Victor Novichkov

Chelyabinsk Tube-Rolling Plant (ChTPZ)

Y

ear 2003 is called ”the year of Russia” in Ukraine. Now it has become common to talk about the warm-up in relations between the two neighboring countries. The emphatically friendly atmosphere of Russian President Vladimir Putin’s recent visit and his talks with Ukraine’s leader Leonid Kuchma is one more proof of this. Both presidents are calling on businessmen across the borders to promote the economic interaction. However, Russian metallurgical companies are wary of the perspective growth of the trade exchange demanding to take into account the country’s national interests.
In the past the Russian government repeatedly made concessions to the Ukrainian side, in particular by lowering the level of protecting the country’s market against the export expansion of Ukraine’s metallurgical enterprises. That, of course, let to protests by Russian companies, which interpreted it as another manifestation of unfair competition. More than once companies’ leaders reproached the government for unwillingness to defend their interests. Meanwhile, the political support by the metallurgical business does not seem irrelevant on the eve of elections to the Russian parliament in 2003 and in light of preparing for presidential elections in the spring of 2004.
These circumstances encourage the authorities to carefully reinforce the strategic course toward partnership with Ukraine and, on the other hand, to allow for well-founded demands of the metallurgical lobby.
The heart of the problem is Ukraine’s 1999 law "On conducting economic experiments in the mining-and-metallurgical complex", which provides local steel producers with considerable advantages. They, for one, can sell metal rolled products in Russia for prices that are significantly lower than those for similar products of Russian make. Losses for Russian producers because of Ukrainian dumping amount to multi-millions of dollars annually.
Companies, which complained to governmental bodies about the unfair competition, included, among others, Russia’s leading producers of steel rolled products (EvrazHolding, Severstal, NLMK) and steel pipes (TMK, OMK, ChTPZ). Besides, Mechel demanded the introduction of a 21% countervailing duty on Ukrainian bars. Financially the claims were corresponding to the volume of subsidies for every ton of products put out by the Ukrainian side. This statement was supported by the West Siberian Steel Corporation, which along with Mechel is the largest producer of bars for reinforcing concrete structures. In 2002 Mechel produced 1,252 million tons of bars with the major portion of them, 58%, going to the domestic market. The company’s share of the Russian market amounts to between 30% and 32%.
In the preceding years Ukrainian producers, the Krivorozhsky, Donetsky, Enakievsky and Makeevsky mills, shipped to the Russian market about 250,000 tons of bars annually.
The investigation by the commission of the Russian government on protective measures in foreign trade and tariff-and-customs policy found the statement valid. In mid-2002 Prime Minister Kasyanov signed an order to apply a 21% compensatory duty to export shipments of bars from Ukraine. In the second half of 2002 the increase of prices for bars in the Russian market averaged 40%.
The Ukrainian side started vigorous attempts to get the duty repealed. As a compromise, Russian producers were offered to replace it with a minimal price that Ukrainian producers should stick to when selling their products in Russia.

Makeevka Tube-Casting Plant

Alexei Ivanushkin, the chairman of Mechel’s board of directors, was rather sharp in his response to the offer. In particular, he called establishing a minimal price for Ukrainian products "economically senseless" because in reality this restriction "might be easily sidestepped with the help of the "gray" customs schemes". Beside, in Ivanushkin’s words, in three months of operation under restrictions on bar shipments from Ukraine "Russian producers managed to make up for just a fraction of losses they suffered as a result of unimpeded imports of subsidized Ukrainian products to the Russian market".
At present, there is an intergovernmental Russian-Ukrainian commission set up to consider questions of the trade exchange between two states.