VietNamNet Bridge – Domestic steel manufacturers, already suffering heavily from oversupply and competing with low-quality Chinese imports, fear they may be “crushed” by Russia which will enter Vietnam once a free trade agreement is signed.

In the negotiations on the free trade agreement (FTA) between Vietnam and the Custom Union of Russia, Belarus and Kazakhstan (VCUFTA), Vietnam promises to cut import tariffs on 167 steel products from three countries to zero percent from early 2015. The commitments have put domestic steel manufacturers on tenterhooks.

VCUFTA to be inked soon

Signing an FTA with Russia, Belarus and Kazakhstan is a top priority for Vietnam, which is now negotiating 10 FTAs with many important trade partners. The seventh round of negotiations is scheduled to take place in mid-September, while the agreement is believed to be signed by early 2015.

They have reached agreements on most issues, except ones related to steel manufacturing and petroleum products.

Russia wants to reduce the tariffs on 167 steel products to zero percent as soon as the FTA takes effect. These include ingot steel, structural steel and galvanized steel, products in oversupply in Vietnam.

Meanwhile, Vietnam promised a more cautious tariff cut schedule for the ASEAN-China FTA (ACFTA). The 15 percent tariff would still be imposed on some steel imports until 2018, while ingot steel imports would only see a tariff reduction to 15 percent by 2020.

However, the pressure of ACFTA has been tough for Vietnamese steel manufacturers, who have had to struggle to resist the massive volume of imports from China.

A report from the General Department of Customs showed that in 2013, Vietnam imported $8 billion worth of steel products from China, thus leading to a trade deficit of $5.6 billion in the steel industry.

Therefore, analysts have every reason to warn that if VCUFTA is signed, Vietnamese steel manufacturers could be dislodged from their home market.

Steel manufacturers shout for help

According to the Vietnam Steel Association (VSA), domestic steel manufacturers were shocked after they were informed about the tentative tariff cuts. The association has sent a petition to the government, the Ministries of Finance and Industry and Trade, requesting to reconsider the tax cut roadmap.

VSA’s deputy chair Chu Duc Khai said Russia, the fifth biggest steel manufacturer in the world (68.7 million tons a year), would be a big threat to Vietnamese steel manufacturers.

He said Russian steel products, with 70 percent steel products made of reverter furnace and 8.1 percent of Asian market share, would flood into Vietnam when they are backed by VCUFTA.

It is obvious that China is closer to Vietnam than Russia, and therefore, Chinese imports have advantages in the transportation.

However, an expert said that it takes 12-15 days only to ship cargo from the Vladivostok port to Vietnam, just a little longer than the time needed to bring steel products from Chinese mills to Vietnam.

It costs $20 to ship one ton of steel from Russia to Vietnam by sea, the same as sea shipping from China.

TBKTSG