Tariff and Non-Tariff Barriers – Steel Sector – India

Tariff and Non-Tariff Barriers – Steel Sector – India

Subject :Economy

Section: External Sector

India’s Vulnerability to Imports:

• According to Dilip Oommen, CEO of ArcelorMittal Nippon Steel India, India is highly vulnerable to imports, particularly in the steel sector.
• He emphasized the need for trade barriers as a safeguard against the rising influx of steel imports.

Quality Control Measures:

• Oommen suggested exploring various trade barriers to tackle the issue, emphasizing the need to assess whether the imported steel can be manufactured domestically.
• Strengthening quality control norms and enforcing stringent Bureau of Indian Standards (BIS) norms were highlighted as potential solutions.

Dumping Concerns:

• Oommen expressed concerns about dumping, particularly by certain countries offering steel at lower prices than the prevailing domestic rates.
• The steel industry in India has been adversely affected by increased imports, primarily from China, in recent months.

Threat from China:

• Oommen highlighted that the dumping of steel by China is not just a threat to India but to the world as a whole.
• Despite expectations of reduced production in China, steel exports from the country have risen significantly, creating concerns in the global steel market.

Brief on Steel Sector (India)

1. India’s Steel Sector: The steel industry in India has a significant economic contribution, amounting to over 2% of the country’s GDP, and its growth is pivotal for the development of the nation’s infrastructure and construction sectors.
2. Employment and Production: The sector directly employs 6 lakh individuals and indirectly supports 13 lakh jobs. India has emerged as the third-largest steel producer globally, surpassing the United States in 2015, with a total production of 89 million tonnes.
3. Challenges Faced: Despite these achievements, the Indian steel sector faces significant challenges, including an increase in steel imports, global steel glut leading to predatory pricing, and a surge in cheap imports from countries like China, Korea, and Japan.
4. Impact of Global Factors: The global slowdown in steel demand has adversely affected the domestic market, making it challenging for Indian producers to compete with countries like China, which are selling steel at discounted prices. Anti-dumping measures have been implemented but haven’t entirely mitigated the challenges.
5. Raw Material Challenges: The closure of iron ore mines in Goa, production constraints in Karnataka and Odisha, and the poor quality of domestically produced metallurgical coke present challenges for the sector.
6. Path to Competitiveness: Enhancing research and development, improving the quality of raw materials, setting up washeries for coal, and strategizing the use of iron ore and coke can significantly improve the competitiveness of the Indian steel industry.

Tariff Barriers:

• Tariff barriers involve the imposition of taxes or duties on imports and exports. These duties can be specific (based on the quantity of goods) or ad valorem (based on the value of goods).
• They are primarily used to control the flow of goods between countries, allowing governments to raise revenue, protect domestic industries, and regulate trade.

Non-Tariff Barriers:

• Non-tariff barriers refer to various restrictions and obstacles to trade that do not involve the imposition of tariffs. These barriers are more diverse and include various policy measures and regulations.
• Non-tariff barriers can take the form of quotas, embargoes, sanctions, licensing requirements, product standards, subsidies, customs and administrative procedures, and other regulatory mechanisms.
• They are often implemented to protect domestic industries, ensure product quality and safety, and prevent the entry of foreign goods that may pose risks or unfair competition to domestic producers.

Both tariff and non-tariff barriers can significantly impact international trade by influencing the cost, availability, and competitiveness of goods and services in the global market. Governments often use a combination of both types of barriers to achieve various economic and policy objectives.

