[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
IMPACT OF THE SECTION 201 SAFEGUARD ACTION ON CERTAIN STEEL PRODUCTS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TRADE
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
MARCH 26, 2003
__________
Serial No. 108-15
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
89-863 WASHINGTON : 2003
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM MCCRERY, Louisiana JIM MCDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. MCNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHIL ENGLISH, Pennsylvania LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona EARL POMEROY, North Dakota
JERRY WELLER, Illinois MAX SANDLIN, Texas
KENNY C. HULSHOF, Missouri STEPHANIE TUBBS JONES, Ohio
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
Allison H. Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Trade
PHILIP M. CRANE, Illinois, Chairman
E. CLAY SHAW, JR., Florida SANDER M. LEVIN, Michigan
AMO HOUGHTON, New York CHARLES B. RANGEL, New York
DAVE CAMP, Michigan RICHARD E. NEAL, Massachusetts
JIM RAMSTAD, Minnesota WILLIAM J. JEFFERSON, Louisiana
JENNIFER DUNN, Washington XAVIER BECERRA, California
WALLY HERGER, California JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania
JIM NUSSLE, Iowa
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisory of March 17, 2003, announcing the hearing............... 2
WITNESSES
Acevedo-Vila, Hon. Anibal, a Representative in Congress from the
Commonwealth of Puerto Rico.................................... 33
A.J. Rose Manufacturing Company, David Pritchard................. 50
American Electroplaters & Surface Finishers, James M. ``Jim''
Jones.......................................................... 138
American Iron and Steel Institute, Andrew Sharkey................ 80
Bakersfield Tank Company, Paul Nixon............................. 40
Bradford Research, Charles A. Bradford........................... 122
Campbell, James O., International Longshoremen's Association No.
3000........................................................... 130
Coalition for the Advancement of Michigan Tooling Industries,
Laurie Moncrief................................................ 135
Committee on Pipe and Tube Imports 201 Coalition, Peter Dooner... 97
Connors, Charles W., Magneco/Metrel.............................. 94
DiMicco, Dan, Nucor Corporation.................................. 74
Dixie Industrial Finishing Company, James M. ``Jim'' Jones....... 138
Dooner, Peter, Committee on Pipe and Tube Imports 201 Coalition,
and Wheatland Tube Company..................................... 97
E&E Manufacturing Company, Wes Smith............................. 52
Georgia Industry Association, James M. ``Jim'' Jones............. 138
Gerard, Leo W., United Steelworkers of America................... 90
Hoekstra, Hon. Peter, a Representative in Congress from the State
of Michigan.................................................... 11
International Longshoremen's Association Local No. 3000, James O.
Campbell....................................................... 130
Jones, James M. ``Jim,'' National Association of Metal Finishers,
Metal Finishing Suppliers Association, American Electroplaters
& Surface Finishers, and Georgia Industry Association, and
Dixie Industrial Finishing Company............................. 138
Knollenberg, Hon. Joe, a Representative in Congress from the
State of Michigan.............................................. 13
Kucinich, Hon. Dennis J., a Representative in Congress from the
State of Ohio.................................................. 30
Leuliette, Timothy D., Metaldyne Corporation..................... 43
MacLean-Fogg Company, Timothy N. Taylor.......................... 37
Magneco/Metrel, Charles W. Connors............................... 94
Manzullo, Hon. Donald A., a Representative in Congress from the
State of Illinois.............................................. 19
McCotter, Hon. Thaddeus G., a Representative in Congress from the
State of Michigan.............................................. 27
Metaldyne Corporation, Timothy D. Leuliette...................... 43
Metal Finishing Suppliers Association, James M. ``Jim'' Jones.... 138
Moncrief, Laurie, Schmald Tool & Die, and Coalition for the
Advancement of Michigan Tooling Industries..................... 135
National Association of Metal Finishers, James M. ``Jim'' Jones.. 138
Ney, Hon. Robert W., a Representative in Congress from the State
of Ohio........................................................ 31
Niemand, Walter A., Texas Free Trade Coalition, and West Gulf
Maritime Association........................................... 132
Nixon, Paul, Bakersfield Tank Company............................ 40
Nucor Corporation, Dan DiMicco................................... 74
Port of New Orleans, David P. Schulingkamp....................... 128
Pritchard, David, A.J. Rose Manufacturing Company................ 50
Schmald Tool & Die, Laurie Moncrief.............................. 135
Schulingkamp, David P., Port of New Orleans...................... 128
Sharkey, Andrew, American Iron and Steel Institute............... 80
