Antidumping anguish of Ukrainian metal-makers. The Editorial Office believes that Yevgeniy Kuznetsov’s article contains a number of interesting though moot points. We invite the individuals interested in the topic to share their opinion with our magazine.
THE AVALANCHE
THE AVALANCHE
Antidumping anguish of Ukrainian metal-makers. The
Editorial Office believes that Yevgeniy Kuznetsov’s article contains a number of
interesting though moot points. We invite the individuals interested in the topic to share
their opinion with our magazine.
The number of cases when Ukrainian metalmakers are accused
of selling products at dumping prices is growing like an avalanche. More and more often,
mass media produce comprehensive articles that analyse and forecast the events. Various
specialists, well-known statesmen and politicians are invited to evaluate the situation
and search for the ways out. One can make an opinion on how important the economic and
social aspects of the problem are by simply looking though newspaper headlines, like
“The last reason of European ‘tube kings’?”, “How Ukrainian tubes and tube
makers become tempered in antidumping investigations” and some others. In a column with
the scathing heading of “Metallurgical masochism”, an author writes that, “I do not
know whether to name it a phlegm, pessimism or the Ukrainian mentality, but here is the
bare fact: economic discrimination of Ukraine as regards metal antidumping has reached its
apex and the whole industry’s recession is to follow”. To prove validity of this
statement, expert appraisal performed by the Ukrainian Centre for Economic and Political
Studies named after Razumkov is quoted, namely, it says that the country’s economy has
incurred US$1 to 1.5 billion of losses due to antidumping penalties over the past seven
years.
Let’s neither question nor blindly trust this figure
simply because the same mass media mention that Ukraine’s losses from misappropriation
and corruption greatly exceed the antidumping losses. However, the growing restrictions on
export of Ukrainian metal are truly becoming alarming. Every so often it seems that the
whole world is against Ukraine but some small countries, like Honduras and such.
As published in mass media, a simplified opinion of
numerous Ukrainian experts with respect to what’s happening looks something like this,
“Help! We are being beaten up! Let the State protect us!”
The tone of these statements has heightened as tube works
of Russia accused Ukraine of charging dumping prices for export of seamless steel tubes.
The Ukrainian party gave a harsh response to this. On-line periodicals published a serious
statement made by D. Kulikov, chairman of the Board of Interpipe Group, who warned that
Ukraine was going to address the arbitrage commission of the Interstate Eurasian Coal and
Metal Association asking to investigate the actions of Russian tube makers. It is hard to
say what the investigation might lead to, but most likely there will be no result
whatsoever. Once in a while, Ukrainian and Russian mass media inform that negotiations on
the issue carry on in a sluggish hassle mode. The Ukrainian party says that there is no
dumping, while the Russians claim the opposite. Ukraine demands of Russia to give the
Ukrainians a deserved limit of 750,000 to 800,000 tonnes. Russia objects saying that
Russian tube works have already lost their markets in the USA, Europe and Asia and
currently utilise less than 30% of their capacity. The Ukrainians do not accept that
reason and call it a pure discrimination.
Evaluating this situation, I would like to voice a
different opinion. It seems to me that the root of antidumping evil is not abroad, but at
home. Let’s put it this way, when a man is seriously sick, the doctors usually summon a
consultation and discuss different opinions on the diagnosis and possibilities of
treatment. At least, the situation is so bad that it resembles the case of a diseased.
Without any doubt, Ukraine’s economy on the whole and metal industry in particular are
seriously ill. If the Ukrainians truly want it to recover, we have to define the
diagnosis, no matter how bitter and unpleasant it may be.
Let’s start with the issue of discrimination. To a
certain degree, it is very like the difference between the words of a “spy” and an
“intelligence officer”. The former is a dangerous criminal who deserves severe
punishment and public scorn, while the latter is a national hero. Whereas Ukraine names
limitation of Ukraine’s metal exports as nothing but discrimination, quite a few
countries of Europe, America and Asia refer to this limitation as a normal action,
“protection of the national economy” or simply “support for local manufacturers”.
I believe that the ones who stick a label of discrimination
should at least roughly understand the specific features of international economic
relations and current situation on the metal market. After proclaiming that Ukraine is
moving towards market relations, the Ukrainians should accept one axiom, that is the
golden rule of a seller (exporter) that the client is always right. Using this rule, one
can never blame a potential client for unwillingness to by a certain product. In medieval
times the merchants who tried to foist off poor-quality goods were expelled from the
merchant guild. It is hard to say whether it was indeed like this or not, but our
contemporaries frequently act exactly the opposite way.
