Although the global steel trade across countries has been on the increase over the years in absolute quantities and also as a percentage of total production of saleable steel - real ocean trade, excluding the trade between countries within the same trading blocks and the same customs union, may not have increased. Although firm data are not available, there is an indication that the same has fallen in the very recent years.

This drop seems to have occurred at a time when there was no appreciable fall in consumption of steel globally. Therefore, one can expect that the shrinkage in international trading volume have been caused by barriers to trade put by different countries apart from the import substitution strategies and indigenous capacity building efforts of individual countries around the world. This has been so in the developed as well as in the developing countries. While the members of the CIS, the EU, Japan, Korea and Latin America still account for a major share of exports, several new countries have entered the global steel scenario -some of them to make use of their new capacities and others to take further advantage of the emerging opportunities from global integration of their markets.

But, the emerging business conditions, logistics and trade barriers also led to increased interest in intra region or intra trade block trading. This is reflected in the trade data obtained from NAFTA, EU, AFTA, etc. Another factor favouring intra-region trade is the stability in market and business conditions, which have not been very favourable in the long distance spot trading in the international market. Spot trading and pricing involve high degree of volatility and speculation as well as significant involvement of traders compared to contract pricing involving long-term relationship between the buyers and the sellers. While the rise in spot trading and larger involvement of traders raised the volume of international trade temporarily, the ill effects of it became visible soon after, as countries producing steel suffered from abnormal drops in prices making them go protectionist.

The contours of global steel trade are fast changing with the emergence of new producers and buyers as also new competitive scenarios in steel production. The competitive position of the industry worldwide is dynamic and keeps changing with currency depreciation, adoption of new technologies and new sources of raw materials. As a result of the fast changing scenario in the last decade or so in this area, the developed countries have found their steel industry threatened by more competitively priced steel from the developing countries as well as from the former USSR countries. This has sparked off a series of trade actions mainly by the developed world on the imports of steel. Somehow, trade actions are not new to the steel industry. But, the number has increased phenomenally.

The Role of the WTO

Such developments have raised more questions on the future of global trade in steel than perhaps new opportunities of trade sighted today. The objectives of the eight-year-old World Trade Organisation (WTO) seem to be in real difficulty as strong conflicts among nations on matters of what is called a fair trade is making each nation suspicious of the other and also protective of their own industry. The rules of the game defined by the WTO for each participating nation are in many places have remained only for academic interest as national economic considerations accompanied by discretionary actions by nations started dictating the participation of nations in global trade. The role the WTO assumes now has a much larger dimension in this new environment when trade conflicts dominate over mutual co-operation for enhancing trade for development.

It happened in the past that some countries did try predatory pricing in exports, which definitely had fallen outside any accepted norm of fair competition. That is why the countries had legislation against such practices. Dumping, seen more as predatory pricing, was generally discouraged so that a fair degree of protection is provided to the domestic industry. Today, 'dumping' is no longer seen as a motivated action to cause injury to industries in the destination countries. It has become more or less synonymous with low pricing, of course speaking relatively, to be determined in a complex conceptual framework involving a host of economic factors and individual discretion. The increased number of anti-dumping cases, countervailing and now safeguard cases reflect only the new form of protectionism that has grown in the current period of crisis.

Why trade actions have increased so much in the recent years in steel?

Although most industries have witnessed an increase in the number of trade cases, the problem has taken a much more serious dimension in the steel industry. It is just the protectionist stance of the individual countries but a lack of understanding of the specific problems of this industry that remains at the root of the problems. Unfortunately, perhaps this specific nature of the industry escaped attention while formulating the general multilateral rules of trade and dispute settlement mechanism. These problems will have to be taken into account for any kind of fruitful policy initiative on multilateral trade under the auspices of the WTO.

Traditionally, steel has been a sensitive item in global trade. The inability of the industry to quickly adjust production to demand leads to high degree of speculative increases in steel prices when the demand rises suddenly or quickly and similarly to devastating speculative drops when the demand is on the downswing. This increases the volatility in the market and makes the industry susceptible to speculative maneuvers. While in the good times the industry reaps the benefits of high prices, it is hurt, naturally, when the prices crash. Invariably, it is then that one hears the call for protection.

Politically also, steel managers work overtime to keep the industry in the limelight whenever there is a crisis. This is why, over the years, steel has accounted for a very big chunk of the world's anti dumping and other trade cases. The present situation is no different from experiences in the past, although the nature of trade actions has significantly changed.

