As reported in an April 15, 2009 press release, eight major steel industry associations consisting of steel producers from three continents have issued a letter to the Chinese government in regard to China's foreign trade policies in the steel realm.
The group of steel industry associations which submitted the letter includes: the American Iron and Steel Institute (AISI), Canadian Steel Producers Association (CSPA), Committee on Pipe and Tube Imports (CPTI), European Confederation of Iron and Steel Industries (EUROFER), Latin American Steel Producers Association (ILAFA), Mexican Steel Producers Association (CANACERO), Specialty Steel Industry of North America (SSINA) and Steel Manufacturers Association (SMA).
The associations signed and submitted a letter to China's Industry Policy Department of the Ministry of Industry and Information Technology in response to a solicitation from the Chinese government that asked for suggestions for amending its current steel industry policies. Specifically, the letter is in reference to the "Notice of March 7, 2009 Soliciting Public Comments and Suggestions to Amend the Current Iron and Steel Industry Development Plan Published July, 2005."
In the letter, the abovementioned associations listed two primary contentions they have with the Chinese foreign trade policy. The first is: "The Chinese steel industry should be governed by market principles, not government intervention." The letter cites the 2008 USTR Report to Congress on China's WTO Compliance issued by the US government, which states, "{I}t appears that China has yet to fully implement important commitments, and in other areas significant questions have arisen regarding China's adherence to ongoing WTO obligations, including core WTO principles. Invariably, these problems can be traced to China's pursuit of industrial policies that rely on excessive, trade-distorting government intervention intended to promote or protect China's domestic industries."
The second main assertion made by the steel associations in the letter is: "China's iron and steel industrial development plan and other government actions are disrupting and distorting the global steel market." Illustrating the Chinese steel industry's current practices, the associations say that Chinese steel production has reportedly increased 2.4 percent throughout the first two months of 2009, which is comparable to the same period in 2008, which has led some analysts to suggest that "China continues to defy market fundamentals." Furthermore, the letter states that the China Iron and Steel Association (CISA) has admitted that restoring Chinese steel production over the first two months in 2009 despite the lack of any warranted demand, which, "only resulted in record high market inventories, which triggered a further price collapse."
In an effort to provide solutions to the two primary criticisms and promote the development of a market-based Chinese steel industry that is fully consistent with the commitments China made on its accession to the WTO, the associations came up with a list of six recommendations:
I. The Chinese government should discontinue providing subsidies to its steel producers.
II. The Chinese government should stop controlling and directing the operations of steel facilities, whether through the use of state-owned enterprises (SOEs) or other means.
III. The Chinese government should dismantle raw material export restrictions and should not introduce more distortions in the raw materials market.
IV. The Chinese government should stop manipulating its value-added tax (VAT) system and any other border measures that provide artificial competitiveness to China's steel and manufacturing exports.
V. China should establish more stringent environmental standards and enforce its environmental laws vigorously.
VI. China should stop manipulating its currency, which provides significant export subsidies.
The eight associations went on to mention that China has been under agreement of the WTO for seven years, and that all of China's obligations under the WTO should have been fulfilled by now, but have not. The letter concluded with the following statement: "Until China's Iron and Steel Development Plan is ended as a state intervention into the market or substantially amended to comply with China's WTO accession commitments, the Chinese steel industry will continue to distort steel markets worldwide for years to come. This is not in the long term best interests of China if it seeks to attain its rightful place in the world economy."