[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
THE STEEL INDUSTRY LEGACY RELIEF ACT OF 2002
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
COMMERCE, TRADE, AND CONSUMER PROTECTION
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
on
H.R. 4646
__________
SEPTEMBER 10, 2002
__________
Serial No. 107-136
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
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81-959 WASHINGTON : 2002
____________________________________________________________________________
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COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia SHERROD BROWN, Ohio
RICHARD BURR, North Carolina BART GORDON, Tennessee
ED WHITFIELD, Kentucky PETER DEUTSCH, Florida
GREG GANSKE, Iowa BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming BART STUPAK, Michigan
JOHN SHIMKUS, Illinois ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico TOM SAWYER, Ohio
JOHN B. SHADEGG, Arizona ALBERT R. WYNN, Maryland
CHARLES ``CHIP'' PICKERING, GENE GREEN, Texas
Mississippi KAREN McCARTHY, Missouri
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
TOM DAVIS, Virginia THOMAS M. BARRETT, Wisconsin
ED BRYANT, Tennessee BILL LUTHER, Minnesota
ROBERT L. EHRLICH, Jr., Maryland LOIS CAPPS, California
STEVE BUYER, Indiana MICHAEL F. DOYLE, Pennsylvania
GEORGE RADANOVICH, California CHRISTOPHER JOHN, Louisiana
CHARLES F. BASS, New Hampshire JANE HARMAN, California
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
ERNIE FLETCHER, Kentucky
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Commerce, Trade, and Consumer Protection
CLIFF STEARNS, Florida, Chairman
FRED UPTON, Michigan EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia DIANA DeGETTE, Colorado
Vice Chairman LOIS CAPPS, California
ED WHITFIELD, Kentucky MICHAEL F. DOYLE, Pennsylvania
BARBARA CUBIN, Wyoming CHRISTOPHER JOHN, Louisiana
JOHN SHIMKUS, Illinois JANE HARMAN, California
JOHN B. SHADEGG, Arizona HENRY A. WAXMAN, California
ED BRYANT, Tennessee EDWARD J. MARKEY, Massachusetts
GEORGE RADANOVICH, California BART GORDON, Tennessee
CHARLES F. BASS, New Hampshire PETER DEUTSCH, Florida
JOSEPH R. PITTS, Pennsylvania BOBBY L. RUSH, Illinois
MARY BONO, California ANNA G. ESHOO, California
GREG WALDEN, Oregon JOHN D. DINGELL, Michigan,
LEE TERRY, Nebraska (Ex Officio)
ERNIE FLETCHER, Kentucky
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Broderick, Thomas J., Bethlehem Steel........................ 35
Collins, James F., Steel Manufacturers Association........... 40
Klinefelter, William J., United Steelworkers of America...... 30
Additional materal submitted for the record:
English, Hon. Phil, a Representative in Congress from the
State of Pennsylvania, prepared statement of............... 54
(iii)
THE STEEL INDUSTRY LEGACY RELIEF ACT OF 2002
----------
TUESDAY, SEPTEMBER 10, 2002
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Commerce, Trade,
and Consumer Protection,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2322, Rayburn House Office Building, Hon. Cliff Stearns
(chairman) presiding.
Members present: Representatives Stearns, Deal, Shimkus,
Bryant, Walden, Terry, Capps, Doyle, Harman, Gordon, and
Dingell (ex officio)
Also present: Representatives Buyer, Brown, Strickland,
Holden, Kucinich, Oberstar, Phelps, Quinn, and Visclosky.
Staff present: Nandan Kenkeremath, majority counsel; Yong
Choe, legislative clerk; and Amy Hall, minority professional
staff member.
Mr. Stearns. Good morning, and welcome to the Commerce,
Trade, and Consumer Protection Subcommittee hearing on H.R.
4646, the Steel Industry Legacy Relief Act of 2002.
I wish to thank our witnesses for their appearance this
morning, and I look forward to their testimony.
This morning the subcommittee is examining this bill that
is introduced and championed by the gentleman from Michigan,
Mr. Dingell. The bill mandates the establishment of a Federal
trust fund with a purpose of providing health and prescription
drug benefits coverage to steel industry retirees whose former
employers have permanently closed or been acquired by another
company.
This Federal trust fund will be funded by a surcharge on
steel shipped by acquired companies, assets of the acquired
companies, and tariffs imposed on imported steel under Section
201 of the Trade Act of 1974. If those three funding sources
fall short of covering the actual expenses of the fund, the
United States Treasury is to cover the shortfall.
Once enrolled in the program, retirees and their
beneficiaries will receive medical and prescription drug
coverage similar to what is being offered under Medicare and to
Federal employees, respectively. In removing the financial
liability that attaches to retired health benefits from the
balance sheet of certain companies, H.R. 4646 is intended to
permit the merging of such steel companies in the creation of a
handful of mega steel companies.
The bill is premised on the assumption that a highly
consolidated steel industry is necessary, if the steel industry
is to survive in the United States. Perhaps another way to say
this is the steel industry is a national security issue for
this country, and should be protected and preserved.
There is no question that American steelworkers have borne
the brunt of a fiercely and, at times, not so competitive
international marketplace for steel. As steel production was
deemed to be a critical input for economic development in the
last 30 years, many nations embarked on cultivating their own
steel industry at any cost. That effort, in turn, has led to a
persistent overcapacity in the steel market.
For example, it is estimated that in 1998 production
capacity exceeded demand by 35 percent. As the U.S. market is
the largest market in the world and one of the most open to
international trade, much of the excess steel capacity found
its way here, and in many cases at prices well below cost.
A combination of reasons, including the persistent
overcapacity, inefficiency in U.S. steel production, and
changes in production techniques and demand, has progressively
dwindled the ranks of American steel workers from 520,000 in
1974 to approximately 145,000 today.
The expansion and contraction of an industry with time, of
course, is nothing new in the annals of economic history of
this country. What is different about the American steel
industry is that persistent overcapacity in the international
steel markets has taken a disproportionate toll on the
industry.
Under the pressure of imports and with substantial
productivity gains made by the American steelworkers, in 1980
10 hours was required per ton of steel. Today it is 4 manhours.
The U.S. steel industry contracted at a very fast pace in the
eighties and in the nineties. That dramatic contraction has
left many large integrated steel companies with substantial
retiree health benefit liabilities that they can't service.
On average, per every five retirees from an integrated
steel company, there is only one current employee making
contributions to the company's health benefit fund. That ratio
is even higher for companies like Bethlehem Steel, one per
seven retirees. Those liabilities have an important factor in
over 30 U.S. steel companies seeking bankruptcy protection
since 1997.
Make no mistake about this, my colleagues. H.R. 4646 will
have the Federal Government assume the financial liabilities
associated with retiree health benefit plans of integrated
steel companies that either sought bankruptcy protection or
were bought out by another steel company since January 1, 2000.
In removing that liability, the retirees are assured of
receiving their benefits, and integrated steel firms would be
free to merge and create a handful of mega steel corporations.
In carefully examining this bill, we need to consider the
best and most efficient way to assist the retirees without
imposing a great and undetermined burden on the American
taxpayer. As there are no caps on the Federal contribution to
the trust fund, under this bill as drafted the extent of U.S.
Treasury's liability is not altogether clear. At least one
study puts the costs over the actual lifetime of workers and
retirees at approximately $13 billion.
I think we must be especially rigorous when examining H.R.
4646 goal of helping the U.S. steel industry. The industry is
not a monolith. While large integrated steel firms have sharply
contracted, many so called mini-mills have flourished in the
last 20 years.
Today the mini-mills have 47 percent of the U.S. steel
market, up from 20 percent in 1980. They tend to be more
efficient in production of most types of steel products than
the integrated steel companies. That is, Nucor, the largest
mini-mill, produces 1,383 short tons per employee in 1999
compared to 647 per employee for U.S. Steel, the largest
integrated steel firm. H.R. 4646, as drafted, helps the
integrated steel companies.
Finally, as I have noted, the key problem that the industry
faces worldwide is persistent overcapacity. We need to examine
this issue fully, and that is why we have this hearing.
[The prepared statement of Hon. Cliff Stearns follows:]
Prepared Statement of Hon. Cliff Stearns, Chairman, Subcommittee on
Commerce, Trade, and Consumer Protection
Good morning and welcome to the Commerce, Trade and Consumer
Protection subcommittee hearing on H.R. 4646: The Steel Industry Legacy
Relief Act of 2002. I wish to thank our witnesses for their appearance
this morning and look forward to their testimony.
This morning the subcommittee is examining H.R. 4646, a bill
introduced and championed by the distinguished ranking member of the
full committee, Mr. Dingell of Michigan. The Steel Legacy Relief Act of
2002 mandates the establishment of a federal trust fund with the
purpose of providing health and prescription drug benefit coverage to
steel industry retirees whose former employers have permanently closed
or been acquired by another company. This federal trust fund will be
funded by a surcharge on steel shipped by acquired companies, assets of
the acquired companies and tariffs imposed on imported steel under
section 201 of the Trade Act of 1974. If those three funding sources
fall short of covering the actual expenses of the fund, the Unites
States treasury is to cover the shortfall. Once enrolled in the
program, retirees and their beneficiaries will receive medical and
prescription drug coverage similar to what is offered under Medicare
and to federal employees respectively. In removing the financial
liability that attaches to retiree health benefits from the balance
sheet of certain steel companies, H.R. 4646 is intended to permit the
merging of such steel companies and the creation of a handle full of
mega-steel companies. The bill is premised on the assumption that a
highly consolidated steel industry is necessary, if that industry is to
survive in the United States.
There is no question that American steel worker has born the brunt
of a fiercely and at times ``not-so-competitive'' international market
place for steel. As steel production was deemed to be a critical input
for economic development, in the last 30 years, many nations embarked
on cultivating their own steel industries at any cost. That effort, in
turn, has led to a persistent overcapacity in the steel markets. For
example, it is estimated that in 1998, production capacity exceeded
demand by 35%. As the U.S. market is the largest market in the world
and one of the most open to international trade, much of that excess
capacity found its way here and in many instances at prices well below
cost. A combination of reasons, including both the persistent
overcapacity, inefficiencies in US steel production and changes in
production techniques and demand, has progressively dwindled the ranks
of American steel workers from some 520,000 in 1974 to approx. 145,000
today.
The expansion and contraction of an industry with time is nothing
new in the annals of economic history. What is different about the
American steel industry is that persistent overcapacity in the
international steel markets has taken a disproportionate tool on the
industry. Under the pressure of imports and with substantial
productivity gains made by the American steel workers--in 1980 10 man
hours was required per ton of steel, today its 4 man hours--the US
Steel industry contracted at a very fast pace in the 1980s and 1990s.
That dramatic contraction has left many large integrated steel
companies with substantial retiree health benefit liabilities that they
can't service. On average, per every five retiree from an integrated
steel company, there is only one current employee making contributions
to the companies health benefits fund. That ratio is even higher for
companies like Bethlehem Steel [1 per 7 retirees]. Those liabilities
have been an important factor in over 30 US steel companies seeking
bankruptcy protection since 1997. H.R. 4646 will have the federal
government assume the financial liability associated with retiree
health benefit plans of integrated steel companies that either sought
bankruptcy protection or were bought out by another steel company since
January 1, 2000. In removing that liability, the retiree are assured of
receiving their benefits and integrated steel firms would be free to
merge and create a hand full of mega-steel corporations.
I think it very important that we seriously consider H.R. 4646, as
I find its objective of protecting the retirees' health benefits is not
only commendable, but a must do. In carefully examining this bill, we
need to consider the best and most efficient way to assist the retirees
without imposing a great and undetermined burden on the American
taxpayer. As there are no caps on the federal contribution to the trust
fund, under this bill as drafted, the extent of U.S. treasury's
liability is not clear. At least one study puts the cost over the
actuarial lifetimes of workers and retirees at $13 billion.
I think we must be especially rigorous when examining H.R. 4646's
goal of helping the U.S. steel industry. The industry is not a
monolith. While, large integrated steel firms have sharply contracted,
small so-called mini-mills have flourished in the last 20 years. Today,
the mini-mills have 47% of the U.S steel market up from 20% in 1980.
They tend to be more efficient in production of most types of steel
products than the integrated steel companies--e.g., NUCOR, the largest
min-mill, produced 1,383 short tons per employee in 1999 compared to
647 per employee for US Steel, the largest integrated steel firm. H.R.
4646, as drafted, only helps the integrated steel companies. Finally,
as I have noted, the key problem that the industry faces, worldwide, is
persistent overcapacity. It is not clear to me how H.R. 4646 helps in
reducing persistent overcapacity. We need also to examine that issue
fully.
I thank you and look forward to the testimony.
Mr. Stearns. With that, the ranking member, the gentleman
from Pennsylvania is recognized, Mr. Doyle.
Mr. Doyle. Mr. Chairman, thank you very much, and I want to
thank you for holding this hearing to discuss a bill that is
vital to the health and quality of life of our steel workers,
the Steel Industry Legacy Relief Act.
Mr. Chairman, I was raised around steel. My family has 73
years of steel in its blood. My father, my grandfather both
worked for U.S. Steel. Both were members of the Steelworkers
Union, and both dedicated their careers to the industry that
helped build America.
Western Pennsylvania, the district that I am proud to
represent, includes generations of families that share the same
steel making heritage that I do. This heritage has earned
Pittsburgh and western Pennsylvania notoriety as the steel
making capital of the world. Needless to say, the United States
steel industry and, more importantly, those who work in it, are
near and dear to my heart.
Unfair trade and illegal steel dumping in our country is
responsible for displacing over 50,000 American steelworkers in
the last 3 years alone, and forced 34 companies into
bankruptcy. I want to say that again. Unfair trade and illegal
steel dumping has put 50,000 people out of work in the last 3
years in this country and forced 34 companies into bankruptcy.
Now this is of particular concern for me, not only because
of the displaced workers and their families, which is
paramount, and not only what it does to our economy, but also
the national security implications represented by the loss of
our domestic steel industry.
Now my good friend and chairman--co-chairman of the steel
caucus, Mr. Pete Visclosky from Indiana, who is with us today--
and as a matter of fact, all of these gentlemen that you see
sitting in front of us today are to be commended, because these
are some of the people that have been working in the front
lines in the leadership addressing this issue and helping us
keep it at the forefront of the agenda.
Mr. Visclosky and my other colleagues here on the
committee, like many other members, understand that our steel
industry is the foundation of our Nation's economy and
security, and allowing it to be continually threatened is
unfair and wrong, pure and simple.
Let me reiterate what I, members of the steel caucus, and
industry leaders have said time and time again. Forty percent
tariffs for 4 years on all steel products, and producers would
level the playing field and would give the U.S. steel industry
the full assistance it needs to get back on its feet.
Our steel industry is threatened not because we are not
competitive, but because the playing field isn't fair. I am
going to say that again, too, so it gets through some people's
heads. We are not being threatened here because we are not
competitive. We are as competitive as anybody in the world, but
the playing field is not fair. People are not playing by the
rules.
When foreign steel makers dump their excess capacity in
this country in violation of our trade laws, they should be
punished for it. And you know what? By the time we get around
to punishing them, 50,000 people have lost their jobs, and 34
steel mills are shut down. That is what our trade policies are
doing right now.
In March of last year President Bush gave us some good
news. Ne announced recommendations based on the ITC and put a
30 percent tariff on foreign steel makers who violate trade
laws, and we applaud him for that. And these tariffs are going
to help us make the way back for a struggling steel industry,
and we are going to continue to keep the pressure on to stop
the exemptions that are currently going on for some of these
tariffs. But I strongly believe that, if we are going to save
the domestic steel industry, then we have to empower it to be
able to be able to consolidate and compete on a worldwide
basis.
We have steelworkers sitting out there that were promised a
pension and health care benefits when they retired, but sadly,
more and more of our domestic steel companies are declaring
bankruptcy as a result of this illegal trade, and they are not
able to pay these benefits, and it's a double-edged sword,
because not only are the retirees not getting their health care
benefits, but the; healthy steel companies that want to
consolidate and get stronger and keep the domestic steel
industries don't want to buy the bankrupt companies because of
the legacy costs.
So we've got a Catch 22 here. We can't get our domestic
steel industry back on its feet, because we have these legacy
costs sitting out there, and we have all these retirees that
were promised health care benefits and they are not getting
them.
Now our bill, H.R. 4646, would help secure health insurance
for several hundred thousand retirees who have already lost
their benefits. The coverage established under H.R. 4646 would
be similar to a Medicare level of coverage and also contain a
prescription drug benefit, similar to those available to
Federal employees.
Additionally, H.R. 4646 seeks the strengthen the American
steel industry by removing the weight of legacy costs as a
barrier to company mergers and consolidation, and it does so in
a manner that encourages U.S. firms to create the type of
larger companies that can compete with Europe and Asia.
My colleagues, the very fact that we are discussing this
issue of basic health care coverage for retirees speaks volumes
to the fact that Congress must act to address the health needs
of our aging population. I don't care if you are a retired
steelworker, a teacher, a homemaker, paying for health
insurance is critical to maintaining a quality of life.
One way or the other, the Federal Government is going to
end up paying this bill, and we might as well do it in such a
way that it allows our domestic steel industry to survive.
Mr. Chairman, I am going to close with just one thought. I
just read an article last week from some think tank. I can't
think of their name or I would say it and expose them, but
their basic premise was, you know, it would be better just to
let these steel jobs go down the drain, because it is cheaper
just to give them some extra unemployment compensation and
retrain them, and let them move somewhere else.
You know, we are going to wake up one of these days in this
country and find out that we don't make a damn thing in this
country anymore, and there's not going to be anybody else to
retrain, because what are we going to retrain them for? You
know, we are all getting so far here in America that we are not
going to be able to eat at McDonald's anymore. So we won't have
those burger flipper jobs anymore to retrain these workers for,
and if this country doesn't wake up to its trade policies, and
if this country doesn't start producing a product, I don't know
what is going to happen to our children and grandchildren.
It's time for us to do something, not only for these
retirees but to save a basic industry that we can't let go down
the drain for national security purposes and the good of our
children.
With that, I will yield back my time.
Mr. Stearns. I thank the gentleman. The gentleman from
Georgia, Mr. Deal.
Mr. Deal. Thank you, Mr. Chairman, and I want to thank my
colleagues who are here today to express their interest in this
bill. We, obviously, will hear some interesting testimony, and
I look forward to that.
The statistics as to the number of lost jobs and the
financial impact on regions of our country are certainly
impressive. As someone who comes from the textile belt,
however, of our country, I would have to tell you that the
number of lost jobs that you talk about pale in significance to
the number of lost jobs in the textile industry that has
devastated the old textile belt of the south.
We have done nothing to help those people, absolutely
nothing. Unfortunately, they did not have many of the benefits
that steelworkers had. Many of them did not even have any kind
of retirement health care plans in place. Many of them were
women who predominantly made up the workforce in the textile
industry in the far part of my Congressional district, which is
the mountain areas of north Georgia. They are in remote parts
of a State where transportation and access sometimes is
difficult, and it is very difficult to attract new industries
to come in and replace those jobs.
So there are many other ramifications of the issue that we
are talking about here today that exceed far beyond the scope
of simply the steel industry itself, and it appears that we do
live in a very delicate and sometimes complicated world by way
of trade rules and agreements.
I might just add, even though you applaud the efforts of
the President, and I voted for it, with regard to the
imposition of tariffs as they were imposed on foreign steel
imports, I want to tell you that my Congressional district,
which is the largest exporter of poultry products, and Russia
being the largest importer of poultry products from the United
States put an embargo, and are still persisting in artificial
reasons why they will not buy American poultry.
So for every advantage, there is sometimes a disadvantage,
and it depends on where you live. It depends on what your
products are and what your constituency depends on to make
their livelihood.
So I look with interest at the proposition that is before
us. I, too, have concerns about are we setting a precedent in
which we must now assume the responsibility for everyone who is
adversely affected by any trade situation that ever occurs in
this country. If we are, then we have opened what may very well
be a very large box, because it is far beyond the scope of what
this bill contemplates here today.
Thank you for holding the hearing, Mr. Chairman. I look
forward to the testimony.
Mr. Stearns. I thank the gentleman. The author of the bill,
the gentleman from Michigan, Mr. Dingell.
Mr. Dingell. Mr. Chairman, I will ask unanimous consent to
revise and extend my remarks in lieu of an opening statement.
Mr. Stearns. Unanimous consent is so ordered.
Mr. Dingell. I strongly support H.R. 4646. I commend you
for holding this hearing today, Mr. Chairman, and I express to
you my thanks. This is a piece of legislation which is urgently
needed by this country, and it is a piece of legislation which
may very well be an example of what it is we should be doing,
for example, for the textile industry and other industries
which are being hurt by unfair foreign competition which is
decimating our industries and hurting our workers and our
economy.
I again commend you for your fine opening statement, Mr.