I want to apologise beforehand for telling elementary
things, but I have to remind that understanding of and adherence to the respective
provision of international trade laws is also required. At least, in order to realise that
antidumping duties are applied to individual manufacturers, not the whole countries.
Therefore, the statements on antidumping discrimination of Ukraine are incorrect, at the
least.
Important as it is, a long legal procedure of determining
whether there is a fact of dumping precedes imposition of antidumping sanctions. This is
not a political action, but a well-defined economic and legal procedure. In the end, it is
the importing country that makes a decision on sanctions considering the reasons of the
ones who initiated the investigation and obtained evidence proving that the exporter had
violated market principles and, what’s more important, caused economic damage by
dumping. Frankly speaking, the commission that makes a decision on antidumping is under
pressure of two opposite forces, that is domestic producers of similar products and local
companies that import those products. Naturally enough, the former want to get rid of
foreign competitors, while the latter want to buy the goods on the most advantageous terms
and, therefore, support imports. Of course, the parties may use different approaches to
settle this problem, both allowed and outlawed. One can easily imagine what kind of
prejudice accusations would come up should a decision be made without sufficient evidence.
Especially as regards imports from a country that is notorious for widespread corruption.
Supply of special-quality metal products manufactured using
special technologies is the best reason against dumping. Alas, Ukraine has none of unique
technologies and sales at dumping prices are the only way to make any sales at all. Too
bad, but Ukrainian metal makers barely have any other pros.
I would like to point out that antidumping inquiries and
penalties as regards the metal are not applied solely to Ukraine, but are the regular
practice in the world as regards many other goods. Appropriate institutions regularly
report on such goods mentioning the details on codes, names, suppliers, initiators of
antidumping inquiries and so on.
A simplified objective of an inquiry is to define the
reasons for prices charged. To do this, a detailed analysis of production costs of the
supplier is carried out. Even on this stage, Ukrainian metallurgical mills lose the fight.
They are simply told that they violate the international trade rules. No matter how hard
Ukrainian metalmakers try to prove it wrong and to prove that they operate in the market
environment, all their arguments are denied easily. Quite normally, no one pays attention
to owners and directors of metallurgical mills who insist that lower costs have been
brought about by lower wages and salaries, no environmental costs or scientific research
expenditure, etc. So, a natural question to come is this: who is discriminated and what he
is discriminated for?
It is worth a mention that antidumping inquiries are the
complex procedures that require deep knowledge, detailed analysis of the market,
evaluation of several alternatives and making decisions in a limited period of time. Due
to heightening competition and fast development of modern telecommunications, there is a
sharp increase in demand for skilled specialists. Let’s analyse how Ukraine meets these
requirements. I would like to use an illustrative example coming from Ukraine’s tube
industry. I believe it reasonable to extrapolate the results to the rest of the
country’s iron and steel industry.
About harmonisation codes for the system and about how
Ukrainian tubemakers cut themselves
Let’s kick off with a short story on export of seamless
steel tubes to Europe. Since the late 1980s, exports of seamless steel tubes to EU
member-states started increasing and reached roughly 140,000 tonnes in 1998. This is a
relatively humble amount considering the potential capacities of Ukraine’s tube
industry. The major exporters were Nizhnedneprovsk Tube Works, about 50% of the total,
Dnepropetrovsk Tube Works, about 30%, and Nikopol Pivdennotrubny Works, 20%. The precise
distribution ratios are not material for further analysis because the main point of this
story is about an obvious leader and several other participants.
A peal of thunder came on 26 November 1998, when the
European Commission issued notice 98/C 353/G8 announcing commencement of an antidumping
inquiry regarding import of seamless steel tubes from Croatia and Ukraine. This related to
tubes and pipes, codes 7304 10 10, 7304 10 30, 7304 31 99 and 7304 39 93.
The former two codes embrace seamless steel tubes, small
quantities of which were exported from Ukraine under DIN 1629. Everything is more or less
clear in this case because exports were small and prices were evidently lower (though not
glaringly smaller) than the current European prices.
