Yelena Remizova
National Review Publishing House

    Being encircled Russian producers of steel rolled products are starting to feel more pressure. They are fettered in their activities on foreign markets by steel import restraints imposed by the U.S. administration, which was followed later by governments of other countries so as to protect their national steel industries. Problems on the domestic market are caused by the unfair competition on the part of the closest neighbors, who are selling their products for dumping prices.
Major flows of steel imports are coming to Russia from Ukraine and Kazakhstan. To some extent the situation in the steel industry of these countries resembles the one existing in Russia.
Russian high-capacity steel complexes set up in the pre-reform years are putting out much more products than the national economy needs: the visible steel consumption in the country is low.
Steel products are mostly shipped abroad, where they encounter protective measures by importing nations.
Unlike exporters from the CIS countries Russian steel producers cannot reorient their sales and, instead of the so-called far-abroad states, start marketing operations in the Commonwealth because of the insignificant visible steel consumption in these markets.
Besides, such countries as Ukraine and Kazakhstan adopted measures to protect and regulate their markets.

There was a law in Ukraine called «On economic experiment at enterprises of Ukraine’s mining-and-metals complex», which was put into effect on July 1, 1999. Under this law Ukrainian metals producers were provided with subsidies. The large-scale support of the industry was initiated. It included the following measures:
– a write-off of fines and penalties charged on arrears of payments as of July 1, 1999;
– a minimum profits tax was established, which amounted to 9 % in 1999 and 2000 (with the base rate equaling 30 %) and to 15 % in 2001;
– the experiment’s participants were paying just 50 % of their fees to the State innovation fund and were exempted from road tolls;
– enterprises were given zero interest rate for using tax credit and ecological fees were limited to 0.15 % of their total costs.
During this period Ukraine’s exports of iron and steel to Russia rose 1.6 times: from 1 361 thou. tons in 1999 to 2 168 thou. tons in 2001.
When the term of this economic experiment formally ran out, a new law called «On further development of the mining-and-metals complex» has been adopted in 2002 . Under this law Ukraine’s government extended privileges for the mining-and-metals complex till January 1, 2003. The rate of profits tax is kept at 15 % instead of the base rate of 30 %. A list of 42 mining-and-metals enterprises has been approved, which are covered by the special tax regulations. Among them are 6 steel plants, 9 mining enterprises, 7 by-product coke plants, 2 pipe-making plants, 4 wire products plants,
7 refractory works as well as 7 non-ferrous metals plants. Enterprises are allowed to use 50 % of profits tax payments and 70 % of ecological dues for their own investment needs. The most significant benefit is the exemption of Ukrainian exporters from paying VAT when shipping their products to Russia. Besides, export prices for Ukrainian metals shipped to Russia are higher than those for metals exported to the EU countries and North America.
Last year Ukraine was placed third in the world by volumes of steel exports, which reached 24.4 million tons. At the same time its domestic consumption did not exceed 7 million tons. Thus, 70 % of Ukrainian metals products are shipped to other countries with Russia being number one on the list of importers.

Hot strip mill shop at the Zaporozhstal Iron & Steel Works (Ukraine)

Russian metals producers are demanding from the Russian government to actually take steps for protecting the national market and introduce protective duties of 20 % to 40 % on metal products from Ukraine and Kazakhstan limiting their shipments to 800 thou. tons. In 2001 Ukrainian and Kazakh exports to Russia amounted to 2.5 million tons accounting for 10 % of its domestic market. In 2002 their volume may increase more than twice against 2001 and reach 5.7 million tons.
The situation is being aggravated by unfavorable trends in Russia’s steel industry. The production profitability fell down from 30 % to 10 %, in the first quarter of 2002 about half of steel exports turned out loss-making (semi-products bars and sections) with the second half coming close to zero profitability.
Prompted by the country’s largest steel companies and corporations, including MMK, Severstal, EvrazHolding, NLMK, the Russian government had to attend to problems of the steel complex. There are different ways to support Russian producers: to use universally accepted instruments of state regulation, antidumping probes and technical restrictions. Besides, it is necessary to secure an equal access of Russian enterprises to getting orders from major consumers of metal products like the defense industry, state-owned railroads as well as large state-controlled enterprises of the power and gas industries.
Metals producers are insisting on taking adequate protective measures with respect to shipments of steel rolled products from Ukraine and Kazakhstan. The government does not object but at the same time it is not in a hurry either to make practical steps. The matter is that Russia and Ukraine are about to sign an agreement on free trade. Therefore, speeding up an antidumping probe in this situation would be politically unwise.