Evaluating India's Proposed Safeguard Duty on Steel Imports

The Indian steel industry is once again under scrutiny as the Directorate General of Trade Remedies (DGTR) initiates a safeguard investigation into the import of non-alloy and alloy steel flat products. While domestic producers advocate for measures to counter the surge in imports, concerns raised by economic think tank GTRI and MSME exporters highlight the complexities and potential repercussions of such measures. This article examines the critical aspects of the proposed safeguard duty, its potential economic implications, and the need for a comprehensive assessment.

1. Current Import Measures and Their Complexity

The Indian steel industry already operates under a highly regulated environment with mechanisms such as:

• Quality Control Orders (QCO): Mandating strict adherence to domestic standards.
• Steel Import Monitoring System (SIMS): Tracking import data to preempt trade imbalances.
• No Objection Certificate (NOC) Requirements: Adding another layer of compliance for importers.

According to GTRI, these measures are overly complex and inefficient, causing delays and operational bottlenecks. The think tank recommends a high-level review to streamline processes, making compliance automatic and hassle-free while ensuring quality control through collaborations with international labs.

2. Arguments for the Proposed Safeguard Duty

The Indian Steel Association, representing major domestic players such as JSW Steel, SAIL, and ArcelorMittal Nippon Steel India, has petitioned for a safeguard duty under the Customs Tariff Act, 1975. Their rationale includes:

• Excess Global Capacity: Countries like China, Japan, and South Korea face slowing domestic demand, resulting in significant excess steel capacity, which is being exported to India.
• Price Pressures: Increased imports lead to price suppression, affecting the competitiveness of domestic steelmakers.
• Protection Against Unfair Trade: Safeguard measures can act as a buffer against import surges that disrupt market equilibrium.

Safeguard measures are permissible under World Trade Organization (WTO) rules to address sudden and significant increases in imports. However, the GTRI report warns that the current investigation’s focus on global safeguards rather than Free Trade Agreement (FTA)-specific measures or anti-dumping actions could attract challenges at the WTO.

3. Potential Economic Implications

3.1 Impact on MSME Exporters MSME exporters, particularly from the engineering sector, have raised concerns that additional duties on steel imports would:

• Increase Input Costs: Higher steel prices would erode their competitiveness in global markets.
• Affect Liquidity: Many MSMEs already face liquidity challenges, and rising costs could exacerbate these issues.
• Hinder Exports: Engineering goods exporters may struggle to maintain their market share, impacting the country’s overall export performance.

SC Ralhan, Chairman of the Hand Tool Association, emphasized that uncompetitive steel prices in the domestic market already place MSMEs at a disadvantage.

3.2 Broader Economic Impacts Steel flat products are critical inputs for various industries, including construction, capital goods, automobiles, and electrical panels. Any increase in steel prices due to safeguard duties could:

• Raise Costs: For downstream industries, leading to higher prices for end consumers.
• Slow Growth: As higher production costs ripple through the economy.
• Threaten Jobs: Especially in sectors reliant on affordable steel inputs.

4. GTRI’s Critique of the Investigation

The GTRI report identifies several technical weaknesses in the ongoing investigation:

• Focus on Minimal Import Surges: Some products under scrutiny have not experienced significant import growth.
• Inadequate Case Details: Incomplete information provided by domestic producers undermines the robustness of the case.
• Use of Global Safeguards: Instead of targeted measures, global safeguards may attract challenges from trading partners at the WTO.

The report underscores the need for a comprehensive assessment of the existing import measures and their impact before introducing new duties.

5. Recommendations for a Balanced Approach

To address the challenges faced by the steel industry while minimizing adverse economic impacts, the following steps are recommended:

1. Comprehensive Industry Study: Evaluate the state of the steel industry, including the impact of existing import measures on costs, growth, and employment.
2. Simplify Regulatory Framework: Streamline QCO, SIMS, and NOC processes to reduce bureaucratic inefficiencies.
3. Targeted Trade Remedies: Focus on FTA-specific safeguards or anti-dumping measures, particularly against non-competitive imports from China.
4. Collaborate with Stakeholders: Involve MSMEs, downstream industries, and trade experts to design measures that balance protection with economic growth.
5. Enhance Export Competitiveness: Support MSMEs with financial assistance and technology upgrades to offset cost increases.

Conclusion While the proposed safeguard duty aims to shield domestic steelmakers from import surges, its broader implications on the economy and key sectors cannot be ignored. A well-rounded approach that simplifies existing measures, targets unfair trade practices, and supports downstream industries is essential for ensuring sustainable growth in the steel sector and the broader economy.