The Indian steel industry is pushing the government to impose a border adjustment tax (BAT) on imported steel products to provide additional protection for domestic steel mills reeling under a severe loss of demand due to the economic slowdown caused by coronavirus-related restrictions on economic activity.
A BAT regime typically imposes duties on imported products to compensate for a lower level of taxation and tariff rates in the steel exporting countries and provides tax rebates or incentives to Indian exporters to enable them to compete in overseas markets where taxation and tariff rates are lower than India.
Indian steel manufacturers bear multiple local taxes, electricity, cross-subsidy duties, clean energy cess, and royalties on iron ore. There is no input credit available on these taxes, which make up 12% of the price of steel. In rival markets, these levies either do not exist or are comparatively lower. So, Indian steel is subjected to unfair competition even before it leaves the plants, the Indian Steel Association (ISA) said in a recent memorandum to the government requesting for the imposition of BAT.
“There is no level playing field for domestic manufacturers. We are not even discussing high-interest rates and freight costs in India. But at least for taxes, there should be some protection. You can’t tie our hands and say box,” said Dilip Oomen, chairman of the Indian Steel Association and chief executive of AMNS India.
The ISA has proposed BAT on steel products to both the commerce and steel ministries, though the final decision on the imposition of such a duty lies with the finance ministry.
“The steel ministry shares these concerns, which gain urgency with Prime Minister Modi’s advocacy of self-reliance and ‘being vocal for local,” said the ISA.
The government will likely weigh both the WTO compliance of such a tax as well as the possibility of retaliatory measures by key steel exporting nations such as Japan and South Korea to such a move.
The imposition of BAT is unlikely to be an executive order, but, has to take the shape of an ordinance amending the Customs Act, said Supreme Court advocate Anand Verma.
An ordinance has to be ratified by the Parliament within six months to become a permanent law of the land.
The government will need to prepare a strong rationale for imposing BAT, which it can defend legally in forums such as the WTO, said Verma. An organization such as the Director-General of Foreign Trade (DGFT) could be a possible agency that may undertake the task to present the case for BAT to the finance ministry and the cabinet.
Both Oomen and Verma agreed with the possibility that if BAT is imposed, it is likely to be levied on a broader basket of products, which could include steel products.
BAT may even be imposed on all imports and exports in a country.
Large mills will likely push for BAT on HRC and CRC, which are among the most internationally traded products in India’s steel portfolio. Long products are not big import or export items while overseas trade of semi-finished products is typically seasonal and opportunistic.
Steel importers are not happy at the prospect of further taxes on flat products, in addition to a 12.5% basic import duty and anti-dumping duties. “BAT is around the corner. It’s most unfortunate that the government is considering this proposal. There are hardly any imports from even Japan and South Korea these days and that too will become difficult with BAT. The BAT could also lead to FTA countries putting similar duties on India and hamper India’s impressive exports,” said a steel importer.
India has free trade agreements (FTA) with Japan and South Korea which makes their steel exports to India free of the basic customs duty of 12.5% though anti-dumping duties apply to their exports.
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