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EU plans to cut 6% duty on aluminum imports by half

The European Union plans to trim a 6% tariff on aluminum imports next month to increase shipments from Russia, denting protection for producers in the EU including Alcoa Inc.

The EU aims to lower the duty on unalloyed primary aluminum to 3% on January 1 after Poland demanded relief for importers. The metal is used after reprocessing for products ranging from cars and planes to packaging and electric cables. The European Commission's proposal will be a “first step” to ease the burden on importers, Industry Commissioner Guenter Verheugen told reporters in Brussels today. The proposal by the commission, the 25-nation EU's executive arm, will need the backing of the bloc's governments. The relief would be a compromise that leaves untouched the import tax on the alloyed version of the product. The aluminum duty, set at 6% for the past decade, also protects such producers in the EU as Alcan Inc., Norsk Hydro ASA, Glencore International AG and Rio Tinto Plc. The entry to the EU of 10 mainly eastern European nations in May 2004 strengthened the case for scrapping the tax because new member states have aluminum-transforming industries that traditionally relied on Russian supplies.

Aluminum importers in Europe will probably delay shipments until the tariff reduction takes place and that's likely to create a brief period of supply tightness in the region, said Dan Smith, an aluminum analyst at metals consulting company Brook Hunt in Addlestone, England. In the longer term, such a cutback “also reduces incentives to have smelters in Europe,” Smith said. Russian exports were so important to Hungary that it negotiated a delay in introducing the EU duty as part its entry accord. This included a zero rate during the first year of membership and then a three-step increase to 6% starting May 2007. Poland and the other new members were forced to apply the 6% levy from the first day of membership. The Polish government has been pressing the EU for months to end the duty and EU Trade Commissioner Peter Mandelson said in June he was “actively working to find a balanced solution.” A paper circulated at a meeting of EU industry ministers in Brussels yesterday mentions the plan for a cut in the duty on unalloyed aluminum to 3% and refers to a second step eliminating the levy on this product.

“A second phase could see the duty reduced to zero, but this still needs to be agreed both within the commission and by member states,” Peter Power, Mandelson's spokesman, said by telephone in Brussels. This step, which the commission plans for January 1, 2009, faces opposition, according to EU officials. Verheugen didn't refer to it in his remarks to reporters. “We will continue to push for a full suspension,” Roger Bertozzi, in charge of trade issues at the Federation of Aluminium Consumers in Europe, said by phone in Brussels. Some non-EU aluminum exporting nations are already exempted from the levy because of trade agreements with the bloc. For example, Norway can export the product duty-free because it's a member of the European Economic Area and Mozambique gets the same benefit as a result of preferential EU arrangements for poor countries. Russia would stand to benefit most from a reduction of the duty on unalloyed aluminum because domestic exporters such as OAO Russian Aluminium account for most of the EU imports that are subject to the levy. Last year, the EU imported about 2.3 million metric tons of unalloyed aluminum, of which 1 million tons were subject to the 6% duty. Of that amount, most came from Russia. Relief for Poland over the aluminum-import tax might help resolve a separate EU-Russia trade issue. Last month, the EU was unable to begin negotiations with Russia on a new trade accord because Poland vetoed the step to protest a Russian ban on Polish meat and vegetables. (Bloomberg)