UNITED States President Donald J. Trump’s latest protectionist policy—slapping higher tariffs on steel and aluminum products—could give President Duterte a big headache in the coming months.
This, according to Trade Undersecretary Ceferino S. Rodolfo Jr., is because such a move would disrupt the global market and create a glut of steel in the days to come, presenting complications to a highly liberalized market that is entering its so-called golden
age of infrastructure.
“What is alarming here—and what the Department of Trade and Industry [DTI] is preparing for—is when the United States increases its barriers, what will happen to the countries supplying it with steel?” he told the BusinessMirror.
Trump has authorized the imposition of higher tariffs on steel (25 percent) and aluminum (10 percent) in spite of strong opposition from his fellow Republicans and Washington’s trading partners. “The actions we are taking today are not a matter of choice; they are a matter of necessity for our security,” Trump said during the signing of his order.
Rodolfo is worried steel-exporting countries that would lose market share in the US because of Trump’s order would turn to another export destination to recover lost sales. And they might just target the Philippines, given its massive infrastructure upgrade under the “Build, Build, Build” (BBB) program.
The US is the world’s largest steel importer. In 2016 it accounted for about 8 percent of steel imported globally and the volume it had imported was 15 percent higher than that of Germany and South Korea, second- and third-largest steel importers, respectively.
It imports steel and aluminum from over 110 countries and territories, of which the top sources are Canada, Brazil, South Korea, Mexico, Russia, Turkey, Japan, Taiwan, Germany and India. It also imports from China, Thailand, South Africa and the United Arab Emirates. Out of this list, only Canada and Mexico are exempted from Washington’s new levies. Australia is also expected to get the White House’s nod for an exemption.
PHL is obvious alternative
The others will have to seek alternative markets where they could export their steel. This is where the Philippines enters the picture, Rodolfo said, as it is a perfect spot for these exporters on two grounds: its liberalized regime and its need for steel.
“They would normally go to countries with the highest demand and more open regime. Here in Southeast Asia our neighbors have their steel industry very protected. It is difficult to enter. For us, we are trying to strike a balance because we have a high demand, so we allow them to import their steel as long as it is compliant with our standards,” Rodolfo said in English and Filipino.
The trade official said steel exports are welcome to enter the domestic market as long as they are not substandard. He, however, fears some countries will dump their excess steel to the Philippines, such that the government will need to tighten its trade regulations.
“Second is we are guarding against those countries that might dump because that is what is dangerous with steel. Steel is a high fixed-asset business. That means, investments in such are not only capital-intensive, but also power-intensive that you cannot just turn on and off. It is either you produce at a high capacity or you shut down the plant,” Rodolfo said.
Dumping is when a firm exports a product at a price lower than its value in its own country or another market. As such, it may cause material injury to the market targeted for dumping, or materially retarding the domestic industry producing the like product.
“I would not assume countries will dump their steel to us, but there is a possibility of an oversupply in the market. What is the implication of this oversupply to us? [That is] to the extent that we are needing steel and construction materials for our Build, Build, Build program. We will accept their steel as long as its quality is good and not unfairly traded—that is, not dumped, not subsidized,” he added.
Trade remedies
Should countries take advantage of the government’s infrastructure program and dump their steel in the Philippines, the Philippine Iron and Steel Institute (Pisi) is demanding authorities to strictly enforce trade remedies. The group believes this is the only way to guard against dumping in the face of recent developments in global trade.
“Trade remedies, like the antidumping law and countervailing duties and safeguards, are available for the affected steel sector. Support of the DTI, the Department of Finance and Tariff Commission are necessary in these measures,” Pisi President Roberto M. Cola told the BusinessMirror.
The government can impose antidumping duties on firms found guilty of exporting their products at a price lower than its normal value under Republic Act (RA) 8752, or the Anti-Dumping Act of 1999. The DTI—in the case of nonagricultural products, such as steel—can impose an antidumping duty “equal to the margin of dumping on such product, commodity or article and on like product, commodity or article.”
This is on top of ordinary duties, taxes and charges imposed by the law. RA 8752, however, provides that “the antidumping duty may be less than the margin, if such lesser duty will be adequate to remove the injury to the domestic industry.”
As head of the premier group for the country’s steel industry, Cola views Washington’s imposition of stiffer tariffs on steel and aluminum as a “double-edged sword” for local manufacturers and consumers. He admitted it will really disadvantage domestic producers, but will benefit consumers due to the abundance of available steel in the market.
“In general, the oversupply of steel in the world market is not good for steel manufacturers because it depressed steel prices that impact on profitability. On the other hand, it benefits the consumers of steel,” Cola said. “There is ample supply of competitively priced billets, hot-rolled coils/plates and cold-rolled coils/sheets that are used as raw materials by manufacturers. On the other hand, the local manufacturers will have to compete with similar imported steel-finished products.”
Generally, a healthy domestic steel industry is a must for a country’s industrialization drive.
However, even if the glut of steel in the global market will potentially harm the country’s steel industry, Cola said the Pisi will not demand that the government adopt some form of protectionism. “I will not recommend to adopt some form of protectionism for the steel industry because it will just encourage smuggling,” he said.
Standards monitored
For her part, BBB Program Chairman Anna Mae Y. Lamentillo said the government has in place check mechanisms to ensure all materials used for construction are of good quality. “The standards are in place,” she reassuringly told the BusinessMirror.
Lamentillo shared that the Department of Public Works and Highways conducts random inspection on ongoing construction projects—and this will be pursued vigorously for those listed under the BBB—to look into the materials contractors are using. These inspections are done before, during and after the construction.
Apart from this, contractors secure the government a warranty that allows it to change the materials that are proven to be defective or substandard, Lamentillo said. The warranty lasts for one year.
With this, Lamentillo is confident the glut of steel in the global market will not affect the ongoing infrastructure binge, as long as authorities strictly enforce their regulations.