EU eyes Kazakhstan steel deal

Date: 20/03/1997

By Chris Johnstone

EUROPEAN trade negotiators are set to turn their attention to Kazakhstan's ambitious steel industry as a deal is sealed with Ukraine and negotiations with Russia reach a climax.

An elusive accord with the central Asian republic, most of whose 6-million-tonnes a year production capacity is now in the hands of aggressive Indian company Ispat International, would fill the gap in the Union's attempts to seal new agreements with most of the former Soviet Union's principle steel producers.

Russia is poised to follow Ukraine next week in deciding whether to accept a liberalising five-year trade deal with the EU. Both countries had been offered a last chance to strike a deal before their current quotas for imports into the Union expire in June. The quotas were extended last September to give more time for the problematic talks.

Kazakhstan resisted the initial EU invitation to join Ukraine and Russia in negotiating a new long-term deal but, somewhat ironically, has been rewarded with virtual free entry for its exports into the Union.

That situation will rapidly change if Ispat follows its expected strategy and begins to export large amounts of low-quality flat steel to the relatively lucrative European market.

“Anti-dumping actions could start and that could be expected to bring the Kazakhs to the negotiating table,” said a European steel industry observer.

Much of Kazakhstan's excess steel has until now been directed towards neighbouring China, but that market is close to saturation as the country's domestic surge in output has moved it to top spot in world production. China is now likely to investigate erecting barriers to steel imports, said an industry source.

Kazakh officials now say they are waiting for an invitation from the EU to launch new talks on a steel deal.

Ukraine yesterday (19 March) declared itself happy with the accord on offer: a five-year agreement under which its current 1996 quota will be increased by 10&percent; in the first year, 5&percent; in the second, and 2.5&percent; in each of the succeeding three years.

Kiev had been asking for a 30&percent; increase in the quota for flat steel production in the first year, but was offering to cut long production by a similar amount. That option was not acceptable to the EU, however, because it threatened to hit some producers without offering them any advantages. Most Union steelmakers are specialised and do not cover both long and flat products.

The deal will also widen the system of EU licensing for the majority of Ukrainian steel imports not covered by quotas. This will give the Union notice of where problems are developing with imports and spark bilateral talks aimed at averting the clumsy imposition of anti-dumping duties.

As a trade-off, Ukraine has committed itself to take on board EU-style subsidy disciplines, with progress monitored regularly. The move is part of a wider strategy aimed at removing quotas altogether once the country's industry has aligned itself to western rules.

Part of the sugar on the pill is the EU's offer of Tacis know-how aid for the Ukrainian steel industry to help it identify markets and sell its products sensibly on western markets. Currently, producers can fall prey to rapacious middlemen or naïvely go it alone and dump steel in the Union at rock-bottom prices.

The EU offer of a five-year quota increase for Russia's bigger steel industry is from the same mould as the Ukrainian deal. During the talks, Russia and Ukraine jealously eyed each other's treatment to make sure neither got any advantage.

Moscow had been expected to finalise a deal last week, but delayed at the eleventh hour. Russia's EU steel quota in 1996 stood at 803,840 tonnes, of which 52&percent; was used up in the first nine months of the year.

An overwhelming proportion of its imports into the Union are not covered by the limits and its deal has faced Italian opposition because of a flood of Russian exports of narrow steel strips, used to make pipes, which has undermined local producer Riva.

A complaint has been lodged by the Italians, which is likely to result in the imposition of anti-dumping duties.