Russian pipe producers are facing unfair competition from Ukraine

The Russian government ought to take immediate measures to protect Russian pipe producers from the dumping practices of Ukrainian producers. The growth of uncontrolled imports has become threatening. Russian producers are losing $500 million a year.

The Blue Stream gas pipeline has barely been launched, but the possibility of building another gas pipeline on a similar scale, across the Baltic Sea floor, is already being considered. There are also plans for an oil pipeline to the East, enabling direct deliveries of oil to South Korea.

These two large-scale projects alone (for example, the Eastern Siberia-Pacific Ocean pipeline’s planned capacity is 80 million tons of oil a year) will require vast investments and intense effort from many sectors of Russian industry – particularly pipe production. Therefore, the national mid-range development plan states that Russia’s piping output should be raised to 7.1 million tons a year by 2008.

According to experts, however, the implementation of these important state plans depends directly on the situation in the pipe production sector – and that situation is by no means perfect at present. Pipe producers have reduced their output substantially in 2005: in the first half of this year, for example, the volume of piping production shrank by 3% compared to the same period of last year, down to 3 million tons.

Denis Nushtayev, an analyst with the Metropol company, says the primary reason for slowing growth in the pipe production sector should be sought in the lack of state intervention in the economy: the state’s refusal to use legally-established mechanisms for protecting domestic producers from unfair competition on the part of Ukrainian producers. Nushtayev points out: “The Economic Development Ministry is once again keeping Russian pipe producers in suspense. November 3 was the deadline for a special protective investigation into the rising volumes of large-diameter piping imports. November 20 was the deadline for another investigation by the Economic Development Ministry, into evidence of dumping practices by Ukrainian suppliers of medium- and small-diameter pipes. In short, the deadlines have all passed, but no decision has been made to introduce special protective measures with regard to pipes being supplied at dumping prices.”

In consequence, the growth of uncontrolled imports has become threatening. According to the Federal Customs Service, imports of rust-proof piping, pump-compressor piping, liquefied gas piping, oil piping, and specialized piping increased by between 26% and 770% in the first 10 months of this year. Imports of strategic large-diameter piping rose by over 5% in the same period. The rise in real imports is even greater, since, as the People’s Control consumer protection society points out, there have been many cases of pipes being imported illegally from Ukraine, bypassing customs checkpoints – and these imported pipes have even been marked with the stamps of Russian factories.

What’s more, Ukrainian pipe producers are selling their products in Russia at dumping prices. This has become possible because the Ukrainian government has provided its producers with unprecedented support measures over the past few years, in the form of tax breaks, waivers of fines and penalties, and so on – to a total value of over $1 billion. Using these preferences, Ukrainian producers will have an advantage over their Russian counterparts until 2012. In consequence, Russia’s pipe production sector has already lost around $350 million due to the dumping practices of Ukrainian producers, and this sum will reach $500 million by the end of the year.

Nikolai Yezersky, a member of the Duma security committee, says this situation does substantial damage to national security. Yezersky points out that the interests of the domestic market and Russian producers don’t seem to be a priority for the Economic Development Ministry.

Former Central Bank chief Viktor Gerashchenko, recognized worldwide as a specialist in financial-economic relations, has this to say about the unprofessional behavior of state officials these days: “The lack of accountability for failures is disappointing. No matter what goes wrong, no one is held accountable.”

And the cost of such failures – the cost of the lack of state economic policy – is incredibly high. According to Duma member Yezersky, the situation in the pipe production sector is a vivid example of this: the lack of effective measures to protect domestic producers from unfair competition is essentially depriving Russian industry of $500 million a year, and now it’s Ukraine, not Russia, that is doubling GDP.

At a time when all forces and resources ought to be concentrated for a breakthrough in the economy and science and technology, Economic Development Ministry bureaucrats are essentially withdrawing from problem-solving. Mikhail Tarasenko, chairman of the Russian Mining and Metals Labor Union, says that the inaction of bureaucrats poses a threat to the prosperity of an entire sector, employing around 200,000 people, not to mention their families. Given that most pipe production factories are the major industrial enterprises in their respective towns, so the fate and social prosperity of entire regions depends on them, the inaction of bureaucrats is a crying shame. Tarasenko says that unless some protective measures are taken, output of Russian-produced pipes will continue to fall; pipe production enterprises will be forced to cut operating hours and lay off a substantial proportion of their employees, thus creating an intolerable socio-economic situation in a number of regions which are among the Russian Federation’s leading sources of tax revenue.

Meanwhile, the rise in the volume of Ukrainian piping imports is becoming increasingly critical. And the Russian pipe production industry – a high-tech sector which has already attracted over $1.5 billion in real investment – finds itself in an extremely difficult situation. Having solved the state’s import replacement problem, now meeting 98% (!) of domestic demand, and increased the number of producers of large-diameter pipes, an important component of fuel and energy sector development, from one to four, the sector now has the right to demand that state officials take action against unfair competition in the Russian piping market, by immediately introducing anti-dumping tariffs for small- and medium-diameter pipes imported from Ukraine, and setting import quotas for large-diameter pipes.

The Economic Development and Trade Ministry’s failure to take protective measures threatens not only the plans of individual companies and the future of the pipe production sector, but also the prospects of Russia’s participation in large-scale projects like the Eastern Siberia-Pacific Ocean pipeline and Blue Stream. And that could weaken our country’s geopolitical positions in the international arena.