Coming to the recent period, fundamentally, there are three reasons for the spurt in trade actions.

One, crisis in global steel market has deepened, although it has never been known to be out of it for long. But, the present crisis is not because of a mere slowdown in global economic growth. The world has seen a lot more of capacity growth than increases in demand. Further, the emergence of the CIS countries with a huge exportable surplus and that too when they were able to accept prices unreasonably low in global comparison. The economic crisis in each country was accompanied by a financial disturbance, which invariably led to weakening of the individual country's currency. This had happened also for the countries in Southeast and East Asia and South America. As a result, competitiveness of the products originating in these countries increased significantly. However, in the conditions of the global market, such a country having low value of its currency would have improved its market share and also at the same time increased its home currency earnings from exports. However, this could not happen entirely. On the one hand, the steel market saw huge drops in demand and on the other some of the very major countries losing value of their currencies had large steel production and export base, viz., Korea, Japan, Russia, Ukraine and Brazil. Each country found itself far better placed to bring down the dollar denominated prices as its currency lost value. All of a sudden irrespective of whether the steel producers in other countries could actually make money at these prices, cut throat competition among themselves led to an unprecedented and widespread fall in world prices. The global market was literally handed over to the buyers in the process.

This widespread drop in prices was interpreted by many as dumping. Whether there was real dumping or not, every country in the world found it a good excuse to protect her industries this way.

Two, the developed countries had already lowered their tariff walls. The developing countries are in the, process and comparatively have higher rates of import tariffs and even quantitative restrictions in many places. The developed countries in the face of massive inflow of steel into their markets could not go back to building again tariff walls as the same would have gone totally against their proclaimed trade philosophy. Therefore, they had to look for a framework to protect their industry from stiff global competition mainly from the developing countries. Many fronts have been opened up - conditions of labour, environment, quality of products, health hazards etc. etc. These non- tariff barriers have been selected depending on the product targeted. In the absence of any effective health, environmental and social issues to talk about, more direct issues like dumping and subsidies have found priority and focus in steel. The anti-dumping or anti-subsidy countervailing measures have the full global institutional and legal backing. The other advantage in using these tools for protection is that unlike in a tariff or quantity restriction (QR) based systems, anti-dumping measures can be directed against very specific target countries and products and that too as and when needed. It is a far better tool for selective elimination of present or potential competition. Right or wrong, raking up issues of all kinds, the developed nations have been able to effectively restrict imports directly or by blunting competitive edge of the foreign supplier.

Three, initiation of trade actions is no longer confined to the developed countries. As more and more developing countries are joining the WTO, number of cases initiated by them is also on the rise. There is also a sense of retaliation among countries to initiate cases against a country that has imposed similar action on its exports.

The US Safeguard Measures and the Aftermath

While the number of anti-dumping and countervailing cases were on the rise, there was a gradual realisation that the measures taken under this purview are not effective. The US, accounting for a very large number of AD and countervailing case initiation, covering almost every product as also most important countries of origin, found that her own steel industry remains under the threat of competition from imports. Imports continued at high levels and the domestic industry was pushed to the brink of bankruptcy. It was abundantly clear to the country's administration and the industry that in the given scenario, it was meaningless to talk about individual country's isolated acts of 'dumping' or 'subsidies' but to think of measures that would protect her industry from the international market itself. Even when this was not perhaps expressed by anybody, the rationale behind the series of action that the US took seemed to be based on this perception. The US brought in massive safeguard measures targeting a large number of countries and products. The US action was followed by similar action by the European Union as well more recently by China's. There are more countries contemplating similar action to protect their domestic industries.

Change the WTO needs

This is abundantly clear that the WTO has neither achieved advancement of global free trade nor has it been successful in curbing protectionist tendencies among global trading nations. In fact, for steel, it has been counterproductive with trade getting hit in significant ways with increased protectionism across the world. There is a therefore a need to review the WTO guidelines.

1.   WT0 guidelines are still more attuned to the needs of the developed countries. Although increasing attention is being paid to the problems of the developing countries, these are more in terms of specific concessions rather than as in-built provision catering to overall interest of these nations. Say, for example, the provision of subsidy being permitted for poorer countries with per capita income less than $1000 per annum, so long the subsidised product, when exported, does not cause material injury to the industry in the destination country, is hardly a concession to the 'poorer' country. Even 'dumping', seen an unethical act in trade is of no relevance and is not actionable so long there is no material injury or threat of injury.

