[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
  THE UNINTENDED CONSEQUENCES OF INCREASED STEEL TARIFFS ON AMERICAN 
                             MANUFACTURERS
=======================================================================



                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                     WASHINGTON, DC, JULY 23, 2002

                               __________

                           Serial No. 107-66

                               __________

         Printed for the use of the Committee on Small Business








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                      COMMITTEE ON SMALL BUSINESS

                  DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas                 NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado                JUANITA MILLENDER-McDONALD, 
ROSCOE G. BARTLETT, Maryland             California
FRANK A. LoBIONDO, New Jersey        DANNY K. DAVIS, Illinois
SUE W. KELLY, New York               BILL PASCRELL, Jr., New Jersey
STEVE CHABOT, Ohio                   DONNA M. CHRISTENSEN, Virgin 
PATRICK J. TOOMEY, Pennsylvania          Islands
JIM DeMINT, South Carolina           ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota          TOM UDALL, New Mexico
MICHAEL PENCE, Indiana               STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey            CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California          DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri                 GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia          BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York       MARK UDALL, Colorado
TODD W. AKIN, Missouri               JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia  MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania           BRAD CARSON, Oklahoma
                                     ANIBAL ACEVEDO-VILA, Puerto Rico
                      Doug Thomas, Staff Director
                  Phil Eskeland, Deputy Staff Director
                  Michael Day, Minority Staff Director














                            C O N T E N T S


                            ----------                              
                                                                   Page
Hearing held on July 23, 2002....................................     1

                               WITNESSES

Baughman, Laura, President & Economist, Trade Partnership 
  Worldwide......................................................     5
Nelson, Michael, General Manager, Arnold Engineering.............     7
Trilla, Lester, President & CEO, Trilla Steel Drum Corporation...     8
Jones, Gordon, Drum Loader, Trilla Steel Drum Corporation........    10
Pritchard, David, President & CEO, A.J. Rose Manufacturing.......    10
Herrman, Robert, Machine Technician, A.J. Rose Manufacturing.....    12
Grove, John, Vice President, Procurement, Cold Metal Products....    13
Emery, Merle, Vice President & General Manager, G.R. Spring & 
  Stamping.......................................................    14
Tanner, Michael, president, Wren Industries, Inc.................    16
Connors, Charles, President & CEO, Magneco/Metrel................    17

                                APPENDIX

Opening statements:
    Manzullo, Hon. Donald........................................    35
    Velazquez, Hon. Nydia........................................    39
    Jones, Hon. Stephanie Tubbs..................................    41
    Visclosky, Hon. Peter J......................................    43
Prepared statements:
    Baughman, Laura..............................................    47
    Nelson, Michael..............................................    61
    Trilla, Lester...............................................    63
    Jones, Gordon................................................    71
    Pritchard, David.............................................    73
    Herrman, Robert..............................................    77
    Grove, John..................................................    79
    Emery, Merle.................................................    83
    Tanner, Michael..............................................    90
    Connors, Charles.............................................    93
Additional Information:
    Letter to Hon. John Ashcroft, Attorney General, Department of 
      Justice, from Chairman Donald Manzullo, House Small 
      Business Committee.........................................    97
    Posthearing submission by WCI Steel; Steel Dynamics; Gallatin 
      Steel................................................98, 100, 103
    Posthearing submission from Mr. John Grove...................   105
    Posthearing submission by David Pritchard, President & CEO of 
      A.J. Rose Manufacturing....................................   107
    Written Testimony of Nels Leutwiler, Park View Metal Products   121
    Written Testimony of Tony Pileggi, Chicago Steel Container 
      Corporation................................................   125
    Written Testimony of Wes Smith, E&E Manufacturing Co., Inc...   129
    Written Testimony of American Steel Producing Community......   137
    Written Testimony of Consuming Industries Trade Action 
      Coalition..................................................   171
    Submission of Hans Mueller titled ``The Impact of 201 Tariffs 
      on U.S. Steel Users and Foreign Steelmakers: A Critique of 
      Peter Morici's `Survey of Some Counterintuitive Results,' 
      July 2002''................................................   178
    Submission of Joseph Francois and Laura Baughman titled 
      ``Estimated Economic Effects of Proposed Relief Remedies 
      for Steel''................................................   192
    Written testimony of Specialty Equipment Market Association..   229
    The Chicago Tribune, Wednesday, April 3, 2002, ``U.S. Steel 
      Users Feel Pinched by Prices''.............................   235
    The Los Angeles Times, Monday, June 24, 2002, ``Steel Prices 
      Stoke Tariff Backlash''....................................   238
    The Chicago Tribune, Saturday, June 29, 2002, ``Steel Drum 
      Firms Hammer Tariffs''.....................................   240
    USA Today, Wednesday, July 24, 2002, ``Steel Tariffs Catch 
      Some in Middle''...........................................   242
    The Wall Street Journal, Tuesday, July 23, 2002, 
      ``Steelmakers Post Improved Results for 2nd Quarter''......   245
    Rockford Register Star, Sunday, July 21, 2002, ``Bush Tariffs 
      Backfire on Local Steel Users''............................   246
    Letters to Chairman Manzullo, House Small Business Committee.   254












  THE UNINTENDED CONSEQUENCES OF INCREASED STEEL TARIFFS ON AMERICAN 
                             MANUFACTURERS

                              ----------                              


                         TUESDAY, JULY 23, 2002

                          House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:06 a.m. in Room 
2360, Rayburn House Office Building, Hon. Donald Manzullo 
(chairman of the Committee) presiding.
    Chairman Manzullo. The Committee will come to order. 
Hopefully by the time I am done with my opening statement, Ms. 
Velazquez will be here.
    The first law of medicine, to do no harm, is also valid in 
trade. When the President announced his decision last March to 
impose higher tariffs on some imported steel products, most 
everyone, including me, was willing to give the President the 
benefit of the doubt and support him on his action because 
everybody has an interest in a strong and vibrant domestic 
steel industry.
    Many steel using manufacturers make a concerted effort to 
buy from American steel companies not just because it is easier 
logistically, but because it helps maintain a strong 
manufacturing base in our country. However, the law of 
unintended consequences has set in a way that I do not think 
the Administration anticipated.
    Over the past six weeks, the Small Business Committee has 
gathered over 200 communications, and this continues to grow, 
coming from small manufacturers and now large manufacturers 
throughout the country that are being severely impacted by 
increases in steel prices of anywhere between 30 and 50 
percent.
    We have seen five general themes arise from this 
correspondence. First, some steel using manufacturers are 
caught in a price/cost squeeze. While the tariffs on foreign 
steel products were raised to 30 percent, many small 
manufacturers have seen price increases on domestic steel rise 
even higher to 70 and 80 percent.
    For many of these small companies, the cost of the steel 
forms a significant portion of the overall price of their final 
product. Because these small manufacturers are often suppliers 
to larger companies, they cannot pass along any increases to 
their customer. In fact, these larger company customers often 
demand annual price reductions of between one and five percent 
as part of their existing contract. Thus, these small 
manufacturers cannot absorb these cost increases for very long 
without going bankrupt.
    Second, some steel using manufacturers are subject to 
arbitrary allocations and shortages from steel manufacturers. 
They may be able to pay the higher prices, but the U.S. steel 
manufacturer cannot produce enough steel to meet demand. They 
have no assurance of a supply of steel beyond this month.
    The first priority of steel manufacturers is to supply the 
big companies who have long-term, large dollar contracts with 
them. Some small steel users attempting to buy on the spot 
market are left to the whim of the steel manufacturer as to 
whether or not they will supply these orders, and some spot 
market prices exceed 50 percent increases.
    Third, some steel using manufacturers assert that the 
recent increase in the price of steel has made them 
uncompetitive as compared to their overseas rival. They have 
lost sales of foreign companies that can purchase steel at 
world market prices. These foreign companies not only purchase 
steel at world market prices and make the products overseas, 
but they export the finished good into the U.S. at a lower 
tariff rate.
    In fact, most lost sales of comparable finished goods are 
going to Chinese firms. Some small U.S. steel users even talk 
about relocating some or all of their manufacturing overseas to 
avoid the high price of steel in the U.S. and then bringing 
back the finished good as an import.
    Fourth, some steel using manufacturers lament that they 
have had to lay off a number of workers over the past four 
months because the high price of steel has not made them 
competitive. Many predict more layoffs by the fall unless the 
price of steel drops.
    Finally, some steel manufacturers complain about big steel 
manufacturers breaking existing contracts to arbitrarily raise 
prices. As they are unable to break their own contracts with 
their customers based on a higher steel price, the small 
manufacturers get caught in a vice.
    They have been faithful, pro-American, long-time buyers 
from the domestic steel mills, yet right in the middle of a 
contract the big steel companies all of a sudden change their 
prices--one is Bethlehem Steel--and challenge the small steel 
using manufacturer by essentially saying, go sue me. Where are 
you going to get your steel from? What option is left to the 
small manufacturer? They cannot afford to sue. Is this the 
reward they get for years of loyalty?
    That is why I am releasing a letter I sent today asking the 
Attorney General to open an antitrust investigation to 
determine whether or not the big steel companies are not only 
gouging the American steel using manufacturers, but also to see 
what can be done to combat unilateral abrogation of contracts.
    The purpose of this hearing is for all of us in the 
legislative and executive branch and in the private sector to 
take a moment to reconsider the steel remedies in light of the 
unintended consequences that have occurred over the past four 
months.
    At minimum, we urge the Administration to be as generous as 
possible with exclusion requests, particularly to those from 
small manufacturers. We also ask them to rethink and hone down 
or eliminate the tariffs that have been placed on the foreign 
steel.
    Last Sunday, the Rockford Register Star published a 
penetrating special report entitled ``Steel Shakeup: An 
Industry Under Attack.'' In this front page story, the paper 
documented how the steel tariffs are strangling local small 
manufacturing shops. The already fragile manufacturing base in 
Rockford, Illinois, is damaged and further threatened by these 
tariffs. Rockford, Illinois, led the nation in unemployment in 
1981 at 25.9 percent. It has a manufacturing base of about 30 
percent. It is a city of about 170,000 that is home to over 
1,100 manufacturing companies.
    The problem is not just in northern Illinois. It is spread 
across many small manufacturers across the state. They already 
have enough to worry about. In addition to existing regulatory 
and tax burdens, they suffer thin margins from stiff foreign 
competition. They are sometimes subject to complex and 
burdensome export controls and unilateral sanctions not imposed 
on their foreign competitors. The U.S. dollar is still over 
valued by as much as 25 percent. They have difficulty in 
accessing credit, and they are asked to do even more with less 
through immense market pressure to further increase 
productivity to drive down costs.
    On top of this, small manufacturers now have a double digit 
increase in the cost of their raw material--steel--and they are 
also threatened with a possible increase in the minimum wage, 
interest rates and higher medical and property insurance 
payments.
    What are we doing? Do we really want a manufacturing base 
in this country, or are we justsending an invitation to them to 
relocate overseas? The votes of the Republican Members for trade 
promotion authority are in danger. The philosophy of free trade is 
becoming increasingly difficult to articulate because of the mixed 
messages contained in these types of actions.
    We need to reverse this trend. We need to show that free 
trade works for the little guys. If it does not work for the 
little guys, then it does not work for most Americans. We need 
to show that our government is doing everything in its power to 
help small manufacturers succeed and thrive in this country.
    I want to show you the lead story in the Rockford, 
Illinois, Sunday Register Star, ``Bush Tariffs Backfire on 
Local Steel Users''. [Information may be found in the appendix; 
on pages 246-253.] I could lose tens, if not hundreds, of small 
manufacturing companies in the congressional district that I 
represent. This is the story that has not been told, and this 
is the reason we are having the hearing because the people that 
are here today, the ones that have been hurt, have not had a 
voice in the consideration or in trying to talk to the 
Administration to tell them to get rid of these terrible 
tariffs.
    I now yield to an opening statement from my good friend and 
colleague from New York, Mrs. Velazquez.
    [Chairman Manzullo's statement may be found in the 
appendix.]
    Ms. Velazquez. Thank you, Mr. Chairman.
    Chairman Manzullo. Good morning. How are you today?
    Ms. Velazquez. Good morning. Thank you.
    Everyone has known for a long time that the American steel 
industry has been in trouble. A combination of legacy costs 
here and cheaper production overseas has threatened the engine 
of heavy industry in the United States. The situation became 
even more dire at the end of last year when the basic price of 
steel fell to $210 per ton. That was clearly an unsustainable 
price for U.S. steel manufacturers since production here costs 
about $293 a ton.
    At the beginning of March, the President intervened to 
protect our steel makers. He imposed tariffs on imported steel 
to level the price of cheap foreign steel. As a result, the 
price of steel rose quickly from $260 in March to $340 in June.
    The immediate effect of the tariffs has been to shore up a 
critical component of our economy--the steel industry--and has 
saved thousands of jobs. There is anecdotal evidence, however, 
that these tariffs may have had the unintended consequence of 
impeding the competitiveness of small manufacturers.
    The issue of tariffs is a complicated one that has affected 
many players in the economy, both large and small, but the idea 
that these tariffs have negatively impacted all small 
businesses is just not true because for every small business 
harmed by these tariffs there are many small producers or 
distributors as well that have actually benefited from these 
tariffs and some manufacturers that due to waivers remain 
unaffected.
    The truth is that small businesses across the country were 
hurt by the world's over-supply of steel and the dumping 
practices of foreign manufacturers. These unfair trade 
practices not only hurt big steel, but also the small 
businesses that serve steel-making communities hit hard by the 
low price of dumped steel. In addition, small steel makers, 
mini-mills that produce recycled batches of steel from scrap, 
were also hurt by the continued artificially low steel prices.
    The tariff was just one part of a solution to help not only 
big steel, but the communities that serve and depend on the 
industry and small steel makers. While we may focus today on 
the impact of other small businesses constrained by a higher 
but more reasonable price of steel, we must continue to look 
for solutions so that all small businesses can thrive.
    We know that the American industry, given a level playing 
field, can out-produce every other nation. We do not fear a 
truly free market, but when countries exploit our strong 
economy, dumping for dollars by unloading their products at 
below-market rates, that is not a level playing field. These 
tariffs are necessary to help our producers and many small 
businesses, and it tells the world that we are not the dumping 
ground for their products just because the dollar remains 
dominant.
    I hope we can use this hearing to examine ways that we can 
help small businesses affected by the steel tariffs. But we 
must remind ourselves that not all small businesses were hurt 
by the tariffs. Many were in fact helped. We need to make sure 
that our solutions to the problem of global steel production 
take both sides into account.
    Thank you, Mr. Chairman.
    [Ms. Velazquez's statement may be found in the appendix.]
    Chairman Manzullo. Thank you, Mrs. Velazquez.
    I have been advised we are having a journal vote at 10:30, 
and that is to approve the marvelous things that happened 
yesterday in naming a couple of post offices, but hopefully 
that will be the only interruption and we can finish the 
testimony.
    The rules are that it is five minutes for testimony. We 
have two pairs, Mr. Trilla and Gordon Jones with the same 
company and Mr. Pritchard and Mr. Herrman with the same 
company. With regard to those that are speaking in the pairs, 
if the two of you could limit your total testimony to six 
minutes, we would appreciate that.
    Our first witness is Laura Baughman, president and 
economist at Trade Partnership Worldwide. We look forward to 
your testimony.

