After nearly a year of delay, and now that the National Tariff Commission (NTC) is functioning again and has come through for local steel industry by slapping anti-dumping duties on select steel imports, the government should start thinking about letting go of the regulatory duty (RD) on steel products. Thats the logical step.
Lets first review the history of RDs and dumping of steel products particularly from China to provide context. There is no contention that China due to subsidised overproduction and a subsequent slowdown in its own consumption has been dumping steel; not just to Pakistan but also across the world, particularly to the US and European countries as a result of which those countries slapped hefty anti-dumping duties on Chinese steel to curb them from causing injury to their domestic industries.
In June 2014, the government either to collect additional revenue or in a bid to protect local industries imposed RDs on 400 items under an SRO, many of which were steel products (see table for details). The RD ranged from 5 percent to 20 percent for steel items.
This duty was wrong in the first place since RD charged on top of customs duties are discriminatory and should not serve as a long-term measure to safeguard an industry from illegal imports or trade malpractices. It is also a sneaky way to collect more revenue and part of the reason SROs were flagged by the IMF under its many reviews was this very reason: that they allowed for distortion to be introduced in the regulatory environment.
Since then, the local steel industry started complaining about Chinas dumping practices, and seeking remedial measures. Some companies including Amreli steels, Agha Steels, Aisha Steels, and others initiated investigations at different times with the NTC on billets, galvanised coils and cold-rolled products. During this period for over a year, likely due to bureaucratic inefficiencies, NTC was not operational as some of its members were missing so much of the investigations were left unattended and many decisions delayed.
As a solution to protect the domestic industry from dumping practices, the government revised the RDs up from 15 percent to 30 percent, effectively bringing up the import duties to 35 percent for a number of steel products including steel bars (The RD on galvanised coils and cold-rolled products was not revised however). The duty was initially for four months (March to June) but in June, another notification announced that the duty will essentially be increased indefinitely.
Later, first an anti-dumping duty on cold-rolled products (HS72.09) was imposed ranging from 13.7 percent to 19.4 percent and just a few days ago, NTC came up with a final determination of anti-dumping duties ranging from 6 percent to 40 percent for galvanized coils (HS 72.10). In essence, Chinese imports of these products will have a customs duty of 5 percent plus the RD of 5 percent with the anti-dumping duty on top; while imports from other countries will have a customs duty and a regulatory duty.
It is unclear whether NTC accounted for the RD in its investigations and placed the duties counting the RD as a long-term measure. This would mean that for all intents and purposes, the RD was not temporary or a stop-gap solution which ought to be its only purpose.
The NTC further decided against imposing an anti-dumping duty on billets (HS 72.07) claiming in its report: The honorable Sindh High Court has restrained the Commission from taking any coercive action in this case and regulatory duty at the rate of 15 percent has been imposed on imports of the CC Billets, therefore, no provisional anti-dumping duty on imports of the investigated product is imposed. The decision may be correct but it is again problematic because it confirms the suspicion that the RD is being considered as a long-term measure.
To start with, the government should get rid of the multiple SROs that impose (and revise and re-revise) these regulatory duties because they do not have anything to do with dumping, trade malpractices or providing fair competition. In fact, since no investigation has gone into imposing these duties, they are levied on imports from all countries (not just the country dumping), and many different products are clubbed under the RD imposition, many of which might not even have local manufacturing.
Given that the local industry does not have the capacity to cater to the entire steel demand and the gap (of over 2 million tonnes) has to be filled up by imports, it is simply unfair to impose a protectionary duty, making it more expensive for the end-consumer or manufacturers for whom these products are inputs.
In fact, Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) cried foul on this levy on behalf of the auto parts manufacturers alleging that the subjected HS codes included products that were raw material for the auto parts industry and were not produced by local steel manufacturers, so the RD made their inputs more expensive.
In any case, the only way to provide a level playing field to an industry is to strengthen the institutions such as the NTC mandated to protect domestic interests from trade malpractices and administer trade remedy laws.
And as a rule, if the government wants to protect the domestic industry in its infancy (the verdict is out on whether the steel industry is in its infancy but it is definitely not competitive), it should do so through a time-bound steel policy in which it should introduce measures such as import tariffs (not RDs) or others for a period of time during which the industry is expected to stand on its own feet and weather competition. But such should come through a well thought-out national policy document, not through an SRO that slaps a regulatory duty without any time limitations, or growth targets.
There is no doubt that local industries create jobs but it is time the government allocates some effort into helping them grow. The kind of protection offered today is sloppy and counterproductive since it makes local players complacent, and not hungry for growth and competitiveness.
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