A positive step towards protection of
local manufacturers against seasonal cheap imports
By SHABBIR H. KAZMI
August 02 - 08, 1999
The National Assembly has passed the
Anti-Dumping and Countervailing Bill on July 22. This bill is in conformity with the World
Trade Organization (WTO) agreements and contains 42 clauses. This sort of protection has
been demanded by the local manufacturers for quite some time. The immediate beneficiary of
this law will be urea, polyester staple fibre (PSF) and soda ash manufacturers in the
country. Profitability of these sectors, involving investments of billions of dollars, has
been shrinking due to cheap imports.
Theoretically, question of dumping arises
when imports are made at prices lower than: a) the producers' cost of production, b) the
sale price in the country of origin and c) the price of the same or like products sold by
the same producer in a third country.
The first test case can be imposition of
anti-dumping duty on urea import. From the domestic urea manufacturers' point of view,
this bill appears to be a positive move in the right direction. Ever since urea imports
rocked the country in early 1999, manufacturers have been lobbying to restrict its import.
They wanted imposition of anti-dumping duties or regulatory duty, at least, to protect
billions of dollars invested in the industry. Their prime contention was that when urea
prices were higher in the global market they were absorbing the difference. If the prices
have gone down in the international market due to a temporary over-supply, the government
should reciprocate by imposing regulatory duty on the import of urea.
The sharp fall in global prices,
particularly Eastern Europe, has prompted the manufacturers in the European Union (EU) to
demand a tougher anti-dumping legislation.
Recently the European Fertilizer
Manufacturers Association announced a new EU anti-dumping investigation on urea. The
countries being accused of dumping urea in the EU are Algeria, Belarus, Lithuania, Russia
and Ukraine. The urea dumping phenomena is, however, a new one for Pakistan as
historically domestic urea prices have been at a discount to international prices.
Many people still believe that urea
manufacturers in Pakistan get the feedstock (gas) at a subsidized rate. This is a great
misconception. It is evident from the gas prices charged from urea manufactures located in
countries which are being accused of dumping. Urea manufacturers in Pakistan get feedstock
at a rate ranging from US$ 1 to US$ 1.2 per million BTUs. Whereas the manufacturers in
countries accused of dumping urea get feedstock at the rates ranging from US$ 0.37 to US$
0.75 at the maximum. This clearly shows that Pakistani manufacturers get feedstock
at a very high rate when compared with other countries.
In such a scenario there are two
alternatives either a regulatory duty at the rate of US$ 15 per tonne should be imposed or
manufactures should be supplied gas at a further discount rate. The second option is just
not possible due to Petroleum Policy of the government. Therefore, the first option is the
only viable alternative to protect the interest of local manufacturers. It becomes more
important because local urea manufacturers were absorbing the cost difference in the
Two other sectors needing immediate
attention of the government are PSF and soda ash. In the recent past international prices
of PSF came down and local manufacturers were obliged to reduce price of man-made yarn.
Regulatory duty was applicable on the import of PSF and soda ash in the past to protect
the local manufacturers.
One question arises here, "Were the
local manufacturers working at optimum capacity utilization level?" The capacity
utilization was low in case of PSF because of expansion. However, most of the urea
manufactures are still working above the designed capacity. Any reduction in off-take of
locally produced, can potentially reduce their capacity utilization and increase inventory
carrying cost. Both these factors are a threat to their profitability.
Commencement of PSF and urea manufacturing
has not only brought significantly large investment in Pakistan but has also helped in
saving huge foreign exchange besides being a source of revenue for the government. Every
country has a right to safeguard its domestic industry by ensuring availability of raw
material at a modest cost and protecting against cyclical surges of prices in the global
While the developed countries have been
protecting their domestic industries through non-tariff barriers and resisting integration
of textile trade under GATT why should not Pakistan protect its domestic manufacturers
from cyclical reduction in prices? Protection of urea and PSF sectors is necessary as both
of them help in conserving precious foreign exchange and also have the potential of
earning foreign exchange.
(US$ per million BTUs)
1.00 - 1.20
0.70 - 0.75
0.50 - 0.52
0.37 - 0.50