Commission Implementing Regulation (EU) 2020/894 of 29 June 2020 amending Implementing Regulation (EU) 2019/159 imposing definitive safeguard measures against imports of certain steel products

Commission Implementing Regulation (EU) 2020/894of 29 June 2020amending Implementing Regulation (EU) 2019/159 imposing definitive safeguard measures against imports of certain steel products THE EUROPEAN COMMISSION,Having regard to the Treaty on the Functioning of the European Union,Having regard to Regulation (EU) 2015/478 of the European Parliament and of the Council of 11 March 2015 on common rules for importsOJ L 83, 27.3.2015, p. 16., and in particular Articles 16 and 20 thereof,Having regard to Regulation (EU) 2015/755 of the European Parliament and of the Council of 29 April 2015 on common rules for imports from certain third countriesOJ L 123, 19.5.2015, p. 33., and in particular Articles 13 and 16 thereof,Whereas:1.BACKGROUND(1)By Implementing Regulation (EU) 2019/159 ("the definitive Regulation")Commission Implementing Regulation (EU) 2019/159 of 31 January 2019 imposing definitive safeguard measures against imports of certain steel products (OJ L 31, 1.2.2019, p. 27)., the Commission imposed safeguard measures on certain steel imports (26 steel product categories). The measures consist of a system of tariff-rate quotas per-product-category ("TRQs") set at a level to ensure that disruption to imports were minimised and traditional import levels from trading partners were preserved. A 25 % out-of-quota tariff applies for imports exceeding the TRQs.(2)By Implementing Regulation (EU) 2019/1590 (the "first Review Regulation")Commission Implementing Regulation (EU) 2019/1590 of 26 September 2019 amending Implementing Regulation (EU) 2019/159 imposing definitive safeguard measures against imports of certain steel products (OJ L 248, 27.9.2019, p. 28)., the Commission reviewed the measures for the first time and introduced a series of adjustments taking into account changed circumstances and Union interest in order to make their functioning more effective.(3)By Implementing Regulation (EU) 2020/35 (the "end-use Regulation")Commission Implementing Regulation (EU) 2020/35 of 15 January 2020 amending Implementing Regulation (EU) 2019/159 imposing definitive safeguard measures against imports of certain steel products (OJ L 12, 16.1.2020, p. 13)., the Commission revoked the adjustment previously made to the administration of the TRQ in product category 4, as it had proven impracticable.2.THE SECOND REVIEW PROCEDURE(4)According to Article 8 of the definitive Regulation, the Commission may review the measures in case of change of circumstances during the period of imposition of the measures.(5)On 14 February 2020, the Commission initiated the second Review of the safeguard measures by publishing a Notice of InitiationOJ C 51, 14.2.2020; p. 21. in which it invited interested parties to make their views known and submit evidence concerning five grounds of reviewSee recital 9 below..(6)Due process took place under a two-stage written procedure. In the first stage, the Commission received around 90 submissions. In the second stage, interested parties were also allowed to rebut other parties’ initial submissions. The Commission received over 30 additional submissions.(7)The written phase of the proceeding ended on 18 March 2020, while the Union and other countries were imposing strict lockdowns and confinements to stop the spread of the COVID-19 pandemic.(8)In order to take into account in the framework of the Review the economic effects of this unexpected development resulting in a drastic change of circumstances in the functioning of the Union steel market and the current safeguard measures, on 30 April 2020 the Commission opened an additional and extraordinary period for interested parties to submit their views on the economic effects of the COVID-19 pandemic on the steel market.3.FINDINGS OF THE INVESTIGATION(9)Following an in-depth analysis of all the submissions received, the Commission arrived at the following conclusions. They are organized in six different sub-sections. The first concerns the economic effects of the COVID-19 pandemic (Section 3.1 below), the following five (Sections 3.2 to 3.6) corresponding to the five grounds of review identified in the Notice of Initiation of the second Review, namely: A) Level and allocation of TRQs; B) Crowding out of traditional trade flows; C) Potential detrimental effects in achieving the integration objectives pursued with preferential trading partners; D) Update of the list of developing WTO member countries excluded from the scope of the measures based on updated import statistics concerning 2019; and E) Other changes of circumstances that may require an adjustment to the level of allocation of the TRQ.3.1.The effects of the COVID-19 pandemic on the Union steel market and the functioning of the current safeguard measuresComments from interested parties(10)The Commission received about 200 submissions on the economic effects of the COVID-19 pandemic and its impact on the functioning of the current safeguard measures. The large majority of them were from exporters, importers, users and traders. Several exporting countries, as well as associations of the Union steel producers industry ("the Union industry") and downstream steel users also submitted comments.(11)A large majority of the comments strongly opposed the request made by the Union industry to drastically reduce the volume of TRQs. These comments indicated that this reduction of TRQs would not only constitute a de facto ban on imports in violation of WTO rules, but would also be contrary to the Union interest, since it would ignore the interest of the downstream markets where steel manufacturing activities would be very negatively impacted. Several parties also stressed that additional changes to the administration of TRQs would be totally unjustified and considered that the elimination of the carry-over mechanism of unused quotas from one quarter to another would make the measures more restrictive in violation of WTO rules. Many parties highlighted that the impact of the COVID-19 pandemic is still uncertain and difficult to predict, and will have different effects depending on the steel segment. Some parties therefore suggested to postpone any adjustments until there is clarity about the impact, and alerted that a reduction in the level of TRQs would compromise supply contracts already concluded.Commission position(12)When the Commission adopted the first package of adjustments to the Union steel safeguard measures in October 2019, the forecast for the steel industry indicated a decline in demand as the global economy was gradually slowing down. Apart from an adaptation of the liberalisation pace to this predicted slowdown of growth, the Commission also introduced several other adjustments aimed at preserving traditional trade flows and preventing that certain export origins crowded others out in the use of the TRQs available under the measures in a progressively deteriorating economic context.(13)It was unpredictable at that time that several months later, the COVID-19 pandemic would plunge the world economy into the most severe recession since the Global Financial Crisis of 2008. The strict controls decreed by the authorities all over the world to mitigate or suppress the disease since the outbreak of the pandemic during the first quarter of 2020 were taking a heavy toll. The economic effects of the lockdown and confinement measures have been immediate and harsh. The magnitude and sharpness of the economic shock has been very significant in terms of output, fixed investment, lay-offs, and demand.(14)According to Oxford Economics, global GDP is expected "to contract by almost 7 % in the first half of the year, almost double the decline recorded during the global financial crisis, this reflects broad-based revisions across the major economies"Research Briefing (Global) of 14 April 2020.. This contraction is underway in all major industrial sectors and orders have dried up completely. In March 2020, the J.P.Morgan Global Composite Output Index fell to a 133-month low of 39,4, and the month-on-month drop in the index level (6,7 points) was the second steepest in the series historyJ.P.Morgan Global Composite PMI of 3 April 2020.. "The severity of the impact was emphasized by series-record month-on-month declines in the levels of indices tracking output (down 10,1 points), new orders (down 9,4), outstanding business (7,3 lower), new export orders (down 10,4) and future activity (13,1 lower)"Ibidem.. The IHS Markit Global sector PMI published in May confirms this impact and shows record falls in output in every sector monitored except healthcare servicesIHS Markit Global Sector PMI of 8 May 2020..