Chairman, and with that I ask unanimous consent to revise and
extend my remarks in the record.
Mr. Stearns. Unanimous consent so ordered, and I thank the
gentleman.
[The prepared statement of Hon. John D. Dingell follows:]
Prepared Statement of Hon. John D. Dingell, a Representative in
Congress from the State of Michigan
Mr. Chairman, last March President Bush imposed a 30 percent tariff
on foreign steel imports because foreign steel companies had dumped
steel into this country at unreasonably low prices and had injured our
domestic industry. This was not the 40 percent recommended by the steel
industry and workers, but it was a step in the right direction. His
decision, however, did not address two key challenges facing the
American steel industry: (1) excess foreign capacity and, more
critically, (2) steel legacy costs.
My colleagues on the Steel Caucus and I, after working with the
steel industry and workers, drafted bipartisan legislation that will
solve the steel legacy problem by providing health care benefits for
steelworkers and their families, save American steelworker jobs, and
guarantee that our national security is not comprised by the
elimination of the domestic steel industry. The Steel Industry Legacy
Relief Act of 2002, H.R. 4646, has been cosponsored by 172 members. I
thank my colleagues in the Steel Caucus, some of whom have joined us
today, for their diligent work on behalf of H.R. 4646. I also thank the
steel companies and their workers for their invaluable help.
Under H.R. 4646, the Federal Government would create and support a
program of health insurance for the retirees of steel, iron ore, and
coke companies. Once enrolled in the program, retirees and their
spouses or dependents would receive major medical and prescription drug
coverage. In the absence of a universal national health care system,
this legislation is critical. It would provide a guarantee of health
care to a group likely to find private insurance unaffordable or
unavailable elsewhere.
First, the bill would secure health insurance for retirees who have
lost, or will soon lose, all retiree benefits. Second, the bill seeks
to strengthen the American steel industry by removing the weight of
``legacy costs'' as a barrier to merging of American steel companies.
Third, this legislation seeks a preference for American steel companies
provided by a ``right of first refusal'' on the purchase of American
steel companies by other existing steel companies.
I would like to take a moment to mention that it is not solely the
steel industry struggling with legacy costs, though the steel industry
has been particularly hard hit for reasons we will hear about today. I
have testimony from General Motors that I would like to submit for the
record, which makes some very important points in particular about
things we could do to help all companies with legacy costs such as
expand health insurance coverage, improve upon existing retiree
coverage by adding a Medicare drug benefit, and address cost drivers in
health insurance like the escalating costs of prescription drugs.
Mr. Chairman, the American steel industry is struggling. We cannot
afford to have this sector of our economy fail. At times of war, we
must remember that the steel industry has been and is the backbone of
the American economy. Steel provides us with the material we need to
make the planes, tanks, and ships necessary to defend America and
enforce peace. I thank the Chairman for holding this hearing, and look
forward to the passage of this important legislation.
______
Prepared Statement of L.L. Williams, Executive Director, Health Care
Initiatives, General Motors Corporation
Mr. Chairman, Ranking Member Towns, and distinguished Subcommittee
Members, I am L.L. ``Woody'' Williams, Executive Director of Health
Care Initiatives at General Motors (GM). It is an honor to submit this
statement as you consider Ranking Member Dingell's legislation to
address the health care ``legacy costs'' of steel manufacturers. We
applaud Mr. Dingell for bringing this issue before the Subcommittee and
urge the Subcommittee to consider developing policies that respond more
broadly to other industries that face similar financing and
administrative challenges for the provision of post retirement
benefits.
Recognizing that the witnesses you have invited to testify before
you will focus predominantly on the steel industry crisis, our comments
are designed to address the broader challenges that many other
industries face, with a particular focus on the GM experience. Like
many other companies, we are concerned about succeeding in an ever-
increasingly competitive world marketplace without some significant
relief from our current liabilities. Further, our testimony is intended
to highlight our belief that the preservation of current retiree health
benefits is directly linked to our ability to work with you and others
to pass Federal policies that expand coverage and constrain cost
growth.
Retiree Health Care and Legacy Costs. In the 1960s, 1970s and some
of the 1980s, there was a relatively constant increase in the number of
companies offering retiree health plans. By the early 1980s, well over
80 percent of large and medium sized companies were offering employees
some type of retiree health benefits. This benefit emerged as a result
of many factors, including: (1) evolving labor-management contract
negotiations; (2) the relative affordability of providing these
benefits when there were initially small numbers of retirees; (3) the
fact that such plans filled the void of coverage for benefits like
prescription drug insurance that were not (and still are not) covered
by Medicare; and (4) the fact that provision of such generous benefits
made it possible for employers to appropriately offer early retirement
options without fear of being targeted by age discrimination
suits.1
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\1\ Testimony of Dr. Sylvester J. Schieber, Ph.D., Committee on
Education and the Workforce, Subcommittee on Employer-Employee
Relations, Hearing on ``Assessing Retiree Health Legacy Costs: Is
America Prepared for a Healthy Retirement?'' May 16, 2002.
---------------------------------------------------------------------------
Today, a very different picture has emerged. According to a just-
released Kaiser Family Foundation study, the percentage of large
employers offering coverage has been cut almost in half, from 66
percent in 1988 to 34 percent in 2002 2. In recent years,
the trend has been for employers to not offer such coverage to new
hires or those who have not yet retired. The reasons for this trend are
relatively simple: the increasing cost and utilization of care, the
costs associated with those retirees who are already eligible, the fear
of future demographic change and its accompanying costs and, of course,
the negative impact these costs have on the ability of these employers
to compete in a world market.
---------------------------------------------------------------------------
\2\ Kaiser Family Foundation and Health Research and Educational
Trust, Employer Health Benefits: 2002 Annual Survey, September 2002.
---------------------------------------------------------------------------
Notwithstanding this trend towards reducing retiree health
coverage, many employers have maintained this coverage along with the
accompanying tens of billions of dollars in liabilities. In fact,
according to Watson Wyatt Worldwide, the top ten companies with retiree
health legacy costs have outstanding liabilities associated with these
costs in excess of $150 billion. Because of our older and larger
workforce, GM's retiree health legacy costs actually account for over
one-third of this amount ($52.5 billion).
It is important to stress that retiree health benefits are
extremely important to those fortunate enough to receive them. They
generally provide very comprehensive coverage, and serve over a quarter
of the nation's seniors, far more than Medicaid (10 percent), Medigap
(7 percent), or Medicare Plus Choice managed care (approximately 15
percent).3 However, without some assistance to continue to
do so, there is little doubt that the trend of benefit elimination or
reduced coverage will continue or even accelerate.
---------------------------------------------------------------------------
\3\ Laschober, et al., Health Affairs, February 2002.
---------------------------------------------------------------------------
General Motors and Retiree Health. At GM, we are proud of our
employees and their productivity. We believe they have earned and
deserve appropriate and fair compensation in return for their service.
Not surprisingly, then, our workforce tends to stay with us for
extended periods of time. The current average length of service for our
active hourly employees is 22.6 years, which also means that virtually
all of our workers qualify for and receive retiree health coverage.
GM's retiree health bill, however, is simply unsustainable. Like
many other companies, we have seen our retiree health legacy costs rise
at alarming rates, since we originally started subsidizing this
coverage in 1961. Just over a decade ago, our post-retirement liability
(the projected cost of our current and future retiree health
populations) was $33 billion. Our liability has now increased by over
60 percent, to $52.5 billion, as the number of eligible retirees has
increased from 340,000 to 425,000 from 1991 to 2001.
Similar to a number of other long-lasting business enterprises, GM
is a mature company with a mature workforce. The fact that we have one
of the lowest turnover rates in the large business sector is something
of which we are proud. However, it has also contributed to the fact
that we now have far more retirees (about 425,000) than active
employees (approximately 181,000). Such a ratio of retirees to workers
is extremely difficult to sustain, and has and will continue to require
company, and Federal policy intervention.
We are now spending over $3 billion a year in health care costs for
our hourly workforce. These costs represent only a portion of GM's
overall health care expenditures, but still are equivalent to about
$800 per vehicle. At a time when we are competing with car companies
all over the world that have little or no retiree health liabilities,
this represents an extraordinary and sometimes excessively burdensome
challenge.
Clearly, one of the largest drivers of these costs in recent years
has been our coverage of prescription drugs (and the fact that Medicare
provides no defined outpatient prescription drug benefit). Despite our
use of state-of-the-art management techniques that promote the most
appropriate and cost-effective use of prescription drugs, our
pharmaceutical bill continues to grow at a rate of 15 to 20 percent a
year--more than quadrupling the general inflation rate. Such drug cost
increases are driven by a host of factors, including higher
utilization, direct to consumer advertising, price increases of
pharmaceutical products currently on the market, and the delay of
generic competition.
While I will not go into detail on all of these problems here, as
we have testified earlier in the year on this subject, I do want to
briefly highlight our frustrations with the lack of generic competition
in the marketplace. In the last several years, as prescription drug
patents have expired, purchasers such as GM have planned and budgeted
for generic drug competition to reduce costs and increase enrollee
choice. Such competition is critical to effective pharmaceutical
benefit management programs, as generic competition reduces costs by 50
to 60 percent for most drugs. Time and again, however, purchasers such
as us have underestimated liability related to drug costs, as many
pharmaceutical companies effectively extend their market exclusivity
through the automatic and repeated use of the 30-month market
exclusivity stay, included in the Hatch-Waxman Act.
At GM the so-called ``ever-greening'' of the patents of five
products designed to treat ulcers, cholesterol, diabetes, allergies and
depression has increased GM's pharmaceutical costs for these five drugs
alone by over $142 million. Even more ominous is our fear that this
trend will continue and likely grow worse. For example, without new
legislation, we now estimate that if just five pharmaceutical
``blockbuster'' product patents that are currently scheduled to expire
are extended for 3years, GM will see increases in our prescription drug
bill in excess of $204 million during the period, much of it for our
retirees.
GM's Response to the Retiree Health Challenge. GM supports pursuing
a two-pronged strategy in addressing this challenge. First, we are
working internally and with outside sources to implement purchasing and
quality assurance initiatives aimed at ensuring that our annual multi-
billion dollar health investment is being spent wisely and achieving
positive medical outcomes for our active and retired workforce. Second,
we are partnering with coalitions to urge appropriate and bipartisan
legislative intervention that would modernize Medicare benefits and
constrain cost growth (particularly for prescription drugs), and
improve the level of care all Americans receive. The following outlines
our efforts in these areas:
(1) Prudent purchasing of health care with emphasis on medical
outcomes. GM is proud of our collaborative working relationship with
our union partners to improve quality, health status, and value. We
both recognize that our multi-billion dollar investment must yield a
much greater health outcome dividend, and that patients and their
families, as well as health care providers, must become more sensitive
to costs and value. To that end, we have implemented the following:
Community Initiatives. Focuses on five high GM employee
population areas in collaboration with multiple stakeholders to
drive quality improvement, reduce duplicative services,
emphasize best practices that generate positive clinical
outcomes, reduce unnecessary capacity expansion, and provide
public information on provider performance to help consumers
select the best providers.
Wellness and prevention. GM provides its employees and
retirees the largest corporate wellness program in the world,
known as ``LifeSteps.'' Its purpose is to identify controllable
health risks, improve overall health knowledge, and help
beneficiaries modify their lifestyles and reduce health risks.
Recently, 14 percent of certain employees with high health
risks moved to a lower risk designation as a result of using
Lifesteps. Lifesteps services include health risk appraisals,
counseling and support, fitness facilities, education programs,
health fairs, and more.
Quality-based value purchasing. The GM core strategy for
managing health plan benefit cost is through accountability and
providing assistance for quality improvement and reduction of
waste in the health care system. GM has a rigorous quality
performance measurement system for its health plans, providing
quality information to its employees and retirees to help them
in their selection of health plans. Salaried employees and
retirees have financial incentives to select the best
performing health plans on the basis of quality as well as cost
(higher quality plans cost the beneficiary less). This has
resulted in considerable migration to better and more cost
efficient plans and has been a driver for significant quality
improvement. In addition, we help providers and health plans
improve quality and manage costs through our supplier
development activities, where we send teams to hospitals,
health plans and other health care organizations to help them
improve processes.
Prescription Drug Management. GM has a dedicated team working
on prescription drug quality and cost, led by a full time
clinical pharmacist. Some initiatives include: the development
of a pharmacy network, generic drug education and incentives
(including multi-tiered co-payment benefit designs that
encourage consumers to be more cost conscious), beneficiary and
physician education, optimal dosing, and appropriate use of
antibiotic safety initiatives.
National private/public collaborations on patient safety. GM
has played a leadership role in establishing, supporting, and
staffing multiple health policy coalitions designed to develop
and implement quality and outcomes data and standards to
modernize the delivery system. Organizational memberships and
participation include the National Quality Forum, the Leapfrog
Group, and the Foundation for Accountability (FACCT).
We are convinced that these initiatives have made major
contributions toward improving the health care delivery system by
promoting improved medical outcomes and assuring greater cost
efficiencies. Preliminary data indicates that this investment is
beginning to provide a return in terms of medical outcomes and cost
savings. More specifically, GM's efforts relative to cervical cancer
screenings have resulted in a 51% increase in screenings over a 3-year
period. Efforts to promote use of a Beta-Blocker after an Acute
Myocardial Infarction to reduce the chances of a subsequent heart
attack have resulted in a 26% increase in Beta-Blocker use over the
same time frame. However, notwithstanding these encouraging trends,
health care cost growth for retiree health expenditures still remains
at more than 3 times the general inflation rate, and simply cannot be
maintained for any length of time.
(2) Encouraging bipartisan collaboration on long-overdue
legislation to expand coverage and constrain costs. No matter how
successful we are at using our purchasing leverage to improve health
care and constrain costs, we at GM remain convinced that we will be
unable to maintain a comprehensive and similarly affordable
prescription drug benefit for our retirees without Federal intervention
on a Medicare prescription drug benefit and on legislation to eliminate
barriers to generic competition. Specifically, we urge the Congress to
not adjourn this year without passing:
A meaningful, affordable, and optional Medicare drug benefit. A
well-designed Medicare drug benefit would not only provide coverage to
the millions of seniors without insurance, it would stabilize the
coverage for those who do. If designed appropriately, a bipartisan
Medicare benefit could significantly reduce some of the liabilities of
retiree health plans, thus making it more likely they would be retained
into the future. We believe that any Medicare benefit should meet the
following principles:
First, a Medicare drug benefit should be universal in nature.
All Medicare beneficiaries should have the choice of an
affordable drug benefit. The Medicare program has largely been
a success, representing the only population in this nation with
the benefit of universal coverage. Moreover, fully half of
those seniors without coverage have incomes over 200 percent of
the poverty level. Further, of those seniors who do have
coverage today, many have extremely limited coverage or are at
risk of losing their good coverage because of cost. Addressing
this problem effectively, therefore, means designing a
universal benefit.
Second, a Medicare prescription drug benefit should be
meaningful and affordable to both beneficiaries and taxpayers.
To ensure a stable and accessible drug benefit that is
voluntarily chosen by all beneficiaries, it will be necessary
to design a substantive benefit that has an affordable premium.
This will require a significant investment of federal dollars.
We well recognize, however, that Congress has to achieve a
bipartisan consensus around what level of federal dollars are
available for such an investment, and clearly resources are not
infinite. This underscores the importance of a well-managed,
cost-effective prescription drug benefit.
Third, the design of the Medicare prescription drug benefit
must be oriented toward achieving positive medical outcomes and
value. Just as important as designing an affordable,
meaningful, and universal drug benefit is managing it well. To
that end, the benefit should be designed to encourage
appropriate use of high-quality, cost-effective generic
medications, require cost-sharing that guards against excessive
and inappropriate utilization, and integrate state-of-the-art
pharmacy management techniques that ensure the use of high-
quality, high-value pharmaceuticals.
Lastly, a prescription drug benefit should provide incentives
for employers who are already financing prescription drug
coverage for Medicare-eligible individuals to continue to do
so. We recognize that the Congress may not be able to afford
the same level of benefits that many leading retiree health
plans provide to their beneficiaries, but it should provide a
much-needed floor of protection. As such, it should ensure that
employers and health plans currently providing drug coverage
can design benefits to wrap around Medicare. In addition, for
those retiree health plans that choose to maintain their
current plan, they should receive direct financial subsidies
that are equivalent to the value of the underlying Medicare
benefit. Such policies would appropriately avoid penalizing
firms who have generously and voluntarily provided such
coverage and slow the recent trend of companies withdrawing
their benefits for these populations.
Hatch-Waxman reforms that eliminate barriers to generic
competition. S. 812, the Greater Access to Affordable Pharmaceuticals
Act, was designed to help curtail inappropriate uses of legal loopholes
in the Hatch-Waxman Act that lead to extensions of market exclusivity
of brand-name pharmaceutical products that effectively block generic
competition. These abuses must be stopped this year, or GM and
employers like us will have to incur untold tens of millions of dollars
in excessive and unpredictable pharmaceutical costs, thus making the
financial viability of our retiree health plan even more precarious.
Important facts:
The Congressional Budget Office (CBO) projects that S. 812
will save tens of billions of dollars if enacted into law. CBO
estimates that S. 812 and its House companion bills (H.R.5272
and H.R.5311) will save at least $60 billion over the next 10
years for private and public purchasers.
This legislation easily gained bipartisan Senate approval.
Earlier this summer, the Senate passed S. 812--by an
overwhelmingly bipartisan 78-21 vote.
Broad-based coalitions of consumers, businesses, labor,
Governors, and health plans strongly support H.R. 5272 and H.R.
5311. Business for Affordable Medicine, the Coalition for a
Competitive Pharmaceutical Market (CCPM), and RxHealth Value
all represent broad-based and non-partisan constituencies who
are strongly supporting this legislation; the only major
opponent to these bills is the pharmaceutical manufacturing
industry.
These coalitions are committed to and supportive of
pharmaceutical research and development and strong protections
for patents. They have concluded, however, that certain
practices employed by some brand-name companies have
effectively misdirected their attention away from true
innovation and new product development and towards preservation
of old innovations.
conclusion
We well recognize the immediate retiree health legacy challenges
the steel industry faces and commend the Subcommittee for working to
address them. We know you are well aware, however, that there are other
sectors of the business community that are confronting similar
challenges that may be most effectively addressed by more comprehensive
policy interventions.
We sincerely believe that our aggressive management of our retiree
health costs, combined with thoughtful Federal policy intervention,
could make a real difference in moderating cost growth and making it
possible for companies like GM to maintain a comprehensive retiree
health benefit. Failure to succeed in this area, however, will only
result in a smaller number of employers providing such coverage to a
smaller number of employees. Such an outcome could effectively cost-
shift either to individuals or Federal and State governments. From our
perspective, neither one of these two options is advisable or
desirable.
If policymakers desire to see us continue to provide the level of
support we have done in the past, we will need assistance. In the
absence of such help, it would be disingenuous for us to suggest that
we will be able to afford the post-retirement benefits we have to this
point. Regardless, there is little doubt that we will need to implement
more aggressive cost management techniques, which by themselves may not
be sufficiently effective, but may be our only short-term tool should
the Congress fail to act this year.
We are proud that the retiree health benefits that we have provided
to date have made a difference in hundreds of thousands of lives. We
look forward to working with you, Mr. Chairman, Ranking Member Dingell,
and all the Members of the Subcommittee as you work to address the
legacy costs associated with retiree health plans.
Thank you for your consideration of our views.
Mr. Stearns. Mr. Shimkus, the gentleman from Indiana.
Mr. Shimkus. Thank you, Mr. Chairman. As an original co-
sponsor of H.R. 4646, I am looking forward to examining the
effects that this legislation may have on the industry and
those retirees which may benefit.
I have two who consent to let their names be used. Mr.
Clark was employed by Laclede Steel. When Laclede filed
bankruptcy, he lost his health insurance coverage. He and his
wife both suffer from preexisting conditions that prevent them
from purchasing regular health insurance coverage. So they must
apply for coverage under the CHIP program in Illinois. Due to
the high cost, it is unaffordable.
He was employed by Laclede for 38 years. He states that,
due to the age of several employees and retirees, it is
difficult to find insurance, and what you do find has a very
high premium.
Another constituent, Thomas Smith. Mr. Smith contacted us
because he was a salaried retired employee of Laclede and was
told he had no health insurance coverage. His wife had been
hospitalized and was not aware there was no coverage. He had
elected COBRA, but because the general American plan was self-
funded, there was no money to pay for claims. Mr. Smith's only
recourse for insurance coverage was the CHIP program, again.
We all know, especially those of us who represent the steel
industry, what countless years of allowing unfair dumping of
steel by foreign countries have done to our industry, and that
directly relates to workers. You know, I applaud what the
administration has recently done, but with a caveat and a
concern. You got to do it the full way, and you got to do it
for the full duration.
