The Rushford Report 2007

Steel, Subsidies...and John Correnti

posted on November 15, 2007
by Greg Rushford


A passion for government-backed subsidies is the one thing that seems to unite steel manufacturers everywhere, free-trade advocates as well as protectionists. Consider the long, interesting, and at times ironic, career of John Correnti, a top-flight American steel executive who is one of the best in the business of attracting government largess. Civil engineer Correnti began his involvement in the industry in 1969, after he was hired by the venerable (subsidized) U.S. Steel after he graduated from college. The story of Correnti's continuing love affair with subsidies illustrates the wisdom of the old adage that in business, as in politics, where you stand can depend upon where you sit. For Correnti, his last seven years in the steel industry have at times seemed especially ironic -- as he has both advocated and opposed the practice of seeking out subsidies, sometimes at the same time.

Seven years ago, the pro-free trade American Institute for International Steel, whose members include the American subsidiaries of major European and Asian steelmakers who are frequently targeted by U.S. anti-dumping suits alleging that their prices to consumers are "unfairly" too low, issued a well-documented 324-page report that strongly criticized domestic steelmakers on essentially two grounds. Paying the Price for Big Steel first detailed how the domestic protectionists had long wielded the anti-dumping weapon, hoping to create a sheltered market for themselves, while driving up the costs of steel for consumers. The AIIS report also criticized the domestic steel lobby for raking in roughly $100 billion in federal, state, and local government subsidies going back some three decades. At the time, Correnti headed the struggling Birmingham Steel Corp.,which was headed for bankruptcy. Correnti had joined Nucor Corp., the mini-mill steelmaker that is now the number one American steel producer, in 1980, rising to CEO in 1995. But he had bounced to Birmingham in December 1999 after being ousted six months earlier in an internal Nucor power struggle. At Nucor, Correnti had shown a certain talent in negotiating taxpayer-backed loans, grants, tax breaks and other "incentive packages" -- staples of the Nucor model of doing business to this day.

On Monday evening at its annual dinner and conference in New York, AIIS released a follow-up 36-page report (with a 24-page detailed appendix) that offered fresh documentation to support criticisms that the domestic industry is still seeking a sheltered market by filing anti-dumping suits aimed at limiting imports, while having raked in another $15-$20 billion in government subsidies since 2000. This is where the irony comes in. The same John Correnti who has avidly pursued government subsidies all these years has written the forward to Still Paying the Price, which is co-authored by veteran Washington trade lawyers William Barringer, Kenneth Pierce, and Matthew McCullough. "The real question for the U.S. steel industry is whether it wants to continue to exist behind a wall of protection and depend on government bailouts? Correnti asks in his forward, before answering his question in the affirmative. "The objectives of the U.S. steel industry should instead be open markets, the elimination of subsidies, and trade laws that do not discriminate between imported and domestic steel sold under normal commercial practices."

Sound advice, another solidly-researched report -- yet the ironies over Correnti's anti-subsidy rhetoric stand out, as Correnti's objectives during the past seven years have at times been focused on those same discriminatory anti-dumping laws and the continuation of subsidies. Here's the record:

In 2000, Correnti was looking for a package of government-backed subsidies and loans that might help create value in his debt-ridden Birmingham operation. He was also hoping that an anti-dumping case that Birmingham (and Nucor) had been pressing would help drive up consumer prices for rebar, which reinforces concrete and is thus a necessary raw material used by the construction industry. On August 15, 2000, an obliging U.S. International Trade Commission tried to help petitioner Birmingham increase costs for American builders by slapping on anti-dumping tariffs on China, South Korea, Indonesia, Ukraine and other countries that were exporting low-priced rebar to the United States.

