wto impact on steel industry


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wto impact on steel industry

  1. 1. THE IMPACT OF WTO ENTRY ON INDIA’S STEEL INDUSTRY1. The impact of tariff reductions (Appendix C1) is overall moderate, with high- end products being more affected o Given that average tariff on steel products will be lowered by less than 1% a year over 2000-04, overall impact of tariff reductions on steel products should be modest. o But the reductions are biased towards high-end products, so that the high- end products would be more affected. A rise in the Imports of high-end products is expected as a result.2. The impact of the elimination of the import registration system (Appendix C2) will be more pronounced o As license and quota controls over steel imports have already been abolished in 1992, the elimination of the quantity-restricting import registration system for steel imports (Appendix A5) would represent a full removal of non-tariff barriers on steel imports in India. o This is expected to be a greater driving force for steel imports to India, given the low quality competitiveness of domestic steel products over foreign products (Appendix A6) and the over-capacity in international steel markets (Appendix C). o The more open environment would however help standardize the Indian steel trading sector by increasing transparency. This could be a blessing in disguise. o As the elimination will be phased in over 2000-05, much of such impact would emerge in the later period of the five years.3. Lifting the "specified trading" system, opening up domestic distribution markets and relaxing the conditions on foreign investment (Appendix C3, C4 & C5) will also have adverse effects o The current trading system and distribution system (Appendix A5) provide two indirect means for the government to control steel imports. o Opening up these two systems and granting foreign investors the right to run trading firms and distribution firms for steel products should also
  2. 2. encourage steel imports by enabling a better sales prospect for imported steel products in domestic markets. o The relaxation of the conditions on foreign investment should give foreign investors more incentives to invest in India’s steel industry. This would exert further pressures on domestic high-end products. But given the nature of the industry (Appendix A5), massive foreign investment to the industry is not anticipated.4. Steel exports will benefit, while the modernization process of the industry is expected to speed up o India’s steel exports should receive reciprocal treatments from other WTO member countries with a reduction in tariffs as well as non-tariff barriers on the exports, and hence are expected to grow faster. o More foreign investment and exposure to the steel industry would speed up the pace of the industrys modernization, with increased flow of foreign technologies and management methodologies.5. Overall impact will be negative, while it is expected to emerge gradually o Negative impact should outstrip positive impact, while the severity of the impact would be less pronounced vis-a-vis other previously protected sectors. o The authorities are expected to make efforts to minimize the negative impact by scheduling late the opening-up measures on the agenda (Appendix C), while focusing on the restructuring of the steel companies to get them more prepared for foreign competition in the next years. The negative impact should thus emerge more strongly thereafter.6. High-end products will be the main victims o Most affected would be the high-end finished steel products, including cold-rolled plates and sheets, especially those used in car and appliance industries, silicon sheets, seamless pipes, stainless sheets, welded pipes, oilfield pipes, zinc-coated sheets, sin-coated sheets and high pressure furnace pipes, etc. o The domestic gap for such high-end products will continue to be filled by imports whilst the industry restructures and up-grades its product mix
  3. 3. o Major competitors for India’s low-end steel products are Russia and other CISs. But they are not WTO members yet. Thus the pressure on low-end products from WTO entry is limited. Meanwhile low-end and middle class products will be the beneficiaries of the improving export environment. 7. A large scale of consolidation in the industry is expected, with big steel companies being the winners o To improve the economies of scale and the product mix so as to meet the challenges form WTO entry, India’s steel industry is set to undergo a large scale of acquisitions & mergers in coming years. The governments plan to close down 225 small steel companies, 78% of the total, with 103 in 2000, will go ahead as scheduled. Actually more are likely to disappear. o With the strength in size, technology and market shares as well as the strengthened government support (Appendix A8), the large steel companies, especially the Big four (Baosteel, Angang, Wugang and Shougang), will be the winners, and will become larger and emerge stronger, though they would also have to carry out drastic restructuring and technological upgrading. 8. The burgeoning recovery of the industry is set to continue o With expected stronger economic growth in India, demand for steel products should continue to recover in the coming years. o Export demand is also expected to continue to improve. o On supply side, with the governments continued output-restricting efforts, output of low-end products is likely to decline further in the next two years. o The growth in high-end and middle class products should however accelerate. The impact of WTO entry would take away part, but not all, of it. o Steel prices are therefore expected to continue to rebound.Doha Round