Smith, Wes, E&E Manufacturing Company............................ 52
Strickland, Hon. Ted, a Representative in Congress from the State
of Ohio........................................................ 25
Stupak, Hon. Bart, a Representative in Congress from the State of
Michigan....................................................... 22
Taylor, Timothy N., MacLean-Fogg Company......................... 37
Texas Free Trade Coalition, Walter A. Niemand.................... 132
Trilla Steel Drum Corporation, Lester Trilla..................... 47
United Steelworkers of America, Leo W. Gerard.................... 90
Visclosky, Hon. Peter J., a Representative in Congress from the
State of Indiana............................................... 8
West Gulf Maritime Association, Walter A. Niemand................ 132
Wheatland Tube Company, Peter Dooner............................. 97
SUBMISSIONS FOR THE RECORD
Adler, Jr., William J., Stripmatic Products Inc., Cleveland, OH,
letter......................................................... 243
Advance Transformer Company, Rosemont, IL, Brian Dundon, letter
and attachments................................................ 150
AllTrans Port Services, Inc., Galena Park, TX, Donna V. Rains,
letter......................................................... 152
American Axle & Manufacturing, Inc., Rochester Hills, MI, Jim
Thompson, letter............................................... 153
American Micro Steel, Inc., Watertown, CT, William A. Sullivan,
statement...................................................... 154
Arroyo, Eric, Henry Technologies, Woodstock, IL, statement....... 198
ArvinMeritor, Inc., Troy, MI, Larry Yost, statement.............. 157
Association of Cold-Rolled Strip Steel Producers, statement...... 159
Association of International Automobile Manufacturers, Inc.,
Arlington, VA, Timothy C. MacCarthy, letter.................... 161
Automotive Trade Policy Council, statement....................... 163
Bates, Christopher M., Motor & Equipment Manufacturers
Association, Research Triangle Park, NC, statement............. 220
Berry, Hon. Marion, a Representative in Congress from the State
of Arkansas, statement......................................... 163
BIFMA International, Grand Rapids, MI, Thomas Reardon, statement. 164
Bliss, Sr., G.J., Metal-Matic, Inc., Minneapolis, MN, statement
and attachment................................................. 209
Brumfield, Wayne, Muncy Corporation, Enon, OH, letter............ 224
Camp, Hon. Dave, a Representative in Congress from the State of
Michigan, letter and attachment................................ 165
Carpenter Technology Corporation, Reading, PA, Michael L. Shor,
statement...................................................... 179
Century Metal Products, Inc., Lowell, MA, Jeremy D. Field, letter 180
Consuming Industries Trade Action Coalition, statement........... 181
Costello, Hon. Jerry F., a Representative in Congress from the
State of Illinois, statement................................... 185
Dana Corporation, Toledo, OH, statement.......................... 186
Delphi Corporation, Troy, MI, R. David Nelson.................... 14
Dickson, Jeffrey S., KMS, Inc., West Columbia, SC, letter........ 203
Dundon, Brian, Advance Transformer Company, Rosemont, IL, letter. 150
Emergency Committee for American Trade, statement................ 188
Energizer Battery Company, St. Louis, MO, statement.............. 191
Federal-Mogul Corporation, Southfield, MI, Ramzi Hermiz,
statement...................................................... 194
Field, Jeremy D., Century Metal Products, Inc., Lowell, MA,
letter......................................................... 180
Flynn, Jack, Gross-Given Manufacturing Co., Saint Paul, MN,
letter......................................................... 196
Free Trade in Steel Coalition, Philadelphia, PA, Dennis Rochford,
letters and attachments........................................ 230
Gerich, Bill, Hi-Craft Metal Products, Gardena, CA, letter....... 199
Gross-Given Manufacturing Co., Saint Paul, MN, Jack Flynn, letter 196
Guarantee Specialties, Inc., Cleveland, OH, Frank R. Makar,
letter......................................................... 196
Hearth, Patio, & Barbecue Association, Arlington, VA, Carter
Keithley, letter............................................... 197
Hedstrom Corporation, Bedford, PA, Craig S. Marton, letter....... 198
Heim, K.J., Volkert Precision Technologies Inc., Queens Village,
NY, letter..................................................... 247
Henry Technologies, Woodstock, IL, Eric Arroyo, statement........ 198
Hermiz, Ramzi, Federal-Mogul Corporation, Southfield, MI,
statement...................................................... 194
Hi-Craft Metal Products, Gardena, CA, Bill Gerich, letter........ 199
Howell, Christopher E., Precision Metalforming Association,
Independence, OH, letter....................................... 228
Illinois Tool Workers, Inc., Glenview, IL, Michael J. Lynch,
letter......................................................... 200
Indianapolis Metal Spinning Co., Inc., Indianapolis, IN, James C.
