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Ukraine: Anti-Dumping Duties Threaten Steel Industry

By Vitaly Sych

Kyiv, 17 November 1998 (RFE/RL) -- A series of foreign anti-dumping investigations against Ukrainian steel producers is pressuring an industry already hard-hit by the global financial crisis.

A company in Thailand is the latest to try to control imports of Ukrainian steel. Early this month, the steel company filed a complaint with the Thai government against steel makers in Ukraine and six other countries.

The lawsuit came just days after a European steel lobbying group said that Ukraine has far exceeded its quota on steel pipe exports to the EU this year. The European lobby group says it will petition the EU to limit Ukraine's quota further or ban Ukrainian pipe exports to the EU entirely.

The allegations of dumping echo an all-too-familiar refrain for Ukraine's steel manufacturers. In January, Washington reduced the limit on Ukrainian steel deliveries to the United States to 158,000 tons for this year. That is about one-third of the 1997 level.

With domestic demand falling in Ukraine throughout the 1990s, Ukrainian steel makers have become increasingly reliant on export markets. Countries in Southeast Asia bought about 50 percent of Ukrainian steel exports last year. But that market has dried up since the Asian financial crisis depressed steel demand and raised the relative price of Ukrainian steel. Ukrainian steel makers have been forced to re-route their exports away from Asia to markets like Western Europe and South America. But steel makers in those markets quickly protested the flood of low-priced Ukrainian steel, leading to a rash of anti-dumping investigations.

Oleh Ryabokon, a lawyer representing Ukrainian and Russian steel interests in several anti-dumping cases, says most of the allegations are unfounded. Ryabokon says "dumping" is technically defined as selling a product abroad at a price lower than the domestic market price. Ryabokon argues that under this definition, Ukraine is not dumping.

But foreign courts have ruled that Ukraine's steel prices are regulated by the government, and that domestic prices for steel cannot be taken as a basis for comparison because they are not true market prices.

Ryabokon rejects this, saying both Ukrainian and Russian steel prices are determined by the free market - not the government. Ryabokon's law firm, Mahistr and Partnery, has won that argument in several foreign courts. In Chile, a 20 percent import duty was reduced to nine percent. An Indonesian duty of 50 percent was reduced to 18 percent.

But more often, foreign countries have their way when it comes to setting quotas. The common argument is that Ukraine's state-owned steel companies have significantly lower production costs because they don't pay taxes. In addition, chronic delays in wage payments cut costs. Under such rulings, Ukraine's steel prices are considered artificially low and the sector is considered not to be a true free market. In those cases, import quotas and duties on Ukrainian steel are imposed that range from 20 to 25 percent in Asia and Latin America, to 50-80 percent in Western Europe. Ryabokon says duties in the United States top 100 percent on imports beyond the established quota. He says that if duties continue to climb, Ukraine could lose most of its steel export market - and that could bring down the entire Ukrainian steel industry.

Elena Ukolova, a metals industry analyst at the Kyiv investment house Wood & Company, agrees that the industry could be in trouble. By her estimate, more than 60 percent of Ukraine's steel production is now exported.

Ukolova says Ukraine produces about 25 million tons of raw steel, which translates into about 18 million tons of rolled steel. About 60 percent of that output is produced by steel giants Krivorozhstal, Illich, Zaporozhstal and Azovstal.

Ukolova predicts that events will eventually force Ukraine's largest steel makers to freeze production. That would have a serious impact on the country's overall economy. Exports of ferrous metals account for about a quarter of Ukraine's export revenues, and steel comprises a large part of that figure.