Chinese Steel Dumping ‘Very Subjective’ 4

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Wednesday, October 5th, 2016
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Growing backlash against the country’s influence in Australia

Dumping can be in the eye of the beholder, depending on how much your country is exporting or importing (or both) and varying government regulations.

Dumping occurs when a foreign country decides to off load stock to another country at well below the price they charge at home. While consumers may enjoy cheaper products, local industry may argue that the imports are being used to drive them out of business, and get monopoly power. The local industry usually asks for an anti-dumping tariff to be imposed on imports to help the locals compete.

Anti-dumping tariffs are calculated to be the difference between the foreign (import) price and the imported good’s foreign market value, but this definition can change.

In 1974, for example, when under pressure from Japanese manufacturers, the United States decided that dumping exists if the price of imports is below the foreigner’s cost of production (even allowing for a generous profit margin).

While dumping cases were often brought by the United States against Japan in the 1970s and 1980s, in this millennium it’s all about China. The US and the European Union constantly reignite disputes about China subsidising steel production to deliberately oversupply the world market, although legal action not always taken.

How dumping is perceived is further complicated by whether or not a country is considered a “market” or a “non-market” economy. That is, whether prices reflect the global market (market) or are set by the government (non-market).

When China joined the World Trade Organisation in 2001, it agreed not to use government set prices but a surrogate price to reflect the world market, or the price used in capitalist economies in the West. However the US and other foreign nations argue that China is not staying true to its word.

According to the argument, China, as a socialist planned economy, can still just set prices below cost and flood the world with cheap imports and drive local producers out of business. And if China was classified as a non-market economy, Australians, the US, EU and others could claim dumping as these countries would be effectively competing against the power of the Chinese government.

China was granted market economy status in 2016 (as a prerequisite to joining the WTO in 2001) so that trade barriers could be removed and prices and output from the country allocated by the market. In principle, this would allow resources to flow to their most productive use. The dispute now is whether China is a market economy status in name only, still using government regulations to set the price and quantity on world markets. Hence the accusation that China will flood the world with cheap steel.

But should Australia have a dispute with China, given the relatively small size of our steel industry and the massive size of our overall trade relationship with China? Australian exports rely on the Chinese steel industry, as Australia exports vast quantities of iron ore coal and natural gas to the tune of $91 billion, according to my calculations based on ABS data. So it’s important to tread carefully so a steel dispute doesn’t disrupt the overall bilateral relationship.

We must remember that more than 10,000 Australian exporters sell goods to China (directly or via Hong Kong) and they pay, on average, 60% higher wages than non-exporters. This is in addition to better Occupational Health and Safety standards, education and training standards and job security. The employment of Australian workers – in good jobs at good wages – depends on maintaining a healthy trade relationship with China.

Given that China has been Australia’s most important export market since 2009 and for one in every three-export dollars Australia earns, the customer is China (according to my calculations based on ABS data), it’s not a relationship we really want to dump on.

Tim Harcourt is the J.W. Nevile Fellow in Economics, UNSW Australia
Source: The Conversation.

 

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  1. Rob Stokes

    Australia should pursue action against China in the WTO if there is a strong case for it.

    If we don't use the WTO where we fairly can, then we set a precedent to China which indicates that they can go ahead and disregard WTO rules wherever and whenever they like.

  2. Bruce Christopher

    This article reflects some of the problems which face Australia's remaining and strategic steel industry. We should not consider political trade 'give-and-take' for very different commodities which affect different sectors or the comparative economics without comparative technical information. Unfortunately this is already what some commentators and politicians do when trying to analyse data without having direct experience. I'd suggest a review of the Australian Steel Institute information explaining the full picture.

    Dumping is only part of it. Supply of steel compliant with engineering and metallurgical standards is even more crucial as costs can be reduced when lower than the fit for purpose standard. Examples of non-compliant imported steel are commonplace; from high boron and silicone which impedes proper welding and anti-corrosion coating through to structural shortfalls, high scrap inclusion and false certification which can lead to failure of critical structures. Comparing apples with apples and assuring safe and fit for purpose construction comes before conjecture about the economics and political trade issues.

    • steve

      This article hits the nail on the head. The Australian steel industry is not just Arrium and Bluescope. They are the monopoly players that have had the market to themselves since federation and feel they own the market.
      The Australian steel industry is in fact all the fabricators and manufacturers who use steel to produce products and they are facing much tougher competition with imports of finished goods than the big 2 yet have no access to the dumping system for protection. The big 2 have used the dumping system to keep competition out and drive their prices up, at the expense of their customers.
      And regarding quality don't believe the big 2 don't produce sub standard steel, many overseas mills have much more advanced equipment and technology and their quality is streets ahead.
      If substandard steel comes in then it's the responsibility of the purchaser or specifier to ensure the quality as is expected.
      Many overseas mills have ACRS certification and are audited annually.
      Keep in mind that Bluescope couldn't supply body steel to the local car makers who had to import from Korea and Japan because they were unable to meet the required standard.
      I liken the big 2 to Ford and Holden, until imported motor vehicles started coming in all we had to drive were Kingswoods and Falcons at high prices, now reality has hit and the market is better for it.
      Also how could Arrium be in administration when they have been going for decades, are the monopoly long products producer, own their own iron ore mine and own their own downstream distribution channels, yet still can't make a buck, it's embarrassing. There is no other steel producer in the world with all these valuable assets under their control.

  3. Bruce Christopher

    Of course there are many quality international steel suppliers, along with the many shonky ones. It is important to be independently discerning. I have not found that Bluescope or Arrium/Onesteel take customers for granted and always found the steel quality to be to good standard, readily available and close enough to imports price wise not to significantly impact fabrication competitiveness. Rework on some imported steels was enough to justify supporting the local product, let alone the strategic importance of continuing to support local capabilities. Once lost that would not return and one aim of dumping is to put local companies out of business and then raise price points.