Kaufman, letter................................................ 203
Kahn, David J., Perfection Spring & Stamping Corp., Mt. Prospect,
IL, letter..................................................... 227
Kaufman, James C., Indianapolis Metal Spinning Co., Inc.,
Indianapolis, IN, letter....................................... 203
Keat, Dennis, Su-dan Company, Inc., Rochester Hills, MI, letter.. 244
Keithley, Carter, Hearth, Patio, & Barbecue Association,
Arlington, VA, letter.......................................... 197
KMS, Inc., West Columbia, SC, Jeffrey S. Dickson, letter......... 203
Larson Tool & Stamping Company, Attleboro, MA, Daniel G. Larson,
letter......................................................... 204
Leutwiler, Nels R., Parkview Metal Products, Chicago, IL,
statement...................................................... 225
Lincoln Electric Company, Cleveland, OH, John M. Stropki, Jr.,
letter......................................................... 204
LMC Industries, Inc., Arnold, MO, Keith A. Suellentrop, letter... 205
Lynch, Michael J., Illinois Tool Workers, Inc., Glenview, IL,
letter......................................................... 200
MacCarthy, Timothy C., Association of International Automobile
Manufacturers, Inc., Arlington, VA, letter..................... 161
Macht, Linda Reichart, Tottser Tool and Manufacturing, Huntingdon
Valley, PA, letter............................................. 246
Makar, Frank R., Guarantee Specialties, Inc., Cleveland, OH,
letter......................................................... 196
Manenti, Thomas J., MiTek Industries, Inc., Chesterfield, MO,
letter......................................................... 216
Maritime Exchange for the Delaware River and Bay, Dennis
Rochford, letters and attachments.............................. 232
Martin Supply Co., Sheffield, AL, Doug Ruggles, statement........ 206
Marton, Craig S., Hedstrom Corporation, Bedford, PA, letter...... 198
Mastercoil Spring Company, McHenry, IL, statement................ 207
Matenaer Corporation, West Bend, WI, Warren Stringer, Jr., letter 209
Mautone, Louis C., Tella Tool & Manufacturing Co., Lombard, IL,
letter......................................................... 245
Metal-Matic, Inc., Minneapolis, MN, G.J. Bliss, Sr., statement
and attachment................................................. 209
MiTek Industries, Inc., Chesterfield, MO, Thomas J. Manenti,
letter......................................................... 216
Mitsubishi Motors North America, Inc., Normal, IL, Gary Shultz,
letter......................................................... 217
Mollohan, Hon. Alan B., a Representative in Congress from the
State of West Virginia, statement and attachment............... 218
Motor & Equipment Manufacturers Association, Research Triangle
Park, NC, Christopher M. Bates, statement...................... 220
M.S. Willett, Inc., Cockeysville, MD, David R. Sandy, letter..... 223
Muncy Corporation, Enon, OH, Wayne Brumfield, letter............. 224
National Electrical Manufacturers Association, Rosslyn, VA,
statement...................................................... 224
Nelson, R. David, Delphi Corporation, Troy, MI, statement........ 14
Ormerod, John, Res Manufacturing Company, Milwaukee, WI, letter.. 230
Parkview Metal Products, Chicago, IL, Nels R. Leutwiler,
statement...................................................... 225
Perfection Spring & Stamping Corp., Mt. Prospect, IL, David J.
Kahn, letter................................................... 227
Port of Milwaukee, Milwaukee, WI, Eric C. Reinelt, letter........ 227
Precision Metalforming Association, Independence, OH, Christopher
E. Howell, letter.............................................. 228
Rains, Donna V., AllTrans Port Services, Inc., Galena Park, TX,
letter......................................................... 152
Reardon, Thomas, BIFMA International, Grand Rapids, MI, statement 164
Regula, Hon. Ralph, a Representative in Congress from the State
of Ohio, statement and attachment.............................. 229
Reinelt, Eric C., Port of Milwaukee, Milwaukee, WI, letter....... 227
Res Manufacturing Company, Milwaukee, WI, John Ormerod, letter... 230
Rochford, Dennis, Free Trade in Steel Coalition, Philadelphia,
PA, and Maritime Exchange for the Delaware River and Bay,
letters and attachments........................................ 230
Ruggles, Doug, Martin Supply Co., Sheffield, AL, statement....... 206
Ryan, Hon. Timothy J., a Representative in Congress from the
State of Ohio, statement....................................... 236
Sanda, Scott, Tro Manufacturing Co., Inc., Franklin Park, IL,
letter......................................................... 246
Sandy, David R., M.S. Willett, Inc., Cockeysville, MD, letter.... 223
Sharp Manufacturing Company of America, Memphis, TN, Makoto
Takahashi, statement........................................... 236
Shor, Michael L., Carpenter Technology Corporation, Reading, PA,
statement...................................................... 179
Shultz, Gary, Mitsubishi Motors North America, Inc., Normal, IL,
letter......................................................... 217
Spring Engineering and Manufacturing Corporation, Canton, MI, Tim
Tindall, letter................................................ 237
Steel Manufacturers Association, statement....................... 238
Steel Truss & Component Association, Madison, WI:
Keith Kinser, letter......................................... 243
Kirk Grundahl, letter........................................ 243
Stringer, Jr., Warren, Matenaer Corporation, West Bend, WI,
letter......................................................... 209
Stripmatic Products Inc., Cleveland, OH, William J. Adler, Jr.,
letter......................................................... 243
Stropki, Jr., John M., Lincoln Electric Co., Cleveland, OH,
letter......................................................... 204
Su-dan Co., Inc., Rochester Hills, MI, Dennis Keat, letter....... 244
Suellentrop, Keith A., LMC Industries, Inc., Arnold, MO, letter.. 205
Sullivan, William A., American Micro Steel, Inc., Watertown, CT,
statement...................................................... 154
Takahashi, Makoto, Sharp Manufacturing Company of America,
Memphis, TN, statement......................................... 236
Tella Tool & Manufacturing Co., Lombard, IL, Louis C. Mautone,
letter......................................................... 245
Thompson, Jim, American Axle & Manufacturing, Inc., Rochester
Hills, MI, letter.............................................. 153
Tindall, Tim, Spring Engineering and Manufacturing Corporation,
Canton, MI, letter............................................. 237
Tottser Tool and Manufacturing, Huntingdon Valley, PA, Linda
Reichart Macht, letter......................................... 245
Tro Manufacturing Co., Inc., Franklin Park, IL, Scott Sanda,
letter......................................................... 246
Tucker Industries, Bensalem, PA, Herbert Tucker, letter.......... 246
Volkert Precision Technologies Inc., Queens Village, NY, K.J.
