[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
LOST JOBS, MORE IMPORTS; UNINTENDED CONSEQUENCES OF HIGHER STEEL
TARIFFS (PART II)
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC, SEPTEMBER 25, 2002
__________
Serial No. 107-71
__________
Printed for the use of the Committee on Small Business
U. S. GOVERNMENT PRINTING OFFICE
82-506 WASHINGTON : 2002
___________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
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COMMITTEE ON SMALL BUSINESS
DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
ROSCOE G. BARTLETT, Maryland California
FRANK A. LoBIONDO, New Jersey DANNY K. DAVIS, Illinois
SUE W. KELLY, New York BILL PASCRELL, Jr., New Jersey
STEVE CHABOT, Ohio DONNA M. CHRISTENSEN, Virgin
PATRICK J. TOOMEY, Pennsylvania Islands
JIM DeMINT, South Carolina ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota TOM UDALL, New Mexico
MICHAEL PENCE, Indiana STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York MARK UDALL, Colorado
TODD W. AKIN, Missouri JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania BRAD CARSON, Oklahoma
ANIBAL ACEVEDO-VILA, Puerto Rico
Doug Thomas, Staff Director
Phil Eskeland, Deputy Staff Director
Michael Day, Minority Staff Director
C O N T E N T S
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Page
Hearing held on September 25, 2002............................... 1
WITNESSES
Aldonas, Hon. Grant, Under Secretary for International Trade,
ITA, Department of Commerce.................................... 4
Jenson, Jon, CAE, Vice Chairman & President, Consuming Industries
Trade Action Coalition......................................... 18
Friel, Jennifer Johns, President, Mid West Fabricating Co........ 20
Ajax, Erick, Vice President, E.J. Ajax and Sons, Inc., Fridley,
MN............................................................. 22
Carlson, Jay, President, G&R Manufacturing....................... 23
Dowding, Christine, President, Dowding Industries................ 24
Robinson, Brian, President of Manufacturing, Wilson Tool
International.................................................. 26
Johns, Bob, Director of Marketing, Sheet Mill Group, Nucor
Corporation.................................................... 28
APPENDIX
Opening statements:
Manzullo, Hon. Donald........................................ 33
Toomey, Hon. Nydia........................................... 35
Phelps, Hon. David........................................... 40
Jones, Hon. Stephanie Tubbs.................................. 42
Smith, Hon. Nick............................................. 43
Hobson, Hon. David........................................... 47
Visclosky, Hon. Peter J...................................... 48
Costello, Hon. Jerry......................................... 52
Kucinich, Hon. Dennis........................................ 53
Prepared statements:
Aldonas, Hon. Grant.......................................... 55
Jenson, Jon.................................................. 62
Friel, Jennifer Johns........................................ 70
Ajax, Erick.................................................. 73
Carlson, Jay................................................. 76
Dowding, Christine........................................... 79
Robinson, Brian.............................................. 83
Johns, Bob................................................... 87
Additional information:
Letter to Hon. John Ashcroft, Attorney General, Department of
Justice, from Chairman Donald Manzullo, House Small
Business Committee......................................... 97
Response to Letter to Hon. John Ashcroft, Attorney General,
Department of Justice, to Chairman Donald Manzullo, House
Small Business Committee................................... 98
Spot Market Price for Steel from Purchasing Magazine......... 99
Steel exclusion request analysis by CITAC.................... 100
Written testimony of Wes Smith, E&E Manufacturing Co., Inc... 101
Garza, Melita M. ``Steel Tariffs Taking a Toll.'' The Chicago
Tribune, September 10, 2002................................ 109
King Jr., Neil. ``So Far, Steel Tariffs Do Little of What
President Envisioned.'' The Wall Street Journal, September
13, 2002................................................... 112
Matthews, Robert Guy. ``Steel Union Seeks Changes in Pacts.''
The Wall Street Journal, September 23, 2002................ 114
``Bush Tariffs Backfire on Local Steel Users.'' Sunday
Rockford Register Star, July 21, 2002...................... 115
Du Pont, Pete. ``Paying a Price for Steel Tariffs.'' The
Washington Times, August 15, 2002.......................... 123
Letters to Committee documenting steel price increases or
exclusion request problems................................. 124
Statements for the record:
Letter from Bethlehem Steel to Chairman Manzullo, October 4,
2002....................................................... 189
Response to Bethlehem Steel letter........................... 192
LOST JOBS, MORE IMPORTS; UNINTENDED CONSEQUENCES OF HIGHER STEEL
TARIFFS (PART II)
----------
WEDNESDAY, SEPTEMBER 25, 2002
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:05 a.m. in Room
2360, Rayburn House Office Building, Hon. Donald Manzullo,
Chairman, presiding.
Chairman Manzullo. We will call this meeting of the Small
Business Committee hearing to order. What I said two months ago
is still true today. The higher steel tariffs imposed for a
noble purpose have been devastating America's steel user
manufacturers.
Some in the steel industry are doing better. We all want a
strong and vibrant steel industry, but there are 59 jobs in the
steel consumer sector for every one job in the steel producing
sector in America.
I am going to waive the reading of my opening statement
here because I understand we are going to have about three
votes coming up at 10:30, but I just want to take 20 seconds to
point out to you the headline that appeared in the Rockford,
Illinois newspaper, Sunday, July 21st--``Bush tariffs backfire
on local steel users.''
[The information may be found in the appendix on page 115.]
Chairman Manzullo. What started out as something well-
intended has turned into a monstrosity. I talked to a gentleman
in my office from National Metalwares just 20 minutes ago. He
has lost three contracts to the Chinese because he could no
longer be competitive because of price gouging by the U.S.
steel manufacturers.
Another person in my office knows of a firm that is
trolling China for $750 million worth of production. It is all
going offshore. It is because of the tariffs on the steel.
I will now yield to our ranking minority member, Ms.
Velazquez.
[Chairman Manzullo's statement may be found in the
appendix.]
Ms. Velazquez. Thank you, Mr. Chairman.
Today, we are continuing our examination of the impact the
Bush Administration's steel tariff has had on American small
businesses. It remains no surprise to anyone here that the core
of American heavy industry is weak, and that our steel
producers are in trouble.
Burdened with crippling legacy costs and facing foreign
competitors who dump their steel here for valuable dollars, the
President simply has to protect American steel to give the
industry time to consolidate and grow stronger.
The immediate effect of the tariffs has been to shore up
this critical component of our economy while saving thousands
of jobs. There has been some evidence that the tariff spiked
steel prices for some small manufacturers, despite the fact
that steel costs remain at historic levels--low.
Now a few months later, I believe that the conclusion made
then that this tariff has both positively and negatively
impacted small businesses is just as true now as it was then. I
will say again that this issue, like any other issue we deal
with on this Committee, is complex and containsno easy answers
or solutions.
It is true that some small businesses were harmed by
increased tariffs, but others have thrived. In a diversified
production base some companies have done well and others need
some help. This is not a black and white issue. These
industries are, indeed, hurting. I realize that these tariffs
are having a negative effect, but since we are concerned with
all small businesses, I hope we can work together to find
solutions to the challenges that face them.
For example, the markets have fallen. Consumer confidence
is down, and unemployment remains a present danger. The economy
is affecting all businesses--small and large alike. Small
businesses face a variety of challenges. Finding solutions to
the tariffs problems will be good, but some will find them a
way to contain health care costs.
Steel costs has spiked by about 40 percent since the tariff
was imposed. This is, indeed, shocking even though steel prices
remain below historical levels, but health care costs have
increased even more--10 percent on average each year during the
past decade. These price hikes burden both steel-dependent
companies and those entirely unrelated to the steel industry.
Nearly 40 percent of Americans without health insurance
work for small businesses. If we could cut this cost, we will
more than make up for the increase in steel prices that small
manufacturers face and help cover more Americans in the
process. The issue we are addressing today is a difficult and
complex one. I do not doubt that some small businesses have
been harmed by the increase in steel tariffs, though some have
benefited.
I look forward to addressing the challenges that all small
businesses in America face, and I look forward to working with
my friends on both sides to find solutions to them. Thank you,
Mr. Chairman.
Chairman Manzullo. I yield the time it would have taken for
my opening statement to Mr. Toomey, and then we will go
directly to Mr. Aldonas' testimony.
Mr. Toomey. Thank you very much, Mr. Chairman.
Mr. Chairman, as you know, I am a passionate believer in
free markets and free trade. I have voted to reduce trade
barriers and expand trade at every opportunity from the trade
promotion authority to free trade agreements with Jordan,
bilateral trade agreement with Vietnam and permanent normal
trade relations with China.
In fact, last year I held a Small Business Subcommittee
hearing on Trade Promotion Authority and its impact on small
business exports and farmers; and we heard from a number of
witnesses the benefits of free trade and the opportunities it
presents for small businesses, farmers and workers. I would
like to thank Under Secretary Aldonas for participating in that
hearing, and I welcome him back today.
I am convinced when people have more freedom to exchange
the goods and services they produce, including with people in
other countries, all parties benefit. Unfortunately, though,
Mr. Chairman, the world's steel market is not a free market.
The President's temporary safeguards under Section 201 of our
nation's trade laws will allow the steel industry the time
needed to carry out further investments and restructuring.
More importantly, it will give foreign governments and
foreign steel producers an incentive to reduce their
inefficient, subsidized excess capacity, which is really at the
bottom of this problem. I am very sympathetic to the problems
that small businesses are facing, and I want to be helpful in
any way possible to ensure that small businesses in America are
able to acquire the necessary steel products to operate their
businesses.
First and foremost, we are here to work with you to address
the very legitimate concerns you are going to raise today.
Having said that, Mr. Chairman, I must say I think our fire
is being unfairly aimed at the domestic steel industry. It is
not the domestic industry or the modest price recovery that is
now occurring that is at the root of this problem. The problem,
as the president has correctly identified, is foreign over
capacity.
The truth is that steel prices, prior to the President's
steel program, were at a 20-year low. This is the result of a
massive, worldwide over capacity in steel production, which was
caused by foreign government policies, such as subsidization
and protection in their home markets. The flood of steel
imports that has resulted has cost thousands of jobs, dozens of
bankrupt companies and the devastation of entire towns and
communities.
The President understood this problem, and that's why he
initiated a three-part plan to address the steel crisis. This
plan calls for negotiations to eliminate foreign market
distortions; negotiations to eliminate foreign over capacity
and investigation of the effects of steel imports on the
domestic market under Section 201 of our trade laws.