2.   In a dynamic world, as also where the regionally dispersed individual markets also have their own dynamics, comparing export earnings with earnings from domestic sales makes little economic sense. Even the other criteria of normal value determination like use of constructed costs and third country export price do not solve the problem as these measures also have their own shortcomings. Therefore, the very basis of determination of dumping margins remains questionable and also a source of further disputes and conflicts.

3.   It is illogical to think that a business entity would keep on selling at 'dumping prices', unless the losses are being taken care of by third parties, be that a government agency or a bank, or that the losses in exports are being made up from profits from domestic sales. There are two issues involved in it. One, that the operation of exports is being subsidies directly by a government agency or indirectly by a bank or financial institution that is turning a blind eye to their assets. This is a matter that falls into the realm of subsidies. There is a need to have strong formulation on it. Two, domestic prices can be retained higher to generate large profits only if the market is protected from external competition. This is one issue that needs more specific attention. In the WTO framework, although the issue of subsidies finds a separate and detailed treatment, there has not been a attempt to develop an integrated framework to analyse the problem of 'underpricing'.

4.   WTO guidelines propose continuous phasing out of quantity restrictions (QRs) and lowering of import tariff - each dose of action to be completed within a well-defined time frame. So long the import duty rates are not brought down to global standards, the industry in the specific developing country would remain protected and will have the advantage of higher domestic prices due to reduced foreign competition. Further, with globalisation, the industries in the developing countries are producing for exports as well. They have built up capacity accordingly. In fact, the capital of the developed countries has played a very major role in the industrialisation of the developing countries. Now, the countries which have already been drawn into the global market yet have high tariff barriers, e.g. India, will continue to face the charge of dumping as almost invariably, unless domestic production itself is very strong, the price realisation from domestic sales in case of most products can be expected to be higher than that from exports. The WTO should provide specific guidelines to its members on this problem. What is suggested is limited use of antidumping action for countries already agreed to phase out tariff barriers.

5.   Imperfections in factor markets may need subsidies or any other non-financial government support as corrective measures in developing countries. There are two options. One, the developing countries with such market distortions may wait till the imperfections are removed to participate in global trade in a significant way and to join the WTO. Since this will mean withdrawal of the developing countries from global trade and also from the WTO, what the WTO can do is to reconsider the entire frame work of actionable and non-actionable subsidies and envisage a definite timeframe for their removal as has been done for quantity restrictions and tariff: However, till such a time, some of the indirect and developmental financial transfers from government agencies to the industries may be allowed. For example, in the case of India, the sheer complexity of the duty reimbursement schemes for exports earlier had worked against exporters thus making them lose competitiveness in the world market. The simplified versions, on the other hand, are liable to be even misused for extra benefits by unscrupulous exporters. Now, whether the scheme confers a benefit to the company concerned or not, the fact remains that in the given institutional framework, it may be difficult to find a foolproof option. In any case, as India is committed to a gradual duty phase out, over a time, the scope of any benefit being derived from this scheme will be reduced. Therefore, the developed countries should change their attitude towards export promotional schemes and bring in necessary amendments in the guidelines of the WTO.

6.   The WTO should insist on every member country to incorporate a mandatory 'sunset' clause and quicker review of any anti-dumping case. Given the volatility of the steel, there should be specific provision that trade action be removed as soon as the prices rise above a pre-determined threshold level. There should be a detailed and comprehensive yearly review of the action and the WTO should have more specific guidelines on it.

7.   The WTO should evolve a faster and more effective dispute settlement mechanism. At present, the time frame for action in DSB is very long. Even if a country approaches the DSB, no significant benefit can be expected as by then the exporting country loses business.

8.   Despite the known shortcomings in the provisions of safeguard, arising out of the infirmity left in the criteria of significant increases in imports' or 'serious injuries' or 'serious threat to injury', etc., the safeguards are best suited to take care of the problems of an industry in a specific country resulting from large scale imports at low prices. This is why, safeguard measures have gained popularity in recent times. Instead of having a whole lot of criteria for validity period for such a measure, the WTO should make it mandatory to restrict the validity of any such measure only for a year at a time, to be reviewed every year in consultation with the more affected countries.

(The views expressed here are of the author and not necessarily of the organisation he is employed with or of any government agency)

[The author is Chief Economist, Economic Research Unit, New Delhi]