World aluminium associations call on G7 trade ministers to address the issue of state subsidies

On 4^th February 2022, the world’s leading aluminium associations, which comprises, The Aluminium Association (USA), European Aluminium, the Aluminium Association of Canada and the Japan Aluminium Association in conjunction released their newest policymaker briefing, ‘Towards a Fairer and Cleaner Trade-in Aluminium’, in regards to the on the ongoing challenges in the global trade of aluminium.

The paper cites data from the ‘Organization for Economic Co-operation and Development’ (OECD) demonstrating by the means of massive state subsidies, particularly in China, have manipulated aluminium supply chains and tarnished the environment. The briefing was shared with lead trade ministers in all G7 nations (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States).

The briefing explicates, over the past 20 years, aluminium production in China grew from around 10% of the global market to nearly 60% as of now. However, much of this growth was navigated by enormous state subsidies, which is non-compliant with WTO rules. An OECD report of 2021, scrutinized state subsidies to 32 companies representing 70% of the global aluminium market.

The study also found that Chinese firms received state support ranging from 4% to 7% of annual revenues as compared to similar support representing 0.2% of annual revenues of non-Chinese firms. These subsidies viciously benefit Chinese production at the expense of the more than 1.8 million direct and indirect aluminium jobs supported by the industry in the U.S., Europe, Canada and Japan. Furthermore, they also erode domestic supply chains for many products vital to national and economic security.

Additionally, the above-mentioned state subsidies tend to support extraction, production, processing and export of high greenhouse gas (GHG) emitting production systems instead of cutting-edge aluminium production. About 88% of China’s aluminium production relies on coal-generated electricity, which emits 10X as much CO2 per ton of aluminium as compared to hydropower-based systems common in the rest of the world.

Charles Johnson, the President & CEO of the Aluminum Association, said: “With continued demand growth and U.S. investment totalling $4 billion in the over the past decade, American aluminium has an enormous opportunity to thrive in the 2020s and beyond.”

“But, meeting our full potential will require smart policy to combat massive state subsidies that distort global supply chains and slow down the industry’s push to decarbonize. Aluminium firms everywhere – not just state-owned enterprises – should benefit from demand that is expected to grow 80% globally by 2050.”

Paul Voss, the Director-General of European Aluminium, stated: “Unfair trade practices erode the tremendous economic and social benefits domestic value chains crucial to the achievement of the European Green Deal bring and accelerate an alarming trend Europe has been facing over the past years: an increasing import dependency on high-carbon products that do not meet Europe’s sustainability standards.”

Jean Simard, President and the CEO of Aluminium Association of Canada, said: “Canada’s responsibly produced low CO2 primary metal is the result of massive multibillion $ modernization investments, operational efficiency and stringent regulatory environment.”

“As we move ahead, to further our decarbonization, a clear and clean trading level playing field is required to avoid subsidized carbon leakage disrupting our North American value chain.”

Yasushi Noto, the Executive Director of Japan Aluminium Association, said: “In Japan, 2,400 companies operate along the aluminium value chain and support almost 100 thousand jobs.”

“Aluminium is significantly useful to recycle compared with other materials and the industry has the vital role to reduce carbon footprint. To achieve the goal of carbon-neutral, we have to prevent the carbon leakage associated with the distorted global aluminium value chain.”

The aluminium associations are calling for immediate action and attention to address these systemic challenges. As the briefing notes, “We are offering to help, to contribute to creating the modern trade rules that will benefit our sector - and all industrial sectors.” Specific calls for action include:

• Updated WTO Rules on Industrial Subsidies: The World Trade Organization (WTO) should update its rules to discipline countries that engage in non-market-oriented practices, including massive and harmful state subsidies. Such an effort would be a significant undertaking but is likely the most effective long-term solution to combat market-distorting behaviour.
• Strong Trade Enforcement: Countries should continue to use available trade enforcement remedies to combat unfair trade practices in relevant markets. Governments in the U.S., Europe, Canada and Japan have all made substantial use of trade enforcement tools in recent years and these efforts should continue.
• Multilateral Engagement: The U.S./EU/Japan Trilateral Partnership; U.S./EU Global Arrangement on Sustainable Steel and Aluminium; U.S./EU Trade and Technology Council; and the Global Trade Challenges Working Group have all highlighted the challenges of market-distorting behaviour in the aluminium trade. These groups must now work toward concrete policy solutions to address these challenges.

“We need the freedom to build supply chains that are robust and resilient, in an environment where public policies are transparent, predictable, and non-discriminatory. These conditions are essential to incentivize the enormous private investments that are required to decarbonize our sector, sustain our environment, strengthen the resilience of our industrial ecosystems, and continue to provide good jobs,” the briefing concluded.