June, 2003: Publius

By Greg Rushford

Published in the Rushford Report

On February 21, I criticized the domestic steel lobby in a speech in Florida to the 14th Annual Tampa Steel Conference, which was hosted by the Tampa Port Authority. I said basically that the U.S. mills were quick to accuse foreigners of “dumping” and of benefiting from generous government subsidies — while themselves engaging in the same practices (see, What does the Stand Up For Steel lobby really stand for?, The Rushford Report, March 2003).

            There are always two sides of any story, of course. I’m happy to print a response written by Andrew G. Sharkey, III, the president and CEO of the American Iron and Steel Institute. Mr. Sharkey’s guest column explains why he thinks that we critics are wrong.

            Mr. Sharkey’s analysis follows:

            Any attempt to analyze accurately the effectiveness of President Bush’s three-part Steel Program must take into account the factors that caused the American steel crisis as well as the lengthy deliberations the Administration undertook before launching this steel tariff remedy in March of 2002.

            The origins of the steel crisis are well documented. Most production by large, non-U.S. steel mills (as much as 85%) has not been market-based. Production has often been subsidized, cartelized, government-owned or government-controlled. Since 1980 alone, foreign subsidies have totaled more than $100 billion.

            For decades, nearly every foreign steel market has been protected by high tariffs, quotas, restrictive licensing agreements, domestic cartels, international mill-to-mill agreements, and other private anticompetitive behavior. This made the United States the largest, most open market in the world, and deluged it with subsidized and dumped steel, very often sold far below the real cost of production.

U.S. commitment to Rules-Based Trade

The President is committed to enforcing U.S. laws, consistent with the requirements of the World Trade Organization (WTO), to promote trade based on genuine comparative advantages and to combat the destructive consequences of subsidized, injurious and dumped imports on American industries.

            World Trade Organization (WTO) rules recognize, when imports cause harm to competing domestic industries, temporary restraints may be imposed to permit orderly adjustment and restructuring. Notwithstanding the systematic bias of WTO panels against the use of trade laws, these WTO-sanctioned trade actions include Section 201-type “safeguard” provisions for industries when “increased imports” are a “substantial cause” of “serious injury.”

Section 201 as One Part of a Three-Part Plan

In June 2001, the President announced a three-part Steel Action Plan, and initiating the 201 investigation was only one part of this Plan.

            Regarding the 201, the President asked the International Trade Commission (ITC), an independent and bipartisan body, to investigate whether the U.S. steel industry suffered serious injury from increased imports. With imports having driven 35 American steel companies (45 million net tons or over 35% of total U.S. steel capacity) into bankruptcy, and having destroyed more than 54,000 U.S. iron and steel worker jobs, the ITC came back with a unanimous “yes.” All six Commissioners said that increased imports were a substantial cause of serious injury to the U.S. steel industry and five of the six recommended a tariff remedy.

            The United States followed WTO rules scrupulously throughout the grueling eight-month 201 process. Procedural steps were taken all along the way to protect the interests of parties on both sides. This includes customers and consumers, whose interests were carefully considered at all stages of the process.

Program is Working as Intended

It is useful to recount some of the accusations levied before the Administration Program was enacted. Critics:

•           questioned the industry’s long-term viability and argued that any relief would come too late to make a significant difference;

•           claimed Section 201 relief would simply prop up existing enterprises and prevent consolidation and restructuring within the industry; and

•           predicted Section 201 relief would undermine international negotiations on steel trade issues.

            Now, more than a year later, it is clear that the program is working as intended. Section 201 relief has brought badly needed stability to domestic steel producers. We have seen a modest but necessary price recovery that has had a positive impact on the bottom line of domestic steel producers.

            The President’s Steel Program has also helped to facilitate steps toward a fundamental consolidation and restructuring. U.S. Steel has just completed the purchase of the assets of national Steel Corporation. A new company, International Steel Group (ISG), has invested heavily in the industry, buying most of the assets of LTV and Bethlehem Steel, as well as selected assets of Acme Steel. Nucor has purchased the assets of Trico and Birmingham Steel. Steel Dynamics, Inc. bought Qualitech Steel’s assets and the GalvPro II LLC galvanizing facility. Gerdau SA North American acquired Co-Steel’s assets.

            If the Section 201 tariffs are kept in place for their full three-year term, U.S. steelmakers will have the opportunity to follow through on restructuring, and the industry will be dramatically more efficient than when the process began. For example, ISG has already cut costs by 20 percent at the LTV mills it has reorganized.

            The President’s Steel Program also jumpstarted OECD talks on steel trade where about 40 governments are today actively negotiating a long-term agreement to ban most subsidies to steel producers. Participating governments are also discussing solutions to the endemic problem of massive excess steel capacity worldwide. These issues are finally being taken seriously — thanks in large part to the steel program the United States has put in place.

            Even with these positive signs, domestic producers remain extremely vulnerable. In part, owing to the large number of exclusions from the relief, imports of finished steel were higher in 2002 than in 2001. The current economic slowdown has left us with weak demand, and, not surprisingly, these factors have pushed down prices substantially from their peaks of last summer. For many producers, the effort to return to sustained profitability has been difficult and remains uncertain.

            No industry can be expected to recover in little more than a year from the kind of injury the steel industry has endured over the last three decades. And access to capital would dry up in a heartbeat if tariffs were ended prematurely. If this industry is to be given the opportunity it needs to recover and restructure, it is critical that the Section 201 relief remain in place for its full three-year duration.

Facts Don’t Support

Complaints by Foreign

Producers and Certain

Steel Consumers

Critics of the President’s remedy claim higher steel prices since Section 201 relief was implemented have put U.S. steel-using industries at a competitive disadvantage. The facts do not support this claim.

            Over the last 12 months, as restructuring has lowered U.S. production costs, prices for critical “bench market products,” such as hot-rolled, cold-rolled and galvanized steel have risen substantially more in foreign markets than in the United States. Today, it is less expensive to buy steel for fabrication in auto parts, appliance and other industries than it is in most of Europe and Asia .

            The fallacy in critics’ reasoning is the assumption of a zero-sum game, in which any policy that benefits steel producers must harm our customers. U.S. manufacturers need reliable sources of competitively priced steel, and a reconstituted and more efficient domestic steel industry will give them that!

            For over one hundred years Americans have played a leading role in the global steel industry. America ’s steelmakers are determined to carry this tradition into a new century.

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