  4. 4. The Doha Development Round started in 2001 and continues today.The WTO launched the current round of negotiations, the Doha Development Agenda(DDA) or Doha Round, at the fourth ministerial conference in Doha, Qatar in November2001. The Doha round was to be an ambitious effort to make globalization more inclusiveand help the worlds poor, particularly by slashing barriers and subsidies in farming. Theinitial agenda comprised both further trade liberalization and new rule-making,underpinned by commitments to strengthen substantial assistance to developing countries.The negotiations have been highly contentious and agreement has not been reached,despite the intense negotiations at several ministerial conferences and at other sessions.Disagreements still continue over several key areas including agriculture subsidies.FunctionsAmong the various functions of the WTO, these are regarded by analysts as the mostimportant: • It oversees the implementation, administration and operation of the covered agreements. • It provides a forum for negotiations and for settling disputes. Additionally, it is the WTOs duty to review and propagate the national trade policies, and to ensure the coherence and transparency of trade policies through surveillance in global economic policy-making. Another priority of the WTO is the assistance of
  5. 5. developing, least-developed and low-income countries in transition to adjust to WTO rules and disciplines through technical cooperation and training.The WTO is also a center of economic research and analysis: regular assessments of theglobal trade picture in its annual publications and research reports on specific topics areproduced by the organization. Finally, the WTO cooperates closely with the two othercomponents of the Bretton Woods system, the IMF and the World Bank.Principles of the trading systemThe WTO establishes a framework for trade policies; it does not define or specifyoutcomes. That is, it is concerned with setting the rules of the trade policy games. Fiveprinciples are of particular importance in understanding both the pre-1994 GATT and theWTO: 1. Non-Discrimination. It has two major components: the most favoured nation (MFN) rule, and the national treatment policy. Both are embedded in the main WTO rules on goods, services, and intellectual property, but their precise scope and nature differ across these areas. The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members, i.e. a WTO member has to grant the most favorable conditions under which it allows trade in a certain product type to all other WTO members. "Grant someone a special favour and you have to do the same for all other WTO members." National treatment means that imported goods should be treated no less favorably than domestically produced goods (at least after the foreign goods have entered the market) and was introduced to tackle non-tariff barriers to trade (e.g. technical standards, security standards et al. discriminating against imported goods). Reciprocity. It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule, and a desire to obtain better access to foreign markets. A related point is that for a nation to negotiate, it is necessary that the gain from doing so be greater than the gain available from unilateral liberalization; reciprocal concessions intend to ensure that such gains will materialize. 2. Binding and enforceable commitments. The tariff commitments made by WTO members in a multilateral trade negotiation and on accession are enumerated in a
  6. 6. schedule (list) of concessions. These schedules establish "ceiling bindings": a country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade. If satisfaction is not obtained, the complaining country may invoke the WTO dispute settlement procedures. 3. Transparency. The WTO members are required to publish their trade regulations, to maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO. These internal transparency requirements are supplemented and facilitated by periodic country-specific reports (trade policy reviews) through the Trade Policy Review Mechanism (TPRM). The WTO system tries also to improve predictability and stability, discouraging the use of quotas and other measures used to set limits on quantities of imports. 4. Safety valves. In specific circumstances, governments are able to restrict trade. There are three types of provisions in this direction: articles allowing for the use of trade measures to attain noneconomic objectives; articles aimed at ensuring "fair competition"; and provisions permitting intervention in trade for economic reasons. Exceptions to the MFN principle also allow for preferential treatment of developing countries, regional free trade areas and customs unionsOrganizational structureThe General Council has multiple bodies which oversee committees in different areas, andthey are the following:Council for Trade in Goods There are 11 committees under the jurisdiction of the Goods Council each with a specific task. All members of the WTO participate in the committees. The Textiles Monitoring Body is separate from the other committees but still under the jurisdiction of Goods Council. The body has its own chairman and only 10 members. The body also has several groups relating to textilesCouncil for Trade-Related Aspects of Intellectual Property Rights
  7. 7. Information on intellectual property in the WTO, news and official records of the activities of the TRIPS Council, and details of the WTO’s work with other international organizations in the field.Council for Trade in Services The Council for Trade in Services operates under the guidance of the General Council and is responsible for overseeing the functioning of the General Agreement on Trade in Services (GATS). It is open to all WTO members, and can create subsidiary bodies as required.Trade Negotiations Committee The Trade Negotiations Committee (TNC) is the committee that deals with the current trade talks round. The chair is WTO’s director-general. The committee is currently tasked with the Doha Development Round. The Service Council has three subsidiary bodies: financial services, domestic regulations, GATS rules and specific commitments. The General council has several different committees, working groups, and working parties. There are committees on the following: Trade and Environment; Trade and Development (Subcommittee on Least-Developed Countries); Regional Trade Agreements; Balance of Payments Restrictions; and Budget, Finance and Administration. There are working parties on the following: Accession. There are working groups on the following: Trade, debt and finance; and Trade and technology transfer.Voting systemThe WTO operates on a one country, one vote system, but actual votes have never beentaken. Decision making is generally by consensus, and relative market size is the primarysource of bargaining power. The advantage of consensus decision-making is that itencourages efforts to find the most widely acceptable decision. Main disadvantagesinclude large time requirements and many rounds of negotiation to develop a consensusdecision, and the tendency for final agreements to use ambiguous language on contentiouspoints that makes future interpretation of treaties difficult
