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. Last Updated: 07/27/2016

Russia, U.S. Aim to Forge Steel Compromise

In a last-ditch effort to appease their respective industrial lobbies without sacrificing trade ties, top U.S. and Russian trade officials are meeting in London this week to hammer out an agreement on limiting exports of cheap Russian steel to the United States.

If the closed-door negotiations do not produce a compromise, Russian steel producers will likely face punitive anti-dumping tariffs that would essentially slam shut the door to the lucrative American market.

A compromise agreement would suspend the current anti-dumping case on hot-rolled steel filed by the U.S. steel industry last year, while slapping other restrictions on a broad range of Russian steel products.

Although the talks, which began Wednesday, are still under way, the American steel industry is already voicing strong dissatisfaction over what it says is U.S. government coddling of Russia.

"The U.S. is using trade policy as a substitute for foreign policy, and the brunt of it is falling on the U.S. steel industry," Mike Dixon, spokesman for the USX steel conglomerate, said by telephone from Pittsburgh.

Not to be outmatched by its American counterparts, the Russian steel industry is pressuring local politicians

to take a harder stand against what it says is U.S. government bullying of Russia.

In a round-table meeting of domestic steel producers and State Duma deputies Wednesday, Serafim Kolpakov of the International Metallurgists Union said the Russian steel industry will lose up to $1 billion this year because of trade barriers erected by the United States and other countries, Prime-Tass reported.

Russian steel producers have greatly benefited from last year's ruble devaluation, which made it possible to lower ruble-denominated production costs while maintaining hard currency-earning exports.

However, analysts say the long-term health of the industry depends on the U.S. steel market remaining open.

The United States holds almost all the cards in this week's negotiations, and will probably drive the hardest bargain possible in order to mollify its own steel lobby.

"The Russians don't have any aces in the hole," said Oleg Timchenko of United Financial Group in Moscow. "The only thing they can do is refuse to finalize the agreement, in which case their hot-rolled steel would be slapped with punitive anti-dumping tariffs."

A preliminary U.S.-Russian agreement initialed in February called for

a six-month moratorium on exports

of hot-rolled steel to the United States, an annual quota that would slash

imports by 78 percent from 1998 levels, and minimum prices that would all

but close the U.S. market to Russian steel.

Analysts said the Russian side can only ask Washington to lower the minimum prices and increase quotas on lower grade steel products. Otherwise, Russia might choose anti-dumping tariffs on hot-rolled steel as the best available option.

The U.S. steel industry is opposed to any suspension agreement, no matter how harsh, preferring to use prohibitive anti-dumping tariffs as a way to ward off Russian steel imports.

"These agreements do not provide punishment for what has been done to us, but at the same time they guarantee a rather large part of the market to Russian producers," Dixon said.