EU Nations Agree to Cut 6% Duty on Unalloyed Aluminum

April 3 -- European Union nations agreed to cut by half a 6 percent duty on unalloyed-aluminum imports to boost shipments from Russia, breaking a deadlock over a plan to scale back protection for producers in the EU including Alcoa Inc.

EU governments gave the go-ahead for reducing the duty to 3 percent after Poland demanded import relief and the European Commission proposed to phase out the levy in two steps by 2009. The government trade officials rejected the second-step reduction to zero, pledging to review the need for a steeper tariff cut in three years.

"We welcome the support for an immediate reduction in the current duty," Stephen Adams, a trade official at the commission, the 27-nation EU's executive arm in Brussels, said today by telephone. The plan to trim the duty to 3 percent still needs the formal backing of EU governments, which may endorse the step next month.

The tariff relief would leave untouched the 6 percent EU import tax on the alloyed version of the product, a further sign of the political sensitivity of dismantling the tariff protection. The aluminum duty, unchanged for the past decade, also protects such producers in the EU as Alcan Inc., Norsk Hydro ASA, Glencore International AG and Rio Tinto Plc.

Russia to Benefit

The entry into the EU of 10 mainly eastern European nations in May 2004 strengthened the case for trimming the tax because new member states have aluminum-transforming industries that traditionally relied on Russian supplies. Unalloyed aluminum is used after reprocessing for products ranging from cars and planes to packaging and electric cables.

Russia stands to benefit most from the proposed relief from the duty on unalloyed aluminum because domestic exporters such as OAO Russian Aluminium, now part of United Company Rusal, account for most of the EU imports that are subject to the levy.

The tariff reduction "will enable us to increase our sales in Europe," Vera Kurochkina, a spokeswoman for United Rusal, said in an e-mail from Moscow. She described the EU market as "quite promising."

In 2005, the EU imported about 2.3 million metric tons of unalloyed aluminum, of which 1 million tons were subject to the 6 percent duty. Of that amount, most came from Russia.

Exemptions

Paul McTaggart, a mining analyst at HSBC Holdings Plc in London, said cutting the tariff on unalloyed aluminum to 3 percent is a small threat to EU-based producers compared with current high electricity prices paid by the industry.

The planned duty reduction is "a drop in the ocean" for European producers, he said by phone. "The biggest issue is high power prices."

Some non-EU aluminum exporting nations are already exempted from the levy on both forms of the product because of trade agreements with the bloc. For example, Norway can export aluminum 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.

In addition, the EU is negotiating a full aluminum-duty exemption for the Gulf Cooperation Council grouping of countries including Saudi Arabia and the United Arab Emirates as part of a planned trade accord with the region.