(15)Union steel producers predict a stalling demand with falls in southern Europe exceeding 60 % and in northern Europe around 50 % during the second half of 2020, mainly driven by a dramatic slump in demand in the automotive segment of around 80 % as a result of a sharp decline in its vehicle sales and production. This is in line with the findings of Morgan Stanley in its recent report on the steel sectorReport "Bracing for impact" of 7 April 2020. which notes that "steel end markets are facing severe disruption with automotive demand (18 % of Union steel demand) plummeting by 40-85 % YoY in March, while Construction, Oil & Gas and Aerospace segments are also facing severe headwinds". The above-mentioned lasting slump in the demand for steel appears to be plausible and corroborated by the evolution of the seasonally adjusted Global Steel Users PMI, which is a composite indicator designed to give an accurate overview of operating conditions at manufacturers identified as heavy users of steel. This indicator fell to a 133-month low of 43,7 in April, from 49,3 in March, driven by the stalling demand both on domestic and export markets, the latter declining at the fastest rate since the end of 2008IHS Markit Global Steel Users PMI of 8 May 2020..(16)The ensuing severe economic damage will be recorded by companies and countries during the first half of 2020. A change in trend can only be expected in the late second quarter with a possible rise in activity in very few countries, if any. The Spring 2020 Economic Forecast of the European Commission predicts a deep and uneven recession and an uncertain recovery, with the unemployment rate in the Union rising from 6,7 % in 2019 to 9 % in 2020 and then fall to around 8 % in 2021Spring 2020 Economic Forecast: "A deep and uneven recession, an uncertain recovery" of 6 May 2020..(17)The economic forecasts for the remaining duration of the safeguard measures ending on 30 June 2021 are bleak. The Spring 2020 Economic Forecast of the European Commission also predicts that the Union economy will contract by 7,5 % in 2020 and grow by around 6 % in 2021. Therefore, the EU economy is not expected to have fully made up for the crisis losses by the end of 2021. Investment will remain subdued and the labour market will not have completely recoveredIHS Markit Global Steel Users PMI of 8 May 2020.. Growth projections of the Commission for the Union and euro area have been revised down by around nine percentage points compared to the Autumn 2019 Economic Forecast.(18)The gravity of the massive economic fallout resulting from the COVID-19 pandemic is nevertheless difficult to predict at this stage. As Oxford Economics notes "the key uncertainty now is not the size of the falls in the second half of 2020, but the speed and timing of the subsequent recoveryResearch Briefing (Global) of 14 April 2020.". In its recent uncertainty analysis, IHS Markit notes that uncertainty rockets to General Financial Crisis levels and describes how "firms are now more fearful than ever of a recession and largely expectant that the downturn will persist throughout the coming year"IHS Markit PMI Research & Analysis of 14 May 2020..(19)Although since mid-May 2020 countries have started to implement exit strategies for the more stringent pandemic control measures, there are indeed still many uncertainties about the recovery. First, it is difficult to calibrate at this stage with clarity the depth of the damage caused to the national industries and the domestic and international supply chains. Second, it is not excluded that new virus waves appear later in the year, as controls are progressively eased, which could lead to successive reinstatements of lockdowns and confinement measures including in a stop and go sequence that could nip the recovery in the bud and cause more lasting damage.(20)In the light of the forgoing analysis, the Commission finds that the economic shock produced by the COVID-19 pandemic represents a fundamental and exceptional change in circumstances drastically impacting the functioning of the steel market within the Union and worldwide. For this reason, the Commission considers it necessary to carefully take into consideration the economic effects of the COVID-19 pandemic when shaping the adjustments under the second Review of the safeguard measures.(21)As previously explained, in the first Review of the safeguard measures, as a result of an already observed downturn in the steel market contrary to the expectations at the time of adopting the definitive measures, the Commission had introduced adjustments to remedy limited crowding-out effects observed during the first year of measures. However, those effects will be further exacerbated in the current economic context in the absence of adjustments.(22)Whereas the economic shock of the pandemic has been relatively symmetric, in that the pandemic has affected all countries in the world with sudden and very significant output and demand falls, the strength of the rebound in 2021 is likely to be asymmetric. This will depend not only on the evolution of the pandemic in every country, but also on the structure of the national economies and their capacity to respond with recovery policies.(23)In the current situation of slump in demand and ensuing drastic reduction in sales affecting virtually all steel product categories, coupled with a horizon of high uncertainty and likely strong geographical asymmetries in the speed and timing of the recovery, it is plausible to expectSee recitals 36 and 37 where the observed behaviour of certain exporting countries under the measures is further developed. that some exporters of steel to the Union will adopt an even stronger aggressive commercial behaviour to "empty the market" to the detriment of other market participants when activity resumes after the pandemic.(24)In particular, it is reasonable to expectIbid. that some exporters, notably in geographical areas resuming activities comparatively earlier than others, will frontload sales in the Union market more forcefully than in the past to first exhaust country-specific quotas as early as possible, and be ready to immediately tap into the residual quotas when they become available.(25)This opportunistic behaviour of exporters from certain origins risks more than ever displacing other market participants and unduly occupy market shares that in normal circumstances would correspond to other traditional trade flow areas or to domestic production. This is a real risk, as exporters will desperately try to gain larger shares of a smaller market to make up for absolute sales losses due to depressed demand.(26)Apart from endangering the preservation of traditional trade flows in terms of origins, the above-mentioned opportunistic behaviour, unduly displacing traditional trade flows and domestic production, is also liable to causing very serious imbalances in the Union steel market, which could ultimately compromise the remedial effects of the original safeguard measures in terms of protection against a new sudden surge of imports.(27)In these circumstances, in order to guarantee an orderly return to the market of all suppliers, both domestic industry and exporters, and minimise undue opportunistic conduct, the Commission considers it necessary to introduce two general adjustments to the TRQs administration. The first one is to move to a quarterly, rather than yearly management of all country-specific quotas; this adjustment, whilst preserving the total volumes per product category, will ensure a more stable flow of imports and minimise the risk of undue import surge during the remaining duration of the measures. A second complementary adjustment is to introduce a refined regime for the access to the residual quota of countries benefiting from country-specific quota. This adjustment will ring-fence, where appropriate, the use of the residual quota for the incumbent smaller exporting countries falling within this global section of the TRQs, and will minimise the risk that they are crowded out by those exporters enjoying country-specific quotas. These two adjustments will be developed further below in Sections 3.2 and 3.3 respectively.3.2.Level and allocation of TRQs(28)Under this Section the Commission assessed whether the current level and allocation of TRQs, including their management, is appropriate. As indicated in the Notice of Initiation, apart from the comments and evidence submitted by interested parties, the Commission paid particular attention in its assessment to the development of the TRQs use over the second year of measuresData analysed until 15 May 2020., which has been the object of daily monitoring for all twenty six-product categories.Comments from interested parties(29)Most interested parties submitted comments on this aspect of this Review. Many of them, notably exporting producers, third-country governments, users, and importers requested either an increase in the level of TRQs or a different allocation system for the product categories of their concern. Those requests included the change of the reference period to calculate the TRQ levels to benefit from a higher quota. Some interested parties asked the Commission to change the basis for allocating a country-specific quota, by either increasing or decreasing the current 5 % threshold.