News Room - Steel Industry

"The anti-dumping system caters for the interests of a narrow segment of Australian industry and, in recent years, has become increasingly captured by the industry interests concerned," the commission says.

 "…Thus Arrium recently advised its shareholders that 65 per cent of its sales base was subject to anti-dumping investigations and that it was examining whether further applications were appropriate," the commission says.

To understand what is going on, you have to peel away the deliberately misleading language that surrounds this system of handouts.

What the government calls dumping, most Australians call price competition. When the airlines sell their empty seats at less than full cost or petrol companies cut prices to clear unsold stocks, we call that healthy price competition. And when an Australian manufacturer uses its spare capacity to break into the export market by selling at discount prices, we hail that as the kind of entrepreneurial initiative that Australia needs in the Asian Century. We might even congratulate Austrade for all the work it's done to educate budding exporters on the virtues of marginal cost pricing. But all of it is "dumping".

The Australian steel industry's problem is that the world economy has slowed and there is a global steel glut. Everyone, including China, is taking Austrade's advice: they are cutting their prices below full cost to clear their unsold stocks and use their spare capacity.

As the commission says, in competitive markets businesses are generally expected to respond to changing market circumstances without reliance on government protection. But if there is government assistance for the taking, no CEO can afford to let the opportunity pass.

Anti-dumping protection is there for the steel industry's taking because governments don't want the industry to adjust if it means higher unemployment in Whyalla and Wollongong.

But nor do they want the full cost of subsidising those steel industry jobs on their budgets. So they push the cost on to everyone else. Anti-dumping protection forces up the price of imports and allows Australian producers to increase their prices. That's fine for the steel makers, but all the industries that use steel face higher costs and a loss of competitiveness. It also pushes up the price of consumer goods.

As is usually the case with protection, the cost to the wider community is greater than the benefits to the protected industries. Australia is worse off.

So far the damage to the economy has been relatively small. But, as access to anti-dumping protection is made easier, the damage will increase. In Australia the average dumping and countervailing duty is 17 per cent, more than three times greater than the general tariff rate of 5 per cent. In the United States, the commission tells us, average duty levels are now over 40 per cent.

The political pressure is for Australia to follow the US example. Senator Nick Xenophon, for example, has complained that Australian anti-dumping protection is behind the "best practice" of the more protectionist policies of the US and the European Union.

In 2009, the Productivity Commission saw a continuation of anti-dumping protection as a "safety valve" in the global recession. But the safety valve has become a new fountain of protection.

The commission suggests reform, such as a national interest test to take account of the cost to other industries. That undoubtedly would impose some discipline on the process. But not as much as forcing the vote-buying politicians and their industry clients to live off the scrapings from the budget.