Nature and spirit of international trade would depart from standard rule post COVID-19

By: |
April 30, 2020 12:10 AM

India has firmly established itself as a net steel exporter in FY20 with total steel exports at 11.183 MT (31 % growth over last year) exceeding the total steel imports at 7.164 MT by 4.02 MT.

In the post Covid-19 scene, the rules of the game are going to be more stringent and non-transparent.

The trading of goods and services has been predicted by WTO in its latest report to go down by 13-32% in the current year. Online selling of goods for many commodities are confined to documents passing hands (scanned copies of the original), but actual movement of goods by road, rail, ships and air would take some more time to settle as both loading and unloading of materials, either through machines or workmen, are to follow some restrictive guidelines and these are specific to each country.

Meanwhile, it is certain that in the post Covid-19 scene, the rules of the game are going to be more stringent and non-transparent. The first instance in this respect was evident with the release of new WTO report that as many as 39 member countries have imposed export curb on medical products like masks, pharmaceuticals, ventilators and other medical equipment and also on foodstuffs and toilet paper. Although article X1 of GATT bans export restrictions, but allows them temporarily to get over emergency situations. Also, all these export restrictive measures are yet to be communicated to WTO formally by some of the countries and therefore it spoils the spirit of transparency of WTO rule based trade.

It appears that in the post Covid-19 period, the nature and spirit of international trade would depart from the standard rule of the game and every country’s (advanced, emerging and low income groups) individual interests would predominately reflect in the precise trade measures adopted by each of them. Like it happened with USA’s unilateral decision to impose 25% additional duties on steel and 10% duties on aluminium in March 2018 that prompted others to impose retaliatory trade measures. The trade umpire WTO is likely to be rendered incapable of dealing with most of the new and restrictive trade measures that appear to be good economics for hard times.

India has firmly established itself as a net steel exporter in FY20 with total steel exports at 11.183 MT (31 % growth over last year) exceeding the total steel imports at 7.164 MT by 4.02 MT. The subdued growth in industry, specifically in automobile, capital and consumer durable segments, coupled with lack of adequate investment in infrastructure and construction segments confined the growth of steel consumption in the country to 1.3% in FY20 over last year.

Against the total import value of Rs 79,860 crores (comprising of carbon, alloy and SS, melting scrap imports of 6.57 MT, ferro alloys, fittings and miscellaneous steel items), the total value of exports (steel plus exports of fittings, miscellaneous steel items, pig iron and sponge iron, ferro alloys) in FY20 comes to Rs 67,698 crores. Throughout the year (barring 3-4 months in H2 of CY19), the global prices were much competitive which allowed standard/tested grades of 20% of plate import, 13% of HRC import and 28% of GP/coated sheet imports. It defies logic why India still needs to import defective/seconds grade of inferior material in the form of GP/coated sheet, tin plates and tubes and pipes, together valued at Rs 1,628 crore. The government order of banning these defective imports is the need of the hour.

South Korea and Japan, the two countries having FTAs with India take 52% of total steel imports in the country. China sent 1.38 MT of steel to India. In respect of steel exports, India’s major export destination are Vietnam, Nepal, Italy, UAE and Belgium.It is interesting to note that India could gain a major entry in Vietnam market against competition from China, Indonesia and CIS countries. The highest imports were in HRC/S (2.3 MT) followed by coated sheets (0.91 MT), bars and rods (0.65 MT), plates (0.64 MT) and ESS (0.54 MT). Maximum exports involved HRC (4.95 MT), semis (2.83 MT), coated sheets (0.9 MT), CRC/S (0.75 MT), bars and rods(0.7 MT) and pipes (0.42 MT).

It is interesting to compare import values of a category like HRC (Rs 12,183 crore for 2.3MT) with export proceeds earned for the same product (`16,649 crore for 4.95 MT). India has exported sponge iron of 0.84 MT valued at Rs 1,605 crores in FY20.

In the coming months, India needs to watch closely the import arrivals and should safeguard the domestic steel industry from cheap imports (priced at variable cost) from many countries who are keen to dispose materials in the face of dwindling domestic demand in their own countries. India should take it up with WTO for deferring the provisions of FTAs for a minimum period of 6 months, citing the unusual market conditions preventing domestic producers to market products and the distinct possibility of duty free materials under FTAs flooding Indian market.

Almost all the countries have cut down production as global crude steel production in the first three months of 2020 at 443 MT and has shown a negative growth of 1.4% over last year. China has maintained the positive growth of 1.2% in Q1 by producing 224.5 MT of crude steel during the period, followed by India at 27.5 MT (- 5.3%), Japan at 24.4MT (- 2.4%), USA at 21.9 MT (- 1.0%) and South Korea at 16.9 MT (-4.8%). The pandemic has taken a heavy toll of human lives in USA, Italy, Spain, UK etc. It is certain that global steel production in Q2 would be much lower compared to Q1.

BY Sushim Banerjee, DG, Institute for Steel Development & Growth

(Views expressed here are personal)

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Self-reliant India will be force multiplier for global economy: PM Modi tells UNGA
2Temporary retention of GST cess pending reconciliation not diversion: FinMin
3FSSAI mulling making fortification of edible oil with vitamins A, D mandatory