Some myths to explore

By: | Published: October 6, 2015 12:09 AM

A lot has been written on safeguard duty on steel. For the sake of an objective assessment, it is necessary to clarify some myths that have developed around the concept and its probable impact.

A lot has been written on safeguard duty on steel. For the sake of an objective assessment, it is necessary to clarify some myths that have developed around the concept and its probable impact.

First, the duty is imposed on standard grade of HR coils which are produced aplenty indigenously and exclude all special grades including API/electrical/ spring steel/zinc coated/SS.

It would therefore not impact the import of special grades, some of which are not available indigenously or supplied inadequately in volume and quality from domestic sources.

Second, as imports of standard grades of HRC increased significantly and caused injury to the domestic producers in terms of market share, profitability, production cuts, capacity utilisation, the well accepted WTO mechanism in the form of safeguard duty has been resorted to.

If all such imports fall under the category of dumping, the standard procedure is anti-dumping duty, but as anti dumping mechanism takes a much longer time to investigate, the safeguard duty for a limited period gives temporary relief to the domestic producers.

In the present case, it is evident that imports from Japan and Korea are causing injury not because of dumping but on account of duty concession under RCEP as their prices are comparatively higher.

RCEP provides no ground for antidumping measures, it only permits safeguard duty mechanism subject to proof of injury. It is also well known that while antidumping duties are country specific, the safeguard duties are for all countries involved in export of the particular product.

Third, contrary to media reports, the domestic prices of HRC in exporting countries are higher than their export prices.

For instance, HRC (base grade) is available at $298/tonne ex-works in China while its export price (SS 400) is $273 /tonne FOB. For Japan, the domestic price of HRC is $524/tonne with export price to India is $ 427/tonne CFR.

However it must be appreciated that for many items, the domestic prices are generally higher than export prices, but suitable trade measures can be applied only when such imports cause injury to the domestic producers.

Fourth, for commodities where adequate investments have been made for creation of capacities with state-of-the-art technologies providing employment to millions (direct and indirect) with engagement of a host of small and medium enterprises like in coal, cement and aluminium, would not a similar situation that facilitated massive inflow of surplus/unused capacities from other countries prompt the specific industry segment to call for same trade restrictive steps?

Looking around we find a good number of countries led by USA and EU and followed by Indonesia, Thailand, Malaysia, Philippines, Vietnam, Mexico, Brazil and others have resorted to WTO-compliant trade measures (AD, CVD and safeguard) to offer a helping hand to the beleaguered domestic steel industries.

Lastly, steel is the basic raw material for a host of downstream products. HRC for pipes and tubes and for cold rolling, if available cheap via import must be reflected in reduction of prices of finished product. Has it ever happened?

We have not seen that TMT bars from CIS and

China imported at minimum Rs 2000-2500/tonne cheaper than the domestic prices have made the infrastructure costs by reputed construction firms significantly lower.

It must be appreciated that in the context of subdued demand, price depression and increasing cost of capital, a large component of cost advantage, almost entirely, goes to bridge the drop in market realisation of finished products and much less, almost negligibly, get reflected in a lower price of finished products.

The disconnect between cheap raw materials and finished goods prices has been the regular phenomenon in a market economy like ours.

On the contrary increase in the prices of final products on the back of a rise in raw material cost is an acceptable logic in most of the cases.

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

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