Heim, letter................................................... 247
Walker Corporation, Ontario, CA
Michael R. Bermudez, letter.................................. 247
Audrey King, letter.......................................... 247
Winzeler Stamping Company, Montpelier, OH, Michael D. Winzeler,
letter......................................................... 248
Wood Truss Council of America, Madison, WI
Scott Arquilla, letter....................................... 248
Kirk Grundahl, letter........................................ 248
Ryan J. Dexter, letter....................................... 248
Yost, Larry, ArvinMeritor, Inc., Troy, MI, statement............. 157
Zapp USA, statement.............................................. 249
IMPACT OF THE SECTION 201 SAFEGUARD ACTION ON CERTAIN STEEL PRODUCTS
----------
WEDNESDAY, MARCH 26, 2003
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:11 a.m., in
room 1100, Longworth House Office Building, Hon. Philip M.
Crane (Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON TRADE
CONTACT: (202) 225-6649
FOR IMMEDIATE RELEASE
March 17, 2003
No. TR-2
Crane Announces Hearing on the
Impact of the Section 201 Safeguard
Action on Certain Steel Products
Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade
of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on the impact of the section 201
safeguard action on certain steel products imposed by the President on
March 20, 2002. The hearing will take place on Wednesday, March 26,
2003, in the Main Committee Hearing Room, 1100 Longworth House Office
Building, beginning at 10:00 a.m.
Oral testimony at this hearing will be from both invited and public
witnesses. Witnesses are expected to include small and large steel
consuming businesses, U.S. steel producers, and economic and financial
analysts knowledgeable on the steel industry. Also, any individual or
organization not scheduled for an oral appearance may submit a written
statement for consideration by the Committee or for inclusion in the
printed record of the hearing.
BACKGROUND:
Acting under section 203 of the Trade Act of 1974, the President on
March 5, 2002, announced a series of temporary trade measures to
safeguard the U.S. steel industry against injury from imports
(Investigation No. TA-201-73 Certain Steel Products). Steel tariffs
ranged from 8 percent to 30 percent on nine categories of steel, and
slab imports were subject to a Tariff Rate Quota (TRQ) of 5.4 million
tons. The safeguard took effect on March 20, 2002, and is to be phased
down over three years. The Administration excluded free trade agreement
partners from the remedy (Canada, Mexico, Jordan, and Israel) and
certain developing countries that ship less than 3 percent of total
imports for each product category. In accordance with section 204 of
the Trade Act of 1974, the International Trade Commission is scheduled
to release a mid-term review of the safeguard measures by September 20,
2003.
The goal of this hearing is to promote awareness of the impact that
the March 20, 2002, steel safeguard has had on U.S. steel consuming
industries, domestic steel producers, and the U.S. economy, and also to
examine whether the domestic steel industry has made adequate efforts
to make a positive adjustment to import competition in the past year as
required by the statute, and the efficacy of actions by the President
to facilitate such efforts by the domestic steel industry.
In announcing the hearing, Chairman Crane stated, ``The past year
has shown us that the steel safeguard action has had wide-ranging
effects on steel consuming industries and the U.S. economy. During this
hearing, we will examine just how much of an impact that action has had
on jobs in industries that are key participants in the American
economy.''
FOCUS OF THE HEARING:
The hearing would focus on changes in employment, wages,
profitability, investment, sales, and productivity of steel consuming
industries as a result of the safeguard action, whether the safeguard
remedies affected steel prices and availability in the United States,
and the effects of the safeguard on the domestic steel industry and the
industry's efforts to restructure.
DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:
Requests to be heard at the hearing must be made by telephone to
Traci Altman or Bill Covey at (202) 225-1721 no later than the close of
business, Thursday, March 20, 2003. The telephone request should be
followed by a formal written request faxed to Allison Giles, Chief of
Staff, Committee on Ways and Means, U.S. House of Representatives, 1102
Longworth House Office Building, Washington, D.C. 20515, at (202) 225-
2610. The staff of the Subcommittee on Trade will notify by telephone
those scheduled to appear as soon as possible after the filing
deadline. Any questions concerning a scheduled appearance should be
directed to the Subcommittee on Trade staff at (202) 225-6649.
In view of the limited time available to hear witnesses, the
Subcommittee may not be able to accommodate all requests to be heard.
Those persons and organizations not scheduled for an oral appearance
are encouraged to submit written statements for the record of the
hearing. All persons requesting to be heard, whether they are scheduled
for oral testimony or not, will be notified as soon as possible after
the filing deadline.
Witnesses scheduled to present oral testimony are required to
summarize briefly their written statements in no more than five
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full
written statement of each witness will be included in the printed
record, in accordance with House Rules.
In order to assure the most productive use of the limited amount of
time available to question witnesses, all witnesses scheduled to appear
before the Committee are required to submit 200 copies, along with an
IBM compatible 3.5-inch diskette in WordPerfect or MS Word format, of
their prepared statement for review by Members prior to the hearing.
