The European Union’s antitrust agency targeted Belgium on Wednesday for providing unfair state aid to the steel sector and opened an in-depth probe on assistance given to Italian steel producer Ilva, at a time when steelmakers around the world are struggling with overcapacity in the industry largely due to a flood of cheap imports from China.
The European Commission ordered Belgian authorities to recover €211 million ($229 million) from several Duferco Group steel companies. It also said that it was opening a probe into Italy’s financing for Ilva, which potentially amounts to €2 billion.
“The case shows that state aid to artificially keep steel manufacturers afloat that are not viable seriously distorts competition and only delays their exit from the market at the cost of taxpayers,” said European Antitrust Commissioner Margrethe Vestager.
Overcapacity in the steel sector has led to thousands of job losses in the European sector in recent months, not least in the U.K., and has caused steel producers around the world to seek government protection from falling prices.
Tata Steel Ltd, Europe’s second-largest steelmaker, is in the process of reducing its European workforce to 26,000 employees from 30,000. Meanwhile Sahaviriya Steel Industries PLC of Thailand said in September that?it would shut its steel plant in northern England, resulting in ?another 1,700 job losses.
Steelmakers in Europe are laying off workers and shutting down production capacity in response to a wave of cheap steel imports, particularly from China, the world’s largest steel producer. Over capacity there and shrinking steel demand has spurred many Chinese steelmakers to sell their product abroad.
In the European Union, steel imports from China have more than doubled over the past year while demand languishes below levels last seen prior to the financial crisis of 2008. This has led to a roughly 40% drop in steel prices over the past two years.
State aid “doesn’t help in the long run, it keeps noncompetitive companies on the market and transfers other problems to other member states, and it’s unfair to other steel companies who, through their own means, have modernized their companies,” Ms. Vestager said.
She said that the response to the overcapacity problem should be to improve the sector’s long-term global competitiveness. The European Commission is also helping to minimize the job losses through a fund that supports people to be retrained and find different jobs in another sector, she said.
Belgian authorities in the French-speaking region of Wallonia repeatedly injected public money into the Duferco companies between 2006 and 2011, Ms. Vestager said, but despite that, Duferco has pulled almost all of its operations from Belgium.
The support measures from the Belgian authorities, amounting to €211 million, are considered illegal state aid because “you couldn’t find a market investor that would give them the kinds of loans they got from the authorities,” she said. The commission first opened an in-depth probe into the Duferco Group steel companies’ financing in October 2013.
In the Italy case, the commission said it would be investigating Italian state support handed to steel producer Ilva to help the company revamp its steel plant in Taranto, Italy—the European Union’s largest. Ilva was given public money to help its Taranto plant reach full capacity, Ms. Vestager said, at which point it could produce as much as the steel industries of Bulgaria, Greece, Hungary, Croatia, Slovenia, Romania and Luxembourg combined in 2015.
“This may amount to serious distortion of competition in a very competitive sector,” Ms. Vestager said.
The EU said a potential €2 billion in state-supported financing for Ilva came via state guarantees on loans, and various privileged laws, including one that allows Ilva access to funds seized during criminal cases against Ilva shareholders and management.
“Italy will continue to cooperate with the European Commission to demonstrate that it acted correctly on Ilva,” said Italy’s Industry Minister Federica Guidi in a statement commenting on Brussels’ probe.
The Italian government issued a decree in January putting Ilva’s facilities up for sale, as part of a wider effort to keep the struggling steel manufacturer alive. National and foreign potential buyers have a month to submit their offers, starting from Jan. 10.
Ilva, which employs about 12,000 people, has been blamed for years of failing to limit toxic emissions from its plant in the Italian city of Taranto.
Representatives at Duferco and Ilva weren’t immediately reached for comment.
In a separate state aid case, the EU earlier in January also ordered Belgium to recover €700 million from about 35 multinational companies, including brewer Anheuser-Busch InBev NV.