South Korea and Japan pitch for safeguard duty rollback on steel

2 November 2015

South Korea and Japan have strongly pitched for the rollback of safeguard duty imposed on steel by India, arguing it has impacted the large investment made by its companies in the country. Posco, Honda, Toyota and Suzuki, among others, would be affected. India has a free trade pact with both South Korea and Japan, under which the countries enjoy substantial duty benefits on steel imports.

The provisional 20 per cent safeguard duty on hot-rolled (HR) steel has hit production in Posco's plant in Maharashtra, where it has invested nearly $1 billion, South Korea has pointed out in its representation to the Indian government. Japanese companies, including Honda, Suzuki and Toyota, have also written to the government saying their cost of production will see a steep increase with the imposition of the levy.

"South Korea and Japan have written to us against the imposition of the safeguard duty as they have a lot of companies based in India in several sectors, including automobile, that use steel. They have said it would severely impact their production and investment in the country. But we also have to see the interest of our industry," said a government official.

In September, the government imposed a 20 per cent safeguard duty for 200 days on the import of hot-rolled flat products of non-alloy and other alloy steel, in coils of a width of 600 mm or more. The decision was taken on the basis of preliminary findings and recommendations of the Directorate General of Safeguards, which comes under the revenue department of the finance ministry.

"South Korea and Japan want us to roll back the duty arguing they should enjoy preferential duty they get under the free trade agreement (FTA)," said the official. The government will, however, take a final decision on the duty by February after hearing all interested parties. The directorate has called a public hearing on the matter on November 16, for which 150 interested parties have registered. A safeguard duty is allowed under World Trade Organization rules as a temporary measure for a specified period to check damage to a country's domestic industry from cheaper import. The market share of steel imports doubled from six per cent to 12 per cent in absolute terms between 2013-14 and 2015-16.

Japan, South Korea and China accounted for about half of iron and steel imports into India in the first six months of the financial year worth about $3 billion. Imports made up five per cent of the country's total production of the under-investigation steel products (HR coil) in the year to end-March 31, 2014. According to the domestic steel companies, these imports have increased since then and are on course to hit 13 per cent this year, or 3.4 million tonnes.

According to the FTA with South Korea, the import duty imposed by India is negligible (0.85 per cent) on majority of steel products. Therefore, according to industry sources, till date, it was much more economical for Posco to import HR coils from Korea for its Maharashtra plant in Raigad, which is a steel galvanising mill whose products are used in automobile and home appliances industry.

Experts pointed out that imposing safeguard or proving the injury will not be easy. "South Korea and Japan could easily pick India on the data part. The safeguard duty is not easy to justify. India gave preferential duty to Japan and Korea on steel assuming the domestic market will grow by then, but that has not happened," said Arpita Mukherjee, professor, the Indian Council for Research on International Economic Relations.

Under the comprehensive economic partnership agreement, India agreed to eliminate duties on 75 per cent of products imported from South Korea on a custom-value basis during the eight years from 2010. South Korea agreed to remove duties on 93 per cent of products from India during the same period.

India's comprehensive free trade pact with South Korea came into effect from 2010 and that with Japan in 2011.