  STATEMENT OF LAURA BAUGHMAN, PRESIDENT AND ECONOMIST, TRADE 
                     PARTNERSHIP WORLDWIDE

    Ms. Baughman. Thank you, Mr. Chairman and Members of the 
Committee, for giving me the opportunity to testify before you 
today. My name is Laura Baughman. I am president of Trade 
Partnership Worldwide, an economic and trade research firm.
    As an economist, I have spent more than 20 years studying 
and analyzing the dynamics of the U.S. steel industry and in 
particular the impact of imports on that industry. I would like 
to offer you some general information about the American steel 
consuming sector to provide context for the company testimony 
that will follow mine.
    U.S. steel consumer industries span a wide range of 
sectors, including obvious ones like fabricated metal 
manufacturing, machinery and equipment manufacturing and 
transportation equipment and parts manufacturing. Steel 
consumers also include chemical manufacturers, petroleum 
refiners and their contractors, tire manufacturers and non-
residential construction companies, among others. All these 
industries need to purchase steel and steel containing products 
readily at internationally competitive prices. The ability to 
do so is crucial to the economic health of these sectors.
    As the tables attached to my written testimony demonstrate, 
the vast majority of steel consuming manufacturers are small 
businesses. Over the last six years, they added 1.2 million 
jobs to the American economy at a time when other segments of 
the manufacturing sector lost jobs.
    Unions represent millions of workers in steel consuming 
sectors. Workers in steel consuming sectors outnumber steel 
industry workers by 59 to one. In short, steel consumers are a 
vitally important segment of the American economy. Their 
domestic and international competitivenessshould be a concern 
of policy makers.
    We have over the last year heard a lot about the market 
dynamics affecting U.S. steel producers. Understanding what 
affects the competitiveness of steel consuming industries is 
equally essential to making sound policy choices. First and 
most fundamentally, American steel consuming companies and 
their workers compete in global markets. Because production can 
be readily and quickly moved to where it makes the most 
economic sense, these markets set U.S. prices for products that 
contain steel.
    Second, steel consumers must have steady and reliable 
sources of steel supplies, often on a just in time basis, to be 
competitive. Steel supply lead times must be predictable to 
allow efficient manufacturing operations and on time 
deliveries.
    Third, steel consumers need reliable price quotes in order 
to make price quotes of their own. Steel represents 40 to 70 
percent of many steel using manufacturers' costs. Steel 
consumers cannot operate profitably in a market where steel 
suppliers cannot tell them what the steel they order will cost.
    Steel consumers who supply auto and appliance manufacturer 
customers also face pressure to lower prices of the goods they 
make from steel, as Chairman Manzullo pointed out. Contracts 
with these customers typically require steel consumers to 
reduce prices annually. Attached to my written testimony are 
charts that show the prices of machinery and equipment and 
motor vehicle parts have in fact declined steadily since early 
1996.
    About half the steel sold in the United States is purchased 
by large steel consumers under long-term contracts directly 
from domestic mills. Smaller steel consumers must purchase the 
other half in the spot market through steel service centers and 
other distributors. Service centers typically sell both U.S. 
made and foreign steel. Many steel users buy commodity grades 
of steel. They may not know where the steel came from, nor do 
they care, as long as they have a steady, reliable supply of 
competitively priced steel that meets their and their customers 
specifications.
    However, many other steel using manufacturers care 
enormously where their steel comes from. Their customers demand 
safety and performance standards that can only be met by a 
particular type of steel made by a particular manufacturer, be 
it domestic or foreign.
    Last fall, the Consuming Industries Trade Action Coalition 
asked Dr. Joseph Francois and me to evaluate the likely impacts 
of the tariffs on steel consuming jobs. Dr. Francois is a 
professor of economics at Erasmus University, former head of 
the Office of Economics of the U.S. International Trade 
Commission and managing director of Trade Partnership 
Worldwide. We evaluated the effects of the ITC's remedy 
recommendations.
    The President's selected tariffs fall somewhere in the 
middle of the ranges we estimated. Our results are consistent 
with those of the ITC and those of other respected economists 
analyzing the likely impact of the tariffs on the U.S. economy.
    Very briefly, we found that higher costs of steel inputs 
and greater competition from imports of steel containing 
products resulting from the tariffs would lead to a loss across 
all sectors of the economy of between 36,000 and 74,000 jobs. 
Losses in steel consuming sector jobs alone would range from 
15,000 to 30,000. Eight jobs would be lost for every steel job 
protected. Every state loses out under the tariffs, including 
states in the steel belt.
    Only time will tell whether these estimates bear out. 
However, the dramatic price increases steel consumers are 
already seeing in the market exceed even our estimates, and 
this does not bode well for the future.
    The President's steel decision added formidable import 
barriers to already substantial barriers caused by antidumping 
and countervailing duty orders and investigations. These 
barriers have hurt American steel using manufacturers badly and 
will continue to do so as long as they are in effect.
    Thank you, Mr. Chairman.
    [Ms. Baughman's statement may be found in the appendix.]
    Chairman Manzullo. Thank you.
    We are going to recess for a few minutes to go down and 
vote, and then we will be right back and continue the hearing.
    [Recess.]
    Chairman Manzullo. Our next witness is Michael Nelson, who 
is the general manager of Arnold Engineering in Marengo, 
Illinois. Marengo is part of the congressional district that I 
have the privilege of representing.
    Mr. Nelson, we look forward to your testimony. It is five 
minutes. When the yellow light comes on there that means there 
is one minute to go.
    Mr. Nelson. Thank you.
    Chairman Manzullo. The complete statements of all the 
witnesses and the Members will be made part of the record.

     STATEMENT OF MICHAEL NELSON, GENERAL MANAGER, ARNOLD 
                          ENGINEERING

    Mr. Nelson. I am Mike Nelson, general manager of the Rolled 
Products Division at the Arnold Engineering Company, Marengo, 
Illinois.
    Mr. Chairman and Members of the Committee, I would like to 
thank Chairman Manzullo and the Committee for allowing me to 
testify on the subject of increased tariff rates on steel and 
the effect it has on small manufacturers. I would like to also 
thank you, Chairman Manzullo, for presenting our request for 
relief to Ambassador Zoellick and for the support that you and 
your staff have given me during this process.
    At this time, as my testimony to this Committee I would 
like to read the letter addressed to you, Chairman Manzullo, 
dated June 19, 2002, regarding the impact the tariff is having 
on the Rolled Products Division of the Arnold Engineering 
Company.

