Transcript Tariff Design for Import Substitution Industry: Steel Case

Designing Tariff Structure for
an Import Substitution
Industry: The Case of Steel
Nozomu Kawabata
Tohoku University
Sep. 9 2003
Production Structure of the
Vietnamese Steel Industry
Protection
Blast
Furnace
Very Small
Steelma
king
Plant
Long
Rolling
Mill
Over
Capacity
Hot Strip
Mill
Very Small
No Capacity
Sheets Imports
Protection
Cold
Rolling
Mill
Galvanizing
Plant
Pipe
Fitter
Over Capacity
Sheets Imports
Over Capacity
Customers in Vietnam
Billet Imports
Protection
Key Issues of the Steel Industry
are…
• To solve the overcapacity problem by
market selection at some processes
• To construct the competitive producers at
steelmaking and flat rolling processes
– SSC’s steelmaking plant will start at 2004
– VSC’s cold rolling mill will start at the end of
Dec. 2004
– VSC’s hot strip mill will start at 2007 or later
Governmental Policy until Now for
Long Products (AFTA and nonAFTA)
Import prohibition was removed
45%
40%
35%
Unclear!
30%
25%
20%
15%
10%
5%
0%
2000 2001 2002 2003 2004 2005 2006 2007
Bar and Wirerod
(AFTA)
Bar and Wirerod(nonAFTA)
Billet(AFTA)
Billet(non-AFTA)
Governmental Policy until Now for
Flat Products(AFTA)
45%
40%
35%
Galvanized
Sheets(AFTA)
Cold Rolled
Sheets(AFTA)
Hot coil(AFTA)
30%
25%
20%
15%
10%
5%
0%
2000
2002
2004
2006
Governmental Policy until Now for
Flat Products (non-AFTA)
35%
30%
25%
Galvanized
Sheets(non-AFTA)
Cold Rolled
Sheets(non-AFTA)
Hot coil(non-AFTA)
20%
15%
Unclear!
10%
5%
0%
2000
2002
2004
2006
Inconsistent Policy
• Inconsistency between trade and
competition policy
– Protection + Free entry = Overcapacity
– Confusion in the licensing process to new
investment of foreign producers
• Modern efficient producer to be welcomed?
• Exacerbating the overcapacity to be stopped?
Problems (1)
• Lack of the predictability of investment
environment
– It means……
• Difficulty to make a plan of investment and
rationalization for the modern producers and
foreign investors
• Incentives to opportunistic entry for the inefficient
producers
→Adverse selection
Problems (2)
• The balance between liberalization and
temporal protection is not clear
– On one hand, too high rates are observed.
• 40% for long products leads to high price for
customers.
• It is exceptionally high in the world
– On the other, policy for the new mills is not
clear
• Based on the experiences in the world, temporal
protection is necessary for new steelworks
Solutions(1)
• Design the tariff structure to non-AFTA
countries immediately
– Especially, tariff scenario until 2006 should be
fixed and announced
• Pay attention to……
– The reduction of overcapacity by the rational
market selection
– The temporal protection for the new steel
mills. But permanent one should be avoided
– Reliability of governmental policy
Solutions(2)
• For that……
– Free trade in 2015 should be a goal
– Cascade tariff structure should be kept
– Decide the timing and scope of the tariff
reduction base on the concrete condition of
industry
– Trade laws for anti-dumping and safeguard
should be streamlined for treating the
external shock
Tariff Scenario for Long Products
(AFTA)
16
20
14
20
12
20
10
20
08
20
06
20
04
20
02
Bar and Wirerod
(AFTA)
Billet(AFTA)
20
20
00
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Tariff Scenario for Long Products
(non-AFTA)
16
20
14
20
12
20
10
20
08
20
06
20
04
20
02
Bar and Wirerod(nonAFTA)
Billet(non-AFTA)
20
20
00
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Tariff Scenario for Flat Products
(AFTA)
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2000 2002 2004 2006 2008 2010 2012 2014 2016
Galvanized
Sheets(AFTA)
Cold Rolled
Sheets(AFTA)
Hot coil(AFTA)
Tariff Scenario for Flat Products
(non-AFTA)
35%
30%
Galvanized
Sheets(non-AFTA)
Cold Rolled
Sheets(non-AFTA)
Hot coil(non-AFTA)
25%
20%
15%
10%
5%
16
20
14
20
12
20
10
20
08
20
06
20
04
20
02
20
20
00
0%
Change from the original scenarios
presented at Main Report
• Scenarios have been revised base on
the…
– Governmental policy until now
• Governmental choice is similar to the third option
presented in main report
– Delay of the construction of cold rolling mill
– A risk of irrational profit squeeze of
galvanizing producers