Disruptive yes, but export taxes aren’t wholly to blame

Nov 01, 2008 | 05:15 AM |

Countries that use export taxes to hoard raw materials are disruptive to international trade, and the consequences worsen when a government can adjust them easily, reacting to short-term market conditions, one analyst said.

"A lot of damage is done when those taxes go down and up. It makes for an extraordinarily volatile situation," Michelle Applebaum, managing director of Michelle Applebaum Research Inc., Chicago, said, commenting on the American Scrap Coalition (ASC) campaign against trade barriers involving ferrous scrap.

The ASC's beef isn't that other countries impede U.S. scrap exports—just the opposite. The issue is whether, for instance, India's 15-percent export tax causes Turkish mills to source scrap from the United States when, in a freer market, the source for such metallic units might be India.

Applebaum assumes the arena for knocking down such barriers will be the World Trade Organization (WTO). "I think we're going to have to make a lot of noise. It's at least as inflationary on steel as on steel raw materials," she said. In a commentary earlier this year, she labeled such taxes form of "reverse protectionism."

"Russia has made it clear on the world market that they view scrap as a strategic resource, something that's necessary to support the re-industrialization of the Russian economy, so their scrap has become less available," said Mark Parr, steel industry analyst at KeyBanc Capital Markets Inc., Cleveland. ....