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Severstal

March 11, 2002

Alexei Mordashov, head of Severstal Group, urges to revoke export duty

"Immediate and complete elimination of export duty is a top priority measure that is able to protect Russian steel exporters. This duty leads to the loss of competitiveness of the Russian ferrous steel industry," said Alexei Mordashov.

A five percent export duty on all goods was introduced in May of 1999. Steel exports were levied on January 4, 2002. Later Government Committee on Protective Measures in Export Trade and Customs-Tariffs Policies decreased export duty on some types of steel products from 5 to 3 percent. The products included billets, joist web, and section steel.

According to Alexei Mordashov, consequences of the US decision to close American market to Russian steel may lead to decreases in Russian budget earnings. "America again placed its steel companies' problems on the shoulders of the world community, including Russia. This causes a threat of a trade war. It's not just the loss of the US market that is so crucial, but the process which it starts," said Mordashov.

He feels that it's quite possible that some, primarily Latin American markets, will be simply closed off to Russian steel. Remaining markets will become highly competitive as prices there may fall sharply, even though they are already low.

Today market conditions are such that many companies have to sell their products with a very low profit or even none. Export duty is causing budget earnings to go down at a fast rate. It was estimated that if the problem is not solved, Russia's federal budget will lose US $ 30 million dollars.

The decision to drop export duty from 3 to 5 percent on some steel export items, made by the government committee in January, Mordashov calls 'halved and ambiguous'. On one hand, decreased duty on billets and section steel makes these types of products more attractive for export. On the other hand, their export becomes more attractive as compared with high value added products. It means that Russian ferrous steel industry is forced to go back to selling raw materials and semifinished products. If this tendency is to continue, then Russian steelmakers may lose prospective clients. It will also lead to decrease in the turnover of goods and drop in sales, and, consequently, decrease in budget earnings.

Mordashov believes that the problem cannot be solved if the whole approach to computing duties doesn't change. He stresses that "Everywhere in the world duty serves to regulate export and import. In Russia, duties are fiscal. They serve to regulate budget earnings. Steel industry is cyclical: downfall is followed by raise. Imposing duty in the upward period is justified. What I think we need is a clear method of calculating and deciding what products in what circumstances must have a duty and in what amount. This will speed up the decision making process, establish clear rules and allow for better planning of company's finances as well as budget earnings. It will also allow to promptly react to decisions like the one with the US duty."

 

 

 

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