Egypt’s steel industry protectionist measures in the courtroom

Seeking to establish a genuine story of success to be narrated to future generations, Egypt has to put national industries on the forefront.

Egyptian government has undergone a successful economic reform experience, involving a number of bold fiscal, monetary, and legislative policies. However, it has to ensure that ‘national industries’ are acting as a driving force to reap the fruits of its reform package.

‘Iron and steel’ comes on top of the strategic industries that Egypt bets on. It is one of the biggest industries that significantly contributes to the growth of other sectors. Integrated and semi-integrated iron and steel plants save 80 percent of the production capacity for steel rebar in Egypt. In addition, iron industry provides more than 30,000 direct jobs besides thousands of indirect opportunities.

As a result, Egyptian government has put the protection of iron and steel industry as a top priority. In mid-April, the Ministry of Trade and Industry imposed temporary import fees of 15 percent on iron billets and 25 percent on steel rebar for 180 days. Billets are an essential raw material for the production of steel rebar.

The ministerial decree after the Egyptian Authority for Anti-Dumping released data that showed a growing increase in imports i.e. figures that could represent a huge threat to the future of the steel industry in Egypt. The decree aimed at protecting the industry’s massive investments of 160 billion Egyptian pounds ($9.7 billion), package of thousands jobs, and annual exports estimated at $1 billion.

The decree stirred a backlash among the integrated steel manufacturers and the rolling mills which depend on the use of imported billets to manufacture steel rebar. The rolling mills complained that the local production of billets did not cover the manufacture of the total annual consumption of steel rebar. As such, Egypt’s Administrative Court suspended in early July the Ministry of Trade and Industry’s Decree No. 346 to impose import fees of 15 percent on iron billets.

Egypt’s Supreme Administrative Court halted on Saturday all verdicts related to the suspension of the Ministry of Trade and Industry’s decree on iron billets. The country’s top court will make its final ruling next September 8.

The ministerial decree has not hurt the iron and steel plants in Egypt. On the contrary, it was issued to protect those plants as well as to preserve the national iron and steel production, said Abdel Raheem Ali, deputy head of the Egyptian State Lawsuits Authority.

“It (the decree) hasn’t put any restrictions on the local iron and steel manufacturers,” Ali said.

The Beginning of the Story

After Egypt had imposed a package of protectionist import fees on iron billets, exporters of iron billets from the post-Soviet Union countries decided to significantly cut prices to compensate the Egyptian rolling mills and reverse the impact of the ministerial decree.

Prices of iron billets stood at around $475 at Egyptian ports in March – before the issuance of the decree – from $415 currently, marking a $60 decrease, an amount which is very much close to the current fees of $61. This means the fees were fully recovered for the Egyptian rolling mills due to the cut in the prices of iron billets. The protectionist fees became now ineffective.

Egypt’s iron and steel industry is now back to square one before the time of imposing the fees. The country is facing an unfair competition between the cost of importing iron billets and manufacturing them locally.

Moreover, the prices of iron ore surged by around 30 percent in 2018, putting the integrated iron and steel plants and eventually the future of national steel industry in Egypt in real danger. Signs of such danger began to emerge when Suez Steel’s direct reduced iron production plants and Beshay Steel’s plants recently halted production.

At the same time, the U.S. dollar continued to depreciate against the Egyptian pound. This reinforces the rolling mills’ stance whilst importing the iron billets and relieves the impact of any rise in the prices of imported iron ore due to any protectionist fees.

Such findings provide incontrovertible evidence that Egyptian government needs to take decisive measures to save the national iron and steel industry before it comes too late.

The government has to reach a definitive decision on the import fees on iron billets of not less than 25 percent now and not tomorrow amid expectations of witnessing more price cuts.

Protectionist Measures becoming a Mainstream Globally

U.S. President Donald Trump imposed global tariffs of 25 percent on steel and 10 percent on aluminium on 8 March 2018, breaking a deadlock among his advisers that had delayed action for months.

