Russian Safeguard Action Against Imports of Pipe and Tube Products
by White&Case LLP, Belgium
SUMMARY
As you may be aware, the Russian Ministry of Trade has initiated a safeguards investigation against imports of pipe and tube products made of iron and steel. The investigation is based on a petition submitted by the Foundation for the Development of the Pipe and Tube Industry, a group of the major Russian pipe mills. A copy of the notice of initiation of an investigation is attached.
The initiation notice was published in the Russian-language "Trade Journal" on April 5, 2000. Accordingly, a 30-day public comment period extends until May 5, 2000. In addition to submitting comments on the case, interested parties may request consultations with the Ministry of Trade during that period.
The investigation will cover imports of pipe and tube products covered under tariff classification numbers for seamless pipe (7304) and welded pipe (7305 and 7306) from all countries exporting to the Russian market. However, according to press reports, the primary concern of the Petitioners is the recent surge of low-priced imports from Ukraine.
The pipe and tube safeguard investigation is the third case to be initiated under the 1998 law "On measures for protecting economic interests of the Russian Federation" and the corresponding 1999 implementing regulations. The first such case was conducted in 1999 against imports of starch syrup. The second case was initiation in March 2000 against imports of raw sugar. In each of those cases, a preliminary temporary duty on all imports of the product under investigation was proposed at the time of initiation.
The recent safeguard actions, including the one against pipe and tube imports, may reflect newly elected President Putin's commitment to strengthening the Russian domestic economy, a commitment which may take the form of protectionist measures, as suggested by Putin's campaign rhetoric in recent months.
According to our preliminary statistical analysis, the principal exporters of pipe and tube products to the Russian market in the past three years have included Ukraine, Austria, Germany, Argentina, Mexico, Romania and Japan. Other countries of Scandinavia and Central Europe also exported substantial volumes during the past three years. Last year saw a significant increase in imports from Ukraine and Germany.
ANALYSIS
Summary of the Russian Law
The Russian safeguard law and implementing decisions generally follow the provisions of the WTO Safeguards Agreement. Law No. 63-FZ "On measures for the protection of economic interests" and its corresponding regulations cover safeguard, antidumping and countervailing duty actions. Articles 4-6 of Law No. 63-FZ govern safeguard measures. Annex 1 of Decision No. 274 sets forth requirements for a safeguard petition, including three-year data on import trends and effects (Annex 1:3-6), specific evidence of injury (Annex 1:10) and a causal link between increased imports and injury (Annex 1:11).
The Ministry of Trade, as the implementing authority for safeguard actions, has 30 days from the receipt of an industry petition to decide whether to proceed with a safeguard investigation. (Article II:8, Decision No. 274) A temporary, provisional safeguard measure may be applied if the Ministry of Trade determines that a delay in application of a final measure has caused or may cause substantial injury to the domestic industry. The Ministry first must make a preliminary finding of an "obvious causal relationship" between the increased imports and the injury (or threat) to domestic industry. A provisional measure may not exceed 200 days. An investigation leading to a final determination must be conducted concurrently with the provisional measure. (Article 6.2, Law No. 63-FZ; Article IV:34, Decision No. 274) In practice, the Ministry has announced simultaneous decisions to initiate an investigation and to propose provisional measures, although it did not do so in the pipe and tube case.
Contents of the petition remain confidential, although petitioners are required to submit a non-confidential "explanatory note" summarizing their complaint. (Article IV:24, Decision No. 274)
"Like or directly competing product" is defined in Law No. 63-FZ as "a good classified under one and the same code of the foreign economic activities goods nomenclature of the Commonwealth of Independent States and which is fully identical to another good or is comparable to such a good by its functional purpose, application, qualitative characteristics and technical specifications and other basic properties in such a way that a buyer replaces or is ready to have another good replaced with this good in the process of consumption."
Provisional and final measures are applied on the basis of nine-digit tariff classifications. (Article VI:50, Decision No. 274) Petitions must include nine-digit product classifications, as well. (Annex 1:2, Decision No. 274)
Authority for the negotiation of country-specific import quotas under the safeguard provisions is granted in Article 6.1 of Law No. 63-FZ. For purposes of a safeguard measure, the annual volume of an import quota may not be less than the average annual volume of the imports of a given good in the preceding, three-year period. Within that quota amount, the Government of Russia may negotiate specific quota limits with individual supplier countries. The Government may reach an agreement with all supplier countries on the quota allocations, or it may set individual allocations in accordance with previous levels of imports from those countries and taking into account absolute and relative indicators of the growth of imports from specific foreign states. (Article 6.1, Law No. 63-FZ)
A safeguard investigation shall be concluded within nine months. (Article VII:51, Decision No. 274) A final safeguard measure shall not exceed four years, but may be extended to a total of eight years if the Ministry determines in a subsequent investigation that injury persists. The Ministry also must determine that the domestic industry has implemented measures "aimed at adapting to changing economic conditions." (Article 6.3)
If you would like a copy of the English translation of the Russian law, please contact us.
Russian Practice
Russia's practice in the area of safeguard measures has been very limited. Only three such cases have been initiated under the current law and regulations: against imports of starch-syrup, raw sugar, and pipe and tube. The three cases have been carried out in accordance with the safeguard provisions (Articles 4-6) of Law No. 63-FZ, not the antidumping provisions (Articles 7-11) of the same law.