After the most intensive investigation in its history, the
International Trade Commission ruled in a unanimous six to
nothing vote that imports were the primary cause of the serious
injury to the domestic steel industry. It is essential that we
keep in mind that the effects of low-price imports are not just
low-priced steel for consuming industries, but by undercutting
the U.S. market with imports, foreign producers have put our
domestic steel industry at risk.
The President announced Section 201 tariffs in March 2002
to help remedy this situation. Now I know that tariffs can
cause harm. I believe they should only be used as an absolutely
last alternative when all other remedies have failed, but such
exactly was the case regarding foreign subsidized steel by
March 2002 when the president decided that it was the only
remaining viable option.
The bottom line, I believe, is this. Only when they know
that we are willing to retaliate with tariffs, can we
realistically expect foreign governments who heavily subsidize
their steel productions to reduce those subsidies and this
massive distortion of the global steel market.
Steel prices are beginning to return to normal levels, but
prices are only now reaching the level of average steel prices
over the last 20 years. At this point, the process must be
given time as prices recover and the industry has an
opportunity to restructure.
The President also included a release valve under his
Section 201 program. The product exclusion process was
instituted to allow certain steel imports to enter the United
States market duty free. The domestic industry has worked with
the administration and its customer----
[Mr. Toomey's statement may be found in the appendix.]
Chairman Manzullo. Pat, how are you doing on time? I really
want to get to the Under Secretary before the bells go off in
15 minutes.
Mr. Toomey. Well, I appreciate that, Mr. Chairman. I will
just wrap up then, very quickly.
Chairman Manzullo. Let's do it very quickly.
Mr. Toomey. And simply make the point that many products
are not included and not covered in the tariffs. There have
been many exceptions, and I believe it is in everyone's
interest--steel mills and customers--that there be a healthy
domestic steel industry. I think this tariff decision puts us
on that road. I thank the Chairman.
Chairman Manzullo. Thank you very much.
Our first witness on this panel is the Honorable Grant
Aldonas, who is the Under Secretary of the International Trade
Administration. I look forward to your testimony, Mr.
Secretary.
Mr. Aldonas. Thank you, Mr. Chairman.
Chairman Manzullo. Can you pull the mike closer? Thank you.
Mr. Aldonas. Absolutely. The first thing I would like to do
is request that I submit my written statement, Mr. Chairman.
Chairman Manzullo. The entire statement will be submitted
to the record. We are advised, Mr. Secretary, that even though
you have to leave, you have members of your staff that will be
sitting here, listening to the entire testimony from the second
panel.
Mr. Aldonas. Absolutely.
Chairman Manzullo. I appreciate that. Thank you.
STATEMENT OF GRANT D. ALDONAS, UNDER SECRETARY FOR
INTERNATIONAL TRADE, INTERNATIONAL TRADE ADMINISTRATION (ITA),
DEPARTMENT OF COMMERCE
Mr. Aldonas. Thank you, Mr. Chairman, Congresswoman
Velazquez and members of the Committee for inviting me to
testify today.
I want to thank you, Mr. Chairman, for holding the hearing.
Under your leadership, as you have worked together, the
Committee has proved to be a consistent advocate for American
small business; particularly, the many firms that represent the
heart of U.S. manufacturing.
One of the many points in which I know we agree is the need
to expand export markets and level the playing field for our
small- and medium-sized manufacturers. Trade offers substantial
benefits to American small businesses. It is in our best
interest to enable them to pursue free trade as small- and
medium-sized enterprises make up 97 percent of all American
exporters.
I am sure that you and I also agree on the fact that we
need to rebuild trust in our trade policy, which frankly has
been broken over the last decade--specifically, trust between
Congress and the Executive Branch and between government and
the people that our policies are intended to serve.
In the President's view we can only expect the American
people to support an aggressive, forward-looking trade agenda
if we can assure them that we will look out for their interest
at the negotiation table. I am here to affirm that we are.
There is understandably a need for a strong administration
position on behalf of U.S. manufacturers, but I have to
emphasize that steel lies at the heart of our manufacturing
industry. The recent safeguard measure on steel imports
illustrates one of the examples of the administration's
commitment to work on behalf of the American public.
What I want to do is really put the president's decision in
context. The president's efforts on steel are rooted in an
effort to restore market conditions to the steel industry,
which has been beset for decades with government distortions.
Our steel companies face significant challenges. Most notably,
they must compete with state-owned and state-subsidized steel
producers.
I think one single statistic is always helpful to bear in
mind when you talk about the level of distortion in the steel
trade globally. Before the last 15 years of privatizations,
governments owned 75 percent of the steel industry worldwide.
That was the market in which our producers had to compete.
Sadly, after 15 years of privatization, government still
owned 25 percent of the industry worldwide, which is entirely
insulated from market competition. That's the challenge that
our guys have to compete with in a global market where,
frankly, our duties are low. The barriers to trade are low in
our market as they aren't in other markets. That's why we
oftentimes become a dumping ground for steel.
While critics of the president's action have often charged
that the domestic steel industry is plagued by problems of its
own making, the industry has actually proved to be very
innovative over the last several decades. In fact, generally,
critics of the steel policy have a tendency of think about the
U.S. steel industry as being monolithic in that is made up
solely of integrated firms with 70-year old technology.
Frankly, nothing could be farther from the truth.
Fifty percent of our steel production now comes from
minimills using the latest electric arc furnace technology--the
most efficient producers in the world. Many of what were
previously integrated firms have moved in a direction of
hanging on to their finishing facilities and now import slab
from abroad as a way of reducing their unit costs.
The integrated firms have, in fact, moved up the value
chain into niches where they can sustain their existing cost
structure and still turn a profit, but really does depend on
the playing field being level at the end of the day, and
ensuring that the competition in the marketplace is fair.
Toward that end, the president put forward a long-term
solution to the problems that plague global steel trade. While
the emphasize of the hearing today is on the safeguard measure
under Section 201, I want to emphasize that the first steps the
President took--for a President who is often accused of
unilateralism--was for the first time to bring all the steel-
producing countries of the world together to take a step toward
eliminating excess capacity and then establishing new rules,
new disciplines on government intervention in the market so we
don't continue this cycle of government intervention in the
marketplace and then a U.S. response under our trade laws.
In the long run the administration has sought a solution to
a more stable steel market and will benefit both producers and
users alike by providing greater certainty. In the short term,
however, we continue to monitor the impact of the safeguard
measure on U.S. businesses; particularly, steel-consuming
industries.
We did act within the framework of the Section 201,
including the president's initial determination, as Congressman
Toomey has already alluded to, to provide relief where needed
without overburdening consumers. The president established a
process to exclude products that are not sufficiently available
from domestic sources.
We were very hard on the U.S. steel industry, as they will
tell you, in that process trying to ensure that they could
provide proof that products were, in fact, manufactured in
commercial quantities and available before we would deny an
exclusion request. 727 such requests have been granted, and
each year which the safeguard is in effect, additional products
can be considered for exclusion.
In addition, we will continue to meet with the steel-
consuming industries to work on individual problems. In fact
Secretary Evans and I will be meeting with small businesses
from Ohio, Indiana, Pennsylvania, Illinois and Minnesota later
today.
I have to say also that the domestic steel industry has
actually been very helpful and responsive where we have faced
individual situations and pointed out where, for example, the
service supply centers were jacking up prices and there was a
way by selling direct to address the problems that consumers
faced in the marketplace.
Many of the exclusions that we granted, in fact, went to
small businesses. I am just going to cite three examples--the
Industrial Nut Corporation, a small family-run company in
Sandusky, Ohio was granted an exclusion for large hexagon bars
that are used as an input in precision machine nuts; Grasche,
USA, a small company with 38 employees in North Carolina
received an exclusion for cold rolled sheet for saw bodies;
Stamco Industries of Euclid, Ohio is a small business supplier
in the automotive industry and received an exclusion for hot
rolled steel.
The President has asked us to continue to monitor the
impact of the steel safeguard. I'm sure the steel industry
would agree the President has made clear that there is no free
ride in theSection 201 process. We have consistently asked the
steel industry to provide us with their plans for adjustment; how they
would use the breathing space that the three years under the safeguard
will provide and they have responded.
We are engaged now, after a September 5th deadline, and a
series of meeting with steel companies individually to review
those plans, and to mark progress in terms of their adjustment.
And I have to say, having looked at the latest news, that there
is an awful lot of adjustment that has already taken place.
I think what you're seeing in the marketplace right now is
that, not only have firms gone through bankruptcy and
reemerged, stripped of some of their previous excess capacity;
but you are finding that a lot of companies are diversifying
how they produce their steel in a way that will make them
leaner and more efficient when the safeguard ends.
In the meantime, though, the administration is still
committed to enforcing the U.S. trade laws. We want to use them
as a catalyst. The president has reinforced for us, as
Secretary Evans does almost on a daily basis that our goal is
not simply to prosecute investigations under the trade laws,
but to try and resolve the underlying trade disputes that often
give rise to these trade cases.
In other words, I think the action under Section 201 is a
catalyst to move the whole process forward on a multilateral
front, and we will continue to use that pressure going forward
so we can achieve an outcome that is good for both steel
producers and users in the marketplace. Thank you, Mr.
Chairman.
[Mr. Aldonas' statement may be found in the appendix.]
Chairman Manzullo. Thank you, Mr. Secretary.
Congressman Phelps had a short opening statement that he
wanted to read. I will yield to you, David, for that purpose.
Mr. Phelps. Thank you, Mr. Chairman. I certainly want to
thank you for holding this hearing, as well as the ranking
member. It's very important that we talk about this matter.
In my congressional district in Central Southern Illinois,
the effects of illegal steel dumping have been devastating. I
have to admit to you I don't relish the idea of looking the
steel worker in the eye and seeing the fear that is
demonstrated--the uncertainty of tomorrow.
Many of their widows have been left with lack of health
care provisions. Many of them that have been forced to retire
or have retired are facing these devastating situations in
their lives.
Of the 31 companies that have filed for bankruptcy, four of
those in Illinois have been included in that. Over 5,000 steel
workers have lost their jobs in Illinois--in Central and
Southern Illinois. This is unacceptable. When you look at the
19th District, 27 counties, the largest geographic district
east of the Mississippi, I can tell you these trade policies
have done nothing but kill us.
