The Sino-Japan Steel Trade Negotiations Framework

A factor influencing China's integration with world steel markets is steel's status as a canalised or "designated" commodity under Chinese trade laws. Canalisation limits the number of enterprises permitted to engage in import operations. Canalisation is particularly strict in the case of steel imports from Japan, the largest country supplier of ferrous metal products to China. Until mid-1995, steel supplies were organised under a system of bi-yearly contract negations between the Chinese single-desk importer (Minmetals), and the six largest Japanese steel producers. The purpose of this paper is to outline the negotiations framework, canvassing sources of advantage to both the Japanese and Chinese sides. Reasons for a recent decline in Japanese support for the system are also discussed. An important observation is that the canalisation arrangements involved a process of bilateral monopoly bargaining between collusive Japanese suppliers and the sole Chinese distributor. Bargaining centred on the division of cost savings generated by the special size and nature of the business transacted between China and Japan.