Barrier will no longer be here to protect domestic steel industry

Vietnamese domestic steel producers, who anticipate that they will face great challenges in the time to come, after the automatic import licensing scheme expires on December 31, 2010, has proposed the Ministry of Industry and Trade maintain the scheme in order to continue protecting domestic production.

For a long time, the automatic import licensing scheme has been considered as the main tool to protect domestic steel production, because it has been serving as the barrier to prevent import products from flowing to Vietnam. However, as planned, the scheme will expire on December 31, 2010, analysts have warned that after that day, foreign made products will overflow to Vietnam, thus putting big difficulties for domestic producers.

The analysts have every reason to give the warnings. To date, Vietnam made steel products prove to be unable to compete with products which have much more competitive prices, and every time, when imports overflowed to Vietnam, domestic steel producers had to entreat help from the government. Only the government’s support and intervention can help domestic production survive.

According to the Vietnam Steel Association (VSA), under WTO commitments, Vietnam has to gradually reduce tariffs on the imports. Therefore, thanks to the tariff reductions the volume of steel imported in Vietnam in 2010 is very (at least one percent for every product item). The biggest threat for domestic steel producer is that foreign made products always have lower sale prices, about 500,000-700,000 dong per ton, than Vietnamese products. In the past, several times domestic steel producers saw their products unsalable due to “evasion” of foreign products.

Currently, though structural steel mills in Vietnam have been running at 70 percent of the designed capacity only, the production capacity of the operational mills (not including the projects now under construction) has become double than the demand. In 2010 alone, the total steel output reached eight million tons, while the total demand is more modest, at 5.6 million tons.

While Vietnam still does not know how to “treat” foreign products, other regional countries are applying very strict measures to control steel imports. More than one year ago, Indonesia applied the import licensing mechanism on some of products, which has been very effective in helping to control the imports.

Therefore, VSA many times requested the Ministry of Industry and Trade (MOIT) to take necessary measures to protect local producers. In order to satisfy the producers, on May 20, 2010 the ministry released a circular on applying automatic importing license mechanisms on some steel products -the products for which the demand for is much lower than the domestic supply. The ministry said that with the mechanism, it and relevant ministries and branches will be able to calculate exactly the volume, the categories, and values of imports.

However, VSA’s members seemed still unsatisfied with the automatic importing license mechanism, and it once again proposed MOIT to apply the same mechanism on some more other products, and raise the import tariffs on these products from five percent to 15 percent in order to protect local production.

In reply, on July 27, 2010, MOIT released another legal document, adding more products onto the list subject to automatic importing license mechanism.

Nevertheless, according to VSA’s Secretary General Dinh Huy Tam, despite the two legal documents, the volume of imports has not decreased as expected. Vice versa, the imports have been increasing considerably. In 2009, only 496,000 tons of steel was imported to Vietnam. Meanwhile, after the application of the automatic importing license mechanism, the figure rose to 475,000 tons (45,000 tons a month) worth $249 million in the first 11 months of the year.

Some experts who believe that the automatic importing license mechanism cannot protect local production have proposed to remove the barrier.

However, VSA has, once again, called MOIT to maintain the mechanism and strictly control the imports in order to protect local production and help ease the trade deficit.-Thoi bao Kinh te Vietnam

Tags: Vietnam steel industry, Vietnam steel market, Vietnam steel prices