All the mess started around mass export of poor-quality
tubes, i.e. tubes that met GOST standards except certain provisions of the latter. A word
is out that the antidumping inquiry was initiated by the Italian customs that failed to
collect sufficient duties from those exports. Tubes were delivered by watercraft,
sometimes via joint ventures carelessly established by certain domestic tube mills.
Let’s not test these decisions for malicious intent. Back then, warehouses were
overstocked with sub-quality tubes, sometimes made from tolling raw materials. Meanwhile,
numerous payments and taxes had to be paid and money was needed for that. It was the time
of commencement of property redistribution, when there was effected a rule that one may do
everything that is not directly prohibited by law.
After antidumping inquiry had been started, routine
procedures commenced, such as negotiations, consultations, gathering of information on the
quantity of tubes exported to EU, prices, pricing policies, etc. The best specialists of
Ukraine’s tube industry participated in the investigation. Ukraine’s legal firm
Magister & Partners protected the Ukrainian interests.
One knows that the inquiry checkmated tubemakers from
Ukraine. It was proven that tubes were exported to Europe at half the prices, the quantity
of tubes exported by each mill was determined accurately, and it was a piece of cake to
calculate the damage caused to the EU. One can only imagine how funny the cost reports
provided by Ukrainian companies appeared to the Europeans. After continuous negotiations,
the Europeans acted generously and did not impose high duties, but established a
30,000-tonne limit for annual export of seamless steel tubes from Ukraine. Although the
limit was about five times as low as the previously exported amounts, the Ukrainians
managed to put a good face on things. Directors of the three largest tube works of Ukraine
signed the final statement. Later on, periodicals published a statement that everything
possible had been done to save the Ukrainian tube manufacturers.
Let me doubt that and here is the proof.
The original document mentions the code of 7304 10 “Line
pipe of kind used for oil or gas pipelines”. The other two codes of 7304 10 10 and 7304
10 30 relate more to diameters and are insignificant. Therefore, claims were made on
clearly defined tubes, with determined grades and applications. Without doubt, these codes
include the tubes supplied under DIN 2448/1629, both cold-finished and hot-finished.
There is some doubt about correct understanding of codes
7304 31 99 and 7304 39 91. This was the key point of the issue as the antidumping inquiry
was initiated with respect to these particular codes.
The original codification describes code 7304 31 as
“Сold-drawn or cold-rolled (cold-reduced)” tubes, while its expansion to 7304 31 99
was simply named the “Other”. The code of 7304 39 is also referred to as “Other”
with code 7304 39 91 being named “Not exceeding 168.3 mm”.
Let me draw your attention to how vague these descriptions
are. This is the main difficulty. What does “other” mean? If it is the tubes meeting
GOST standard, why are they classified this way? If it is the tubes do not meet GOST, why
would they be classified like this again? No other tubes and pipes were exported to
Europe.
This is what the basic strategy of defence should have been
based on. We should have proven that codes 7304 31 and 7304 39 had no relation to the
tubes, exclude these codes from the inquiry and remain only with codes 7304 10 10 and 7304
10 30 under question.
By accepting this wording, the Europeans banned exports of
a wide range of seamless steel tubes. Please note that the wording is not based on
application of tubes, but on the method of their manufacture. The limits relate to all
types of manufacturing, including cold-finished tubes of all sizes and hot-finished tubes,
168.3 mm and less in diameter. It was the gross error of the Ukrainian side. One has to
realise that codification is an important legal document that should be handled in a
professional manner in the export/import business.
What’s the outcome? Imagine the following case. Ukraine
supplies to EU various seamless steel tubes that meet DIN EN 10294 or the general
machine-building DIN EN 10297, or DIN EN 10287 for underground pipelines, and so on. The
tubes are not clearly defined in the harmonised tariff system. A local customs officer,
who barely understands the qualities of the commodity but wants to charge higher import
duties, immediately treats such tubes and pipes as the “other” and imposes a 50% duty
on the declared value. Naturally, this puts an end to the whole contract. Of course,
customers today do not even want to hear about seamless steel tubes from Ukraine. And this
has nothing to do with discrimination of Ukraine.
This is not the only issue related to codification of
goods. There is a good point in asking whether the Ukrainian solicitors use an correct
translation of the Commodity Nomenclature or not?
The original international codification describes code 7304
as “Tubes, pipes and hollow profiles, seamless, of iron (other than cast iron) or
steel”. Meanwhile, the official Commodity Nomenclature for Foreign Economic Relations of
the Commonwealth of Independent States (revised 19/06/1994) translates the meaning of code
7304 as “Tubes, pipes, cases, hollow profiles, seamless, of ferrous metals (other than
cast iron)”. Well, one can easily notice that the international version has no mention
of cases!
