Trade protectionism has a number of implications for the world economy. It saves the domestic industry from the onslaught of cheap imports and therefore prevents closure and loss of employment, but also presses the alarm for exporters and downfall of the export oriented industries with adverse consequences to specific economies. The panic reaction is reflected in searching for alternate outlets and ultimately to adopt practices that violate the rules of free and fair trade. President Trump’s unilateral actions on duty impositions of 25% on steel and 10% on aluminium on all imports to USA in March 2018 establish firmly this premise. US industrial production growth currently stands at 3.8%, the manufacturing productivity has gone up, unemployment rate comes down to 4.0% and current balance of trade stands at (-) 2.4% of GDP. All this is translated into a GDP growth of 2.9% in 2018 and rising since then.
The latest IMF projection on GDP growth has put US economy to grow by 2.5% in 2019. It is to be revised upwards surely. The realpolitik of twenty first century has taught USA to combine trade protectionism with looking after the interest of domestic end user segments of steel and aluminium products and hence around 16,000 numbers of exemptions out of the trade measure (for 330 companies involving 3.85 MT of steel imports) have been given to these user industries on case to case basis so that their cost of production/servicing does not go up due to rise in import costs. Politically this move has eliminated domestic opposition to the trade measures and enhanced the support of the ailing steel and aluminium industries in USA.
US trade measures of Section 232 of US Trade Expansion Act under the garb of disrupting the National Security of the country and the follow-up action by EU to impose a definitive safeguard measure on the exporters of steel to Europe based on 70% of the average export volume in the last 3 years (2015-17) and increasing it by 5% in each of the next 3 years. The trade actions by these two major importing centres has created a huge uncertainty among the major steel exporters like China, Japan, South Korea, Turkey and CIS countries. Quite expectedly the knee jerking actions by steel exporters are currently undertaken with least care to play within the norms and standards of fair trade.
India’s steel imports during the first 10 months of the current fiscal have gone up by 2.1% compared to last year. The three major countries, Japan and South Korea and China, most affected by US and EU trade measures, together accounts for 67% share of total imports during the period which marginally exceeds the last year’s level. Some of these imports in HRC, TMT, coated products are taking place despite India having abundant capacities to cater to the demand.
It is reported that around 82 thousand tonnes of Iranian HRC at a very competitive price are reported to be landing in India shortly from Dubai port (Jebel Ali) by changing Iran origin of the coils (due to trade sanction by USA and mutually agreed by India) and raising invoice ex-Dubai by a fictitious, non-existent firm in Dubai. This is just the beginning and it is not known how much volume of not only HRC but other steel products as well like TMT, wire rods, coated steel, electrical steel sheets would be arriving in the next few months. Although the volume in each consignment may be negligible, it would lead to price depression and deprive indigenous manufacturers a share of the market. The issue is deep-rooted as the customs authorities in Indian ports are not adequately equipped to verify the authenticity of the declared origin of the materials and hence we are not aware how much imports have already arrived in this route. This also raises the issue of pro activeness on the part of the domestic players. Based on this specific instance why cannot the domestic players seek meetings with the customs authorities at Nav Sheva, Mumbai, Chennai, Kandla, Mundra and suggest ways and means to check the genuineness of the port of origin of the country manufacturing the product in question.
As mentioned earlier in this column, India has imported a total quantity of around 292 thousand tonnes valued at `1170 crore in seconds/defective grades comprising coated steel, tin plates, pipes during this period. No country in the world trade in seconds and defective grades steel of such a magnitude. The major exporters of these inferior grades are Belgium, Germany, Spain, USA and Brazil. This issue must be taken up by ministry of commerce team while discussing with these countries on any trade related issues. It appears use of seconds grade steel has been accepted as a normal ingredient of global trade meant for the developing countries.
India is currently engaged in trade negotiations under RCEP module with a number of trading partners. Duty free imports from Japan and Korea have earlier caused damage to domestic steel players prompting the government to take timely trade measures in the form of MIP, safeguard and ADD. On revival of the global economy and global prices, the inherent threat from low priced imports has been minimised. Now is the time to take product specific steps to thwart imports that are clearly violating standard rules of trade.
(Views expressed are personal)