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European steel leaders seek scrutiny of Chinese British Steel bid

Barbara Lewis

* Eurofer says China main contributor to excess capacity

* Says planned deal may flout anti-trust rules

* UK government, EU Commission have no immediate comment

LONDON, Nov 13 (Reuters) - European steel lobby Eurofer plans to raise concerns over Chinese group Jingye's proposed purchase of British Steel with the European Commission, saying the deal may flout rules on fair competition.

Jingye said on Monday it had reached a provisional agreement to buy British Steel and promised to invest 1.2 billion pounds ($1.5 billion) over the next decade and save thousands of jobs.

The deal has not been finalised and would require regulatory approval. Eurofer said the planned purchase was a fresh instance of China exporting excess steel capacity to the edge of the European Union. The Commission and the British government had no immediate comment.

"We need to be sure there is no state aid contribution by the UK government which could be considered as not in line with EU state aid rules," Axel Eggert, director general of Eurofer, told Reuters.

Eggert said China was the main contributor to a surplus of steel on the global market.

The issue is weighing on the sector and added to the difficulty of agreeing a sale for British Steel.

Global overcapacity is 450 million tonnes, three times the size of the European market and China accounts for two-thirds or more of the excess, Eurofer says.

The industry body has led a push for tougher EU safeguards to protect the European industry from a flood of imports.

In Britain, the offer to buy British Steel takes place at a pivotal time. Britain has said it will leave the European Union but has failed to get agreement on when and how.

The government has called a general election in December, in which a lack of opportunities in northern England, where British Steel has its main operations, is a decisive issue for voters.

Similarly, China's Hebei Iron & Steel Group (000709.SZ) in 2016 signed a deal to buy a loss-making Serbian steel plant, days before an election.

Serbia is not a member of the EU, but is a candidate country, meaning it has to begin respecting EU rules.

Eggert said the Commission should have taken a closer look at the Serbian deal.

Since British Steel went into compulsory liquidation in May, the British government has been responsible for a wage bill of around 250 million pounds ($320 million) a year, sources close to the company have said.

The government also lent British Steel around 120 million pounds to enable the steelmaker to comply with the EU Emissions Trading System. ($1 = 0.7815 pounds) (Reporting by Barbara Lewis; Editing by Emelia Sithole-Matarise)