Type in “Doha trade talks and steel” into Google and few if any articles appear. And yet I can’t help but fear that the latest round of Doha trade talks starting again this week may have profound long term implications on metals buyers across this country and elsewhere. First, a re-cap of Doha and who/what is at stake. Trade ministers gathered in the fall of 2001 to liberalize trade so that “the system plays its full part in promoting recovery, growth and development,” according to this week’s Economist. But progress on the talks has moved in fits and starts and two years ago, Pascal Lamy, the director-general of the WTO actually suspended the discussions.
What is so controversial? This time around the main sticking points relate to America’s hand-outs (I mean subsidies) to farmers which we have reported on previously, some developing countries have been asked to reduce industrial tariffs and Europe and India have been accused of not making deeper tariff cuts on farm products. Reduced industrial tariffs promote trade and open up markets.
But where is the real controversy with regard to industrial buyers? It’s in two places. The first, according to this Reuters article affects the automakers who face more imports of cars during the worst automotive market in recent years. The second controversy, according to the Alliance for American Manufacturing (which really only represents steel mills) relates to “US steelworkers and many small to medium-sized manufacturers fear an agreement could weaken the United States’ ability to impose anti-dumping or countervailing duties on imports it believes are unfairly priced,” said Scott Paul, executive director. Folks, let’s not pretend this organization represents America’s small and mid-sized manufacturers. Their board of directors consists of individuals from leading steel producers and various groups representing steel workers.
Anti-dumping claims have become the defense of last resort when a US company can no longer produce products competitively. When we allow anti-dumping claims, we block lower priced goods which do nothing but increase our own costs. This is currently happening in the mattress innerspring industry, the dry-cleaning industry, and several more.
From a strategic sourcing perspective, when we limit competition, the price goes up, above marginal cost. This is referred to as market power. According to this fascinating article on two trade policies effects on market power, it is this [market power] theory that rarely if ever gets discussed in talks of trade liberalization. Yet the evidence that trade policies effect market power is almost irrefutable. The two primary methods of impacting market power relate to the use of quantitative restrictions (known as quotas) and anti-dumping measures though the later practice does not yield increased market power, where ‘import diversion’ exists (market share gets diverted to import sources not targeted by the antidumping protection, rather than the domestic firms).
To make a long story short, Doha matters because anti-dumping cases have been on the rise in the last 10 years. And if anyone can show me or MetalMiner readers how market power decreases after one of these metal producers wins an anti-dumping case, I’m all ears. In the meantime, let’s hope Doha can deliver something meaningful for our next president to sign!