Ministry plans referral tariff for steel imports

The reference price will only but compel importers to pay additional customs duty on the differential, between the import price and the referral tariff value. Assuming that $302 a tonne (which is the floor price for importing prime grades of hot-rolled (HR) coils) is fixed as the reference price, all steel itemsbeing shipped in below that price will be eligible for the additional duty.

Should the import price be $202 a tonne for instance, the importer will have to pay a 27 per cent duty on $100, apart from the usual 27 per cent duty on $202 for every tonne of steel. The referral tariff value is among the two options being actively considered by the commerce ministry, to block the inflow of steel at prices that could hurt the local industry.

The other option will be to revise the floor prices, to ensure that they were in tune with the prevailing rates in the world market. The floor prices for seven grades of steel (like hot-rolled coils and sheets, cold-rolled (CR) coils, tinplates and electrical sheets) were recommended by the steel ministry sometime in September last year. The floor rates were based on steel prices, prevailing in Japan and Europe between May and July. The DGFT announcement for the steel industry, however, came in December, when global steel rates had already plunged further downward.

Thepeak rate for HR coils in the world market tumbled from $330 a tonne in July to $255 a tonne in October. The floor price for HR coils was consequently nearly $50 dearer a tonne than the prevailing import price in December, prompting protests from user industries like can-makers, electrical appliances manufacturers and cold-rolling mills.

The fuss over the floor prices prompted the Centre to take a second look at the system. The floor prices were based on a three-monthly average of steel prices in Japan and Europe, as listed in the London Metal Bulletin.

Since the DGFT notifications came into effect, however, steel prices have perked up considerably and HR coil prices in the US and some parts of Europe are very close to the Indian price band for imports. Market data shows that HR coils were available for $300 tonne fob in the US and $255 per short tonne (907 kilos) in Europe.

The floor price for HR coils is $302 a tonne c&f. A strong case prevails now for a more dynamic floor price, subjective toperiodic revisions in tune with prevailing global rates.

The commerce ministry had, perhaps, opted for the floor prices in the first place, because some sections of the Union government were not sure whether the referral tariff value was quite consistent with the WTO stipulations.

Mexico has, however, had a similar mechanism in force, to check indiscriminate dumping of cheap steel by exporting countries, since July last year. The US has taken a cue from Article 5 of the WTO guidelines on safeguards, to impose a quota restriction on HR coils from Russia. The US quota for HR coils imports from Russia is 8.25 lakh tonnes at an average c&f price of US 290/300 a tonne. Article 5 of the WTO guidelines on the Agreement on Safeguards, stipulates quantitative restrictions among member countries, to prevent or remedy injury to domestic industry from a surge in imports.