Is Europe’s “#Industrial Renaissance” in jeopardy?

| June 12, 2019

The outgoing Juncker Commission has been adamant about the need to prompt an “Industrial Renaissance” in the European Union, recognising as early as 2014 that European industries are intimately intertwined with the entirety of the bloc’s economic fabric and setting an ambitious target of 20% of the Union’s GDP coming from manufacturing by 2020.

Is the current European industrial policy, however, helping further this renaissance—or is it instead causing market distortions which are inflicting a damaging blow on the small and medium-sized enterprises (SMEs) which are the bedrock of the EU’s economy? This pivotal question was at the centre of a POLITICO panel discussion held this Tuesday, June 11th, in Brussels. European policymakers and industry leaders came together at the event, which was sponsored by the Federation of Aluminium Consumers in Europe (FACE), a Brussels-based organisation dedicated to the European downstream aluminium industry.

In opening remarks, Roger Bertozzi, the Head of EU and WTO Affairs at FACE, suggested that the aluminium industry is a litmus test of how European industrial policy is actually hindering downstream manufacturing. The EU aluminium industry, Bertozzi indicated, is “a concrete example of a strategic and sustainability-oriented sector that suffers from the contrary effects of trade and industrial policies, in contrast with the holistic and synergistic approach that should prevail to effectively foster competitiveness”.

Alongside the event—which featured interventions from German MEP Reinhard Bütikofer (Greens/EFA), Carsten Bermig from the European Commission, think tank director Hosuk Lee-Makiyama and Yvette van Eechoud, Director for European and International Affairs at the Dutch Ministry of Economic Affairs—FACE published a study which it had commissioned from the LUISS Guido Carli University in Rome. The study, which is the most extensive analysis to date of the competitiveness of the European downstream aluminium industry, calls into question the efficiency of certain EU policy measures ostensibly taken to protect the European bloc’s aluminium smelters—specifically, import tariffs of between 3% and 6% on raw aluminium.

As the LUISS study illustrated, not only have these tariffs failed to prevent the steady decline of aluminium smelting in the EU, they’ve had significant negative effects on the continent’s downstream aluminium sector. As EU-based smelters have continued to shutter their doors thanks to high operational costs and expensive energy, the tariffs have inflicted a cumulative 18 billion euros in extra costs on the downstream, causing it to lag behind growing global demand. Indeed, while other countries—particularly China and the Middle East—have seen their production of semi-finished products skyrocket, the EU aluminium downstream remains below its pre-financial crisis levels.

This stagnation is especially devastating because of the downstream’s relative weight in the EU aluminium industry. Of the one million jobs which the industry represents in Europe, the downstream is responsible for a staggering 92%. Of the industry’s annual turnover of €40 billion, the downstream can take credit for roughly 70%.

The SMEs which constitute the lion’s share of this downstream industry are already struggling in the face of stiff—and frequently unfair—competition from overseas, an issue which was repeatedly brought up at the panel. As German MEP Reinhard Bütikofer noted, “China is not playing by the rules. It laughs in our eyes”.

Given that these SME’s are additionally heavily reliant on imports of unwrought aluminium and that they are operating in a low-margin industry in which raw materials can make up as much as half of the cost of producing semi-finished goods, the tariffs have seriously dented the downstream’s competitiveness.

In his remarks Wednesday, Bertozzi denounced the current tariff regime as a “de facto subsidy mechanism” benefitting a small group of primary aluminium producers. The nature of the tariff scheme means in practical terms that EU users and consumers are unable to access any unwrought aluminium at the duty-free price level, because the market premium for all unwrought aluminium sold in the EU—regardless of its origin—incorporates the full value of the 6% tariff.

FACE announced that it is launching a campaign calling for the total suspension, or zeroing, of the tariffs on raw aluminium. Without such a policy shift, the association warned, the very survival of the EU’s downstream aluminium industry may be in peril—a loss which would strike a warning note for the prospects of a broader industrial renaissance in Europe.

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