Author: Yana Grigoryeva
Yana Grigoryeva, Intern at the Russian National Committee on BRICS Research - special for InfoBRICS
Now, as in the entire history of China, the metallurgical complex in this country has paramount importance. Particularly it refers to the ferrous metallurgy. China is very famous all over the world for its stock of ferrous metals and manufacture of iron and steel products, especially steel that production`s volume goes beyond the norm. The flow of these goods at the customs border of China is extremely high, and therefore it becomes really important object of customs control and tariff regulation. In order to effectively protect domestic producers and stimulate the production of ferrous metals products, Customs service established particular rated of customs duties.
Iron and steel (72th group in the Harmonized System (HS)) have duty range from 1 to 10% from customs value. The lowest rates were imposed for ferrous waste and scrap; remelting scrap ingots of iron or steel (item 7204 in the HS), and the highest ones for flat-rolled products of stainless steel hot-rolled or cold-rolled (item 7220 in the HS), Bars and rods of stainless steel, hot-rolled, in irregularly wound coils (item 7221 in the HS), angles, shapes and sections of stainless steel (item 7222 in the HS), Wire of stainless steel, in coils (item 7223 in the HS).
Articles of iron or steel (group 73 in the HS) have higher rates of duty (more than 10% from customs value) because they are characterized by higher degree of processing, while goods in group 72 are mainly represented as raw materials.
In addition to customs duties, Customs Service of People`s Republic of China implies regulatory environment:
• possession of export permission certificate;
• automatic certificate of goods` import;
• possession of export permission certificate that applies only to products of the manufacturing industry;
• possession of export permission certificate for goods that volume of international trade is significantly small;
• import customs clearance, full quality control;
• export customs clearance, full quality control;
• permission to import industrial waste.
All of these documents upon request of Customs Authorities must be provided along with goods declaration to allow products to be imported to the territory of China.
Since May 2018, The State Administration of Taxation of the People's Republic of China has reduced the VAT rate on manufactured goods from 17% to 16%.
Today, there is a tendency of global downturn in steel products. Firstly, due to the overproduction of steel in quantitative terms, Chinese factories are trying to reduce the volume of production. Secondly, at the moment in some areas, where the stocks of ferrous metals are directly concentrated, there are a lot of environmental activities conducted to eliminate the effects of air pollution, mainly in cause of overproduction. Customs authorities are actively involved in solving this problem by reducing export duties, and also for the purpose of capital outflow (for example, Russian`s companies are actively invested by China).
Thirdly, the established tariffs contribute to import substitution and export promotion to allow local companies be competitive on the market. This is a consequence of the relatively stable exports of ferrous metals. Fourthly, in the framework of suggested by Xi Jingping the New Silk Road project, some commodity items cannot be transported in containers, because this will be not appropriate in terms of the economic efficiency of transport activities and logistics.
However, in the future, there could be a possibility of using containers for transportation. Non-containerized freight includes iron and steel (except ferro-alloys), railway or tramway track construction material of iron or steel, Tubes, pipes and hollow profiles of cast iron or steel, seamless or open seam, welded, riveted or similarly closed.
Customs tariffs in the People`s Republic of China effectively influence both the market`s condition and the environmental situation in the country. It contributes to the substitution of imported goods with domestic ones, provides sufficient economic security, and also supports environmental activities through more intensive taxation of imported products and import reduction in general. But at the same time, China`s import tariff is quite low and loyal to export, that allows foreign manufacturers to freely enter the Chinese market and supply it with goods that becoming very popular among the people.
However, referring to the trade with the Russian Federation, since 2016 the supply of iron ore has decreased and the supply of non-ferrous metals has increased. The redistribution of Russian exports of ore and metals can be explained by the fact that the global metal market is overstocked, and, consequently, China is actively reducing ironmaking industry and concurrently increasing high-tech production, that uses just non-ferrous metals. In 2018, compared with 2016, the export of iron and steel from Russia fell by 66%, from 24 million dollars to a little bit more than 8 million dollars, and the export of articles of iron or steel fell by 96%, from 109 million dollars to 4.5 million dollars.
And what about the BRICS countries?
Extraction of ore with subsequent metal production is a very developed sector of national economies of BRICS countries. The total stock of India is about 5.5 billion tons of high-quality ores with a content of iron 66-70%. Iron ore stock in Brazil is estimated at 61 billion tons and characterized by a high pure iron content. Brazil is the second largest iron ore exporter after Australia and the leading supplier of raw material to the European and American markets.
The value of Indian ore in the world market is not as good as Brazilian one: Indian ore has a significant content of undesirable elements and impurities, such as alumina, phosphorus and sulfur. Nevertheless, 10% of the total stock - are high-quality blast furnace ores, so it also saves its competitiveness. South Africa is in the top 25 countries-producers and exporters of metal, and already exports 24% of its iron and steel to China.
In 2018, the Chinese metallurgical industry exceeded the annual target in terms of decommissioning obsolete steelmaking capacities. According to official data, this figure amounted to about 35 million tons per year, while it was planned to remove only 30 million tons from the market. However, in 2019, the Chinese government also expects to close about 20 million tons more. Chinese experts estimate that most part of the outdated metallurgical factories, which polluted the environment, now have been eliminated.
Foreign companies of the BRICS countries have all the opportunities for a long, mutually beneficial and productive cooperation with Chinese partners, including in the steel industry. China will still need ferrous metals, especially during the liquidation of most factories. At the same time, countries also have a lot of chances to cooperate in the field of science and innovation (rationalization of environmental management, nanotechnologies in metallurgy, information and communication systems, energy-saving technologies) by promoting joint innovative systems of skills development and proper training, creating specialized training centers and inventing a technology platform of a single information portal to comprehensively offer to all the BRICS countries high-tech technologies, competitive equipment and professional engineering services.