Steel barriers threaten a global trade war

As protectionism grows around the world, British Steel is hunting acquisitions to reverse the decline in its profits

CONCERNS are growing that rising trade barriers to steel imports could help ignite a global trade war. America has already put new measures in place, and the European Union will tomorrow be asked to help protect EU companies from surging exports.

The economic crisis in Asia - which normally accounts for about a quarter of the world steel market - means that manufacturers are looking for new places to sell their product. Devaluations by many producing countries have exacerbated the problem, bringing prices crashing down.

The US industry has been hit very badly, with domestic operating profits down 50 per cent in the first half of the year, and has demanded protection. As America clamps on new measures, companies have looked to sell elsewhere and other markets are reaching for trade barriers.

Both industry and unions want the US government to apply anti-dumping duties - fines on imports thought to have been dumped at below a fair market value. America's International Trade Commission has found there was evidence that Russia, Japan and Brazil had dumped hot-rolled steel in the US, one of a series of complaints against foreign steel producers, and duties have already been put on steel wire.

Anti-dumping duties are a frequent recourse of the US government when faced with a trade problem. As the US trade deficit has mounted, pressure for duties has increased rapidly and 36 petitions for anti-dumping have been received by the government so far in 1998, compared with 16 for the whole of last year. Most concerned imports of steel products.

But the rash of US petitions has simply sparked two reactions. First, foreign steel producers have retargeted their exports elsewhere. After a complaint was filed on 30 September against Russian steel, the vast plants at Sverstal, Magnitogorsk and Novolipetsk ceased sales of hot-rolled coil to the US, with possible losses of up to $500m (pounds 300m). Those export sales had to be found somewhere else. But other nations are also putting trade barriers in place as the US clamps down. Steel exporters now face anti-dumping duties in Mexico, Canada and Taiwan. And many other developing countries, such as India, Indonesia, Brazil, South Africa and Turkey, are making more frequent use of the instrument.

The European Union, which has also had frequent recourse to anti-dumping measures, is now becoming increasingly concerned that it is vulnerable and is likely to respond in kind. Eurofer, the organisation which represents EU steel producers, will ask the European Commission for protection on Monday, claiming that Bulgaria, Yugoslavia, Taiwan, India, Iran and South Africa have been dumping steel. For the first time in its history, the EU became a net importer of steel in the first half of this year, and Eurofer predicts a 4 million ton deficit this year, compared to a 75 million ton surplus last year.

British Steel warned last weekend that the crisis in the steel market had damaged its performance and contributed to job losses. According to Sir Brian Moffat, chairman of British Steel, prices in Europe for steel products have fallen 30 per cent in three months, and as much as 15 per cent in the past few weeks. The company backs trade measures in the EU, saying that it wants a "level playing field". But it is worried about the growing trade war. While British Steel is not concerned about the direct impact of anti-dumping duties in America, the indirect effect may be serious. "If this sort of thing goes on, it can have a knock-on effect," said a spokesman.

"Steel that is not sold in the US would have to find a market somewhere."

The overall problem, said British Steel, is that "there's too much steel chasing too few markets". The steel industry has vast overcapacity, which the Iron and Steel Industry Statistics Bureau estimates at 1 billion metric tons, while demand is only 750 million tons. Russia and Ukraine have shifted from steel importers to steel exporters, and are seeking foreign markets. The unions and producers in America are both powerful forces, and have launched an aggressive advertising and lobbying campaign.

But the results may spread wider than the steel market. It is by no means the only sector where Asian exporters are trying to boost exports, with their domestic economies in crisis and currency depreciation making their exports more competitive. Anti-dumping duties may be extended to the memory chip market, and textiles and machine tools may not be far behind.

Supporters of anti-dumping duties argue that they are an effective way of hitting back at predatory pricing, and better than other solutions such as limiting imports or imposing across-the-board tariffs.

But a study by the Federal Reserve Bank of New York earlier this year said that anti-dumping duties were "ill-conceived". It argued that "pricing practices that are a normal part of domestic commerce are taken as evidence of illegal behaviour, and the standard of proof for establishing injury is exceedingly low".

The dilemma for the US is that it is trying to persuade the Asian nations to export their way out of trouble - but not, it appears, to America. Washington is already grappling with a huge trade deficit, which threatens to get far worse, and America feels that it is taking an unfair share of the burden of adjustment by the Asian countries. The US current account deficit is forecast by the IMF to increase by $81bn from $155bn in 1997 to $236bn in 1998, while the EU surplus is likely to fall by $27bn.

The US is far more exposed to Asian trade than Europe. The WTO has noted that: "While the US imported 8.6 per cent of its merchandise from [Asian nations] in 1996, all West European economies imported less than 5 per cent of the total from the countries in question."

There is a split within the administration about how to deal with this dilemma, with Treasury Secretary, Robert Rubin, encouraging exports and arguing against protectionism, while his other Cabinet colleagues bay for trade barriers.

Ominously, William Daley, the US Commerce Secretary, has invited US manufacturers to make his anti-dumping staff "the busiest people in town".