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CHAIRMAN's DESK

"In other words, the world very badly needs restoration of the basic principles of the multilateralism embodied in the WTO. We hope that with some order restored in these areas the world will enjoy the fruits of a shared prosperity. " The US government has finally revoked the restrictive Safeguard Action on imports in force since March 2002. The penal duty rates imposed to provide relief to the American steel producers from an injury-causing surge in low priced imports of selected steel articles. The tariff rates were fixed at levels as high as 30% in the first year to be reduced progressively in the latter years. The principal reason behind the trade action had been to provide some breathing space to the US industry to rationalize, reorganize and consolidate for increased efficiency. A little under two years later, it appears that the adverse rulings of the WTO Dispute Settlement Body (DSB) and the protestations of the steel?using manufacturing industries within America have led to a change of heart of the US administration. Even though the formal revocations came now the process of dilution had, in fact, been going on for sometime with the USITC granting exemptions to a fair number of steel products during the past few months. In the interim, some significant studies have been done to assess the overall effect of the trade action on its economy. In one such study undertaken by the Institute of international Economics (by Hufbauer & Goodrich, October 2003) it has been shown that some of the leading indices for measuring the performance of the American steel sector had barely improved in July/August 2003 compared to March 2002. For example, Dow Jones steel share price index has, in fact, dropped by 26.4% from 87 to 64 between the two time-periods. After tax profit as share of sales improved slightly from (-) 3.8% to (-) 2.3% and steel producers' price index rose marginally from 97 to 105. On the other hand, utilization rate of steel capacities fell from 78% to 73% contrary to expectations. According to the estimates made by the authors, employment in the steel producing fell at a slightly slower rate compared to that in the steel using industrial segments. Bankruptcies in firms increased from 33 to 40 in the same period. Most importantly, consolidation in the American iron and steel sector - the cause caliber for the Safeguard Actions - did not take place to the expected degree. It is also believed that whatever consolidation took place was due more to changes in Labour Laws and other institutional factors than to the Safeguard tariffs. There are important lessons to be learnt and observations to be made from what the world experienced in these two years. Firstly, it is now apparent that in spite of the several setbacks to the process of global integration under the aegis of the WTO, there are signs that the culture of rules-based multilateralism has probably started to take root. The fact that the aggrieved parties in this case took recourse to the WTO dispute settlement procedures for a fair arbitration of their case and that the US administration paid heed to the rulings - even if partly due to its own enlightened self interest are reason enough to be hopeful of a freer trading regime. It is all the more significant because these developments came in an otherwise bleak scenario of the recent failures in the Cancun Ministerial. The second important observation relates basically to the world steel scene as of now. The not so successful efforts of the US steel industry to restructure itself shielded by the protective measures vindicate the hypothesis that the focus of future growth is slowly but surely shifting away from the older industrialized economies to the newly industrializing economies in the Southern Hemisphere. The conditions on the ground in these economies - their demographic situation, their ?developmental aspirations and the scope for accelerating industrial growth - are all natural allies for the rapid growth in steel consumption. As China and Korea have demonstrated in the last three decades these NICs also have apparently limitless potential to emerge as leading production centres when backed by appropriate resource endowments, capital flows and technological acumen. It is in this context that the Indian steel industry and its peers in this part of the world should plan and execute their future strategy for production and trade. The feel-good factor brought on by the favourable international and domestic events has had a salubrious effect on the performance of the Indian steel sector. Prices have all but recovered to the levels prevailing prior to the onset of the Asian crisis and the worldwide-synchronized slow-down of the last four years. Production of finished steel in H1 of FY2003-04 has increased by 6.8%. Imports have risen by 7.4% as a reflection of general economic recovery. Exports from India have maintained their fast growth at 35.9% over the same period last fiscal. A significantly slower growth in domestic consumption at 3%, however, shows that the revival in the steel sector continues to be largely export-driven. The fairly sustained revival of the manufacturing industry in the recent months and a definite upturn observed in construction activities over the last five quarters would translate into larger domestic demand as soon as the accumulated inventories are drawn down. It is, therefore, not overly optimistic to think in terms of a sustained 6%-7% average growth, in domestic demand in the medium term. Internationally also the pro are looking up. The US economy has displayed definite signs of a pick up, especially in the manufacturing sector. This along with the strong showing of the dominant Asian economies is also expected to rejuvenate the sluggish Europe. The World Bank and the IMF have been cautiously optimistic and have discreetly upgraded the prospects of the world economy in the coming year. To ensure unimpeded growth of the word from this point onwards, the world needs an atmosphere of co-operation, mutual support and a little bit of hand-holding of the economically backward countries by the super powers. In other words, the world very badly needs restoration of the basic principles of multilateralism embodied in the WTO. We hope that with some order restored in these areas the world will enjoy the fruits shared prosperity. ( J P Singh Joint Secretary, Ministry of Steel & Chairman, JPC) (This is excerpted from JPC Bulletin Nov'03)