We will continue to work with the administration to make
sure that there's protection. This is a critical piece of the
lobbying that we did on behalf of the steel industry. So what
we got wasn't even half a loaf. It was maybe a third of a loaf,
because we didn't get the 40 percent. We didn't get the 4
years, and we didn't get the legacy costs.
So we just need to continue to move on this piece of
legislation. I applaud the chairman and, really, my colleagues
on the other side, the ranking member of the subcommittee and
the full committee, for helping us move this piece of
legislation expeditiously, and I look forward to moving upward
through the full committee process to the floor.
I think we are going to have a lot of emotional testimony
like we have heard so far, and the examples that I have gotten
will go throughout the country of folks who have lost their
livelihood and their jobs and their health insurance. You know,
my prayer is that we can just do the right thing, come the end
of the day.
With that, I yield back the balance of my time.
Mr. Stearns. Thank the gentleman from Illinois. The
gentlelady from California.
Ms. Capps. Thank you for holding this hearing, Mr.
Chairman, and I am pleased that the subcommittee is turning its
attention to legislation that will help restore health care
benefits to thousands of steel industry retirees and their
dependents. I am very honored to be sitting next to the ranking
member of this subcommittee and to associate myself with his
remarks, coming from years of living within that industry and
seeing what has happened to it.
Mr. Chairman, the current steel crisis has forced 33
American steel companies into bankruptcy since the end of 1997.
Seventeen steel companies have completely shut down and, as a
result, as has been stated, over 125,000 retirees have lost
their medical benefits.
These men and women devoted their entire lives to producing
the steel that has ensured our national defense and our
security abroad, and through no fault of their own they have
found the medical benefits promised to them completely wiped
out. Hundreds of thousands more are at risk.
Mr. Chairman, this is why we must act now and pass the
Steel Industry Legacy Relief Act. This bill will set up a trust
fund to ensure the health care and provide a prescription drug
benefit for these steel retirees. It will also reform the
industry by making bankrupt and failing American steel
companies more appealing to acquisition.
This legislation enjoys bipartisan support, support of the
steel unions, and endorsement from many in the industry. As the
ranking member of the full committee has stated, it is a model
that could be used without the field of other industries as
well. It will foster the recovery of the American steel
industry. It will provide health care to uninsured retirees,
and it will protect our national defense.
I look forward to working with all the members of this
committee to pass this critical legislation. Again, Mr.
Chairman, I thank you for holding this hearing, and I look
forward to the testimony of our witnesses. I yield back.
Mr. Stearns. Thank you. And the gentleman from Nebraska,
Mr. Terry.
Mr. Terry. Thank you, Mr. Chairman. I can understand
ranking member Dingell's motivation and the plethora of co-
sponsors to this bill--their sympathy for this bill. A lot of
industries have felt the effects of stagnant economic activity.
Aviation industry, textiles, as we heard from our colleague,
mining, logging, telecommunications, manufacturing in general,
and other sectors have encountered the results of both
international trade competition as well as a slow domestic
economy. But is that enough to establish a Federal health care
system above and beyond what Medicare beneficiaries receive for
retired workers for one particular industry? I disagree. I
don't think so.
Bethlehem Steel is here today in favor of this bill, and I
understand why. Under competitive trade conditions, plus the
introduction of heavy labor agreements, Bethlehem is an example
of a domestic industry feeling the effects of the slow economy.
Bethlehem wants health care coverage for its retirees paid for
by U.S. taxpayers, because Bethlehem and its workers produce
steel, which is the backbone of our economy. But what about the
workers of Valmont, a manufacturing plant about one mile from
my residence, within my district, that uses steel and makes it
into products like telephone poles, irrigation equipment, wind
energy?
What about them? What about Balen Manufacturing that uses
that same steel, or Lozur Corporation who have told me
personally over the August break of their horror stories about
the increase in steel costs as well as significant delays in
receiving the steel that has placed them at a significant
economic disadvantage, which may displace some of their workers
now? Those are my constituents that may be laid off because of
the current conditions in the steel industry being passed to
them.
Business is down, but Valmont, Balen, Lozur, in all of my
discussions with them, did not once ask the Federal Government
to take over the health care benefits of their workers. They in
turn try and set up management tools to deal with the issue.
Yes, they want us to have to deal with the steel issue so
that they don't have to absorb those significant increases in a
short period of time when they are unable to pass those costs
on to their customers.
Now I could go on and on about the retirees in my district
alone who were dealt the short end of this economy stick:
Qwest, Avaya--who has laid off about 50 percent of their
manufacturing employees--Enron: all companies with significant
presences in my district, and all undergoing financial woes and
layoffs which hurt the remainder of their employees and their
retirees.
These employees demand and deserve fairness. They demand
and deserve transparency. However, they are not demanding that
the government take over their health care with a Cadillac
plan.
I look forward to the hearing and learning why this is
absolutely necessary, and why we are even having these
hearings. I look forward to the testimony, Mr. Chairman.
Mr. Stearns. The gentleman from Tennessee, Mr. Gordon.
Mr. Gordon. Thank you, Mr. Chairman. I am also a co-sponsor
of this legislation, and I think that I will just make my
remarks part of the record so we can move forward and hear from
our witnesses. Thank you.
Mr. Stearns. I thank the gentleman.
What the procedure is going to be now, we are going to go
to the members of the full committee. Oh, Mr. Walden, I'm
sorry.
Mr. Walden is recognized.
Mr. Walden. Thank you very much, Mr. Chairman. I appreciate
the fact that we are having this hearing today, and I look
forward to the testimony as well.
As I sat here listening to some of the other testimony, it
hit me as well during the August break that there are a number
of other industries now that are paying the price for the steel
decision, and in many cases it is agriculture, and I represent
a very agricultural district.
I also represent a district that has some of the remaining
aluminum industry production capability, and they have been
hard hit as well, and certainly, the timber industry in my
district has suffered mightily at the hands of the Federal
Government and its decisions and changed policies.
So I have some concerns about this legislation. I look
forward to hearing the testimony and reading it as well, and
then I will make up my mind at that point. Thank you, Mr.
Chairman.
Mr. Stearns. Thank you. Let me just explain what the
procedure will be. We are going to go to the members of the
full committee in priority as they arrived, and then we will go
to the individuals who have asked to speak, other members who
are not a member of the committee, but I wanted to afford them
an opportunity to speak. I would like them, since we have a
great number of them, to limit it to 3 minutes, if you would,
and then we can go through all of you, and this is sort of an
opportunity for each of you to participate.
So with that, we will go to Mr. Strickland for his
statement.
Mr. Strickland. Thank you, Mr. Chairman. I applaud Ranking
Member Dingell, Congressman LaHood, and Congressman Visclosky
for introducing this vital piece of legislation.
We will hear today about the more than 124,000 retired
steelworkers who have, through no fault of their own, lost
their health benefits in the last 5 years. My father, who died
at 92 years of age, who worked in the steel mills for 46 years,
lost his health benefits as a result of a company--steel
company bankruptcy. But we will also hear about the more than
500,000 retirees' health care benefits that are at risk.
This legislation will ensure that retired steelworkers have
health care. It will save the American steel jobs, and it will
secure our national defense. I hope this hearing draws
attention to these urgent needs.
Still, legacy pensions and health care costs are the single
greatest barrier to restructuring the U.S. steel industry, so
that it can compete in the world market. Every year the
domestic steel industry pays an estimated $965 million for
retiree benefits. These burdensome costs make it nearly
impossible for steel companies to survive when cheap foreign
steel is illegally dumped into this country.
The legacy costs are also a barrier to industry
consolidation, which is critical for international
competitiveness. This legislation is a lifeline for retired
steelworkers and their families who are not yet Medicare
eligible, and who are left without health benefits due to a
steel company's closing or merger.
Health insurance coverage is especially important for near-
elderly Americans between age 55 and 65 who are at risk of
serious illness for adults which arise with age. It is also
important for those younger than 65 who are not Medicare
eligible.
This legislation addresses this problem for steel retirees,
providing them with Medicare level health coverage plus a
prescription drug benefit until they become eligible for
Medicare. This legislation also addresses the health insurance
steel legacy costs of retirees who were not included in trade
adjustment assistance aid that was provided to steelworkers
this year in the Trade Act.
Additionally, I am pleased that the Trade Act did include
these provisions. While I am pleased, I fear that the benefits
provided are inadequate, since workers receiving these benefits
must seek health coverage in the individual market for high
risk pools.
This legislation underscores the serious problems faced by
all who are uninsured in this country. Specifically, the bill
underscores the need to address under-insurance as well as un-
insurance on two levels. First, the proposal highlights how
important it is to add a prescription drug benefit to Medicare
and, second, it illustrates the need to help the growing number
of all Americans who lack health insurance.
As we face the reality that the staggering number of
steelworkers, retirees and their families are left without
benefits, we understand that we cannot just simply stand by and
watch a trade crisis rage, pillage, plunder, loot, utterly
destroy the retirement of an entire generation of steelworkers.
I urge that this legislation move quickly and that we pass
it into law and resolve this national crisis. I yield back my
time.
Mr. Stearns. Thank the gentlemen. The gentleman from Ohio,
Mr. Brown.
Mr. Brown. I thank the chairman. I will ask to have my
entire statement in the record.
Mr. Stearns. By unanimous consent, so ordered.
Mr. Brown. Thank you. I thank Mr. Dingell, Mr. Visclosky
here today, and Mr. LaHood for their leadership on this bill.
The U.S., as we know, has become the steel dumping ground at
the expense of U.S. jobs, the expense of our economy, the
expense of our communities.
We important 39 million tons of steel, more than double the
16 million tons we imported as recently as 11 years ago. Steel
prices, as we know, are below 1998 levels. Since 1997, 34 steel
companies have declared bankruptcy, 17 since January 2001,
including LTV in Cleveland, RTI in Lorraine, Ohio, CSC in
Warren, Ohio. Unfair trade has victimized an entire generation
of steelworkers who depended on this industry for their
pensions and for their health benefits.
The President's decision to implement 201 tariff remedy, if
not a panacea, at least seemed like a step in the right
direction, but then the administration sold us out by approving
almost 730 tariff exclusions, making 201 almost meaningless.
This is the same administration that pushed through by one vote
in December the fast track legislation which will accelerate
the exodus of jobs from the United States to south of the
border, and the same administration who pushed through fast
track a second time just a month and a half ago by two votes,
twisting arms, making last minute calls, making this their
payback to corporate American because they had to sign the
Corporate Accountability Act.
It's the same Republican leadership that has blocked the
Steel Revitalization Act, H.R. 808, even though Mr. Quinn and
many members of this committee in both parties have signed onto
this legislation, a strong majority of members of Congress have
signed onto the legislation, supporting the legislation.
Clearly, we would have an overwhelming vote in support of the
Steel Revitalization Act, but again it is blocked by Republican
leadership.
Mr. Chairman, in order to do what this body needs to do to
help Mr. Deal's textiles, to help the chairman's tomato and
winter vegetables, the industry in his district, steel and auto
in my part of the country, it is time we passed legislation
such as H.R. 4646. It's time we passed legislation such as the
Steel Revitalization Act. It's time we stopped passing trade
agreements that are creating--that are digging a deeper and
deeper hole for American jobs and American business. I thank
the chairman.
Mr. Stearns. Thank the gentleman. We are going to now go to
the individuals who are not members of the full committee and,
obviously, not the subcommittee. We will go with the gentleman
from Minnesota first, Mr. Oberstar. Welcome, and we look
forward to your 3 minutes, if you can.
Mr. Oberstar. Thank you very much, Mr. Chairman. I will
submit a statement for the record, and speak from the heart
momentarily. I appreciated your opening statement. I thought it
was a very strong definition of the case, although I thought
you were a little wobbly on the conclusion. We'll try to
reinforce your position.
Mr. Stearns. If the gentleman will yield just for a second,
we are trying to extend goodwill to get this hearing in place
so that we can determine the facts, and I know you as a member
will not jump to necessarily conclusions without hearing from
our witnesses.
Mr. Oberstar. That's why we are here; to strengthen you and
shore you up on the conclusions, and I'll say to my colleague
from Georgia, this is not a zero sum game. It's not, if one
wins, the other loses. We in the rust belt have stood with
textiles. They were the first to feel the impact of foreign
imports, unfairly traded products, both textiles and the needle
trades; and this gentleman, for years before the gentleman was
a member of the body, supported every measure to protect and
defend the textile industry of America against unfairly traded
imports as the textiles moved from New England to the southern
States, offshore to the Caribbean and now to the Pacific Rim.
It's a textbook example of what is wrong with our trade policy,
and we all need to stand together.
What we are seeing here in this legislation is maybe the
last stages of a 30 year inexorable process under which the
steel industry has come under assault from, first, the European
Community, then the Soviet Bloc, now Third World countries who
have added steel capacity. We have trigger price mechanism in
the Carter Administration, voluntary restraint agreements under
the Reagan years, Clinton negotiations. The Bush Administration
has come forward with the Section 201 Steel Remedy Plan, and
yet in the early 1980's we lost 280,000 jobs directly in steel,
980,000 associated jobs, and now these additional jobs that
have been cited.
What we did in 1972-73 was to respond to the problem of the
loss of steel industry by creating the Employee Retirement
Security Act, ERISA, that established the Pension Benefit
Guaranty Corporation to protect retirement income. That has
worked well, 3,000 such plans are now under the protection of
PBGC.
What we want to do is take one step further and, if we need
to include textiles in it, we will find a way to do that. If we
need to include the farm sector, we will do it. We voted for
the farm bill. We voted to protect corn and wheat and other
sectors of our--as a national security interest. Steel is also
a national security interest. Let us all pull together on this
initiative, and remember that Russian and Ukraine and Japanese
and Taiwanese and Indonesian workers don't pay into our Social
Security retirement program and don't pay into our Medicare
fund. It's American workers who do.
Mr. Stearns. I thank the gentleman.
The gentleman from New York, Mr. Quinn.
Mr. Quinn. Thank you, Mr. Chairman. I would ask unanimous
consent to submit written testimony. Without objection, so
ordered. Thank you very much. I want to associate myself with
the remarks of my fellow T&I committee member, Mr. Oberstar.
To take my 3 minutes to talk from the heart, I guess, a
little bit more than prepared text and to be helpful to other
members of the committee, the purpose this morning is to gather
information.
My father is a retired steelworker. He is 75 years old. I
worked in the steel mills of western New York for 3 or 4
summers in college. In my district we have about 1200 active
steelworkers and 14,000 retired steelworkers, and I guess all I
would like to say, Mr. Chairman, as you review this and it
makes its way through the full committee, is something I have
said when Pete Visclosky and I in these past 4, 5, 6 years now,
Peter, worked on the steel quota bill 3 years ago and H.R. 808
last year, is that there are real faces to these figures and
numbers. There are real people out there we are dealing with
and we are talking about trying to help.
This is an issue where the companies and the unions have
come together. They are going to testify today, as they have
for many years here through the steel caucus. So it is not
necessarily a problem where management and labor have any
difficulties. They are together on this issue more than
anything else.
I guess from my perspective this is one of those issues
where we have to stand together as Republicans and Democrats We
did in the past. The only way we will be successful is if we do
it again. I think the President showed enormous courage last
year addressing the tariff side of this problem,
notwithstanding the exemptions that my friend from Ohio
mentions this morning.
I don't think it is particularly helpful to be talking
about selling people out and to be criticizing one party or the
other at this point in time. I think we would be better off
trying to find ways where we can enlighten this subcommittee
and the full committee to get ourselves politically, like we do
on transportation, so many issues, to get to a solution.
I will tell you that in my father and mother's case, 75 and
74 years old as a retired steelworker, the fact that they may
lose their health insurance just about makes them ill. The fact
that they get up every morning and worry about the fact that
they are not going to have health insurance almost works the
opposite, almost gives them so much stress and so much
discomfort and so much worry that it is going to make them ill,
and they are going to have to access that in a short period of
time anyway.
So in my situation, not only because of my personal
involvement but because of the folks that I represent, and
notwithstanding our farm bill and the other ways we can help, I
suggest and I submit this morning, besides the written
testimony, that we must find some ways to help this industry.
There were real faces last evening in Buffalo, New York.
There was a meeting of retired steelworkers, packed, standing
room only. The president of the company was there from
Bethlehem Steel. He is there willing to answer questions and
find solutions, and I think that is what we ought to be about
here, not criticizing each other but finding some ways for some
solutions.
I really appreciate the opportunity that the subcommittee
has allowed members off the committee to be here.
Finally, I just want to thank the staff who sent me up a
note earlier, and the note says, ``Mr. Quinn, if you wish, you
may move to the majority side at your convenience.'' You know,
I got to tell you, when I came up here to sit down, I didn't
even think which side I should sit on, and that's the approach
we should take. This isn't one where we got political sides to
take. This is one where we need to find a solution, and I'll
sit or stand anywhere in this city to get us a solution. Thank
you. I yield back.
Mr. Shimkus [presiding]. And I thank my colleague from New
York. Now I want to recognize a member of the full committee,
Mr. Buyer, for an opening statement. He is recognized for 4
minutes.
Mr. Buyer. Thanks. I will just be brief. I came here
because I want to listen to this, and I agree with Jack. Moving
toward a solution to this is very difficult, and it is very
challenging, because it is industry specific.
The steel industry is not the only industry that may lose a
job or may have a family in crisis, and that is what our
challenge is. And because there are other industries out there,
they are saying, well, why are you being biased toward steel?
It's a nice question to ask.
Mr. Oberstar's comment about national security--it's true.
These countries out there that are whopping us upside the head,
these Third World countries--you know, if we are going to say,
Steve, we want to form a new country, what are some things that
we need? You need a steel industry. You really do.
When you talk about the top ten things that you need, you
need a steel industry. So I am very supportive of what the
President did with regard to steel. I am very cognizant, being
from Indiana, having a lot of steel, having some mini-mills,
having a huge agricultural base, about the impact and the
destabilizing influences that have occurred in an economy when
you take action to protect a particular industry.
The legacy cost issue is very difficult for us. It is
challenging, and I want all of you to know that, because if you
take one action for one industry, believe me, in this town
everybody else gets in line. So we have to be very cognizant of
that, and we have to be very careful.
With that, I just wanted to share that with you, and I
wanted to come here today to be a good listener. I yield back.
Mr. Shimkus. The gentleman yields back his time. Now under
the Chair's prerogative, I will mention that I am going to
introduce to you a chairman of the steel caucus, a co-chair.
The other co-chair is doing Ways and Means Committee work,
Congressman Phil English, and he was quite upset that he wasn't
able to manage both at the same time. So I send his regards,
and those of you in the steel industry know of his fervent work
on this behalf.
Now it gives me great pleasure to recognize the other co-
chair of the steel caucus, Congressman Visclosky from Indiana,
recognized for 3 minutes.
Mr. Visclosky. Mr. Chairman, thank you very much for the
recognition, and I do want to thank Chairman Stearns, the
ranking member, and all of the members of the subcommittee for
holding this, the first hearing that I am aware of after 21
months in the 107th Congress on a specific steel issue.
I am very grateful from the bottom of my heart, because
while this is the first hearing that is being held in this
Congress, I do think, and I would reference the Gary Post
Tribune headline from last December, that we are on our last
legs as far as the steel industry is concerned.
There have been a number of, from my perspective, red
herrings raised today, including the price increases in steel.
I would submit for the record information from the Purchasing
Magazine Transaction Price Service that would indicate that hot
rolled steel, cold rolled steel, hot rolled plate and cold
finished bar are today selling anywhere from 3 to 22 percent
below what their prices were in June 1997, but I would like to
make four specific points on the underlying legislation itself.
The first is this is for health care. My good friend and
colleague from Indiana raised a key issue. Why steelworkers?
Why should they be treated differently than anyone else? Other
people have lost jobs because of a soft economy. Other people
have lost jobs because of trade imbalances.
The point that distinguishes steelworkers from everyone
else is we have a unanimous decision from the International
Trade Commission last fall that illegally traded steel caused
the collapse of this industry, and that decision was so
pertinent and so moving, it caused the President of the United
States on March 5 of this year to impose tariffs for 3 years.
I would assume that the President would not have acted
unless he was convinced by that ITC determination that illegal
actions have caused this problem. If we find for textiles,
other manufacturers, member of the agricultural community or
any other individual worker in the United States that they have
lost their job because our laws have been violated, then we
should help them, too; and if we haven't, then shame on us.
This is not a Cadillac. If you want to see a Cadillac, you
ought to look at the bill that Mr. Quinn and I introduced in
March of last year, H.R. 808. We offered Title II which
included legacy costs relief on four different occasions last
fall. We were denied success four times, and the cost estimate
was about $800 million a year, because we wanted essentially to
replace every lost benefit.
This is a far cry from that, and I would hesitate to go out
in that hallway and ask any Medicare recipient whether or not
they thought that they were on a Cadillac system.
