Background to the safeguard
In March 2016, ArcelorMittal requested a safeguard duty to be imposed on hot rolled steel products, classified under tariff headings 72.08, 7211.14, 7211.19, 7225.30, 7225.40, 7225.99, 7226.91 and 7226.99. This application has been approved with a 12% safeguard duty being imposed with effect from 11 August 2017. However, the duty will drop to 10% from 10 August 2018 and drop again to 8% a later. On the 11th of August 2020, the safeguard will be completely removed.
The safeguard duty has been imposed in addition to the normal Customs duties currently in place on these tariff headings, however it becomes a little more complicated than this. Least developed countries are excluded from the safeguard duties, but these exemptions include some countries with significant steel capacity, so it is entirely possible and even likely that the volume of imports will rapidly move to these countries. Of particular interest are Taiwan, Turkey, Brazil, Thailand, Vietnam and Russia.
Hear about what ArcelorMittal is doing about the dilemma the downstream industry faces. Get XA’s 2016 steel conference content.
So what happens if the volumes do move to any of the exempted countries?
Well this in large part depends on how well ArcelorMittal monitors their import statistics and how quickly they respond to the shift which will almost certainly happen. The safeguard regulations allow the safeguard duty to be applied to an exempted country without a new investigation, but it would still require ITAC to be notified of the pattern, a gazette to be published, time given to comment and then the duty imposed. This process is certainly not instantaneous, but it is also just an administrative process and so can be fairly quickly implemented.
The volumes of hot rolled steel imports have actually dropped over the last 3 years, from 527 000 tons in July 2014 to June 2015 to 403 708 tons in the period July 2016 to June 2017 (a 25% drop). The average FOB value has also increased from R6 910 per ton to R7 380 per ton for the same periods, but this is deceptive because the Rand has also depreciated over the same period. In Dollar terms the average FOB value has actually declined by 10%, which of course is a problem.
Involved in the downstream steel industry? Get XA’s 2016 steel conference content.
The downstream problem just got bigger
Hot-rolled steel is the most basic steel product, from which most other forms of steel are manufactured, but following the safeguard, it now has a higher duty (22%), than any other steel product besides fasteners, which attracts a duty of 30%. You can see that it will not take long before the volume will begin to move downstream because of the duty differential and once that happens it will be really difficult to ever gain that volume back again.
So how does this get dealt with? This is challenging because the downstream industry is not one thing and even when we break it into different industries, there are often manufacturers within those sub-sectors who do not necessarily want to cooperate or even have the same objectives. Because this has been left for so long, many of the manufacturers are now a blend of manufacturers and importers, making this a really difficult problem to solve, but it must be addressed. To leave a situation where a primary raw material attracts a higher duty than almost every downstream product, is to invite a flood of downstream imports which will still result in enormous harm to the upstream industry. This is not government’s problem however. The industry needs to take the bull by the horns while there is still an industry.