Later, Trump authorised higher tariffs on imports from Turkey, imposing a 20 percent duty on aluminum and 50 percent duty on steel on 10 August 2018.

According to the 2017 decision, the tariff was set at 17 percent for Chinese steel, 10 percent to 19 percent for Turkish steel, and 15 percent to 27 percent for Ukrainian steel.

Turkey exported 1.8 million tonnes of steel products, worth about $1.2 billion, to the U.S. in 2017. The shipments to the U.S. accounted for about 9 percent of Turkey’s total steel exports, according to the Turkish Steel Producers Assn.

The Canadian and U.S. steel and aluminum industries are deeply integrated, and underpin continental supply chains that strengthen the global competitiveness of the North American economy. Canada is a longstanding safe and secure supplier of steel and aluminum to the U.S. defence industry.

On 31 May 2018, the United States announced that tariffs of 25 percent on imports of Canadian steel and 10 percent on imports of Canadian aluminum would take effect on June 1, 2018.

This strongly conveys a message to the Egyptian government to continue its protectionist measures to preserve the country’s steel industry.

Benefits from Protectionist Measures

The WTO’s World Trade Outlook Indicator remained above its medium-term average in May 2018. Despite a slight slowdown, it is consistent with a global trade growth in goods between 3 percent and 5 percent in 2018. In 2019, the WTO has forecast a growth of 4 percent whereas the real world GDP should increase by 3.1 percent.

World trade will continue to face strong headwinds in 2019 and 2020 after growing more slowly than expected in 2018 due to rising trade tensions and increased economic uncertainty.

WTO economists expect merchandise trade volume growth to fall to 2.6 percent in 2019, down from 3.0 percent in 2018. Trade growth could then rebound to 3.0 percent in 2020; however, this is dependent on an easing of trade tensions.

World companies found their interest to export in developing countries and emerging markets at the expense of local companies, especially the world companies can invade these markets and threaten their national security.

In 2018, the imports of most developing countries rose from 15 percent to 30 percent, as a result of the foreign exporters’ strategies, including Egypt.

The Egyptian market’s imports reached $73.682 billion during the first 11 months of 2018 from $60.653 billion during the same period in 2017, marking a 21.5 percent growth.

Consequently, imposing protectionist fees by the government on billet imports are considered a deterrent to the plans of the global companies, which aim to invade the Egyptian market with their products at the expense of the local industry.

This decision is a main supporter of the national industries notably iron, which is with investments exceeding 150 billion Egyptian pounds ($9.1 billion), where more than 30,000 workers, including around 25,000 workers in integrated iron factories.

These factories capture 80 percent of iron production in the Egyptian market, with a maximum capacity of 12.5 million tonnes. On the contrary, the Egyptian market’s annual need does not exceed 8 million tonnes.

The decision is also a major supporter for national projects that are currently being implemented by the Egyptian governorate, through protecting a strategic industry that is a key component of major projects.

Iron products are one of the most important components in construction and reconstruction process. The giant projects must be promoted by a strong domestic industry that has the ability to fill the needs of these projects without any risks related to external dependence.

In addition, the decision is a major supporter for the investment climate in the Egyptian market, through protecting investors and local industry in the country, besides its ability to face any external plans to flood the market.

The country’s ability to protect domestic or foreign investors is one of the most important requirements the investor is seeking, and which greatly supports his investment decision by enhancing his confidence in the market and achieving his investing goals.

The decision is made for serving the strategy of deepening the local industrialisation within the coming period, as the country aims to increase the rate of the local component in most industries up to 80 percent against 20 percent less for the productive and intermediate components imported from abroad, notably in the strategic industries led by the iron industry.

This decision will also serve more plans to deepen the local industry and urge rolling mills to build production lines for billet and stop or reduce their imports of crude from abroad, thereby easing pressure on the dollar in the Egyptian market as well as contributing to increasing production rates in the local industry.

The story started with the integrated iron companies in Egypt warning of a serious threat to the local industry, as Egyptian market imports of some iron products, especially iron billets increased 30 percent during the first half of 2018, compared to the same period in 2017.