The chairman in his opening remarks mentioned the estimated
cost of $13 billion. I also think that is a very dated figure,
given the fact that this is a very measured proposal that I
want to thank Mr. Dingell and Mr. LaHood for introducing this
bill.
Finally, the administration, in issuing those tariffs, said
that the industry has an obligation to consolidate. They cannot
consolidate, and we cannot have a vital, integrated industry
that we need for our national defense, if we do not in some
way, shape or form address the issue of legacy costs relief.
I would ask that the subcommittee carefully consider this.
I assume improvements can always be made, but I would also ask
that action be taken, and I thank the chairman for his
courtesy.
[The prepared statement of Hon. Peter J. Visclosky
follows:]
Prepared Statement of Hon. Peter J. Visclosky, a Representative in
Congress from the State of Indiana
Mr. Chairman, Mr. Ranking Member, members of the Subcommittee on
Commerce, Trade, and Consumer Protection, and distinguished members of
the Committee on Energy and Commerce, I appreciate the opportunity to
speak today at this hearing on H.R. 4646, the Steel Industry Legacy
Relief Act of 2002.
While I deeply appreciate this hearing being held and view it as a
start in addressing the legacy costs problems of domestic steel
companies, I do urge the committee to act and report the legislation as
soon as possible.
More than 124,000 retired steelworkers have lost their healthcare
benefits in the last five years as the direct result of repeated steel
import surges. Foreign steelmakers have produced massive excess
capacity and dumped it onto the U.S. market, selling it at prices below
the cost of production. This illegally traded steel has heightened the
crisis in the American steel industry. The lost jobs have resulted in
great suffering and hardship, not only for those workers and their
families, but also for their communities, and indeed for our economy as
a whole. H.R. 4646 is not a special gift for steelworkers or the
industry; it merely provides needed compensation to hard-working men
and women, who were hurt by the economic crimes committed by our
trading partners. It also encourages and facilitates the rational
consolidation of the industry pursuant to the President's request.
The legislation introduced by Mr. Dingell and Mr. LaHood is
moderate in comparison to similar measures. Title II of H.R. 808, the
Steel Revitalization Act, introduced March 2001 by Mr. Quinn and
myself, estimated to have cost $800 million a year. While a cost
estimate for H.R. 4646 is unavailable due to the inability to estimate
revenues to be collected from the tariffs, I believe H.R. 4646 would
cost less to the taxpayers than H.R. 808 or S. 2189, the Steel Industry
Consolidation and Retiree Benefits Protection Act, currently pending
consideration in the Senate.
H.R. 4646 is partially funded from the revenue from the recent
Section 201 steel tariffs and from a one-time $5 per ton of annual
capacity payment on acquired steel-making assets and the existing of
retiree health care funds from participating companies. It's benefits
would also be more moderate than those contained in H.R. 808 or S.
2189.
Opponents of H.R. 4646 say the measure is purely a gift and
steelworkers should only be provided with catastrophic health care and
only for a limited time. I believe their concerns are unfounded. First,
the level of health care coverage that would be provided by H.R. 4646
is catastrophic coverage. It offers little more than Medicare level
coverage. Second, the number of people able to participate in the
program created by H.R. 4646 is limited, as too is the enrollment
period. Additionally, many among these hard working men and women turn
65 everyday, qualifying them for Medicare, which would replace an
overwhelming majority of the benefits provided by H.R. 4646, therefore,
lowering the draw from the trust fund established by the bill.
The Administration understands the need for consolidation among the
domestic steel companies and has called for it. Last week the Commerce
Department received confidential progress reports from the industry on
consolidation. Without the legacy relief contained in H.R 4646,
rational consolidation among domestic integrated firms will be
impossible. H.R. 4646 would help companies to consolidate, by helping
many of them avoid bankruptcy and helping hard-working employees keep
their jobs, preventing an unneeded, additional burden on our economy.
I again applaud the subcommittee's work and for holding this
hearing. I urge the committee to report H.R. 4646.
STEEL PRICES
----------------------------------------------------------------------------------------------------------------
Dollars per Ton % Increase
-------------------------------------------------------------------------------
Product Jan 02 Jun 01 Jun 97
June March January June June to Jun to Jun to Jun
2002 2002 2002 2001 1997 02 02 02
----------------------------------------------------------------------------------------------------------------
Hot Rolled Steel................ 340 260 220 240 350 55 42 -3
Cold Rolled..................... 435 370 320 340 480 36 28 -9
Hot Rolled Plate................ 320 250 250 297 410 28 8 -22
Cold Finished Bar, SBQ.......... 460 440 415 440 489 11 5 -6
----------------------------------------------------------------------------------------------------------------
Source: Purchasing Magazine Transaction Price Service.
Mr. Shimkus. The gentleman's time has expired. Now the
Chair recognizes my colleague from Illinois, Congressman David
Phelps, for 3 minutes.
Mr. Phelps. Thank you, Mr. Chairman. I, too, want to joint
the members in thanking Chairman Stearns and anyone else who
had anything to do with letting us have this opportunity today
to discuss this very important issue. Mr. Dingell and Mr.
Visclosky certainly have afforded us great leadership to get us
where we are here today.
First, to find a solution we have to acknowledge there is a
problem, and many have not ever acknowledged that.
Unfortunately, some things are so obvious that you can ignore,
I guess, in some respects.
I ask unanimous consent to present my written statement for
the record, which I won't read.
Mr. Shimkus. Without objection, so ordered.
Mr. Phelps. But I am very much an original co-sponsor and
in very much support of H.R. 4646 and what it does in its
entirety.
If you have ever looked into the eyes of a steelworker
that's lost their job, you can understand the devastation, and
especially if you look at home at many of the widows and the
people they have left with the staggering cost of trying to
survive. Not only have you seen the steelworkers devastated by
the loss of jobs and retirement benefits and to keep themselves
healthy at a time in their life when it is most vulnerable, but
you have seen the slip of pride, the will to live even in some
of these people's stories.
They have great self-esteem in the craft that they have
perfected through 20, 30, 40 years, some of them. I know the
stories. They don't so much fear the tariffs that we are going
to defeat, and are in the midst of. Many of these are veterans
of wars, the greatest generation that brought us here. You look
into their eyes. We want to talk about Iraq and other things
that we are doing. They don't have fear, those people. You know
what they fear most is how our own countrymen can pass policies
that take away their pride and their way of being independent
where they don't have to rely on a handout instead of a hand
up.
That's the people I've met in central and southern
Illinois. Over 5,000 jobs have gone over 30-some-odd steel
companies taking bankruptcy, and four of those are in Illinois.
Inexcusably, it could have been avoided. Illegal dumping:
Citizens are asking how could we let corporate people keep
involving illegal activity without having some caution or call
their hand to duty.
That is why we are here, I hope, in a bipartisan manner. We
should be. Let me tell you one story before I forget, and then
get out of here.
The only fluor spar mine in all of the United States is in
my little one county, Hardin County, district, 5,000 people in
the whole county, 300-some-odd jobs left there. My predecessor,
former Congressman Glen Pechard, when I was a State
Representative, both represented that area. They left, went to
China. We pleaded with them.
Some people had 30-some-odd years, 6 months away form
retirement benefits, their spouses in bed with devastating
diseases, taking hundreds of thousands of dollars to try to pay
the medical bills and the prescription drugs just to take away
the pain. Can you stay a little longer or can we work out
something through State and Federal resources to keep you here?
They went to China.
We don't use less fluor spar for medicinal and for
industrial purposes. We use more. You know what they pay those
workers over there, 68 cents an hour, and those people under
the company of Ozark Mahoney that sold out to this big
conglomerate overseas worked 30-some-odd years, were there 60-
75 years almost in Hardin County, is gone. And those people are
on unemployment.
That is what we are facing today, those kind of challenges.
Unless we have the courage to step in and take up for our own,
in God's name, where will we be tomorrow? Thank you.
[The prepared statement of Hon. David Phelps follows:]
Prepared Statement of Hon. David D. Phelps, a Representative in
Congress from the State of Illinois
I would like to thank the committee for giving the me the
opportunity to speak in support of the Steel Industry Legacy Relief
Act. I also would like to echo my colleagues remarks in support of this
worthwhile legislation and thank Congressman Dingell and Visclosky for
their dedication and hard work on this issue.
The American steel industry and steelworkers are in the midst of
the worst crisis in many years due to the continued illegal dumping
into this country of foreign-made steel. Thousands of steelworkers have
lost their jobs and countless more are in jeopardy. In my Congressional
District in Central and Southern Illinois, the effects have been
devastating.
As a result of foreign dumped steel since 1998, 31 steel companies
have filed for bankruptcy nationwide. Of these, four are located in
Illinois, which has caused over 5,000 Illinois steelworkers to lose
their jobs. I have seen firsthand the devastation this has brought to
the area.
I have visited steel mills and attended rally's where I had the
opportunity to discuss the concerns of steelworkers and retirees.
The survival of the steel industry and the rights of steelworkers
is something I have been actively fighting for. I am pleased President
Bush implemented a tariff on the flood of injurious steel imports, but
if the steel industry is going to be saved then legacy costs for
retiree health care must be dealt with. This will not only prevent a
human tragedy of enormous scope from being perpetuated, but it will
encourage the kind of rational and consolidation that will allow the
steel industry to revitalize itself.
I am a proud original cosponsor of the legislation we are talking
about today. H.R. 4646, provides healthcare benefits for Steelworker
retirees if a company fails or files for bankruptcy.
This bill will provide health insurance for the retirees of steel,
iron ore, and coke companies. These firms have either been driven out
of business or severely threatened by the recent steel import crisis.
Once enrolled in the program, retirees and their beneficiaries will
receive major medical and prescription drug coverage. Medical coverage
would be similar to Medicare benefits, and the prescription drug
coverage would be similar to benefits included in the federal plan and
the Blue Cross/Blue Shield Standard Plan.
In addition to securing health insurance for retirees, the bill
seeks to strengthen the American steel industry and the surviving steel
companies. This removes the weight of ``legacy costs'' as a barrier to
their merging, but does so in ways that encourage American firms to
create the kinds of larger companies now operating in Europe and Asia.
Lastly, this legislation seeks a preference for American steel
companies. This is provided by a ``right of first refusal'' on the
purchase of other American steel companies to other existing steel
companies.
By helping the industry survive, this legislation supports the
Domestic steel industry which is vital for national defense. In is in
our military and national security interest for the United States to
have a strong steel industry for the future.
Now is the time to stand up for steel and American steelworkers!
This legislation provides real relief for steelworkers and the steel
industry.I hope that this hearing will bring us one step closer helping
the steel industry and its workers. Thank you again, for giving me the
opportunity to speak on behalf of steelworkers in Illinois and across
America.
Mr. Shimkus. The gentleman's time is expired.
I want to recognize Congressman Doyle.
Mr. Doyle. Thank you, Mr. Chairman. Now Congressman Tim
Holden, who is a co-sponsor of this legislation and has worked
hard on this, wanted to speak today and was here briefly, but
got called away on other business, and I ask unanimous consent
that his remarks be made part of the record.
Mr. Shimkus. Without objection, so ordered.
[The prepared statement of Hon. Tim Holden follows:]
Prepared Statement of Hon. Tim Holden, a Representative in Congress
from the State of Pennsylvania
Mr. Chairman, members of the Subcommittee, thank you for holding
this important hearing today. I am pleased to join my colleagues on
this panel to testify before you on the importance of resolving the
legacy problem in the steel industry and to ensure that our nation's
steelworkers are treated fairly.
The steel industry has been the backbone of manufacturing in this
nation since before the industrial revolution. It is an industry rich
in history and deeply rooted with pride. Today, however, it is an
industry in trouble. Many workers, retirees, and dependents are faced
with the possibility of losing healthcare benefits and pensions.
I applaud the President's decision earlier this year to implement
temporary tariffs, which will give the industry some breathing room to
restructure its operations to compete effectively in the global
environment. Tariffs, however, are not enough.
As a matter of fairness, we must help the working families in the
industry who find themselves without jobs, healthcare and pensions. We
need to address the legacy cost issue.
Here in the United States, we operate under an employee-based
healthcare system. That means when companies go bankrupt or liquidate,
workers are at risk of losing their healthcare benefits. To date, I
believe 35 steel companies nationwide have filed for bankruptcy. Seven
of those companies are located in my home State of Pennsylvania. Ohio,
West Virginia and Indiana, along with Pennsylvania, are some of the
hardest hit states. Our steelworkers went from collecting paychecks to
unemployment and many of our rural communities have never recovered. My
state has lost approximately 10, 000 jobs since 1998 and there are
well-over 100,000 retirees and dependents whose healthcare and pensions
precariously hang in the balance.
While this hearing is not about unfair trade practices, I think it
is important to note that many of these retired steel workers were
forced into retirement when industry restructuring driven by unfair
trade caused the elimination of their jobs.
Our lack of enforcement of trade laws is a big reason we find
ourselves in the current situation. We allowed for this legacy crisis
to develop and we must act responsibly to fix it.
I am proud to be an original cosponsor of the Steel Industry Legacy
Relief Act because it provides just compensation for the unfair trade
practices that we failed to stop.
The bill's primary focus, as you know Mr. Chairman, is to secure
healthcare coverage for the several hundred thousand retirees who
either already have, or soon will lose their healthcare and other
retirement benefits. Once their former employer companies have enrolled
in the program, retirees and their dependents will receive medical and
prescription drug coverage.
Another important goal of the bill is to strengthen the remaining
steel industry by removing the legacy cost-burden while encouraging
American firms to create the kinds of larger companies now operating in
Europe and Asia.
Action is needed right now, Mr. Chairman, to preserve pension and
health benefits to steel retirees. Unfair trade should not be allowed
to discriminate against an entire generation of Americans who
contributed greatly to this country's success.
Once again, I applaud this Subcommittee for holding this hearing
today and thank you for the opportunity to appear before on this
critical issue for Pennsylvania and for the entire nation.
Mr. Doyle. Thank you, Mr. Chairman.
Mr. Shimkus. I am at a loss. Congressman Harman just showed
up. She is a member of the subcommittee, and I have to
recognize her for 3 minutes.
Ms. Harman. I have less than that, Mr. Chairman.
Mr. Shimkus. Great.
Ms. Harman. I just want to make a 30 second comment, which
is that I understand quite well the legacy costs associated
with industry downturns, closures, and consolidations. The
aerospace industry which I represent in southern California has
experienced similar painful convulsions over the last decade.
Indeed, it is interesting to note that both Boeing and
Lockheed-Martin are among the top 25 companies with the largest
legacy costs. I know that the solutions are not easy, and I
compliment our ranking member, Mr. Dingell, for putting forward
a proposal for dealing with steel's legacy costs.
I think this hearing is critical to help answer important
policy questions underlying the bill: the overall cost to
taxpayers, the competitive advantages some steel companies
would garner as a result of this proposal and, at its heart,
the type and quality of health and retirement benefits and the
recognition we should give to Americans who have spent their
entire lives in an industry like the steel industry.
I just want to commend my friend, Mr. Phelps, for his
passion and to thank you, Mr. Chairman, for holding the
hearing. I yield back.
Mr. Shimkus. The gentlewoman yields back. I ask unanimous
consent that Congressman LaHood, who is a co-sponsor of the
legislation, statement to be submitted to the record.
[The prepared statement of Hon. Ray LaHood follows:]
Prepared Statement of Hon. Ray LaHood, a Representative in Congress
from the State of Illinois
Thank you for the opportunity to present this testimony regarding
the Steel Industry Legacy Relief Act of 2002 to the Subcommittee. This
legislation will protect the retirement of steelworkers who have
devoted their entire careers to produce the steel that ensures our
national defense and security. Over 125,000 steelworker retirees have
already lost their health care benefits, and thousands more are at
risk. Over 85,000 of these lost their benefits in March when LTV steel
closed its doors. I represent former employees of the LTV plant in
Hennepin, Illinois, one of the most modern and efficient steel plants
in the world. Retired steelworkers in central Illinois have lost their
health care coverage and suffered reduced pensions as well, which
severely limits their ability to pay for health care coverage on their
own.
This bill will set up a trust fund to provide health coverage and a
prescription drug benefit to steel retirees whose former employers have
permanently closed or been acquired by another company. It will be
funded by a surcharge on steel shipped by acquired companies, assets of
the acquired companies, and tariffs imposed by President Bush on
imported steel. Once enrolled in the program, retirees and their
beneficiaries will receive major medical and prescription drug coverage
similar to what is offered to federal employees.
The cost of health care and insurance is rising at an alarming rate
each year. Many retirees find themselves unable to afford the
prescription drugs they need, and that often will save their lives.
Steelworker retirees are often receiving reduced pensions, which can
make the need to purchase health insurance even more difficult,
particularly when it is an unplanned expense. Health care is among the
most important issues before Congress, and I believe we can play a part
in making sure that these retirees receive the benefits that were
promised to them.
A second, but extremely important, benefit of this legislation is
that it will remove the burden of costly retiree medical benefits that
often discourage stronger steel companies from buying those in
bankruptcy. Acquisitions and mergers are necessary to transform
American steel companies from relatively small producers into a
consolidated market force that can compete with the large corporations
currently operating in Europe and Asia. Without this transformation of
our domestic industry thousands more steelworker jobs are at risk.
It is in our military and national security interest for the United
States to have a strong steel industry for years to come, and to
protect our workers who are suffering through no fault of their own. We
need to support this vital industry and its retirees. I urge your
support of H.R. 4646, the Steel Industry Legacy Relief Act of 2002.
Mr. Shimkus. Now I recognize my friend and colleague from
the State of Ohio, Mr. Kucinich, for 3 minutes.
Mr. Kucinich. Thank you very much, Mr. Chairman. I ask
unanimous consent to have my statement put in the record.
Mr. Shimkus. Without objection, so ordered.
Mr. Kucinich. I am very proud of my colleagues who have
worked on this issue over the last few years, and I support
this legislation and urge its passage.
People who work their entire lives with the promise of
health care benefits in their golden years should have those
benefits protected by our government, because when you get down
to it, they weren't working just for themselves. They were
working for their families. They were working for their
company, and they were working for America. They were working
to protect this Nation by keeping intact our industrial base
with their labor.
Now think about this. Day in and day out, working in these
fiery furnaces 20, 30, 40 years. It's tough, back breaking work
that most of us sitting at these tables, healthy as we may be,
would find it very difficult to do.
Now the travails of the constituents of my good friends
from Florida and Georgia and Nebraska who spoke earlier are
well taken, and they should be of concern to us. The cause of
Florida and Georgia and Nebraska should be the concerns of all
of us, just as the cause of our steel communities should be the
concerns of our friends from Georgia, Nebraska, and Florida. We
cannot afford to be pitted against each other, because we could
lose it all in this country.
It was said years ago about a house divided. Well, a house
divided against itself cannot stand, whether such division is
over civil rights or economic rights. The issue of legacy
costs, which we are here to address and which we should
address, really reflects a need for an American economic policy
and a new American manufacturing policy to recreate our
strategic industrial base of steel, automotive and aerospace,
to have a strategic manufacturing policy, to have a strategic
policy in textiles, in agriculture and other areas, to have a
trade policy which understands how our economic position in
this country is being eroded by NAFTA, by GATT, by the World
Trade Organization, by the International Monetary Fund.
You know, I have sat in hearing after hearing, Mr.
Chairman, and I have heard people come and testify and say,
well, we have overcapacity in this country. Well, it wasn't our
steelworkers who committed that overcapacity who created it. It
was the World Bank. It was the International Monetary Fund who
created circumstances that helped to shift jobs out of this
country. And then they pitted our workers against workers in
other countries.
This is an opportunity for this Congress to begin to
correct some wrongs, some basic defects in the way this country
has proceeded over the last few years. We need to begin anew.
This is the chance to begin anew. Give the steelworkers their
legacy costs. Protect these health care benefits, and let's
make a new beginning here toward a new America where we can
make sure that everyone who labors by the sweat of their brow
will in their senior years be affirmed and made whole. Thank
you.
[The prepared statement of Hon. Dennis Kucinich follows:]
Prepared Statement of Hon. Dennis J. Kucinich, a Representative in
Congress from the State of Ohio
Mr. Chairman, thank you for the opportunity to testify today.
The bill we have introduced, the Dingell-Lahood Steel Legacy Relief
Act, will ensure that all retirees of all troubled steel companies--
companies that have closed, companies that are bankrupt, companies that
are being acquired--will have for themselves and their families health
benefits equivalent to what's provided by Medicare, and a prescription
drug benefit similar to the Blue Cross/Blue Shield program.
To do this, this bipartisan bill sets up a trust fund in the
Treasury Department that taps steel import duty receipts, the assets of
government-assumed retiree health care plans, and a portion of the
profits made by healthy steel companies that benefit from this program.
The Act ensures that the United States will not stand by and watch
while thousands and thousands of workers who helped build this country
are left unable to take care of themselves and their families. It is a
critical step in our ongoing efforts to help the steel industry and
steel workers, and in many ways it is a mark of how far we have come in
that effort.