(30)On the other end, the Union industry advocated for a number of adjustments in the opposite direction. Most notably, the Union industry requested that the TRQs are administered on a quarterly basis, and that the unused volumes in one quarter are not transferred to the next quarter. In the framework of the exceptional reopening of the written phase for receiving comments on the economic effects of the COVID-19 pandemic, the Union industry asked for the level of TRQs to be reduced up to 75 % to cater for the devastating economic effects of the pandemic. Many interested parties strongly opposed this request, arguing that it would be incompatible with WTO rules and unduly affect the downstream industry in the Union.Commission position(31)The Commission notes that even in the last quarter of the second year of measures (data analysed until 15 May 2020), the overall level of TRQs remained largely unused9 million tonnes – 29 % of the total TRQ available in year 2 of the measures., with quotas available in every product category. In view of the observed pace and trend of TRQs use after more than three quarters of the period have already lapsed, and in the prevailing economic context of growth stalling described in Section 3.1 above, the Commission considers it very unlikely that, in the remainder of the last quarter, the TRQ use would accelerate. To the contrary, the most recent import trend and demand outlooks indicate that until the end of the period, i.e. 30 June 2020, the pace of imports could be even further reduced. Moreover, as stated in recital 15 of the first Review Regulation, in the first year of measures, when the situation in the market was more stable and demand was sustainable as compared to the current situation, around 3,2 million tonnes free-of-duty TRQs remained unusedThis amounted to around 12 % of the total TRQ unused..(32)Against this background, the Commission considers that the TRQ levels in place did not unduly restrict trade flows during the second year of measures, but allowed a level of imports proportionate to the needs of the Union market.(33)In reaction to the requests for an increase of the TRQ levels, the Commission notes that the submissions made by interested parties did not show that demand in the Union steel market would increase in any such way so that actual TRQs create a shortfall of supply in the market. To the contrary, as described in detail in Section 3.1, the trend rather points to the opposite direction. Lastly, the Commission also notes that the reference period used to calculate the TRQs constitutes one of the pillars in the design of the measures set ab initio by the definitive Regulation, and that the scope of the Review does not cover the substantial modification of the basic structure of the measures. Rather, its objective is to assess whether any specific adjustments to the management of the TRQs are necessary. The Commission thus rejects those requests.(34)Notwithstanding the above, the Commission considers it necessary to introduce a series of adjustments and refinements to the management of the TRQs in order to adapt it to the evolution of the market and better ensure the functioning of the safeguard measures. Those adjustments are both horizontal in nature and specific to certain product categories.3.2.1.Horizontal adjustment: Quarterly administration of all country-specific quotas(35)The Review investigation showed that several exporting countries continued to have a very aggressive export behaviour in numerous product categories during the second year of measures. These countries exhausted several (or most) of their annual country-specific quotas abnormally quickly (in some cases just within a few months from the beginning of the period). A yearly country-specific quota was even exhausted on the very first day of the second year of measures.(36)This behaviour created in those product categories a situation whereby a disproportionally heavy influx of imports concentrated at a rather early stage of the yearly period. This influx subsequently slowed down until the beginning of the last quarter of the period, when a new peak of imports took place again, coinciding with the moment when countries benefitting from a country-specific quota are allowed to tap free of duty into the available residual TRQ. The Commission considers that this behaviour is causing important imbalances and prevents a smooth functioning of the market.(37)In the situation of extreme uncertainty, slump in demand and ensuing drastic reduction in sales affecting virtually all steel product categories described in detail in Section 3.1, the Commission considers very likely that the above-mentioned exclusionary exporting behaviour will be further exacerbated. Exporters, under these exceptional circumstances, will adopt a very aggressive and opportunistic behaviour vis-a-vis other competitors with a view to recovering lost sales. Under this opportunistic behaviour, it is reasonable to expect that exporters in the strongest exporting countries will try to frontload sales to "empty the market". Such opportunistic commercial behaviour is the most important risk for the adequate functioning of the safeguard measures, as it would cause very serious disturbances in the market and, in the absence of remedial action, risks unduly displacing traditional trade flows and domestic production, thereby offsetting the effet utile of the safeguard measures in place.(38)Since the imposition of definitive measures, country-specific quotas have been administered on a yearly basis, that is to say, the whole underlying volumes were made available to exporters at the beginning of each annual period without time restrictions for their use within a given period, by contrast with the residual quotas that were administered quarterly. The introduction of time limitations appeared to be at the time an unnecessary and a cumbersome administrative burden interfering with the normal market functioning.(39)However, following the review investigation, the Commission considers that the current annual administration of the country specific quotas would not be effective in preventing the disturbances on the Union steel market identified above, which would be exacerbated by the expected opportunistic behaviour of some exporters. These disturbances would not only run counter to the interest of the majority of exporting countries, but would also very negatively affect the economic situation of the Union steel industry, thus undermining the effectiveness of the measures.(40)Accordingly, the Commission decided that the country-specific quotas be administered quarterly as well. This adjustment will ensure a more stable flow of imports and minimise the existing very high risk that the opportunistic conduct of exporters conflicts with the legitimate interest of other market participants throughout the next period of measures, i.e. 1 July 2020 to 30 June 2021.(41)This adjustment will have a positive stabilizing effect on the market, since it will avoid massive stockpiling at the beginning of a period, as it was already detected in the past in several product categories. The adjustment will allow those producers both in the Union and in third countries that have seen their ability to operate significantly restricted during the COVID-19 and which have been allowed to resume operations after the lockdowns comparatively later than others to compete in a more level playing field when demand recovers.(42)It should finally be mentioned that the Commission does not find any reasons to stop the carry-over of unused volumes of quarterly administered quotas from one quarter to the next within the same period. Maintaining the carry-over mechanism ensures that the TRQ use can adapt to the evolution of demand throughout the year, without unduly creating disturbances in the market.3.2.2.Specific adjustments to individual product categories(a)Category 1 (Hot-rolled flat products)(43)As explained in recital 149 of the definitive Regulation and in recitals 17 to 19 of the first Review Regulation, this product category was subject to a global TRQ only. This was an exception to the otherwise preferred system, applied to almost all other product categories, of a combination of country-specific quotas for the largest historical suppliers with residual quotas for the rest.Comments from interested parties(44)With respect to this product category, several interested parties have requested to reduce the 30 % cap per country of origin to 20 %, while others have advocated for an elimination of the cap and restoring the situation preceding the first Review.Commission position(45)The review investigation revealed a number of developments based on which, the Commission considers that an adjustment to the TRQ management in this product category is necessary. In the first place, the investigation confirms that the TRQ use in this category has experienced a consistent sharp decline throughout the period (see Graph 1 below), reaching an average use of 54 % during the second and third quarter of the second year of measuresSource: https://ec.europa.eu/taxation_customs/dds2/taric/quota_consultation.jsp.(46)At the end of the third quarter, the cumulated unused quota since the beginning of the second year of measures reached a volume of over 1,5 million tonnes (see Graph 2 below). Moreover, the data available until mid-May 2020 shows a much more dramatic reduction in the import levels in this product category, with only 16 % of the TRQ used. This represents more than 3 million tonnes of unused TRQ only six weeks before the end of the quarter. Thus, the trend of imports in this product category, which accounts for around one third of the historical import volumes of the twenty-six product categories subject to safeguard measures, is a relevant indicator of the current steep downward trend of demand in the EU steel market.