Testimony should arrive at the Subcommittee on Trade office, room 1104
Longworth House Office Building, no later than Monday, March 24, 2003,
in an open and searchable package 48 hours before the hearing. The U.S.
Capitol Police will refuse sealed-packaged deliveries to all House
Office Buildings. Failure to do so may result in the witness being
denied the opportunity to testify in person.
WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:
Please Note: Due to the change in House mail policy, any person or
organization wishing to submit a written statement for the printed
record of the hearing should send it electronically to
[email protected], along with a fax copy to
(202) 225-2610, by the close of business, Wednesday, April 9, 2003.
Those filing written statements that wish to have their statements
distributed to the press and interested public at the hearing should
deliver their 200 copies to the Subcommittee on Trade in room 1104
Longworth House Office Building, in an open and searchable package 48
hours before the hearing. The U.S. Capitol Police will refuse sealed-
packaged deliveries to all House Office Buildings.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. Due to the change in House mail policy, all statements and any
accompanying exhibits for printing must be submitted electronically to
[email protected], along with a fax copy to
(202) 225-2610, in Word Perfect or MS Word format and MUST NOT exceed a
total of 10 pages including attachments. Witnesses are advised that the
Committee will rely on electronic submissions for printing the official
hearing record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. Any statements must include a list of all clients, persons, or
organizations on whose behalf the witness appears. A supplemental sheet
must accompany each statement listing the name, company, address,
telephone and fax numbers of each witness.
Note: All Committee advisories and news releases are available on
the World Wide Web at http://waysandmeans.house.gov.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
Chairman CRANE. Good morning. This is a hearing of the
Subcommittee on Trade of the Committee on Ways and Means to
consider the impact on the past year of the President's section
201 safeguard action on certain steel products.
As everyone is well aware, on March 5, 2002, the President
announced import relief measures on several categories of steel
imports. Steel producers argue that the tariffs are necessary
to offset distortions in world steel markets, and have helped
the U.S. steel industry to restructure.
Conversely, steel users contend that the tariffs have done
far more harm than good to the U.S. manufacturing base and to
the U.S. economy, and that tariffs have undermined their global
competitiveness.
Steel producers and their customers are mutually dependent
upon one another. While steel producers will obviously look out
for their best interests, they also need to be mindful of the
impact their actions have on the economic health of their
customer base. With that in mind, a complete analysis of the
section 201 safeguard must look at effect of the tariffs on
everyone, steel producers, steel consumers, and the U.S.
economy as a whole.
This is the goal of the hearing today. For my part, the
specific question I pose is regardless of whether it was the
right decision to impose the relief 1 year ago, have we reached
the point where the industry has restructured or do the costs
of the action to others outweigh the benefits?
The debate on steel policy has been shaped by shouting and
emotional accusations on both sides. Some producer and consumer
relationships that go back 20 to 30 years have been destroyed
over the issue of the section 201 tariffs, and it should not
come to that. My hope is that this hearing will initiate a
constructive dialog between steel producers and their
customers.
I look forward to hearing the testimony of our witnesses
today, and in particular I welcome one of my constituents, Mr.
Tim Taylor, President of MacLean Vehicle Systems in Mundelein,
Illinois.
I now yield to the Ranking Member of the Subcommittee, Mr.
Levin, for any remarks he would like to make.
[The opening statement of Chairman Crane follows:]
Opening Statement of The Honorable Philip M. Crane, Chairman,
Subcommittee on Trade, and a Representative in Congress from the State
of Illinois
Good Morning. This is a hearing of the Ways and Means Trade
Subcommittee to consider the impact over the past year of the
President's section 201 safeguard action on certain steel products.
As everyone is well aware, on March 5 last year, the President
announced import relief measures on several categories of steel
imports. Steel producers argue that the tariffs are necessary to offset
distortions in world steel markets and have helped the U.S. steel
industry to restructure. Conversely, steel users contend that the
tariffs have done far more harm than good to the U.S. manufacturing
base and to the U.S. economy and that tariffs have undermined their
global competitiveness.
Steel producers and their customers are mutually dependent upon one
another. While steel producers will obviously look out for their best
interests, they also need to be mindful of the impact their actions
have on the economic health of their customer base. With that in mind,
a complete analysis of the section 201 safeguard must look at effect of
the tariffs on everyone--steel producers, steel consumers, and the U.S.
economy as a whole. This is the goal of the hearing today. For my part,
the specific question I pose is regardless of whether it was the right
decision to impose the relief one year ago, have we reached a point
where the industry has restructured or the costs of the action to
others outweigh the benefits.
The debate on steel policy has been shaped by shouting and
emotional accusations on both sides. Some producer and consumer
relationships that go back 20-30 years have been destroyed over the
issue of the 201 tariffs, and it shouldn't come to that. My hope is
that this hearing will initiate a constructive dialogue between steel
producers and their customers.
I look forward to hearing the testimony of our witnesses today, and
in particular I welcome one of my constituents, Mr. Tim Taylor,
President of MacLean Vehicle Systems in Mundelein, IL. I now yield to
the Ranking Minority Member of the Subcommittee, Mr. Levin, for any
remarks he would like to make.