    Dear Congressman Manzullo: I write regarding the negative impact 
that the imposition of tariffs upon magnetic steel products is having 
upon the Arnold Engineering Company, known as Arnold, and its employees 
in Marengo, Illinois, and to request your assistance in having our 
completed questionnaire for exclusion reviewed by the applicable 
regulatory agency, the Office of the United States Trade 
Representative.
    Recently, Arnold was informed that its material, ARNOKROME-5C, was 
subject to additional duties under the Section 201 remedy for imported 
steel products. We had proceeded under the assumption that ARNOKROME-5C 
would not be subject to any tariffs due to the specialized nature of 
the alloy and the unique capabilities of our suppliers. ARNOKROME-5C is 
processed by Arnold in Marengo and then sold to a domestic producer of 
anti-theft tags, who then in turn sells these tags to retail stores 
throughout the United States.
    Arnold originally conducted an extensive search to locate a 
domestic supplier of ARNOKROME-5C, but no domestic suppliers were 
either capable of or willing to supply ARNOKROME-5C. Hence, Arnold 
widened its search and began to conduct business with an offshore 
source in Germany.
    Arnold has continued to search for a domestic backup and/or 
replacement supplier, but those efforts have all resulted in no quotes 
from domestic sources. In light of the fact that Arnold has diligently 
searched for a replacement product for ARNOKROME-5C and demonstrated 
there is no replacement supplier or material in the U.S., we believe 
that this tariff should not be imposed upon Arnold.
    At stake are the six years that Arnold invested, amounting to well 
over $500,000 in product development costs alone, and Arnold's 
continued participation in the magnetic anti-theft marketplace. In 
particular, if the tariff remains in effect for ARNOKROME-5C we 
anticipate that at least five hourly workers and an as yet undetermined 
number of support personnel will be terminated when Arnold exits the 
magnetic anti-theft marketplace.
    On behalf of the Arnold Engineering Company, I respectfully request 
that you consider this request, and if you are in agreement with 
Arnold's position we ask that you champion our case with the Office of 
the United States Trade Representative to obtain an exclusion to 
preserve the investment that we have made and secure the future 
employment of the affected Arnold personnel that support this program.
    Thank you for your consideration of our request.
            Respectfully,
                                 Michael D. Nelson,
                 General Manager, Rolled Products Division,
                                        Arnold Engineering Company.

    Thank you, Mr. Chairman.
    [Mr. Nelson's statement may be found in the appendix.]
    Chairman Manzullo. You were going to add to your testimony 
the number of employees at your facility.
    Mr. Nelson. I have a total employment of 50 people, and 
five would be affected relative to this issue.
    Chairman Manzullo. Thank you.
    Mr. Nelson. Thank you.
    Chairman Manzullo. Our next witness is a team, Lester 
Trilla, president and CEO of Trilla Steel Drum Corporation, 
testifying along with Gordon Jones, who is a drum loader who 
works with the company.
    As we said before, if the two of you could combine and 
limit your testimony to approximately six minutes we would 
appreciate it. Mr. Trilla, if you could bring the mike real 
close to your mouth, and then when it is Mr. Jones' time just 
send it over, please.

  STATEMENT OF LESTER TRILLA, PRESIDENT AND CEO, TRILLA STEEL 
                        DRUM CORPORATION

    Mr. Trilla. Good morning. My name is Lester Trilla. I am 
president of Trilla Steel Drum Corporation. Mr. Chairman and 
Members of the Committee, I want to thank you very much for the 
honor of appearing before you to testify about the impact of 
the steel 201 tariffs on my business and my workers. I also 
want to thank the Chairman especially for his leadership on 
behalf of the small business owners.
    I would also like to express my appreciation to the 
Consuming Industries Trade Action Coalition, or CITAC, for its 
good work for standing up for America's steel users, especially 
small businesses like mine.
    By way of a short introduction, Trilla Steel Drum is 
located in Chicago, Illinois. We are a leading manufacturer of 
new 55 gallon steel drums. They are used in filling and 
transportation of various products, including hazardous 
materials. Trilla is a family owned, family run business. Three 
generations of the Trilla family have built the company from a 
drafty garage on the south side of Chicago into a major Midwest 
supplier of more than one million 55 gallon steel drums 
annually to a diverse client base.
    Cold-rolled steel is the major raw material used in our 
drums. The imposition of a 30 percent additional tariff on the 
steel that Trilla needs to import has been a disaster for 
Trilla. It has effectively cut off the supply of the major raw 
material we need. The significant shortfall in domestic 
capacity and expanding lead times give us grave concern that we 
may not be able to get enough steel from domestic sources to 
meet our needs.
    Furthermore, its inconsistent quality makes it poorly 
suited for Trilla's use. Trilla has a stringent qualification 
process. Only imported steel consistently meets our exacting 
requirements and those of our customers. Trilla's customers 
include an increasing number of companies that ship hazardous, 
sensitive and expensive materials.
    The integrity of the steel drum used to ship these 
materials is critical, and any contamination or leakage into 
the environment could be disastrous. Drums with cracks, 
fractures and leaks, which can easily result from the use of 
steel that is unsuitable for our steel drums, are unacceptable, 
but will be inevitable if we are forced to use steel that does 
not consistently meet our strict specifications.
    Not only would this have a severe impact on our ability to 
compete effectively, increasing our costs due to scrap and 
rejections, but it would impact the quality of our drums and 
undermine our credibility with our customers.
    In order for Trilla to certify to its customers that each 
drum meets the stringent performance requirements set forth by 
the United Nations and required by the U.S. Department of 
Transportation, we can only use raw materials that meet 
exacting gauge control requirements, hardness value and surface 
cleanliness and are free of defects like laminations and 
pinholes.
    For instance, steel that does not have a consistent low 
hardness value will not withstand the state-of-the-art 
expansion process we employ, which ensures a stronger container 
with better stacking, vacuum and dent resistance. The imported 
steel has better gauge tolerance, resulting in an increased 
yield. In addition, while less than one percent of imported 
steel is rejected, the domestic steel scrap figure is two to 
three times higher.
    The 201 tariff, coupled with the threatened antidumping 
duties, have removed our imported steel from the market. The 
price of the domestic steel we now must buy has increased by 
over 54 percent since the imposition of the steel tariffs. That 
equals around a 20 percent increase in the cost of the drum. 
Add to that the cost of increased scrap, breakdowns, rejected 
drums because of the quality of the steel, and you can see our 
competitive damage.
    Trilla simply cannot absorb these huge cost increases. Our 
customers are balking at significant higher prices necessitated 
by the steel tariffs and are starting to look for lower cost 
plastic or bulk containers.
    More significantly, if this situation continues for any 
length of time some of our larger global accounts will choose 
to fill their drums offshore in other parts of the world. This 
would not only dramatically reduce production of the jobs at 
Trilla and other American drum manufacturers, but at domestic 
filling operations and shipping operations throughout the 
United States.
    [Mr. Trilla's statement may be found in the appendix.]
    Chairman Manzullo. Let me go on to Mr. Jones at this point. 
Is that okay with you?
    Mr. Trilla. Okay.
    Chairman Manzullo. Mr. Jones. Gordon Jones. If you could 
put the mike over there and speak directly into the mike?

   STATEMENT OF GORDON JONES, DRUM LOADER, TRILLA STEEL DRUM 
                          CORPORATION

    Mr. Jones. Good morning. My name is Gordon Jones. I am a 
drum----
    Chairman Manzullo. Gordon, could you put the mike a little 
bit closer? You have a very soft voice. There you are.
    Mr. Jones. Good morning. My name is Gordon Jones. I am a 
drum loader at Trilla Steel Drum Corporation. My major 
responsibilities are to make sure that the drums are properly 
loaded and secured so that they arrive at our customers' 
destinations in good shape. I also must be certain that the 
count of drums is accurate.
    I am a member of the Sign, Display, Pictorial Artists and 
Allied Workers Local Union 830. About 45 of Trilla's 70 
employees are members of this union. I have worked at Trilla 
for over three years. Recently, because it has been difficult 
to get the steel that we need to run our drums on our machines, 
we have started to carefully monitor the hours of production.
    Also, it seems that during some weeks there is not always 
enough business to fill the hours that we can count on for the 
last few years. If this is going to get worse and we lose all 
of our overtime hours and even some of our regular hours 
because of the lack of steel or because our steel costs make 
the drums too high priced, it will leave me and my family in 
terrible shape.
    As a father of six, it takes all of my wages to pay the 
rent and to feed and clothe my family. If my pay is cut, I do 
not know how we could make it. I know for sure that we could 
not afford to live where we live now. I am sure that this would 
be true for most, if not all, of my fellow union members.
    This is a little scary to see. Here we have a successful 
company that is a leader in the industry. We were growing and 
buying new equipment and machinery. Now all of a sudden there 
seems to be a real possibility that we might have to cut back 
production or even turn away business because of these tariffs 
that have nothing to do with the steel drums, this company or 
my family.
    They say that these tariffs are supposed to help workers, 
to save steel jobs, but what about me? I do not understand why 
the union jobs of steel producers are any more important than 
my union job. It just does not make sense.
    Thank you.
    [Mr. Jones' statement may be found in the appendix.]
    Chairman Manzullo. Thank you, Mr. Jones.
    Mr. Trilla, for the record, how many employees do you have?
    Mr. Trilla. Total, including myself, I have 70 employees.
    Chairman Manzullo. Thank you.
    Our next team of witnesses are David Pritchard, president 
and CEO of A.J. Rose Manufacturing Company in Avon, Ohio, and 
testifying with him is Robert Herrman, who is a machine 
technician.
    Mr. Pritchard, we look forward to your testimony.

  STATEMENT OF DAVID PRITCHARD, PRESIDENT AND CEO, A.J. ROSE 
                         MANUFACTURING

    Mr. Pritchard. Thank you. Good morning, and thank you very 
much for asking me to testify about the consequences that the 
steel 201 tariffs have had on my company. My name is Dave 
Pritchard, and I am president of A.J. Rose Manufacturing 
Company.
    A.J. Rose, headquartered in Avon, Ohio, is a family owned 
company with three generations in this business that was 
established in 1922. We have 400 associates in the business. 
Two hundred and seventy of these associates are members of the 
United Steelworkers Local 735.
    We at Rose specialize in manufacturing tight tolerance 
metal stampings, airbag components and spun formed products for 
the automotive, original equipment and after market. Over 90 
percent of our products are components used on motor vehicles 
running at very high rpms. We need to produce safe and reliable 
products. That is the most important thing to us. Failure of 
our components would be devastating not just to our company's 
reputation, but also to our customers and their customers, not 
to mention the risk to passengers and highway safety.
    Because of these considerations, we have developed a 
relationship with Corus, who, along with their predecessor 
company, have provided us with 100 percent of our requirements 
of several special grades of hot-rolled steel since 1976. This 
supply relationship was the result of collaboration between the 
engineering teams at A.J. Rose, Corus and our U.S. supplier, 
Imports International or Chesterfield Steel. Together, we 
developed unique steels to make our products the best and the 
safest on the market.
    Our partnership with Corus and Chesterfield has been an 
integral and necessary part for our growth. Corus supplies us 
with hot-rolled material with the guaranteed tight tolerance 
and unique characteristics that we need and that as yet cannot 
be supplied by other mills.
    U.S. producers are unable to produce products meeting these 
requirements without significant retooling and diversion of 
their product lines. In fact, when we have contacted domestic 
mills and given them our specifications for the material, they 
have declined to even give us a quote. This is the reason we 
have applied for exclusions from the steel tariffs for these 
products. Those product exclusions are Request No. N-330.01 
through .07.
    A.J. Rose has been able to grow and add jobs because we 
manufacture high quality products that a limited few can do. 
Now, however, with the steel 201 tariffs everything has 
changed. The additional tariff increases the cost of our basic 
raw material significantly. Many of our customers have refused 
to accept any price increase, and those who have accepted some 
increase have only taken a portion of the increased costs that 
we face, leaving us to absorb the rest.
    These additional tariffs are a disaster for our business. 
They make us much more vulnerable to foreign competition, which 
is not crippled by artificially inflated raw material prices. 
In fact, one of our major customers has recently contacted us 
to let us know that they will be resourcing 11 of the current 
jobs we run for them to overseas suppliers with savings that 
they are telling us of 38 to 42 percent on finished goods that 
they can import from Brazil and Asia.
    In addition, a significant number of our customers have 
told us that they will be market testing us. What this means is 
they will be trying to find a lower cost supplier anywhere in 
the world. Thus, we are concerned that we may soon lose 
additional business as well.
    This constant threat to our business is very real, and it 
will get worse if we are forced to continue to pay such a 
premium for the steel we need to run our business. The hardship 
of this tariff and our constant inability to pass along any 
increases in cost to the automotive companies will cost not 
only jobs, but also most certainly it will affect A.J. Rose 
Manufacturing's ability to survive in the future.
    Thank you, and I would like to pass the microphone to my 
associate.
    [Mr. Pritchard's statement may be found in the appendix.]
    Chairman Manzullo. Thank you. Our next witness is Robert 
Herrman, also from A.J. Rose Manufacturing Company. Go ahead.

