The year 2018 began with a great deal of expectations, be it in the global arena or specifically for India. The global economy that ended 2017 with a GDP growth of 3.6% had put India’s growth at the top notch with a 7.2% growth in Q3 of FY18. PMIs for January ’18 and February for US, EU, Japan, UK, China and India were all above 50 benchmark. IIP and manufacturing in India clocking 7.1% and 8.4% in Dec ’17 were a signal bright enough for sustaining the momentum in the following months. As regards steel industry, the global production displayed a healthy growth of 5.3% in 2017 and followed it up with 0.8% rise in January ’18. Steel production in January went up in Japan (0.3%), S Korea (2.7%), EU (1.4%), Middle East (11.4%) and India (2.5%). The news of US action on the investigation report submitted by US Department of Commerce into the effect of imports of steel mill articles on the national security of US under section 232 of US Trade Expansion Act 1962 was already in the air for quite some time, but its official announcement on March 8, 2018 of 25% duty on steel and 10% duty on aluminium has brought in a huge amount of uncertainty and threatens the rising trend of profitability of the industry amidst demand growth and market expansion. A few aspects of the US tariff order which is being implemented for all such imports taking place on or after March 23, 2018 look interesting. The order covers steel and steel articles under HTS 6 level (from 7206.10 to 7216.50, 7216.99 through 7301.10, 7302.10, 7302.40 through 7302.90, 7304.10 through 7306.90) and therefore makes all steel products and steel articles like sheet piling, railway materials, pipes and tubes including oil and gas pipelines as well and these are the products being imported regularly by USA in recent years. It excludes Canada and Mexico, NAFTA partners of USA.
Together they exported more than 9MT of steel to US in 2017 which comprises of 25% of the total steel imports by US in last year. Steel articles imported from these two countries are also exempted from the tariff order. However, steel and steel articles originated in other countries and transhipped from Canada and Mexico is not permitted. This order has a provision to exclude those steel products and steel articles which as per the recommendations from Secretary of State, Secretary of Treasury, Secretary of Defence, USTR and other senior officials, are not available from indigenous sources in sufficient volume so as to cause difficulty to the critical industries. The duration of this order has not been indicated although it can be concluded that its withdrawal would also require a similar investigating report from the Department of Commerce on the elimination of threat of imports of steel and steel materials. As this order proposes 25% tariff imposition on steel in addition to ongoing AD and CVD applicable against all the countries who have violated WTO norms of fair trade, it is certain that in the post imposition, none of the major steel exporting countries like Brazil, S Korea, Russia, Turkey, Japan, Germany, Taiwan, India, China, Vietnam, Netherlands and others would be able to export to USA at a competitive price. The current difference between US domestic price of HRC and Chinese export price CFR USA comes to around $ 175/tonne which would be totally wiped out by 25% additional duty. All the 20 top steel exporters to USA comprising around 91% of total imports to USA in 2017 would therefore be subjected to 25% tariff in addition to the existing AD/CVD on them and therefore be mostly debarred from the 22.3 MT of US market (envisaged import volume in USA after imposition of tariff duties).
A few lessons can be drawn from the above. Retaliatory tariff has been adopted by many countries earlier under WTO compliant safeguard duties mechanism. This is for a limited period of 6 months, and if after review it is found that still a threat exists from these countries, the same duty can continue. The safeguard measure is also product specific. Thus the US imposition of tariff has separate characteristics and it is not known if it is WTO compliant as it is beyond the boundary tariff rates fixed for USA. This way rules of fair trade drafted and implemented, in any effective pattern whatsoever, by WTO for the last few decades appear meaningless. Although EU, Japan, Korea, Brazil have come out strongly against President Trump’s aggressive trade war, there is a possibility that retaliatory trade measures against US can also be taken up by different regional trade blocks. Thus in the coming months external trade of major countries would take a curious turn that would affect the stability of the global trade. In the interim, India needs to consolidate indigenous market dynamics and closely monitor the import flows and continue exports vigorously to alternate destinations.
Source: financialexpress.com