By Emre Peker in Brussels and Alistair MacDonald in London 

The European Union Wednesday set restrictions on steel imports to manage disruptive U.S. trade policies, making permanent a policy that has the unintended consequence of helping enforce President Trump's metals tariffs.

Europe has faced surging imports since Mr. Trump announced a 25% tariff on almost all steel imports to the U.S. in March. The EU response balances protecting European steelmakers against avoiding harm to consumers, such as the auto makers, that rely on imports.

The EU safeguards approved Wednesday impose quotas on 26 product categories and levy a 25% duty on imports exceeding those quotas, said the European Commission, the bloc's executive arm. The EU also set country quotas on its major suppliers. The decision takes effect by Feb. 4, replacing provisional measures imposed in July.

"The definitive measures aim to preserve traditional trade flows," the commission said in a statement after EU governments approved its plan.

The bloc seldom resorts to trade safeguards, which are intended as temporary relief from imports surging due to unforeseen developments. The steel measures come in response to U.S. actions but are effectively driven by Chinese production flooding global markets and threatening producers world-wide.

Mr. Trump unilaterally curbed U.S. steel imports, as Washington questioned international efforts to address Chinese overcapacity. Other major players followed, fearing exports would be redirected from the U.S. to their markets. Europe led the global response, despite criticizing the U.S. move and challenging it at the World Trade Organization.

"The EU is cooperating out of necessity with what the U.S. started," said Laurent Ruessmann, a Brussels-based trade lawyer at Fieldfisher. "The alternative is to get swamped by diverted trade flows."

European steel companies were largely happy about the safeguards. But users of the metal, which goes into everything from buildings to wind turbines, slammed the EU for hurting European industries.

Brussels's compromise solution highlights the difficulties in adjusting to U.S. policies reshaping global trade and comes as the bloc faces a slowing economy. Inaction would devastate steelmakers grappling with falling prices, while quota-based tariffs risk raising costs for vital industries like automotive.

"There's always a trade-off between different measures," an EU diplomat said of the safeguards. "It's obviously a reaction to what has happened in the United States and we would have preferred not to have tariffs on steel at all."

Steelmakers had asked that quotas apply to countries rather than only products, as the temporary measures did. That triggered a rush to get steel into Europe, with countries including Turkey and Russia scooping up large portions of the quota before a reset in February.

In the first 10 months of 2018, EU steel imports jumped to a record, growing 12% annually and outpacing both demand and domestic deliveries, according to the European Steel Association, Eurofer. In the same period, U.S. imports fell 14% and global exporters diverted 60% of that steel to the EU.

"Imports of steel into the EU have increased over the past year because European manufacturing output has grown substantially since the economic crisis," said Erik Jonnaert, secretary-general of the European Automobile Manufacturers' Association.

Car makers, joined by other lobbying groups, oppose the safeguards, particularly a clause raising quotas by 5% annually, warning that the increase is too small and could trigger a supply shortage. The initial quotas are calculated based on the average imports in 2015-2017, and the safeguards will expire July 16, 2021.

The pace of steel exports to Europe is exceeding the rush of Chinese metal that swamped the continent in 2015 and triggered a crisis for EU producers. The EU responded with anti-dumping and antisubsidy measures to slow the influx.

Mr. Trump's steel tariffs resurrected the pressure with a new wave of European imports and falling steel prices. That prompted Brussels's reaction, even as some EU diplomats warned against following Mr. Trump's protectionist measures.

"Generally speaking it is good, and it should help in stemming the enormous flow of product," said Roeland Baan, Chief Executive of Finland's Outokumpu Oyj, one of the world's largest stainless steelmakers.

Some European steel producers, including Mr. Baan, said the EU's safeguards are insufficient due to quota-waivers for some developing countries that are now big exporters. That fails to account for industrial policies by players like Indonesia, which has recently emerged as a major stainless steel exporter.

Indonesian exports to Europe, previously negligible, surged to a record high in the first 11 months of last year and equaled half of the total EU imports from the country during the last decade, Eurofer data show. Steel producers in countries facing quotas echoed criticism from their customers in the EU.

"We believe that any protectionist restrictions have a detrimental economic effect on all parties involved and prevent fair competition," said a spokeswoman for Russian steelmaker Severstral.

Write to Emre Peker at emre.peker@wsj.com and Alistair MacDonald at alistair.macdonald@wsj.com

(END) Dow Jones Newswires

January 16, 2019 11:38 ET (16:38 GMT)

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