Relook at fresh FTAs for steel industry

Updated: Aug 20 2014, 07:34am hrs
Global trade in steel is exhibiting unique features. Apparently, while the hike in numbers of protective measures adopted by WTO member countries against each other gives an impression of market shrinkage for trading purposes, the trade blocks in each region provide space for internal trade.

According to latest published data, direct steel trade undertaken by various countries outside the purview of trade blocks reached a volume of about 296 mt in 2013. The flow of steel trade within the trade blocks increased significantly at around 225 mt.

In this manner, we may soon reach a stage when steel trade within trade blocks is likely to exceed direct trade outside the blocks. What happens to multilateral trade that WTO promotes If the trend gets strengthened as is evident from the spate of FTAs being signed, the relevance of WTO may become minimal in the coming years.

It is reported that Trans-Atlantic and Trans-Pacific treaties led by the US and the ASEAN treaty occupy the predominant share of global trade. India, China, Australia, New Zealand, Korea and Japan are not part of ASEAN. However, recent growth of trade among partners of the regional block has prompted ASEAN to approach all these countries to become a part of the block, with FTAs between them and also with ASEAN under Regional Co-operation of Economic Partnership (RCEP).

The ministry of commerce is quite enthusiastic in taking forward the FTAs for various sectors under RCEP as it feels the pacts will facilitate access of Indian exports, including service exports, into ASEAN and other five countries and also enhance investment from these countries into India.

This is indeed a holistic approach to Indias concern for increasing exports and investments in a highly competitive global market. But sectorally the story is different.

As regards the steel sector, FTAs under CEPA with Japan and South Korea have caused irreplaceable damage to the Indian steel industry by way of progressive reduction of duty (currently 1.9% against BCD of 7.5% and being reduced to nil duty by 2017). Around 65% of imports of HR coils, CR, plates, coated sheets and electrical sheets in the last fiscal were from these two countries only. It was much above the volume of imports from China, which was a threat till the other day.

The share of these two countries in imports came down marginally to 52% in the first four months of this year. It is also reported that in the last three years (since the period of FTA) the share of India in global investment by Japan has declined, thus negating the basic premise of the agreement.

As per latest estimates, Japan and South Korea have surplus capacities in steel of around 60 and 30 mt respectively and India is planning to add another 200 mt steel capacity in the next decade and half to prepare itself to cater to the emerging demand in all common standard categories as well as in special grades, sizes and dimensions by importing/absorbing state-of-the-art technologies with about $200 billion of investment.

The stupendous efforts of the Indian steel industry in creating a niche for itself in the global steel market must not be allowed to go waste to accommodate some other country that applies a number of non-tariff barriers to steer clear of Indian steel exports into its own territory.

Sushim Banerjee

The author is DG, Institute of Steel Growth and Development. The views expressed are personal