Safeguard duty to hit user industries

Last Monday, the finance ministry imposed 20 per cent provisional safeguard duty on hot-rolled flat products of non-alloy and other alloy steel in coils having width of 600 mm or more, based on the preliminary findings and recommendations of the Director General of Safeguards (DGS). The levy will give some protection for the producers of the items, but will hurt the user industries whose input costs will go up.

The provisional safeguard duty will be effective for 200 days during which the DGS will conduct further investigations and submit final recommendations on whether to continue the levy or not.

The notification levying the duty excludes hot-rolled flat products of steel with nominal width less than 600 mm, API grade steel, silicon electrical steel, hot-rolled flat products of steel of spring steel quality, hot-rolled flat products of steel, which are electrolytically plated or coated with zinc, hot-rolled flat products of steel otherwise plated or coated with zinc and hot-rolled flat products of stainless steel. The duty will be imposed on imports from all countries.

The speed and manner of this safeguard action is quite unusual and remarkable. The domestic industry represented on August 27, 2015 and within 11 days, the DGS initiated investigations. Within two days thereafter, the DGS gave recommendations and the duty was imposed within the next five days. The interested parties were not heard. The applicants, Steel Authority of India Limited, Essar Steel India Limited and JSW Steel Limited had not reported lower production or drop in manpower employed or lower capacity utilisation. Their profits had gone up by 35 per cent in 2014-15.

The fall in profits is only in one quarter. Their inventory had barely gone up. The recommendation makes no observations on the adjustment plans of the applicants to become competitive. Yet, the recent crash in prices and loss of their market share due to increased imports has brought about this severe action from the authorities. The recommendation is based more on an appraisal of global glut and apprehensions that imports will substantially go up unless safeguard duty is imposed.

The safeguard levy comes on top of two-stage raise in basic customs duties on most steel items from 7.5 per cent to 12.5 per cent, two anti-dumping actions on cold-rolled products already in force and non-tariff barriers that require suppliers abroad to be registered with Bureau of Indian Standards. All these restrictions will not affect imports under advance authorisations or imports by export-oriented units or units in Special Economic Zones. However, imports under duty-free import authorisations will not be free from anti-dumping duty or safeguard duty.

The finance ministry has not revised the duty drawback rates for the exporters of downstream engineering products. All exporters of engineering goods do not use advance authorisations. Many of them buy smaller quantities from the markets and execute their orders. With higher costs of their inputs, they will not be able to compete unless their duty drawback rates are revised.

Under the law, the user industries are not recognised as 'interested parties' in the investigations. Their views need not be taken into account for levy of safeguard duty unless they contest through their association of importers. They have no choice but to bear with the higher costs.

Email: tncrajagopalan@gmail.com