Safeguard duty and the dispute for benefits

	Tax evasion of safeguard through import of steel
	Steel production sees strong growth in October
	Tax evasion “trick” makes it difficult for Vietnamese goods

Enterprises declare steel with HS code number 7213.91.90 to enjoy a tax rate of only 3%.

Imports increased by 4 times

On 19^th December 2016, the Competition Administration Department (under the Ministry of Industry and Trade) had a meeting with the relevant authorities and steel enterprises to discuss plans for dealing with imported steel evading safeguard duty.

This meeting came from the reflection of the Vietnam Steel Association (VSA) that imported steel into Vietnam evaded safeguard duty, especially for billet, long steel and rolled steel with HS code number 7213.91.90.

Accordingly, from April 2016, the Ministry of Industry and Trade has applied a temporary safeguard on billet and long steel imported into Vietnam. By July 2016, there had been a formal safeguard duty of 15.4% for long steel (rolled steel and bar steel) and 23.3% for billets.

However, through monitoring the import of steel, the Vietnam Steel Association found that many enterprises evaded safeguard duty by changing HS code. Specifically, the amount of imported steel with HS codes subject to safeguard duty tax in the first 9 months of 2016 decreased significantly, equivalent to 29% over the same period and by 25% compared to 2015.

But imported rolled steel with HS code exempted from taxes (HS code number 7213.91.90) increased sharply, especially from April when the Government imposed a temporary safeguard duty.

According to VSA's analysis, rolled steel with HS code 7213.91.90 has similar chemical composition and mechanical properties with imported rolled steel which is subject to safeguard duty.

Moreover, many enterprises are changing the above HS code to enjoy the tax rate of 3% compared to 15.4% with HS Code 7227.90.00; 30.4% with HS code 7213.10.00 and 35.4% with HS code 7213.91.20.

Thus, the gap between goods subject to safeguard duty and goods exempted from duty is very significant.

In addition to VSA, recently representatives of 18 enterprises issued an Official Dispatch to the Ministry of Finance, and the Ministry of Industry and Trade. In this Official Dispatch, the enterprises analyzed that before the Ministry of Industry and Trade imposed safeguard duty, rolled steel with HS code number 7227.90.00 was declared to enjoy a tax rate of 0%. After imposing safeguard duty, imported rolled steel decreased by 15.4%. In the first 10 months of 2016, the amount of imported rolled steel was only 58% compared to 2015.

Besides, there was an significant increase in declaration of HS code number 7213.91.90 in the first 10 months of 2016 with an increase of 4 times compared to 2015. In October 2016, imported steel reached a record of 144,000 tons, equivalent to 155% of the domestic production of rolled steel.

Therefore, the 18 steel enterprises have proposed to the Ministry of Finance and the Ministry of Industry and Trade to expand the scope of application of safeguard duty, putting this code on the list of goods to be controlled to prevent the change of HS code for enjoying tax difference.

Preventing unique advantages for businesses

However, in response to the above reflection, 30 import enterprises in the meeting with the Ministry of Industry and Trade said that earlier, enterprises mainly imported steel with HS code number 7227.90.00 for production.

But since the above HS code was imposed with safeguard duty of 15.4%, enterprises have changed to import rolled steel with HS code number 7213.91.90 as raw materials for production, because the tax rate for steel with HS code number 7213.91.90 is only 3%.

The physical and chemical characteristics of the two kinds of steel are similar and can be used interchangeably. Enterprises also affirmed that the import of this kind of steel was mainly for the production of steel products, not for trading purposes.

Mr. Nguyen Phuong Nam, the Deputy Director of the Competition Administration Department (under the Ministry of Industry and Trade) said that safeguard duty was an effective tool to protect domestic producers in any country. Safeguard is also an urgent measure to protect domestic products.

Without safeguard, the domestic industry can go bankrupt and Chinese steel may manipulate the price of steel in the market. However, the application of safeguard measures must comply with current procedures and regulations, so the authorities cannot arbitrarily give a certain tax rate.

Trade defense is the ultimate measure for protecting domestic producers and it does not protect an individual's rights, but protect the interests of the whole industry.

Therefore, the authorities will consider the establishment of inspection teams to thoroughly assess the domestic demand and prevent enterprises from taking advantage of this situation to create unique advantages for business.

Mr. Nam added that, in recent years, thanks to urgent application of safeguard measures, steel production in Vietnam had been active again. When applying safeguard measures for these HS code, imports have decreased significantly and domestic production has been restored with a substantial growth.

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When applying safeguard measures, the quantity of steel with HS code subject to safeguard duty has been reduced and shifted to other HS codes. The shift is also based on the interests of enterprises.