I can take you up and down the landscape of downstate
Illinois and demonstrate how we've closed shop after shop.
[Mr. Phelps's statement may be found in the appendix.]
Chairman Manzullo. How are you coming with your opening
statement? I want to get on with asking questions of the Under
Secretary before we head to votes.
Mr. Phelps. We know that the Section 201 steel tariffs
imposed by President Bush were helpful and I applaud his
efforts and I firmly believe they have been effective; but even
with this elevation of prices that we are experiencing now at
the June 2002 levels, I want to point out this is not
inflation. It is the beginning of a market recovery.
So we cannot afford to let our investment slide and our
steel industry to go to waste. The tariffs are a strong step in
the direction of economic recovery. Hopefully, the exemptions
that were imposed will not be as great as we threatened to be.
But we hope that the potential for the steelindustry will
recover, and it can if we cooperate and enforce our present laws. Mr.
Chairman, thank you.
Chairman Manzullo. What is your time frame, Mr. Secretary?
Mr. Aldonas. I am here as long as you want me here, Mr.
Chairman.
Chairman Manzullo. We have got three votes that are going
to take at least 30 to 40 minutes. Are you okay on time?
Mr. Aldonas. I will go and get a cup of coffee.
Chairman Manzullo. We will take five minutes now and see
how far we can get ourselves. Will that be all right?
Mr. Aldonas. Sure. Absolutely.
Chairman Manzullo. My question is about the next round of
exclusion requests. Why that can't start immediately? Why it
has to wait until November until the meetings begin with
decisions expected in March?
Mr. Aldonas. Frankly, it is to provide a little certainty
to the market. So traditionally, what has been done in
safeguard actions is we've established an annual process.
So we will provide a set of exclusions. What we will do is
we will take a look on an annual basis and see what has
happened under those exclusions as well as see where there are
other demands in the marketplace.
But in some respects, the goal of the safeguard is to
ensure that our steel industry does have some breathing space,
and what I really mean by that, Mr. Chairman, is access to
capital. And until the capital markets are certain about the
underlying economic conditions, it is a little difficult for
them to make investments. So you've seen a lot of fluctuation
up until we close the exclusion process.
I think things are leveling out at this points. So once the
market sees the ground rules are set for a period of time, then
I think it's easier for the companies to get the capital
they're going to need to make the adjustments. We will open the
process up again in November.
Chairman Manzullo. What is bothering me about the
exclusionary process, and I will be quite frank, is that the
decisions to exclude are as political as the decision to impose
the tariff in the first place.
In fact, in the last round of exclusions, it was the U.S.
steel companies that got half the exclusions and they,
themselves, wanted cheap imported foreign steel, so they could
take and slice that up and sell it back to the steel users--
many of whom are here today--at 30 to 40 percent price
increases.
Why were the U.S. steel manufacturers--the ones who
complained about importing of steel--granted half the
exclusions to import the very steel whose prices they said were
wrong and which lead to the 201 situation in the first place?
Mr. Aldonas. First, I need to take exception, Mr. Chairman,
with the impression that this was political. I know that the
press; particularly, in the Wall Street Journal and a number of
other places, described the exclusion process either, A, as
being bending over backwards for domestic political
constituencies or alternatively, bending over backwards for our
foreign trading partners. It was neither.
Now the President set out a basic standard, which was we
were going to grant exclusions where steel was not available in
particular grades with particular chemistry in reasonably
commercial quantities.
The problem that the steel industry themselves face is
there is actually no merchant market for slab any in the United
States. So if you are going to get slab to realign your plant,
either you are chipping away at your own inventory, which would
have made sense over time.
But if you are caught short, and you want to do the realign
and we want to continue the adjustment process in the steel
industry in our view it made sense to grant them exclusion for
slab from abroad. That was consistent with the original
exceptions that the President granted for slab at the outset.
What we have seen, frankly, is a higher demand for slab
than we expected as a part of that process. So I would have a
tendency to view what we did for the steel industry at the tail
end of the exclusion process something that was consistent with
the President's initial action in terms of providing that
exclusion for slab because there is simply no merchant market
for that in United States.
Chairman Manzullo. The argument also would then apply to
the steel users. They ended up being second-class to the steel
producers. They wanted the very same thing. They wanted the
bread and butter of steel so they could make their products. So
the administration discriminated against the producers in favor
of the manufacturers. Don't you think that is inconsistent?
Mr. Aldonas. I don't see it that way, Mr. Chairman. Apart
because what we really did press very hard on was whether or
not a product was produced in the United States, and I have
gone through the Midwest recently, what I think--a lot of the
small businesses that I talked with would agree is that the
steel that they use is garden variety steel that is
manufactured in the United States.
From the steel industry's perspective, with respect to
slab, there is no merchant market for slab in the United
States. The only source is abroad.
Chairman Manzullo. That brings up another point. Mastercoil
Spring in McHenry, Illinois filed for an exclusion and the
response from Sumiden was an objection. Maybe the Attorney
General should be involved in this. Because lo and behold,
after the exclusion was denied, Sumedin sent this memo to
Mastercoil.
[The information may be found in the appendix on pages 146-
150.]
Chairman Manzullo It says ``Currently Sumiden does not have
production capacity to produce 100 percent of requirements. We
would have to provide delivery information on an order by order
basis.'' And the price of coil was 33 percent more; this, to
me, is what it means to have political exclusions.
The steel companies came in. Their statements were accepted
as gospel. No one could go beyond the face of them. You didn't
give the steel users the opportunity to challenge them.
The whole system of exclusions were skewered and bent in
favor of the objectors. And now we come back here, and my
question to you is, when we have obvious fraud that took place
on the part of Sumiden Wire Products Corporation out of Dixon,
Tennessee, with a memo coming after these exclusions were
denied, do you have the authority to go back----
Mr. Aldonas. Sure.
Chairman Manzullo [continuing]. And to take a look at those
exclusions?
Mr. Aldonas. What I have asked the----
Chairman Manzullo. Do they have to wait until March?
Mr. Aldonas. No. I mean, this is one of those incidents
where, which I have said to a number of the users that I've met
with--is where there is real evidence that the objection was
not one that was based in fact, we will want to take a hard
look at that.
We didn't design this system to impose a dead weight loss
on our consuming industries. So where they had a legitimate
claim, we wanted to grant the exclusion where something wasn't
being produced in the United States of that type or grade. So
where there are instances wherethere was an objection
registered, and in fact, that objection didn't prove to be accurate. I
don't wand the legal finding to it.
Chairman Manzullo. They lied.
Mr. Aldonas. In those instances, I think we want to go back
and take a look at them. What I have done is invite the users,
when they have those situations, to get in touch with us
directly because I do want----
Chairman Manzullo. A bunch of them are going to see you
later on this afternoon.
Mr. Aldonas. I know that, Mr. Chairman. I do want to say,
though, in defense of the folks who--my colleagues at the
Commerce Department--they did an extraordinary job. You can
appreciate that in a process like the exclusion process. You
will get a lot of pressure from both the steel consumers and
the steel producers.
These guys played it right down the middle. They understood
what the standard was that the President had announced, and
they pressed very hard. Is it possible in instances we didn't
go far enough? Sure. Absolutely. And we want to take a look at
them.
Chairman Manzullo. We have go vote. We are going to stand
adjourned and appreciate your indulgence. Thank you.
[Whereupon, at 10:37 a.m., the meeting was adjourned to
reconvene at 11:15 a.m.]
Chairman Manzullo. If all of you could please have a seat
there, if you can find one, the hearing will be back in
session.
I have one more question, Mr. Secretary, and then we can
finish up here. We also have another constituent, Arnold
Engineering, in Marengo, Illinois. They import ARNOKROME-5C
material and we have the same problem there. They have a 30
percent tariff and are liable for another 8.47 percent
antidumping duty on some very sophisticated material that is
not made in the United States. They missed the May 20th
deadline to file their exclusion request.
These go on by the hundreds. I guess what I am asking you
is probably the impossible, but we have to have a mechanism to
process these new requests. Give me some guidance on how,
either our office or somebody in your office that we can get
these in. They are all urgent, but could you give me some
guidance on this, Mr. Secretary?
Mr. Aldonas. Well, certainly on the ones that we talked
about before, Mr. Chairman, about situations where we are
arguably--were mislead by a steel company's objection or they
misfired in terms of the objection they registered, we want to
hear about those because those are things we should address.
They were in time. They made their application. Something
that if the facts were not as we understood them, that is
something that we ought to revisit. On the others,
particularly, with respect to dumping, where the product is--in
fact, there is an exclusion process, as I understand it, under
the dumping laws as well. That is something where it would be a
question of either talking with me or Faryar Shirzad, who is
the Assistant Secretary for Import Administration.
But as I have consistently said, Mr. Chairman, I think that
consumers should use me as a voice in the process, and that I
want to hear from them. When the President and the Secretary
have talked about the need for an initiative with respect to
manufacturing, we want to make sure we honor the fact that
steel is at the core of that because I think that's the core of
our manufacturing industry. But that certainly isn't to the
exclusion of everybody else who at the Commerce Department we
represent.
Chairman Manzullo. I appreciate your openness. Ms.
Velazquez?
Ms. Velazquez. Thank you, Mr. Chairman. I thank you, Under
Secretary Aldonas. After listening to Chairman Manzullo's
complaints about whole exclusion process, how would you answer,
or what type of comment can you make regarding those steel
manufacturers who claim that the exclusion process is biased
and unfair?
Mr. Aldonas. I just want to clarify, Congresswoman, when
you say steel manufacturers, do you mean the steel producers
are saying that it's bias and unfair, or the steel consumers?
Ms. Velazquez. Consumers.
Mr. Aldonas. Consumers? The President laid out in his
decision on March 5th, the standard which we would apply
throughout the process. We were guided strictly by the
President's standard, and that was if a product was not
available in commercial quantities in the United States, we
were going to grant the exclusion.
I think our steel producers would vouch for the fact that
we pressed very hard whenever they came in with an objection. I
think there is instances, which the Chairman has alluded to,
where we may not have pressed hard enough; but we really did
press very hard to insist that we had evidence that they--not
only they were going to produce it, and it wasn't just a
question of saying they there capable of producing it; but I
think actually produce it in the time frame that was relevant
from the point of view of the consuming industry.
