INDIA: STEEL SAFEGUARD DUTY CONSIDERED AGAIN

UNCLAS SECTION 01 OF 03 NEW DELHI 002274 SIPDIS STATE FOR SCA/INSB AND EEB/TPP USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD DEPT PASS TO USTR MDELANEY/CLILIENFELD/AADLER/KEMP E.O. 12958: N/A TAGS: ETRD ECON EIND IN SUBJECT: INDIA: STEEL SAFEGUARD DUTY CONSIDERED AGAIN REF: New Delhi 991 ¶1. Summary: At an October 28 Directorate-General of Safeguards (DGS) public hearing, Indian steel companies argued for a 25-percent preliminary safeguard duty on imports of hot-rolled steel coils/sheets/strips, claiming that they had suffered serious injury due to a flood of low-priced imports. Chinese, European, Japanese, South Korean, and Turkish officials countered, arguing that depressed demand was due to the global recession and that there was insufficient evidence of serious injury to domestic producers. The foreign government officials also raised serious concerns about the DGS procedures in carrying out the safeguard investigation, but no party appeared to plan on challenging this in the WTO. After considering all the arguments and written submissions, DGS will make a final determination by December 9, which will be reviewed by Commerce Secretary Khullar, in his capacity as Chair of the GOI Standing Board on Safeguards, and then forwarded to Finance Minister Mukherjee for his approval. End summary. Background -------------- ¶2. After complaints from Indian private sector steel producers Ispat and Essar Steel, India's Directorate-General of Safeguards (DGS) in April 2009 recommended a 25-percent preliminary safeguard duty on imported hot-rolled steel coils/sheets/strips (reftel). The public sector Steel Authority of India (SAIL) and JSW Steel supported the applicants/complainants. In the April preliminary finding, the DGS concluded that there was "sufficient prima facie evidence regarding increased imports, serious injury or threat of serious injury and a causal link between increased imports and alleged injury or threat of serious Injury to justify initiation of investigations" (see http://dgsafeguards.gov.in/ PF%20notification%20HR%20COIL.html). (Note: WTO rules state that the conditions for applying a safeguard measure are increased imports and serious injury or threat thereof caused by such increased imports.) However, in May 2009, the Government of India (GOI) at a meeting of the Standing Board on Safeguards turned down the proposal and directed the DGS to review the submissions by all stakeholders once again before making a final decision. The DGS in the past few months has reportedly held consultations with industry on the issue. GOI Public Hearing on Safeguard Investigation -------------- ¶3. The public hearing was chaired by DGS Director General Praveen Mahajan, accompanied by Additional Commissioner Q Safeguards Ranjit Kumar. Interested parties including government representatives and exporters from China, the EU, South Korea, Japan and Turkey and representatives of the petitioners presented their viewpoints at the hearing. (Note: There was no representation from the United States.) All of the non-Indian countries represented at the hearing opposed the DGS recommendation to impose a 25-percent safeguard duty, deeming the action protectionist and lacking adequate evidence of injury to the domestic steel industry. Foreign interested parties pointed to the positive growth in India's steel industry during the investigation period. Chinese Position -------------- ¶4. The Chinese government representative highlighted the importance of good bilateral trade relations between India and China, saying the proposed duty is a serious concern among the Chinese steel exporters since India is a big market for them, especially considering the economic slowdown. He stated that there was no clear injury to the Indian domestic steel makers due to increased imports. Presenting trade figures for the period covered under the investigation, the Chinese representative appealed to the GOI authorities to strictly observe safeguard rules and terminate the investigation as soon as possible to bring certainty in international trade. ¶5. A China Iron and Steel Association (CISA) official argued at length that there is no case for a safeguard duty in view of the following facts: --There has been no increase in imports of subject products; rather, imports fell 7.8 percent in fiscal year (FY) 2008-09, and imports as NEW DELHI 00002274 002 OF 003 a share of production declined 3.1 percent in the same period. --The market share of the applicants is only 33 percent, which actually increased by two percent in FY 2008-09. Sales volume and production in absolute terms declined because of lower demand, but no causal link can be established according to