  STATEMENT OF ROBERT HERRMAN, MACHINE TECHNICIAN, A.J. ROSE 
                         MANUFACTURING

    Mr. Herrman. Good morning. Thank you very much for inviting 
me to this hearing. My name is Robert Herrman. I am a machine 
technician at A.J. Rose Manufacturing Company. I am also a 
member of the United States Steelworkers Local 735-14, a union 
that represents 270----
    Chairman Manzullo. Mr. Herrman, could you bring the 
microphone closer?
    Mr. Herrman. A union that represents 270 workers at A.J. 
Rose.
    Over the past nine years I have been with A.J. Rose, and it 
has been a growing company. With this growth, the company has 
added jobs to the work force to keep up with the pace of new 
business. Since March, business has been slowing down. I know 
we have lost customers due to the increased cost of steel, and 
other customers may drop out, too. As an employee of A.J. Rose, 
I am very concerned. I know that when the profits of the 
company go down, this will affect my wage rate in the future. 
It definitely means less pay, less benefits, and it probably 
means fewer jobs.
    The steel tariffs were supposed to protect American 
businesses and save American jobs. So why do the steel mills 
deserve to stay in business more than A.J. Rose? Why are jobs 
at steel mills more important than the 250 jobs of the union 
associates of the work force at A.J. Rose? I do not understand 
a policy that helps some U.S. jobs at the expense of other U.S. 
jobs.
    Thank you.
    [Mr. Herrman's statement may be found in the appendix.]
    Chairman Manzullo. Thank you.
    Our next witness is John Grove, vice-president, Cold Metal 
Products, from is that Swickley?
    Mr. Grove. Swickley, Pennsylvania.
    Chairman Manzullo. Swickley. Swickley, Pennsylvania.
    Mr. Grove. Right.
    Chairman Manzullo. We look forward to your testimony.

STATEMENT OF JOHN GROVE, VICE-PRESIDENT PROCUREMENT, COLD METAL 
                            PRODUCTS

    Mr. Grove. Thank you. Good morning, everyone. My name is 
John Grove. I am the vice-president of procurement with Cold 
Metal Products, Inc. I do appreciate the opportunity to testify 
before this Committee today to relate to you about the impact 
the steel 201 tariffs have had on my business.
    As a result of the steel 201 tariffs, we have been put on 
allocation by our domestic suppliers, and we cannot get enough 
steel for our operations. We have also lost business because 
our customers are unwilling to pay----
    Chairman Manzullo. Mr. Grove, we evidently have low grade 
steel that is used in these microphones. Could you bring that 
closer to you?
    Mr. Grove. How is that?
    Chairman Manzullo. That is much better. Thank you.
    Mr. Grove. Shall I start over or just keeping going?
    Chairman Manzullo. No, that is fine. Keep on going.
    Mr. Grove. We have also lost business because our customers 
are unwilling to pay for our increased steel costs and have 
suffered financially because of this.
    Cold Metal Products is located in Swickley, Pennsylvania, 
with plants and service centers in Youngstown, Ohio, Ottawa, 
Ohio, Roseville, Michigan, and Indianapolis, Indiana, where we 
employ over 400 workers. Our production workers are members of 
the United Steelworkers Local Union Nos. 3047 and 1999-2.
    We manufacture specialty and conventional strip steel to 
meet the critical requirements of precision parts 
manufacturers. We also provide value added products to 
manufacturers in the automotive, construction, cutting tool, 
consumer goods and industrial goods markets. As a leading maker 
of intermediate steel products in this country, a constant and 
reliable supply of raw material is absolutely critical to our 
success.
    The steel tariffs imposed in March have increased the price 
and reduced the availability of steel to the point that our 
supply of steel is no longer reliable. Cold Metal Products has 
been put on allocation by three of our long-time suppliers in 
the U.S., namely WCI Steel, Steel Dynamics and Gallatin. They 
simply cannot supply us with the volume of steel we need, given 
their capacity limitations and orders from larger customers.
    As a result, we have run out of steel a number of times in 
the past couple of months and have not been able to service our 
customers. We have no assurance of steel supplies or prices 
past September of this year. When we are able to obtain steel, 
it also arrives late roughly 40 to 50 percent of the time.
    In addition, because of the scarcity of steel in the U.S. 
market, we have been forced to accept non-negotiable price 
increases of $130 per ton since January 1, 2002. This $130 
constitutes more than a 30 percent price increase and is the 
largest increase in a six month time span ever seen by Cold 
Metal Products since its founding in 1926.
    Our customers have refused to pay any of these increased 
costs and have begun to move their business offshore where 
steel is cheaper. For example, one of our longstanding 
customers, Stanley Tool, recently indicated they would divert 
their business from us to England or China because the product 
was cheaper there.
    This loss of business will have a profoundly negative 
effect on our company. We anticipate that we will lose more 
business in the future because our increased steel prices due 
to the steel 201 tariffs have made us unable to compete in a 
global economy.
    Cold Metal has long been recognized as the leading 
innovator in the strip steel industry with an unmatched 
capability to develop products and processing that provides 
solutions for our customers' applications. Our business is 
based on providing cold-rolling, annealing, normalizing, edge 
conditioning, oscillate winding and slitting service. In order 
to provide these value added specialty steel products, we must 
have steel to process. In the current environment of steel 201 
tariffs, however, we cannot get the steel we need.
    We have done everything we can to be a success in a very 
demanding marketplace. The effort to save the U.S. steel mills, 
however, should not sacrifice companies like ours.
    Thank you for your time and attention in listening to the 
little guys' side of the story.
    [Mr. Grove's statement may be found in the appendix.]
    Chairman Manzullo. We appreciate that.
    On page 2 of your testimony, it states the year January 1, 
1992. That should be 2002? Is that correct?
    Mr. Grove. 2002.
    Chairman Manzullo. We will let the record reflect that 
correction.
    Also made part of your testimony will be the letter from 
Robert Boak, president of Local 3047of the United Steelworkers 
of America, who works at Old Metal Products. That will be made part of 
your testimony.
    [Letter can be found in the appendix, currently on page 
273.]
    Mr. Grove. Thank you.
    The next witness is Merle Emery, vice-president and general 
manager of G.R. Spring & Stamping from Grand Rapids, Michigan. 
Mr. Emery, we look forward to your testimony.

 STATEMENT OF MERLE EMERY, VICE-PRESIDENT AND GENERAL MANAGER, 
                     G.R. SPRING & STAMPING

    Mr. Emery. Thank you, Mr. Chairman, Committee Members. On 
behalf of my company and its 200 employees, we would like to 
thank you for holding this hearing. We are grateful that you 
are taking the time to hear from the small businesses like ours 
that have been deeply hurt by the 201 action.
    My name is Merle Emery. I am the vice-president and general 
manager of G.R. Spring & Stamping. We are located in Grand 
Rapids, Michigan, and we employ 200 workers in the custom 
manufacture of metal stampings, progressive dies, slide forming 
stampings, springs, wire forms and value added assemblies.
    Our customer base is made up of 70 percent automotive 
customers, 15 percent appliance, ten percent office furniture 
and a few others mixed in there. The imposition of steel 
tariffs have led to uncertainty in supply and price of steel 
that we need to produce our product. It has also cost us 
significant business and has placed us in a price/cost squeeze.
    My company requires approximately 20,000 tons of steel each 
year. With the increased cost and decreased supply of available 
steel, our service centers have either broken their contracts 
or simply have been unable to meet their commitments due to 
allocations to supply us with the steel we need. This has 
forced us in many cases to go out on a spot market to obtain 
the steel that we need to produce our product. As a result, the 
price of the steel that we are purchasing today has increased 
by 20 to 30 percent since the 201 action was implemented.
    These increases in steel have already cost us a substantial 
amount of business. For example, soon after the 201 tariffs 
were put into effect, G.R. Spring & Stamping lost a major 
contract with a well established customer, and I might add this 
customer was in our community. This company went to a Canadian 
company for the purpose of this product. This Canadian company 
is now able to purchase its steel for 30 percent less than we 
can, and this cost advantage was directly reflected in their 
bid.
    The sad part is this customer has never worked with a 
foreign supplier of this type of product before in the past. 
Their decision was solely based on price. We are a small 
company. We are $30 million a year in sales, and this was a 
huge contract for us. It equaled $4.5 million per year in sales 
on a four year contract.
    This contract, like I said, was huge for us, but we could 
not compete on price due to the increased cost of steel. For 
the first time we lost market share to foreign competition. The 
reality of our market is that we cannot pass the additional 
cost of these tariffs on to our customers.
    As the example just illustrated, our customers will take 
advantage of the global economy and buy our product from a 
cheaper source. Nor can we afford to absorb these additional 
costs. These additional costs are so high they will turn our 
margins negative and put our company on the road to ruin.
    In addition, since the imposition of the steel tariffs we 
find ourselves faced with uncertainty of both supply and price. 
We do not always get our steel when we need it. Our suppliers 
cannot deliver on time. When we receive steel orders late, this 
just adds to our cost and to our misery.
    Number one, it requires us to work overtime to deliver to 
our customers on time. We cannot miss our commitments. Our 
customers will not allow it. It also requires us to incur 
additional costs in getting that product to our customer, and 
that can relate to expedited freight. Sometimes that expedited 
freight has, and it has, meant an airplane at an extremely high 
cost just to get that product to our customer.
    We have also been faced with the uncertainty of pricing. 
Because of the volatility in our market, our service center 
suppliers refuse to price steel more than a month in advance. 
It causes great difficulty when we are trying to formulate 
quotations. This means that we have to guess at what our steel 
costs will be when we calculate a price for our customers. Keep 
in mind, this is a very competitive market. This is an 
impossible way to operate a small business.
    Our present circumstances must change. We have already lost 
one sizeable contract, and we are in danger of losing more due 
to the increased steel costs. Furthermore, the uncertainty of 
pricing and availability of our steel is untenable. Our short-
term and long-term viability as a company and an employer of 
American workers is threatened.
    Thank you very much.
    [Mr. Emery's statement may be found in the appendix.]
    Chairman Manzullo. Thank you, Mr. Emery.
    Our next witness is Michael Tanner, president of Wren 
Industries, Inc., from is it Tipp City?
    Mr. Tanner. Tipp City. Yes, sir.
    Chairman Manzullo. Tipp City.
    Mr. Tanner. It is just north of Dayton.
    Chairman Manzullo. Tipp City, Ohio. We look forward to your 
testimony.

 STATEMENT OF MICHAEL TANNER, PRESIDENT, WREN INDUSTRIES, INC.

