Sudden protective moves demand drastic measures

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Published: March 27, 2018 3:58:09 AM

All these countries and block have been advised to enjoy exemptions till May 5, 2018 by which time they would be needed to work out a long term plan to address the issue of exporting to US and not impair the national security.

US trade, steel tariff, steel articles tariff, US steel industryShock treatment has been one of the most effective tools in disturbing the stability of the market. (Reuters)

Shock treatment has been one of the most effective tools in disturbing the stability of the market. The US trade action of imposing 25% tariff on steel and steel-based articles and 10% tariff on aluminium surely falls under this category. On March 8, 2018 the order was announced based on an econometric analysis by Purdue university. It establishes that 80% capacity utilisation of US steel industry that ensures a stable pattern of employment in the economy and not impair the national security of the country would be achieved by imposition of 24% tariff on steel and steel-based articles.  After a fortnight, the order was implemented (25% duty) with exemptions granted to EU, Australia, South Korea, Brazil, Argentina, Canada and Mexico. All these countries and block have been advised to enjoy exemptions till May 5, 2018 by which time they would be needed to work out a long term plan to address the issue of exporting to US and not impair the national security. US has also offered a route for exemption from 25% tariff to other countries by proving non-injury to US by way of job losses and impairment of national security. India prepares to get relief out of this route.

The immediate fall out of the trade sanction order by US is that it would entail additional tariff on Chinese imports worth of $60 bn. China retaliated by announcing additional imposts on $3bn worth of US exports to China. It has also been alleged that there are specific violation of intellectual property rights by China. The trade war, primarily between US and China, is causing sharp decline in share prices in all major markets and has plunged the global trade in a temporary limbo. It is certain that US investment in China and Chinese investment in US, many joint ventures operating in both the countries and also in third countries, would be jeopardised. Many user industries in US, the tyre manufacturing industry, pump manufacturing, and the electrical equipment industries are large importers of steel and many other sub sectors in household appliances, logistics and supply chain US manufacturing exporters depend on imports of various steel articles, all of which would have to bear a sharp rise in cost of production which would result in non-viability of the units in the short term. It may further hit job creation and income generation.

Secretary general of WTO laments over defeat of globalisation by the latest upsurge in protectionism by one of the founding members of WTO. It is pathetic that WTO rules are purely ornamental and is toothless against sudden protective measures by the founding member.
It is true that in the next few months, more variations of this trade war would come into the surface. Already US has objected in WTO about the various export subsidy measures by India (duty drawback, advance licenses etc). Doubts are raised on to what extent the standard measures of WTO against trade distorting practices (AD, CVD, SD) are effective to prevent damage to the domestic economy or by following these standard measures for the last three decades and also taking lead in tariff free flow of goods agreement among various participating countries could result in sharp decline in productivity and competitiveness in manufacturing, huge job losses and increasing income disparity in the country.

Looking back at growth and development of Indian steel industry, it is seen that while the crude steel production has risen 4.4% in the first 11 months of the current fiscal, the finished steel consumption has grown 7.6%, which is impressive as till December 2017 it was expected that steel consumption is likely to reach 6% growth in FY18. However, in January and February 2018, as per the official statistics, the country has converted this subdued trend of steel consumption into 6.8% and 7.5% growth in next 2 months. As a result, the estimated growth in steel consumption in the country in FY18 would be near 8%. It is significantly above the short term projection by WSA of 5.4% in 2017.

Would the current global trade war impact the domestic steel consumption in India? Logically if US market is restricted from 35-38 mt of annual imports, the diverted volume would target the growing Indian market. The unrevised floor prices following AD in HRC, plates, CRC, coated products and wire rods at $ 489, $561, $576, $822 and $546 respectively, are well below the current global price and hence would be little deterrent to the import flows. As the review of these floor prices based on the domestic industry petition may be time consuming, a 10% additional duty on steel products may be considered for the time being. This may be taken as a purely temporary step till such time revisited floor prices are determined.

DG, Institute of Steel Growth and Development

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