It appears from the starch-syrup and raw sugar cases that the Russian Government favors special duties rather than import quotas as a remedy under the safeguard law. In addition, the duties applied thus far (in the syrup case) are of relatively short duration (2.5 years).
In both the starch-syrup and the raw sugar cases, provisional safeguard measures were applied for a period of 180 days (i.e., not exceeding the 200-day limit prescribed by law). In the case of starch-syrup, a final safeguard duty was applied for a period of 2.5 years. The final duty and its duration for raw sugar has not yet been announced. In 1998, prior to implementation of the current procedural regulations, the Government of Russia applied special duties on raw sugar and white sugar, effective for 153 days and 198 days, respectively.
There is no timeframe in the law for the Ministry to make a decision to apply provisional measures. However, in both the syrup and sugar cases, the Ministry simultaneously announced its decisions to initiate safeguard investigations and to apply provisional measures. It did not do so, however, in the pipe and tube case.
The date of implementation of provisional duties, the period of duration and the duty amount are determined by further resolution of the Russian Government, upon approval of the Ministry's preliminary proposal by the Commission of the Government of the Russian Federation on Protective Measures in Foreign Trade and Customs and Tariff Policy.
The Pipe & Tube Case
As noted above, the Ministry of Trade did not announce provisional measures against imports of pipe and tube when it announced its initiation of an investigation.
The Petitioner is a trade association, the Fund for the Development of the Pipe Industry, which represents nine Russian pipe manufacturers, including the Chelyabinsk, Volzhsky, Sinara, Seversk and Pervouralsk pipe mills.
An association executive has been quoted in the Russian press as saying that imports were affecting steel mills that supply the blanks and strips to roll or weld pipes, as well as the actual pipe mills. He noted that most of the imported pipe is coming from Ukraine, which can supply up to four-fifths of Russia's imported pipes. Total imports, in turn, are said to account for about 30% of the Russian market, with the State Statistics Committee reporting that Russia produced 3.26 million tons of steel pipes in 1999.
Describing the conditions of competition, the same association official pointed to lower Ukrainian electricity costs in pipe manufacturing, resulting in pipes costing between a third and two-thirds less to produce than in Russia. He linked this with the cause of injury saying, "this gives the pipes a clear price advantage, and Russian mills are finding it hard to compete and are being stripped of the capital needed to invest." Discussing the ability to adjust, he said, "the Fund believes that capacity utilization at the Russian mills will go up from 35% to 50% if pipe imports from Ukraine are limited." Finally, he noted that Russia has reduced pipe production by 68.75% and exports by just over 85% between 1991 and 1999.
If restraints are imposed, the law requires governmental approval at the nine-digit level. Accordingly, the investigation should subdivide the broad basis on which this case was initiated. Similarly, the law appears to contemplate the WTO "like product" distinctions, based on physical similarity and being directly competitive. If followed, this could result in multiple decisions, e.g., line pipe injury, no injury for oil country tubular goods (OCTG), etc.
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If you have any questions or need further information, please contact us. Because White & Case is representing several companies in the Russian proceeding through our Washington and Moscow offices, we will be preparing frequent updates on this matter. If you would like such updates, please contact us so that we can include your company on the distribution list.
[Unofficial Translation from Russian by White & Case, Moscow]
Published: Trade Newspaper, 5 April 2000
Notice of the Ministry of Trade of the Russian Federation on Commencement of Investigation Preceding Introduction of Special Protective Measures
In accordance with Article 18, Paragraph 5 of Federal Law No. 63-FZ "On Measures for Protecting Economic Interests of the Russian Federation in Foreign Trade", dated 14 April 1998 (Collection of Acts of the Russian Federation 1998, No. 18, Article 1798) and Paragraph 12 of Regulations on Investigation Preceding Introduction of Special Protective Anti-Dumping Measures or Compensatory Measures, Approved by Governmental Resolution of the Russian Federation as of 11 March 1999, No. 274 (Collection of Acts of the Russian Federation, 1999, No. 11, Article 1310), the Ministry of Trade of the Russian Federation announces the decision of the Governmental Commission of the Russian Federation on Protective Measures in Foreign Trade and Tariffs and Customs Policy of 17 March 2000, on the commencement of an investigation preceding introduction of special protective measures with respect to import of steel pipe and tube materials made of black metals and states the following:
The Investigation started 17 March 2000. The subject of the investigation are pipe and tube materials made of black metals with TN VED codes: 7304, 7305 and 7306.
The investigation covers all countries supplying pipe and tube materials made of black metals to the Russian Custom territory.
The investigation starts after receipt by the Ministry of Trade of a request from the Development of the Pipe and Tube Industry Fund on applying special protective measures to such countries.
All interested persons are entitled to submit their opinion (in written form, in Russian) within 30 calendar days after publication of the present Notification, or to request a consultation on the merits in the Ministry of Trade of the Russian Federation located at the following address: 113324, Moscow, Ovchinnikovskaya Nab. 18/1. Contact telephone number: 950-95-10.
Ministry of Trade of the Russian Federation
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