China’s steel dumping awakens a snoozing NTC

Published: February 27, 2017
Email
PHOTO: REUTERS

PHOTO: REUTERS

LAHORE: China is the largest steel producer in the world and contributes up to 50% of the total production. It started to expand production back in 2008 owing to a huge fiscal stimulus that resulted in urbanisation of China on a large scale with huge infrastructure projects.

In order to meet the local pent-up demand, the Chinese State Owned Enterprises kept on increasing production capacities. However, the slowdown in the Chinese economic growth and continuous global economic slowdown reduced steel demand.

PC seeks tax break, curb on imports before offering PSM on lease

Under those circumstances, large Chinese producers started to dump their excess production into developing economies and Pakistan is not an exception. Our nascent steel industry is not in a position to counter this dumping menace.

Although the National Tariff Commission (NTC) remained dormant for a couple of years, it came to action with the imposition of import duty on Chinese steel. The import duty has been imposed on the insistence of the domestic steel industry since it is unable to compete with Chinese steel.

Pakistan Steel Mills (PSM) used to contribute heavily towards domestic demand since 1974 and played a pivotal role in developing the downstream steel industry.

Here downstream means that the steel firms further processed the output of Pakistan Steel billets and made steel sheets. With the halt in operations of PSM, domestic producers have had to import raw material and process them accordingly.

In the absence of PSM, domestic downstream industry pondered over to expansion in 2014 since construction sector started to revive.

With the boom in construction activities along with the resolve of the government to allocate a decent amount for infrastructure projects and hype of the China-Pakistan Economic Corridor-related activities, it compels domestic steel producers to expand their production capacities.

When they are ready to invest, it becomes necessary for the government to facilitate and protect their investments. As a consequence, they lobbied and called for protectionism through import duties.

The protectionist policy should demand certain actions on part of the domestic steel industry to improve their efficiency in due course since a policy can neither always be protected nor stagnant.

The international steel prices started to rebound in 2016 and are the reflection of slight recovery in steel demand. When international steel demand increased with prices, dumping by large Chinese producers would decrease. Under those set of conditions, the degree of protectionism may decrease.

This requires agility on the part of NTC. Unfortunately, there is a lack of policy flexibility and policy measures are usually static.

Significance of protectionism

Protectionism is necessary from the perspective of job creation. When domestic steel industry expands, jobs would be created. The policy of protectionism has been followed by many developed economies in the past and the emergence of Brexit and Trumponomics also show that they intend to follow protectionist policies. This also shows that such policy actions are politically and socially desirable.

The free market ideologue would argue that protectionism misallocates the resources and promotes a rent-seeking economy. They further argue that liberalisation of economy would increase economic growth which in turn creates jobs.  We have to be sympathetic with this kind of argument, but this is a traditional argument which has been tried and tested in Pakistan with deleterious consequences.

The protection of steel industry would increase the cost of construction to some extent and there are chances that cars may get slightly expensive. But we have to remember that the auto industry reaches this level due to a protectionist policy followed by the previous governments.

Ailing steel mill: Govt offers NBP land and SSGC bonds to settle PSM debt

In short, the threat of premature de-industrialisation has created lots of difficulties for the policymakers since they have to appease the growing aspirations of youth. We have to devise policies to guard against de-industrialisation and promote jobs to create a healthy society.

The writer is an Assistant Professor of Economics at LUMS

Published in The Express Tribune, February 27th, 2017.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

Facebook Conversations

Reader Comments (10)

  • Lumdheeng
    Feb 27, 2017 - 12:21PM

    China produced so much substandard steel, cheap quality, that workers lost their jobs. And China’s dumping of cheap steel is leading to closure of TATA steel,11000 jobs at stake. Even in US China has dumped so much steel,US steel industries are in risk of closure. Recommend

  • Nasir Amin Khan
    Feb 27, 2017 - 2:29PM

    Same thing is happening in paper industry. Complete dumping by Chinese companies Recommend

  • ishrat salim
    Feb 27, 2017 - 2:30PM

    Dumping of steel products by China was expected & CPEC is the main vehicle. This action by the Chinese was expected & was predicted, but it is good that local producers realized it soon have forced NTC to wake up. Recommend

  • anwar
    Feb 27, 2017 - 3:42PM

    dumping is a technical term meaning that that the product is being sold at price less than its original coast..It is serious allegation against China which needs to proved after first before imposing any restriction on the import of chinese steel…other wise it will be deemed a favour to the local steel industry which has been deadly against any such favour against Paksitan Steel when it was in working condition. Recommend

  • goiyakka
    Feb 27, 2017 - 5:11PM

    one simple way out is stop buying chinese steel and paper…pay a lil extra and choose a domestic product. Recommend

  • Zaida Parvez
    Feb 27, 2017 - 5:56PM

    Please ignore all the negative comments about China.
    CPEC will make Pakistan great again !!Recommend

  • Rahul
    Feb 27, 2017 - 6:17PM

    Soon the CPEC loans will come due and Pakistan will not be able to say no to China’s dumping. China is the new East India Company.Recommend

  • Vaibhav
    Feb 27, 2017 - 9:08PM

    Simple solution is raise dumping duty on Chinese still.president trump said will impose 41% dumping duty on Chinese imports and will decrease domestic corporate taxes from 35% to 12%.Germany also did same.giving domestic manufacture tax cut and increasing domestic consumption and raising exports.if domestic manufacturing increases consumption and job will also increase.Recommend

  • syed & syed
    Feb 28, 2017 - 3:20AM

    Did some one cared to look the steel mill affairs. Once a booming industrial unit is under debt and is almost closed. Why. Have a open debate get hold the culprit , confiscate his property and give him life sentence. TV channels – at least a brave one strt conversation and truth will come out.Recommend

  • anwar
    Feb 28, 2017 - 1:58PM

    @Rahul:
    Why the Indians are so worried about it? should not they be rather happy?Recommend

More in Business