    Mr. Tanner. Thank you. My name is Mike Tanner, and I am 
president of Wren Industries. I want to thank you very much for 
inviting me to speak at this hearing about the unintended 
consequences of increased steel tariffs on American 
manufacturers.
    Usually when I come to Washington, it is a very solemn and 
serious visit. I go to visit some of my friends at the Vietnam 
wall. I want to tell everyone here that this, too, is a very 
serious visit. I am here because the steel tariffs imposed by 
the President in March have increased the price and reduced the 
availability of steel in the market to a point that our supply 
of steel is not reliable. Without a reliable supply of steel, 
we cannot continue to operate.
    Wren is a metal stamper located in Tipp City, Ohio, just 
north of Dayton. We are a tier one and tier two supplier of 
metal stampings for the automotive industry. We employ over 200 
associates and have been in business since 1977. We have the 
unenviable position of being smaller than our customer and 
smaller than our steel supplier.
    The steel tariffs imposed by the President in March have 
reduced the availability of steel in the market to the point 
that our supply of steel is not reliable. Wren's service center 
suppliers have been placed on allocation, and the steel 
deliveries that we are able to secure have been arriving a 
month or as much as two months late. This causes additional 
manufacturing time, which means additional manufacturing costs.
    The flurry of e-mails and phone calls between procurement 
and production about staggering production in one press, pull 
the die out, put another one in, is extremely costly. Plus on 
several occasions I hate to admit how close we have come to 
shutting down our customers' production lines, which would be 
catastrophic for our reputation and credibility, as well as 
incurring penaltycharges, all because we could not get the 
steel we need on time.
    Wren sends three parts, for instance, at 36,000 parts a 
week to seven different General Motors plants. If we were ever 
to shut them down, the cost penalty would be prohibitive, and 
we would be out of business in a month.
    I have no assurance of steel supplies past September of 
this year. In addition, several of the service center suppliers 
have breached existing contracts with us. One example, our 
service center provider that supplies 25 percent of our steel 
requirements increased the price of delivered steel by as much 
as 48 percent despite our contract.
    We, of course, have relied on these contracts with our 
suppliers and based our pricing to our own customers 
accordingly. My customers will not pay the increased price I am 
now being forced to pay for steel. In fact, I must actually 
grant annual price reductions to my customers.
    Ladies and gentlemen of the Committee, the bottom line is 
that my business is in danger if I cannot get steel and must 
continue to pay the increased prices. Unless things change 
rapidly, my company will lose business to foreign competition 
now that our international competitors have a built in cost 
advantage and a ready supply of steel.
    Wren is a small business. We operate on tight margins in a 
very competitive market. We cannot pass on any of our increased 
costs to our customers. Wren is now in the position of selling 
dollars for 95 cents. If there is no relief in the pricing of 
steel, I do not know how our business will be able to survive 
beyond the end of this year. We are in these dire straits due 
to the operation of the steel 201 tariffs.
    Thank you very much for your time.
    [Mr. Tanner's statement may be found in the appendix.]
    Chairman Manzullo. Thank you.
    Our next witness is Charles Connors, CEO of Magneco/Metrel. 
Mr. Connors, in preparation for your testimony I looked up the 
definition of a refractor. We do read testimony in advance, and 
if you do not mind if I could read the definition into the 
record so we can follow your testimony? It is a specialty.
    A refractor is a ceramic heat resistant material used to 
line blast furnaces, cast houses and steel ladles. It helps to 
resist oxidation, corrosion and erosion damage in order to 
extend the useful lifetime of linings.
    Is that a good definition?
    Mr. Connors. That is a good definition. I would take it a 
little further than that.
    Chairman Manzullo. Why do you not go ahead and define it 
first, and then we will start the clock.
    Mr. Connors. I think a refractory is a metal oxide ceramic 
material able to withstand high heat, which I normally think of 
as over 2,000 degrees Fahrenheit. The applications of iron 
making and steel making are applications. Also, other 
applications are waste incineration, ceramic manufacture, 
glass, crematoriums and a whole lot of other things that we 
need in life.
    Chairman Manzullo. Now that we know what you do, I will 
start the clock, and we look forward to your testimony.