We pushed a long time for the Administration to initiate a Section
201 steel investigation, and finally last year we got one.
We pushed the International Trade Commission to recognize the
devastating effect of steel imports through a finding of injury, and we
got it.
We gathered with 25,000 steelworkers on the ellipse to make sure
the President imposed an effective remedy, an effective tariff, to help
stem the tide of imports. He did.
Many of us have spent countless hours trying to save steel
companies in our districts that are on the brink. In my hometown of
Cleveland, our entire community--steelworkers, local government, state
government, businesses, churches, citizens--coalesced to keep LTV from
shutting the doors on our steel mills forever. And we won--the mills
remain, and a new owner will keep them running.
And now we are all stepping forward--the Steelworkers, steel
companies, Members of Congress--to ensure that men and women who have
given 20, 30, even 40 years of their lives to the manufacture of steel
are not left behind.
Now it is the Committee on Energy and Commerce's turn to finish the
job. Please pass the Steel Legacy Act out of this committee and
encourage leadership to bring it to the floor so the steelworkers can
enjoy a healthy retirement.
Thank you.
Mr. Shimkus. I thank my colleague from Ohio. The Chair
wants to announce that there are a series of three votes on the
floor. It is probably good timing, which means the politicians
are done speaking.
We will recess for approximately 30 minutes for us to go
over and have our votes, and then we will have testimony from
our invited guests.
With that, the Chair now recesses the subcommittee.
[Brief recess.]
Mr. Stearns. The subcommittee will reconvene.
Additional statements submitted for the record follow:]
Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee
on Energy and Commerce
Thank you Mr. Chairman, I commend you for holding this hearing and
I commend the Ranking Member, Mr. Dingell, for his leadership on this
issue. The steel industry has been adversely affected, by among other
things, unfair trade practices. The resulting financial distress
creates problems for both employees and, in some cases retirees. Under
H.R. 4646, the ``Steel Industry Legacy Relief Act of 2002,'' the
federal government would create and support a new program of health
insurance for the retirees of steel, iron ore, and coal companies.
These firms have either been driven out of business or severely
threatened by the recent steel import crisis. Once enrolled in the
program, retirees and their beneficiaries would receive major medical
and prescription drug coverage under a new government program.
I have a number of questions about the proposal that are worth
examining today. Most importantly, what are the circumstances affecting
the steel industry that justify the precedent for a public health
insurance program for steel industry retirees only? There are many
distressed industries in the country, including the mining and airline
industries. Why is the steel industry a special case?
Second, why is Medicare an insufficient safety net for retirees who
are 65 or older? I understand that the companies' health insurance
benefit package may have been quite rich. However, on what basis should
we provide a prescription drug benefit for one class of retirees and
not for other retirees? We just had that debate at the Committee
several months ago in the context of our Medicare markup.
Finally, what are the budgetary implications of such a program? Our
budget numbers are changing rapidly--and not for the better. How will
this bill affect other health care debates?
I hope this hearing begins to address some of these issues. I once
again commend Mr. Dingell for his great passion and commitment to this
issue and look forward to hearing from the witnesses.
______
Prepared Statement of Hon. Bart Stupak, a Representative in Congress
from the State of Michigan
I would like to thank the Subcommittee for holding this hearing
today on this issue that is so critical to our steel industry. Back in
May I stood with my colleagues from the Steel Caucus and the sponsors
of this legislation, Mr. Dingell, Mr. Visclosky and Mr. LaHood, as this
bill was introduced, and we called for speedy action on this issue.
This hearing is an important step, and I hope that we can advance H.R.
4646 as quickly as possible. As a member of the full Committee I pledge
to do whatever I can to assist in this effort.
Relief of legacy costs and a solution to the health care crisis
faced by steelworker retirees are desperately needed. Between January
1998 and April 2002, nearly 50,000 steelworkers lost jobs, a 20%
decline in employment in this sector. Tens of thousands of retirees who
put in years of hard honest work have come to find that their health
care benefits are not secure, or have been totally wiped out.
We cannot let this continue a moment longer. We must step in to
help these workers and their families who have dedicated their lives to
the backbone of American industry, American steel and this bill will do
that.
I am also pleased that this bill includes the iron ore industry and
its steelworkers in the solution. I represent northern Michigan, which
is home to 2 iron ore mines, the Empire and the Tilden, that have
suffered greatly because of the crisis to the steel industry that they
serve. I fight hard for the steel industry with the rest of my
colleagues on the Steel Caucus, but I also always make sure that the
iron ore industry has a fighter as well, because a domestic iron ore
industry is just as critical to our national security and national
defense as a healthy steel industry.
I worked to insert a technical fix into the bill so that the $5
surcharge that will be on each ton of steel by a qualifying steel
company will not apply to iron ore companies. This is because while
steel may sell for $400 a ton, so that a $5 surcharge is eminently
reasonable, iron ore only sells for around $30 a ton. A $5 surcharge
would be a heavy and disproportionate burden on an iron ore company
that may come under this system. Therefore, H.R. 4646 contains a
separate, proportional 30 cent rate for iron ore, so that the iron ore
industry can also be ensured relief under this bill, if it is needed.
I also have worked very hard to ensure our steelworkers get a fair
shake in their health care costs. In the recent Medicare markup, I
offered an amendment--voted against by all Republicans--that would have
made steelworkers eligible for the same benefits that retired coal
workers receive under the Coal Act. These benefits include prescription
drug costs capped at $50 per year per family out-of-pocket costs. My
amendment would have also made sure that our retirees are not forced
into a drug benefits system they do not want.
H.R. 4646 is a comprehensive bill that will help all segments of
the steel industry as it fights back against the unfair trade that
brought on the current crisis. I am pleased to be an original cosponsor
of the legislation, and look forward to a mark-up in the near future.
Thank you.
______
Prepared Statement of Hon. Jerry F. Costello, a Representative in
Congress from the State of Illinois
Mr. Chairman and Mr. Ranking Member, thank you for the opportunity
to testify today at this hearing on H.R. 4646, the Steel Industry
Legacy Relief Act of 2002.
Almost 125,000 retired steel workers have lost their healthcare
benefits in the last five years, as the United States has become the
dumping ground for the world's excess steel products. The dumped
foreign steel is sold at prices below the cost of production, and is a
significant factor in the current near-crisis status of the American
steel industry. Since 1997, over 31 steel companies have filed for
bankruptcy, with over 33,000 steel workers having lost their jobs. The
impact of these steel companies closing can be felt in communities
across the nation, including communities in my Congressional District,
where one company has closed because of bankruptcy and one other is
operating while reorganizing in bankruptcy.
H.R. 4646 will help ease some of the hardships faced by creating
and supporting a health insurance program for steel retirees. Under the
legislation, qualified retirees and their dependents would be eligible
for catastrophic health insurance as well as a prescription drug
benefit. In addition to providing basic health insurance for these
retirees--who have lost there jobs through no fault of their own but
rather unfair trade practices--the legislation will also help the steel
industry.
The legislation strengthens the American steel industry by
addressing legacy costs. These legacy costs are often seen as a barrier
to the consolidation of the steel industry, a step that is recognized
as a necessity for a strong American steel industry in the future.
Mr. Chairman, this is a good bill that will help both retirees and
the steel industry. We should be holding a vote on this legislation,
not a hearing. The time for a hearing was months ago. I urge the
subcommittee to pass this legislation, move it through the full
committee, and get it before the full House of Representatives, so we
can get it over to the Senate. Time is of the essence--there are people
in great need of help. It is imperative that Congress pass this
legislation this year.
Mr. Stearns. I thought we would start with our witnesses,
if they would come forward. Members will be coming in, and you
have been very patient during our three votes, and we want to
continue to have your open testimony and, at the same time, the
members will be able to ask questions after each of you.
So I welcome each of you to come before us: Mr. Bill
Klinefelter, Assistant to the President, United Steelworkers of
America; Mr. Thomas Broderick, Manager, Total Health Programs,
Bethlehem Steel; and Mr. James Collins, Senior Advisor and
Former President, Steel Manufacturers Association.
We give each of you 5 minutes for your opening statement.
We appreciate your patience, and welcome. Mr. Klinefelter, we
will start with you.
STATEMENTS OF WILLIAM J. KLINEFELTER, UNITED STEELWORKERS OF
AMERICA; THOMAS J. BRODERICK, BETHLEHEM STEEL; AND JAMES F.
COLLINS, STEEL MANUFACTURERS ASSOCIATION
Mr. Klinefelter. Good morning, Mr. Chairman. I want to
thank you and the majority for holding these hearings. I think
that they are very important to get on the record what is going
on in the basic steel industry and what needs to be done.
I would like my statement to be submitted to the record,
and I will summarize as much as I possibly can in this
statement.
Mr. Stearns. By unanimous consent, so ordered.
Mr. Klinefelter. I think it is important to realize that
there is a story that stretches out in basic steel that has a
beginning, a middle, and where we are today. The beginning is
back in the late 1970's, early 1980's.
I remember testifying before the Energy and Commerce
Committee back then when we were told, and experts were telling
us, that the problem with the steel industry in the United
States and why it couldn't compete with the Japanese and
couldn't compete with the Europeans was because we couldn't
make Japanese quality steel and that this was a problem of bad
relationships with the union. This was a problem with bad
management. This was a problem of lack of investment. This was
a whole range of problems in the domestic steel industry that,
if they were corrected, would solve the problem of the basic
steel industry.
Well, the story since the 1980's is a story of success in
the basic steel industry in the United States. It is the story
of the investment of $50 billion into renewing that industry
and to making it more productive. It is the story of closer
labor relations between the union and the companies to increase
the productivity and efficiency.
Back in the bad old days, as they were called, they used to
take 10 manhours per ton to make a ton of steel. Now we are
down to around 2 manhours per ton. I would say that a
productivity increase of 175 percent is one tremendous landmark
for any industry in the United States to achieve.
So after the investments, after the relationship
improvement with the steelworkers union, what is the problem?
Well, the problem is that for 20 years we have had a failed
trade policy in relationship to steel. What happens is that we
have a round, a surge of imports coming into the United States,
and these imports weaken the industry, because prices go down,
profits go down. The industry is weakened.
Then we file a whole bunch of cases under the anti-dumping
laws or the countervailing duty laws, and these cases
temporarily plug that hole, but they only do it for one product
line. They only do it against a number of countries. They are
not comprehensive. They don't deal with the problem--the trade
problem in a comprehensive way.
So what happens is you see the production in that steel
product move from this country to another country, and the
problem of imports, cheap imports, into the United States
undermines the prices of steel in the United States continues,
and it has continued off and on, unabated, for 20 years--for 20
years.
Now we come to why we are here today. Following that line
of progression, we come to 1997, and we all know what happened
in 1997. There was the Asian collapse of the monetary markets,
the Asian currencies, and there was failed IMF policies,
brutally failed IMF policies which guided those countries, such
as Korea and Thailand and Indonesia, to go to an export
oriented price.
Now Korea, as we all know, has 40 million tons of capacity
of steel. If Asia is no longer bringing the steel in, if growth
is not there, this steel needs to go someplace. So Korean steel
starts coming to the United States. Japanese steel starts
coming to the United States, Thai steel, Indonesian steel. And
because there was no place to put the Russian steel--and let's
face it, the Russians have this gigantic steel industry which
they probably--they don't need at the moment anyway, because
they are not a consumer society, and they no longer build tanks
to come into Europe--they have tremendous overcapacity as well.
So in that crisis, we began to see a tremendous surge of
steel into the United States, and by August 1998, I believe it
was, our market was penetrated to the tune of 40 percent, a 40
percent penetration. If that had been allowed to continue, the
basic steel industry as we know it in the United States would
no longer exist.
Now what happened was we filed cases, and the cases gave us
some temporary relief. But as I've said before, the shift began
in 1999, and we were back with the same problem that we had,
but we are back with a far weaker industry. This industry gets
weaker each time this flood of imports continues.
What happened was is what we have today. We have these 35
companies in bankruptcy. We have the fact that these other
companies are teetering on the brink. Well, when we got
together and we said how are we going to solve this problem, we
said there were three things that needed to be done, and I'll
say this very quickly, three things. Then I'll answer
questions.
Three things that needed to be done: No. 1, we had to
control imports. That is the 201. The 201 needs to stay in
place. It needs to stay in place for the duration, and we can't
have anymore of these exemptions given to our trading partners.
Number 2, we had to deal with the legacy cost issue, which
was retiree health care. Number 3, the union and management
would get together, negotiate, and try to make the industry
more efficient.
The basis of all this was, and the consensus of all this
was, we need a consolidation. Unless we have all three legs of
the stool--unless we have all three legs of the stool, it falls
over. It will not happen. We will have destroyed the basic
steel industry in this country, and that has to be a national
security consideration.
Thank you.
[The prepared statement of William J. Klinefelter follows:]
Prepared Statement of William J. Klinefelter, Legislative and Political
Director, United Steelworkers of America
Mr. Chairman, Ranking Member Doyle, and distinguished members of
the Subcommittee, thank you for holding this hearing today to examine
H.R. 4646, the Steel Industry Legacy Relief Act of 2002. This
legislation is of vital interest and importance to several hundred
thousand steelworkers and retired steelworkers across the nation who
have either already lost their health insurance benefits due to the
bankruptcy of their employers or whose health insurance benefits are
jeopardized because of the crisis in the steel industry. We appreciate
the opportunity to appear before you today to explain the urgent need
for this legislation.
The American steel industry has been devastated by a flood of
foreign steel, much of which has been illegally ``dumped'' in the
United States' market over the past five years. Steel imports rose from
31 million tons or 25 percent of domestic consumption in 1997 to 41
million tons in 1998. Steel imports captured nearly 40 percent of the
market. As a consequence of the flood of foreign steel into the U.S.
market, domestic steel prices collapsed to record low levels. The price
of hot-rolled steel, the largest volume product, fell from an average
price of $340 per ton in 1997 to $260 per ton in December 1998, and to
$210 per ton in December 2001. Since 1998, 35 companies have declared
bankruptcy and 17 of those firms have ceased production. Some 50,600
steelworkers have lost their jobs. More than 100,000 steelworker
retirees have lost their health care benefits. Another 500,000
retirees' health care benefits are at risk with the possibility of
further liquidations in the steel industry.
Following one of the most intensive investigations in its history,
the U.S. International Trade Commission (ITC), an independent federal
agency, found that imports had ``seriously damaged'' domestic steel
producers. The Commission recommended that tariffs and quotas be
applied to 16 of 33 steel import product categories. In March,
President Bush ordered tariffs imposed on 14 of 33 product categories
starting as high as 30 percent this year, but declining to 24 percent
next year and 18 percent in the third year with regular tariffs
resuming in the fourth year. Several countries, including Canada,
Mexico, and nearly all developing countries, were completely exempted
by the President from the Section 201 tariffs.
Our steelworkers and the steel industry applauded the President's
decision last March to impose Section 201 tariffs. Unfortunately,
however, subsequent decisions by the Bush Administration to grant
hundreds of exemptions from the Section 201 tariffs have had the effect
of diluting the intended benefit of the original decision. While some
exemptions were warranted based on the fact that certain products were
not produced domestically, too many of the exemptions which have been
granted by the Administration have been approved for no good reason.
ITC Commissioner Hilman estimated that before the exemptions the
Section 201 tariffs would apply to only about 29 percent of all steel
imports. Given the fact that the Administration has already exempted
approximately 25 percent of the tariffs which it imposed last March,
the tariffs now apply to even less than 29 percent of imports.
At the end of 1999, American steel's retiree health care benefit
obligation totaled an estimated $13 billion. Health care benefits for
600,000 retired steelworkers, surviving spouses, and dependents cost
domestic steel producers an estimated $965 million or $9 per ton of
steel shipped. The average steel company has approximately three
retirees for every active employee--nearly triple the ratio for most
other basic manufacturing companies. Several steel companies have
retiree health care costs that are substantially higher than the
industry average. Our active members and retirees are concentrated most
heavily in Pennsylvania, Ohio, Indiana, Maryland, Illinois, West
Virginia, Minnesota, and Michigan, but they live all across the nation.
In the U.S. up to now, we have made a public policy choice in favor
of employment-based health insurance coverage rather than guaranteed
national health insurance. This means that when an employer goes
bankrupt or liquidates its operations, workers and retirees are at risk
of losing their health insurance and access to health care services.
Regrettably, tens of thousands of steelworkers and retirees from LTV,
Acme, Laclede, Gulf States, CSC, Northwestern Steel and Wire, and
numerous other steel companies are now facing this terrible prospect.
Who is being hurt in this crisis?
People like Gertrude Misterka of Baltimore, Maryland. Gertrude's
late husband, Charles, worked for Bethlehem Steel at Sparrows Point for
30 years. Through his Steelworkers union contract, he was able to earn
a pension and health care benefits. He died in 1996. His wife is a
diabetic and insulin-dependent. She also suffers from hypertension and
asthma and is on numerous medications. Gertrude is 65 years old now and
is eligible for Medicare, which pays 80 percent for her diabetic
monitoring machine. But Medicare pays nothing for her outpatient
prescription drugs, which are increasing in cost while her income from
her late husband's pension and Social Security is fixed. Over 14
months, Gertrude's medications cost her $936.53 out of pocket. However,
if she did not have health insurance, these same medications would have
cost her $6,716.16 (based on information she received from her
pharmacist).
Steelworker Bob Rankin worked at the former LTV Steel company in
Cleveland, Ohio for 34 years before his plant shutdown. He and his wife
have a 10-year old son born with a brain injury. When Bob's son was two
years old, Bob was told that his son probably would not be able to
speak or communicate with other people. Fortunately, Bob and his wife
discovered a hospital in Philadelphia, which has provided his son with
intensive therapy. Bob's health insurance paid for 85 to 90 percent of
the costs associated with his son's care. His son has progressed to the
point where he is now enrolled in a regular school program. Without
Bob's health insurance through LTV Steel, this never would have been
possible.
The fact is that today there are several thousand steelworkers,
retirees, spouses, and dependents--your constituents--who have lost
their union-negotiated health care benefits through no fault of their
own. Many have resorted to stretching out their prescriptions by
cutting their pills in half or simply skipping a day's medication. Some
of these people are dependent upon heart medication, cancer medication,
diabetes medication, or other treatments in order to live.
One of the great myths about the health care benefits of
steelworkers and our retirees is that they have so-called ``Cadillac''
benefits and that they pay little or nothing for their health care.
This is simply not true. Benefits to steel industry workers and
retirees are equivalent and, in some cases, more modest, than benefits
provided to retirees from other basic manufacturing companies such as
Alcoa, Boeing, and General Motors. These plans typically include cost
containment provisions, such as deductibles, co-payments, pre-
certification requirements, coordination with Medicare, and incentives
to utilize managed care. Most of our retirees pay monthly premiums from
25 to 40 percent of their retiree health care benefits, plus several
hundred dollars a year in deductibles and co-payments. Retiree premiums
for major medical coverage vary by employer due to differences in
demographics, regional health care costs, utilization, and design of
the plan. The United Steelworkers of America estimates that the average
major medical premium during 2001 was approximately $200 per month for
a non-Medicare eligible couple and $150 a month for a Medicare-eligible
couple.
American steel's international competitors do not bear a similar
burden. In one form or another, foreign steel producers' retiree health
care costs are offset by government subsidies. In Japan, the government
provides government-backed insurance programs. Government subsidies
cover some administrative costs and contributions to Japan's health
care programs for the elderly. In the United Kingdom, the UK's National
Health Service is 85 to 95 percent funded from general taxation with
the remainder coming from employer and employee contributions. In
Germany, health care is financed through a combination of payroll
taxes, local, state, and federal taxes, co-payments, and out-of-pocket
expenses, along with private insurance. Insurance funds with heavy
loads of retired members receive government subsidies. In Russia, de
facto government subsidies exist. While Russian steel companies
theoretically pay for workers' health care, the national and local
governments allow companies not to pay their bills--including taxes and
even wages. At the end of 1998, Russian steel companies owed an
estimated $836 million in taxes. According to the Commerce Department's
report on the steel industry, the Russian governments' systematic
failure to force large enterprises to pay these taxes and wages amounts
to a massive subsidy.
The U.S. is the only country in the industrial world in which the
health care benefits of retirees are not assumed by government to
facilitate consolidation in one form or another. It is now very clear
that American steelworker retirees stand to be hit twice by the
collapse of the steel industry since a majority of them were forced
into retirement (350,000--many prematurely) during the massive
restructuring of the steel industry during the late 1970s and the
1980s. First, they lost their jobs before they were ready to retire,
and now they may lose their health care and a significant portion of
their pensions now that they are ready to retire. Our own government's
inadequate enforcement of our trade laws is the principal reason that
steelworkers' and steelworker retirees' health care benefits are now at
risk.