So the fact that they could say, look, we can be up and
running in two-and-a-half years, and that means we can produce
the steel. That wasn't good enough for us. We had to say can
you produce it now and can you satisfy the needs of the
consumer? Otherwise, as far as we are concerned, the product is
not made in the United States in all practical terms.
So the bias in the system was one to use only the standard
applied by the President, but to lean very heavily on the steel
guys to say we really have to understand whether you can
produce this way now in a way that is relevant, commercially,
from the point of the consumer.
Ms. Velazquez. How can you explain how the steel tariffs
are part of the administration's three-year program to assist
the steel industry?
Mr. Aldonas. Congresswoman, it's a good question.
Traditionally, what you are trying to do with one of these
safeguards is you create a price wedge between what had been
the pricing situation and what would be something more nearly
historical market conditions. The 30-percent tariff was
designed to do that. I have to say steel prices, while they are
up in some categories, and up significantly in some categories,
overall they haven't actually recovered to the historical
levels even with the 30-percent tariff.
In fact, looking forward toward the end of the year, steel
prices in the spot market are already softening again because
of softer demand and increasing imports, despite the tariffs.
But the point was to make sure that you drove that price
wedge in there so that the capital markets would see that there
was a little more profitability on behalf of the steel
companies and that they could go to the capital markets and
look for opportunities for them to try and, either retrofit
their existing plant to become more competitive or engage in
mergers and acquisitions or consolidations that would make them
leaner and more efficient.
Ms. Velazquez. Mr. Aldonas, the Consuming Industries Trade
Action Coalition is recommending that the administration get
rid of the tariffs. Can you share your comments on that?
Mr. Aldonas. Well, in my view, the tariffs the President
put in place haven't yet served their purpose. And I look at
that two ways. One, we haven't yet seen the kind of adjustment
in our own industry that the breathing space is designed to
encourage. It's happening, but it's not complete. So I think it
is going to take some more time for that process to play out.
The other thing is to the extent that tariffs serve as
leverage with respect to our trading partners. We have
accomplished a lot in the OECD negotiations, but we are nowhere
near ourgoal. I think that we have to stay the course in terms
of trying to ensure that other trading partners come around because,
really, the solution to this problem in the steel industry is not the
201. Our own steel industry will tell you that.
Until we get to the root cause of the problem, we haven't
really solved it. We will continue in this cycle that we go
through every 10 years, which nobody has an interest in doing.
I was reminded at the break that the steel industry in Paris at
the most recent round of talks stood up and were unanimous
about wanting to go forward with market reforms. It was only
when the governments came to the table in the meetings later
that we started to have trouble.
So what I heard from industry across the board was an
understanding that there is going to have to be adjustment in
all countries in terms with coming to grips with the problem.
We have a little bit more difficult time when we get the
governments in the room to talk about that stuff.
Ms. Velazquez. You mentioned before that access to capital
was an important issue. Can you please expand on that?
Mr. Aldonas. Sure. Well, first, let me say that access to
capital isn't the only issue. The market has been working with
brutal efficiency in terms of driving adjustment through the
industry with 34 bankruptcies and an awful lot of plant
closures, but with more capital available, for example, it
allows an integrated company to realign plants that will make
them efficient going forward.
It allows companies to engage in acquisition strategies
that would consolidate capacity so that what is left in the
U.S. market is the most efficient production. It would also
allow investment of research and development, which would allow
all U.S. companies to move up the value chain and earn a higher
rate of return.
Ms. Velazquez. Mr. Aldonas, are you aware that the
administration, through the SBA loan programs, that these
programs have been cut--the funding has been cut?
Mr. Aldonas. I am aware of that.
Ms. Velazquez. Would you approach the President and
economic advisor, Mr. Lindsey to tell that at this time is the
wrong approach?
Mr. Aldonas. Certainly, in terms of my own experience with
my good friend Hector Barreto and all the work that SBA does,
anything we can do to reinforce the SBA, but I will have to
look into that.
Ms. Velazquez. Yes. The administrator, believe me, he has
done, and he is trying to do everything he can because, he as a
businessman, understands the need for access to capital; and
how this loans programs through SBA played an important role.
So 40 percent of most loans in this country that are provided
to small business come through SBA. So it is not Mr. Barreto.
It is Mr. Lindsey and it is the President.
Mr. Aldonas. No, all I was commenting on is the fact that I
think Hector is doing a wonderful job. I know that on the
export side, Hector and I have collaborated a lot. He is
somebody who you can have a lot of confidence in, but I am
happy to take the message back. I will raise it with Secretary
Evans this afternoon.
Ms. Velazquez. Thank you, Mr. Chairman.
Chairman Manzullo. Congresswoman Tubbs-Jones.
Ms. Tubbs-Jones. Thank you, Mr. Chairman. Good morning.
Just in case people don't know, I hail from the great city of
Cleveland, the home of LTV Steel. The home of many small steel
manufacturing companies, and we have gone through a significant
loss of jobs and restructuring and reworking with regard to the
steel industry. I have offered several pieces of legislation
trying to address the issue of legacy costs on behalf of the
steel industry.
I wonder, Mr. Aldonas, what is your position on legacy
costs and how do we pay for the legacy of great people who have
worked in the steel industry forever and ever and ever and
deserve to have some type of retirement program that would
cover their health care costs?
[Ms. Tubbs-Jones's statement may be found in the appendix.]
Mr. Aldonas. Well, my instinct is always to say what is
available already. And when we look hard at the legacy cost
question, what we found was--and let me break it down. With
those folks who were over 65 and already retired, the Pension
Benefit Guarantee Corporation would take up 97 percent of their
pension.
They would have Medicare, Medicaid and low cost insurance
programs, Medigap, available to them from the government. And
then, with the folks who were 45 to 65, who--I think it's
reasonable to say they should still find work elsewhere during
that period of their lives as you and I are going to have to
do.
To the extent that you could help them in the interim with
their health care costs, it is pretty clear that under the
Department of Labor's National Emergency Grants, you could make
block grants to communities to try and address that particular
issue.
So in fact, when we looked at it from the point of view of
the administration, it looked like there was a panoply of
programs available from the U.S. government that could actually
help address that without having to provide additional money
from the Congress.
The other point I think is fair to say is that----
Ms. Tubbs-Jones. Let me stop right here for a minute. Are
you saying there are programs that could, in fact, cover those
costs in communities like the City of Cleveland, but that's a
``could.'' That is not that you're committing--that the
administration is committing dollars for that purpose, correct?
Mr. Aldonas. No. What we have said is we are interesting in
trying to work with communities on that.
Ms. Tubbs-Jones. No, go back.
Mr. Aldonas. What you asked me, Congresswoman, was what
was----
Ms. Tubbs-Jones. Will you answer my question, sir? The
question--answer my question. The question is that you could do
that. You are not committed to doing that, have you, sir?
Mr. Aldonas. The question you asked me was whether----
Ms. Tubbs-Jones. No, answer that question. You could do it,
could you not, sir? Excuse me, Mr. Chairman, I am going to be
kind.
Chairman Manzullo. I would instruct you to let the witness
answer the question.
Ms. Tubbs-Jones. But he doesn't want to answer the
question, but you could, correct?
Chairman Manzullo. Give him the opportunity to do so,
please.
Ms. Tubbs-Jones. Mr. Chairman, thank you.
Mr. Aldonas. But we have not had anyone take us up on that,
and this was a subject of a great deal of discussion at the
time the President took the action under 201.
Ms. Tubbs-Jones. You haven't had anyone come to you and
say, okay, that the legacy costs are significant and we're
applying to you to take over those legacy costs through those
programs, is that correct?
Mr. Aldonas. What we have had is a number of companies that
have come and said to the Pension Benefit Guarantee Corporation
that we want you to take over the pension costs. That has taken
place. In fact, the PBGC has actually been proactive in many
instances in removing the legacy costs from certain companies
since they act in some sense as a steward of the pension
program. So that action has taken place.
I was actually discussing more narrowly the point about the
Labor Department programs, and in that case I don't purport to
speak for the Labor Department. I know that the programs are
available, and that it was clear to many of the folks we were
talking to, including the steel workers unions, that those were
possibilities.
I don't know whether any community has actually come
forward and asked for national emergency capital.
Ms. Tubbs-Jones. Before you said no one had asked, did you
not, sir, in your answers?
Mr. Aldonas. To the best of my recollection, no one has
asked for that----
Ms. Tubbs-Jones. You can represent that?
Mr. Aldonas. I just did.
Ms. Tubbs-Jones. But you are not speaking for the
Department of Labor?
Mr. Aldonas. No.
Ms. Tubbs-Jones. Let me ask another question, okay? If you
will allow me.
Mr. Aldonas. Yes.
Ms. Tubbs-Jones. In addition to legacy costs, there are
small businesses who believe that, as a result of the tariffs
being imposed, that their businesses are suffering. When you
look at tariffs, is there a way in which small business can be
successful or benefit as well as the larger steel industry can
benefit? And if so, what is that balance or twix-between that
we can weigh in to do so?
Mr. Aldonas. I think the answer is it depends on their
pricing power in the marketplace. Small businesses that are
stuck between a service supply center, which is not a steel
producer, but acts a middleman who is jacking up prices on the
one hand; and they buy in very small quantities, isn't going to
have any market power with respect to their supplier.
On the other hand, they are not likely to have a lot of
market power with respect to the upstream industry--the auto
industry, for example, to whom they sell. They are going to be
caught in a vise. Where small business have more a market nitch
where their product is more unique and things like that, and
they have the pricing power, I think they can pass the price
on.
A point to make is that prices are already starting to
abate in the steel industry. So if you look forward to the
fourth quarter, you can already see spot prices starting to
soften, which I hope, which in addition to exclusions will
provide some relief to small businesses.
Ms. Tubbs-Jones. I don't want to presume that small
business is jacking the prices as you have said. I am sure
there are some small businesses who have succeeded out----
Mr. Aldonas. That is not what I said, Congresswoman. What I
said was service supply centers who are middlemen between the
steel producers and the small businesses where the consuming
industries are reading the market and driving the prices up
higher than that which steel producers are selling in the
marketplace.
Ms. Tubbs-Jones. You know what, I don't want to take my
time to read back what you said, but I know that you said that
small businesses are jacking up prices.
Mr. Aldonas. I did not.
Ms. Tubbs-Jones. Let me finish, and just let me finish.
