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25The competitiveness of the Russian metallurgical industry in the context of country’s
membership in the WTO Melnik K. (Russian Federation)
Конкурентоспособность российской металлургической промышленности в условиях
членства страны в ВТО Мельник К. И. (Российская Федерация)
Мельник Константин Игоревич /Melnik Konstantin - магистрант, кафедра мировой экономики и международного бизнеса,
Финансовый университет при Правительстве Российской Федерации, г. Москва
Abstract: although metallurgical industry is believed to become one of the main beneficiaries of Russia’s accession to the World Trade Organization, there are still a number of problematic factors, influencing further development of the sector. The paper describes the prospects of national metallurgical corporations and analyses the probable consequences of Russia’s membership in the WTO for the given industry.
Аннотация: несмотря на то, что металлургическая промышленность должна стать одним из главных бенефициаров присоединения России к Всемирной Торговой Организации, остается целый ряд негативных факторов, влияющих на тенденции дальнейшего развития сектора. Данная статья описывает потенциал национальных металлургических предприятий и анализирует возможные последствия членства России в ВТО для данной отрасли российской промышленности.
Keywords: metallurgical industry, Russia and the WTO, trade restrictions against Russia, lawsuits within the WTO framework.
Ключевые слова: металлургическая промышленность, Россия и ВТО, торговые ограничения против России, судебные иски в рамках ВТО.
Metallurgy industry is one the basic drivers of the Russian economy. The sector accounts for nearly 5 % of the country’s GDP, while its share in the total industrial output and total ex ports equals 18 % and 14 % respectively. The importance of the industry for the national economy of the RF is also affirmed by the fact that metallurgy is one the greatest consumers in the domestic market, since it accounts for around a quarter of the total consumed electricity in the country as well as all railway shipments [1]. Therefore, consideration of the possible implications of Russia’s accession to the WTO for its national metallurgy sector, will be also useful for predetermining possible future trends in the development of the Russian economy.
One of the basic factors, which have been historically limiting the export capacity of the Russian metallurgy companies, is the usage of various trade restrictions by different countries with a purpose of decreasing the volume of imported metals production from Russia. What is more, the national metals producers also suffered heavily from the Russian customs tariff policy that obliged exporters to pay substantial export duties as a percentage from the exported goods value. All together these restrictions diminished the competitiveness of the Russian metallurgy corporations’ production, since the tariff barriers increased the overheads and consequently - the final price of the metal products.
After becoming a member of the WTO, our country has undertaken several commitments, devoted to lowering export barriers to its national producers. As a result, the export duties for the Russian metallurgy production have witnessed significant decrease. Export duties for waste and scrap of cast iron, for instance, fell from 15 % to 5 %, while tariffs for alloys based on copper and zinc collapsed from 50 % to 10 % [2]. The average level of new export duties after the reformation is now 0-10 %, which corresponds to the common world practice and allows Russian metallurgy producers to increase exports volumes.
On the other hand, lowering exports duties may be also harmful for the national metals producers. As it has already been mentioned, export tariffs for waste and scrap of various metals will be significantly reduced, which raises great concerns for Russian metallurgy corporations. According to them such a measure will substantially boost their outflow abroad, which will negatively affect Russian metals processing factories. The possibility of metals waste exports will also lead to their price increase in the national market [3].
Apart from lowering its export tariffs, the Russian government has also undertaken obligations to reduce import duties. As a result, import tariffs for such basic products as flat-rolled iron and gas pipeline pipes decreased from 15 % to 5 %, for instance. The new import tariffs for nickel, lead and zinc as well as their derivatives are now just 3 %, while for most aluminum products the import duties were lowered to 10 % [4].
Obviously reduction in the import duties is one of the greatest concerns for national metallurgy producers in the framework of Russia’s membership in the World Trade Organization, since they expect strengthening competition in the Russian market as a result of the rising imports. Most experts however point out that reduction in the import duties will not immediately lead to skyrocketing imports of metals production, since foreign producers will need some time in order to find potential clients in the Russian market as well as to negotiate with them all the specific contract terms. Together with that, it is crucial to take into account the logistics difficulties that will inevitably arise for foreign companies, since they do not possess any infrastructure facilities and do not have access to the railroads unlike most of the Russian corporations.