STATEMENT OF CHARLES CONNORS, PRESIDENT AND CEO, MAGNECO/METREL

    Mr. Connors. Thank you, and thank you for allowing me to 
testify. It is a little bit of a different side of the coin. 
Magneco/Metrel is a company with manufacturing operations in 
Columbiana County, Ohio, DuPage County, Illinois, and Lake 
County, Indiana. We have 135 employees, and we expect $39 
million in sales this year if the steel industry continues to 
be able to operate.
    We are both a supplier to the steel industry and a consumer 
of steel products. We buy about $300,000 a year worth of steel 
plate in the form of molds, which is a little less than one 
percent of our sales. In a tight margin industry, that could be 
affected by price. It has not seemed to be so far.
    It is only about four and a half months since the 201 went 
into effect, but the effect on our company has been dramatic. 
We lost $300,000 in the months of January and February, and we 
made $500,000 since the first of March. We did that helping 
steel companies get equipment back on line.
    We sell products about, 90 percent of which are either 
patented or proprietary, and they are used instead of bricks to 
line furnaces in a quick way. An example are the steel mills, 
which are now known as ISG, which are the equipment that used 
to be LTV Steel. A new company is starting up that equipment, 
and they would not have been able to start up the equipment in 
the time they did without materials like ours, that can get a 
blast furnace lined and running in about three days as opposed 
to six weeks for a brick job.
    Now, the technology that we have and have developed working 
with the steel industry is used to supply all the other high 
temperature industries, and we could not afford to supply them 
at the prices that we do if we did not have the steel industry 
as a base. The steel industry is by far the majority user of 
all the refractories in the world.
    We also export about 30 percent of our sales. About half of 
that goes to Europe, and the other half goes to Latin America. 
The 201 tariffs have also saved the Mexican steel industry. 
Sacartsa and Ispat Mexico are big customers of ours. That has 
been very helpful also.
    It seems to me I am very sympathetic with what I am hearing 
here because we have been through it. In the last three years, 
there has been $2.3 million that was owed to Magneco/Metrel 
that was lost because of Chapter 7 or Chapter 11 filings by 
steel companies. We could not continue if that continued.
    The fears, that I hear, I think show some prudence and 
foresight. People are looking towards the future and wondering 
how rocky the road might be. As someone who has already been 
down that rocky road, I certainly sympathize with that, but I 
would hate to see a total change in a tariff situation after 
only four and a half months to prove it out.
    I think we are talking about worries of supply, as well as 
worries of price, and I think the marketplace is more likely to 
work out the price worries if there is a supply. The supply 
would not be there if we did not have any more steel industry 
in this country.
    Thank you.
    [Mr. Connors's statement may be found in the appendix.]
    Chairman Manzullo. Thank you very much.
    I saw in today's paper where Pittsburgh based U.S. Steel 
now has earnings of $27 million compared with a loss of $30 
million, but it also shows that steel production facilities are 
operating now at 96 percent capability, which could be 
accounting for the shortage.
    I want to ask a question of I think it is the steel drum 
company. That is Mr. Trilla. Is that your company?
    [The information may be found in the appendix on pge 245.]
    Mr. Trilla. Yes.
    Chairman Manzullo. Is that correct?
    Mr. Trilla. Correct.
    Chairman Manzullo. Now, you were buying your steel from is 
it South Korea for the 55 gallon drums?
    Mr. Trilla. Yes. Over the past year, we have been buying 
most of our steel from South Korea. We also buy domestic, 
though.
    Chairman Manzullo. And the steel that you are buying from 
South Korea, was that costing you more than domestic steel?
    Mr. Trilla. Yes, it was. It was costing us more for the 
past year than we were paying domestically. Yes.
    Chairman Manzullo. Okay. So you would disagree that that 
particular steel is being dumped on the American market?
    Mr. Trilla. I definitely disagree with that, Mr. Chairman. 
Initially we started paying more money than domestic. It was a 
higher quality product and enabled our plant to run more 
efficiently.
    Chairman Manzullo. Okay. Anybody else? Let us see. Mr. 
Pritchard?
    Mr. Pritchard. Yes, sir.
    Chairman Manzullo. Were you importing steel prior to this?
    Mr. Pritchard. Yes. We began in 1976 bringing in steel from 
a mill at that time known as the Hogavans. It is now part of 
the Corus organization.
    Chairman Manzullo. Where is that?
    Mr. Pritchard. The mill itself is in the Netherlands.
    Chairman Manzullo. Okay.
    Mr. Pritchard. We were having difficulty with supply and 
availability of material. We were on allocation all the time 
back in the 1970s.
    Chairman Manzullo. Domestic supply?
    Mr. Pritchard. Domestic steel. We bought from LTV. We 
bought from Republic. We bought from U.S. Steel all in our 
backyards in Cleveland here and were not able to continue doing 
that because other customers were much larger than we were at 
that time as a $7 million or $8 million a year company.
    We began looking for the other supply. That turned out to 
be very successful with the Hogavan mills. We have been dealing 
with them ever since, and they have developed time after time 
when there was a need for a specialty material to satisfy a 
customer requirement, they were there to help us work out a 
solution that would generally exceed anything that was 
available here.
    Chairman Manzullo. What is there about the nature of that 
foreign steel that you are stating you cannot find in domestic 
steel?
    Mr. Pritchard. The gauge control in the foreign steel.
    Chairman Manzullo. What is that gauge control? What is 
that?
    Mr. Pritchard. Thickness.
    Chairman Manzullo. Thickness. Okay.
    Mr. Pritchard. The accuracy of the thickness that is 
ordered or that the product specifies is held to in most cases 
less than half of what domestic mill tolerances are for hot-
rolled product, and that is almost in the range of what you 
would call cold-rolled, a material that is a step higher in the 
category of pricing. We have traditionally paid a premium for 
every pound of hot-rolled that we buy.
    Chairman Manzullo. So you were importing steel that cost 
you more than domestic steel?
    Mr. Pritchard. Yes.
    Chairman Manzullo. And so you also disagree that this was 
not a dumping case as to that?
    Mr. Pritchard. I have never been able to buy cheap foreign 
steel that made any of the parts my customers expected.
    Chairman Manzullo. In your testimony you stated that you 
have contacted domestic mills. They have declined to even 
provide you with a quote.
    Mr. Pritchard. We have on several occasions gone to, as a 
matter of fact, the most recent LTV when they were in dire 
straits because most of our associates are members of the 
steelworkers union and had brethren working at LTV, so we asked 
them if they would come in, discuss what we use and see if 
there is some way we could not get together on this.
    We received a letter about five weeks later saying that 
they were unable to at that time produce this material. It was 
possible that after a capital expenditure improving their lines 
they may be able to do something, but it was indeterminative as 
to whether that would go forward or not.
    Chairman Manzullo. And then how much more are you paying 
now for your steel?
    Mr. Pritchard. We made an agreement or we came to terms 
with our two other partners, the mill and the supplier, the 
processor locally, so that they insulated us from paying the 
entire 30 percent, but we are paying well in excess of half of 
that----
    Chairman Manzullo. Okay.
    Mr. Pritchard [continuing]. And are unable to pass this 
along to our customers in the marketplace.
    Chairman Manzullo. Are those customers also demanding 
annual price reductions?
    Mr. Pritchard. Absolutely. Every year.
    Chairman Manzullo. Of what magnitude, Mr. Pritchard?
    Mr. Pritchard. Some customers--I mean, they are all looking 
for five percent. That seems to be the golden number, but it 
depends on the age of the product, how long you have been 
producing it, what you can negotiate. It generally ranges 
between one to three percent.
    Chairman Manzullo. Now, you also stated that one of your 
customers is going to Brazil for the finished product?
    Mr. Pritchard. Yes, they are for the finished pulleys in 
this case.
    Chairman Manzullo. Right. Now, Brazil is considered to be a 
developing country, yet Brazilian steel is not exempt from 
tariffs, yet Brazilian finished products that use that same 
Brazilian steel are not subject to the tariffs. Does this make 
sense to you?
    Mr. Pritchard. No, sir. I have never really been able to 
put that in the perspective where it made sense.
    Chairman Manzullo. And how long have you been waiting on 
the USTR's Office for your exclusion?
    Mr. Pritchard. I believe they were originally filed about 
two and a half months ago I think is when our office took care 
of the filings.
    Chairman Manzullo. And have you heard from the USTR's 
Office? I know they are moving very quickly.
    Mr. Pritchard. They are moving forward. Right.
    Chairman Manzullo. They have over 1,100 requests.
    Mr. Pritchard. I have been tracking a website on the 
internet that reports these, and I think the time for argument 
was closed on July 3. We have not as yet heard anything 
official. Nothing has been posted yet.
    Chairman Manzullo. We met with Ambassador Zoellick, and he 
has assured us that they are going to move as fast as possible.
    Has any company filed an objection to your request for 
exclusion?
    Mr. Pritchard. I just heard yesterday through our chief 
operating officer who is in close touch with the steel 
supplier, Chesterfield Steel, locally that there have been 
several companies that have I believe it was referred to as 
placed objections to the exclusion, but then when asked if they 
could produce the material they said either they would not or 
they could not.
    Chairman Manzullo. And yet they formally objected, and 
that, of course, continues the period of time for considering 
your exclusion?
    Mr. Pritchard. Correct. That is what I understand. I would 
like to be able to find more detail out on that, but as of yet 
I have not.
    Chairman Manzullo. So you cannot find out the nature of the 
objections because it is proprietary?
    Mr. Pritchard. That is right.
    Chairman Manzullo. This makes sense. You cannot get a quote 
from any domestic steel manufacturer to give you what you want. 
Is that correct?
    Mr. Pritchard. Correct.
    Chairman Manzullo. And yet they turn right around and file 
objections to your request for an exclusion?
    Mr. Pritchard. Correct.
    Chairman Manzullo. That does not make sense either, does 
it?
    Mr. Pritchard. No. They have you in the middle.
    Chairman Manzullo. And that is why I have asked for an 
investigation by the Attorney General into collusion and anti-
trust violations on the part of some of our U.S. steel 
producers.
    Would you agree with the fact that it makes sense to ask 
for that investigation?
    Mr. Pritchard. It certainly bears looking into because 
there are things happening now that just are not part of what 
the business world should have to deal with.
    Chairman Manzullo. Okay. I am sure that everybody here 
would agree, everybody seated at the table, that it is 
important to keep a viable U.S. manufacturing base for steel. 
You all agree on that, do you not?
    Mr. Pritchard. Yes.
    Chairman Manzullo. But you all have various reasons for 
wanting to import steel. Okay.
    Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. Connors, can you please assess the state of the steel-
producing industry prior to the introduction of the tariff, 
and, in addition to the tariff, what other actions are needed 
to help the domestic steel industry recover?
    Mr. Connors. Well, prior to March 6, National Steel filed 
Chapter 11 during the first quarter of 2002. Bethlehem Steel 
filed for Chapter 11 in the fourth quarter of 2001. The 
National Steel filing brought the companies in Chapter 11 to I 
believe 35 percent of the production.
    One of the big problems is that the steel industry is in 
two sections. You often hear about the mini mills and Nucor 
versus the integrated mills and why are the integrated mills 
not like the mini mills. The problem is that the mini mills, 
Nucor particularly, are all new equipment. The mills were built 
new, the equipment is new, and they have the right number of 
people to run that equipment.
    When the integrated mills switched to new equipment, the 
equipment was more efficient. They did not need as many people. 
They had to downsize. A lot of people took early retirement. 
The deals that were made were made post World War II, and they 
have what they refer to as a legacy cost.
    That is the other thing that is hurting the steel industry. 
Most foreign steel companies, and we do business with all the 
foreign steel companies, I have been in them, are not more 
efficient than the U.S. companies, but the health care and the 
pension plans are all government plans, not company plans.
    Ms. Velazquez. Would you explain how consolidation would 
affect the steel industry?
    Mr. Connors. That one is a little heavy for me, I am 
afraid, Congresswoman. There are a lot of people that say we 
should have consolidation, and I know Secretary O'Neil feels 
that way because in the aluminum industry you have a very small 
number of manufacturers. In the steel industry you have a large 
number, but is that going to be better or worse? I do not know.
    Ms. Velazquez. How does the tariff affect the U.S. trade 
deficit?
    Mr. Connors. All I know, is that in the last two months, 
what has it been, $37 billion in June and $36 billion in May, 
and it sort of makes me wonder when we are the largest, most 
powerful country in the world with the biggest consumer market.
    We are being threatened with a trade war. I do not 
understand it. I do not think we have any more to fear from a 
trade war than we have to fear from a shooting war.
    Ms. Velazquez. Is it important for the U.S. economy to have 
a viable steel sector, and what would be the affect on small 
businesses if they relied only on foreign steel?
    Mr. Connors. Well, if we had no domestic steel industry and 
it was all foreign steel, the prices would go up rather 
quickly.
    Most of the foreign steel companies are either 
consolidated, or they talk to each other a lot. They coordinate 
their activities. I think the prices would be prohibitive.
    Ms. Velazquez. Mr. Emery, is it important to have a viable 
domestic steel industry? Would you agree that the domestic 
steel industry has faced years of unfair conditions?
    Mr. Emery. I would agree that it is important for the 
United States, both its economy and the security of the United 
States, that we have a strong steel industry.
    To your second question, would I agree that it has been 
unfair or if we have seen changes? Was that your question?
    Ms. Velazquez. Yes.
    Mr. Emery. Yes. A lot of things have changed. If you look 
at the price of oil and you look at the price of electronics, 
prices have continually gone down. That has been done by 
competition, both foreign and domestic.
    To answer your second question, yes, there has been a 
change. There has been a difference. We have seen prices go 
down, although I think that has been contributed to competition 
in the marketplace.
    Ms. Velazquez. My specific question is if you agree that 
the domestic steel industry has faced years of unfair 
conditions.
    Mr. Emery. I am not an expert in the manufacture of steel. 