(47)The Commission also notes that this substantial reduction in TRQ use took place in a period that was not yet affected by the shock of the COVID-19 pandemic. Thus, this strongly suggests that it is very unlikely that any future recovery of Union demand in the course of the third year of measures would be of such a magnitude so as to eventually reach a full or very high TRQ use in this product category.(48)Against this background, the Commission finds that the risk of potential shortage of supply it tried to prevent with the globalisation of the TRQ under the definitive measures does no longer exist in the current circumstances. Accordingly, the Commission decided to discontinue the exceptional global administration of the TRQ in this product category and apply the default system of combined country-specific and residual quota, which is in place for almost all other product categories.(49)Therefore, as from 1 July 2020, the TRQ for product category 1 will consist of country-specific quotas for those countries whose level of imports in this category reached at least 5 % in the relevant reference period 2015-2017Despite having at least 5 % imports in the relevant period, Iran does not have a country-specific quota. The reason is that because of the anti-dumping measures in place, it virtually ceased exporting to the Union – import share went down to 0,05 % in 2019 – and it is therefore very likely that if granted a country-specific TRQ, it would go largely unused. On the other hand, Russia retains a country-specific TRQ given that, despite the anti-dumping measures in place, it has consistently continued to export in significant volumes., and of a residual global quota for the rest. This TRQ will be administered quarterly, as explained in Section 3.2.1 above. The cap of 30 % share for any exporting country will nevertheless continue applying to the use of the residual quota in the fourth quarter to prevent crowding-out effectsSee Section 3.2.3.d..(50)The Commission continues to consider that the default TRQ system combining country-specific and residual quotas is the most suitable system to ensure the preservation of traditional trade flows in terms of both volumes and originsSee recital 146 of definitive Regulation and recital 17 of the first review Regulation.. Therefore, it is in the overall Union interest to implement it in this product category as soon as the conditions for it have occurred.(b)Category 8 (Stainless steel hot-rolled sheets and strips)(51)Since the previous review investigation, the Commission has observed that several important changes affecting this category took place. First, on 8 April 2020 the Commission imposed provisional anti-dumping measures on imports of this product category originating in the People’s Republic of China, Indonesia and Taiwan.OJ L 110, 8.4.2020, p. 3. Second, the Commission has confirmed a consistent very low use of the country-specific TRQ by the USAThe Commission notes that in this product category, the USA is subject to a 25 % duty resulting from Union’s rebalancing measures: https://trade.ec.europa.eu/doclib/docs/2018/may/tradoc_156909.pdf. As a result, four out of the five largest exporting countries under this category are currently subject to different trade measures. It is therefore expected that those countries would not continue exporting to the Union at their historical levels.Comments from interested parties(52)Some interested parties asked the Commission to introduce a cap in the residual quota for this category. Other interested parties asked that the Commission transfer to the residual quota those volumes of country-specific quotas showing very low use level.Commission position(53)Based on the changed circumstances described in recital 51, which risks producing a shortfall of supply on the Union market for this product category, and in line with the approach taken in other product categories since the adoption of definitive measures, the Commission finds it in in the Union interest to transfer the volumes of the country-specific quotas of all countries subjected to different types of trade defence measuresIndonesia is subject to provisional anti-dumping measures; however, it does not have a country-specific TRQ. The volumes of country-specific quotas transferred pertain to the – otherwise – country-specific TRQs of: China, Taiwan and the USA. into the residual TRQ. This adjustment will ensure that traditional trade volumes are not affected by the current measures and that Union users have enough flexibility for switching supplying origins, should that be necessary.(54)Therefore, the TRQ for product category 8 will become a global TRQ administered on a quarterly basis as from 1 July 2020.(c)Category 25 – Large welded tubes(55)The Commission recalls the rationale for globalizing this TRQ and refers to the explanations provided in recitals 54 to 59 of the first Review Regulation.Comments from interested parties(56)Certain interested parties requested changes in this category. In particular, parties have asked to revert to a system of combined country-specific and residual quotas. In addition, some parties have also requested to split this TRQ into two sub-categories to better address the specificities of the products grouped under this category.Commission position(57)In its analysis under this second Review, the Commission observed (based on a set of data not available at the time of the first Review investigation) a rather abnormal pattern of import flowsAn example is CN code: 73051900, which experienced an almost 300 % increase in 2019 with respect to the average imports in the period 2015-2017. under this single category, which differs significantly from the traditional trade flows in terms of volumes and origins and which risk producing imbalances on the Union market.(58)The Commission notes that over 70 % of the total TRQ volume of this category corresponds to historical trade flows stemming from a number of product types mainly used in large engineering projects. By contrast, the actual use of the TRQ in this product category shows that certain countries are using it to export product types not used in large engineering projects increasingly well beyond their traditional trade volumes (in some cases with a tenfold increase) at the expense of other market players, domestic and exporting countries alike. Consequently, the Commission considers that the current system of the TRQ management has led to an undue crowding-out situation.(59)In the absence of an adjustment, should there be large engineering projects requiring specific tubes in the course of the third year of measures, they run the risk of not being able to procure all the volumes of TRQ that should correspond to these special tubes, as they would be crowded out by other imports.(60)Accordingly, the Commission finds it necessary to introduce an adjustment to the current design of the quota to prevent the above-mentioned unwanted imbalance from happening. The most appropriate way to deal effectively with the above situation is to split this category into two: a first sub-TRQ (category 25A) should then include those CN codes that are normally used in large engineering projectsCN codes: 73051100 and 73051200., and a second sub-TRQ (category 25B) the remainder CN codes not used in such projectsCN codes: 73051900, 73052000, 73053100, 73053900 and 73059000. The split is simple and does not appear to create any disproportionate burden for the custom authorities.(61)As to the administration of these subcategories, product category 25A will consist of a single global TRQ to allow equal opportunities for all potential tenderers in large-scale projects as described in the first Review RegulationSee recitals 54 to 59 of the first Review Regulation.. Product category 25B will consist of country-specific quotas for those countries reaching an average import share of at least 5 % in the reference period 2015-2017, and a residual quota for the rest.(62)The Commission considers that the split of the TRQ for this product category would reflect more accurately the historical import flows corresponding to the two sub-categories of tubes and, in this way, ensure a fairer functioning of the quota. The split will guarantee the availability of the necessary volumes for any large-scale engineering project in the Union during the remaining lifetime of the measures, which otherwise would have been crowded out by other product types. Such imbalance runs counter the Union interest and the objective to preserve under the safeguard measures as much as possible traditional trade flows in terms of volumes and origins.(d)Category 4B (Metallic coated sheet used primarily in the automotive sector)(63)In recital 8 of the end-use Regulation, the Commission noted that "[it] remains of the view that, in the Union interest, a specific mechanism, either the end-use procedure (once the implementation issues are resolved), or an alternative system, however set up, may be required at a later stage in order to ring-fence imports of automotive steel grades under product category 4B. These issues will accordingly, be re-assessed in the context of a future review investigation, based on the comments and proposals made by the interested parties, as well as other developments affecting this product category".