Commentary: Is Russia Dumping Steel Or Getting Dumped On?

Russia's Western trading partners are threatening to snuff out one of the few bright lights in the bleak landscape of post-Soviet manufacturing. The U.S. and the European Union are poised to slap duties of up to 185% on Russian steelmakers, contending that the Russians are dumping cheap steel on foreign markets. The duties, set to take effect this month, would join a growing list of antidumping penalties on other exports, from pig iron to potash, that cost Russia at least $1 billion a year. Russia is negotiating to head off the duties by agreeing to limit steel exports. Either way, Russian steel mills will lose a big chunk of foreign sales, which now account for nearly two-thirds of their business.

Unlike other developing countries that have been hit with dumping complaints, Russia has no way to prove its prices are fair. It should be given a chance to do so. U.S. and EU trade laws classify it as a "nonmarket" economy. The laws assume that Russian manufacturers are so entwined with government that their actual production costs can't be calculated. When a Russian company is accused of dumping, U.S. and EU authorities study similar companies in a "surrogate" country. If the Russian company's prices are lower, it gets sanctioned.

LOW WAGES. The U.S., for example, recently hit Russia's Severstal steel mill with a 61% provisional duty based on an investigation of Brazil's steel industry. That's only one of 18 antidumping actions brought against Russia by the U.S. and EU in the past few years. True, Russian steel sells for 20% to 40% less than U.S. steel. But low wages are a big reason for the disparity. Severstal workers earn less than $350 a month, compared with an average $4,000 for U.S. steelworkers. "It's high labor costs that price the U.S. and Europe out of the market," says Anders Aslund of the Carnegie Endowment, which tracks Russia's economy.

Russia is furious at being shut out of foreign markets at a time when free trade is blossoming worldwide and former communist economies are being encouraged to open their borders to imports. By building a $4.5 billion-a-year export business, Russian steel mills have kept on humming, paying their workers while most of the country's other manufacturers are in shambles. Russian leaders, who are bidding to join the World Trade Organization by the end of 1998, complained to the Clinton Administration and EU leaders during several recent high-level meetings. In June, to protest EU antidumping actions against Russia, First Deputy Prime Minister Boris Nemtsov refused to meet with a visiting EU trade delegation in Moscow.

Russia has made huge strides by decontrolling prices, privatizing state enterprises, and liberalizing its trade policies. Steelmakers now pay market prices for raw materials such as coal and iron ore. But the government continues to exert control over major sectors of the economy, such as rail transportation and electric power, and it holds a big stake in some privatized companies. Russia could petition the U.S. and EU to be reclassified as a market economy. Poland has done that successfully. But Russia hasn't asked, probably because it knows it's not quite ready to make the grade.

What's needed is a new classification that recognizes transitional economies such as Russia's and lets them be judged on real numbers rather than false comparisons. The White House likes the idea but hasn't pursued it, in part because Russia stopped pressing the issue when Boris Yeltsin was sidelined with health problems last year. The Commerce Dept.'s announcement of provisional dumping duties on Russian steel has revived discussions in Washington, but creating a new classification would require congressional action and would be bitterly fought by domestic steelmakers and their allies. True, slogging through Russian companies' books wouldn't be easy. Many companies barter with suppliers or don't pay at all. But antidumping agencies could be given additional investigative tools to help them ferret out production costs.

Russia may wind up paying dumping duties under a new system. But having come so far on the path to reform, it deserves a chance to defend itself in the trade arena.