Government Rescues Steel Makers

Russia's government has lowered export duties on ferrous metals and related products, voluntarily agreeing to reduced tax inflow. The governmental commission supposed to come up with protective foreign trade tariffs was going to do this in May. Yet the situation deteriorating fast, the commission had to put the pedal to the metal. According to the government, the measure is supposed to support Russia's steel makers and the regions where steel industry is concentrated, while holding the overall growth of economy at the desired level. Alexei Kudrin, a Vice-Prime Minister, the Minister of Finance of Russia, said in case problems such as a crisis in steel industry arose, the government might try and piece together disrupted cash flow by granting loans to the affected regions.

Reportedly, Arkady Volsky, the President of Russia's Entrepreneurs' Union, has asked George Bush, the US President, to grand him an audience on May 24 to discuss the possible rescinding of alleviating the American steel import tariffs so hurtful to Russian steel exporters. Mr. Volsky hopes for a favourable outcome of the meeting. He has already met with Thomas J. Donohue, the President and Chief Executive Officer of the US Chamber of Commerce who, Mr. Volsky says, supports the idea.

Effective March 20 this year, the US introduced 8% to 30% import tariffs on various kinds of steel and related products from Russia, Ukraine, Japan, China, South Korea, Brasil, etc. Effective April 3, the European Commission followed suit, hiking tariffs on 15 kinds of Russia's steel to between 14.6% and 26%. There is an annual grace quota of about 1 million tonnes, everything outside of it subject to the new taxation.

In effect, this meant the economic blockade of Russia's steel makers and the consequences did not take long to follow. Alexei Mordashev, the President of the Severstal steel company, said the profitability of steel exports had dropped to zero or in some cases even below zero. The domestic market is underdeveloped and incapable of assimilating steel than can no longer be exported. The leading steel companies have been forced to cut their output and even resort to such unpopular measures as layoffs. Early in April, local trade unions warned of possible 'civil explosions', unless the government took urgent steps to support the industry.

According to Mr. Mordashev, social situation 'still holds'. Yet the recent assessment of it by Vice-Prime Minister Valentina Matvienko fell short of reality. She said while steel industry had its problems, the situation hadn't gone as far as to be called a crisis. She further said the disruption of cash inflow into regional budgets in anyway connected to this situation was not in evidence. However, she promised the government would 'take steps toward social stabilisation in steel-producing regions' and that these steps would come as part of the overall governmental measures directed at social stabilisation in the country.

Such a crisis having affected Russia's leading exporters, the talk of her recognition as a country with market economy sounds indeed ridiculous. Even if the US Department of Commerce grants Russia this status pending the visit here of President Bush, the European Union is not about to follow suit, saying economic liberalisation alone is not nearly enough. Looks like these colleagues and partners of ours, who recently said Russia must join Europe with its system of the division of labour and was welcome there, now factually hinder our reforms and delay the process of the forming of truly capitalist relations.

Well, looks like no one needs competition. This means that while we have resources, talented people, and plenty of land, all the talk of awarding Russia the status of a country with market economy and her joining WTO is nothing but pure and clear politics, no economy involved. Tatyana Chaplygina, Moscow