I do not profess to be. I can say this, and it was touched on. 
There are certain sectors of the steel industry in the United 
States that are doing very well.
    I can relate to my industry. I have been in it all of my 
adult life, and I have seen changes there as well. We have been 
forced to modernize. We have been forced to retrain our 
workers. We have been forced to invest in technology. If we had 
not done that, we, too, would be in the same shape that the 
steel industry found themselves in back in March.
    Ms. Velazquez. Mr. Emery, instead of the tariff, what other 
methods would you propose to help the domestic steel industry?
    Mr. Emery. I think that again I do not profess to be an 
expert in the steel industry. I do believe that during the 
years when the steel industry was doing very well in this 
country, and there were years when they were. We all know that. 
The failure to reinvest, the failure to update and modernize is 
what has hurt that industry.
    Ms. Velazquez. Thank you.
    Mr. Emery. I think that the small businesses are being 
asked to pay the price for that today.
    Ms. Velazquez. Mr. Trilla, in your testimony you mentioned 
that only imported steel meets your requirements. Can you 
explain why domestic steel does not meet your requirements?
    Mr. Trilla. Domestic steel does meet my requirements. It is 
just difficult to find a mill that consistently--I said 
consistently--meets our requirements.
    The foreign steel I have enjoyed the past year and a half, 
we have had less than one-quarter of one percent reject through 
the facility in any parts of the manufacturing, whereas 
typically rejects in the United States steel could be three to 
four times that.
    We can buy steel here. The problem is, as was testified 
earlier, I have applied for an exemption. They have been 
questioned, and the mills that objected to my exemption will 
not even make a sales call or answer our phone call, so I 
cannot buy domestically.
    Ms. Velazquez. Mr. Chairman, I have other questions, but I 
would like to go on to the second round.
    Chairman Manzullo. Mrs. Napolitano.
    Mrs. Napolitano. Thank you, Mr. Chairman.
    The stories I have heard from all of you are very much like 
the stories of one of my stampings in one my cities. The 
additional burden that this particular company has is that 
California has energy prices that have gone sky high, so you 
went back to the mix, and they are going to be out of business 
in December, even though they did stockpile a little bit of 
steel to be able to help out.
    I guess my concern is that our steel manufacturers, the 
companies have not been able to either supply enough product 
that is acceptable to the customers that would like to buy, and 
I know very little about steel. All I know is what I have heard 
from my company and what I am hearing here and what I have 
learned from the media.
    I am assuming that in order to provide steel that will 
reach a certain pressure there has to be very little mix in it 
so that it provides more safety pressure or to deliver that 
product for especially automobiles.
    Why is it that our steel producers cannot meet that, Mr. 
Connors? Can you possibly shed some light on that?
    Mr. Connors. Why can they not meet the spec, the gauge 
control?
    Mrs. Napolitano. Correct.
    Mr. Connors. Well, I worked as a metallurgist. I started 
out, and I grew up in U.S. Steel before I got into my later 
life, so maybe I could say something about it.
    It sort of amazes me that steel companies that can make a 
drawn iron can, a pop can, a beverage can or a soup can, cannot 
provide tight enough speced steel to make a steel drum.
    I have bought a lot of steel drums, and I buy them in my 
business. I am very familiar with the lubrication processes in 
making and forming steel. It is a matter really of finding the 
right person, it sounds like to me, more than it is a fact that 
we cannot do it here.
    Mrs. Napolitano. And you are very right, but it just does 
not make sense to me. Even with the retooling costs, auto 
manufacturers go through it. Why would steel not be able to 
meet the requirements going through retooling to be able to do 
the job?
    Does anybody else have any other comment on that? That to 
me is one of the biggest questions that remains unanswered. 
Yes, sir?
    Mr. Trilla. In sort of an answer to your question and 
rebuttal to the former statement, the light can industry has 
gotten a tremendous amount of money invested in it to design 
and develop the new lightweight can. The steel industry, U.S. 
Steel, has bought a facility in Czechoslovakia, the former 
Czechoslovakia in Slovakia, and make light gauge metal there 
specifically for that type of industry.
    Unfortunately for the steel drum industry, they still think 
that we are making anchors, and they have not invested in the 
gauge control that we need or in the better steels that are 
available today throughout the world. The cleanliness, the 
finishing of the steel, has not been invested in our so-called 
cold-rolled product.
    Mrs. Napolitano. Thank you.
    I was amused by one of the news articles that was attached 
to somebody's testimony where somebody called it a carefully 
orchestrated attempt to downplay the effect the tariffs have 
had on our business. I think that is somebody who does not know 
what is going on or who is making an effort to downplay the 
problems that manufacturers are having.
    I think somebody ought to call them up and take them and 
tour them through some of your facilities to make them 
understand. Essentially they are missing the main point of 
this.
    Mr. Chair, I will go ahead and pass on to you and the 
Ranking Member. There are a lot of things I could state, but 
they would not be printable.
    Chairman Manzullo. I have never known you to be at a loss 
of words.
    Mrs. Napolitano. Not necessarily a loss of words. Believe 
me, I am for the tariffs to a certain degree. The problem has 
been that there has not been a good mix to be able to make it 
so that we do not hurt our own industries. No thought has been 
given to the unintended consequences, and that is where I am 
at.
    Chairman Manzullo. Ms. Velazquez, you wanted to continue?
    Ms. Velazquez. Mr. Pritchard, could you refresh our memory 
again in terms of what type of steel you need? Is it hot-rolled 
steel?
    Mr. Pritchard. Yes, it is primarily hot-rolled material in 
low carbon grades, C-1008. Then we get into a good deal of 
usage of the high strength, low alloy materials that are used 
in our spinning and forming operations.
    Ms. Velazquez. In discussing the objection to your 
exclusion, you stated that while companies objected, none could 
produce the steel you need, correct?
    Mr. Pritchard. Yes. The word I got from a gentleman in our 
office yesterday, and I have to say I think this is what you 
would call hearsay from him because I did not witness it 
myself, was that there was word of several objections, but when 
they were asked if they could supply the material they 
indicated they could not or would not.
    Ms. Velazquez. Sir, I think that you got the information 
wrong. I have here a copy of the objection where in fact 
Bethlehem Steel Corporation, National Steel Corporation and 
United Steel Corporation can in fact produce the metal that you 
need, the steel that you need.
    Mr. Pritchard. All seven grades? Is that part of the 
exemption paper there?
    Ms. Velazquez. Yes, this is part of that.
    Mr. Pritchard. I have not seen any of that yet.
    Ms. Velazquez. Well, I am just sharing with you the right 
information regarding the objection.
    Chairman Manzullo. Would you yield?
    Ms. Velazquez. Yes, sir.
    Chairman Manzullo. Have any of those companies given you a 
quote?
    Mr. Pritchard. No.
    Chairman Manzullo. And have you asked them for a quote?
    Mr. Pritchard. Generally, yes. Our purchasing department 
has worked with, you know, steel producers in this country. 
They have also tried Canada and all over trying to obtain, you 
know, a----
    Ms. Velazquez. Would the gentleman yield?
    Chairman Manzullo. It is your time.
    Ms. Velazquez. Could you please explain what generally 
means?
    Mr. Pritchard. Generally? I mean, we do not do this every 
day. We have tried generally on an annual basis they will 
contact a new potential supplier. As I mentioned before, the 
last time was about a year or year and a half ago when we 
contacted LTV.
    Since then I know there have been discussions, but again 
that is our purchasing group, and that is not something I have 
day to day information for you on. I can provide that if you 
would wish.
    Ms. Velazquez. Mr. Chairman, I would ask unanimous consent 
for this to be included on the record.
    [The information may be found in the appendix, new 
enclosure for the record.]
    Chairman Manzullo. Without objection.
    Ms. Velazquez. Thank you, Mr. Pritchard.
    Mr. Pritchard. Yes.
    Chairman Manzullo. Ms. Moore, you just came in. Do you have 
questions? I did not see you. You came in so quietly.
    Ms. Capito. Thank you, Mr. Chairman.
    Chairman Manzullo. I am sorry, Ms. Capito. I called you by 
your father's name.
    Ms. Capito. You can call me whatever you want.
    Chairman Manzullo. There you are.
    Ms. Capito. No. I am just here to listen, and I appreciate 
you holding this hearing.
    I am interested. Steel, of course, is an enormous issue in 
my state of West Virginia, and we support in West Virginia--I 
did--the President's decision to place these tariffs on 
imported steel. It has had an impact already in my state of 
West Virginia with our steel producers, but I am interested to 
hear the rest of the meeting. I apologize for being a little on 
the late side.
    Chairman Manzullo. That is okay.
    Mr. Pritchard, from whom do you buy steel? Is it a broker?
    Mr. Pritchard. It is a steel processor they call it. They 
buy master coils, large coils of steel----
    Chairman Manzullo. Okay.
    Mr. Pritchard [continuing]. In a semi-processed or semi-
ready stage to be used. They bring it in, they slit, and then 
they prepare the surface on it. Then it is sold to us.
    Chairman Manzullo. And my understanding is the inference 
here is that these companies that have filed objections can 
furnish you with the steel, but you have been advised by the 
people who supply you with the prepared steel that no one else 
is interested in bidding on your product. Is that your 
testimony?
    Mr. Pritchard. In the case of the exemptions, yes.
    Chairman Manzullo. Okay.
    Mr. Pritchard. I can tell you that over the years many have 
said they could supply it, and then when asked to do so and, 
you know, we would place orders with them they were not able 
to.
    Chairman Manzullo. Here is what I would like to do for you. 
Give me the spec sheet of what you want from these companies.
    Mr. Pritchard. Yes.
    Chairman Manzullo. I will mail personally to these 
companies. They are probably present here in the room today. I 
will ask them to mail back to me directly. I will be your 
broker for you.
    Mr. Pritchard. Wonderful.
    Chairman Manzullo. I will try to find the steel for you.
    Mr. Pritchard. All right.
    Chairman Manzullo. All right. If they are here, if they 
want to bid on it that is fine.
    I am learning all kinds of things about steel, but what I 
am seeing here today is the fact that somebody is trying to 
undermine the credibility of the small people's ability to go 
out there and get steel.
    I am going to put in the record another letter. Boy, do we 
get letters. This one is from the Rockford Company in my 
hometown of Rockford, Illinois [the letter may be found in the 
appendix, currently on pages 299-301], and this really is in 
response, which it could not have come at a better time, to a 
statement that is part of the record that was furnished by the 
American steel producing community that really took offense at 
the fact that I used in our statement that the 201's unintended 
consequences was a double hit suffered by steel using 
manufacturers due to huge, arbitrary price hikes.
    The American steel producing community that filed this 
statement said that this is not the fact. They say, ``The 
language used in this hearing announcement shows a certain lack 
of balance.''
    Has anybody ever asked you guys about these tariffs before 
this hearing?
    Mr. Pritchard. No, sir.
    Chairman Manzullo. You were asked?
    Mr. Connors. I was here about 13 months ago with 699 other 
suppliers of the steel industry. This is my second trip to this 
building in my life. That was the first, and that was in 
support of the tariffs.
    Chairman Manzullo. That was in support of the tariffs. Did 
any of you guys ever get asked here if you were being subject 
to price hikes?
    ``While the language used in the hearing announcement shows 
a certain lack of balance, it is of greater concern that the 
points made in it are factually inaccurate.''
    Let me show you this. That is about the price hikes. 
Exhibit 1, and somebody can take me on from the steel industry 
if you are interested back there or whoever wrote this 
statement. I am going to make it part of the record as a matter 
of courtesy. Here it is. ``Dear Congressman Manzullo: I am 
writing to express our company's dissatisfaction with President 
Bush's decision to tariff imported steel. We are a Rockford 
manufacturer that produces steel parts for a variety of 
industries. Through June of this year, we were able to purchase 
coiled steel for $21 per 100 pounds. Due to the President's 
decision, our new steel price effective July 1 is now $31.62 
per 100 pounds. That is a 50 percent increase in our cost of 
raw material.''
    That is the statement. Here is the invoice. Invoice from 
Coil Plus Illinois, Inc., out of Plainfield, Illinois, dated 
June 10, 2002, for previous orders at $21 per 100. Now, one 
month later, in fact July 17, five weeks later, the very same 
material at $31.62.
    Now, who is telling me and who is telling these people that 
they are not getting arbitrary increases in prices? Would 
somebody like to stand up in the audience and say that this is 
not correct? Would somebody like to tell these people here--I 
do not have them under oath, and it is not necessary--that they 
are exaggerating as to the increase in these prices?
    Would somebody please tell the small manufacturers? Tell my 
guys back home that are paying 30 to 50 percent more for their 
steel. Tell them that this has not had an adverse impact upon 
themand that they are ready to go under.
    My question to all of you is this. We recognize there is a 
problem with steel in this country. What is the solution? Let 
us start with the economist. There has to be a solution to this 
to help domestic steel supply, to help out our steel workers 
and at the same time to get the facts straight that the price 
of steel is going through the ceiling.
    Ms. Baughman. Thank you, Mr. Chairman. This is the $64,000 
question clearly. As an economist, the answer has to be that 
the market is the best way to help the steel industry. When you 
impose artificial barriers on a piece of the market, it has 
widespread ramifications throughout the economy.
    It may help the steel industry in the short run for a small 
period of time, but it does not help the steel industry in the 
long run, and it has, as you have aptly called it, collateral 
damage all over the place. Import restraints are not the 
answer. I can tell you that much.
    Chairman Manzullo. What is the answer? I personally agree 
that there was an import surge taking place. If you look at the 
decision, it was 6-0 on the ITC. It is well documented that 
there was surging taking place on the 201. How do we work 
through this?
    Ms. Baughman. Mr. Chairman, the United States has a number 
of laws on the books that are meant to address different types 
of problems associated with import competition. Dumping is 
addressed through antidumping laws, and illegal foreign 
subsidies are addressed through countervailing duty actions.
    Section 201 tariffs or quotas, whatever results from a 
Section 201 investigation, have nothing whatever to do with 
