The Verdict

On the 5th of March 2002, President Bush announced the fixation of a 30 per cent Safeguard import duty on carbon steel plate, hot rolled/cold rolled and galvanized sheets, tin mill products, hot rolled bars and cold finished bar. Only two of the 16 products originally investigated by the USITC have been spared in the final Presidential announcement. These are tool steel and stainless steel fittings and flanges. This is part of the three-year import restriction programme initiated under the Section 201 of the US Trade Action regime in June last year. The trade action has been resorted to for protecting the domestic industry from serious injury caused by a rapid surge in imports. The objective ostensibly is to provide the domestic industry temporary respite from the onslaught of injurious imports so that it can reorganize and restructure itself according to the emerging market scenario globally. The Safeguard action does not cover the NAFTA countries (i.e., Canada and Mexico) and also the developing member countries of the WTO whose exports to the USA were less than the de-minimis norm of 3 per cent of the total US imports. Notable among the countries exempted from the measure are India, Argentina, Turkey and Thailand. The action, however, applies to China and the steel producing countries of the CIS. It is further stated that the duty orders must be sent to the US Customs Service by 20th March.

The schedule of the tariff rates as applicable on imports into the American market over the next three years are as given below:

The levels of duty have taken many observers by surprise, especially in view of the fact that the USITC had recommended first year tariffs of 15 per cent at the minimum - half of the rates fixed in the final determination for all flat products of mild steel. As for the tariff rate quota on slabs, the ITC recommended a 20 per cent tariff to be put on slabs in excess of 7 million tonnes of import from all countries including those in the NAFTA.

The Likely Impact within USA

The steep rates have raised hackles at home and abroad. Within the USA, the steel users/consumers are outraged and brand these measures as bad economics. The American Institute for International Steel (AIIS) - an association of the steel importers and consumers - argues that higher cost of steel in America will force manufacturers to move their production offshore to remain globally competitive. According to their estimates the job losses in the steel-consuming sector brought on by these tariffs and the consequent rise in the price of steel will far outweigh the advantages of protecting an inefficient American steel sector, especially the integrated plants. In a similar vein, the Consuming Industries Trade Action Coalition (CITAC) estimates that the so-called remedial measures are likely to cost a large number of US jobs, including 30,600 jobs in the steel consuming sectors.

Prices of steel, especially the HR flat products, have been on the rise from the beginning of February this year. Prices now stand at 30 per cent higher compared to the lowest in Q4 of 2001. In the USA, prices of HR and CR today are not only above the average domestic price last year but also the currently ruling international prices (Table 2).

Now the question that comes foremost to our mind is whether the recent pronouncements are going to further firming up of prices within the USA. While answering this question we should bear in mind that the rise in prices witnessed so far has come primarily from significant supply-side readjustments. Domestic production in the USA has seen a deep cut during 2001, imports have also fallen almost to the structural minimum as a result of a wide range of AD and CVD actions resorted to in the course of the last year. Imports also fell in the recent months in anticipation of the 201action. According to the estimates of the CRU, total supply of sheet products to the US market (i.e. domestic production and imports) had fallen by about 8 million tonnes between 2000 and 2001. The CRU estimates total sheet products imports into the USA to have fallen from 10.26 million tonnes in 2000 to just about 5.86 million tonnes in 2001. During the same period production of sheet products in the USA had been cut by about 4 million tonnes from 51.17 million tonnes. In the immediate aftermath of the pronouncement of the 201 remedies, there have been reports of US mills asking for and actually managing to get higher prices for HR flat products. In some instances there have been renegotiations for higher prices and lower allocations to consumers. Clearly, the very near and near term prospects for the American steel market are good. However, the upward movement in the prices can be sustained only if demand revives significantly and this is exactly where the signals are mixed. Movements in the leading indices determining the level of steel consumption (Table 3) by steel-using sectors, show no extraordinary growth to justify with a fair amount of certainty, a sustained rise in sheet prices over a slightly longer term, other things remaining equal.

Apart from the lacklustre performance of the steel consuming sectors, another factor, which might deter a sustained price rise, is the possibility of the idled US firms recommencing production. If the high-cost US firms start production spurred by the rising domestic prices. Then again the price line may again become slack under pressure of increased supply.

Impact on the Rest of the World, Including India

The verdict of the US President has set back the process of globalization to a considerable extent. The step is regarded as retrograde, harsh and unjustified in view of the fact that it is being implemented at a time when the imports by the US is on the decline. Moreover, it is widely held that the problems of the US steel industry is due not so much to a surge in imports as to its inability to close down or restructure the older and relatively inefficient integrated mills. Quite expectedly, this trade action has triggered off reciprocal and other preventive trade measures by countries scared of being flooded by material diverted from the US market. The European Commission is actively engaged in putting together its own protective mechanism and announcement to that effect is likely any day. Japan and Korea, two of the world's largest exporters of steel have moved the Dispute Settlement Board of the WTO to redress a measure, which they term as 'blatantly unfair' and which flouts all the laid down rules of the multilateral trading agreements.

At another level, this measure coming as it does at a time when the world steel prices have been making some sort of a recovery, is likely to delay the process further. The EU, the second largest market for internationally traded steel is justifiably apprehensive of receiving a large part of the diverted supply. The steel using sectors of these economies, just like that of the USA, have started on a tentative course to recovery. A sudden surge in supply through imports will in all probability upset their apple cart too. The Europeans are angrier on account of the fact that they had been at the vanguard of a joint effort to rationalize capacities worldwide under the aegis of the OECD and they feel that this American move will stall that process too. The Asian steel industry is also extremely upset at the prospect of a heavy setback to its nascent recovery process.

As for India, the exemption came as a relief, but only to a limited extent. Indian exports of HR sheets and plates have already come under Anti Dumping and Countervailing trade actions in the American market. As for the risk of being flooded by redirected imports, the Indian markets have some sort of built in protection in the form of depreciating Rupee. Even then, some contingent actions should be put in place to guard our market in adverse circumstances. On the other hand, some observers feel that as American prices are on the rise, Indian exporters should try and export larger volumes of products, which do not attract penal duties, especially GP/GC sheets and some long products. Here again, one needs to consider the fact that the price rise in the USA so far has been driven by a deep cut in supply and for a long term presence in that market, the Indian exporters will have to wait for a suitable time when demand for steel starts building up in America and elsewhere.