Today we will hear from a number of distinguished witnesses. In the
interest of time, I ask that you keep your oral testimony to five
minutes, and I will strictly enforce the rule for both Committee
Members and witnesses. We will include longer, written statements in
the record. And now I welcome several of my colleagues who are
interested in this issue.
Mr. LEVIN. Thank you very much, Mr. Chairman. I join you in
saying that it is appropriate that we be holding this hearing
on this truly important trade issue.
With the ever growing expansion of international trade, and
its importance not only to our Nation and the world economy, it
is also important to domestic policies and regulations. I think
one takes that view unless one has a totally laissez-faire
attitude toward trade policy.
That means an active congressional role in shaping trade
policy is critical. This requires vigorous oversight by
Congress and is best exercised, at least initially, at the
Subcommittee level where we have an opportunity to delve, as we
will today, into issues in greater depth.
So, I hope that this signals, our hearing today, that this
Subcommittee will be taking a more active role in helping to
shape the activities of the full Committee and Congress. The
hearing today is on a subject that clearly deserves active
congressional oversight. I hope it will proceed, and the
Chairman has indicated this now, as objectively as possible,
digging into the facts and avoiding rigid prejudgments.
That is why I was concerned, with other colleagues, by some
aspects of the recent section 332 request to the U.S.
International Trade Commission (ITC) coming from the Chairman
of our Committee, the tenor of which indicated a clear
predisposition against the steel safeguard relief. I believe
that, in general, accurate, comprehensive, and balanced
information is the servant of good policy. I think that the
information requested in the section 332 letter, while useful,
needs to be balanced by consideration of all relevant facts and
issues.
I favored use in 2001 of the safeguard mechanism.
I viewed it as a necessary response to a series of clear
events and necessary to the maintenance of a vibrant domestic
steel industry. In 1998, in the wake of the Asian financial
crisis and economic crises in Russia and Latin America, steel
imports flooded into the open U.S. market in unprecedented
levels, a 30-percent increase in just 1 year.
In 1999, the market stabilized somewhat, largely as a
result of successful anti-dumping and countervailing duty cases
brought by the industry, but between 1998 and 2001 steel
imports remained at historically high levels.
Additionally, and perhaps most importantly, the continuing
high levels of imports meant that steel prices in the United
States never fully recovered and, in fact, hit historic lows,
in some cases dramatically so, in 2001.
The conditions were unsustainable, as evidenced by the
tumult in the domestic steel industry. During the period 1997
to 2002, 31 companies in the U.S. steel industry went bankrupt,
almost one-third of the U.S. steel-making capacity, including
some of our largest producers. Tens of thousands of U.S.
workers lost their jobs, hundreds of thousands had their health
and retirement benefits put in jeopardy.
If this is not the kind of crisis that the safeguard relief
was created for, it is unclear what is.
In March 2002, after intensive investigation by the ITC, as
we know, which examined the impact of proposed relief on the
steel consuming industries, the Administration put in place the
steel safeguard relief. The initial safeguard relief included
extensive exclusions and exemptions. For instance, several
million tons of slab could enter free of any import relief, as
could all steel imports from about 100 countries, some of which
are major producers, and all imports from any source of 104
different steel products, including about 750,000 tons from
South Korea.
In the ensuing months, the Administration exempted several
hundred additional steel products from relief. In fact, before
the latest round of steel exclusions last week, about 60
percent of all steel imports entered the United States
completely free of the safeguard relief. Last week there were
some additional exclusions announced.
So, today we need to examine the ongoing impact of the
steel safeguard relief and the concerns of the domestic steel
industry and the steel consuming industries in light of these
exclusions. I anticipate we will hear today about the impact of
the tariffs on prices and steel supply in the United States. I
hope that we will have some discussion about the impact of
these exclusions.
As stated above, accurate and comprehensive and balanced
information is critical in crafting policy. So, let me just say
one last thing, as we meet, Mr. Chairman. The decision of a
World Trade Organization (WTO) panel is likely being issued. It
is very possible that during this hearing its exact details
will become known to all of us.
If this occurs today, and that is supposedly going to
happen, I simply want to urge that we remember that any
decision of the panel of the WTO will be subject to appeal, no
matter what its contents and no matter who ``wins'' and who
``loses.'' So, I hope that the hearing today, its importance,
will not be undercut by any decision from the WTO.
We need, as we are doing today, to sit down, to hear
testimony, and to consider the impact of this safeguard action,
both on the steel producers and the consumers of steel in this
country. Thank you, Mr. Chairman.
[The opening statement of Mr. Levin follows:]
Opening Statement of The Honorable Sander M. Levin, a Representative in
Congress from the State of Michigan
I am glad that the Trade Subcommittee is holding a hearing on this
important trade issue.
With the ever-growing expansion of international trade and its
importance not only to the U.S. and world economies, but also to
domestic policies and regulations, unless one takes a laissez faire
attitude toward trade policy, an active Congressional role in the
shaping of trade policy is critical. This requires vigorous
Congressional oversight. This oversight is best exercised, at least
initially, at the subcommittee level, where we have an opportunity to
delve into issues in greater depth. So, I am pleased that the Trade
Subcommittee is holding this hearing today, and I hope that this
signals that the Subcommittee will be taking a more active role in
helping to shape the activities of the Committee.