This caused a serious damage to the local industry, where the sales and share of the domestic industry declined 10 percent, while the Egyptian market’s share of imports increased about 20 percent.

The integrated iron companies succeeded in proving the damage they have and getting their rights regarding protecting their industry from unfair competition with products imported from abroad or imported component products. The companies’ share of local industry reached 80 percent of the volume of iron production in Egypt

Therefore, the Egyptian Ministry of Trade and Industry has imposed temporary fees on some iron imports under law No. 346.

The decision helped stop the losses of domestic industry iron, which is an important strategic sector. The continuous increases in iron imports and its components significantly threaten the local industry, although the national companies have production capacities up to 12.5 million tonnes, while the domestic market needs do not exceed 7.5 million tonnes.

Pressures by Rolling Mills

The Rolling mills operating in Egypt have been trying to prove the damage occurred to their production of iron as a result of the Egyptian government decision to impose tariffs on billets.

The decision has resulted in increasing the prices of imported billets which is considered to be one of the main production components of these companies.

The rolling mills noted that the effect of imposed customs duties has been disastrous on the Egyptian industry, the consumers and the investments climate. 22 plants have been forced to halt their productions, eventually contributing to monthly losses of 2.5 million pounds for each plant.

As a result, the Egyptian Administrative Court has suspended a decree issued by the Ministry of Trade and Industry to impose import fees of 15 percent on iron billets and referred the decision to the Commissioners Authority for their technical opinion.

However, the rolling mills have demanded the suspension of the ministry of industry decision using incorrect justifications, and presented circumvented documents to claim that the plants have been forced to stop their production, contrary to the reality.

In addition, some of the rolling companies operating in Sadat City have submitted documents proving that they addressed the Egypt Gas to stop pumping natural gas into their plants, as the lack of raw material have forced them to stop production, pressuring the Administrative Court of and the ministry of industry and convince them of the negative effect of the decision.

However, other documents have showed that these companies submitted another request to resume pumping gas after two days which indicated that these companies wanted to use the gas pumping suspension only as a pressure card, while continuing non-stop in their production.

A company located in Sadat industrial zone has submitted a request to  Egypt gas to suspend pumping gas in 3 June 2019, while it requested a resumption of gas pumping in 6 June 2019. While, another company has submitted the suspension request on the fourth of June 2019 and resumption request on the fifth of June 2019.

The documents also confirmed that the one of the steel plants, operating in Tanta City, claims of suspending natural gas as a result of production problems and the unavailability of raw materials were completely in correct.

Moreover, the plant has continued in receiving its quote of natural gas with an increase in the average monthly consumption between April 1, 2019 and June 16, 2019 to register 172.858 cubic meters when the decision to impose tariffs started being valid compared to 155.9 cubic metres during 2018 before making the decision.

Observing the natural gas consumption index which increased by 10.8 percent after applying the decision, there were not any negative effect on the plant production.

Other documents have revealed that some of the rolling companies operating in Borg Al Arab requested adjusting and increasing their quote of electricity and natural gas as a result of its plans to introduce the activity of producing billets among its production activity and the expansion in steel production.

Thus, the ministry of industry decree to impose import fees has stimulated some of the rolling mills to locally produce billets and expand in producing steel to meet the local market needs.

According to documents by the Ministry of Electricity, most of the rolling companies have received electricity supply on a regular basis with the same average before issuing the decision.

Meanwhile, other documents issued by the Ministry of Supply and Internal Trade showed that the companies have continued their production as well as their sales, obtaining shares of the iron market correspondent to their shares before the imposing the temporary decision.

Thus, there wasn’t sufficient evidence to prove the ministry has used its authority to harm iron plants, but instead made the decision to protect local investments and ensure fair trade.

The Egyptian State Lawsuits Authority backed the Ministry of Industry and Trade as well as some of the iron and steel companies and challenged the Administrative Court’s decision on the decree on iron billets.

In addition, the Supreme Administrative Court accepted the appeals, which confirmed that the Ministry of Industry’s decree aimed to protect national industry against unfair competition.

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