TRADE: Steel Market Threatened by Wave of Protectionism

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Aug 24 2001 (IPS) - The world steel market will be thrashed by a wave of protectionism if the United States adopts new restrictions on imports as Brazilian industrialists fear.

“The escalation of protectionism could be uncontrollable, with barriers on top of barriers,” because the steel exporters rejected by the United States will intensify competition for other markets and everyone will try to defend themselves, warns María Silvia Bastos Marques, president of the Brazilian Iron and Steel Institute (IBS).

Washington began an investigative process in June – in accordance with Section 201 of US trade legislation (Import Relief for Domestic Industries) – involving nearly all types of imported steel in order to detect potential harm to the national steel industry.

The investigation could lead to safeguards that restrict or, in the extreme case, totally block steel imports beginning next year. Previous US trade barriers targeted finished products, such as laminated steel.

As a result, Brazilian exports of steel products with greater added value have fallen systematically since 1992, said Bastos Marques, who is also president of the Companhia Siderúrgica Nacional, one of the leading firms in the sector.

The threat now extends to semi-finished products as well, which represent two-thirds of Brazil’s steel export volume. It is the most competitive arm of the steel industry because Brazil is home to the best iron ore deposits in the world, says IBS vice- president, José Armando de Campos.

While most of Brazil’s ore is 64 to 67 percent easily separated iron, that of the United States is just 35 percent, meaning it faces higher production costs.

“To fight against the Brazilian iron and steel industry is to fight against nature, which favoured this country,” commented De Campos, president of Tubarao, another major firm in the Brazilian industry.

“Brazil is the world’s most competitive country in basic iron and steel works,” agreed Jorge Gerdau Johannpeter, head of Gerdau Steel, the Brazilian firm with greatest international scope, operating factories in Argentina, Canada, Chile, United States and Uruguay.

IBS unites 11 industrial groups that control the 26 factories producing all of Brazil’s steel. Last year’s output reached 27.9 million tons, 10 million of which were exported for 2.4 billion dollars, with nearly one-third going to the United States.

Brazil is ranked eighth in the world as a steel producer and exporter. The sector here was completely privatised through a process begun in 1992. Currently, it employs 66,530 workers, half the number in 1991, but production is up 24.6 percent.

The United States consumes nearly 130 million tons of steel annually and imports approximately 30 million. Brazil “is not attacking, but rather complementing” the US steel industry, improving its competition, according to De Campos.

The US steel companies are modern and competitive in finished products – 85 percent of their latest investments have been aimed at lamination and galvanization -, but that is not the case for semi-finished products, he said, pointing out that US factories in that sector are “obsolete, out of date.”

Imports of semi-finished steel products from Brazil assure the United States a more efficient and inexpensive chain of production, De Campos explained. Steel plate production, for example, costs 135 to 171 dollars per ton in Brazil, while in the United States it varies from 179 to 248 dollars a ton, according to IBS figures.

With these arguments, the Brazilian entrepreneurs are attempting to discourage the US government and their own US colleagues from adopting the new protectionist measures, which they say would set off a chain reaction that would extend around the world.

Canada and Mexico are already considering reinforcing their import barriers in response to hikes in US tariffs on steel. They do not represent major import markets, but they are examples of the protectionist tendency that could quickly become global, said IBS chief Bastos Marques.

The frequent application of anti-dumping measures (against disloyal competition, or selling below cost) and of safeguards by the United States is a concern for all sectors exporting to the greater global market. But the problem is most striking in the iron and steel sectors, she said.

In the 1990s, the US steel industry filed 216 anti-dumping claims with the government, which accepted 105 of the cases. The requests for safeguards, that is, greater protection against losses caused by imports, totalled 76, of which 32 were accepted.

Washington takes its decision under heavy pressure from national industry, but has also expressed concern about reducing the excess of global steel production capacity. As a result, the US government has proposed negotiating a multilateral steel treaty with sights on closing inefficient and highly subsidised factories.

The IBS supports the negotiations as long as they are based on criteria for competition, in other words, for the elimination of “artificially maintained productive capacity,” as occurs in the United States and Eastern Europe, commented Bastos Marques.

The US pretension of reducing the surplus from countries that produce more than they consume, and which do so efficiently, is unacceptable because it would stand in the way of international free trade and of the globalisation process, she stated.