(64)Accordingly, the Commission has carefully analysed the comments received with regard to any proposal for a specific mechanism in this product category.Comments from interested parties(65)Interested parties submitting comments on this category generally agreed that it was important that the necessary import volumes of steel intended for automotive use were preserved. To this end, they submitted different requests. Some interested parties asked to identify the imported products for use in the automotive sector by means of a "self-declaration" or to admit the release for free circulation only on production of a "document of entry" issued by the competent authority designated by Member States and based on an application by an Union importer. Interested parties also asked to reallocate unused TRQ volumes from category 4A into category 4B and to introduce a 30 % cap in the last quarter of a period, to avoid that non-automotive grades continue using up part of the TRQ, thus displacing automotive grades. Lastly, some interested parties requested the Commission to devise an alternative system to the end-use, but serving the same purpose, and even to reinstate the end-use mechanism, while others frontally opposed having the end-use mechanism back in place.Commission analysis(66)First, the Commission remains of the view that it would be desirable to explore alternatives to ring-fence further, if feasible, the imports of automotive steel under category 4B. In this spirit, the Commission carefully assessed the proposals received and reached the following conclusions.(67)The implementation of the end-use mechanism did not work as expected, as described in detail in the end-use Regulation. The Commission did not see any evidence indicating that the circumstances that led to its revocation have changed, so that reintroducing such mechanism would be an effective solution. Consequently, the Commission has thus considered that reintroducing the end-use mechanism is not appropriate.(68)The Commission also notes that despite the possibility to provide observations on other parties’ comments, there was no proposal attracting a minimum level of support amongst the stakeholders concerned across Member States. The Commission recalls, drawing from the experience of the end-use mechanism, that in order to implement an alternative effective mechanism in this product category, it is fundamental that all the participants in the complex chain of supply to the automotive sector unequivocally commit to cooperate across Member States to make it viable. The Commission therefore finds that none of the alternative ring-fencing mechanism proposed appears to mobilise a majority of participants so as to have possibilities of success.(69)Accordingly, the Commission decided not to implement any new particular mechanism for this product category and avoid the very negative effects the lack of sufficient adherence could once more produce.(70)The Commission would like to highlight with satisfaction that obtaining the end-use authorization is feasible when there is an effective cooperation amongst all the relevant stakeholders. The Commission refers to the specific situation of an interested party that has received the end-use authorisation by the authorities of an EU Member State at the end of April 2020. Unfortunately, the Commission cannot implement in an effective manner a specific management of the TRQ that would only be applicable for one company.(71)Second, when looking into the use of the TRQ for category 4B, the Commission has observed a massive influx of imports entering the Union market upon the opening of the residual quota in the fourth quarter on 1 April 2020, which quickly exhausted the residual quota initially available. This situation resembles that of 1 July 2019, when the new quotas for the second year of measures were open and a yearly country-specific quota was exhausted within one day. In this respect, several interested parties continued to warn the Commission that most of these volumes would not be serving the Union automotive industry. With respect to those claims, the Commission notes that no other interested parties contested the submissions made in this regard. Moreover, the Commission recalls that it is conducting an anti-circumvention investigation on imports of this product category from the PRC based on sufficient evidence supporting the veracity of the claims that imports under category 4B may actually not correspond to this product category.(72)Accordingly, the Commission considers it necessary to introduce an adjustment to avoid that unusually large volumes of non-automotive types of category 4 continue unduly displacing the traditional supply flows to the EU automotive industry. This adjustment is developed in Section 3.2.3 below.3.2.3."Crowding out" of traditional trade flows(73)In recital 150 of the definitive Regulation, the Commission established that those countries having exhausted their country-specific quota would be able to access the residual quota in the last quarter of a period. The objective of such mechanism was to avoid that volumes of the residual quotas would potentially remain unused. In recitals 85 to 98 of the first Review Regulation, the Commission assessed the functioning of this feature, identifying certain crowding out effects and, accordingly, adjusted the functioning of this feature of the measures for two product categoriesThe adjustment applying to product categories 13 and 16 consisted of a 30 % cap of the initial volume in Q4 for those countries otherwise subject to a country-specific TRQ. See recitals 88 to 96 of the first review Regulation for further details..Comments from interested parties(74)In the framework of the present Review, many interested parties submitted comments and proposals to address the alleged crowding out effects that would be taking place in numerous product categories. Some parties requested the imposition of caps on certain product categories to those countries accessing the residual quotas in the last quarter. Some parties also requested to reduce the existing cap levels in two product categories, and to eliminate altogether the possibility of countries accessing the residual quota in the last quarter of a period. In the same vein, other parties suggested to impose a cap for the use of quotas (country-specific or residual) by a specific country and to allow access to the residual quota only with respect to the unused carryover volumes transferred from the previous quarter.(75)On the opposite side, other parties asked to eliminate the caps and allow unrestricted access in the last quarter, or at the very least, maintain the status quo. Furthermore, some parties requested that countries benefitting from a country-specific quota should be allowed to access the residual quotas immediately, as soon as the former is exhausted, without awaiting to the last quarter of a period.Commission position(76)By contrast with the first Review investigation, the Commission can assess under the second Review a substantially longer period of application of the definitive measures to carry out its analysis: five quarters’ data are availableFebruary-March 19, April-June 19, July-September 19, October-December 19, January-March 20.. Therefore, the Commission has now been able to assess in a more precise and reliable manner what the actual trends of imports, in volumes and origins, have been under the residual quotas on a category-by-category basis.(77)In the first place, the Commission has been able to assess what the typical residual quota use per quarter is by the countries that are the incumbent beneficiaries of this section of the TRQ. In this respect, the Commission has, on the one hand, calculated the average residual quota use (overall and per origin) in each of the four quarters where the countries benefitting from a country-specific quota could not access the residual section yet. On the other hand, the Commission has checked this typical use against the actual use (overall and per origin) in the fourth quarter when indeed the bigger exporting countries could tap into the residual section of the TRQFor the purpose of this analysis, the Commission relied mainly on the data for the full quarter April-June 19, and where the data available at the time of the drafting of this Regulation allowed, it also drew some conclusions from TRQ usage in the quarter April-June 20..(78)Based on the above-mentioned comparison, the Commission has reached the conclusion that the access to the residual quota in the fourth quarter of a period cannot continue being the default regime, because it is causing undue crowding out effects to different extents in several product categories. Instead, the access to the residual quota in the last quarter of a period should be allowed, or not, on the basis of the actual typical use by the incumbent beneficiaries of the residual quota, as described in the preceding recital.