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`Steel'ing for tough times ahead

G. Srinivasan

NEW DELHI, March 6

THE US decision on Tuesday to temporarily slap eight to 30 per cent tariff on certain steel products beginning March 20 to help bail out its beleaguered domestic steel units has come at an inopportune time for India.

The US imposed 30 per cent tariffs on imports of plate, hot-rolled sheet, cold-rolled sheet, coated sheet tin mill products, hot-rolled bar and cold-finished bar, besides putting a 15 per cent tariff on imports of rebar, certain tubular products, stainless steel bar and stainless steel rod. There is also a tariff of 13 per cent on carbon and alloy fittings and flanges and eight per cent on stainless steel wire.

The safeguard measures will remain in place for three years, rather than the four years recommended by the US International Trade Commission (USITC). The North American Free Trade Agreement (NAFTA) partners, Canada and Mexico, besides Jordan and Israel would be excluded from this measure.

As required by WTO rules, these tariffs decline over the relief period. The relief also includes a tariff rate quota (TRQ) on imports of semi-finished steel products known as slabs. Under TRQ, 5.4 million short tonnes of semi-finished slabs would be allowed to enter duty-free.

It is only on Budget day that the Union Finance Minister, Mr Yashwant Sinha, conceded that "our steel industry has been affected by slowdown in demand and has suffered huge losses.'' In order to reduce its cost of production, the Budget proposed to lower customs duty on a number of refractory raw materials by 10 per cent, besides reducing the duty on graphite electrodes of above 24 inches diameter from 25 to 15 per cent.

As the domestic steel industry is beset by imports of seconds and defectives at cheaper prices, the Budget proposed to hike the customs duty to the bound rate of 40 per cent on these items.

If India could help arrest the fading fortunes of the domestic steel sector by proposing some palliatives, the effect of this gesture would get echoed in the US instantly in these days of globalisation. Mr Bush has imposed a mix of temporary tariffs and quotas on steel imports to give the US steel industry time to breathe.

According to details made available by the Public Office of the US Embassy here, a glut of cheap imports combined with world steel overcapacity caused steel prices to fall to its nadir in two decades in the US.

In October 2001, the US International Trade Commission (USITC) found that a surge in imports of 12 steel products hurt the US industry and later recommended that the President impose on these imports a wide array of quotas and tariffs as high as 40 per cent. The US was one of the largest net steel importers in the world last year, with 23.5 million tonnes.

In defence, it was stated that the US steel industry invested more than $50 billion in steel plant modernisation over the last 20 years.

But the US industry today faces a distorted global market.

As a number of market-distorting practices abound abroad, the global steel market has not responded to normal economic signals and overcapacity has been the result. Companies representing 30 per cent of US steel-making capacity have filed for bankruptcy.

For India, which has been affected by the recent anti-dumping duty on Indian steel products imposed by the US Department of Commerce, the safeguard duty on stainless steel products is a double whammy.

As it is India's export of iron and steel during the first seven months of the current fiscal fetched only $510 million, against $650 million in the comparable months of the previous fiscal, according to estimates from the Commerce Ministry.

It is troubled times ahead for domestic steel units _ SAIL in the public sector and the private companies_ to make any foray into the US market where tariff walls are raised by way of precaution from import deluge.

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