Steel’s the show

Sooner or later, according to our steel manufacturers, their baby industry will die, and it will be a painful death in the hands of the Chinese government.

It seems that the latest show in steel town is the dumping of cheap steel from China into the hands of some willing accomplice in the Philippines. The sad thing is that the imported steel gets huge subsidies from the Chinese government.

They are, nevertheless, quite questionable subsidies, possibly even illegal.

The most vocal among the steel manufacturers against the alleged “dumping” is Steel Asia, which invested some $400 million on a modern steel-making factory in Bulacan, rated to have a capacity of about 1.2 million metric tons a year.

Steel Asia therefore has a deep interest in fighting the unfair competition from imported highly subsidized steel from China. The company is fighting for dear life.

From what I gathered, Steel Asia president Benjamin Yao already wrote a letter to Trade and Industry Secretary Gregory Domingo to complain about the unfair competition that the local industry must face from the steel dumped here from China.

Actually, the imported steel comes in the form of “billets,” which are the raw materials for so-called long steel products such as rebar, angle bar or wire. Billets technically must be classified as semi-finished product, thus disqualifying them from the subsidy given by the Chinese government for exports of finished goods.

But some bright business crooks apparently came up with the method to go around the subsidy rule. With nerves of steel, they simply alloyed the billets with an element called “boron,” which is an unnecessary element in steel, according to the local steel industry. The “boron” thus allows the billets to be classified, or more appropriately “misclassified,” as a finished product to qualify for Chinese government subsidies.

Upon reaching the Philippines, the importers simply declare the billets as square bars, and, bingo, the crooks win again.

To think, China is now the world’s biggest steel manufacturer, with a capacity of about 900 million MTs a year, as against the 60 million MT capacity of the United States. Thus, China can cover the entire demand in the Philippines with heavily subsidized steel, and the Chinese government may not even feel any effect from the subsidy.

According to the local fledgling steel industry, all the billets used in the Philippines are equivalent to less than one-fourth of one percent—yes, not even one percent—of the manufacturing capacity in China.

In other words, the relatively small subsidy on billets—through the fraudulent scheme of declaring them as square boron-alloyed bars—can already kill the entire steel industry in the Philippines.

To top it all, steel products have long downstream in the manufacturing process, with most of them already resorting to the highly subsidized “square” bars from China.

Thus, the local steel manufacturers fear that most of them simply would rely on Chinese subsidized imports, instead of investing in their own modern facilities here, a dependence that, they said, would be bad for the country in the long run.

In fact, according to the local industry, many other countries threatened with subsidized steel products from China have already taken action to protect their steelmaking industries.

Now what can the administration of our leader Benigno Simeon (aka BS) possibly do about the “dumping”—shout invectives at China again? Really, critical issues like this need a little more concrete action. How about imposing a stiff penalty on those crooks? Better yet, let’s put them in jail.

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Aside from the heavily subsidized “billets” from China disguised as “square bars,” the local steel industry must deal with rampant smuggling.

One local company, going by the name of Joyland Industries, often registered blips in the industry’s antismuggling radar. One clear case was detected last May, when Joyland had a shipment of finished steel wire rods. The company reportedly declared value of the shipment at only $279 per MT. Surprise—the prevailing value of steel wire rods at the time ranged from $640 to $700 per MT.

Clearly, according to the steel industry, as represented by the Philippine Iron and Steel Institute, and the Galvanized Iron Wire Manufacturing Association, Joyland was declaring the value of its imported products at less than half the prevailing market prices.

Again, that is less than half! Meaning, the duties and taxes would also be cut by more than half!

From what I gathered, Joyland is based in Mandaue (Cebu), and it only operates a crude steel rolling plant in that city. Thus, the company derives its business activities mainly from the importation of finished steel products.

Horror stories abound in the industry about steel companies that reprocess imported steel products into steel bars. It is said that importers sometimes use steel wire rods, rolled together, to pass off as reinforcing steel bars.

The local industry anyway reported to the Bureau of Customs that Joyland was able to import wire rods at prices way below the local price for scrap metal. Surely, scrap metal is the cheapest of the cheap metal around!

In the business community, it is widely known that such blatant cases of smuggling could not be possible without the help of customs officials, particularly the customs collector.

But when the local industry complained to the Bureau of Customs, they got a rather simplistic explanation: the BoC commissioner, who happens to be a former congressman who took up med tech in school, going by the name of Rozzano Rufino Biazon, could not do anything because the BoC follows the so-called “transaction value method” to compute taxes and duties on imported products.

It is a rather uncomplicated method in which the importer simply presents documents to the BoC that indicated the value of the shipment, provided that the documents are notarized in the country of origin, and—presto—the shipment gets the green light.

The local industry used a word to describe the flaw in the system, and it is none other than this: discretion. You know, there may be too much of it on the part of the BoC officials.

It is almost similar to an open invitation to corruption.