(79)In order to shape the access regime to the residual quota in the fourth quarter of a period in an effective and proportionate way, the Commission considers it appropriate that the adjustments apply only to those product categories where negative crowding-out effects have been identified. In this spirit, the Commission has devised three different regimes corresponding to three different access regimes to the residual quota for all the product categories. These three regimes depend on the degree of crowding out effects observed, except for categories 1, 4B, 8 and 25A, which have their proper TRQ administration regime (see, respectively, Section 3.2.2.a and Section 3.2.3.d, Section 3.2.2.d and Section 3.2.3.d, and Section 3.2.2.c and Section 3.2.3.d).Regime 1: No further access(80)In a number of categories, smaller supplying countries have consistently showed across the quarters assessed that they are self-sufficient to make full or very high use of the volumes available under the residual quota. In addition, the observed behaviour in these categories of larger exporting countries during the fourth quarter has clearly created an undue displacement of all or several historical volumes of the smaller supplying countries. In this case, with a view to preserving traditional trade flows in terms of origins in an effective manner, the Commission considers it necessary to prohibit countries benefitting from country-specific quotas to further access the residual quota in the fourth quarter during the third year of measures. No further access will apply to categories: 5, 16, 20, and 27The average TRQ use by the incumbent countries ranged from 96 % to 100 %.. The past track of average use per quarter of the residual quota clearly indicates in these categories that the risk that a proportion of it remains unused is very low.Regime 2: Limited access(81)In a series of other categories, the average quota use shows that while the incumbent supplying countries under the residual quota make reasonable use of it, they alone are not able to make full or high use of the available volumes. Therefore, the access in the fourth quarter by larger exporting countries continues to be justified. Nevertheless, the detailed analysis of the use of the residual quota in these cases shows that the unrestricted access achieves a final balance in terms of origins that is unfair. In particular, it was a common observed feature that the import share of the incumbent smaller supplying countries in the fourth quarter was always notoriously below their average in previous quarters. This imbalance was the direct result of the exclusionary presence of those larger exporting countries that had exhausted their country-specific quotas, thus resulting in undue crowding out effects that run counter the Union interest to preserve trade flows as much as possible in terms of originsSee Annex III for specific volumes allowed in the relevant product categories..(82)Therefore, with a view to ensuring that the necessary entry in these cases does not produce undue displacement of the traditional trade flows from the incumbent smaller supplying countries, the Commission considers it appropriate to limit the access to the residual quotas by countries benefiting from exhausted country-specific quotas. This access will be limited to only those volumes exceeding the average quota used by the smaller supplying countries during the four quartersIf the average TRQ use by the incumbent countries under the residual TRQ in a given category has been e.g. 70 % over the four quarters assessed, it means that countries accessing the residual TRQ in Q4 would only be able to export altogether, as a maximum, 30 % of the residual TRQ volumes initially available in Q4.. This adjustment will apply to product categories: 10, 12, 13, 14, 15, 21, 22, and 28The average residual TRQ use for these categories in the relevant quarters was: 70 % (cat.10), 40 % (cat.12), 73 % (cat.13), 44 % (cat.14), 25 % (cat.15), 79 % (cat.21), 19 % (cat.22), 29 % (cat.28)..Regime 3: Status quo is maintained(83)For the remaining categories, the Commission considers that based on the trends observed, which do not show any undue displacement of origins, it is in the Union interest to continue the status quo, that is to say, allowing the access in the fourth quarter without limitation for the beneficiaries of exhausted country-specific quotas. Nevertheless, in order to secure the preservation of trade flows from the incumbent beneficiaries of the residual quota, unused carried forward quotas will be ring fenced for them. This unlimited access will then apply to Categories: 2, 3A, 3B, 4A, 6, 7, 9, 17, 18, 19, 24, 25B, and 26See Annex III for specific volumes allowed in the relevant product categories..Special cases: Product Categories1,4B, 8 and 25A(84)The approach described above cannot be applied, for different reasons, to product categories 1, 4B, 8 and 25A.(85)Since the imposition of definitive measures and up to the enforcement of the new adjustment under this Review, product category 1 was subject to a system of global TRQ. This prevents the type of crowding out analysis carried out for the product categories under a) to c) above.(86)Nevertheless, under the first Review Regulation, the Commission had decided that a 30 % cap per quarter allowed preserving as much as possible traditional trade volumes in both volume and origin terms. On the same grounds, the Commission considers that the maintenance of the 30 % cap of the initially available residual quota at the beginning of the fourth quarter continues being the best appropriate means to prevent that the countries that will benefit from country specific quota in this category after the individual adjustment decided under this Review crowd out the incumbents of the newly created residual quota.(87)Regarding product Category 4B, the end-use mechanism was in place across two quarters: October-December 2019 and partially during January-March 2020. Since the imposition of this mechanism, exporting countries encountered serious obstacles to export to the Union. Consequently, the level of imports was abnormally low. The Commission thus does not have the same longer data set to carry out the crowding out assessment as for the product categories under a) to c) above.(88)Nevertheless, the data available from the fourth quarter of 2019 and of 2020 unequivocally show that some crowding out effects are taking place. In fact, early into both quarters, virtually the full amount of the residual quota was used by only one exporting country benefitting from a country-specific quota. Therefore, to prevent undue crowding out effects and preserve historical trade flows in terms of origins, the Commission considers it appropriate to introduce a 30 % cap in this category by reference to the amount initially available at the beginning of the fourth quarter for the access of countries benefiting from exhausted country-specific quotas.(89)Lastly, since categories 8 and 25A will consist as of 1 July 2020 of a global TRQ only, this system does not apply to them.3.2.4.Potential detrimental effects in achieving the integration objectives pursued with preferential trading partners(90)In the definitive Regulation, the Commission committed to assessing whether the functioning of the steel safeguard measures causes any substantial risk to the stabilization or economic development of certain preferential trading partners to an extent that would be detrimental to the integration objectives of their agreements with the Union. In the first Review Regulation, the Commission concluded that the safeguard measures did not cause a detrimental effect in achieving the integration objectives. The same Regulation also established in recital 106 thereof that "[the] countries" ability to export to the EU was not unduly limited by the measures’.Comments from interested parties(91)Several interested parties, in particular third country governments, submitted comments under this section of the Notice of Initiation. Certain countries asked to be exempted from the measures or to receive a preferential treatment. In this respect, there were requests to exempt the Western Balkans from the safeguard measures, as these could affect the development of their steel industry and thereby causing a significant negative impact to their domestic economies that could compromise the objectives set out in the Stabilisation and Association Agreements ("SAA") signed with the Union. Furthermore, these interested parties argued that the safeguard measures would be causing a reduction in their exports to the Union, when compared to the period prior to the imposition of measures. Exporters would thus be considering temporary shutdowns of certain facilities and unpaid leave for large numbers of employees. Some countries referred to the fact that they are effectively abiding by Union State Aid rules on the steel industry and, hence, this should grant them unrestricted access free-of-duty to the Union market. Other requests for exemption or preferential treatment, affecting several third countries, were based on different provisions of the relevant bilateral agreements with the Union.Commission position(92)In the first place, the Commission recalls the reasoning it developed in the first Review Regulation that all bilateral agreements referred to by interested parties under this section allow the imposition of safeguard measures such as the current ones. Therefore, the Commission is under no legal obligation to exempt them from the measures. Secondly, as per Article 2 of the WTO Agreement on Safeguards, safeguard measures shall be applied to the product under investigation being imported irrespective of source. As already noted in the first review Regulation the "only exceptions to these rules concern the specific situation of certain developing country members, or –as the case may be– obligations deriving from bilateral agreements". Therefore, the Commission maintains its position that there are no legal grounds to exclude any of these countries from the safeguard measures.