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Steel tops debate on Japan deal

Bangkok Post, Thailand

Steel tops debate on Japan deal

By Busrin Treerapongpichit

6 March 2007

The pending Thai-Japanese free trade agreement will become a catalyst for Thailand’s steel industry to deal with heavier competition, according to local experts.

For years, steel producers and users have been debating the pros and cons of the FTA. Local producers fear tougher competition and want the government to maintain some barriers to protect the domestic market.

At the same time, steel-consuming industries like Japanese vehicle and appliance makers based in Thailand want to see all barriers eliminated so they could import lower-cost raw materials.

Eventually, the FTA negotiations concluded with both parties seeing a need for an adjustment period of seven to 10 years for commodity-grade steel, and an immediate zero tariff on specialty steel products that are not made locally.

To smooth the transition, the government will set up a fund to alleviate the burdens of affected sectors.

A study by the Thailand Development Research Institute shows the Thai-Japanese FTA would only affect the steel industry by 3% in terms of economic value. At the same time, the TDRI said, the FTA could lift the value of the country’s farm sector by 15%.

With current import tariffs on steel ranging between zero and 5%, many industry observers wonder whether an FTA will make any difference at all.

’’Do you think the 5% tariff is attractive enough to convince users to buy more materials locally? I don’t think it will be,’’ said one industry executive.

’’I can’t see anyone benefiting, but politicians in the two countries can secure votes from some other businesses that gain from the pact,’’ said another industrialist.

Others argue that the only loser will be the Thai Revenue Department once the 5% import tariff is eliminated.

However, some local steel producers say that what looks like a small number is a big one for them, and tariff protection helps them stay afloat.

Sawasdi Horrungruang, the founder of NSM Plc, a hot-rolled coil producer, says margins in his industry are so small that every advantage counts.

’’While customers demand that we produce better-quality goods, all players need to make an all-out effort to compete with rivals. In this scenario, 5% can be the difference between us being in the red or the black,’’ he said.

’’How dare the government open the local market to others despite an awareness that Thai operators still lack competitiveness? I don’t know why they have to rush to reduce our tariff protection. Even 5% means something.’’

However, steel users, such as Siam United Steel (1995), a cold-rolled steel maker, believe the deal will be fair to both Thai and Japanese companies.

’’Nobody can gain without any pain in the world of business these days. Rather, you should take into account long-term benefits,’’ said Payungsak Chartsutipol, a company executive.

Under the pact, local steelmakers are still protected for locally produced items during the first seven years, with import quotas for some products whose quality needs to be inspected.

Mr Payungsak also disputes the conventional wisdom that Japanese companies prefer importing raw materials from their groups to ordering from local producers.

He said Japan-based auto and electrical appliance companies preferred to source quality local raw materials to keep transport costs down.

Siam United Steel is 62% owned by leading Japanese steel makers including Nippon Steel, Mitsui, Kawasaki and the Kobe group of companies.

’’I think [the FTA] is fair since the government listened to both sides’ demands,’’ he said.

He also noted that most industries agreed with the pact.

A survey conducted by the Federation of Thai Industries shows that 16 out of 36 industries supported the pact while 20 others had no comment, he said.

Wikrom Vajragupta, director of the Iron and Steel Institute of Thailand, said that FTA or no FTA, the fact remained that the local steel industry needs to improve its efficiency rapidly; otherwise, it would be pushed out of business by the competition.

But the government needs to pay more attention to the industry, he said, noting that it had grown with no real guidance or direction despite its strategic importance.

’’In many countries such as Japan, Korea and Europe, their governments have developed into industrial countries by subsidising the steel industry first,’’ he said.