The Hindu Business Line : OECD plans pact to ban steel sector subsidies

AS the international steel market remains volatile, the Organisation for Economic Cooperation and Development (OECD) is moving ahead with its plan to put in place a global agreement banning all forms of state subsidies for the steel industry by September this year.

The proposal was forwarded by the International Iron and Steel Institute (IISI), the international body represented by steel manufacturers from all over the world. The Managing Director of Tata Steel, Mr B. Muthuraman, is currently the Indian representative on the institute's governing board.

The spokesman of IISI, Mr John Fewtrell, told Business Line: "The basic objective for banning state subsidies for the steel sector is the fact that state subsidies distort the market and, as of now, there is complete agreement that there should be a ban on subsidies."

"Going by the present state of affairs, we are hopeful that by September we will have the draft agreement ready," he said, while noting that the next round of negotiation meetings are slated for March 31 and April 1.

However, various issues need to be sorted out before the draft can be finalised which include special status on grounds of research and development, environment and the most important one, which is economic development. Also, a final view needs to be evolved on whether the subsidy ban will cover only steel manufacturing or the entire production chain, starting from raw materials like iron ore, he said.

Countries that are asking for special status include India. "India is particularly very vocal at the negotiation meetings and is asking for `developing country status.' This would mean that while they agree to ban subsidies in principle, they want more time and flexibility in its implementation. The other two countries in this group will be China and Brazil," Mr Fewtrell said.

In general, the next round of negotiations will focus on three aspects. They are a blanket prohibition on specific subsidies to the steel industry, a limited number of carefully circumscribed exceptions to the blanket prohibition, and special and differential treatment for developing economies and a possible examination of the extent to which the economies in transition could be weaved into a market-oriented system.

The whole exercise, at a later stage, will go to the World Trade Organisation (WTO). "Once all the issues are sorted out with countries agreeing on a common draft, the agreement will be finalised at the OECD level. Once this is achieved, it will go to the WTO where it will have a more serious impact," Mr Fewtrell said.