Because our government has allowed this unlevel and unfair trade
environment to develop and consume our industry, the government now has
a responsibility to our steelworkers and retirees and to the steel
industry to help craft a solution to this problem.
Why do we need H.R. 4646?
Because retirees under age 65 and older active employees who have
been displaced by plant shutdowns are not yet covered by Medicare. They
cannot purchase COBRA continuation coverage because companies are not
obligated to provide COBRA continuation coverage when they terminate
health care coverage for active employees. Steel companies which have
filed for Chapter 7 bankruptcy (i.e., liquidation) have already moved
to terminate health care plans for their workers and retirees. They
cannot afford COBRA premiums even when such coverage is available. They
cannot afford commercially-available private health insurance. Many
cannot meet insurability requirements (and may not have continuous
coverage under HIPAA). Many have difficulty in finding new jobs that
pay similar wages or benefits.
One bright spot in an otherwise gloomy picture is that the
recently-passed Trade Adjustment Assistance (TAA) Reauthorization Act,
which was included in the fast track trade authority bill, includes a
provision which makes some steel industry retirees eligible for a 65
percent tax credit for the purchase of health care. The new provision
applies to persons between the ages of 55 and 65 who are not yet
eligible for Medicare.
So why do we still need H.R. 4646?
Because Medicare has significant gaps in its coverage. Medicare
also has significant deductibles and co-payments. As of today, there is
no coverage for expensive outpatient prescription drugs. Also, health
care providers often do not accept Medicare reimbursement rates as full
payment, at which point they go after the retiree for full payment.
Medicare Supplemental Insurance (``Medigap'') is available, but it is
costly and has limited prescription drug coverage. The most
comprehensive of the Medigap supplements (Plan J) covers only 50
percent of prescription drug costs and limits drug benefits to $3,000
per year. The average steelworker retiree receives a monthly pension
benefit of less than $600 to $700 per month. Most surviving spouses
receive monthly benefits under $200 per month. Finally, HMOs (or as
they are sometimes referred to ``Medicare+Choice'') are available only
in limited areas of the nation.
Under H.R. 4646, the federal government would create and support a
program of health insurance for the retirees of steel, iron ore, and
coke companies. Once enrolled in the program, retirees and their
beneficiaries will receive major medical and prescription drug
coverage. The primary aim of this bill is, of course, to secure
continued health care coverage for several hundred thousand steel
industry retirees who have or will soon lose all retiree benefits. But
secondly, the bill aims to strengthen the steel industry by removing
the weight of health care ``legacy costs'' which are an impediment to
the consolidation of the steel industry.
H.R. 4646 would be financed from the three years of tariffs on
steel imports announced earlier this year by the President in the
Section 201 proceeding. Additionally, companies with VEBA (Voluntary
Employee Benefit Association) assets that wish to participate would be
required to transfer VEBA assets into the trust fund. A $5 per ton of
products shipped surcharge ensures that the surviving companies
standing to benefit from legacy cost relief also play a part in solving
this problem. Finally, the general treasury would provide additional
sums which might be necessary for the administration of this program.
The Steel Industry Legacy Relief Act of 2002 rests on two
fundamental assumptions: that a trade crisis should not be allowed to
completely ruin the retirement of an entire generation of steelworkers;
and that it is in our national security interest for the United States
to have a strong steel industry for years to come.
In announcing his decision to provide relief under Section 201 to
the steel industry, the President deferred going on further to address
the urgent issue of steel industry legacy costs. The Administration has
made it clear that it believes this is a matter which must be
determined by Congress. That is why the United Steelworkers of America
is working with our friends in Congress to pass this much-needed
legislation. We applaud the authors of the bill, Representatives
Dingell and LaHood, and the 175 members of the House who are currently
cosponsoring this legislation. We will work relentlessly with both the
House and Senate until this problem is solved and until our steel
industry retirees receive the health care coverage which they deserve.
Thank you.
Mr. Stearns. Thank you.
Mr. Broderick.
STATEMENT OF THOMAS J. BRODERICK
Mr. Broderick. Thank you, Mr. Chairman, and members of the
subcommittee. I am pleased to have the opportunity to testify
in support of the Steel Industry Relief Act of 2002.
The legislative proposal provided in H.R. 4646 will go a
long way in providing a comprehensive solution to the steel
industry's health care legacy problem. The domestic steel
industry is suffering under devastating economic conditions.
These conditions are a direct result of severe injury caused by
an extraordinary volume of disruptive and unfairly traded
imports that have inundated our shores since the 1970's.
The surge of these imports that began in 1997 has forced
about 35 domestic steel companies, including Bethlehem, into
bankruptcy. In response to overwhelming evidence of the injury
done to the domestic steel industry by imported steel, the ITC
recommended, and in March President Bush implemented, safeguard
tariffs on most flat carbon steel products.
The effective implementation and enforcement of the
President's safeguard tariffs is essential to the recovery of
the domestic steel industry, but this by itself is not enough.
Equally necessary is an adequate Federal Government assistance
in solving the legacy problem.
It is recognized that the steel industry must consolidate
and rationalize facilities in order to improve its
competitiveness and regain its global leadership position. Such
action would not be new for Bethlehem or indeed the domestic
industry as a whole.
Unfortunately, one of the major and unavoidable
consequences of our efforts--the efforts of such companies as
Bethlehem, is the reduction in the number of employees that are
supporting our retirees. To date the consolidation and
rationalization have reduced the number of Bethlehem employees
from almost 90,000 people in 1980 to approximately 13,000
today.
Currently Bethlehem provides health care coverage for about
125,000 people, including about 95,000 retiree beneficiaries.
That means, for each active employee, Bethlehem provides health
care coverage to more than seven retirees. By comparison, there
are currently only--there are three wage earners for each
Medicare beneficiary. In other words, Bethlehem's situation is
20 times worse than that of Medicare.
In 2001, Bethlehem's total costs for health care and other
insurance amounted to $300 million. We expect this expense to
grow significantly as a result of prescription drug cost
increases, as well as general health care cost inflation. The
net present value of Bethlehem's legacy benefits, excluding
pensions, is about $3 billion, none of which is funded.
Another aspect of the legacy problem is pension
obligations, which is currently underfunded by about $2
billion. Liabilities such as these constitute a major barrier
to the necessary consolidation within the industry.
Why should the government feel any responsibility to
intervene on behalf of integrated producers, rather than simply
allow market forces to work their will? In summary, there are
three important reasons for government action.
First, foreign governments and foreign companies, not
market forces, are directly responsible for much of today's
problem. If we had the same level of government support for
retirees as in other countries, we would compete very well
indeed.
Second, the U.S. Government has played a major role in
creating the current situation. Pursuing our Nation's foreign
policy interests, our government has done much to promote
economic growth in Russia, China, Korea and other steel
exporting countries over the last decade. We do not question
the merits of these policies. We only ask the question, is it
fair that the steel industry and our retirees bear a
disproportionate share of these national costs?
Third, the cost of meeting the health care needs and the
enormous and unanticipated number of retirees and dependents is
preventing normal market driven consolidation in the industry.
The alternative is the bankruptcy process, which without an
active government role in financing of the legacy costs, will
lead to more nightmare scenarios like LTV, and result in
hundreds of thousands of retirees, spouses, dependents and
widows who will lose their health care coverage.
We note that the Trade Act of 2002 provides limited relief
for certain retirees and their beneficiaries who lose their
health care coverage due to bankruptcy. While helpful in some
situations, the limited relief in the Trade Act does not fully
resolve the current health care issues in the industry.
Bethlehem is committed to working with Congress to advance
the solution contained in H.R. 4646. Members of the
subcommittee are urged to keep in mind that Congress must act
quickly. The options available to Bethlehem and other domestic
steel companies are rapidly diminishing. Without prompt action,
Congress will cease to have an effective opportunity to resolve
this issue.
The government can and should assist the steel industry
with its legacy costs. America needs a vital industry which is
critical to our national security and infrastructure. There
will be further consolidation in the domestic industry, and
with government help this process can be fair and orderly,
reduce the possibility of massive short term job losses, and
help prevent the destruction of the critical basic steel
industry.
Thank you, Mr. Chairman.
[The prepared statement of Thomas J. Broderick follows:]
Prepared Statement of Thomas J. Broderick, Manager, Total Health
Programs, Bethlehem Steel Corporation
Thank you, Mr. Chairman and members of the Subcommittee. I am
pleased to have the opportunity to address the Subcommittee on the
importance of Congressional help in solving the legacy problem in the
domestic steel industry. The legislative solution provided in HR 4646,
the Steel Industry Legacy Relief Act of 2002, is most urgently needed
and upon enactment would represent an essential step in the steel
industry's efforts to consolidate and restructure.
Bethlehem Steel is the second largest integrated steel manufacturer
in the United States and has been in business since 1904. Our principal
facilities are located in Sparrows Point, Maryland; Burns Harbor,
Indiana; and Steelton, Conshohocken and Coatesville, Pennsylvania. Our
products include flat rolled products--including hot-rolled, cold-
rolled, coated, plate and tin products as well as rails.
The domestic steel industry continues to suffer from the severe
injury caused by the extraordinary volume of disruptive and unfairly
traded imports that have been inundating our shores since the 1970s.
The most recent surge of imports that began in late 1997 has forced
some 35 domestic steel companies, including Bethlehem, to declare
bankruptcy. As documented by the findings of the U.S. International
Trade Commission (ITC) and the U.S. Department of Commerce, this
imported steel has resulted in massive and pervasive injury to the
domestic steel industry. This massive flow of foreign steel is the
direct result of excess foreign steelmaking capacity--more than 250
million metric tons--that has been created and maintained through
market distorting practices, such as closed markets, government
subsidies, cartels, and other market protection policies.
In response to overwhelming evidence of the injury done to the
domestic steel industry by imported steel, the ITC recommended, and in
March President Bush implemented under section 201 of the Trade Act of
1974, safeguard tariffs on most flat carbon steel products. These
tariffs, which range up to 30 percent, were designed to give the
domestic steel industry temporary breathing room to rationalize and
restructure its operations in order to compete more effectively in
response to these circumstances. We are grateful to the Administration
for recognizing the domestic steel industry as a basic building block
of our domestic economy and critical to our national security. We
likewise appreciate the efforts to bring about this decision by a
number of members on the Subcommittee, other members of the House of
Representatives, as well as the efforts by members of the Senate.
The effective implementation and enforcement of the President's
safeguard tariffs, with limited exclusions, is essential to the
recovery of the domestic steel industry, but even this by itself is not
enough. Equally necessary is federal government assistance in solving
the ``legacy' problem, which we define as benefits for retirees and
their dependents. Many of these retirees lost their jobs as a result of
restructuring driven by unfair trade.
It is recognized that the steel industry must consolidate and
rationalize facilities in order to improve its competitiveness and
regain its global leadership position. Such action would not be new for
Bethlehem or, indeed, the domestic industry as a whole. Bethlehem has a
record of taking action to consolidate and eliminate non-competitive
facilities. Since the early 1980s, significant consolidation and
rationalization has taken place--Bethlehem has sold or closed a number
of operations including: the Bethlehem, Johnstown, and Williamsport,
Pennsylvania plants; most of the Lackawanna, New York plant;
shipbuilding and ship repair businesses; coal and limestone operations;
fasteners; fabricating works and coke ovens. Just last week, we
announced the permanent closure of our pipe mill in Steelton, PA. The
most recent consolidation efforts include our merger with Lukens in
1998--a major step in consolidation and rationalization. As a result of
merging these two companies, our plate mill at Sparrows Point, Maryland
was shut down.
Unfortunately, one of the major and unavoidable consequences of the
efforts of companies such as Bethlehem to respond to changes in the
marketplace is that our ratio of retired to active employees has risen
dramatically, while the relative costs of retiree health and other non-
pension benefits have risen even more dramatically. To date,
consolidation and rationalization have reduced the number of Bethlehem
employees from almost 90,000 people in 1980, to less than 13,000 today.
And Bethlehem has reduced its steelmaking capacity from 22 million tons
in the early 1980s to 11 million tons today.
Further consolidation and rationalization will continue to
exacerbate the legacy cost problem. With our significantly reduced
workforce of fewer than 13,000 people, Bethlehem provides health care
coverage for 125,000 retirees, employees and dependents. Of these
125,000, about 95,000 are retiree beneficiaries. This means that, for
each active employee, Bethlehem provides health care coverage for more
than seven retiree beneficiaries. As a point of reference, Medicare has
three active employees for each current beneficiary.
In 2001, Bethlehem's total cash costs for health care and other
insurance amounted to $300 million, and this expense is expected to
grow significantly as a result of the upward trend in prescription drug
prices and usage, as well as general health care cost inflation. The
net present value of Bethlehem's legacy benefits, excluding pensions,
is $3 billion. Another aspect of the legacy problem is pension
obligations, which currently are underfunded by $2 billion. These types
of liabilities constitute the major barrier to necessary consolidation
within the industry.
Even though we have downsized our capacity and modernized many
facilities, these legacy obligations constitute an extraordinary
burden, having a major impact on the ability of integrated producers
such as Bethlehem to compete and, indeed, to survive.
As noted earlier, further consolidation and rationalization will
certainly exacerbate this problem. In conformity with Section 1114 of
the Bankruptcy Code, Bethlehem has requested that the Court appoint a
Committee to represent the 95,000 retiree beneficiaries so that it may
engage in the statutorily required dialog regarding modification of the
current benefit programs.
One might ask why the government should feel any responsibility to
intervene on behalf of integrated producers, rather than simply allow
market forces to work their will. We have submitted for the record a
document that provides extensive and compelling background on this
subject, ``America's Steel Crisis and the Burden of Legacy Costs.'' In
summary, there are three important reasons for government action.
First, foreign governments, not market forces, and foreign
companies, not U.S. producers, are directly responsible for much of
today's problem. If comparative advantage of companies were the
standard, we would compete very well indeed. American steel producers
are among the most productive in the world, with 3.6 man-hours per ton
of steel produced.
Second, the U.S. government has played a significant role in
creating the current economic situation in which Bethlehem and other
domestic integrated steel producers find themselves. We have documented
in our trade cases the nonstop attack by foreign producers seeking
market share in the U.S. by violating our trade laws. However, also of
importance is that our government, over the last decade, has done much
to promote economic growth in Russia, China, Korea and other steel-
exporting countries. It is not for us to question whether the foreign
policy and economic goals of these U.S. policies were wise or whether
they were attained. However, it is crystal clear that many of these
countries decided to focus on steel production as a major export
product--exactly as Japan did in the 1950s. Thus, whatever ``public
benefit'' were derived for the United States, those ``benefits'' have
come at a very real cost to the domestic steel industry.
In addition, a number of Administrations, beginning with President
Truman's, actively intervened during labor contract bargaining
sessions. Not only did presidents call on the companies to end or avert
strikes, they also pressured the companies to avoid price increases. As
a result, costs for wages and benefits increased, while at the same
time price improvements to cover these added expenses were strongly
discouraged.
Third, the cost of meeting the health care needs of this enormous
and unanticipated number of retirees and dependents is preventing
normal market-driven consolidation in the industry. As a practical
matter, potential buyers cannot purchase a distressed steel company
because the existing retiree obligations that would have to be assumed
could not be serviced while sufficient cash flow is generated to meet
debt and equity interests. The alternative is the bankruptcy process,
which without an active government role in the financing of legacy
costs, will lead to more LTVs--and result in hundreds of thousands of
retirees, widows and other beneficiaries losing health care and other
retirement benefits. While the PBGC offers a partial safety net for
pension benefits, there is no comparable safety net for the health care
benefits that would be lost.
We note that the Trade Act of 2002, which was signed by the
President in August, provides limited relief to certain retirees and
their beneficiaries who lose retiree health benefits as a result of a
bankruptcy. Title II of the Trade Act establishes a new section of the
Internal Revenue Code that provides a 65 percent tax credit for health
insurance costs of retirees whose pensions are being paid by the PBGC.
The credit only applies for retirees who are at least age 55, and the
tax credit ceases when the individual becomes eligible for Medicare (or
certain other governmental health programs). In addition to
establishing the tax credit, the Trade Act also creates a new Internal
Revenue Code section 7527, which provides for a refundable credit
mechanism in which the United States Treasury will make advance credit
payments directly to any ``provider'' of qualified health insurance. We
do not yet know how the mechanics of the advance payment system will
work until the Treasury Department issues regulations to establish the
program.
The Trade Act relief, while helpful, is not a sufficient long-term
solution. Only a subset of the affected retiree population is eligible
for Trade Act relief. To be eligible for the tax credit, retirees must
be within the age parameters outlined above and they must be receiving
benefits from a defined benefit plan that has been assumed by the PBGC.
No relief is provided for retirees who are not covered by a PBGC plan
or who lose their jobs or their health benefits before retirement or
age 55. In addition, the Act does nothing to address the prescription
drug needs of the Medicare eligible retirees. The Trade Act relief also
requires that retirees purchase their own health insurance, which would
require most retirees to purchase whatever individual policy might be
available in the retiree's state or to elect continuation coverage
(usually referred to as ``COBRA coverage'') from their former employer.
COBRA coverage charges may be as much as 102 percent of the premium
cost and may be well beyond the means of many retirees. Thus, while
helpful in some situations, the limited relief in the Trade Act does
not resolve the current retiree health issues for our industry.
The current high ratio of retirees to active workers was not
something Bethlehem or other affected companies could have reasonably
anticipated. As a result of protracted adverse impacts on our financial
condition, Bethlehem cannot develop a satisfactory long-term solution
without federal assistance. Trade relief alone will not be sufficient
to reverse the current situation. Additional federal assistance is
appropriate since the industry's financial problems have been created
largely by foreign governments, foreign companies and federal
government policies over time.
There is an additional consideration that is relevant to this
discussion: steel is critical to our national security, and it would
not be in the best interests of our nation to be fully reliant on
imported steel during a crisis. Steel is used not only in the
construction of ships, tanks and other military applications, but is
critical to our infrastructure--highways, seaports, airports and the
delivery of major forms of energy--which also are vital to national
security. Integrated producers, including Bethlehem, provide the
highest quality steel for special applications. In fact, Bethlehem is
the only domestic company with the capability to provide the special
steel plate that was required to repair the USS Cole.
The Steel Industry Legacy Relief Act of 2002, HR 4646, provides a
specific legislative solution to this catastrophic health care legacy
problem and is more comprehensive in its solution than the provisions
provided in the Trade Act of 2002. H.R.4646 provides a safety net,
similar to that provided for pensions by the PBGC, for steel industry
retirees that have or will lose their company provided health insurance
benefits. The bill allows for a number of qualifying events under which
retirees could become eligible to receive major medical and
prescription drug coverage. The bill offers numerous helpful
provisions, centering on the creation of, and support for, an effective
program of health care coverage for steel, iron ore, and coke company
retirees.
Congressman Visclosky deserves special commendation for his work
with the United Steelworkers of America and major steel producers,
including Bethlehem, to craft this legislation--legislation that is
passable and is comparable to legislation which has been introduced by
Senator Rockefeller.
The bill seeks to achieve two critical objectives: solving the
legacy cost problem facing American steel and steel related producers;
and enabling market forces to move the industry to effective
consolidation and restructuring by removing a major obstacle to that
process. The results should be a significantly strengthened steel
industry. Members of the Subcommittee need to keep in mind that
Congress must act quickly. The options available to Bethlehem and other
domestic steel companies are rapidly diminishing. Without prompt
action, Congress will cease to have any effective opportunity to help
with the resolution of this issue.
To summarize: the recovery of the steel industry is dependent on
the President's steel program. The first element of that program,
temporarily preventing imports from continuing to injure the U.S.
industry, has now been put in place. It must be noted that we have
serious concerns with a number of the exclusions to the 201 remedy that
have been issued to date by the Administration. Continued erosion of
the remedy by additional exclusions for products that can be made in
this country will further undermine the effectiveness of the 201
remedy. Two other elements--negotiations to reduce foreign over-
capacity and negotiations to eliminate foreign market distorting
practices--are being addressed. The final element--assisting with the
major burden of legacy costs--has yet to be fully addressed, and unless
it is fully addressed, the other parts of the program will not be
adequate. As a result of large-scale restructuring in the 1980s, the
domestic integrated industry faces a crippling problem with health care
related legacy costs. Generally, our foreign competition does not have
this problem. Most of our principal international competitors do not
bear a burden for employee and retiree health costs remotely comparable
to that which currently confronts the domestic steel industry.
This inequity needs to be addressed. The government can and should
assist the industry in dealing with legacy costs. America needs a
viable steel industry. There will be further consolidation in the
domestic industry, and with governmental help this process can be fair
and orderly, reduce the possibility of massive job losses over short
periods of time, and help prevent the destruction of a critical basic
industry.
Mr. Stearns. Thank you.
Now, Mr. Collins, welcome.