Surprisingly, massive reduction of import duties will also imply certain positive effects for Russian metallurgy corporations. Mainly that is due to their high reliance on imported metallurgical equipment. According to statistics, Russian mechanical engineering companies produce just 4 % of the world total metallurgical equipment output, while around 83 % is produced by China and European Union countries. The share of Russian enterprises in the supply of metallurgical equipment for national metals producers varies significantly depending on the type of the equipment. While domestic mechanical engineering companies supply around 39 % of blast furnaces, their share in the supply of continuous casting of billets as well as rolling equipment is less than 10 %, while the rest is provided by foreign companies [5]. Looking at such figures, it is not hard to predict that in the feasible future there is going to be no quick import substitution of foreign metallurgical equipment. Therefore, reduction in import duties will potentially lead to the price reduction of the imported equipment, which implies cost reduction prospects for national metals producers.
As it has already been mentioned, before becoming a WTO member, Russia lacked the opportunity to challenge trade restrictions, imposed by other countries against its national producers. Along with this, according to the Russian Ministry of Economic Development, around 37 % of all discriminatory measures against the RF were targeted at its metals producers [6].
As a result of Russia’s accession to the WTO the total number of restrictive measures against its national metallurgy producers decreased from 30 in 2010 to 20 in summer 2014, which emphasizes some visible progress in this area. Among these restrictions nearly 75 % corresponds to anti-dumping measures, which is a legitimate way of protecting the national market within the framework of the WTO [7]. However it is crucial to point out that in most cases the initiation of anti-dumping investigations against Russian metallurgy companies turns out to be absolutely groundless, since their price advantage, which significantly increases the competitiveness of Russian metals production abroad, mainly comes from the lower energy consumption costs in Russia in comparison with the majority of western countries.
After the accession to the WTO, Russia has initiated only 2 lawsuits against the methodology, used by the European Union to evaluate the potential of price-dumping usage by Russian companies. According to this methodology, the overheads of any company are calculated on the basis of average energy prices in EU. Given the fact that energy prices in Russia are significantly lower, Russian metallurgical companies receive a substantial cost advantage, which turns into lower prices of their products that EU authorities consequently consider as dumping. However the given lawsuit may be abolished by the Russian authorities in case of finding the compromise with the EU partners [8].
According to Maxim Medvedkov, which is the head of trade negotiations department of Russian ministry of economic development, Russia has little experience in protecting its own trade interests within the WTO framework. What is more, our country has rarely acted as a third party in trade disputes between other countries, which also predetermines the lack of qualified personnel in the country. As for the other factors that limit the abilities of Russia to initiate successful lawsuits, he points out the high cost of bringing the action in WTO court, since a typical lawsuit may cost several millions of dollars. That is why, before initiating a lawsuit, it is crucial to thoroughly evaluate the chances to win and what is more important - to make sure that the victory in court will finally cover for all the related expenses and benefit the industry [9].
Taking into account all these factors, it is essential to realize that Russia’s participation in the WTO will not automatically mean uncontested respect of its trade interest by other countries, but it would rather imply a lot of work to be done by the Russian authorities in close connection with the metallurgy industry representatives in order to monitor the perspectives of challenging imposed sanctions.
Considering the first implications of Russia’ accession to the WTO for its national metallurgy industry, we can observe little progress, achieved by metals producing companies. Total volume of exports has been declining 10% annually, while the volume of imported metallurgy products has been set on the rise [10]. From my point of view, however, these figures do not result from Russia’s membership in WTO, but they are rather caused by the negative market trends, which we may observe in most countries, including China, which is has already become the main driver of the global metallurgy industry.
Membership in the WTO gives great prospects for Russian metallurgy companies to expend their operations and find new markets for their products. Nevertheless, it cannot guarantee their ultimate success unless they start deep modernization of the industry in order to eliminate the technological backwardness, which is for now the main limiting factor for exports growth. The geopolitical environment, conjuncture of the global metallurgical market as well as the salvation of the core industry problems in Russia will remain the dominant factors, directly influencing further development of the national metallurgy industry.
References
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