On October 7, 2025, the European Commission unveiled a legislative proposal titled "Regulation to Address the Negative Trade Impacts of Global Overcapacity on the EU Steel Market," aiming to establish a permanent, structural trade defense mechanism for the bloc’s steel industry. The new tool is set to replace the existing Steel Safeguard Measure, which expires on July 1, 2026, upgrading temporary protective measures to a long-term policy framework aligned with the EU’s "Green Steel" transition and "Clean Industrial Deal."

       At the core of the proposal are two stringent policy options evaluated by EU economic models: a 50% cut to steel import quotas to maximize protection for domestic output, or a uniform 25% import tariff to significantly raise the cost of imported steel. The EU’s analysis indicates that the 50% quota reduction would deliver the most favorable outcomes for the bloc’s steel producers. The proposal explicitly identifies China as the primary driver of global overcapacity, citing its shift toward export markets in 2023-2024 amid slowing domestic consumption and highlighting that Chinese steel subsidies are ten times higher than those in OECD countries—practices deemed to severely distort the global fair trade environment. The EU predicts that China’s declining domestic steel demand between 2025 and 2030 will further intensify capacity spillover pressures.

       A transformative change in the proposal is the introduction of a "Melted & Poured" rule of origin. Under this provision, only steel produced through smelting and casting processes within the EU would qualify as EU-origin goods, effectively blocking third-country steel from entering the bloc via minor processing in intermediary nations. This measure directly targets potential Chinese-backed steel investments in third countries and closes key circumvention loopholes. The EU warns that the new trade tool could have far-reaching global impacts: steel diverted from the EU market may flood non-EU economies, triggering trade tensions and defensive measures, while stricter restrictions could push EU steel prices up by 3.25% in the most severe scenario, affecting the competitiveness of downstream sectors such as automotive and machinery manufacturing. The regulation is expected to take effect on July 1, 2026, pending approval.