EU fails to curb steel industry

European Union efforts to restructure the steel industry finally collapsed yesterday. It was an embarrassing failure for the EU's Commission, which has come under heavy fire for permitting new subsidies to the sector without forcing cuts.

British Steel warned that the end of the Commission's steel plan would leave open too many steelmaking plants that should have been closed down. A spokesman for the company said that the industry, buffered at present by a recovery in prices, would face a repeat of its problems with overcapacity within in a few years.

The Commission put forward a plan two years ago for capacity cuts in the industry in return for financial assistance in restructuring and a more permissive attitude towards state aid for the sector.

The state aid has in many cases gone ahead, but the required 19 million tonnes of capacity cuts have not been forthcoming. The Commission said it would not demand that companies paid back state aid that has been granted to help cushion losses, as this would penalise workers unnecessarily. It also said it would end quotas on imports of steel from the Czech Republic and Slovakia.

The Commission has also decided to authorise a German government plan to give DM910m ( pounds 373.64m) in aid to Eko Stahl, an eastern German steel company that is to be privatised and sold to Belgium's Cockeril Sambre.

Unsubsidised private sector producers are highly critical of the way the Commission handled the deal, arguing that it should have pushed harder for capacity cuts and taken a tougher stance against state aid. About pounds 6bn worth of subsidies have been approved in the past two years.

British Steel has already brought a case in the European Court of Justice against the Commission for authorising government subsidies to Italian and Spanish steelmakers. The company argues that it has done its fair share of rationalisation and that continued aid for uneconomic producers distorts the marketplace.