Similar errors also occur in translation of other codes of
tubes and pipes. For instance, codes 7304 31 100, 7304 31 200 and 7304 41 100 mention
“with attached fittings, for conveyance of gas and liquid, used for civil aviation”.
Can anyone comprehend this gibberish? What if a flange is attached instead of a fitting?
Besides, how would you distinguish a tube for civil aviation for a tube for air forces, or
for buses and cars? What if the modern aircraft industry makes no use of tubes made of
low-alloy steels that are mentioned in code 7304? With all the mess happening in this
area, one can only sympathise with those who fill in the customs forms.
The story of codes has more surprises than that! I think
that our specialists need to know that the coding system applied in the USA, Canada and
many other countries is better than and different from the Ukrainian system. Features of
goods are described with greater clarity and there are no inconsistencies, such as
mentioned above. Codes are updated regularly to reflect the change in market situation.
For example, let me quote definitions of code 7304.3
(revised 2001):
7304.3 other, with circular cross section, of nonalloy
steel;
7304.31 cold-drawn or cold-rolled (cold-reduced));
7304.31.10.00 used for production of drill pipe, casing and
oil well tubing or oil & gas fittings, sleeves and screw pins;
used for making of goods referred to in section XVI or
chapter 73, products applied in distillation and reduction of natural gas;
other;
.10 structural tubular elements;
.20 pressure pipes;
.21 high pressure boiler pipes;
.28 other boiler pipes;
.29 other;
.90 other.
Such differences lead to nothing but concerns regarding
poor organisation of Ukraine’s foreign trade. Competitors of Ukrainian metalmakers work
in a different way now, making use of e-commerce and developing the logistics. So, it
turns out that the cause of evil for the Ukrainian metal industry is not the
discrimination, but undue diligence of certain officials.
The story with codes is more a misfortune rather than guilt
of local tube mills. The harmonised system is the main tool of the customs that register
and record exports/imports of goods. Above all, the customs services themselves should
initiate enhancement of the customs acts, including elimination of misleading meanings as
regards the coding and harmonisation with the other foreign systems.
Here is another example to back this statement. This year
the US Customs Service has made new amendments to the revised harmonised codes as regards
oil and gas welded steel pipes, namely:
exported from Canada and Mexico
7306.10.1015 –pipes, of carbon steel, welded, 4 1/2"
or less in diameter;
7306.10.1055 –pipes, of carbon steel, welded, over 4
1/2" in diameter;
7306.10.5015 – pipes, of alloy steel, welded, 4 1/2"
or less in diameter;
7306.10.5055 – pipes, of alloy steel, welded, over 4
1/2" in diameter;
for tube exports of Arctic tubes from Japan
7306.10.1019 – pipes, of carbon steel, welded, 4
1/2" or less in diameter;
7306.10.1059 – pipes, of carbon steel, welded, over 4
1/2" in diameter;
7306.10.5019 – pipes, of alloy steel, welded, 4 1/2"
or less in diameter;
7306.10.5059 – pipes, of alloy steel, welded, over 4
1/2" in diameter;
all others within 9,000-tonne quota
7306.10.1013 – pipes, of carbon steel, welded, 4
1/2" or less in diameter;
7306.10.1053 – pipes, of carbon steel, welded, over 4
1/2" in diameter;
7306.10.5013 – pipes, of alloy steel, welded, 4 1/2"
or less in diameter;
7306.10.5053 – pipes, of alloy steel, welded, over 4
1/2" in diameter;
all others within 9,000-tonne quota
7306.10.1014 – pipes, of carbon steel, welded, 4
1/2" or less in diameter;
7306.10.1054 – pipes, of carbon steel, welded, over 4
1/2" in diameter;
7306.10.5014 – pipes, of alloy steel, welded, 4 1/2"
or less in diameter;
7306.10.5054 – pipes, of alloy steel, welded, over 4
1/2" in diameter.
Timely introduction of new codes helps avoiding potential
problems with export/import transactions. Regular joint conferences of Russia’s and
Germany’s customs services that invite various specialists, including standardisation
experts, serve as yet another example of purposeful steps taken to improve the
export/import business. Apparently, the need for similar measures has matured in Ukraine
long ago.
