The Productivity Commission is not happy with steel in a new report:
- Recent changes to Australia’s anti-dumping system have increased its protectionist impact.
- Generally soft economic conditions in the wake of the Global Financial Crisis, a supply glut in the global steel industry and the recent changes to the system have contributed to an upswing in cases initiated, new measures imposed and measures in force.
- Usage of anti-dumping and countervailing measures is concentrated in several capital-intensive industries producing mainly intermediate goods. Steel products accounted for 86 per cent of new investigations during 2014-15 and now make up over 60 per cent of all measures in force.
- The average dumping and countervailing duty currently in place in Australia is 17 per cent, more than three times greater than the general tariff rate of 5 per cent.
- Some measures have been in place for more than 15 years.
- Australia ostensibly has an anti-dumping system because WTO rules allow it. However, there is no compelling economic rationale for doing so and it is clear that current anti-dumping arrangements are making Australia, on a national welfare basis, worse off.
- There is little to distinguish anti-dumping protection from other trade restrictions. As such, the benefits for recipients of protection are outweighed by the costs for industries using the protected goods, consumers and the broader economy.
- Arguments that the system provides other benefits to the community that would eliminate this net cost are not credible.
- This state of affairs reflects deficient policy processes — and, in particular, inadequate reporting on system outcomes, and limited attention to the detriment to the community of anti-dumping protection in policy evaluation and development.
- The current environment is one in which policy is being driven by the interests of a small group of local industries.
- The weight of evidence indicates that an anti-dumping policy based on informed consideration of its net impacts would lead at a minimum to heavy modification of the system to reduce its costs.
- The costs of the system could be significantly reduced by increasing the thresholds for accepting anti-dumping and countervailing applications (the de minimis margins), instituting provisions that would allow measures to not be applied if they would be disproportionately costly for the community and putting a finite limit on the duration of measures.
- However, such a ‘harm minimisation’ approach would have drawbacks and risks, as experience since the Commission’s inquiry in 2009 shows. Accordingly, as part of a rethink of policy in this area, serious consideration as to whether it is in Australia’s interests to retain an anti-dumping system at all is warranted.
Minister for Industry and Whyalla member Christopher Pyne isn’t happy with the PC, from News:
FEDERAL Industry Minister Christopher Pyne has sided with Whyalla steelworkers against one of the Government’s most influential economic advisers.
The Productivity Commission has criticised the “anti-dumping’’ rules that could soon be activated to protect steelmaker Arrium from unfair foreign competition.
But a spokesman for Mr Pyne said the Government remained committed to the anti-dumping system.
“The Turnbull Government is committed to a strong and robust anti-dumping system which ensures a fair playing field for Australian businesses competing against foreign exports,’’ the spokesman said.
“The Government notes the release of the Productivity Commission’s report but does not believe it adequately takes into account the importance of our anti-dumping system in ensuring that Australian industry can compete on a level playing field.”
One takes the PC’s point and if real life were lived in an economic petri-dish then it would be fair enough to let Whyalla go. But it ain’t and the truth is that largely government-owned Chinese industry is dumping steel globally in the most spectacular fashion imaginable. There are furious trade actions against it in every major economy now.
Indeed, the Chinese themselves implicitly acknowledge it today, from the FT:
Almost 2m Chinese coal and steel workers will lose their jobs because of government policies to cut overcapacity, the minister of human resources said on Monday, highlighting looming woes for China’s workforce.
As fears grow over the true extent of the country’s economic slowdown, laid-off workers in traditionally stable sectors are being forced to compete for jobs with about 15m people entering the labour force each year — threatening mass unemployment, strikes and social unrest.
Speaking to a press conference on Monday, Yin Weimin said 1.3m coal workers and 500,000 steel workers could expect to lose their jobs. The majority are likely to be in state-owned enterprises.
The minister said the government would put in place “adequate measures” to limit labour market disruption. These included a Rmb100bn ($15bn) fund to help resettle laid-off workers; more flexible retirement procedures within companies; retraining for workers; and encouraging firms to internally resettle workers.
Last year China’s steel industry, which accounts for more than half of global production, reduced production for the first time since 1981. The government has set a target of cutting 150m tonnes of production in the five-year plan to 2020.
So, the real question here is for the longer term. Eventually China is going rationalise enough production to underpin global steel prices (and when I see “eventually” I mean it) and at that point locally produced steel will be able to compete quite effectively without anti-dumping duties.
Should we allow shorter term anti-competitive behaviour to force structural change on the economy? I would not have thought so.
Having said that, neither should protection be offered in a way that inhibits Australian steel industry competitiveness. Thus, my preference for saving Whyalla, which seems to me quite possible, is to restructure ARI by giving it the money it needs to modernise the smelter on the condition that:
- the board and executive take huge pay cuts for the period of public investment or resign;
- that creditors take an appropriate haircut, enough to make the business viable;
- that unions agree to cram down worker entitlements, and
- rights are issued to Federal Government for a minority equity stake to be later sold.
Voila! Steel capacity preserved, competitiveness restored, no cost to the public.
