China may ban steel product export tolling, just shortly after the cancellation of steel product export tax rebates, an official with China's Ministry of Commerce (MOFCOM) told Interfax today.

Interfax reported that steel product export tax rebates were cancelled on April 15, but China may further restrict high-end metals export tolling. "Official policy has not yet been set and we are currently still debating a provincial-level draft," an official with MOFCOM's tolling department said today.

"China is set to cancel tolling on imported semi-finished steel products and the re-export of processed products in the near future. Steel product fabricators will be required to start paying value-added tax on imports, and export taxes," an industrial source close to the government, said.

China banned tolling on the import of iron ore, pig iron, billet and scrap steel and the re-export of steel products in May 2005.

In addition to reducing steel product export tax rebates in September 2006 and finally, the recent cancellation of export tax rebates on steel products on April 15 this year, the ban on steel product export tolling will be another step towards further restricting the export of products which are high energy-consuming and highly-polluting, the source added.

However, the ban on steel product export tolling may go some way to ease recent trade disputes between China, the United States and the European Union.

Tolling is a practice of importing raw materials and re-exporting processed and finished products. During the tolling process, both imports and exports enjoy favourable tax policies, which boosts the domestic economy and increases international trade.

The new list of nonferrous metal products that will be restricted from tolling is due to be published soon, with most of the products involved in the export rebate reduction policy issued in September 2006 included. However, precision copper tube, which is widely used in air-conditioning units, will be the only type excluded from the policy, according to previous Interfax reports.

The government is also considering a tolling repayment process, such as charging 50% of the combined import price and VAT on refined copper imports, and then remunerating the full amount after the company exports finished copper products, a senior official with the China Nonferrous Metals Industry Association told Interfax.

Tax rebates on the export of copper products was lowered from 13% to 5% on Sept. 15, 2006. China canceled tolling on the import of copper concentrate and re-export of refined copper on Nov. 22, 2006.

Commentary

Past and on-going consolidation/restructuring of China's metal industries has proven a major success, with domestic capacity growth now exceeding domestic demand. Export markets have grown markedly and have taken out the domestic excess.

However, trade imbalances are causing concern and subsequent measures to curb exports run the risk of domestic oversupply, particularly if such restrictions were extended to include high-end finished products such a stainless steel.