Saving Industrial France: Report calls EU policy “naïve”

ArcelorMittal blast furances. Photo: Flickr.com/sludgegulper

ArcelorMittal blast furances.
Photo: Flickr.com/sludgegulper

A parliamentary report released Tuesday, July 16 in France by the commission assigned to inquire into the French steel industry claims that Europe’s industrial policy is “naïve” and requires protectionist measures. The commission provided 26 proposals to, in particular, rescue the steel industry in France.

Described by Le Figaro as “scathing,” the report calls the current French industrial policy “inadequate and obsolete,” while describing the standard European competition policy as unproductive and based on a “naïve confidence in the virtues of a large global market.”  The commission recommends following the way of the United States and China who protect themselves from global competition by raising tariffs, controlling imported products, and securing the energy supply.

French Minister of Recovery Arnaud Montebourg reiterated the sentiments of the report in blaming the European Commission’s competition policy for the failures in energy policy companies and other industries.  Montebourg warned that the “Brussels technocrats who put us in this very critical situation” will be held accountable in the upcoming European elections next year. While the French commission’s report highlighted protectionism and investment as the steps to saving industrial France, Montebourg also added that temporary nationalization be a proscribed plan of action for failing manufacturing companies.

The commission also suggested public control over liquid steel manufacturing through equity investments, a policy that has seen recent success in a Rio Tinto Alcan (RTA) plant in Saint-Jean-de-Maurienne in Savoy. The German company Trimet, advised by BNP Paribas, has taken control over two failing steel factories in France and plans to convert them into aluminum plants. Trimet now owns 65 per cent of the company and will invest 200 million euros ($250 million) over six years. Électricité de France (EDF) will also help invest in the plants and now owns 35 per cent of the company. These two revived plants will be key for the energy industry in France.

Prime Minister Jean-Marc Ayrault and Montebourg both say that RTA stands as a shining example of how France is still attractive to new investors. The parliamentary commission made a similar conclusion: investment is the solution to “maintaining and modernizing” chain manufacturing like liquid steel, important for energy efficiency in France.

The commission stated that Europe is currently experiencing “dumping” from outsiders in the steel industry. For the French, outside competition is particularly difficult. Two months before the report was presented, the CEO of ArcelorMittal, Lakshmi Mittal, warned Europe against importing products at low prices and maintaining a high cost of labor in France. He called for greater flexibility in labor laws and among labor unions, citing that France could not compete with the low cost of labor in China. In response to his comments, Members of Parliament complained that rather than the “lesson in economics,” they would have preferred a concrete plan of action to aid the French steel industry.

France currently produces about 15 million tons of steel per year. In the 1980s, that figure was 25 million tons. Germany is on a different scale entirely, producing some 44 million tons a year, roughly the same level as 30 years ago. China, who is bringing the competition to Europe, jumped from producing 60 million tons 30 years ago to 720 million tons today.

Yet how much steel each country produces is slowly becoming less relevant, as demand for steel continues to drop each year. The European Union saw a 10 per cent drop last year alone. According to Eurofer, the European steel federation, reports of a bad first quarter for demand forecasts a worse than expected demand for 2013. Demand for steel in Europe has fallen for reasons of overcapacity and a decline in the construction industry after the 2008 financial crisis. As reported by The Economist, demand for steel in Europe has fallen 30 per cent since the crisis.

This drop in demand is among the most serious issues contributing to the failing steel industry in France, with high labor costs also a concern. Energy usage, making up two fifths of a plant’s operating costs, is also making life difficult for the industry. Labor is fiercely protected in France, and for steelmakers, deals made with the government to protect workers are long standing. While some argue that France needs to see changes in labor policy, others, like the parliamentary commission, stress investment.

Trackbacks

  1. […] report released by the commission assigned to inquire into the French steel industry claims that Europe’s industrial policy is “naïve” and requires protectionist measures. The commission provided 26 proposals to rescue the steel […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: