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Russia prepares for retaliation as US steel, aluminum tariffs kick in

Russia's Ministry of Industry and Trade intends to propose a list of restrictions on U.S. goods in response to the American steel and aluminum tariffs, Viktor Evtukhov, deputy minister of industry and trade, said March 23.

Russia was not included in the list of countries exempted from the steel and aluminum tariffs that came into force March 23 in the U.S. The duties of 25% on steel imports and 10% on aluminum could affect major Russian market players such as PAO Severstal; PJSC Novolipetsk Steel, also known as NLMK; and Evraz Plc, all of which trade with the U.S.

"We will prepare our response and submit it to the Ministry of Economic Development before addressing the World Trade Organization," Evtukhov told Russian newswire Interfax. "We believe the tariffs are a violation of WTO rules. This is the first time a member country of the WTO implements such tariffs without a preliminary investigation and solely in the interests of national security."

He went on to say the response would most likely take the form of retaliatory restrictions on the import of U.S. goods into Russia.

The initial announcement of the tariffs provoked condemnation from world leaders and warnings of a trade war should the duties be implemented across the board. However, the Trump administration granted exemptions to its two closest trading neighbors, Canada and Mexico, while the North American Free Trade Agreement is renegotiated.

Australia, Argentina, Brazil, South Korea and the European Union were added to the list of exemptions on March 22, a day before the tariffs took effect.

Maxim Khudalov, director of the corporate ratings group at ACRA, told S&P Global Market Intelligence that Russia was not included in the exemptions because it is neither a U.S. military ally nor does it import large quantities of American goods.

"Russia is not in the list as in 2016 it imported only US$6.8 billion worth of U.S. goods. Most of them were agricultural, electrical devices and machinery," Khudalov commented. "The U.S. exports to Russia significantly fell from US$11 billion in 2013 after the U.S. imposed sanctions on Russian oil companies."

Khudalov went on to say such a flagrant violation of WTO rules could become a trigger for Russia to withdraw its membership. Other retaliatory measures could include the increase of export duties on U.S. agriculture, automobiles and intellectual products such as movies and software.

Kirill Chuyko, the head of equity research and metals and mining at BCS Global Markets, said that, comparatively, Russia is not a major supplier of steel to the U.S. market. He explained that most of the volumes will continue to be supplied to the American market and profits will be largely unaffected.

NLMK's American division told S&P Global Market Intelligence that the company supports the desire to protect the American market against unfair trade of steel products. At the same time, NLMK USA President and CEO Bob Miller said the company expects an exclusion to be given for steel slabs because they are not available for purchase in the U.S. and about 1,200 jobs at NLMK USA could be impacted if not.

"Putting shut down facilities back to work under a re-rollers model is part of the solution to the capacity shortfall the U.S. sees today," Miller said.

Severstal said it was still too early to comment on the developments.