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Russia: Moscow Agrees To Reduce Steel Exports To U.S.

Boston, 15 July 1999 (RFE/RL) -- In a move that could affect Russian trade and employment, Moscow has agreed to reduce its steel exports to the United States by nearly two-thirds to avoid the penalties of anti-dumping suits.

Under an agreement reached in Paris Tuesday, the United States will suspend anti-dumping duties against Russian steel in exchange for a pledge to cut steel exports to the U.S. market by 64 percent this year.

The United States had threatened to slap Russian steel with tariffs of over 184 percent. The agreement will allow those penalties to be imposed only if Russia violates the terms of the five-year pact.

There seems to be little doubt that the deal will have a near-term impact on Russia, which agreed to halt all sales of hot-rolled steel to the United States in order to meet the goal for reductions this year. The cuts generally go further than a preliminary agreement reached in February, covering 16 varieties of steel. Russian steel companies said last October that their exports account for 7 percent of the country's hard-currency earnings and support over 60 percent of some regional budgets through taxes.

The tough measures follow complaints by the powerful U.S. steel industry that its home market was being unfairly targeted by countries including Russia, Japan and Brazil. The countries were charged with trying to export their way out of the wave of Asian currency crises by selling vast quantities of cheap steel to the United States.

Last September, U.S. steel producers and unions accused Russia of exporting with dumping margins of up to 199 percent. In other words, Russian steel prices in the United States were only about one-third of their fair-market value, the U.S. industry said.

By agreeing to this week's settlement, Russia may have averted even harsher steps that were threatened by the U.S. industry and some members of Congress. But it may also have implicitly agreed to a principle that could affect future trade with the United States.

In the case of Russia, establishing the real meaning of dumping under U.S. law has been difficult. The term refers to selling in an export market either below fair-market value or below cost. Russian officials denied the charges of selling steel below their own domestic costs last year. Russia's producer costs were drastically reduced in dollar terms by the ruble devaluation of August 17.

Attorneys who made the case for the U.S. industry were faced with the task of defining fair-market cost in Russia, where steel manufacturers are also subsidized in a variety of ways. Establishing true cost is difficult in a system where inputs such as coal, electricity and transport are also subsidized.

The U.S. dumping complaint was based on a comparison of Russian costs with those in a market-oriented economy, in this case, Turkey. In pursuing the complaint, the U.S. government accepted the argument that Russia's producer prices for steel should be the same as those of Turkey for the purposes of judging fair-market value.

In reaching the agreement with the United States, Russia has in effect accepted the validity of the comparison with Turkey. That precedent could well be used as a standard in future trade disputes over a host of Russian exports that U.S. industry sees as unfairly competitive or cheap.

The administration of President Bill Clinton seems to have bargained for a middle course of quotas and voluntary restraints in order to avoid the staggering tariffs that would have had the effect of a total import ban. Under the agreement, Russia can gradually increase its exports over the next five years but must maintain a minimum price.

But the U.S. willingness to give way to protectionist pressure may mean a tougher time for Russian exports in other countries, as well. In 1994 and 1995, the United States tried to convince the European Union that it should open its doors to Russian exports and end its series of anti-dumping complaints.

European Union officials responded testily that the United States could afford to give such advice because it did not feel the ill effects of cheap exports from neighboring Russia. Now that the impact has spread to the United States, there may be even fewer arguments in support of Russian trade.

Russia may also find that the principle of comparing its costs with those of Turkey may affect its exports for years to come. As the country struggles to become a market economy, it may face more markets that are closed.