(93)As noted in recital 99 of the first Review Regulation, the commitment to reviewing the measures regarding the specific aspects described in recital 90, referred in particular to countries with which the Commission had concluded an SAA.(94)With regard to these countries, the Commission has first carried out a backward-looking assessment of their export performance during the second year of measures, i.e. since 1 July 2019. This analysis shows that in those product categories where these countries benefit from a country-specific quota, they generally still had unused volumes available under their dedicated quota in the last quarter of the period. Moreover, for those product categories where they may have subsequently exhausted their country-specific quota, in the majority of the cases, including categories identified by some of these countries as critical for their industries, there were significant volumes still available under the residual quota. This means that they generally had the possibility to continue exporting beyond their historical levels in their most relevant product categories. For those product categories where, instead, these countries were subject to the residual quota, the analysis of the data did not show that the system of TRQs was overall limiting their ability to export. In fact, in certain cases, countries did de facto not encounter any limitation whatsoever under the measures to exceed their historical level of exports.(95)The Commission has therefore concluded that the level of TRQs was adequate and proportionate to preserve traditional trade flows and that there was no evidence of substantial increase in Union demand or a change of circumstances of any other kind justifying a change in that level without affecting the effectiveness of the current measures.(96)The Commission has also undertaken a forward-looking analysis and looked into how the adjustments included in this Regulation could potentially affect the stabilization or economic development of the Western Balkan countries. In carrying out this assessment, the Commission has taken into consideration the current market situation and outlooks for the near future as described in Section 3.1 above.(97)In this respect, the Commission recalls, first, that contrary to the requests of the Union industry, the Commission has not reduced in this second Review the level of the TRQs, as it did not under the first Review, and second, that these TRQs will be liberalised further for the second time by a new increase of 3 % upon the entry into force of the adjustments under this second ReviewSee Section 3.2.6 of this Regulation.. This means that the Western Balkan countries will benefit from larger country-specific quotas and will continue to generally have access to the larger residual quotas in the last quarter, which will afford them the possibility to continue exporting beyond their historical levels, as it has been the case since the imposition of definitive measures. The Commission further notes that the new adjustments of horizontal nature regarding crowding out described in Section 3.2.3 and regarding developing country exclusions described in Section 3.2.5, will produce additional overall positive effects in some of the product categories of interest for the Western Balkans.(98)Against this background, the Commission finds that neither the safeguard measures have caused, nor could they produce after their adjustment, any substantial risk to the stabilisation or economic development of the Western Balkan countries.(99)The Commission finally notes that the claims made by these interested parties in their submissions failed to furnish any evidence showing, or providing any relevant indication, of such a risk.(100)Accordingly, based on the above assessment and lacking any other evidence to the contrary, the Commission cannot but dismiss the claims made under this Section.3.2.5.Update of the list of developing WTO member countries excluded from the scope of the measures based on updated import statistics(101)Following the adoption of definitive safeguard measures by Regulation (EU) 2019/159, the Commission committed to reviewing, on a regular basis, the list of developing countries potentially excluded from the scope of the measures based on updated import statistics.Comments from interested parties(102)In the submissions received, some interested parties requested to be excluded from the measures, as a certain country would no longer exceed the 3 % threshold in a given product category. Other parties asked to make certain country subject to the measures, as it would have exceeded the 3 % threshold in a given product category. Certain interested parties asked to be excluded in a given product category, as individually, a country would be below 3 % even if the overall weight of countries in such situation would exceed a 9 % import share. Lastly, other parties considered it more appropriate to conduct the calculation based on all twenty-six product categories together.Commission position(103)In accordance with Article 18 of Regulation (EU) 2015/478 and the international obligations of the Union, namely Article 9.1 of the WTO Agreement on Safeguards, "safeguard measures should not apply to any product originating in a developing country member of the WTO as long as its share of imports of that product into the Union does not exceed 3 %, provided that developing country members of the WTO with less than a 3 % import share collectively account for not more than 9 % of total Union imports of the product concerned". Moreover, it is in the Union interest to adapt the list of developing countries excluded from the scope of the measures to avoid that certain developing countries unjustifiably benefit from the original exclusion.(104)Therefore, the Commission recalculated, based on the data of the full year 2019Source: Eurostat., the import share of each exporting country on a product-by-product category basisFor the calculation, imports from countries excluded under Article 6 of the Commission Implementing Regulation (EU) 2019/159 were not taken into consideration..(105)Based on the full year 2019 data, imports from the following countries, which were excluded from the scope of the measures, exceeded the 3 % threshold in some products categories. Therefore, as a result of this review they should now be subjected to the measures:Brazil is included in product category 3A, as its import share in this category reached 23 % in 2019;North Macedonia is included in product category 12, as its import share in this category reached 3,54 % in 2019;Tunisia is included in product category 4A, as its import share in this category reached 4,88 % in 2019;Turkey is included in product category 6, as its import share in this category reached 9,77 % in 2019;United Arab Emirates is included in product category 21, as its import share in this category reached 3,28 % in 2019;Vietnam is included in product category 5, as its import share in this category reached 4,87 % in 2019.(106)The Commission then assessed whether, for the above categories, the developing countries concerned would qualify for a country-specific quota. To this end, the Commission assessed whether in the period 2015-2017, the imports of these categories by the countries concerned amounted at least to 5 % of the total imports in that period in any category. The result showed that none of them qualified for a country-specific quota. Therefore, all of these countries will fall under the residual quota in the respective product categories.(107)As regards exclusions from the scope of the safeguard measures, the outcome of this review is the following:Brazil is excluded from product categories 1, 6 and 7, where its import shares in 2019 amounted to 1,53 %, 1,55 % and 2,25 % respectively;Egypt is excluded in product category 1 where its import shares in 2019 amounted to 1,75 %;Vietnam is excluded in product category 4A, where its import shares in 2019 amounted to 1,23 %.(108)The country-specific quotas that would have corresponded to those developing countries members of the WTO that will be excluded from the measures following the review (Brazil in category 6 and China in category 3A), will be incorporated into the relevant residual quotas in each product category concerned as from the beginning of the first quarter of the third year of the measures, i.e. 1 July 2020The volumes in Annex II already reflect this transfer..