the Q4 FY 2008-09 results of the local industry. --The scope of the investigation is not very clear (while the industry asked for protection on certain products, the authorities also recommended duties on additional steel items). --There has been no justification provided for the recommended rate of duty. --The levy of this duty may lead to a significant increase in steel prices that would be detrimental to infrastructure development in India. Japan, Turkey, EU and Korea Supported the Chinese Position -------------- ¶6. Interested parties from Japan, Turkey, EU and Korea also opposed the proposed levy by the DGS and supported the Chinese position. The Japanese representative voiced concern regarding the safeguard procedures followed by the DGS in arriving at the preliminary recommendations. The Turkish representative emphasized that there has been no relative increase in imports compared with the increase in consumption; in fact, imports from Turkey declined in 2008 by one million metric tons. EU officials indicated that there is not sufficient injury related to imports and the GOI should terminate the investigation. They also pointed out that the sales, production, and financial performance of the applicants had improved until October 2008 and started deteriorating only due to recessionary conditions worldwide. Referring to the latest financial position of SAIL as the most profitable steel company in the world, and Tata Steel as the third most profitable steel company, Korean representatives observed that a sharp revival in steel is expected to continue in 2010 according to many studies done by industry associations. Indian Industry Continues to Ask for Protection -------------- ¶7. Indian company representatives claimed that the increased imports have caused injury to the industry as a whole and that Indian domestic steel companies had lost market share, leading to a decline in their sales volumes and capacity utilization of their plants. The applicants and supporting companies argued that they together accounted for nearly 80 percent of India's total steel production during the investigation period--April 2008 through February 2009. (Note: In India, there are currently five producers who have the capacity to produce hot rolled coils/sheets/strips Ispat Industries, Essar Steel, JSW Steel, SAIL, and Tata Steel.) Their representatives also pointed out that the products under investigation are mainly used in the automobile and infrastructure sectors, and an influx of cheap imports would indirectly impact these sectors also. (Note: inexpensive inputs could actually benefit these sectors.) According to the domestic steel companies, India has allowed imports at very low prices; the advantage of whatever demand was generated from the stimulus package was going to foreign companies. This has impacted the domestic industry prices, which fell from Rs 40,000 (approximately $800)/ton in April-September 2008 to Rs 26,296 (approximately $526) in February 2009, which affected their profitability. Next Steps -------------- ¶8. All interested parties who presented their views at the public hearing orally were to submit the written version of their comments to the DGS within a week. The DGS will then respond to the views with respect to the matters being investigated, and prepare final findings on the basis of merits by December 9, 2009 (i.e., within eight months from the date of initiation of the investigation). The DGS will send a copy of the public notice regarding its final findings to the GOI Ministry of Commerce and Industry and the Ministry of Finance. The Standing Board on Safeguards, chaired by the Commerce Secretary, considers the DGS final findings and then requests the Finance Minister's approval. NEW DELHI 00002274 003 OF 003 Comment -------------- ¶9. The hearing was conducted in an open transparent manner, and observers were welcome to attend. Although several foreign government officials raised serious concerns about the DGS procedures in carrying out the safeguard investigation, no party appeared to plan to challenge this in the WTO. The last time this case was investigated in May 2009 (reftel),the Steel Secretary noted that the interim findings of the DGS were "insufficient," and the then Commerce Secretary, Mr. G.K. Pillai, who chaired the Board, was also quoted in the media as saying that "from the evidence we do not see any threat to the industry." The Board, now chaired by Commerce Secretary Rahul Khullar, will tentatively meet in early December. From Econ LES's observation, this hearing did not provide any new, compelling evidence of injury that should cause a reversal of this finding, but Post will monitor and report on the Board's forthcoming decision. Roemer