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. Last Updated: 07/27/2016

Steel Industry Attacks Deal Capping Exports

Just weeks before the first U.S.-Russian meeting on steel issues, Russia's two largest steelmakers have called for revision of the Comprehensive Steel Agreement that last year limited Russia's exports to the United States.

The letter, forwarded to Prime Minister Mikhail Kasyanov and U.S. Vice President Al Gore, was signed by top managers of the Novolipetsk Steel Mill and Magnitogorsk Plant as well as by Serafim Kolpakov, head of the International Union of Metallurgists.

It contains harsh criticism of a report submitted last week by the U.S. Commerce Department to theU.S. President's Office.

"The U.S. foreign trade body has again demonstrated a lack of willingness to make an objective assessment of the state of the industry and the importance of an international division of labor," the letter says. "Its stance would be more appropriate in the early '90s or even to Soviet times."

The U.S. Commerce Department report can be read at on the Internet .

"The [Russian steel] industry's relationship with the government, its way of doing business, its current competitive position, and the measures it has taken to adjust to the new system are still very much reflective of the past," the report says.

The U.S. officials say that the industry is being heavily subsidized through low charges for natural gas, electricity, freight and coal.

Withdrawal of government assistance would lead to closure of at least one of the six middle-sized companies and most of the smaller plants, leaving some 100,000 workers jobless, the report suggests.

Worldwide almost two-thirds of steel is consumed domestically and only 15 percent is traded between regions, according to data from the United States.

Local companies export 60 percent of their output, in large part because the Railways Ministry offers subsidies to its major industrial clients.

Vladimir Utkin, first deputy governor of the Chelyabinsk region, confirmed in a telephone interview this week that the ministry set special tariffs for steel exports, facilitating supplies from metallurgical companies located in the Urals.

The meeting between President Vladimir Putin and U.S. President Bill Clinton in June gave birth to the U.S.-Russia Steel Dialogue that is to outline how the governments, trade union and industrial bodies should cooperate.

The first government-to-government meeting is scheduled for this fall, but both parties have decided to lobby for advantage well in advance of the meeting.

In order to hamper foreign steel entering the U.S. market, the Commerce Department has outlined a set of measures, including increased funding to conduct antidumping investigations and the declaration of a moratorium on lending by multilateral development banks related to steel projects.

The Russian Economic Development and Trade Ministry declined to comment Friday, saying its position would be revealed only after talks are held Aug. 15-16.

In the wake of U.S. antidumping investigations carried out last year, imports of hot-rolled steel in the United States dropped 43 percent compared to the previous year.

The government signed an agreement in July 1999 that put a cap on Russia's steel exports to the United States, saying the agreement was made to avert a total ban on Russian exports.

Three Russian major steel exporters f Novolipetsk, Magnitogorsk and Severstal f were hit hardest.

Novolipetsk exported some 1.8 million metric tons of steel to the United States in 1998, followed by Magnitogorsk with 1.4 million tons and Severstal, which exported some 800,000 tons.

Severstal's hot-rolled steel exports were down to 35,000 tons in January-June this year from 702,000 tons in 1998, while exports of cold-rolled steel declined to 55,000 from 384,000 tons.

However, Severstal did not sign Friday's letter condemning the U.S. Commerce Department report.

"We would have signed the statement if the text were amended in line with our requests," a spokesman for Severstal said Friday.

However, officials at Severstal, which has previously objected to revision of the agreement, refused to specify what way they wanted the letter to be amended.

Export data on two other major plants f Novolipetsk and Magnitogorsk f was not available, but the decline in their exports was similar to that of Severstal, because quotas were split proportionately.

Andrei Petrosyan, deputy director of Novolipetsk Steel Mill, said U.S. officials did not understand the local position. "They have to realize that we are not happy with the deal and will not let them talk comfortably with local officials.

"I do not exclude the possibility that a tougher statement will follow," he said.