Chairman Manzullo. You are out of time here.
Ms. Tubbs-Jones. I am out time. So let me complete with
this, sir. I don't want to presume that there are small
businesses across this country who are not doing the job that
they think are--they are not true business people who are
engaging in conduct that would be inappropriate. So I am going
to be there fighting on their behalf, sir.
Mr. Aldonas. Wonderful.
Chairman Manzullo. I guess as the Chairman, I have the last
comment. Thank you, Mr. Secretary. We have in our book of steel
correspondence, Mr. Secretary, letters from steel manufacturing
users, accompanied with letters from the steel suppliers, and
the steel suppliers, the middle men are attaching letters
coming directly from the steel manufacturers.
One of them is Bethlehem Steel. I would just like to
mention names because I like to hold people accountable. I
really would challenge the statement that the so-called middle
men, or the steel suppliers, are responsible for gouging. The
steel companies call it profit recovery.
I have written to the Attorney General. He has not had the
kindness to answer my letter yet asking for an investigation
for collusion, and anti-trust, monolopolistic type of
practices.
[The information may be found in appendix on pages 97-98.]
Chairman Manzullo. It has not happened. I can show you. In
fact, you have the latest steel correspondence book, I would
you track in there exactly the fact that it is the steel
manufacturers themselves break a contract with the steel
suppliers, saying, sorry, we are breaking the contract and the
steel suppliers have to pass that bad news on to the steel
users.
You had a comment?
Ms. Velazquez. You just mentioned that the Attorney General
didn't respond. He hasn't responded?
Chairman Manzullo. No, he has not responded.
Ms. Velazquez. So maybe we need to subpoena him.
Chairman Manzullo. Well, let me take that under
consideration.
[Note for the Record: The Justice Department responded on
October 3, 2002. See page 98.]
Chairman Manzullo.Mr. Secretary, I want to thank you for
your indulgence, and to thank you for being here. I thank you
also for the willingness to work with us on those exclusions
that obviously fell through the cracks.
Mr. Aldonas. Thank you for the opportunity.
Chairman Manzullo. Thank you, again. You are excused.
[Recess.]
Chairman Manzullo. We have the second panel here.
Congressman Nick Smith, would you like to introduce your
constituent. Your statement will be made a part of the record.
Mr. Smith. Thank you, Mr. Chairman, thank you. I do welcome
Christine Dowding from Dowding Industries here.
Just let me briefly say that the high tariffs in Michigan
and many other parts are having the result of losing jobs and
driving business out. Just for the statistics, for every one
person working in the steel-producing industry, there is 57
people working in the steel-using industry.
The economist in Michigan suggest that we are going to lose
6 to 10 jobs for every 1 job we save in steel-producing. With
that, it's my honor to introduce Chris Dowding, president of
Dowding Industries and Dowding Industries is a 36-year-old
family-owned stamping business that employs about 140 workers
in my district. I am very proud to have Chris here today.
I might add that many of the steel-using industries have
come to me. They would like to be added to the 700-odd
exemptions that the administration has already made on giving
exemptions for some of the steel for particular industries that
causes great distortion.
I have a Fortune 500 company that is threatening to move
out. This is one company that is under duress because of the
problems of the tariffs. I applaud the Committee for holding
this hearing and certainly welcome Chris Dowding, who is the
president of Dowding Industries. So thank you.
[Mr. Smith's statement may be found in the appendix.]
Chairman Manzullo. We appreciate your participation.
Congressman Hobson, you alsohave a constituent that is here
today.
Mr. Hobson. Thank you, Mr. Chairman. First of all, let me
say to you, Mr. Chairman and members of this Committee, I
really appreciate all the hearings you have had relating to
small business. As you know, we have had a couple of other
areas where we have worked together to try to improve things
for small business, and I really appreciate the proactive
stance you have taken, not just for this hearing, but with a
couple of other issues that we have taken on and your
championship of that.
I, today, want to introduce my constituent Jennifer John
Friel, President of Midwest Fabricating in Amanda, Ohio. I have
toured this facility and seen first-hand how hard it has been
for this company to operate in these uncertain times. Midwest
is representative of other small businesses that drive my
state's economy.
Most are family-owned and operated, and I think there are a
couple in this room besides Midwest, and they are vital to our
local communities just like a lot of other small businesses. I
am a small businessman by background myself.
Nick Smith was talking about the business as it affects
Michigan, and the steel-consuming businesses, such as Midwest
have 20 employees in the State of Ohio for every 1 that is a
steel-production job. So we have a lot of people that are
involved in the manufacturing side of this.
But the interesting thing about this is that Midwest is
incurring a lot of problems because of these tariffs, and
hasn't purchased any imported steel. This is occurring not only
there, but other people in this room from our district are
having the same problem.
I think the tariffs were well-intended, but I think they
are creating new problems without solving the old one. If they
were designed to save our nation's steel producers, who is
going to rescue Midwest and other companies as they suffer from
these tariffs?
The other thing I would like to say, and I can't say this
for Midwest, but I have seen those letters that you referred to
before where people just broke the contract and they just said
if you want you, you are going to pay it. We don't care what
agreements we made before. That's the deal. I think that's a
terrible way to do business in our society. I don't think it
should be stood for. With that, at this point, introduce
Jennifer to all of you.
She runs a wonderful company in Fairfield County, Ohio. She
has a couple of locations there. Thank you for allowing these
people to come in and tell their stories.
[Mr. Hobson's statement may be found in the appendix.]
Chairman Manzullo. Thank you for participating. You are
both welcome to sit on the panel as long as you can, and we
will go from there.
Our first witness is Jon Jenson, President of the Consuming
Industries Trade Action Coalition. We look forward to your
testimony.
Mr. Hobson. He is from Ohio, also; but he is not from my
district or Stephanie's.
Chairman Manzullo. Okay. That's great.
STATEMENT OF JON JENSON, CAE, VICE CHAIRMAN & PRESIDENT,
CONSUMING INDUSTRIES TRADE ACTION COALITION (CITAC),
INDEPENDENCE, OH
Mr. Jenson. Mr. Chairman, the Section 201 tariffs are
reeking havoc in the steel market for downstream manufacturers,
despite what you are hearing today. Skyrocketing prices,
uncertain supply due to allocations and lengthening lead times,
broken contracts and growing quality problems are forcing steel
users to the brink of disaster.
We urge the administration to end this tax on steel-using
industries as soon as possible.
We thank you for your leadership and your continued
attention to the steel issue. Many of the witnesses at the
Committee's July 23rd hearing testified to the damage done by
the steel tariffs. As you will hear from the witnesses today,
the situation has not gotten any better. In fact, it's gotten
much worse.
The exodus of business to offshore manufacturers who can
obtain steel at globally competitive prices is accelerating.
Particularly alarming are shocking indications that more, new
designs for parts and components for future products are being
shopped overseas. Once this business leaves this country, it is
not likely to return.
Furthermore, the ripple effect of the tariffs impacts the
companies that supply steel-using manufacturers such as service
centers, machine tool builders, welders, finishers, platers,
assemblers and others. The list of well-documented reasons for
ending the steel tariffs is more compelling than ever.
First, the tariffs are doing far more harm than good to our
economy at a time when we can ill afford it. Second, they do
not address the cause of the steel industry's problem, which is
the non-competitiveness of certain integrated producers due to
relatively high costs and operating inefficiencies.
Third, they threaten relationships with our trading
partners. Fourth, they interrupt critical steel imports that
are absolutely essential since we must depend on imports to
supply 20 to 25 percent of our domestic demand. Fifth, they
restrict fairly as well as unfairly traded steel for which
antidumping and countervailing duty laws exist and are widely
used.
Sixth, ironically, the tariffs inhibit and delay
realization of the very goal for which they were imposed--the
rationalization, restructuring and consolidation of non-
competitive U.S. steel capacity. How much damage must be done
and how many U.S. jobs have to be lost before the
administration recognizes that the steel tariffs was a mistake
and must be lifted?
Exclusions are not the answer. The exclusion process, the
only mechanism for providing relief for steel users is a blunt
instrument ill-suited for the micromanagement of the
international steel market. It's a flawed process, inadequate,
ineffective, inherently unfair and manipulated to the
disadvantage of the steel user.
The steel companies would have you believe a lot of things,
among them that the exclusion process gutted the Section 201
safeguard remedies. That's not the case. Steel tariffs still
covers 75 percent of the tonnage potentially subject to the
tariff--about 9 million tons per year.
Furthermore, about half of the excluded tonnage is semi-
finished steel for the sole use of U.S. steel companies
themselves. Clearly, the domestic steel industry has no basis
to complain, and the exclusion process was seriously flawed.
Steel producers manipulated the process by representing
that they were ready, willing and able to supply specific
products when that was not, in fact, the case. The process was
neither transparent nor fair. Those applying for exclusions had
little opportunity to rebut objections raised by the steel
producers.
In many cases tonnage limitations on granted exclusions
were simply inadequate. Further, the process is fundamentally
dysfunctional because the benefit from any exclusion goes to
those companies that import the product first. There is no
guarantee that the companies that actually file for the
exclusions will receive any benefit from the exclusions at all.
The bottom line is that even after all these and other
problems are resolved, the product exclusion process cannot
solve all of the dislocations caused by the steel tariffs
because manycompanies use domestic steel and are not eligible
for product exclusions.
The only solution is early review and repeal of these
tariffs. Between 1995 and 2001, steel-using manufacturers,
mostly small businesses, added 1,255,000 new jobs to the
economy according to the Bureau of Labor Statistics. Today,
they employ 13 million Americans compared to less than 200,000
in steel-producing industries.
Chairman Manzullo. How are you doing on time?
Mr. Jenson. One paragraph.
Chairman Manzullo. One paragraph? Make it short.
Mr. Jenson. It is, indeed, ironic that such an important
generator of economic growth is being punished by our steel
trade policy. Here is that paragraph.
Efforts to reduce the world's excess capacity of non-
competitive steel production are laudable, but are proceeding
at a snail's pace--maybe we will see results some day. Steel-
using manufacturers who are struggling now for their survival
should not be held hostage to this process. They can't want
until some day. The tariffs must be lifted now regardless of
the progress of the OECD negotiations. Thank you.
[Mr. Jenson's statement may be found in the appendix.]
Chairman Manzullo. Thank you for your testimony. We are
going to have Mr. Mark Kennedy introduce his constituent, and
then we are going to go to Mr. Hobson's constituent for the
next testimony. That is Jennifer Friel.