Summary of the Tariff and Non-Tariff Barriers: –

1. Subsidies:
   • Direct payments made by the government to domestic producers, which can take the form of cash, low-interest loans, tax incentives, etc.
   • Helps lower the cost of production for domestic goods, making them more competitive in international markets.
   • Export subsidies are considered unfair trade practices and can be countered by countervailing duties.
2. Quantity Controls:
   • Quotas: Direct restrictions on the quantity of goods that can be imported, often enforced through import licenses.
   • Voluntary Export Restraints (VERs):Bilateral agreements limiting a country’s export of specific goods voluntarily.
   • Local Content Requirements:Mandate that a portion of the product must be produced domestically, favoring local producers.
3. Legislation:
   • Government purchases are exclusively from domestic producers, prohibiting the use of imported goods.
4. Labelling and Testing Standards:
   • Countries require imported goods to meet specific packaging, labeling, and testing standards before being sold in their markets.
5. Sanitary and Phytosanitary (SPS) Measures:
   • Measures to protect against risks associated with food safety, animal health, and plant protection.
6. Specific Permission Requirements:
   • Potential importers or exporters must obtain permission from governmental authorities through costly and time-consuming licensing procedures.
7. Countertrade:
   • Exchange of goods between countries due to currency constraints or other factors.
8. Administrative Barriers to Trade:
   • Delays and restrictions resulting from administrative regulations and procedures related to international trade.

Tariff Barriers:

• Anti-dumping & Countervailing Duty (CVD):
  • Anti-dumping duties are imposed to counteract the practice of exporting goods at prices lower than the domestic market price or production cost.
  • Countervailing duties nullify the adverse effects of subsidies on imported products and are imposed under the World Trade Organisation rules.

Sanitary and Phytosanitary (SPS) Measures:

Sanitary and Phytosanitary (SPS) measures are a set of regulations implemented by governments to protect human, animal, or plant life or health from various risks associated with the importation of certain products. These measures ensure that imported goods meet specific standards related to food safety, animal and plant health, and disease control.

SPS measures can include regulations on the use of additives, pesticides, maximum residue levels, and product testing procedures, among others. The aim is to prevent the spread of diseases, pests, or contaminants that could harm human, animal, or plant health within the importing country.

Technical Barriers to Trade (TBT) Measures:

Technical Barriers to Trade (TBT) measures refer to various standards, regulations, and conformity assessment procedures that are used to ensure the safety, quality, and technical compatibility of products in the market. These measures can include product specifications, labeling requirements, packaging standards, and testing and certification procedures.

TBT measures aim to protect consumer health and safety, preserve the environment, and meet other societal objectives. However, they can also be used as a form of trade protection by creating obstacles for foreign products to enter the market. To comply with TBT measures, exporters may need to invest in product adaptation, testing, and certification processes.

Inverted Duty structure

An inverted duty structure refers to a situation in which the import duty on finished goods is lower than the import duty on the inputs used for producing those finished goods. In other words, it occurs when the tax on raw materials or intermediate goods is higher than the tax on finished products.

This can create an anomaly where the import of finished goods becomes cheaper compared to the import of raw materials, leading to adverse impacts on domestic manufacturing and industries.

An inverted duty structure can distort the market and make it more favorable for imports rather than domestic production, potentially harming local manufacturers’ competitiveness.

It may also discourage the development of domestic industries and disincentivize local production, affecting the overall economic growth and industrial development. Resolving an inverted duty structure often involves a re-evaluation of the tax structure to ensure that the duties on inputs and finished products are appropriately aligned to encourage domestic production and industrial growth.

Duty Structure in India

The recent developments in the steel industry indicate growing concerns about cheaper imports, particularly from China, leading to an increased focus on trade remedies and measures to protect the domestic market.

1. Antidumping Duty Consideration: The Steel Ministry has forwarded a request for imposing antidumping duty on specific steel products to the Finance Ministry, which is currently under consideration. The ministry is also prepared to intervene if necessary to safeguard the interests of the domestic industry.
2. Increase in Chinese Imports: Investigations revealed a significant surge in Chinese steel imports, reaching 44 percent on an annualized basis following the suspension of countervailing duty (CVD) since February 2021. The DGTR recommended a 19 percent CVD on these imports to the Finance Ministry.
3. Import-Export Imbalance: India has recently become a net importer of finished steel, including non-alloyed and alloyed products, and stainless steel, with imports surpassing exports by 0.28 million tonnes. This development has raised concerns within the industry and is being closely monitored by the authorities.
4. Challenges in Raw Material Supply Chains: Securing coking coal, a vital raw material for steel production, has become challenging due to geopolitical factors. India is exploring alternate sources for coking coal, with a focus on countries such as Russia and Mongolia to ensure a stable supply.
5. Impact of Scrap Trade Restrictions:The limitations on scrap trade, driven by countries securing their own supplies and promoting low-carbon steelmaking, have the potential to affect the Indian steel industry. While EU regulations might impact scrap imports, the overall impact is not expected to be significant.

