The issue of demonetisation and its impact on various segments of the economy are being so hotly debated in Parliament and outside and there is no reason why it should not take overriding priority over all other matters. One needs to focus really hard on a specific aspect currently being talked about widely in other countries.
While the votaries of globalisation and for that matter, the dream of a liberalised economy with free and fair trade, appears to be one of the critical elements in each country’s economic agenda, the protection of domestic industry and other segments of the economy is very much in the air.
There is no denying that the election of Donald Trump as the US president has freshly strengthened the urge for economic protectionism. The atmosphere is ripe to reorient the economic policies in favour of indigenous economic agents in terms of their current share in the market and to enhance the same in the interest of employment, income generation and profitability, the indicators of which have all been showing signs of decline in the recent period. Stimulus measures in the form of massive investment to provide impetus to the domestic industry announced in China, Japan and Asean countries have encouraged others to pursue the same with more vigour and enthusiasm. In another two months’ time, the new US government is going to join the fray.
Already a large number of countries are functioning under the Regional Cooperation of Economic Partnership (RCEP) and bilateral free trade programmes offering dutyfree exchange of goods and services across the borders. It became apparent that increased investment by the partner enjoying the duty free benefits for its exports as per the agreement were not actually happening. The continuation of periods of subdued demand, price depression and declining profitability rescheduled the completion dates of a large number of projects and excess capacity was taking a toll on the viability of all fresh capacities.
Meanwhile, the proposed Free Trade Area in the Asia Pacific is making news with China taking the lead to combat US attempts to forge the biggest deal of Trans Pacific Partnership (TPP). In spite of the near-agreement on signing the much-awaited TPP in the last meeting, it is quite certain now that the US would come out of the deal in the interest of domestic manufacturing and service sectors. In all likelihood, the Local Content Rule would be given priority in all domestic procurements by the federal government in the US by even changing the Nafta (North American Free Trade Agreement) framework.
The rise in the number of anti-dumping and countervailing duty measures in steel in the last two years is indicative of the primary concern of various countries in protecting the interests of the domestic steel industry from dumping and cheap flow of imports especially from China, CIS and Chinese exports of HRC/S, plates, CRC/S, GP/coated sheets are barred from entering the US, the EU, India, Vietnam, Thailand and many other countries.
In addition, the number of technical barriers to trade (TBT) prescribing national standards conformance by the importers has been resorted to by various
countries. The latest concern to global trade, particularly in steel, relates to possible declaration of China as a market economy by December 2016 as a part of Chinese accession to WTO.
The adoption of market prices in China which are normally way below the global prices would make proof of dumping in AD/CVD investigations (based on constructed prices in third countries) pretty difficult.
Similarly, the applicability of actionable subsidies in cash grants, equity infusions, preferential loans, subsidies for utilities, tax rebates etc in China would be difficult to prove under the market economy concept. Already, the US and EU have appealed to WTO against this declaration.
One therefore concludes that global trade which is already showing signs of slogging would be further strained by the above developments. In the past few months, the global prices have been rising, especially in flats, thereby encouraging many steel-producing countries to focus on exports for the surplus categories. But trade-protective measures are literally closing the major consumption points. Under this scenario, domestic markets would continue to provide scope for marketability of steel products for indigenous producers. India perfectly fits the bill.
The author is DG, Institute of Steel Growth and Development.
Views expressed are personal