Mr. Kennedy.
Mr. Kennedy. I thank you much, Mr. Chairman, and thank you
and the Committee for bringing up this very important topic.
I think when you look at the steel tariffs that were put in
place six months ago, they were meant to help a few; but as we
are hearing today, they have hurt many. We oftentimes hear the
big companies story on this, but understanding how this effects
small job-producing companies in our districts is absolutely,
critically important.
I have seen this over and over, but probably no case where
it is more real than in the case that we bring before you today
in Wilson Tool, a manufacturer in Hugo, Minnesota outside White
Bear Lake. We have with us, Mr. Brian Robinson, the president
of manufacturing of this company. I have been there. I have
seen the exclusion that they should have received, and we're
putting 40 jobs at risk.
We are putting export jobs at risk when we are competing
against foreign manufacturers and we impose a cost on our steel
fabricators that is higher than their export competitors are
facing. We are really putting out own economic vitality at
risk.
So I am very pleased to have Mr. Robinson with us here
today, and just to show how this is impacting Minnesota, we are
also very pleased to have Erick Ajax from Minnesota here as
well. It is a very important issue, and I applaud you for
bringing this issue up.
Chairman Manzullo. Thank you for your participation.
Our next witness is Jennifer Johns Friel. We look forward
to your testimony.
STATEMENT OF JENNIFER JOHNS FRIEL, PRESIDENT, MIDWEST
FABRICATING CO., AMANDA, OH
Ms. Friel. Thank you for inviting me to participate in this
hearing. My name is Jennifer Johns Friel, as the Congressman
said. I'm president of Midwest Fabricating Company. Midwest is
a leader in the cold-forming of steel wire into special
fasteners and rods for automotive, lawn and garden applications
as well as a magnitude of components for various industrial and
consumer products, including appliance, highway and housing
construction.
Midwest Fabricating is a family-owned corporation. We were
started in 1945, headquartered in Amanda, Ohio. We also have
operating divisions in Lancaster, Ohio and in Santa Fe Springs,
California. We have approximately 260 families that rely on
Midwest for their employment.
My company has been adversely effected by the Section 201
tariffs on steel, even though we only buy from North American
producers. We process an average of 20 million pounds of
material each year, which happens to be industrial quality rod.
The steel tariffs have prompted our suppliers to
dramatically increase the pricing of this material, and more
importantly, extend the lead times from a historic 4 to 6 weeks
to upward of 12 to 14 weeks.
The 201 remedies have caused tremendous dislocation in the
market that have seriously affected my ability to get the steel
I need at a reasonable price. It is very difficult to operate
under these conditions. Our customers will not consider price
increases; do not give us firm schedules 12 to 14 weeks in
advance; and therefore, we are not certain that today we are
even buying the materials that we need to supply them in the
future.
Here is an example of the problem that we are facing. Our
steel supplier pushed back a quoted lead time an additional
three weeks. Since we owed parts to an assembly line that could
not wait three weeks for parts, we had to purchase material on
the spot market from a supplier that we consider to be
substandard.
Half of the material we purchased turned out to be
defective, resulting in contaminated material throughout out
supply chain. The sorting, evaluation and containment costs
that were associated with this one order caused us to lose a
substantial amount of money.
Obviously, we don't want to, and more importantly, cannot
afford to, continue to repeat situations like this. It is very
difficult to run a business when you don't have any assurance
that you will be able to obtain the raw material you need.
While we are doing everything that we possibly can to obtain
the steel we need, we are very concerned that a lack of steel
will mean that we will not be able to supply particular orders.
The pricing and delivery environment that has developed in
wake of this Section 201 decision is also of concern to our
customers. After the steel tariffs were put into effect, one of
our longstanding customers placed a huge order with a Canadian
supplier instead of with us because the customer was concerned
that we would not be able to get the steel we needed. Now this
order was worth $5 million a year over an eight-year span. We
are a $25 million company. It is a significant order to us and
the people who work with us.
It will be very difficult to replace this business. This
particular part will have a life span of eight years, as I
said. It will not come up for redesign for another eight years.
So even if these tariffs are not taken away today, I am still
going to be suffering way after the three years, if they last
that long, because of what has happened with the 201 decision
right now.
The steel tariffs have clearly harmed many downstream
consuming industries. The impact, I think, is spreading far
beyond what could have been anticipated into businesses such as
mine. We are clearly an unintended consequence. Please help me
and the people who work with me by taking action to help lift
these tariffs as soon as possible. I thank you.
[Ms. Friel's statement may be found in the appendix.]
Chairman Manzullo. Thank you for your testimony. Our next
witness is Erick Ajax from E.J. Ajax and Sons, Inc. They are
metal stampers out of Fridley, Minnesota. We look forward to
your testimony.
STATEMENT OF ERICK AJAX, VICE PRESIDENT, E.J. AJAX AND SONS,
INC., FRIDLEY, MN
Mr. Ajax. Thank you very much, Mr. Chairman, for inviting
me to testify today. I am vice president of E.J. Ajax and Sons,
and we primarily produce hinges and other steel parts that are
used in the appliance industry known as the light good
industries, and also electrical enclosures that we sell
worldwide.
E.J. Ajax has made a concerted effort in the last 10 years
to be internationally competitive. In the last decade we have
made sizable investments in the professional development and
training of each and every one of our employees. For the last
five years, every employee in our company--from the janitor to
the president--has average 200 hours a year of professional
development and job-related education so that we can compete in
the world market.
We put every nickel of our profit for the last decade--the
last two decades back into our machinery and equipment and
paying our taxes. We have been able to reduce our total cost of
labor from over 15 percent to down under 9 percent.
Chairman Manzullo. Why don't you take a sip of water there.
We won't charge you for the time.
Mr. Ajax. Thank you, Mr. Chairman. So these efforts are
really successful in helping us compete all over the world. We
have, up until recently, been able to export more than a third
of the steel hinges and parts. But I have to say that the 201
tariffs have made it very difficult for us to sell
domestically, yet abroad.
We primarily buy hot rolled and cold rolled steel and
galvanized from service centers. This is the plain manila
material that we have helped our customers engineer into their
product, and we estimate that 70 to 80 percent of this steel is
purchased from domestic sources and always has been.
However, since the imposition of the 201 steel tariffs, our
raw material lead times have gone from days to months. Most of
our long-term contracts were also broken within weeks of
President Bush's proclamation of imposing the steel tariffs.
We have been forced into the spot market in many cases, and
this uncertainty as to supply makes it very, very difficult for
us to continue to do business. In addition, the steel tariffs
have increased our costs from between 30 and 60 percent. Keep
in mind that the steel that we use in the hinges that sell to
the world market represent 50 percent--50--of our total costs.
Since the vast majority of our customers are unwilling to
accept the prices increases, they have turned to the world
market. We have been successful in passing a small, and I
emphasize a small, portion of our price increases onto our
customers. They have clearly told us that we are shopping those
parts so that we can remain competitive in the world
marketplace.
Several of our customers have already began to purchase
parts from the other countries, and some of them are seriously
considering moving more and more of their manufacturing out of
the United States. We have lost several Fortune 500 companies
out of the Minneapolis area in the last 12 months and more are
on the way.
One of our largest customers just told me yesterday that a
family of parts that we sell to them was recently quoted with
three Chinese sources at a 50 to 70 percent savings over what
we are currently charging for the part. That is a sizable
contract that is really is about 10 percent of our total sales.
Since the steel imports were imposed on March 5th, we have
had to lay off a total of 20 percent of our work force. You
talk about having to look someone in the eye--we have a small
family business and this is very, very difficult. I can
attribute that 20 percent directly to the 201 steel tariffs,
and there is the prospect of more to come.
On behalf of the employees of E.J. Ajax, and the other 13
million employees that consume steel, we urge you to lift these
tariffs as soon as possible. Thank you very much, Mr. Chairman.
[Mr. Ajax's statement may be found in the appendix.]
Chairman Manzullo. Thank you for your compelling testimony.
Our next witness is Jay Carlson from G&R Manufacturing, Inc. in
Naugatuck, Connecticut.
Mr. Carlson. Naugatuck, Connecticut. That is correct.
Chairman Manzullo. Is Congressman Nancy Johnson your
member?
Mr. Carlson. She is but she is not able to be here.
Chairman Manzullo. I understand. We look forward to your
testimony.
STATEMENT OF JAY CARLSON, PRESIDENT, G&R MANUFACTURING,
NAUGATUCK, CT
Mr. Carlson. I thank you for inviting me to testify this
morning. My name is Jay Carlson, and I am president of G&R
Manufacturing. But I have got to be honest with you----
Chairman Manzullo. Jay, could you put the mike closer to
your mouth when testifying? Thank you.
Mr. Carlson. I have got to be honest. I feel like I am
preaching to the choir here because, as I see it, anybody who
should be listening to our testimony this morning has already
left the room. So that's actually a little bit disheartening.
G&R Manufacturing is located in Naugatuck, Connecticut. The
company began operations in 1972; primarily, as a metal
stamping house. We have grown into a full-service turn key
manufacturing facility. G&R Manufacturing provides everything
from basic stampings, progressive stampings, transfer press
eyelets as well as intricate multi-component assemblies. We
currently employ 40 workers.
G&R requires 550 tons of steel each year. We buy our steel
domestically through service centers. The steel tariffs imposed
by the present in March have reduced the availability of steel
in the market to the point that our supply of steel is not
reliable.
Our service centers have been put on allocation. As a
result, we have experienced sever shortages of certain steel
grades as well as unacceptable increases in lead times for
others. Lead times have increased from 4 to 6 weeks to 16 weeks
or more. The increased lead times have places some of our
automotive customers in potential lying down situations.
In order to avoid this situation, we have had to pay extra
of expedited shipping and obtain our steel from alternative
sources. This has increased our costs significantly and it
could potentially jeopardize the quality of our products. The
alternative sources that we have to utilize are not necessarily
the best quality, but they are our only alternative.
In addition, we have to face steel price increases of 40 to
60 percent. This translates into additional costs for my
company of $100,000 to $200,000 a year. G&R is a small business
and cannot absorb these costs, nor do we have the power to pass
these higher costs onto our customers. We are already competing
in a global market that is a rather uneven playing field in
terms of labor, health and environmental costs.