About good and bad consequences of antidumping duties
Much has been said about unfavourable consequences of
antidumping duties applied to Ukrainian metalmakers. However, an antidumping problem may
have favourable points.
Imagine that antidumping inquiries and penalties are not
applied to Ukrainian metallurgical mills anymore. However, quota will more than definitely
be imposed in this case. The lion’s share of quotas will embrace cast iron, scrap and
basic rolled steel. Precisely this market trend is observed at the moment and there is
nothing we can do about it.
The leading economies of the world import raw materials,
process them applying high technologies and sell the new goods at higher gross profit
margin, say, to the very same exporters. This processing brings prosperity to the country,
gives jobs to the workforce and guarantees social security of the people.
To find examples, let’s examine the recent past to see
certain global trends and compare them to the Ukrainian realities.
Having large deposits of crude oil, more than 30 years ago
the USA froze domestic prices and shifted to oil imports, mainly from the Middle East.
Import costs are covered by export of agricultural products and high-tech equipment,
including weapons. Having been a permanent leader of the metal industry, Germany has
commenced re-equipment of the sector by closing blast furnaces, coke-oven batteries and
other environmentally dangerous enterprises since the early 1970s. Instead, a strong push
has been given to machinery, electronics and other high-tech sectors. As a consequence,
exports from this country currently exceed imports, while living standards and social
security are high. Another example is England, which managed to close coal mines without
serious social conflicts. It is also worth giving attention to China’s success as this
country has moved to leadership on the Asian metal market following a substantial
industrial upgrade.
No doubt, this should be regarded as a merit of the leaders
of these countries, who managed to timely spot the need for economic reforms and execute
those reforms in short period of time. The public knows their names. The key points in
their decisions were the issues of energy, transport, environment and employment. They
drew a clear line between division of labour, defining which countries to mine and export
raw materials and which to process those materials; which to remain poor and which to
prosper. The former have to beg for loans, while the latter issue those loans when they
want to and on profitable terms. It is remarkable that Germany and Japan that had lost the
WW2 soon progressed to the leading positions in the world economy. To a certain extent,
this was caused by these countries executing a profound reconstruction of metallurgical
mills, making them manufacture competitive commodities.
So, what about Ukraine? One knows that Ukraine’s metal
industry emerged in the beginning of the 20th century due to convenient location of large
coking coal deposits in Donetsk region and iron ore deposits in Krivoy Rog region. The
favourable situation rapidly changed to the worse in early 1960s, when coal mining started
running into serious problems. Attempting to find a way out, Ukraine’s metal industry
shifted to natural gas, thus making itself dependent on Russia. This dependence became
especially strong after collapse of the Soviet Union. Deterioration and impairment of
plant and machinery has become a severe issue since mid-1980s. It is especially high in
the tube industry.
Having all these problems, Ukraine proclaimed its
independence. The euphoria of independence slogans faded away soon enough. It has turned
out that energy dependence is strong and grows stronger from year to year. To get loans,
the Ukrainians had to establish contacts with the world community, so the country accepted
the “multi-vector policy”. As soon as no more loans were issued to the country, the
vector was changed for the azimuth. Furthermore, the Ukrainian iron and steel industry
suffered from a hurricane of shadowy privatisation that accelerated degradation of the
industry. Only a few enterprises, including Ilyich Iron & Steel Works, managed to
survive through the turbulent years owing to prescience and persistency of their
management.
Comparing to the global trends, one can notice that over
the years of independence Ukraine has not taken steps to set up production of high-tech
and competitive products in iron and steel industry, machinery, electronics and other
sectors. As an outcome, Ukraine has virtually no domestic metal market. This is a strong
malfunction of Ukraine’s macroeconomics. For instance, the USA domestically consumes
over 70% of metal produced and about 80% of steel tubes manufactured in the country.
Ukraine has failed to make good use of the loans obtained, while now it is time to pay
back the debts.
So, antidumping penalties can be treated as an alarm
notifying that Ukraine is rapidly moving towards becoming a banana republic. The
antidumping warning itself is a favourable outcome. We should value the opponents and
listen to their opinion.
The forecast of the downturn in global economy for the
coming years adds more alert to this warning. The situation is nothing but critical. Being
in the state of economic crisis, organisational and ideological turmoil, Ukraine is unable
to adapt itself to the changing economic processes in Europe and on the global scale.