Steely enforcement needed

THE dumping and smuggling of steel in Malaysia has been getting plenty of attention of late, as it could potentially have widespread repercussions on several industries, and some parties say it could be exacerbated by US tariffs on China.

An industry source says smuggling “has been going on forever”. It was back under the spotlight when police raided seven manufacturing premises in the Klang Valley recently and discovered iron goods believed to have been imported illegally.

Here, it is important to clarify the difference between smuggling and “dumping” of steel.

Smuggling is the illegal import of a material, in this case steel, usually bypassing duty laws, because the material is in demand.

As such, the materials being brought in could be sold at a cheaper price than those with duty paid, but it would also attract a significant number of entrants into the business despite being illegal, because of its lucrativeness.

The source tells StarBiz 7 that the situation is similar to the bootlegging of alcohol during the Prohibition era in the United States in the 1930s, commenting that as long as there are duties, there will be an incentive for smuggling activities.

Dumping, meanwhile, refers to the overall transportation of certain goods or materials from one country to another, whether legal or illegal, because the country of origin has produced too much.

The dumping issue gained attention again after the government initiated an investigation early this month into the alleged dumping of flat-rolled steel products of China, South Korea and Vietnam, after it received a complaint from CSC Steel Holdings Bhd.

CSC, which filed a petition through its full subsidiary CSC Steel Sdn Bhd, claimed that imported galvanised iron and steel coils or sheets are being sold below normal market value, voicing concern that such unfair pricing practices have negatively affected local manufacturers.

With US president Donald Trump’s decision to impose a 25% tariff on all steel products imported into the United States, major producers and exporters of steel products will look at alternative countries to sell their goods, often by undercutting domestic competitors.

This diversion will flood South-East Asia with steel. Malaysian Iron & Steel Industry Federation president Roshan M Abdullah had pointed out recently that this will hit local steel producers hard.

He observes that Malaysian steel producers are already not in the best of health due to competition from major producers such as China and Vietnam.

While all this sounds as though Trump is at fault, his priority is to ensure the well-being of his country and that a level playing field – at least to his mind – is established. It is then the responsibility of other countries to decide how best to deal with the situation.

The industry source concedes that smuggling and dumping have always been prevalent in Malaysia, reiterating that local industry players want better protection and support from enforcement agencies.

The source says it is heartening to note the action taken by government agencies such as the Investment, Trade and Industry Ministry and the police, but he hopes they can be more efficient.

“For example, in the smuggling case, six people (comprising managers and owners or the said premises) were arrested but why are these six the only ones, and what would the next step be?” he questions.

Late last month, an automotive industry leader suggested that the government review measures to protect the automotive sector, as the influx of Chinese cars in recent years which are not competing “on a level playing field” could be extremely detrimental to the industry.

Head of equity sales at Rakuten Trade, Vincent Lau, believes the impact of any US trade tariffs on local manufacturing players will be minimal, as their exports to the United States are minimal and heavily skewed towards downstream products.

“Our channel checks with a number of manufacturers, including companies such as Press Metal Aluminium Holdings Bhd and Main Market-bound Pantech Global Bhd, reveal that they are unperturbed about the tariffs because their exports are value-added downstream goods, or that their export volume to the United States is not too significant,” he says.

Besides, he points out that tariff threats from both China and the United States have not resulted in any market panic so far. In fact, there have been mini rallies in the FBM KLCI as well as in Hong Kong and China over the past week.