Editorial: NZ must think deeply about steel industry

Readers of a contributed article from New Zealand Steel general manager John Nowlan, published in the Herald on Thursday, may have been surprised to learn our trade policy makers are willing to expose domestic industries to imports "dumped" on this market below their cost of production if the dumping passes a test of public interest. Many might wonder how imports of below-cost steel could possibly be in the public interest if it damages a domestic manufacturer.

The answer from policy makers would be it helps to lower our high costs of building and construction, which have been identified by the Productivity Commission as a contributor to high and rising house prices. Many might not be convinced the benefits of lower construction costs would outweigh the possible loss of a local industry and jobs. But on that argument we would have maintained the protection that saddled us with a high-cost economy of a previous era.

It made sense to expose all industries to international prices so we might be left with those that are truly competitive and consumers could buy more of the world's goods.

It makes less sense when international prices are artificially low as a result of subsidies or dumping. The World Trade Organisation permits member states to impose countervailing duties on imports coming in at prices below their cost of production.

But it is up to each country whether it wants to apply a public interest test. Nowlan says the test New Zealand is contemplating in a bill before Parliament is unlike any in countries such as Canada, the United States, the European Union or Australia. We will be an "outlier", he said, and industries such as New Zealand Steel are in jeopardy.

"China," he wrote, "has turned the global steel industry upside down, pumping out more steel than there is world demand." The New Zealand Government "opened the floodgates", he said by suspending penalties against dumping for three years to take advantage of cheaper prices for the Christchurch rebuild. Now its Anti-Dumping and Countervailing Measures Bill, he fears, would keep the floodgates open indefinitely.

Dumping allegations against Chinese steel, of course, have not been proven. The Government seems in no hurry to investigate a complaint filed by the steelworkers' union. Its reluctance appeared to arise from a hint of retaliatory action in China against Zespri's kiwifruit.

If Chinese steel is flooding world markets, and is likely to do so for some years, should New Zealand take advantage of it? One proviso is quality. A consignment of steel for use on the Waikato Expressway has already failed a test of quality. Contractors will be wary of imports as a result. Substandard production in China might make it difficult to assess the true cost of production and prove dumping is occurring.

But provided the quality meets the standards required, dumped steel can be an economic benefit. Larger countries may be able to protect their own steel makers but New Zealand needs to think carefully. Is Glenbrook vital?