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Russia: Trade War Looms Over Steel Prices In Canada

Moscow, 3 April 1997 (RFE/RL) - In a move that flies in the face of commitments to support economic reform in Moscow, the Canadian government has accused Russia of damaging its domestic steel industry with exports priced below what Ottawa terms "normal value." It's a move that Russian officials say may lead to retaliation and trade war, once new legislation is sent to President Boris Yeltsin for signing.

The Canadian investigation that has begun may result in the introduction of duties to block Russian sales. Steel products from China, Poland, Mexico and South Africa are also targeted. The protectionist move is occurring despite what industry observers claim is an extremely weak case in a market that, in 1996, grew for Canadian steelmakers by three percent to the highest level on record; at the same time, by contrast, Russian imports actually fell by 21 percent.

The Canadian action parallels complaints by two American steelmakers against Russian steel-plate produced by Severstal, the largest steelmaker in Russia, based in Cherepovets, northeast of Moscow.

According to a Canadian government document, if Ottawa doesn't move quickly to erect protection, before the U.S. decides on the anti-dumping claim there, "there is a threat of diversion of (steel) plate into Canada."

According to Russia's chief negotiator for anti-dumping cases, Andrei Ruzhin of the Ministry of Foreign Economic Relations, "the Canadians are going to be more restrictive and more difficult to deal with (than the Americans)."

The steel trade complaint has been brought by Stelco of Hamilton, Ontario, which claims it lost sales and profitability, due to the pressure of low-priced imports. Stelco claims its domestic shipments fell by one percent during 1996, a position Russian steelmakers say does not warrant countervailing duties or trade limits.

Russian government officials have told RFE/RL they dispute the Canadian cost calculations that have been applied to Severstal's products. A report issued by the Anti-Dumping Directorate of Canada's Department of National Revenue acknowledges it has not studied Russian domestic prices. They are considered irrelevant because, according to the report, Russia is one of the "non-market economy countries, and countries in transition from non-market economies to free-market economies." Instead, the Canadians have calculated what Russian costs should be, based on comparisons with steelmakers around the world.

This is unfair, says Alexei Ruzhin, chief negotiator for anti-dumping disputes at the Ministry of Foreign Economic Relations. "We shall fight for the status of a market economy," he said. "If you leave one status, you must enter another. There is no transition. There is also nothing in the federal budget that subsidizes steel-making in Russia."

Russian officials estimate Severstal's exports to have been earning about $70 million annually in Canada, and roughly the same in the U.S. Together, these sales represent more than one-quarter of Severstal's export earnings. Altogether, according to a World Bank report, Russia's steel exports make up nine percent of total exports, and 1.2 percent of Gross Domestic Product. In the U.S., by contrast, steel exports comprise only one percent of the export total, and a tenth-of-a-percent of GDP.

Russian negotiator Ruzhin says: "We shall continue to argue for market status. The difference between privatization in other countries and Russia is that since 1991, Russia changed its system completely."

Deputy Minister Georgy Gabounia says that if the U.S. and the Group of Seven, which includes Canada, are serious in their promises to accelerate Russian membership of the World Trade Organization by 1998, they should be ready to reconsider trade limits that are already in place - that don't meet the WTO rules, and halt new limits under consideration.

Gabounia also warned that new trade legislation is working its way through parliament that will empower the government to retaliate against foreign protectionism. "I'm against trade wars," Gabounia said, "but a lot will depend on the further development of our domestic legislation. Retaliation depends on the legal basis for it."

John Helmer is a Moscow-based journalist who contributes routinely to RFE/RL.