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Global Steel industry getting deeper into protectionist tariff rut
By Naresh Minocha
Aug 19, 2015

Naresh Minocha, a veteran journalist, specializes in telecom, energy, chemicals, agriculture, economic reforms and governance. In his over 32-years journalistic career, he has worked in different capacities for both Indian and foreign media organizations. These include Financial Express, Indian Express, Business Standard, Business India, Tehelka, the Pioneer, erstwhile Asian Chemical News, International Chemical Information Service and erstwhile

His current professional engagements include Consulting Editor, and Associate Editor, Gfiles Magazine. At, he has been writing a popular Column known as 'The Ice Cubes' since 2005.

SLUMPING Yuan Threatens More Gloom for World's Metals Producers.' ‘Yuan Drop Leads India to Mull Steel Anti-Dumping Duties.' ‘Increasingly cheap Chinese steel is concern for Europe-Eurofer.'

These recent headlines portend intensification of ongoing battle for anti-dumping duties and safeguards duties waged by steel companies from different countries against each other and especially against Chinese producers. A few countries have taken the safeguards duty row to Dispute Settlement Panel of World Trade Organization (WTO). Several countries have also sneaked in non-tariff measures as stringent product quality norms to protect domestic steel producers.

The tariff war has also cast shadow over China's plea that it should be treated as market economy by all WTO members.

The steel producers in both developed and developing countries are currently going through tense moments following recent devaluation of Yuan by Chinese Government. They believe that devaluation would make Chinese steel exports more injurious to their health. Hence the stepped-upclamour for protection from their respective Governments.

The protectionist tariff battle is primarily being driven by three factors 1) global excess capacity, 2) coming into stream of new manufacturing capacity and 3) China ramping up alleged dumping of steel following stagnation/decline in the domestic consumption.

China's low-cost steel production continues to be sustained by abundant supply of cheap iron ore and coal from Australia and elsewhere amidst commodities price slump led by crude oil fall, which has touched six-year low in mid-August 2015.

Says India's leading steel maker Jindal Steel & Power Limited (JSPL): "It is imperative that Government supports Indian Steel Manufacturers by initiating anti-dumping duties on these countries to make a level playing field - the sooner the better. Currently, the domestic industry is also grappling with far higher input, logistic and steep interest costs."

The Indian Government, which has twice hiked the import duties on certain iron & steel products in June & August, appears to be sympathetic to industry's demand. A Bloomberg story datelined 17th August quoted Financial Services Secretary, Hasmukh Adia as saying: "We'll have to think about other options, whether safeguard duty and anti-dumping duty can also be used."

Tata Steel, in a presentation dated 11th August 2015, says: "Government intervention on imports – key to restore demand-supply balance." EBITDA impacted by currency changes and higher imports." Discussing its latest quarterly results, it notes that India's net import of steel has shot up by 150% to 1,646,000 tonnes in Q1 2015-16 from 658,000 tonnes in the corresponding period of last fiscal.

As put by Singapore-based UN affiliate South East Asian Iron & Steel Institute (SEAISI) in a release issued last month, "The ongoing spate of campaign in many regions of the world against the Chinese steel industry reflects the seriousness of the problem of the surge in China's steel exports and their disruptive impact on the global steel market."

On 16th June 2015, eight steel industry associations of North America, Latin America, and Europe voiced concern over China's Steel Adjustment Policy (SAP) released in April. In a joint statement, they described the SAP as "top down, State-determined approach to reforming the steel industry." As put by them, "We reaffirm our call on each national government to address this issue in their own country and make every effort in their own trade diplomacy and regulations to confront and challenge those government policies that are feeding the overcapacity that is at the root of the current steel crisis and provide a level playing field in the steel market."

As regards China's demand that it should be treated as market economy by WTO members by 2016-end, the Statement adds: "Each individual nation's determination will have large consequences for how parties injured by dumped Chinese imports will be able to recover for the injury they incur."

According to a study released by AEGIS EUROPE, an alliance of over 25

European industrial associations, on 11th August, "The China Iron and Steel Association (CISA) is nominally the lobbying arm of China's steel industry vis-à-vis the government and other market participants. In reality, however, CISA stands in the middle between being a lobbyist for industry and a spokesman for government."

The study titled ‘Assessment of the normative and policy framework governing the Chinese economy and its impact on international competition' says: "CISA has been entrusted with the supervision and coordination of all import/export activities of the industry including the administration of value added tax rebates for steel exporters."

Commenting on the study, The European Steel Asssociation (Eurofer) Director General Axel Eggert says: "In the steel sector, the massive Chinese excess capacities and exports fuel led by pervasive government support and subsidization are a case in point illustrating the distorting impact of China's planned economy on a global scale."

The Study notes that economic activity and the allocation of resources in China continue to be predominantly determined by a broad array of governmental programmes, subsidy schemes and arrangements to punish or promote specific behaviour. As a result, nearly fifteen years after accession to WTO, the patterns of economic interaction in the Chinese economy remain highly distorted and reflect neither the true scarcity of goods and resources nor the competitive strengths of market players.

According to Organization for Economic Cooperation and Development (OECD)presentation made in May 2015, "Governments have resorted to other public policy measures that tilt the playing field in favour of local firms." Quoting Global Trade Alert (GTA) database, the presentation says that countries have taken 190 measures since the 2008 global financial crisis to discriminate against foreign steel suppliers. The break-up of these measures is: 35 local content requirements, 27 export incentives and favourable trade finance measures, buy national public procurement measures, bail out/state aid measure. It concludes: "The value of trade that is affected by distortionary measures is very high and growing (GTA analysis). The ratio distorting/trade liberalizing measures has increased, which might suggest that the aggregate level of protection has increased of late."

Even before the Yuan devaluation, OECD had discussed the distortions in global steel trade. In a Policy Paper titled ‘Excess Capacity in the Global Steel Industry and the Implications of New Investment Projects' published in February 2015, "Increased trade frictions are already visible amongst trading partners today. Subsidies and government support measures that promote investment in steel making facilities or sustain companies in distress that would otherwise shut down are a major source of this trade friction. Subsidies that encourage steel makers to keep production running at high levels, even under weak market conditions, have had significant effects on trade, with unfair trade practices such as dumping having resulted in injury to the industries of other economies."

The current state of steel industry shows that fair competition is a far cry for global economy. There is thus no escape for the countries from resorting to tariff tinkering and levy of anti-dumping duty and safeguards duty to bail out troubled sectors such as the steel industry.

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