  8. 8. In reality, WTO negotiations proceed not by consensus of all members, but by a process ofinformal negotiations between small groups of countries. Such negotiations are oftencalled "Green Room" negotiations (after the colour of the WTO Director-Generals Officein Geneva), or "Mini-Ministerials", when they occur in other countries. These processeshave been regularly criticised by many of the WTOs developing country members whichare often totally excluded from the negotiations.Richard Harold Steinberg (2002) argues that although the WTOs consensus governancemodel provides law-based initial bargaining, trading rounds close through power-basedbargaining favouring Europe and the U.S., and may not lead to Pareto improvement.Dispute settlementIn 1994, the WTO members agreed on the Understanding on Rules and ProceduresGoverning the Settlement of Disputes (DSU) annexed to the "Final Act" signed inMarrakesh in 1994. Dispute settlement is regarded by the WTO as the central pillar of themultilateral trading system, and as a "unique contribution to the stability of the globaleconomy". WTO members have agreed that, if they believe fellow-members are violatingtrade rules, they will use the multilateral system of settling disputes instead of takingaction unilaterally.The operation of the WTO dispute settlement process involves the DSB panels, theAppellate Body, the WTO Secretariat, arbitrators, independent experts and severalspecialized institutions Several commentators have pointed out the practical difficulty inestablishing legal elements required to bring trade remedy claim under WTO lawAccession and membershipThe process of becoming a WTO member is unique to each applicant country, and theterms of accession are dependent upon the countrys stage of economic development andcurrent trade regime. The process takes about five years, on average, but it can last more ifthe country is less than fully committed to the process or if political issues interfere. As is
  9. 9. typical of WTO procedures, an offer of accession is only given once consensus is reachedamong interested parties.Accession processStatus of WTO negotiations: members (including dual-representation with the European Union) Draft Working Party Report or Factual Summary adopted Goods and/or Services offers submitted Memorandum on Foreign Trade Regime submitted observer, negotiations to start later or no Memorandum on FTR submitted frozen procedures or no negotiations in the last 3 years no official interaction with the WTOA country wishing to accede to the WTO submits an application to the General Council,and has to describe all aspects of its trade and economic policies that have a bearing onWTO agreements.[ The application is submitted to the WTO in a memorandum which isexamined by a working party open to all interested WTO MemberAfter all necessary background information has been acquired, the working party focuseson issues of discrepancy between the WTO rules and the applicants international anddomestic trade policies and laws. The working party determines the terms and conditionsof entry into the WTO for the applicant nation, and may consider transitional periods toallow countries some leeway in complying with the WTO rules.The final phase of accession involves bilateral negotiations between the applicant nationand other working party members regarding the concessions and commitments on tariff
  10. 10. levels and market access for goods and services. The new members commitments are toapply equally to all WTO members under normal non-discrimination rules, even thoughthey are negotiated bilaterally.When the bilateral talks conclude, the working party sends to the general council orministerial conference an accession package, which includes a summary of all the workingparty meetings, the Protocol of Accession (a draft membership treaty), and lists("schedules") of the member-to-bes commitments. Once the general council or ministerialconference approves of the terms of accession, the applicants parliament must ratify theProtocol of Accession before it can become a member.Members and observersThe WTO has 153 members (almost all of the 123 nations participating in the UruguayRound signed on at its foundation, and the rest had to get membership). The 27 states ofthe European Union are represented also as the European Communities. WTO membersdo not have to be full sovereign nation-members. Instead, they must be a customs territorywith full autonomy in the conduct of their external commercial relations. Thus Hong Kong(as "Hong Kong, China" since 1997) became a GATT contracting party, and the Republicof China (ROC) (commonly known as Taiwan, whose sovereignty has been disputed bythe Peoples Republic of China or PRC) acceded to the WTO in 2002 under the name of"Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu" (Chinese Taipei).A number of non-members (30) are observers at WTO proceedings and are currentlynegotiating their membership. As observers, Iran, Iraq and Russia are not yet members.Russia is the biggest economy outside WTO and after the completion of Russiasaccession, Iran would be the biggest economy outside the WTO. With the exception of theHoly See, observers must start accession negotiations within five years of becomingobservers. Some international intergovernmental organizations are also granted observerstatus to WTO bodies. 14 states and 2 territories so far have no official interaction with theWTO.