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Brazil fears protectionist spiral in steel industry

by Mario Osava

RIO DE JANEIRO: The US government’s decision to raise tariffs on steel imports could spur other countries and regional blocs to implement similar trade barriers, according to Brazil.

Brazil’s steel exports to the US, which amounted to $730 million last year, will drop 10% to 15% this year as a consequence of the measures announced on 5 March by Washington, predicted Development, Industry and Trade Minister Sergio Amaral.

The new package of protectionist measures adopted by the George W. Bush administration will also stand in the way of the growth of Brazil’s iron and steelworks industry, complained industry representatives.

Washington assigned Brazil a quota of 2.54 million tons of semi-finished steel, higher than last year’s sales of 2.3 million tons. However, this year’s earnings will be lower than last year’s, because the new restrictions in the US market will weaken international prices. Furthermore, any sales above 2.54 million tons will pay a 30% duty, which will effectively limit exports to the set quota.

The quota will rise by 10% over the next two years - slower growth than was expected by Brazil’s steelworks industry, which hoped to see its exports to the US increase by 20% to 30%, said Jose Armando de Campos, president of the Compania Siderurgica de Tubarao, one of the companies that will be hardest hit.

The new tariffs, which affect 10 steel by-products, range from 8% to 30%, and will remain in effect for three years, starting on 20 March.

The countries that will feel the greatest impact from the 37-million-ton cut in steel imports by the US are Japan, South Korea, Taiwan, China and the members of the European Union (EU), which produce finished steel products like hot- and cold-rolled sheet steel and coated steel.

Brazil and Russia are the countries that will be hit hardest by the new quotas on semi-finished steel, while Thailand and Turkey are exempt from the new quotas and tariffs.

Brazil is the only Latin American country that will be affected by the Bush administration decision. Mexico, the region’s other large steel exporter, is protected by its membership in the North American Free Trade Agreement (NAFTA), and the crisis-stricken Argentina was excluded from the list of affected countries.

Oversupply

With total production amounting to 27 million tons a year, and with the capacity to produce 32 million tons, Brazil’s iron and steelworks industry will only be able to grow by boosting exports, because domestic consumption stands at just 18 million tons.

That route looked like the natural one to take, since the industry, which was privatized nearly a decade ago, has achieved high levels of productivity and international competitiveness, even though Brazil is a medium-sized producer, with production levels far below the nearly 100 million tons a year produced by Japan or the US.

Besides seeing its future growth limited, Brazil fears a wave of protectionism in other markets, and a fall in international prices, because the cut in imports by the US will lead to a surplus in the nations that supply it with steel.

The president of the Brazilian Steelworks Institute, Maria Silvia Bastos Marques, had already warned six months ago that any unilateral measure could trigger a chain reaction, with other countries attempting to protect their own markets to ward off a flood of products unable to enter the US.

The risk is real, given the fact that the global steel industry has a capacity to out-produce demand, a problem which a movement headed by Washington is trying to overcome through voluntary production cuts in several countries. However, that initiative is now threatened by the trade war that might break out.

If the EU and other importers take reprisals and protect their markets, Brazil’s losses will increase. The US absorbs around 36% of the exports of Latin America’s giant, while the EU and the rest of Latin America combined import another 40%.

The foreign ministry and Brazil’s trade authorities have not ruled out the possibility of joining an appeal to the World Trade Organization against the US measure, after carefully assessing the damages to the national steel industry and the reaction of other countries.

Minister Amaral and Brazil’s chief trade negotiator Alfredo de Graca Lima also warned that the situation created by the US decision endangered the negotiations for the Free Trade Area of the Americas (FTAA).

Tension has been building up in trade relations between Brazil and the US for several decades. The Brazilian steel industry and diplomats accuse Washington of closing its market to Brazilian exports of finished steel on the argument that Brazil was “dumping” its products on the US market at artificially low prices.

Now, Brazil’s semi-finished products will also face restrictions. The US government says this South American country of 162 million was included in the new measures because of subsidies it supposedly shells out to its steel industry, despite the fact that the industry was privatized in the early 1990s.

But according to the secretary of Brazil’s inter-ministerial Chamber of Foreign Commerce, Roberto Giannetti da Fonseca, Washington is practising “geriatric protectionism” aimed at ensuring the survival of the “decrepit and inefficient” US steel industry.

Other highly competitive Brazilian products such as sugar and orange juice also face barriers like quotas and tariffs in the US market.

For that reason, the Brazilian government, driven by the need to obtain a trade surplus due to the imbalance in its external accounts, had already decided to file a complaint before the WTO against subsidies with which the US bolsters soybean production, as well as a tariff that the state of Florida imposes on Brazilian orange juice. The revenues from the tariff are used to promote Florida orange juice, in violation of WTO rules, and the subsidies for soybean farmers, which were recently increased, depress international prices, Brazil argues.

In the past, disputes have arisen from US pressure on Brazil to repeal laws standing in the way of computer imports, for instance, or to enact legislation protecting patents.

Chile, meanwhile, which does not export steel but produces enough to nearly cover its own internal demand, fears that the 37 million tons that will be kept out of the US market as a result of the new quotas will drive prices down to a level with which it will be unable to compete.

The Chilean government plans to study requests by the national steel industry for tariff safeguards, which could go into effect for one year or possibly two, to give local companies time to adapt to the stiffer competition, Chilean Minister of Economy and Mining Jorge Rodriguez said on 6 March. (IPS)        

From TWE No. 275 (15-28 February 2002)

 

 

 


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