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That happens to pretty much every outboard.
It's the unfortunate result of the tiller & stering gear can't be made of stainless due to the forces it sees, and so it is the one bit of "normal" steel on the engine, and the one most likely to loose its paint at the steering arm connection through wear......
The rust should flake off if you scrape / chip it. The biggest pain is getting in to clean it properly & get a new coat of paint on.
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Sula