The hearing today is on a subject that clearly deserves active
Congressional oversight. I hope that it will proceed as objectively as
possible, digging into the facts and avoiding rigid pre-judgments. That
is why I was concerned by some aspects of the recent ``section 332''
request to the ITC coming from the Chairman of the Committee, the tenor
of which indicated a clear predisposition against the steel safeguard
relief. I believe that, in general, accurate, comprehensive, and
balanced information is the servant of good policy. I think that the
information requested in the 332 letter, while useful, needs to be
balanced by a consideration of all relevant facts and issues.
I favored use in 2001 of the safeguard mechanism; I viewed it as
the necessary response to a series of clear events and necessary to the
maintenance of a vibrant domestic steel industry. In 1998, in the wake
of the Asian financial crisis and economic crises in Russia and Latin
America, steel imports flooded into the open United States market in
unprecedented levels--a 30% increase in just one year. In 1999, the
market stabilized somewhat, largely as a result of successful anti-
dumping and countervailing duty cases brought by the industry, but
between 1998 and 2001, steel imports remained at historically high
levels.
Additionally, and perhaps more importantly, the continuing high
levels of imports meant that steel prices in the U.S. never fully
recovered, and in fact hit historic lows--in some cases dramatically
so--in 2001. The conditions were unsustainable, as evidenced by the
tumult in the domestic steel industry. During the period from 1997 to
the March 2002, 31 companies in the U.S. steel industry went bankrupt--
almost one third of U.S. steel-making capacity--including some of the
largest U.S. steel producers. Tens of thousands of U.S. workers lost
their jobs; hundreds of thousands had their health and retirement
benefits put in jeopardy. If this is not the kind of crisis that the
safeguard relief was created for, I am not sure what is.
In March of 2002, after an intensive investigation by the ITC,
which examined the impact of proposed relief on the steel-consuming
industries, the Administration put in place the steel safeguard relief.
The initial safeguard relief included extensive exclusions and
exemptions. For instance, several million tons of slab could enter free
of any import relief, as could all steel imports from about 100
countries some of which are major steel producers, and all imports from
any source of 104 different steel products (including about 750,000
tons from South Korea). In the ensuing months, the Administration
exempted several hundred additional steel products from relief, many
over the objections of the U.S. steel-producing industry. In fact,
before the latest round of steel exclusions last week, about 60% of all
steel imports entered the United States completely free of the
safeguard relief. Last week, the Administration announced an additional
295 exclusions, about a third of which were opposed by the domestic
industry.
Today we need to examine the ongoing impact of the steel safeguard
relief and the concerns of the domestic steel industry and the steel-
consuming industries in light of these exclusions. I anticipate that we
will hear today about the impact of the tariffs on prices and steel
supply in America. I hope that we will have some discussion about the
impact of the exclusions on these issues, and perhaps how they relate,
as well, to the fact that steel imports actually increased between 2001
and 2002.
As stated above, accurate, comprehensive, and balanced information
is helpful in crafting policy. I am particularly concerned that some of
the information circulated on the impact of the steel tariffs does not
meet some, if not all, of these tests. In particular, I have heard the
claim that there have been 200,000 job losses resulting from the steel
safeguard relief alleged in a study by one of the interest groups. I
read with interest the op-ed in the Financial Times--a source that is
no friend to the safeguard relief--suggesting that the conclusions
announced by the study were not supported by data from that study. I
will leave it to the Financial Times to discuss whether or not the
``devil is in the details,'' so I submit for the record today the
Financial Times article and I hope that we can keep our testimony to
the facts, rather than to allegations that may or may not be supported
by sound economics.
Thank you.
Chairman CRANE. Thank you. Today, we will hear from a
number of distinguished witnesses and in the interest of time,
I ask that you keep your oral testimony to 5 minutes and I will
strictly enforce the rule for both Committee Members and
witnesses. We will include longer written statements for the
record. Also, we will break for lunch at 12:00 noon for
approximately 1 hour.
Now, I welcome several of my colleagues who are interested
in this issue and yield the first 5 minutes to our
distinguished colleague from Indiana, Mr. Visclosky.
STATEMENT OF THE HONORABLE PETER J. VISCLOSKY, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF INDIANA
Mr. VISCLOSKY. Thank you very much, Mr. Chairman.
Mr. Chairman, I appreciate your holding a hearing today and
would point out that when, in October 2001, the ITC unanimously
found that serious injury had occurred because of trading
practices by our trading partners, the Government of the United
States of America had a responsibility to act.
What were these serious injuries? We have seen a closure of
American steel-making capacity of 34.5 million tons since 1977.
At the time of war, we ought to keep in mind that we are the
only developed nation on the planet Earth who can now not meet
its own current demand in an average economic year.
What was that serious injury? It represented the loss of
thousands of jobs in communities across America. Each one of
those jobs represents a household of an American citizen we are
to help economically.
In my district alone, the question raised by the Chair
initially is has consolidation been completed? Should the
program be removed? One, the program has not yet been
completed. As it is completed throughout the remainder of this
year, I would tell the Chair, that another 1,500 to 4,000
people in my Congressional District are going to lose their
economic life because of what the industry is doing to comply
with the Administration's request. Each one of those is an
American citizen.