The steel tariffs have tipped the scales even further by
making my steel costs substantially greater than those of my
foreign competitors. On top of all that, our foreign
competitors are able to import their product to this country
duty-free. As a result, G&R Manufacturing, like many other
small- and mid-size companies has a difficult time competing
and finds it difficult to stayin business.
I can tell you that G&R Manufacturing's experience is not
unique. As a founding member of the Manufacturer Leadership
Group of Connecticut, which consist of 180 small businesses in
the Waterbury, Connecticut area, I know that the tariffs have
had a ripple effect. As U.S. steel-consuming industries lose
business, so do the companies that supply those industries--
such as service centers, finishers, platers and assemblers. The
situation is only getting worse.
The steel 201 tariffs need to be lifted as soon as
possible. We operate on tight margins and a very competitive
market. The hardship of these tariffs, and our inability to
pass on any price increases, will costs not only jobs, but will
also affect G&R Manufacturing's ability to survive. Thank you
again for letting me testify this morning.
[Mr. Carlson's statement may be found in the appendix.]
Chairman Manzullo. Thank for your testimony. Our next
witness is Christine Dowding. Could you bring the mike closer
to you and bring it down just a little bit there. That's fine.
Thank you. We look forward to your testimony.
STATEMENT OF CHRISTINE DOWDING, PRESIDENT, DOWDING INDUSTRIES,
EATON RAPIDS, MI
Ms. Dowding. Thank you, Mr. Chairman. Good morning, it is,
indeed, an honor to appear before this Committee. My name is
Chris Dowding.
As Mr. Smith stated, I am the president of Dowding
Industries with locations in Eaton Rapids and Springport,
Michigan. I am the second generation of our family business
that my father started in 1965. We are a steel user employing
about 150 employees.
We purchase nearly $7 million worth of steel that is turned
into products for the diesel and automotive markets. Our
customers are such companies as Cummins, Caterpillar, TRW and
Borg Warner.
The Section 201 steel tariff is having a devastating effect
on my business. While we as steel users want producers to be
stateside, I, as a small business, now feel like I am David
facing the immense statute of Goliath.
As a small business, we do not want steel producers as our
foe. We want to join with our fellow Americans and find
solutions to help the ailing steel industries. Solutions that
do not put American steel users at risk of extinction.
Solutions that do not pit 59 user jobs against 1 producing job.
We need to join forces with a solution that does not put us at
odds with each other. We are in business together here.
There are enough economic constraints facing American
companies against global third world competition as has already
been addressed here today, such as the rising insurance health
care costs. Let's not sustain another. We understand that
President Bush has closed his door to this issue, and in the
light of the terrorism facing America, I understand the
priority.
However, President Bush, we pray you will open your door
and hear the voice of the small businessman in America. I am
fighting for the survival of not only my company, but the
survival of my industry, for small businesses all over America.
The heart of America is small businesses. I am fighting for the
long-term jobs of my employees, not the next election vote. My
concern is how do we get the message to President Bush.
My father frequently reminds me that God has blessed our
company when I am feeling like we don't feel so blessed, based
on the current conditions. We worked hard to make good business
decisions as some of our counterparts have stated here today. A
second generation trying to pass on my father's dream. I
graduated from Northwestern University in 1990 with a Masters
degreein Management. We have made a commitment to come out of
every recession better than when we went in. We have invested in our
people through two training grants with our local community college. We
have purchased the latest technology in the world in both laser and
machine cutting.
We have purchased rundown factories and invested nearly
half a million dollars in their renovations. We have survived
the economic downturn of the heavy-duty truck market, and we
had to lay off 130 people. I had to look at those people in the
face and it is horrible. We came out of it and we have
survived, and we still employ 150 people.
My father's dream has been to develop our community and
provide jobs for Americans, not move our company abroad.
However, due to the steel tariffs, we have begun conversations
with a Mexico-based company.
Please understand this was not in my five-year goals or
objectives that we established just last year. However, if this
is what it takes to keep my family business ongoing, we will
pursue it versus the alternative, which is the elimination of
it. We are seeing an average of 16 to 20 percent increases in
material prices, and I have that here and I am willing to
submit it--as much as 66 percent on some of the items to the
tune of $50,000 per month cost impact.
On an annualized basis, this equals more than three times
what my company has made, entirely, in the last two years. As
if piece price wasn't enough alone, we are now faced with
longer lead times, premium charges, charges due to unavailable
material. As a small business user, we buy steel through
service centers. Before the tariffs were imposed, our lead time
on material was two to four weeks. It is now as much as six
months and delivery and quality are unreliable.
We recently had a promise, and we were told, I'm sorry, we
can't deliver that after all. I am running out of time, so I've
got to skip to the end.
Our customers demand 3 to 5 percent cost reductions. They
will not allow us to increase our prices. They are making us be
competitive with Taiwan, Vietnam and Mexico; and if we can't
match the price, we lose the work.
It is an un-level playing field for the small business
users, and why does anybody think a small business user can
play in it any better than the big steel industry.
Mr. Chairman, we are asking for an opportunity to stay in
business and remain competitive in the global market. Without a
reliable, competitive supply, Dowding cannot be a successful
small business. I am confident there is another solution to
help the ailing steel industry without victimizing small
business USA and their employees.
President Bush, let's talk. Thank you, Mr. Chairman, for
this opportunity.
[Ms. Dowding's statement may be found in the appendix.]
Chairman Manzullo. Thank you for your enthusiasm and
sincerity. Our next witness is Brian Robinson from--is it
really Ham Lake?
Mr. Robinson. I am from Ham Lake, yes. The company is in
Hugo.
Chairman Manzullo. Okay, I just never heard of Ham Lake
before. There are a thousand lakes in Minnesota and they
stopped counting. I know the story. Brian, we look forward to
your testimony.
STATEMENT OF BRIAN ROBINSON, PRESIDENT OF MANUFACTURING, WILSON
TOOL INTERNATIONAL, WHITE BEAR LAKE, MN
Mr. Robinson. Thank you, Mr. Chairman. My name is Brian
Robinson, and I am the president of Wilson Tool International.
Wilson Tool of White Bear Lake, Minnesota is a 36-year-old,
privately owned corporation that is the world's largest
independent manufacturer of punch press and press brake
tooling. Wilson currently has 470 employees. In October of 2000
we employed 770 employees.
The total reduction of over 280 employees has taken place
since that time due to the current economic down turn and its
devastating impact on the manufacturing sector. As I sit here
today, I currently have 40 more jobs at risk due specifically
to the tariffs.
I am here to tell you that the steel exclusion process did
not work. It has unintended consequences for further job losses
in the manufacturing sector. Wilson Tool has applied as early
as October 2001 for an exclusion on cold rolled steel products
engineered into special shapes, also known as profiles.
Wilson applied for this exclusion because we were unable to
purchase these profiles from a domestic source. Indeed, we were
assigned an official ``N'' number to the exclusion request, and
reasonably assumed that our exclusion request was accepted and
would be considered.
Accordingly, profile shapes remain subject to the 30
percent tariffs. It does not make any sense to impose a tariff
on a product that is not made in the United States. It does not
help any domestic company and it simply increases our costs and
makes it more difficult for us to compete in the marketplace.
Wilson Tool has always had a commitment to buy steel
products from domestic sources whenever possible. While Wilson
currently purchases 85 percent of its steel from domestic
sources, Wilson has had to import these profiles because we
have been unable to purchase this material from a domestic
source.
When Wilson Tool first developed a need for these profiles,
we actively solicited bids from all U.S. steel manufacturers
capable of producing the profiles. Wilson required 29 separate
profiles with varying sizes and quantity limitations ranging
from 1 U.S. ton to a maximum of 21 U.S. tons per profile per
year. Only one domestic company submitted a bid, and it did not
meet the requirements and quantities or scope.
Accordingly, Wilson has had to resort to foreign producers
and accept the bid of Boehler-Uddenholm of Austria. Wilson
Tools has worked with Boehler over the course of the last two
years and spent tens of thousands of dollars to develop the
profiles to our specs. This development process was lengthy in
part because of all the products needed to be certified and to
go through extensive quality control.
Again, Wilson has always made a commitment to purchase
steel from the domestic source; but when we cannot purchase the
steel we need from the domestic source, we do not understand
why we should have to pay Section 201 tariffs. It makes no
sense. If the exclusion process of the tariffs remain, it
definitely needs to be more transparent to the smaller
business.
In closing, I have come to Washington to testify because
there is something inherently flawed with the process of
obtaining an exclusion to the Section 201 tariff.
When small business must engage lobbyists to represent them
or to be compelled to travel to Washington in order to advocate
their right to be heard, or when a tariff is imposed on
domestic manufacturers for importation of raw steel product
only to have their foreign competition import the same steel
product produced from the same foreign mill as a finished
product without a tariff, then we have a problem.
It is obvious that the exclusion process does not work.
Therefore, the tariffs do not work; and they have caused
unintended consequences to the manufacturing sectors. Thank
you.
[Mr. Robinson's statement may be found in the appendix.]
Chairman Manzullo. Thank you. Our last witness is Bob
Jones, who is director of Marketing, Sheet Mill Group. Oh, Bob
Johns. I am sorry. Somebody correct his name tag there.
Mr. Johns. It's handwritten.
Chairman Manzullo. Johns--J-O-H-N-S?
Mr. Johns. That's correct.
Chairman Manzullo. I am sorry. Bob Johns, who is the
Director of Marketing of Sheet Products of Nucor Corporation.
We look forward to your testimony. We are going to correct your
name plate right now.
Mr. Johns. I feel like the fire ant at the picnic here.
Chairman Manzullo. You are doing fine. You might want to
pull the mike closer to you. Thank you.
STATEMENT OF BOB JOHNS, DIRECTOR OF MARKETING, SHEET MILL
GROUP, NUCOR CORPORATION, CHARLOTTE, NC
Mr. Johns. I am Bob Johns of Nucor Corporation. We are a
steel mill, obviously. Perhaps one of the reasons we are here
is that we put a slightly different view of the 201 decision
than a lot of people, and we have been known for plain talk.
We put it in the context of the need for free and fair
trade. And to us, fair trade means trade according to
international rules agreed upon by the United States and over
100 of its trading partners, not lawless chaos.
Our trading partners have violated the antidumping and
countervailing duty laws with respect to steel so pervasively
that enforcement of our trade laws is virtually impossible. As
a result of blatant violation of international trade rules, the
domestic steel industry was undergoing unprecedented hardships.