unfairness. They do not get at the problem of unfairness 
because they apply to imports whether they are fairly traded or 
not.
    Chairman Manzullo. Surges.
    Ms. Baughman. Surges, yes.
    Chairman Manzullo. Surges.
    Ms. Baughman. But it does not matter whether they are 
fairly traded imports or not. They all get hit with the tariff. 
If the problem----
    Chairman Manzullo. Excuse me. An example would be the South 
Korean steel.
    Ms. Baughman. Precisely.
    Chairman Manzullo. The South Korean steel that you are 
actually paying more for.
    Ms. Baughman. Precisely. If the problem is unfairness, then 
the solution is antidumping actions or countervailing duty 
actions.
    Now, the U.S. steel industry has been perhaps the biggest 
users of antidumping laws and countervailing duty actions. They 
file hundreds of these cases, it seems like, that result in 
double, even triple digit duties applied to imports from 
specific countries for specific products.
    Chairman Manzullo. And you agree with that remedy?
    Ms. Baughman. I think that that is what we have available. 
That is the appropriate route.
    Chairman Manzullo. Anybody else on the question? What do we 
do here? There is a problem with maintaining viable domestic 
steel production.
    Mr. Connors?
    Mr. Connors. One thing that bothers me, and I am not an 
economist, but on the matter of arithmetic, if the top tariff 
is 30 percent, how come the markups are as high as 54 percent?
    It sounds like some steel service centers are marking up 
the tariffs, and maybe the competition should be between the 
steel service centers. Maybe they have an agenda of their own 
because they do not want to have the foreign steel.
    Chairman Manzullo. I have a letter from a steel service 
center increasing the price of steel with an attached letter 
from Bethlehem Steel saying due to the steel shortage. You can 
follow the train of the steel suppliers directly back to the 
steel manufacturers on there, but there could be some collusion 
going on.
    I appreciate that thought. You are not an economist, but 
you are a metallurgist.
    Mr. Trilla.
    Mr. Trilla. Yes, Mr. Chairman. I buy all my steel direct 
from the mills. I am sitting in Chicago right next to Gary, 
Indiana. Five steel mills, including LTV that closed, would not 
even make a sales call on us or answer a call.
    We buy nothing from a warehouse. Occasionally with a late 
delivery lately we are forced to buy something, you know, 50 or 
100 tons, but not a steady flow. One hundred percent of my 
steel is purchase ordered out directly to the steel mills, and 
my costs have gone up 54 percent.
    Chairman Manzullo. Did any Members have any other 
questions? Ms. Velazquez.
    Mrs. Napolitano. I have not a question. Well, yes, a 
question. What would you view as a solution?
    Chairman Manzullo. There it is.
    Mr. Trilla. I will attempt to answer. I am here to talk 
about my problems and to tell you how it is affecting my 
industry and my fellow brothers in the steel drum industry 
across the country.
    We are not in the steel business, but it is obvious, as you 
stated earlier, that there was not a great deal of thought of 
repercussions of this. There is nobody at this table that does 
not want a strong domestic steel industry.
    I was raised in a steel town. We need steel. We need to 
have a strong steel infrastructure here in the United States. I 
do believe in the tariffs. I support the President in his 
tariffs also.
    Admittedly, the President did not think that--we all agreed 
that steel prices would go up. We all agreed that there would 
be some movement in the cost of steel, et cetera. Admittedly, I 
think the government figures came out about eight percent or 
ten percent maybe maximum. We agreed to that.
    As an industry, I am sure everybody at the table here is 
willing to fight for our industry and help the domestic steel 
industry, but 54 percent? There is just no way of recovering 
that. I have been in this business all my life and never have 
seen steel prices escalate like this.
    I do not have the answers, but I just know that we are all 
sitting here because there is a big problem by the tariffs. 
Once again, we support the tariffs, but I think nobody 
contemplated the after effects of them.
    Chairman Manzullo. Ms. Capito.
    Ms. Capito. Thank you, Mr. Chairman. I have just a general 
question if anybody would like to jump in.
    Mr. Trilla, you mentioned that the price of your steel had 
gone up 54 percent. The import costs have ranged from 99 to 30 
percent, the tariffs. Is there a point at which you would 
consider then going ahead and buying imported steel and paying 
the tariff?
    Mr. Trilla. The tariffs are 30 percent. My domestic steel 
costs have gone up 54 percent, or my direct cost of steel has 
gone up 54 percent since the tariffs have been imposed.
    We cannot get anybody to sell us steel. They will not 
import the steel even with the 30 percent tariffs for the fact 
that in dumping, and I am not a lawyer so if there is a lawyer 
out there help me. In the dumping cases, the taxes and the 
duties applied to a product are taken off the top of the 
product, the cost of the product imported, the cost of the 
product, to determine dumping.
    If you take the 30 percent off the top of whatever somebody 
would sell me steel for, they aredefinitely down there in the 
dumping range. They get hit again, so it is like a double tariff. We 
either have to have tariffs, or we have to have dumping.
    In my case where I was paying more money for my steel than 
domestically, I am really being punished because my steel is 
not coming here being dumped. Mine was at global pricing higher 
than the domestic cost of steel.
    Ms. Capito. Let me just in terms of a summarization, and 
again I apologize for not hearing the entire hearing. Basically 
I am imagining that the trend is that while you just mentioned 
that you would support the tariffs on imported steel, it seems 
the pendulum, in your opinion, in all of your opinions, has 
swung too far the other way and that it is causing prices to 
rise too quickly or too drastically for you all to be able to 
compete in a small business arena. Is that the basic message?
    Mr. Trilla. That would be my basic message. I mean, once 
again I repeat that the government, and we are supportive of 
the President. I am supportive of the President and his actions 
with the tariffs when he said maybe a maximum of eight percent, 
and maybe a ten percent increase in steel.
    I mean, over the course of the years the steel prices have 
escalated and dipped and escalated and dipped. Yes, maybe the 
domestic steel prices were lower than in recent history, but, 
you know, ten percent? Maybe we could absorb that and pass that 
off in a logical three year period of time.
    Fifty-four percent in the course of five months is not 
logical, but we would be supportive of tariffs, something that 
makes sense.
    Ms. Capito. I would like to say as well that if we go back 
to where we were before these were imposed, the steel workers 
in my state, the owners of the steel businesses in my state, 
folks would ask me what is your impression of the steel 
industry, and where is it going in America?
    I would say that universally the one emotion and the one 
thing that was universal among workers and owners was 
desperation. I think the steel industry absolutely was at a 
desperate stage when I first began my service a year and a half 
ago.
    There are other issues that keep coming up like legacy 
issues and these kinds of things, so I do not think we are at 
the end of the journey on trying to do something to bolster up 
our steel industry, and most certainly you have issues that we 
need to deal with as we are going through this along with 
looking at legacy costs, another area that the steel industry 
is really pressing us as members to take a look at.
    Does anybody here have an opinion on legacy costs and where 
we should go with that?
    Mr. Trilla. I wish I had a statement on legacy costs. You 
know, the one point we are missing here, especially because I 
have bought steel out of your district----
    Ms. Capito. Thank you.
    Mr. Trilla. More importantly to Trilla and Trilla Steel 
Drum and my 70 employees is admittedly the steel industry can 
only produce 70 to 75 percent of the total capacity needed in 
the United States, so as we are stating here today Mr. Gordon 
Jones realizes there is not as much inventory in my facility as 
there was six months ago. We cannot buy steel.
    Unless we import steel, unless we get the ability to get 
more steel in here, 30 percent of the consumption we will not 
have product to produce our products, whether it is a 
refrigerator door or a drum or a pail. That is a very, very 
critical issue for us today besides the price.
    Ms. Capito. Thank you.
    Ms. Velazquez. Mr. Chairman, I would just like to ask Ms. 
Baughman.
    The way I see this is that the real issue is 
competitiveness for our steel industry. One way to become 
competitive without relying on tariffs would be some type of 
consolidation that the gentlelady made reference to, but 
because of the legacy costs, commitments that have been made to 
the workers such as reduction in exchange for salaries, for 
many of these companies, the legacy costs to many of these 
companies, consolidation is not an option. You will agree with 
me?
    Ms. Baughman. Correct.
    Ms. Velazquez. Rather than the tariff, if the federal 
government assumed the legacy cost, would that solve the 
problem? After all, we did it for the airline industry. Can we 
do it for the steel industry?
    Ms. Baughman. It might solve a problem, but it opens up 
another, and that is that you have set a precedent for other 
industries to go out and to negotiate similar types of deals, 
knowing the government could bail them out if they cannot 
ultimately----
    Ms. Velazquez. If you would excuse me? The precedent would 
not be set. It is there already. We did it for the airline 
industry. We have done it for the insurance industry. Why can 
we not do it for steel?
    Ms. Baughman. You certainly can do it for the steel 
industry. I am just saying that you need to be prepared to do 
it for the textile industry and for the sugar industry and for 
a whole host of other industries as well.
    Ms. Velazquez. Well, I think that we were prepared when we 
did it for the airline industry.
    Thank you, Mr. Chairman.
    Mr. Grove. Mr. Chairman, if we are going to do this for big 
steel, would we also do it for small companies like Cold Metal 
Products that has the United Steelworkers? That would impact 
us. We have to pay pretty much the same legacy costs. We have 
been in business since 1926.
    Ms. Velazquez. If we supported it.
    Chairman Manzullo. Do you have any idea how much money this 
would cost?
    Ms. Velazquez. $15 billion it cost to bail out the airline 
industry.
    Mr. Chairman, what about the tax cut? Do you have an idea 
of how much it is going to cost?
    Chairman Manzullo. Yes. It will probably save us from going 
into a recession.
    I have a problem with the fact that we sent $5 billion to 
the airline industry.
    Ms. Velazquez. $15 billion, Mr. Chairman.
    Chairman Manzullo. $5 billion in grants. They all took the 
grants, and now they are slowly getting the guarantees on it. 
All right.
    Ms. Velazquez. The whole package is $15 billion.
    Chairman Manzullo. Okay. That would be so easy just to send 
a check to pay the legacy costs of every company around, but 
you are correct. That was a precedent, and I am not so sure 
that it was the correct precedent to set.
    At least when Chrysler got bailed out years ago it was a 
loan, and they paid it back with interest. They had a time on 
it. Your suggestion is just as viable as what is on the table 
now because what is on the table now is not working.
    Let me ask a question here. I find this extraordinary. This 
again is the Rockford Company. ``In addition,'' the letter goes 
on, ``we wanted to convey just how difficult it is becoming to 
remain a viable manufacturer in America. One year ago, we sold 
a particular part for 9.2 cents each. Today, we must sell the 
same part for 4.7 cents each in order to keep the work from 
going to Mexico. Our competitor in Mexico is paying his labor 
force 60 cents an hour. We have worked hard in the past few 
years to reduce costs, become more lean and reorganize to meet 
such challenges, but we can only make so many cuts without 
affecting our company's ability to perform.''
    Now, what I have heard here today and the testimony in our 
steel letter book is that American companies that were 
supplying American manufacturers are now losing those contracts 
to the Chinese, to the Brazilians, to other Asian countries and 
to Canada. So one of the unintended consequences of the steel 
tariffs is to further exaggerate our trade imbalance.
    Who lost the contract to Canada?
    Mr. Emery. I did.
    Chairman Manzullo. Would you tell us about that again, Mr. 
Emery?
    Mr. Emery. Yes, I will. This is a company that has been a 
longstanding customer of ours in our community within just 
miles of our facility. It has been a customer for a long time. 
A product that would generally go to our company or possibly 
another company that we compete with also in the area. There 
was no guarantee that we would get it. Neither one of us did.
    You know, our customers are sympathetic as well. They 
understand that we are paying more for steel. They also have to 
be competitive, however. You know, they have customers as well 
as we do, and they are competing for that same business.
    Their price just was not getting where they needed to get, 
and the reason was because steel prices have gone up 
domestically. They were able to buy that material at 30 percent 
less than cost for raw material in Canada. They felt bad about 
it. We actually had a sit down meeting to discuss it. They just 
really felt like they had no choice.
    Chairman Manzullo. Canada. Now, that is U.S. steel. Canada 
is the largest importer of U.S. steel.
    Mr. Emery. Correct.
    Chairman Manzullo. I wonder what price the Canadians are 
paying for that steel?
    Mr. Emery. I cannot answer that. All I do know is that when 
we compared, and we get into some detail. When we compare labor 
cost, we compare variable burden cost, overhead and so on, we 
were on an equal. When it got to the material content of that 
particular price is where we could not compete.
    Chairman Manzullo. And then who lost the contract to China? 
Was that yours, Mr. Pritchard?
    Mr. Pritchard. Yes.
    Chairman Manzullo. Okay. This has been a very interesting 
hearing. We have always prided ourselves, Ms. Velazquez, on the 
Small Business Committee coming up with solutions. Do you think 
we have come up with a solution on this?
    Ms. Velazquez. Yes. I am willing to write and send a letter 
to the President regarding consolidation.
    Chairman Manzullo. All right. We are looking for any and 
all solutions to this, but the purpose of this hearing is to 
show what I have called the unheard voice, and that is the 
small manufacturers that do not have the clout in Congress that 
the big steel companies do. It is just that simple.
    They are big. They have huge lobbying firms. They have big 
companies here that can pay a lot of money for full-time 
lobbyists to get their message across. All you have is the 
ability to come to Washington, pay your own fare and appear 
before the Small Business Committee.
    We are going to continue to monitor this. We are going to 
ask for a response from the Attorney General in our request for 
price gouging, for collusion that may be going on in the steel 
industry, especially in light of Mr. Trilla's statement that 
his domestic steel prices have gone up by 54 percent.
    I just want to thank you all for coming to Washington. 
Thank you for your tremendous testimony.
    This Committee is adjourned.
    [Whereupon, at 12:10 p.m. the Committee was adjourned.]







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