These developments underscore the ongoing efforts to protect the Indian steel industry from unfair trade practices and maintain a stable supply of essential raw materials. The government remains committed to addressing challenges in the industry, including trade imbalances and supply chain disruptions.

About Directorate General of Trade Remedies (DGTR)

DGTR, or the Directorate General of Trade Remedies, is a key entity established by the Government of India to safeguard the interests of domestic industries and mitigate the impact of unfair trade practices. It is responsible for overseeing various trade remedial measures, including the imposition of anti-dumping duties and countervailing duties.

Functions and significance of the DGTR:

1. Formation and Integration: Established in 1998 as the Directorate General of Anti-Dumping & Allied Duties, it was renamed as the Directorate General of Trade Remedies (DGTR) in 2018. The DGTR was formed by merging the functions of DGAD, DGS, and the Safeguards (QR) functions of DGFT, creating an integrated single-window national authority.
2. Trade Remedial Measures: The primary responsibilities of the DGTR include administering various trade remedial measures such as Anti-Dumping Duties, Countervailing Duties, and other Safeguard Measures. These measures are crucial in ensuring fair competition in the Indian market and protecting domestic industries from unfair trade practices.
3. Efficiency and Governance: The consolidation of these entities into the DGTR has led to significant improvements in terms of streamlined processes and quicker decision-making, resulting in reduced time frames for providing relief to the domestic industry. This move aligns with the government’s aim of “Minimum government and maximum governance.”
4. Expertise and Support: The DGTR is composed of officers with diverse skill sets in fields such as Law, Costing, Economics, Finance, Customs, Revenue, and International Trade. This diversity enables the organization to provide comprehensive support to domestic industries and exporters in handling trade remedy investigations initiated by foreign countries.
5. Transparency and Compliance: The DGTR operates within the framework provided by the World Trade Organization (WTO) and various international agreements related to trade remedial measures. It ensures transparency and timeliness in its operations, providing a level playing field for the Indian domestic industries in the global trade arena.

Who imposes the Anti-Dumping duty in India?

The Directorate General of Trade Remedies (DGTR) is responsible for the imposition of anti-dumping duties in India. It assesses the necessity and validity of imposing such duties to prevent the impact of dumping practices on domestic industries.

What is the Countervailing Duties (CVD) rate?

Countervailing duties (CVDs) are tariffs imposed on imports to counteract the negative effects of subsidies provided to foreign producers. The specific rate of countervailing duties can vary depending on the nature of the subsidy and the products involved. These duties are in accordance with the rules set by the World Trade Organization (WTO) and are also known as anti-subsidy duties.

Dumping:

• Dumping is the practice of exporting goods at a price lower than the price in the home market.
• It can negatively impact international trade and local manufacturers’ profits.
• Dumping is considered illegal under the World Trade Organization (WTO) rules if it adversely affects the domestic producers of the importing country.
• Countries often use tariffs and quotas to protect their domestic producers from the practice of dumping.

Anti-dumping:

• Anti-dumping is a protective tariff imposed on foreign imports that are sold at prices significantly lower than their normal value in the home market.
• It is used as a remedy for the distortive trade caused by dumping and is permitted by the WTO.
• Anti-dumping duties can reduce international competition for domestic companies in the long term.

Countervailing Duty (CVD):

• Countervailing duty is imposed on goods that have received government subsidies in the originating or exporting country.
• It is designed to counter the adverse effects of subsidies and ensure fair trade practices.

Sunset Clause for Anti-Dumping Duty:

• The validity of anti-dumping duty is typically for five years from the date of imposition, unless revoked earlier.
• It can be extended for an additional period of five years through a sunset or expiry review investigation.

Authority Administering Trade Remedial Measures in India:

• The Directorate General of Trade Remedies (DGTR) under the Ministry of Commerce and Industry administers various trade remedial measures, including anti-dumping duties, countervailing duties, and safeguard measures.
• It provides trade defense support to the domestic industry and safeguards the interests of exporters in trade remedy investigations initiated by other countries.