, the Chinese government is eyeing exports as outlets for unused capacity. Noting that the proportion of its aluminium production sold overseas is currently just 13-15% - nowhere near the levels of export sales achieved by producers in South Korea - Brown said: “If [the Chinese] ramp up exports, you can imagine what would happen on world markets.”

As a result, it was essential to find a multilateral solution to overcapacity that included China, so that it could remain integrated in global supply chains without distorting markets and depressing prices.

The key, Brown said, was to secure a plurilateral agreement that clarified how the output of state-owned enterprises - still dominant in China’s public sector-focused economy - should be assessed by global trade regulators. That way, when exporting, the direct and indirect subsidies they enjoy are acknowledged and accounted for in importers’ trade policies.

Such a plurilateral deal, would ideally be forged through the World Trade Organization (WTO), despite the threats that it faces from the Trump administration’s protectionism and blocking of dispute settlement body appointments, Brown said.

He said there are models for such a deal. Chapters on how to assess and control subsidies enjoyed by exporting state-owned enterprises have been written into recent trade deals, such as CETA (the EU-Canada Comprehensive Economic and Trade Agreement) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The EU’s state aid system, where the European Commission tightly controls subsidies paid to public and private operators was also a potential model for a plurilateral deal, he said. Another tack could be bringing cases under Article 23 of the WTO’s general agreement on tariffs and trade (GATT), which enables governments to claim that another WTO member is effectively nullifying the trade benefits they should expect from global trade deals through their policy actions.

While forging a new WTO agreement could be a tough call - given the current problems being faced by the WTO - it is better to try that than to let the global, rules-based trading system “wither on the vine,” Brown argued. If China was forced to the table, an agreement could be reached that enabled its state-owned enterprises to trade reliably, and predictably, and avoid the alternative - pushing China out of world trade altogether.

To achieve such a deal, however, more information on how state-owned enterprises (SoE) benefit compared to companies operating in purer, market-based systems is needed. This point has been accepted by global think tank the Organization for Economic Cooperation & Development (OECD), which, noted Ken Ash, its trade and agriculture director, is researching this topic regarding the aluminium sector.

Ash said the OECD has been studying aluminium majors - one in the United States, one from the EU and two from China - and found that the level of government support (accounting for scale) was three times larger in Chinese aluminium companies than their European and American competitors. This support was overwhelmingly from the Chinese government (while the US and EU companies also gained help from foreign governments through investment incentives, for instance). The OECD is trying to distill how SoEs benefit from working in government-dominated economies, whether it is from lower energy prices, employment subsidies, investment support and more. Such solid information could be used to craft an international agreement on how SoEs should trade that takes account of the benefits they receive, he said, which he would prefer would cover all industrial subsidies, including to private companies.

In any case, an international agreement is needed to deal with overcapacity, Ash stressed. “We have to pursue a multilateral approach - we cannot push the problem around the works on a unilateral basis,” he told the conference.

The OECD director had some optimism that this could be achieved, noting that last Thursday, on the day Trump announced his Section 232 tariffs, there was an agreement at the OECD among the US, Japan and the EU that new rules boosting transparency over SoE operations are needed at the WTO. In Montreal, Ash appealed to companies and governments in the room to assist with information to help craft a sustainable multilateral; solution to SoE overproduction and trade controls.

What to read next
The Inflation Reduction Act in the United States may ironically cause global metal market prices to rise for some metals used in electric vehicles (EVs), Fastmarkets sources said
An alarming drop in water levels in Germany’s Rhine River and other key waterways in Europe has led to massively strained logistics in shipping commodities across Europe, driving up costs and exacerbating material supply, sources told Fastmarkets
Fastmarkets is proposing a realignment of its dealer selling price for ferrous scrap machine shop turnings in Houston, effective from the September 2022 monthly settlement.
Participants in the US steel market were divided on the impact of a price increase from Nucor’s sheet mill group this week, with some suggesting hot-rolled coil prices could fall further while others were optimistic that announcement could halt - or even reverse — the recent downtrend
Chromite prices rose further in the two weeks to Tuesday May 31 on support from cost pressures and logistical issues in South Africa
UG2/MG chrome ore prices experienced major declines in the week to Tuesday July 12, dropping by $15 per tonne week on week, as the market saw the beginnings of a break in the continuing stalemate of recent weeks
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.