As Birmingham continued to struggle throughout 2001 and 2002, Correnti supported the controversial Bush steel plan that hit foreign steelmakers with high tariffs. The Bush plan went into effect in March 2002. It was subsequently determined by a World Trade Organization dispute panel to be inconsistent with America's international trade obligations, and abandoned the next year, leaving behind an unenviable record of harming American steel-consuming industries. Reporter Scott Robertson reported in the authoritative American Metal Market in February 2002 that even with the then-anticipated Bush trade restraints, the mini-mills were still considering filing more anti-dumping cases against imports. Robertson quoted Correnti as saying, "There will be further cases filed. If the tariff rate is set at 40 percent and dumping continues, [those who dump] will get a case. If the rate is set at 10 percent and they don't dump, then there won't be a case." In May 2002, Correnti sold Birmingham to Nucor for $615 million, conditioned on Correnti's filing for Chapter 11 bankruptcy, since Birmingham's debts exceeded Nucor's price.

In the Still Paying the Price report that was released on Nov. 12, Correnti took a different view of the Bush 2002-2003 steel plan in his forward: [I]t was after the high duties and quotas ended in December 2003 and the global markets recovered in 2004 that the integrated industry returned to profitability," he wrote. This illustrates that the U.S. steel industry cannot insulate itself from global market conditions. The health of the U.S. steel industry depends on the health of its customers, not on trade protection or subsidies."

Meanwhile, Correnti's hopes for the health of his newest venture -- a new, state-of-the-art mini-mill called SeverCorr, which is based in Columbus, Mississippi and looks to serve U.S. subsidiaries of foreign automakers in the south, including BMW, Mercedes Benz and Honda -- turn on subsidies. The man certainly has a talent. As I reported two years ago, Correnti helped get SeverCorr up-and-running by persuading the U.S. Department of Agriculture to give him a $25 million loan. Talk about a savvy move: persuading the USDA that it can help grow Mississippi steel as well as cotton.

It might be said that the S in SeverCorr stands for subsidies. In Oct 2005, Severstal Group, the giant Russian steelmaker, announced that it would participate in financing SeverCorr (which Correnti had originally called SteelCorr). Apart from the Russians, SeverCorr's new mill has been financed by an international public-private consortium including GE Commercial Finance, KfW Nord, Commerzbank, and Bayerische Landesbank (which is owned by the government of the Free State of Bavaria and the Association of Bavarian Savings Banks). The Tennessee Valley Authority is reported to be providing SeverCorr low-cost electric power. And page 23 of the new Still Paying the Price report (the one with Correnti's forward) notes that the mill has also received "a $12 million grant from Lowndes County, and $85 million in state-backed loans for the development of a new steel mill and company headquarters," on top of a $25 million infrastructure grant and a $30 million federal loan guarantee. Last year, an audit by the state of Mississippi added that SeverCorr will also get income tax credits of roughly $5,000 for every full-time job for ten years. One way or another, the audit noted, other agencies including the Appalachian Regional Commission, the Mississippi Department of Transportation, Community Block Grant Programs, and the U.S. Army Corps of Engineers (looking to increase barge capacity) would be involved in helping SeverCorr. The available public record suggests that SeverCorr's subsidies hover in the $100 million range.

At least, Correnti, by contrast with other members of the domestic industry who don't cotton much to questions concerning their longstanding enthusiasm for subsidies, has freely acknowledged one of the sources of his business acumen. Says David Phelps, AIIS' president, of Correnti: "He's a total free trader. His attitude is that the states and local governments want the investment and they open their wallets, and so he takes the money in return for the investment and the permanent jobs he brings." When questions arose in 2005 about his creative USDA rural development loan, Correnti related to reporter Nancy Kelly of American Metal Market that when he had run Nucor Corp. in the 1990s he had raked in hundreds of millions in government subsidies. "All those deals approached the $100 million mark, and whether it's a tax abatement, an infrastructure grant, deferred taxes, payment in lieu of taxes or 101 different names for it, it's all the same thing, an incentive to make the project come to fruition."

To create more pressure to get the Mississippi subsidies for SeverCorr, Correnti also looked to Osceola, Arkansas in 2004, according to news reports from the AP and Bloomberg. It appears that the subsidy situation in Mississippi was the deciding factor. "But we could not come to terms with the power company [on the price of electricity] that we could live with," Correnti said of Osceola. "And we could not come to terms with the state of Arkansas on a loan guarantee."

In sum, John Correnti's successful career that is approaching four decades, suggests this above all: scratch a steel executive, you'll find a subsidy lover.