Germany dismisses EU partners in favour of Kazakhstan

Internal documents reveal that Europe is likely to lose its production of a strategic raw material, as Germany dismisses EU partners in favour of its one-to-one relationship with resource-rich Kazakhstan – reports PublicServiceEurope.com

In December, the European Commission started an investigation into the importation of white phosphorus from Kazakhstan. The move followed a complaint filed by the only European producer of this raw material, the Dutch firm Thermphos International. According to the EU definition, "white phosphorus is an important raw material used in numerous applications such as pharmaceuticals and agricultural chemicals".

The Dutch company complained that the Kazakh group exporting white phosphorus into Europe has been reducing prices to increase market share. In a confidential letter sent in September to Thermphos, and seen by PublicServiceEurope.com, the European Commission acknowledges that prices of sale have reduced significantly because of dumped imports. The experts of the EU believe that between 2008 and 2011, prices in Europe have decreased by up to 22 per cent.

This is obviously good news for the European importers of white phosphorous, but certainly not for the production side. "Against a relatively stable consumption, overall production fell by 25 per cent in the period considered," states the commission analysis. Moreover, "during the same period, the union industry lost 27 per cent of the overall market share. Capacity utilisation decreased by 25 per cent." Against these figures, it did not come as a surprise that at the end of September, that Thermphos International requested "suspension of payment" and nominated three financial curators - a legal step before filing bankruptcy. "During the period of postponement of payment, the curators will analyse different strategic options in order to safeguard the financial interests of our company and our employees," reads a press release issued by the company.

The collapse of Thermphos would mean the end of production in Europe of a strategic raw material. The commission agrees with this view. "Should measures not be imposed, the financial situation and profitability of the union industry would further deteriorate and it would not be able to withstand the continued pressure deriving from the dumped imports," reads the leaked commission letter. "The likely consequence would be the discontinuation of the union industry's production." To make the argument clearer, in the same letter the commission underlines that "given that white phosphorus is produced by a limited number of producers in third countries and that it is a raw material for many downstream products produced in the union, it is in the union interest to have production capacity within the union".

The logical conclusion of this well substantiated argument is that Europe needs to impose anti-dumping measures on Kazakh imports of white phosphorus. However, the procedure to set duties is highly political and does not always follow economic rules. Highlighting these problems, the commission has decided not to impose provisional duties – conceding only that the investigation will continue. The key decision maker in this process has been Germany. "The German delegates lobbied hard against the duties, and eventually managed to obtain a sufficient majority to block the procedure," explains an EU official who is familiar with the dossier.

It is not the first time that the interests of importers have prevailed over those of European producers. For instance, duties on shoes produced in China and Vietnam have in the past been the source of harsh squabbles in Brussels. On one side stood Mediterranean shoe-makers, arguing for the duties to protect their industry. On the other, Northern European importers joined forces with the German giants of shoe-making - such as Adidas or Puma, which had long outsourced their production to Asia. This second group was obviously against the imposition of duties - and eventually prevailed - after a transitional phase when duties were agreed.

It is easy to argue that dismantling a European industry to gain short-term advantages in terms of lower prices, is not the most far-sighted policy to guarantee production and jobs in the continent. However, in the case of the duties on Kazakhstan, a much more vicious element entered the decision-making process. The protection of European importers' interests played only a limited role; it is not yet clear what the impact of duties will be on their business.

Protecting German strategic interests – and those of its allies within the union – and the privileged relationship that Germany has with Kazakhstan, were behind the decision. In February, Berlin signed an exclusive bilateral agreement to access the raw materials of the Central Asian country. The country is rich in oil, coal, uranium, manganese, chromite, lead, zinc, copper, titanium, bauxite, gold, silver, phosphates, sulphur, iron and steel – quite the shopping list. In exchange for the privileged access to this wealth, "German companies can provide Kazakhstan with a list of specific projects for cooperation, including projects that involve the transfer of technology and innovation," reads the text of the agreement obtained by PublicServiceEurope.com.

Crucially, Berlin also agreed to promote Kazakhstan's foreign trade and investment. What better way to do it than by preventing duties at EU level on Kazakh exports? However, the battle is not yet lost. Thermphos can appeal the EU decision in October but the clear message emerging from this story is that once again, Europe has no common foreign and trade policy despite numerous proclamations and useless joint statements; especially if its main player, Germany, keeps playing against the common interest.