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Russia: Moscow's Steel Exports An Issue For Denver Summit

Moscow, 17 June 1997 (RFE/RL) -- There's one respect, maybe the only one, in which Russia's President Boris Yeltsin can be said to outweigh all the other political leaders at the Denver G-7 summit this week (June 20-22). He's the world's biggest exporter of steel. Only that's a laurel Yeltsin is worried the others around the summit table want to take away from him.

Early this month, the United States Department of Commerce ruled that Russian steel plate is being exported to the U.S. at dumping prices. Commerce proposes penalty tariffs of between 61 percent and 185 percent on Russian steel-plate sales; this is to be considered by the U.S. International Trade Commission and Clinton Administration officials later in the year. If adopted, duties of this magnitude would effectively exclude Russian steel from the American market.

A parallel anti-dumping inquiry is under way in Canada involving the same steel-plate exports. A preliminary finding by the Canadian government has estimated the dumping margin for the Russian steel at 18 percent. A complaint by steelmakers in Mexico -- which is not a G-7 member -- claims the dumping margin for the same product landing in Mexico is 64 percent.

The Russians don't hide their concern that if the trade in steel plate is halted by anti-dumping action in Washington, Ottawa, and Mexico City, the rest of their steel trade will grind to a halt. The plate exports represented just 5 percent of the 4.8 million metric tons of steel exported to the U.S. last year. This aggregate put the U.S. in second place behind China (7.1 million tons) as Russia's most important steel market, while Europe dropped into third place with 4 million tons.

These are volumes of steel which Soviet industry used to consume domestically seven years ago, before the breakup of the Soviet Union, and the collapse of the Russian economy. Without steel exports, the industry could not survive today, and the statistics of Russia's economic decline would be sharply worse. The steel trade now amounts to roughly 10 percent of Russia's total annual exports, ranking third after exports of oil and gas. Steel production represents about 1.5 percent of Russia's Gross Domestic Product (GDP); that's fifteen times the percentage that steel manufacture counts for in the U.S.

From a Russian point of view, it doesn't make sense for the Group of Seven to talk about backing economic reform and recovery for Russia, if they don't bend on the steel trade issue. That means calling a halt to the prospective restrictions that for this year are estimated to threaten trade losses to Moscow of $ 1 billion.

Yeltsin can tell his counterparts in Denver that sales and profit losses to their own domestic steel producers are much less than that, and are more than offset by the price benefits the Russian product offers to their steel consumers. Russia's low-cost steel exports are one of the factors the Russians will urge the G-7 to accept, in view of the drastic cuts in steel used in armaments manufacture which the Kremlin reforms are now implementing.

There never has been a case of the collapse of a steel industry, without wartime destruction, as rapid and as great as Russia in the past five years. Output has fallen almost half, from 68 million metric tons in 1989 to 39 million tons last year. Domestic consumption has plummeted much more -- to less than 18 million tons.

It took Germany 30 years to rebuild its war-torn steel industry. Experts studying Russia's steel industry calculate it will take at least that long, probably longer, for Russia to return to a level of steel consumption equivalent to the U.S. or western Europe today.

An RFE analyst in Moscow says this should be the objective of G-7 policy -- and how fast it should be achieved should be the focus of discussion in Denver. But he says it will be impossible if the restrictions advocated by the Commerce Department takes hold.

The Russians argue that the Clinton Administration should abandon the designation of Russia as a non-market economy, because this leads to the inflation of Russian costs of production, according to the evidence of surrogate countries like Brazil. The Russians claim that applying the Brazilian data is unfair, not the prices of steel exports.

Differences between quoted export and domestic prices of Russian steel are also not evidence of dumping steel abroad, Yeltsin can say. They are explained instead by the unusual conditions of Russian commerce at the moment -- six- month delays in inter-enterprise payments, 40 percent interest rates, and the use of barter, rather than cash, in domestic transactions.

The Europeans, led by Germany and Italy, have taken a softer approach to the problem of expanding Russian steel exports. They have whittled trade down using quotas and licence schemes, and forced the Russians to accept trade cutbacks because the alternative, anti-dumping duties, was worse. In a bargain Moscow didn't like, but conceded under pressure, it was agreed in April that the largest category of steel exports to Germany would stay the same for the next five years. There would be a 10 percent increase in the quota for several categories in 1997; a 5 percent increase in 1998; and a 2.5 percent rise each year for the period 1999-2001. At the insistence of the Italians, a new category of steel export, thin strip, was added to the quota licensing scheme.

In Denver, the Russians will say that in its soft or tough variants, steel protectionism hurts their steel industry's recovery, delays growth, undermines reform. They will urge the G-7 to think carefully before imposing a life sentence on Russian steel that no-one dreamed of imposing on Germany a generation ago.