(109)Following this re-calculation the Commission updated the list of exclusions based on the updated import figures for each of the 26 product categories subject to measures (the full updated list is enclosed in Annex I).3.2.6.Other changes of circumstances that may require an adjustment to the level of allocation of the TRQComments from interested parties on the liberalisation(110)Under this review ground, the Commission received very diverse request types. The main topic was the level of liberalisation. In view of the decline in demand, the Union industry advocated for a reduction of the current 3 % and even its full elimination. On the other end, other interested parties claimed that the level of liberalisation defined by the first review Regulation should be either maintained, or even increased, whether for all product categories or for some specific product categories and/or specific origins.Commission position(111)The WTO Agreement on Safeguards provides in Article 7(4) that, "in order to facilitate adjustment in a situation where the expected duration of a safeguard measure as notified under the provisions of paragraph 1 of Article 12 is over one year, the Member applying the measure shall progressively liberalize it at regular intervals during the period of application".(112)In this respect, in the first Review Regulation the Commission introduced a 3 % liberalisation level effective for the second year of the measures. In that Regulation, it also established that the same level of liberalisation should apply in the third year of measures, i.e. as from 1 July 2020. The Commission analysed whether any change upwards to the current level was justified.(113)As explained in detail in Section 3.1, virtually all sources point to a clear decrease in the economic activity in the year 2020-21 with respect to the previous years. In this respect, the Commission notes that the demand for steel largely follows the macroeconomic trends, e.g. GDP growth, of a country or economic region. Moreover, the Commission recalls the fact that significant amounts of TRQs were not used during the first year of measures and even higher volumes will very likely again remain unused at the end of the second. Therefore, in view of the current economic outlooks for the period 2020-21, the consistent significant amount of TRQs available across product categories, and the absence of any solid evidence on file pointing to any need for an increase of TRQs, the Commission cannot but reject all claims requesting an increase of the liberalisation pace.(114)On the other hand, the Commission examined next the requests to reduce or eliminate the current level of liberalisation. The Commission considers that the wording of Article 7(4) of the WTO Agreement on Safeguards clearly binds an investigating authority to at least, preserve a liberalisation level, once it has been effectively implemented on the second year of the measures. Accordingly, for the third year of measures starting on 1 July 2020, the Commission considers that the level of liberalisation cannot be reduced below the one that was effectively in place at the end of year 2, i.e. 3 %. Therefore, the Commission rejects the requests for a reduction of the liberalisation level.(115)In view of the above findings, the liberalisation level is thus maintained at a level of 3 % for each product category.Other comments(116)Several interested parties informed the Commission about alleged practices aiming at avoiding the payment of the 25 % out-of-quota duty. These alleged circumvention or misdeclaration practices would take different forms and concern several product categories.(117)The Commission takes note of these claims and commits to analysing them further with a view to taking any necessary remedial actions if the alleged practices are confirmed. In any event, the Commission recalls that customs legislation continues to be fully applicable to address those allegations.(118)Some interested parties asked to have a split of certain categories. In support of these claims some parties claimed that in some cases both standard and high-end product types were competing under the same TRQ and that the Commission should ensure that the right mix between the two was preserved, avoiding crowding out effects.(119)In this respect, the Commission highlights that, following those requests, it has carried out under this second Review a very in-depth analysis of potential crowding out effects and introduced the refined adjustments described in Section 3.2.3 above to remedy them. The Commission notes that these adjustments would allow catering for many of these requests, as they will ensure that those countries supplying small amounts of high-end product types, which usually fall under the residual quota, can have a more secured access to the volumes available. Moreover, the Commission recalls that the design of the measures must strike a difficult balance between ensuring to the extent possible the preservation of traditional trade flows in terms of volumes and origins and maintaining a set of measures that the national customs authorities of Union Member States can effectively implement. The Commission considers that if a proliferation of product subcategories emerged, the implementation of the measures would risk becoming overly burdensome and undermining an effective administration of the TRQs.(120)Some requests for a split referred specifically to the fact that certain product types were used by the automotive sector and, hence, they should receive a treatment similar of those under product category 4B. However, the Commission notes in this regard that such requests went largely ignored in the written stage by the automotive industry itself, thus casting reasonable doubts on the Union interest of adopting such adjustment.(121)Therefore, the Commission concludes that the submissions received in this respect, with the exception of that of product category 25 mentioned before in recitals 55 to 62, failed to provide sufficient evidence in support of the claims, or to prove their feasibility to be implemented by the customs authorities without being unduly burdensome or to show how such adjustment would be in the overall Union interest.(122)Some interested parties requested the Commission to include certain product categories within the scope of the measures, while others claimed that certain categories should be excluded.(123)The Commission refers to its finding in recital 163 of the first Review Regulation, where it established that the scope of the review does not cover a change in the product scope. Therefore, these requests are rejected.(124)Some parties also insisted that the measures in place did not meet the standards of the WTO Agreement on Safeguards and, hence, that they should be terminated.(125)The Commission refers to recital 165 of the first Review Regulation and the references made therein, and thus rejects these claims.(126)Other interested parties proposed that TRQs were administered through a licensing system.(127)In this respect, the Commission reiterates that any system of TRQ administration needs to ensure that its implementation is not overly burdensome for the customs authorities to a point where it would risk undermining its effective application. The Commission remains of the view that the system of TRQ administration it put in place by the definitive Regulation is the most appropriate to strike an appropriate balance.(128)Lastly, several parties inquired about the impact and any possible adjustments related to the withdrawal of the United Kingdom from the Union ("Brexit").(129)The Commission notes that, at the time of the adoption the adjustments, the transition period of the withdrawal of the United Kingdom from the Union is still in place as the future agreement between the European Union and the United Kingdom is being negotiated. If necessary, the Commission will re-examine promptly the situation in view of any developments concerning this matter.(130)Finally, the Commission notes that the present review amending the ongoing safeguard measures also complies with the obligations arising from the bilateral Agreements signed with certain third countries.Review clause(131)Finally, the Commission considers that, based on the Union interest, it may have to adjust the level or allocation of the tariff-rate quota as set out in Annex II for the period starting on 1 July 2020 in case of changes of circumstances during the period of imposition of the measures. The changed circumstances could, for example, materialise in the case of an overall increase or contraction in Union demand for some product categories that would require a reassessment of the level of the tariff-rate quota, the imposition of anti-dumping or anti-subsidy measures that may significantly affect future import developments, or even any development concerning the US Section 232 that may have a direct impact on the conclusions of this investigation, namely in terms of trade diversion. The Commission may also review whether the operation of the measures could have detrimental effects in achieving the integration objectives pursued with preferential trading partners, such as substantially risking their stabilisation or economic development.(132)The measures provided for in this Regulation are in accordance with the opinion of the Committee on Safeguards established under Article 3(3) of Regulation (EU) 2015/478 and Article 22(3) of Regulation (EU) 2015/755 respectively,HAS ADOPTED THIS REGULATION:

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