The updated number of the number of bankruptcies--our count
is 35 as of a week and a half ago. Roughly 15 million tons of
capacity was shut down, either temporarily or permanently. I
might add, it was fairly suddenly. Even companies like Nucor,
which is the most efficient steel producer in the world, were
finding it difficult in our own home market.
Clearly, something is dysfunctional with the world steel
market. As the result of the presence of imports sold in the
United States in violation of international rules, steel prices
were, as Treasury Secretary O'Neil put it just a few days ago,
fictitiously low. I think that it is worth repeating--
fictitiously low.
The 201 relief has had a beneficial effect on three classes
of small businesses not invited to today's hearing--small steel
producers, companies supplying goods and services to the steel
industry and steel users who depend on a reliable source of
domestic steel and don't have a problem. There are literally
hundreds of these countries in all parts of the United States.
There is a representative of one of these companies here
today, Doug Ruggles of Martin Supply Company. His operation
nearest us is in Decatur, Alabama. Mr. Ruggles, who supports
the 201 decision, had hoped to testify before you today, but
unfortunately, he was not invited as he does not oppose the 201
relief.
The Committee has not heard from any of the other hundreds
of small companies like Martin that supply the steel industry.
I would hope the Committee would hold a hearing that would be
inclusive of those small businesses supporting the 201 decision
at some point.
Some steel consumers have blamed the 201 for rising costs,
increased import competition, andeven the movement of
production overseas. If you look at their claims, you will see that
many of these problems emerged well before the president acted. The
over valued dollar and the sluggishness of the U.S. economy have had a
much greater effect than any 201 relief.
At the same time, the economy data do not indicate that 201
relief has caused either rising prices or increased
unemployment in the general economy. Steel prices have risen
throughout the world--and this is kind of an update for people
that make charts.
In China, for example--and this is as of last week--
transaction prices now for hot rolled coil are higher than they
are in the United States. If foreign manufacturers have any
advantages in steel costs, those advantages are more than
offset by the higher productivity of American workers and the
costs of moving merchandise to the United States.
As for the exclusion process, I can attest that it was not
only exhaustive, but exhausting probably for all parties
involved. The U.S. government granted over one-half of the
exclusions requested. As a result, by our count, about 5.5
million tons remain covered by the 201 remedy. Let me qualify
that by saying its finished product.
The supply issue is old news. Supply is balanced in most
products, and becoming balanced rapidly in others and prices
have stabilized at low levels by historic measures. The
shortage and price message is no longer connected to reality in
the products that Nucor makes.
The president's decision to provide relief under 201 has
had an immediate and positive effect on hundreds of small
businesses across the United States. I implore you to ask Doug
Ruggles. By ensuring that the U.S. steel industry can continue
to supply its customers' needs, it will benefit the thousands
of small businesses using steel as well as those supplying the
steel industry and its workers for years into the future. We do
thank you for the opportunity to express our views.
[Mr. Johns' statement may be found in the appendix.]
Chairman Manzullo. Well, thank you. We corrected your name
plate. It is extremely important. I appreciate your testimony.
We have another vote coming up here very shortly. Mr.
Johns, do you know how much, if any, Nucor has increased the
price of your steel in the past six months or so? Do you have
those figures?
Mr. Johns. We don't have a general figure. It really
depends on the individual product line. Where there is no
relief afforded by the 201 there have been zero price
increases, in fact, decreases.
Chairman Manzullo. You have had zero price increase----
Mr. Johns. On some products. Do you know anything about
Nucor's breadth of products?
Chairman Manzullo. I know that you are a mini-mill, and I
know that you are located in Charlotte, North Carolina.
Has anybody here bought Nucor steel?
Ms. Friel. Yes. Actually, we were getting quotes from Nucor
January 1st, $16.20 a hundredweight. We got a quotation last
week $19.65 a hundredweight, which is a 21 percent increase
from Nucor.
Chairman Manzullo. For what type of steel?
Ms. Friel. It was cold rolled bar.
Chairman Manzullo. Would you want to comment on that, Mr.
Johns?
Mr. Johns. I can't comment on cold drawn bar because that
is a downstream product for us. I would have to look into that.
I represent the flat roll division, and we are predominately
involved in the hot rolled, cold rolled and coated products.
Chairman Manzullo. So the product to which she testified is
an increased step after it leaves your hands. Is that what you
are saying?
Mr. Johns. It's a downstream product for our division.
Chairman Manzullo. For Nucor?
Mr. Johns. For Nucor now. I certainly would like to look
into that, but what I would also suggest is when we see the
term ``price increase,'' and we see it all the time, I think it
needs to be put into context because I look at all these
wonderful charts around the room and I see they start at a 20-
year low created by illegal dumping, and the price was
compelled by illegal dumping.
When you make that the start and say increase versus what
the price was in 1982, 1989, 1996, 1997, I would suggest that
we have had a restoration as oppose to increases.
Chairman Manzullo. But you know 201 doesn't deal with
dumping. It deals with surges.
Mr. Johns. I understand that.
Chairman Manzullo. There has been no finding that the
foreign products that were shipped here were at predatory
prices or that the companies shipping them had been subsidized
by the government. That element is not here. You had used it in
your testimony.
Mr. Johns. No, I would take you back to the genesis of the
201. I also stated the pervasive nature of the violation of
U.S. trade law had resulted in--by the time the President
looked at this issue, there were about 200 active antidumping
orders in place--proven violations of U.S. trade law--another
50 pending. If you put yourself in our shoes, you are looking
at product and country switching that had no end to it.
Chairman Manzullo. My question here is these witnesses
here----
Mr. Johns. If you will allow me to finish the comment.
Chairman Manzullo. I am sorry, go ahead.
Mr. Johns. When you are dealing with that pervasive nature
of violation of U.S. trade law, the only mechanism you have is
the safeguard mechanism provided by the 201.
Chairman Manzullo. You could have enforcement of the
dumping laws.
Mr. Johns. It's a two-year process from the beginning to
relief.
Chairman Manzullo. That is correct, but it is also the
fairest because you can end up with retroactive tariffs.
Mr. Johns. Very seldom.
Chairman Manzullo. If it is done right, you can, and you
can stop the practice.
Mr. Johns. It does not normally fall back.
Chairman Manzullo. But we have got people here who have
testified to the fact that they have had price increases. Mr.
Carlson testified that he had price increases of 40 to 50
percent. Who is responsible for that?
Mr. Johns. I will go back to the point I made before.
Chairman Manzullo. But a TV costs less now than they did 10
years ago. How far are you going to go back and say they were
at an all-time low. I don't think that is a valid argument. You
keep going back to where it was in the good old days.
Mr. Johns. No, this is not the good old days. We are
talking about a 20-year average.
Chairman Manzullo. I don't know of any industry that says,
well, these prices are not where they were years ago. Granted,
it's the farming industry, and everybody knows what happened
there. That is totally subsidized and there is a huge problem
going on there, but I just don't see your point. What you have
here is these people are desperate.
If they go out of business, you won't have a market to sell
to. That is the point they are trying to make, is eventually,
one by one, they are going to get picked off. They are going to
get closed down by the Chinese people. In fact, at the opening
of this hearing, National Metalwares lostthree contracts to the
Chinese.
If they take any more hits, they are going to be out of
business. And as this has a domino effect, because you won't
have anybody to sell steel to. That's what they are concerned
about. There is a balance in here that's missing.
Mr. Johns. There is a balance clearly missing, and that is,
you're hitting on the fundamental issues that we ought to be
addressing, which are currency manipulation--the value of the
U.S. dollar and trade practices by our so-called trading
partners.
Chairman Manzullo. We continue to work on that, but
unfortunately, the administration is in favor of a strong
dollar. We are just having a very difficult time. Where are
those letters from the steel manufacturers? Jesco Industries
here is a steel user out of Litchfield, Michigan. Some of their
suppliers increased their prices dramatically. Some up to 50
percent.
Here is a letter from Crawford Steel Company. This says
``Due to the Section 103 decided by the government to warrant a
30 percent tariff on flat rolled imports, we have been forced
to raise prices across the board on your sizes. Prices from the
domestic mills have increased from $200.10 a ton to anywhere
from $300 to $350 a ton as an unprocessed ban.''
[The information may be found in appendix page 153.]
Chairman Manzullo. Buhrke Industries out of Arlington
Heights, Illinois employs 120 people, and they got a letter
from their intermediary, which is Viking Materials, and they
attached to it a letter from Bethlehem Steel that says the
following purchase orders will be increased $4.50 effective
June 1st.
[The information may be found in appendix pages 156-161.]
Chairman Manzullo. They take existing purchasing orders--
existing contracts and unilaterally raised prices. Has Nucor
raised the prices on existing contracts?
Mr. Johns. Nucor has honored its commitments on the
agreements that we have with customers.
Chairman Manzullo. Good for you. That is why we don't have
any letters in here complaining about Nucor.
Mr. Johns. I know you were looking for one.
Chairman Manzullo. You bet. We were. I appreciate the fact
that we don't have any evidence here on Nucor doing any
gouging. We do have other companies that are involved in it.
Mr. Johns, I want to thank you for the fact that there are
no letters in here with Nucor. I thought I ought to let you
know this. The purpose of this hearing, and the reason that you
are outnumbered up there, is the fact that these people have
not had a voice. Your industry has been welcomed into the White
House.
Your industry has had a lot of friends on Capitol Hill
going around talking about this. The steel users have been
scratching around trying to bring together a bunch of little
people. They are little people, and it's very difficult to
bring together hundreds, if not thousands, of small
manufacturers compared to a relatively small number of steel
manufacturers.
So the only forum that they have been afforded is the Small
Business Committee, which we call the Committee of last resort.
When nobody else will listen to the little guys. That's why we
have so many people that represent that perspective as opposed
to yours.
But I just want to tell you I appreciate your testimony. I
appreciate your honesty and appreciate your integrity.
Mr. Johns. I would encourage you to talk to Doug Ruggles
about the other side of the small business.
Chairman Manzullo. I can understand it. We have also talked
to them.
I have got to go vote to take part in this continuing
process of democracy. I really look forward to working with all
of you again. Mr. Johns, my door is open to you, also. This
Committee is adjourned.
[Whereupon, at 12:45 p.m., the Committee was adjourned.]
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