The government has asked the Ministry of Finance to review a proposed 3 percent export tax on steel products following objections raised by an industry group.

The ministry’s tax policy department suggested the new export tariff late last month in an attempt to prevent local steel producers from taking advantage of low electricity prices in Vietnam to produce steel for exports.

The Vietnam Steel Association on June 6 submitted a petition to Prime Minister Nguyen Tan Dung, saying the proposed tariff would hurt the local steel industry.

It argued that power accounts for only a small part in the total cost of steel production. Manufacturers require around 600 kilowatt-hours of electricity to produce a ton of steel billet, which is not a key export product. For other steel products, they only need between 100 and 200 kilowatt-hours per ton, the group said.

Pham Chi Cuong, chairman of the association, said it’s necessary to boost steel exports because the industry is facing a huge trade deficit. Besides, the fast expanding steel industry now produces “much more than what the local market can consume,” he said.

Vietnam is expected to have a steel surplus of around 3 million tons in 2011 as five new projects are expected to start production between August and the year end. Total capacity would reach 9 million tons while demand is estimated at around 6 million tons only, the Vietnam Steel Association said.

National power utility Electricity of Vietnam last year criticized steel producers for the country’s power shortages. It said many steel producers used outdated technology that consumes a large amount of power.

The criticism prompted the government to impose a ban on licensing new steel projects using outdated technology.