[Analytics] How policy, not price or quality, is destroying Myanmar’s steel industry

Perhaps because Myanmar is a relatively recent convert to free trade it is keen to show its commitment to it. The more Donald Trump talks about making America great through slapping tariffs on China, the more we want to appear internationally-minded and progressive. But if we want to make the most from free trade, we have to be able to recognise some hard realities. Nang Nwe specially for the Myanmar Times.

The most important of these is that our competitors claim to support free trade, but are often “gaming the system” by extolling a level playing field that is actually tilted in their favour. Myanmar has not been good at recognising that in some sectors it is playing by one set of rules whilst its competitors are playing by rules that conveniently suit them and disadvantage Myanmar.

One of the clearest examples is the steel industry. Steel is a vital product, especially for a country like Myanmar whose construction and infrastructure sectors need to expand rapidly if its economy is going to take off.

Steel is a vital strategic industry, not an optional extra. And this is why countries around the world do not let the normal rules of free trade apply to their steel industries. In ignoring this reality, Myanmar is not joining the world community, but standing apart from it.

Our decision to expose ourselves fully whilst demanding no reciprocity of openness is a primary reason why Myanmar’s steel industry is unable to benefit properly from the construction and infrastructure contracts that are going to its foreign competitors.

Are we building a better Myanmar? In fact, when it comes to steel construction, it is mostly Vietnam that’s building our country.

Why Myanmar is increasingly made in Vietnam

Vietnam enjoys an 80 percent market share of all steel manufactures purchased by Myanmar. China has another 15pc. Myanmar steel companies only have a fraction of the remaining percent – a remarkably tiny amount in its own country.

And Vietnamese and other foreign companies are dominant in Myanmar not because they are producing more competitive or better quality steel products, but because they have worked out how to game the system. If Myanmar wants a viable steel industry of its own, it needs to play the same rules.

In principle, we should all be able to buy steel products from the producers of our choice, who provide the best quality products at the cheapest price through efficiency and good business practices. Most of us would agree that this is a fair system – and one in which the customer benefits most.

This is not the system we have in place in Myanmar.

For such a free market to reward the well-run businesses and punish the badly-run ones, foreign steel companies exporting into Myanmar should do so on the same terms that Myanmar manufacturers do in exporting abroad. But they do not. To support competition, we have removed the barriers that protect Myanmar steel from its foreign competitors without those competitors responding with the same courtesy.

Here are some of the ways in which our competitors have removed our ability to undercut them on the same terms that we allow them to undercut us:

Tariffs as ‘trade defence’

Membership of the World Trade Organisation (WTO) is intended to provide a framework for arbitration and removal of tariffs. Whilst paying lip-service to this system, Asia’s big steel players use anti-dumping measures to protect their own industries from competition.

Anti-dumping is a tariff that is imposed supposedly to ensure that competitive steel producers are not under-cut by foreign competitors who sell their products more cheaply because they are subsidised or in other ways given artificial advantages by their government to enjoy a monopoly position. Consumers, as well as the more efficient companies lose out from this form of what is, in effect, price-rigging.

Whilst supposedly committed to free trade, the European Union, for instance, champions the protection of its own steel industries particularly against China through ‘anti-dumping’ tariffs it describes as trade defence measures to prevent China – in particular – from flooding European markets with below-real-cost steel.

But sometimes ‘anti-dumping’ is just a self-serving protectionist tariff disguised as something more to escape WTO censure – or to be allowed to penalise for long enough whilst the WTO’s long investigation takes place to assess whether a breach of rules exists. Countries of all different sizes and wealth are playing this game, but not Myanmar.

Take Vietnam as an example. Vietnam is a major regional steel manufacturer which slaps ‘anti-dumping’ tariffs even on countries like Korea that don’t artificially subsidise their steel. This is protectionism, pure and simple!

Despite being a WTO member since 2007, Vietnam continues to introduce new tariffs – from March 31 this year Vietnamese tariffs of 10.9 pc will apply on long steel imports from China, the US, Canada, Germany, France, Japan and Korea to give the local industry more time to restore production, as Vietnam’s Ministry of Trade and Industry put it. Why can such clearly protectionist measures not apply here if that is what we are competing against?

Other neighbours also find excuses for imposing tariffs. In Malaysia, a 10pc tariff on foreign steel is described as a sales tax, although not one that applies to Malaysia steel, conveniently.

When is a barrier not a barrier?

Asian countries have also found non-tariff ways to ensure foreign steel imports end up being more expensive than home-produced steel.

Steel imports to Indonesia have to be processed through a red zone (US$2000 per container for document checks; with extra fees imposed to delay shipment at port for one month) – all with the successful aim of making imports less competitive.

Singapore is often held-up as an open free market country. But shipping steel into Singapore is prohibited unless you are certified as a Singapore steel association member – with extensive checks to ensure every component meets this criterion.

Our neighbours are all, in theory, committed to free trade. Yet, all find ways of ensuring their steel is protected from open competition.

Myanmar is different. Our government has no anti-dumping measures, no tariffs pretending to be sales taxes. We have very little bureaucracy at our ports – so steel imports are cleared in two days and not the two months or more it typically takes for Myanmar-made steel to be allowed out of foreign port authorities.

What is the result of the Myanmar government’s indifference to allowing its own steel manufacturers to compete on the same terms as those of its neighbours? It is time to look again at our policies and practices.

The goal of policy reform should not be to give Myanmar’s steel makers an unfair advantage. Merely, practice and procedure should allow them to compete on price and quality with their neighbours and not, as in the current situation, by being placed at a disadvantage that our competitors would never tolerate for themselves. For free trade to be fair, it must be based upon reciprosity. The alternative, we may find, is that we have no home-made steel to trade.

Nang Nwe, originally from Shan State, is a Yangon-based consultant specialising in public affairs.