STATEMENT OF JAMES F. COLLINS
Mr. Collins. Thank you, Mr. Chairman. I am here on behalf
of the Steel Manufacturers Association, 44 electric furnace
steel companies that produce almost half the steel made in the
United States.
I have been involved in steel trade policy matters for
about 33 years, starting as a government official working with
Tony Solomon, and with the strong leadership of Wilbur Mills we
negotiated the first voluntary restraint agreement back in
1969. So I know something about the steel trade problem.
Our domestic member companies, who, I emphasize, account
for almost half the steel made in this country, strongly oppose
the enactment of H.R. 4646 for the following reasons. One, the
SMA and its members have long advocated that some retraining
and health protection should be provided to steelworkers in
transition due to permanent plant closures. This position has
not changed. It applies strictly to closures, including those
necessary to facilitate industry consolidation. It should be
available only for a limited period of time until workers are
retrained and reemployed or reach age 65 and are eligible for
Medicare.
In contrast, H.R. 4646 covers an entire decade and is
estimated by the Congressional Research Service in an August
2002 report to cost $4-$12 billion, depending upon the outcome.
Two, additionally, it has been, and continues to be, our
position that pension and health commitments made by steel
companies still in operation should remain the responsibility
of those companies rather than, we emphasize, the
responsibility of U.S. taxpayers.
There's been a lot of controversy over the request of some
integrated steel companies that government assistance, using
funds from tariffs or small contributions per ton, be given to
those steel companies who are burdened by so called legacy
costs. First, as a matter of principle, if the proceeds of
tariffs are to be distributed to steel companies, they should
be distributed to all companies found injured by imports,
whether or not those companies have legacy costs.
Further, the idea of all taxpayers paying for legacy costs,
whether from funds from tariffs or general revenues, could well
set an inappropriate precedent and result in many industries
looking for similar assistance.
Legacy costs are generally understood by the steel industry
to comprise two major components, unfunded pension liabilities
and retiree medical benefits. With respect to the retiree
medical benefits component, these are not normally prefunded as
pensions were supposed to be, but paid out of ongoing revenues.
As you know, all Americans except for government employees,
I guess, are eligible for coverage under Medicare. The failure
of some steel companies to provide legacy retirees medical
benefits does not mean that the retirees eligible for Medicare
will be deprived of medical care. IT only means that, rather
than receive medical treatment paid 100 percent by their
employers, they will have available the more modest programs
available under Medicare which most retired Americans,
including me, rely on.
Should the U.S. Government pick up the cost of a new steel
plan comparable to government employee health coverage, it
would be opening another area of opportunity for those who
negotiate expensive medical plans to expect the government to
backstop weak employers who do not ultimately pay their
contractual obligations.
In summary, government subsidies to some failing steel
companies are an unacceptable public policy approach. Here are
the principal reasons: Use of U.S. Government funds to
subsidize a few steel companies who promised more than they
could deliver at the expense of a majority of steel companies
who neither need nor want such relief alters market based terms
of competition and rewards with public funds the least
efficient U.S. steel producers. Subsidies to selected companies
will be a major impediment to the successful adjustment and
rationalization of the industry.
The root cause of problems in the world's steel industry is
overcapacity. This has been recognized in recent negotiations
among OECD members, and underlies the administration's strategy
for industry relief under the current Section 201 program. The
implementation of such subsidies would defer any possibility of
meaningful capacity reduction worldwide, sustaining the
inefficient companies at the heart the global problem.
Foreign steel interests, traders, and opponents of industry
trade relief support U.S. legacy cost relief strongly as an
alternative to legitimate trade relief. A U.S. steel market
recovering from predatory imports through an effective trade
remedy will increase the ability of all steel companies to meet
their financial obligations, but a major subsidy program for a
few troubled steel companies could undermine effective relief
for the entire industry, if policy officials make it a
substitute for truly effective trade relief for the entire
industry.
The U.S. Government is undertaking an effort with other
governments to establish a program to reduce excess inefficient
steelmaking capacity worldwide. All agree this is the root
cause of the trade problem. How can the U.S. Government provide
subsidies to maintain its own least efficient steel producers
while simultaneously urging the reduction of uneconomic
capacity in many other countries? The answer is it cannot.
There is a vital difference between subsidizing the balance
sheets of a few steel companies by paying their legacy costs
with a new government long term program and the provision by
the government of a temporary health care safety net for
retired workers who have lost protection but who are not yet
eligible for Medicare when facilities permanently exit the
business.
The SMA member companies support a program of focused
assistance directly to workers in these instances, so long as
the closed capacity is permanently eliminated.
Thank you, Mr. Chairman.
[The prepared statement of James F. Collins follows:]
Prepared Statement of James f. Collins on Behalf of The Steel
Manufacturers Association
I am James Collins, former president of the Steel Manufacturers
Association (SMA), and currently a consultant to that organization on
international trade and economic policy matters. The SMA consists of 44
North American steel producers whose US members account for almost one
half of the steel produced in the United States.
Our domestic member companies strongly oppose the enactment of HR
4646 for the following reasons:
1. The SMA and its members have long advocated that some retraining
and health protection should be provided to steelworkers in transition
due to permanent plant closures. This position has not changed. It
applies strictly to closures, including those necessary to facilitate
industry consolidation. But it should be available only for a limited
period of time until workers are retrained and reemployed. In contrast,
HR 4646 covers an entire decade and is estimated by CRS (August 02
report) to cost $4 to $12 billion.
2. Additionally, it has been, and continues to be our position that
pension and health commitments made by steel companies still in
operation should remain the responsibility of those companies rather
than, we emphasize, the responsibility of US taxpayers.
Legacy Issues
There has been much controversy over the request by some integrated
steel companies that government assistance (possibly using funds from
any tariff levied as a result of the 201) be given to those steel
companies who are burdened by so-called ``legacy'' costs. First, as a
matter of principle, if the proceeds of tariffs are to be distributed
to steel companies, they should be distributed to all companies found
injured by imports whether or not those companies have ``legacy''
costs. Further, the idea of all taxpayers paying for ``legacy'' costs,
whether from the funds from tariffs or general revenues, could well set
an inappropriate precedent and result in many industries looking for
similar assistance.
``Legacy'' costs, as generally understood by the steel industry,
comprise two major components: unfunded pension liabilities; and
retiree medical benefits.
With respect to the retiree medical benefits component, these are
not normally prefunded (as pensions were supposed to be) but paid out
of ongoing revenues. As you know all Americans are eligible for
coverage under Medicare and the failure of some steel companies to
provide the ``legacy'' retirees medical benefits does not mean that the
retirees eligible for Medicare will be deprived of medical care. It
only means that rather than receive medical treatment paid 100 percent
by their employer they will have available the more modest programs
available under Medicare which most retired Americans rely on. Should
the US Government pick up the cost of a new steel plan comparable to
government employee health coverage, it would be opening another area
of opportunity for unions who could negotiate expensive medical plans
expecting government to backstop weak employers who do not ultimately
pay their contractual obligations.
In summary:
Government subsidies to some failing steel companies are an
unacceptable public policy approach. Here are the principal reasons:
Use of US Government funds to subsidize a few steel companies
who promised more than they could deliver, at the expense of
the majority of steel companies who neither need nor want such
relief, alters market-based terms of competition and rewards
with public funds the least efficient US steel producers.
Subsidies to selected steel companies will be a major
impediment to the successful adjustment and rationalization of
the industry. The root cause of problems in the world steel
industry is overcapacity. This has been recognized in recent
negotiations among OECD members and underlies the
Administration's strategy for industry relief under the current
Section 201 program. The implementation of such subsidies would
undermine any possibility of meaningful capacity reduction
worldwide, sustaining the inefficient companies at the heart of
the global problem.
Foreign steel interests, traders, and opponents of industry
trade relief support US legacy cost relief as an alternative to
legitimate trade relief.
A US steel market recovering from predatory imports through an
effective trade remedy will increase the ability of all steel
companies to meet their financial obligations. But a major
subsidy program for a few troubled steel companies could
undermine effective relief for the entire industry, if policy
officials make it a substitute for truly effective trade relief
for the entire industry.
The US Government is undertaking an effort with other
governments to establish a program to reduce excess,
inefficient steel-making capacity, worldwide. All agree this is
the root cause of the world steel trade problem. How can the US
Government provide subsidies to maintain its own least
efficient steel producers, while simultaneously urging the
reduction of uneconomic capacity in many other countries? The
answer is it cannot.
There is a vital difference between subsidizing the balance
sheets of a few steel companies by paying their legacy costs
with a new government long term program, and the provision by
the Government of a temporary health care safety net for
retired workers who have lost protection but who are not yet
eligible for Medicare, when facilities permanently exit the
business. The SMA companies support a program of focused
assistance directly to workers in these instances, so long as
the closed capacity is permanently eliminated.
Direct subsidies to a few US steel companies will deter the
successful adjustment of the American steel industry. That adjustment
will best be achieved by a substantial reduction in the 250 million
tons of excess steel capacity that exists worldwide, and also through a
more effective 201 trade remedy that avoids further weakening by
exclusions. The danger of granting a few companies a Government bailout
to fund their private obligations must be avoided, if the
Administration is to achieve a truly effective solution to the global
steel problem.
Mr. Stearns. Thank you.
Thank you. Well, when you come to a hearing like this and
you try to be balanced and try to understand it, but we do
have, obviously, two witnesses who are on one side and one
witness on the other. Mr. Collins, you represent the mini-
mills, as I understand it.
Mr. Collins. Right.
Mr. Stearns. Let's take the first assumption, that having
the ability to manufacture steel in this country is important
to our national security. Would all three of you agree with
that?
Mr. Collins. Absolutely.
Mr. Stearns. Absolutely? Okay. So if we start with that
premise, let's work down. Now if that is true, then you could
take the next step, that the United States government should
take steps to protect its industry so it is viable for national
security.
So if we take Mr. Klinefelter's three ways to solve this
problem, control imports, legacy costs, particularly health
care, and management and labor working together for union, of
those three, Mr. Collins, you mentioned control imports you
agree with.
Mr. Collins. Well, there are others, too, Mr. Chairman.
Certainly, the U.S. has been the most open steel market in the
world for 30 years, and everyone knows that, and it has been a
dumping ground for steel.
Mr. Stearns. So now the President went ahead and instituted
tariffs on imports, which you agree with?
Mr. Collins. Yes.
Mr. Stearns. Okay. So the President has tried to help out
in respect to Mr. Klinefelter's first point of controlling
imports.
The second one is really pretty much what Mr. Dingell's
legislation is about in dealing with the legacy costs, and the
third we can't, as a Congress, have anything to do with, which
is namely the labor-management issue which you have to work
out.
The question dealing with legacy costs--let me ask Mr.
Klinefelter and Mr. Broderick. This funding mechanism as
proposed, when I look through it, is there any way to measure
exactly how much money will be needed from the Federal
Government? For example, there's not a cap, and I guess a lot
of us are trying to understand what is the extent of our
liability for this. That is the first question.
The second question is: Most of my constituents are on
Medicare. What is wrong with having steelworkers go on
Medicare, much like the rest of the country? Now you could
argue, well, there is no prescription drug benefit for people
on Medicare like there is perhaps under the union plan, but I
would submit that maybe some compromised language could work
out to get this bill moving is that those people that are in
retirement could be on Medicare, and that might save some
dollars for this third legacy cost.
In that respect, Mr. Collins mentioned that the health care
plan that unions had would be quite a bit improved over what
the majority of Americans have. So the two questions I have for
you is: Should there be a cap on this, an understanding of it;
and second of all, is it possible that the industry, the big
steel companies, could accept the idea that their employees
could be under Medicare like most of the rest of Americans?
Mr. Broderick. Well, the issue of the cap--you know, I am
sure something can be worked out regarding cap. But I think the
issue of funding of Medicare--a lot of our retirees, first of
all, are not eligible for Medicare.
Mr. Stearns. And is that because they are retiring much
younger?
Mr. Broderick. They were removed from jobs because of
illegal imports at an earlier age, between the age of, say, 55
and 65, and those individuals--you cannot find insurance in the
marketplace that is affordable. We've looked around, I know, in
some areas. You can pay as much as $12,000 a year for
insurance. That's if you can get it, because the marketplace
will typically put preexisting conditions on those policies,
and when you have a preexisting condition, I don't think you
can find an American that's 55 years and older that does not
have a preexisting condition on health care.
The issue of prescription drugs and Medicare--I don't think
you can find a senior as well in this country that would agree
that--that would disagree that Medicare should have a
prescription drug benefit, and we have supported those types of
legislation efforts going forward.
No one in their right mind would design a health care
program today with a prescription drug benefit missing.
Mr. Stearns. What is the idea of putting--what is wrong
with trying to sort of put a cap or some kind of--try to
identify what this liability is so that the taxpayers, before
they went into something like this, would know what their
outside liability is going to be?
Mr. Broderick. I think, if you work with the companies and
the union, I think a population can be identified and defined,
and the actuaries, I am sure, could come up with a number that
would be meaningful, that would give the taxpayers an idea of
exactly what the net obligation would be.
Mr. Stearns. If we agree that steel manufacture is national
security, then people would say, okay, why don't you give us
also health care for the industries that are having problems
like the airline industry. A few of them have gone into
bankruptcy, automotive industries. There's a broad group of
industries.
So your argument would be, because this industry is
required for national security, that the Federal Government
should step in and provide this legacy cost. Would that be
the----
Mr. Klinefelter. No.
Mr. Stearns. That would not be the strength of your
argument?
Mr. Klinefelter. No. I think that the basic fundamental
reason that we asked for this is because of what has happened
to the industry is so unique. Through no fault of its own, it's
been battered by these imports, which continues to all of these
companies.
Mr. Stearns. But if we ratchet up and prevent that dumping,
it's just too late, and we've got to go back and rectify the
problem?
Mr. Klinefelter. Well, if we want stability in the
industry, if we want this problem to go away, like I said, I
think we have to do three things in order to make that happen,
and all three things need to be done. One role is a
Congressional role, and that is the passage of some kind of
legacy costs legislation.
I think what everyone would like to do is have a
consolidated steel industry, integrated steel industry, which I
think we need. You know, mini-mills are wonderful, but we need
the capability from a strategic point of view to be able to
make steel from beginning to end. So we need some of that
capacity, and we want to stabilize that industry.
Mr. Stearns. My question time is over but, Mr. Collins, is
there anything you want to add after hearing Mr. Klinefelter?
Mr. Collins. Yes. We agree that the steel industry of the
future, in terms of national economic security, should consist
of integrated producers and mini-mill producers. However, we
don't understand why the market can't work and a company that
goes into Chapter 7, like LTV, has plants that are savable,
that are resuscitated and put back to work, will not contribute
to that national security, economic security. They will.
The only question is whether the U.S. taxpayer should pay
for a cost that the companies and the union had negotiated with
each other, and presumably in good faith that they should--as
long as they stay in business, that they should retain the
obligation to pay. There is no reason to expect the U.S.
taxpayer to assume that burden, a burden of billions of
dollars. But that doesn't mean we don't think there isn't a
national health problem.
Speaking personally, I think this country is rich enough to
have a national prescription benefit program and a national
health program for all its citizens, and ultimately I think
that will come. But you don't single out segments of the
economy, the U.S. economy, and say we are going to do this for
this industry and this for that industry. You are going to have
25 industries lined up, and each time you do that, if you don't
have unanimity in the industry, as you do not in the steel
industry--as I said, 47 percent of the shipments of this steel
community in the United States oppose this bill. They don't
like to see the terms of competition changed.
They think that the managers should live up to their
obligations to pay their liabilities and not the U.S. taxpayer.
Mr. Klinefelter. If I could----
Mr. Stearns. Well, my time has expired. So I am sure you
are going to hear from the ranking member today.
Mr. Doyle. I assure you, you are going to get a chance to
respond to that.
Mr. Stearns. You are going to get an equal chance. I've
never seen him quite so energized here. So the gentleman from
Pennsylvania.
Mr. Doyle. Thank you, Mr. Chairman. Geez, where do I start?
First of all, Mr. Collins, I was listening to your remarks
regarding the health care benefits, and I think you may have
been referring to some of the benefits that was in Senate bill
2189, the Rockefeller bill, just for points of clarification.
Mr. Klinefelter. You mean the 1 year extension, Mr. Doyle?
Mr. Doyle. Yes. H.R. 4646, as I understand it, is going to
accomplish two things. There is going to be a gap insurance.
You know, when workers come out and they are not yet eligible
for Medicare, there will be a benefit there that will be equal
to or greater than--it's going to be decided by a board--
Medicare program. Then there's a prescription drug element to
it that would be equal to the Federal employees' prescription
drug program. Then once they turn 65, they go on Medicare.
So I don't think it is--you know, we are not talking
about--as we said earlier, this is not a Cadillac plan, and
it's not as generous as the plans that existed in some of the
other bills that, I think--you know, a part of what you
referred to was the Rockefeller bill. So just as a point of
clarification.
A couple of questions, because I want to understand the
mini-mills a little better. What percentage of the mini-mills
are unionized?
Mr. Collins. I can't give you an exact answer, a precise
answer, but from my----
Mr. Doyle. I mean, roughly. I'm not going to hold you to
it.
Mr. Collins. From my past experience, roughly half.
Mr. Doyle. So 50 percent of these mini-mills are unionized.
Do the mini-mills----
Mr. Collins. Maybe 40 percent.
Mr. Doyle. Forty percent? And do they offer benefits to
their employees, health care benefits, pensions?
Mr. Collins. Oh, yes. Yes. They all have health plans.
Mr. Doyle. So paint a picture of a typical mini-mill worker
versus an integrated mill worker in terms of salaries and
benefits. I'm just trying to understand.
Mr. Collins. Well, the mini-mills have a team concept in
the plant whereby they move from one occupation to another so
that no one is tied down to a particular craft. So that that
team is able to achieve a high level of productivity, if one of
those workers is missing, because the others can sub for that
worker.
Mr. Doyle. How much do you pay them, and what is their
benefits?
Mr. Collins. They are paid--I can't be precise on the pay,
but the bonus system generally gives them compensation as high
or higher than the United Steelworker pay.
Mr. Doyle. So you are saying that people that work in mini-
mills make the same or better wages than people who work in the
integrated mills?
Mr. Collins. Correct.
Mr. Doyle. Their benefits are comparable?
Mr. Collins. Their compensation is tied to productivity,
for the most part.
Mr. Doyle. Nucor--a mini-mill, right?
Mr. Collins. Right.
Mr. Doyle. One of the biggest?
Mr. Collins. Now isn't it true that Nucor supported in the
Senate trade debate that they didn't oppose the amendment in
the Senate trade debate that would have provided health care
benefits to the steelworker retirees whose companies had shut
down?
Mr. Collins. Specifically, Nucor wrote a letter to Senator
Rockefeller supporting that 1-year extension, which the mini-
mills do support. They support a year of medical benefits
provided to unemployed steelworkers who are not eligible for
Medicare. So during the transition while they transition to
other jobs, to new jobs.
Mr. Doyle. So if you support steelworker retirees getting
their benefits who have lost their jobs because of--and I think
the point that needs to be made clear, too: These jobs aren't
being lost because of inefficiencies or downturns in the
market. We are talking about jobs that are being lost because
people are cheating. Okay? Because trade laws are being
violated, and before we can get these guys, 30-some mills shut
down and workers lose their jobs.
Why would you support benefits for steelworkers that have
lost their jobs but not benefits for people who are at risk of
losing their jobs? In other words, do the mini-mills oppose
consolidations of the integrated steel mills? Do you oppose
them consolidating?
Mr. Collins. Well, I think there's some ambivalence. I
think where consolidation is rational, the mini-mills would
generally support that consolidation, but you just don't put
two underperforming mills together and expect, by putting those
two mills together, that you've got one very good mill. We've
told that to the Europeans.
Mr. Doyle. What makes----
Mr. Collins. Who have been boasting about their
consolidations for the last 5 years.
Mr. Doyle. What makes you think they are underperforming?
Take away the illegal dumping. Take away all that.
Mr. Collins. Well, we can only compare it to our own
production in the mini-mills, Mr. Doyle, and we find that we
have 1.5 to 2 manhours per ton, unlike what Mr. Klinefelter
said. They have generally about 4 to 5 manhours per ton,
because they are including the mini-mill productivity in their
manhours.
That gives us about $90 to $100 ton employment cost
advantage. Also, we have achieved technological breakthroughs
in the production of flat rolled steel that have been noted
around the world. In addition, we are the largest recyclers in
the world. Additionally, our btu per ton of steel produced are
about 4-5 million btu, versus about 19 million for an
integrated steel company per ton.
Mr. Doyle. Okay.
Mr. Dingell. Would the gentleman yield? On the btu's,
American integrated steel mills use about the same number of
btu's or less than the Europeans and the foreigners do. Isn't
that true?
Mr. Collins. In the integrated sector, yes, sir.
Mr. Dingell. And with regard to the difference between the
way--the tons, the tons--rather, the manpower per ton, the
number of worker hours per ton, for U.S. integrated steel mills
is at least as good as the foreigners.
