The European Steel Association, EUROFER, has said that it plans to raise concerns with the European Commission over the proposed rescue of British Steel by the Chinese industrial conglomerate Jingye that the deal may go against the bloc's competition rules.
British Steel Scunthorpe
The UK's second-largest steel maker went into liquidation in May
If the deal goes ahead, it will be the first takeover of steel mills in the EU by a Chinese company. On Monday, Jingye announced that a provisional deal had been reached to purchase British Steel, promising to sink £1.2-billion (€1.4-billion) in the beleaguered business over the next ten years.
The proposed deal, which still needs regulatory approval, has highlighted divisions in the UK and the wider EU between those in government and industry who are keen to embrace China's rise as a major global trading partner and those who are concerned about giving the world's largest steel making country even more clout of the world market.
Concerns have also been raised about the wisdom of giving China control of a key strategic industrial sector.
EUROFER is to argue that the planned deal is yet another example of China's practice of "steel dumping" in the European Union.
The European Commission released an email statement which said it was “in contact with the UK authorities”.
Thus far, neither Jingye nor the UK government had made any comment.
Speaking to Reuters, EUROFER Director General Axel Eggert said: “We need to be sure there is no state aid contribution by the UK government which could be considered as not in line with EU state aid rules."
He added that around half the world's steel was already made by China and the country was the main contributor to a global surplus.
At present, there is a global overcapacity of 450-million tonnes annually - three times the size of the market in Europe. Chinese steel accounts for around two-thirds of that excess, according to EUROFER.
While China has consistently denied dumping steel at a reduced price, arguing that its mills are simply more efficient that its European counterparts, EUROFER has been at the forefront in the push for stricter EU safeguards to protect industry in Europe from a deluge of cheap imports.
Gareth Stace, Director General of UK Steel, a trade association for the sector, has welcomed Jingye's pledge of further long-term investment in principle. If the rescue goes ahead, it could save around 5,000 jobs in steel making, mostly in the Scunthorpe area, and another 20,000 in the supply chain.
The Chinese offer has arrived at a critical time in the UK. The country has said it intends to withdraw from the European Union, but has repeatedly failed to come to an agreement on how to do so. To break the parliamentary stalemate the government called a general election for December 12 in which lack of job opportunities in northern England is an issue.
This is not the first time that China has leapt to rescue economically in the run up to an election in a European country. In 2016, China's Hebei Iron & Steel Group signed a deal to acquire a loss-making steel plant in Serbia, a few days before the country went to the polls in a general election which saw the incumbent coalition parties returned to power.
Over the past few years, Serbia has seen a massive increase in Chinese investment and while it is not a member of the EU, it is a candidate country, which means it should begin to respect EU rules.
Eggert has said that the European Commission should have taken a closer look at the Hebei deal in Serbia.
Since British Steel's liquidation in May, the UK government has had to cover a wage bill of around £250-million (€292-million) annually, as well as lending the failed company £120-million (€140-million) to allow it to comply with the EU Emissions Trading System.
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