Context of Scrap Metal Trade in Ukraine and Turkey
The scrap metal trade has been a crucial component of Ukraine's metallurgical sector for decades, with Turkey being one of the most significant destinations for Ukrainian scrap metal. However, in recent years, the country has faced an acute shortage of scrap metal, which has put pressure on the local steel industry. Ukrainian metallurgical plants rely heavily on scrap metal as a key raw material for steel production, and without an adequate supply, many plants have been forced to halt or slow down production.
The export duty of €180 per metric ton on scrap metal exports was introduced to address this issue. The government wanted to discourage large-scale exports, which could further exacerbate the supply shortage within Ukraine. While the duty applies to all countries except the European Union, Turkey has been a primary recipient of Ukrainian scrap metal for many years.
Ukrainian Parliament’s Decision on Duty Continuation
The Ukrainian Parliament recently confirmed that the €180 per metric ton duty on scrap metal exports to Turkey will remain in effect, even if the Free Trade Agreement between Ukraine and Turkey is ratified. This clarification was made during discussions about the potential impacts of the FTA on Ukraine's metallurgical industry, particularly in relation to the ongoing scrap metal shortage.
Dmitry Kisilevsky, the Deputy Chairman of the Parliamentary Committee on Economic Development, stated that the export duty would continue to apply to scrap metal exports to Turkey under the FTA. According to Taras Kachka, the Deputy Minister of Economy and trade representative of Ukraine, this provision is part of the official text of the FTA agreement. The decision is seen as a necessary measure to protect Ukraine’s domestic supply of scrap metal, which is vital for the steel production process. The government will also prepare official guidelines for the customs service to ensure the effective implementation of this policy across the country.
The Paradoxical Situation in the Ukrainian Scrap Market
Despite the duty being imposed to protect the local metallurgical industry, a paradoxical situation has emerged in Ukraine’s scrap metal market. Turkey, which is a major recipient of Ukrainian scrap, is also a significant supplier of scrap itself. This dynamic has led to a situation where Ukraine’s scrap exports are primarily directed to the EU, which is also a large exporter of scrap metal.
According to the Ukrmetallurgprom association, there are concerns that Ukrainian scrap metal may be re-exported from Poland to Turkey, bypassing the export duty. This could occur as Poland is a key entry point for scrap metal from Ukraine to the EU, and from there, the scrap could be transported to Turkey to avoid the €180 per metric ton duty. This issue could undermine the effectiveness of the export duty and highlight the complexities of international trade and regulation in the scrap metal industry.
The Role of the Free Trade Agreement with Turkey
The Free Trade Agreement between Ukraine and Turkey has been a significant focus of discussions in recent months. The FTA aims to enhance bilateral trade relations between the two countries by removing barriers such as tariffs and other trade restrictions. However, the issue of scrap metal exports has become a point of contention.
While the FTA is designed to promote free trade and economic cooperation, the €180 export duty on scrap metal exports to Turkey remains unchanged. The duty has been strategically implemented to ensure that Ukraine’s metallurgical industry does not suffer from a critical shortage of raw materials. If the duty were removed, Ukrainian steel plants could face even greater shortages, potentially disrupting production on a larger scale.
This decision reflects Ukraine’s attempt to balance the benefits of the FTA with Turkey, which could boost other sectors of the economy, such as agriculture and manufacturing, while also protecting the interests of the steel industry.
Broader Impact of the Duty on Ukraine’s Metallurgical Industry
The continuation of the export duty on scrap metal to Turkey has several implications for Ukraine’s metallurgical sector and its long-term economic outlook. Here are some of the key effects:
1. Protecting Domestic Production
The primary aim of the €180 per metric ton duty is to protect the local supply of scrap metal, which is essential for the steel industry. By limiting exports to Turkey and other countries (except the EU), Ukraine ensures that its metallurgical plants have a steady and reliable supply of this crucial raw material.
2. Trade Relations with Turkey
While the FTA with Turkey is expected to boost trade in various other sectors, the scrap metal duty may cause some tension in trade relations. However, the Ukrainian government believes that the continued duty is necessary for the health of its steel industry, which has broader economic importance for the country. Despite this, the FTA with Turkey could open new opportunities in other areas of trade, such as agriculture and manufactured goods.
3. Smuggling and Re-exportation Risks
The possibility of smuggling or re-exportation of Ukrainian scrap metal from the EU to Turkey remains a concern. If scrap metal is shipped to Poland or another EU country and then sent to Turkey, the export duty could be circumvented, undermining the original goal of protecting domestic supply. To mitigate this, Ukraine may need to implement stronger monitoring and enforcement measures to prevent such practices.
4. Strategic Importance of Scrap Metal
Scrap metal is a strategically important resource for Ukraine, and the government's stance on export duties reflects its awareness of the growing competition for this valuable material. As Eurofer, the European Steel Association, has suggested, there is a growing global push to secure scrap metal supplies to support steel production, and this includes limiting exports to ensure that domestic industries receive priority.
Eurofer's Position on Scrap Metal as a Strategic Resource
In addition to Ukraine’s scrap export duty, the European Steel Association Eurofer has been advocating for recognizing scrap metal as a strategic resource. According to Eurofer, scrap metal plays a critical role in the environmental sustainability of the steel industry, as it is a primary raw material for electric arc furnaces. Eurofer is pushing for restrictions on the export of scrap metal to ensure that EU steel plants have access to this important resource.
Eurofer’s position reflects the growing global competition for scrap metal as an essential component of steel production, which could have implications for countries like Ukraine, which are major suppliers of this material.
Key Takeaways
• Duty on Scrap Metal Exports: The €180 per metric ton duty on scrap metal exports to Turkey will remain in place, even after the potential ratification of the FTA between Ukraine and Turkey.
• Protection of Local Industry: The duty aims to protect Ukraine’s metallurgical sector by ensuring a steady supply of scrap metal for domestic production, which has been increasingly scarce in recent years.
• Impact of Free Trade Agreement: The FTA with Turkey aims to improve bilateral trade but does not include changes to the scrap metal duty. This balance reflects Ukraine’s need to protect its steel industry while fostering broader trade relations.
• Risk of Re-exportation: There are concerns that Poland may re-export Ukrainian scrap to Turkey, bypassing the export duty. This highlights the challenges of enforcing export regulations in a global trade environment.
• Strategic Importance of Scrap Metal: Scrap metal is viewed as a strategic resource by both Ukraine and EU steel producers. Efforts to secure domestic supply and limit exports reflect the growing importance of this material in global steel production.
• Eurofer’s Influence: Eurofer has called for restrictions on scrap metal exports to ensure EU steel plants receive priority access, which may impact the flow of scrap metal from countries like Ukraine.
This decision to maintain the export duty on scrap metal to Turkey underlines the strategic importance of scrap metal for Ukraine's economy and its steel industry. It also reflects the complexities of global trade and the need for careful regulation to balance domestic interests with international agreements.