Mr. Collins. Absolutely.
Mr. Dingell. Okay. Thank you.
Mr. Stearns. The gentleman's time has expired. The
gentleman from Illinois.
Mr. Shimkus. Thank you, Mr. Chairman. A couple of things
that I want to address. On trade adjustment assistance that was
passed, there was--you all heard my opening statement. Let me
start in this manner. I mentioned two of my constituents who
had health care concerns, because they lost it on bankruptcy of
Laclede Steel in Alton, Illinois. They are actually in another
Congressional district, but they reside in my Congressional
district.
You also heard in the opening statement that they fell
under a State insurance plan that we have gradually tried to
expand in the S-CHIP, but it's really not as good of a plan as
what we could do and really give them comparative health care
coverage as what they had, maybe not the same but comparative.
The trade adjustment assistance was a 65 percent tax credit
to help people, but when you are unemployed, even a tax credit
of 65 percent is very difficult. As you all know, I am a
supporter of the legislation. I'm glad Illinois has at least
somewhat of a safety net for these individuals, but the concern
is still ripe out there. That is again why I--just in addition
to this health care debate, I throw out.
I have had a company come to me during the break, and you
all know I am a supporter. I'm a co-sponsor of the bill. But
I've had a company come to me from Granite City, a large steel
community, historic--my grandfather worked for them--that
complained that on a 50 percent increase--and this is the type
of steel that's used in 55 gallon drums--that is causing them
to close down their--they cannot afford to make their end
product because of the increase in the cost. NESCO is the
company.
We have the statistics back in the office. We didn't bring
them here. I wish I would have, but I had forgotten. So there
is a concern.
Now, Mr. Klinefelter, you did mention or someone in the
opening statements did mention that the cost estimations of the
increase after the tariffs were not credible. I don't know if
you mentioned it or some other member in their opening
statements. Can you address the concern by manufacturing
companies who are not in the steel industry. There has been a
resounding concern of the escalation of the cost, that it's not
proportional to the increase in the tariff?
Mr. Klinefelter. Well, on what the company talked of the
increase in the cost, but let me say this about that. That is,
that's what the 201 is all about, in many ways.
Mr. Shimkus. And they don't deny that.
Mr. Klinefelter. It's the getting back to the prices that
existed in 1997.
Mr. Shimkus. But that's not the question. The question is
that's not proportional to the tariff. The tariff is designed
to get it there. So if it's a 30 percent tariff, if there is a
50 percent increase in the cost----
Mr. Klinefelter. Well, I have to see--you know, I would
have to see those figures to see what the factors are that go
into that. You know, did these folks reduce their costs by that
same proportion for their consumers?
Mr. Shimkus. I'm a friend, okay? I'm a co-sponsor of the
bill.
Mr. Klinefelter. But I mean, in order to address those kind
of unaddressable questions, you have to see the data.
Mr. Shimkus. Well, that's the questions you are going to
get from a lot of members as we try to move this process
forward. We need to talk about them.
Mr. Klinefelter. And when we have the data, we will look at
it and address them.
Mr. Shimkus. Well, you are encouraged to come visit my
office, and we can work through this. Mr. Broderick?
Mr. Broderick. I think, attributing anymore than 30 percent
increase, the cost would be inappropriate, because that's what
the tariff was. So we have not stopped imports from coming in
this country. Normal market dynamics are actually starting to
work in the steel industry, and some of what has actually
happened is the market has tightened somewhat.
Mr. Shimkus. Let me ask a follow-up, and I have limited
time, and I am going to have to go. But let me ask, what about
the administration's recent reversal--I don't know if reversal
is a great word--change in the tariff structure, which was
announced, what, 3 weeks ago? Can you comment on that, and were
there items that made credible sense based upon the world
market or----
Mr. Broderick. I believe you are talking about the
exemptions?
Mr. Shimkus. Right, the new exemption list.
Mr. Broderick. The unions and the companies, Congressman--a
number of those exemptions, we felt, were justifiable. A lot of
those exemptions, however, were not justifiable. We can make
the product here in the United States. It undermines the 201 in
a very subtle way that over time the 201 has less value as it
covers less and less of the product that it was designed by the
ITC to cover.
Mr. Shimkus. Anyone else want to add to that? Let me ask
one final question that this manufacturing company that came in
to visit me--remember, I'm an ally here. Okay?
Tell me the difference between the tariff issue and anti-
dumping laws and the manufacturing business, industry, has said
it would have been better to deal with anti-dumping laws versus
the implementation of the tariff. Am I missing something or is
it the same?
Mr. Klinefelter. Well, I think the fact of the matter is
that for years we had gone to the anti-dumping and
countervailing duty laws, and the fact of the matter is that
they don't work. We get relief for a limited period of time on
one kind of product and from a certain number of countries.
What happens is, you know, it goes someplace else, because
there is always overcapacity in the world, and it continues to
come into the United States.
The 201--remember this. No illegal dumping here in the 201.
Countries aren't doing anything illegal. They are just trying
to destroy the American steel market. It's not illegal to try
to do that, but it's legal for the United States government to
stop it under our trade laws, and that's what the President
said in the 201.
Mr. Shimkus. Had anti-dumping laws been enacted at the
outside--you know, in the opening statements we're talking 20
years ago. Right? When you talked about the Asian crisis and
all that other stuff, had the anti-dumping laws been enacted
from Day One, would we have seen a much different market today?
Mr. Klinefelter. We had anti-dumping orders, and there were
anti-dumping orders in place. But as I said, because they are
not comprehensive and they don't cover all products, and they
don't cover those products from all countries, they are
inadequate to the task of stopping the imports.
Mr. Shimkus. All right, thank you. I yield back my time,
Mr. Chairman.
Mr. Stearns. Thank you, gentlemen. The gentleman who is the
author of the bill, Mr. Dingell.
Mr. Dingell. Mr. Chairman, thank you, and again I thank you
for your kindness in holding this hearing and your patience and
your courtesy to all of us.
Mr. Klinefelter, in my opening statement which was inserted
into the record, and I hope everybody will read it because it
is an excellent one, I included the testimony of Mr. L.L.
Williams who is Executive Director of Healthcare Initiatives at
General Motors.
He pointed out in his comments that the American steel
industry is not the only American industry which is affected by
the legacy costs. These costs disadvantage almost entirely the
entire American industry, and I think this leads me to the
thought that perhaps we ultimately need national health
insurance to address this kind of a problem. Is that your
thesis?
Mr. Klinefelter. Mr. Dingell, I feel like that we are the
canary in the mine. We are the canary in the mine. We are here.
We stick up like a sore thumb, because this problem is right
upon us. But is it there for the rest of industrial America? If
General Motors is 52.5 billion in legacy costs, you bet your
boots it is, because Ford's got to be there, Boeing has got to
be there. Caterpillar has got to be there. The rubber industry
has got to be there. The aluminum industry has got to be there.
Why? Because all of those industrial industries in the
United States, Mr. Dingell, realized that the health care for
retirees under the current system was totally inadequate and
had to be supplemented, and they took on the burden of
supplementing that, pushed, of course, by the unions to do
that, because they wouldn't have done it out of the goodness of
their heart. But they did take that responsibility, and now
they are stuck in an uncompetitive situation with our trading
partners right across the board of industrial America.
Mr. Dingell. Now further here, Mr. Klinefelter, without
legacy legislation, steelworkers who lose insurance coverage
will be left to join the ranks of the uninsured. Is that not
so?
Mr. Klinefelter. That's correct.
Mr. Dingell. And there are virtually no other options in
terms of health care for these people until they reach age for
Medicare. Is that right?
Mr. Klinefelter. That's correct.
Mr. Dingell. All right. Now about 125,000 steelworkers and
retirees lost their health insurance coverage because of this
precise situation. Is that right?
Mr. Klinefelter. That's correct.
Mr. Dingell. Now let's go through some of the options that
exist for these people. Let's talk about COBRA. When a company
like LTV or Gulf State Steel shuts down, can these retirees
access COBRA coverage?
Mr. Klinefelter. No COBRA coverage is available to these
folks. It's only available--in addition, what COBRA would be
available if the company stayed in existence is only available
for a limited period of time, and it's very expensive.
Mr. Dingell. And the employees pay 102 percent of the
premium out of pocket. Is that right?
Mr. Klinefelter. That's correct.
Mr. Dingell. Now purchasing health care coverage in the
individual insurance market--I gather this is difficult to come
by, that you have tried this. Insurance companies will not
offer coverage for older industrial workers. If they do, they
check the employee for preexisting condition exclusions,
exclude critical benefits or have unaffordable premiums. Is
that a fair statement?
Mr. Klinefelter. That's a fair statement. One of the
problems that exists for all industrial workers, and I wouldn't
say it was just steelworkers but all industrial workers.
There's a certain amount of exposure and hazard in what they
do, and over time people get very nervous about these
preexisting conditions that may exist with these workers, and
they become very, very difficult in the private sector to
insure.
Mr. Dingell. Mr. Broderick, do you accord with that
statement?
Mr. Broderick. That's correct.
Mr. Dingell. Thank you. So, basically, what I am hearing
then, gentlemen, is that without this legislation, H.R. 4646,
these retired steelworkers would be left with no health
insurance coverage. Is that correct?
Mr. Klinefelter. Correct.
Mr. Dingell. And we now know that health insurance does not
come cheap, and it is very difficult to achieve for these
purposes. I believe that research has shown that middle-aged
people who were continuously uninsured over a 4-year period
have about 1.6 times more likely--are 1.6 times or more likely
to have major health care problems, including death, than those
who have maintained health care during that period. Is that
right?
Mr. Klinefelter. Correct.
Mr. Dingell. I would suspect that without this legacy bill,
in the absence of national health insurance for the United
States, there are no options for the retirees and that their
health is going to suffer. Is that correct?
Mr. Klinefelter. That is correct.
Mr. Dingell. And of course, we are looking at a situation
where, because of the enormous overhang of these matters, which
is subsidized in most instances by foreign governments, as is
the production of steel, for example, in India and places like
that or in the former Soviet Union, we are looking at a
situation where our people neither have government subsidies
for the production of steel nor do they have government
subsidies for the protection of the health insurance and the
health care of the employees. Is that right?
Mr. Klinefelter. That is correct.
Mr. Dingell. And of course, while all this goes on, not
only do we see subsidy of the foreign producers with regard to
health care and with regard to production costs, but we also
see predatory practices in which the government, in fact,
participates both at home and with regard to the export market.
Is that not true?
Mr. Klinefelter. That's correct.
Mr. Dingell. Gentlemen, thank you. Thank you, Mr. Chairman.
You have been very courteous.
Mr. Stearns. Thank you.
Mr. Doyle. Very good, Mr. Chairman.
Mr. Stearns. The gentleman yields back. Mr. Strickland.
Mr. Strickland. Yes. I want to thank you, Mr. Chairman, for
this hearing. I want to thank those who have provided us with
this testimony.
Mr. Collins, it seems to me that, if we do what you
suggest, that will mean that there will be large numbers of
steelworker retirees that will be without health insurance. Do
you think that is a fair conclusion?
Mr. Collins. I'm not sure about that. I don't know how many
employees there are between 55 and 65, but presumably some of
those unemployed steelworkers will rehired in other jobs and
get medical coverage. How many, I don't know.
Mr. Strickland. Mr. Collins, you certainly don't know much
about the district that I represent, because we have
exceedingly high levels of unemployment. We've got hundreds and
hundreds of coal miners who have lost their jobs, hundreds and
hundreds of steelworkers who have lost their jobs, and an
economically depressed area. I don't know where these people
are going to get jobs that are going to be jobs that provide
health care coverage.
So I mean, you've got a perfect right to your point of
view, but I think it is important to point out that, if we
follow your suggestion, that there are going to be many, many
individuals who, through no fault of their own, are going to
find themselves in this terrible situation where they are
without health insurance. They are sick. They cannot afford to
pay for the health care they need.
Maybe that is the kind of country we are and that we are
willing to accept that kind of human tragedy, but it seems to
me that we've got a responsibility to try to prevent that from
happening. And I understand that you are not responsible for
it, but we've heard the testimony from Mr. Klinefelter and
others.
Mr. Klinefelter laid out the history of the conditions that
have led us to where we are today, and it seems to me that
there have been so many failures on the part of this government
that we've got a responsibility now. Maybe we should have taken
actions earlier, but we failed to do so. We have to deal with
the present, and it seems to me that we have to deal with the
situation we have.
I would just like to point out two things that are beyond
the scope of this legacy bill, which could help not just steel
companies, but it could help the textile industry. It could
help the agricultural industry, if we would take action. That
is to have a comprehensive Medicare benefit that is available
to every eligible senior citizen in this country.
We ought to do that, and to also pass the Hatch-Waxman
reform bill dealing with the exclusive rights of pharmaceutical
companies to abuse, in my judgment, the patent protections they
have.
Would you say that those two actions, if we were to take
them here at the Federal level, would not only help the steel
industry but would be good for all other industries in this
country?
Mr. Collins. I think you've got your finger on the problem.
This is a national problem. You don't solve a national problem
by providing a subsidy to one-half of the American steel
industry. The American steel industry has been complaining
about subsidies accorded foreign steel industries around the
world for the last 35 years. Suddenly, the United States
government provides a $4-12 billion subsidy--in this case it's
a health care subsidy--to its own steel companies, and then
tries to go internationally to reduce capacity and to eliminate
subsidies worldwide in the steel industry.
It doesn't make sense, but there is a national problem, and
as I said, my personal view is that this country is rich enough
to have a national prescription drug program for everybody and
a national health care program for everybody.
Mr. Strickland. And I think we all agree. Mr. Klinefelter,
would you agree that we need those two things?
Mr. Klinefelter. Yes, I would.
Mr. Strickland. But the fact is that Mr. Klinefelter has
laid out the particular circumstances that have impacted the
steel industry and the lack of appropriate action on the part
of this government for a long period of time. Just as we
decided to take special action to help the airline industry at
a point in time, it seems to me that this is a particular
industry with a particular set of historical circumstances with
the particular need, with the particular relevance to our
national security that gives us more than adequate
justification for taking action which is directed toward a
particular industry.
That does not relieve us of the responsibility of dealing
with all the other workers and all the other industries in this
country, and I hope to God that we have the courage to do that.
But in the meantime, it seems that we need to take this
particular action.
I want to thank you, Mr. Collins. You have been
forthcoming. You have shared your point of view, and I think we
have heard it, but in my judgment, the arguments of Mr.
Klinefelter and Mr. Broderick outweigh the concerns, perhaps
even the legitimate concerns, you have raised here.
Thank you, Mr. Chairman.
Mr. Stearns. I thank my colleague, and we have to go for
three votes. So we are going to adjourn the Subcommittee on
Commerce, Trade, and Consumer Protection, and thank all of you
witnesses. Is there one thing you wanted to add, Mr.
Klinefelter?
Mr. Klinefelter. Yes, just if you would indulge me, Mr.
Chairman. A lot of people have driven a lot of distance behind
me from Ohio, Indiana, Illinois, West Virginia, Pennsylvania.
Mr. Stearns. Do you want to recognize them?
Mr. Klinefelter. If the steelworkers who are here could
stand up?
Mr. Stearns. Why don't all you steelworkers do that, and
let's give them a round of applause.
Mr. Klinefelter. Once again, Mr. Chairman, thank you very
much for this hearing.
Mr. Stearns. We are delighted, and we want to thank all of
you for participating and taking your time to come down here,
and we appreciate your participation.
Mr. Collins. Mr. Chairman, could I also put on the record
that we want to thank the House steel caucus for its unfailing
leadership on the steel trade problem over the last 30 years.
Mr. Stearns. So noted.
Mr. Collins. And also Mr. Dingell for blocking an Energy
Department release of irradiated scrap that would have
inundated the American mini-mill industry. Thank you.
Mr. Stearns. So noted, and the subcommittee is adjourned.
[Whereupon, at 12:47 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Prepared Statement of Hon. Phil English, a Representative in Congress
from the State of Pennsylvania
I would like to thank the Subcommittee for holding a hearing on the
critical issue of steel industry legacy costs. It is my pleasure to
present testimony before the subcommittee on this issue.
Although today's hearing only examines H.R. 4646, The Steel
Industry Legacy Relief Act, I would like to present the subcommittee
with another approach to dealing with the legacy cost dilemma. I am
pleased to be able to present this testimony in lieu of a hearing
examining both legacy cost bills currently introduced in the House:
H.R. 4646 as well as my bill, H.R. 4574, The Steel Industry Legacy
Relief and Transition Act.
As the short title of H.R. 4574 suggests, it seeks to accomplish
more than a financial bailout of the domestic industry's responsibility
as a result of legacy costs. It actively seeks to consolidate and
rationalize the domestic industry through incentives and regulatory
alterations: the only realistic method to ensure its long-term
viability and health.
The domestic steel industry has significant unfunded pension
liabilities as well as massive retiree health care responsibilities
that total $13 billion and cost the steel industry almost $1 billion
annually. These pension and health care liabilities pose a significant
barrier to steel industry consolidation and rationalization: barriers
that could improve the financial condition of the industry and reduce
the adverse impact of unfairly traded foreign imports.
There are several reasons for Congress to act. Our trading partners
do not face these seemingly insurmountable obstacles to consolidation,
as their governments pick up the tab for health and pension costs
through socialized medicine and state run pension schemes.
Additionally, our trading partners consistently engage in protectionist
and trade distorting practices in the area of steel: further insulating
their domestic steel industries. Without these major obstacles to
consolidation, steel companies in foreign countries are forming mega
steel companies which will only place U.S. steel companies at a more
serious competitive disadvantage in relation to their global
competitors. For example, in the European Union, ARBED, its partner
ACERALIA and UNISOR are combining into a new company. This will create
an enormous steel company with an annual production capacity of 46
million tons. This new firm would have almost three times the capacity
of the largest U.S. mill.
Time is a major factor for the domestic steel industry, however, as
the safeguard remedy which the President implemented in March is not
permanent. Consolidation must occur during the window of relief offered
by the safeguard action. This brief window will last less than three
years from today, maybe much less.
Working to alleviate the legacy cost burden complements the ongoing
efforts by the Administration to level the playing field for steel:
Section 201 relief to provide breathing room for restructuring and
consolidation and ongoing high-level talks at the OECD to reduce
overcapacity and market-distorting trade practices in steel world-wide.
The Administration's efforts will have a far greater effect if, through
removing the largest barrier to domestic consolidation and
rationalization, America's steel industry is able to continue to lead
by example.
Congress has the ability to encourage consolidation and
rationalization by providing legacy relief only to those steelmakers
who actively acquire or rationalize. It is also important to keep in
mind that much damage has already been done to the steel industry and
that the retirees, surviving spouses and their dependants should not be
left in the lurch. That is why under H.R. 4574 the federal government
would assume the health care obligations for retirees of steel
companies that close.
A summary of H.R. 4574's major provisions:
This legislation provides for federal assumption of certain
steel retiree health care obligations that might otherwise
prevent or reduce needed capacity reduction and rationalization
in the U.S. steel industry, or which occur as a result of
capacity reduction.
Federal assistance would be triggered in three situations:
when all or substantially all of one U.S. steel company is
acquired by another domestic steel company; when production
capacity is reduced within 5 years of such an acquisition; and,
when a U.S. steel company closes.
Acquisition. Health care obligations and assets for retirees
would be assumed by the federal government. Pension obligations
would be subject to current laws under ERISA.
Rationalization. If an acquiring company reduces production
capacity within 5 years of an acquisition, the federal
government would assume the retiree health care assets and
obligations for employees of the acquiring and acquired
companies who leave their jobs in connection with the
reduction. Pension obligations would be subject to current laws
under ERISA.
Closing. The federal government would assume the retiree
health care obligations for retirees of steel companies that
close on or after January 1, 2000. Pension obligations would be
subject to current laws under ERISA.
Pension benefit assistance would be provided through the
Pension Benefit Guaranty Corporation. Retiree health care
benefit assistance would be provided through a new federal
trust fund.
A new trust fund would be established in the Treasury
Department to fund steel retiree health care benefits assumed
by the government. The trust fund would be funded by the
receipts from duties on imported basic steel mill products as a
result of the Section 201 action, assets of retiree health care
plans assumed by the government, a surcharge of $5 per ton of
products shipped that are produced with acquired steelmaking
assets paid by companies that acquire assets whose retirees are
included in the program, and additional appropriated funds as
necessary.
The Labor Department would make eligibility determinations and
administer the provision of retiree health benefits coverage
using the trust fund's receipts. Retiree benefit coverage could
not exceed the level provided by the employer.
The legislation also would create a new Steel Transition Board
that would provide expedited antitrust review of steel company
acquisitions. In deciding whether to approve a transaction, the
Board would be required to take into account the need of the
domestic steel industry to adjust to global market conditions.