Untapped Trade Remedies can Resolve Emerging Trade Issues

Under the Ministry of Foreign Affairs and International Trade exists the directorate of Economic and International Trade which has the power to investigate anti dumping cases and to make safeguard applications. Using WTO provisions, the directorate can make safeguard applications to salvage sectors threatened by excessive imports.

Remedies such as the imposition of an anti-dumping duty can be utilised but safeguards can be used in very specific cases to restrict imports of a certain product that threatens to cause serious injury to a domestic  industry. Article XIX of GATT 1947 contains the regulations with regard safeguards.

So far, Kenya has not made a single safeguard application to the WTO which could serve as an alternative to the application of antidumping remedies. To do this, we would have to set up an autonomous safeguards authority to look into this sector’s issues. For this body to be effective, financial support, extensive data collection of dumping evidence and the expertise and technical knowhow to be able to handle such applications is necessary. As it is, we lack a trade remedies Act that would guide such a procedure.

Currently under threat is the steel sector in Kenya. The flood of cheap steel products from China has been like a global tidal wave that has seen many countries rise up to protect their industries through import duties and other measures. As the world’s largest manufacturer of steel, China exports 10 million tonnes of steel to countries around the world monthly and has a capacity to produce over 1.1 billion tonnes of steel.

The Kenyan iron and steel industry is small and according to the ministry of industrialisation and enterprise development makes up 13 per cent of the manufacturing sector. About 600,000 metric tonnes per year of steel products are estimated to be produced in the country. 778,000 metric tonnes of steel products were imported in 2012 and 1.22 million metric tonnes  in 2013.

Kenya in turn exports steel windows and doors to the COMESA region. The country’s prospects in this area are looking up given the fact that we have sizeable iron ore deposits that we have begun exploiting and that the ministry of industrialisation intends to set up a local integrated steel mill as per the Kenya industrial transformation programme.

A matrix of factors have lead to the threat of chinese imports worldwide. Decelerating growth attributed to a shift in policy from real estate based growth to consumer driven growth has seen construction projects dwindle. Chinese domestic demand for steel has therefore declined forcing manufacturers of steel to look for external export markets. But the devaluation of the Yuan in August has had the biggest impact on its exports. China devalued the Yuan twice consecutively against the dollar in a move meant to protect its export oriented trade strategy after Chinese exports fell beyond the forecasted performance in July this year.

A consequence of this devaluation has been to make Chinese exports cheaper as a weaker Yuan effectively makes Chinese goods cheaper and more competitive in the global market. China would have lost its export market to regional rivals, South Korea and Japan, if it had not devalued its currency as its products would have been more expensive than those of the its competitors.

This poses a serious threat to all other steel producers and is likely to lead to the export of jobs in various countries, Kenya included. Chinese companies can afford to lower their prices on exports because most of the steel companies are government owned and get bank funding at very low interest rates without a repayment schedule. It has been estimated that Chinese steel companies benefit from at least 48 separate subsidy programs in their country.

Steel producing countries such as India which imports 20 per cent of its steel and South Africa, the biggest steel industry in sub Saharan Africa have been forced into a reactionary position. Chinese steel is now estimated to cost 12 per cent lower than locally made steel in South Africa. South Africa estimates that it could lose up to 200,000 jobs if nothing is done to protect local steel manufacturers.

India recently hiked its import duty by 2.5 per cent to 7.5 per cent to deter dumping, but even this move was inadequate to protect its industries from the marauding forces. The country later raised its import duty from 7.5 percent to 10 percent for flat steel and on long steel the import duty on long steel rose to 7.5 percent from 5 percent. Chinese hot rolled coil (HRC) rods are currently Rs. 2000 per tonne cheaper than locally made rods in India.

Mexico now has 15 anti dumping duties against Chinese exports including duties on hot rolled steel from other countries due to excess imports from China which went up to 113 per cent in the first half of this year. Layoffs of about 10,000 workers are also in the offing.

The Kenyan steel industry has not been left intact. In January 2014, the average price of rebars in Kenya was Kshs. 75,000 per tonne VAT inclusive.  In August 2015, eighteen months later, the average price of rebars was Kshs. 61,000 per tonne including VAT.  Despite, the imposition of an import duty of 25 per cent on imported rebars, the price of rebars has dropped by almost 20 percent.  Hot rolled sheets are sorely afflicted in this scheme of things. The duty has not protected local manufacturing companies and companies are expected to lower their prices even further if they are to compete with Chinese steel.

The situation is further compounded by the high cost of inputs in Kenya as well as non tariff costs if compared to other countries (including East African states). Imports for Government projects funded by other countries, the poor quality of power including voltage surges and frequent failures, a lack of highly skilled personnel, the volatile pricing and availability of scrap metal, the inadequate control of scrap metal trade by the Government and the imposition of duty by Customs on imports of spare parts are all factors that made a bad situation worse.

The country should consider these trade policy tool if the problem with China continues to persist. These remedies will be of benefit not only to Re-bars manufacturers who are sorely afflicted but it will also resolve all issues threatened by cheap steel imports in Kenya.

The writer is the CEO of the Kenya Association of Manufacturers and can be reached on  ceo@kam.co.ke