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Something Better than Revocations of Import Permits

07-23 14:20 Caijing

Permits can be stripped from iron ore importers caught speculating. An expert says it's a regulatory tactic that serves no one.

By staff reporter Yu Hairong

(Caijing.com.cn) The China Iron and Steel Association (CISA) may revoke import permits held by about 20 Chinese firms if they are found to be involved in iron ore price speculation, according to news reports.

But Liu Haimin, deputy director of the Institute of China Metals Industry and Economic Development, doubted permit revocations would have much of an effect or even curb speculative activities involving imported iron ore.

Liu said the problem lies in the system. And he had a clean-up plan.

Liu suggested Chinese iron and steel manufacturers improve their pricing tactics by setting up two or three joint-venture trading companies to buy the iron ore they need.

Meanwhile, Liu questioned the legitimacy of CISA in regulating ore imports.

"The Ministry of Commerce has the responsibility to supervise commerce," Liu said. CISA, as an industry association, can only regulate production and sales, but not foreign trade.

"The ministry may consult the association, but final authority and discretion lie with the ministry," he said.   

Today, China has 112 certified ore importers, compared with between 113 and 118 -- including about 70 steel producers and at least 40 trading firms – in 2006 and 2007.

Before CISA implemented its current certification system for importing ore in 2005, 523 companies were qualified importers.

CISA's certification requirement is out of line with free trade principles, said Liu. The original purpose of the permits was to prevent importers from boosting prices while they competed for limited ore supplies. But that goal has yet to be met.

"The reviewing of certificates will not change the import model but merely reduce the number of importers," said Liu.

Liu cited Japanese and European importers of iron ore as good examples for China.

"Big Japanese trading firms serve as agents for steel manufacturers, and European steel manufactures import on their own," he said. "Both models are built around a high concentration of steel enterprises and create a stable market."

With many small steel manufacturers, Liu said, China's industry concentration is low.

His proposal calls for creating trading companies whose shareholders are steel manufacturers.

"The manufacturers that import more ore would have a bigger stake in the trading company," Liu said. "Manufacturers would share joint venture losses or profits."


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