Tens of thousands of American citizens who were promised
health care in their retirement years have been sent letters
saying you are not going to receive it. That is American steel-
making capacity. That as Americans' defense. That is an
American citizens.
As far as the tariffs that have been put into place, I
would point out they were placed with precision. You had steel
products excluded by the ITC. You had free trade partners, such
as Mexico and Canada, excluded. You had the domestic industry
work with the U.S. Department of Commerce to exclude more than
200 products in the original proposal. An additional 1,000, as
Mr. Levin has pointed out, have also been excluded.
Have prices in America firmed? Yes, because previously
American producers could not sell a ton of steel for what they
produced it, despite the efficiencies they have secured over
the last two decades because their throat was being slashed. I
would point out that the price for hot-rolled product today is
still below the 22-year average for those products. That the
price for cold-rolled is still below the 22-year average for
those products.
Ultimately, I am concerned that if the program is changed,
the Administration loses its one lever as far as the
fundamental issue that still needs to be addressed, and that is
the reduction of the 268 million excess tons internationally.
If our training partners have a scent that we are going to back
off of this program they will not negotiate in good faith and
an extremely difficult proposition for the Administration, that
I believe they have pursued in good faith, is going to become
impossible. At that point, we might as well forget having a
domestic steel industry.
The Chair asks two questions in his opening remarks and I
would respond, in conclusion, by saying restructuring has not
yet been completed. Have all of the benefits that the
Administration, and we in Congress who have supported, been
achieved by the industry? Certainly not, but I would also point
out that earlier this month we have already lost 20 percent of
the benefit because the program was imposed with a sliding
scale.
The ITC unanimously found serious injury. We have a
responsibility to redress that injury and to assure that no
additional American worker is injured in the future.
I thank the Chair and would excuse myself, if that is
permissible. I am a Ranking Member on another Subcommittee and
our hearing started at 10:00 a.m.
[The prepared statement of Mr. Visclosky follows:]
Statement of The Honorable Peter J. Visclosky, a Representative in
Congress from the State of Indiana
Mr. Chairman, Mr. Levin, and Members of the Committee, I appreciate
the opportunity to testify before you today regarding the positive
impact of the President's steel program and specifically the remedy
imposed by the President under section 201 of our trade laws.
Since last March, when the President's section 201 remedy was
implemented, the domestic industry has made real progress toward again
becoming a viable industry, meeting the needs of our steel consuming
industries, and providing good jobs in communities across the United
States. In brief, prices have recovered--although they remain below 20-
year averages, supply both from domestic producers and imports is more
than ample to meet domestic consumption demands, and the industry is
undergoing critical restructuring.
The President's remedy was the correct solution to address the
injury to the domestic steel industry caused by the import crisis and
the excess global steel capacity at the root of it. It was the right
program in March, 2002, and it continues to be the right program today.
We in Congress who saw firsthand the devastating effects of the steel
crisis in our communities know that this program must be continued for
the entire three-year term to have its full positive effect.
While the President's steel program has brought critically
important relief to the domestic steel industry, it has not unduly
harmed consumers. First, many steel products were excluded from the
International Trade Commission (ITC) findings and therefore not subject
to relief. Second, 201 tariffs were not imposed on steel imported from
our free trade partners, namely Mexico, Canada, Israel and Jordan, as
well as from most developing countries. Third, the domestic industry
worked with the Department of Commerce during the investigation to
exclude almost 200 products from the scope of the investigation.
Fourth, after the remedy was implemented, the Department also excluded
more than 1,000 additional products at the direct request of consumers
and foreign producers. In total, steel imports covered by section 201
tariff represent only about 5 percent of apparent domestic consumption
of steel.
Prior to the imposition of the 201 remedy, steel prices were at
unsustainable levels and often below the cost of production for even
the world's most efficient producers. Clearly, consumers could not
expect that prices could be sustained at those levels. Since the
imposition of the 201 remedy, prices have recovered, yet the recovery
has been modest. Prices remain below 20-year averages, and have
actually declined since last summer. In addition, steel prices have
increased at a greater rate in foreign markets than they have in the
United States. It is patently absurd to suggest that U.S. businesses
would move abroad because of a temporary steel tariff, especially when
steel prices are rising more rapidly in foreign markets than in the
United States.
Steel imports have remained robust. Steel imports were actually
higher in 2002, after the imposition of the remedy, than in 2001. As a
result of the 201 relief, domestic production has been put back on line
and capacity utilization has increased. The fact is that there is ample
supply to meet our domestic consumption needs.
The President's remedy has been effective thus far, and must be
supported by Congress in the face of opposition from foreign producers
so that it can have its full remedial effect. It is our right under the
World Trade Organization (WTO) agreements to protect industries
collapsing under the weight of foreign imports. The ITC conducted one
of the most exhaustive safeguard investigations in the history of the
WTO, and correctly found, by a unanimous vote, that the domestic steel
industry had been seriously injured as a result of high levels of low-
priced steel imports. We should not second guess the ITC and the
President.
Contrary to the claims of the opposition, this safeguard measure is
not only the right thing to do for an industry under siege, but is
explicitly provided for under the terms of the WTO agreements.
International rules allow countries to maintain the ability to respond
to serious and unforeseen economic dislocations, and protect their
industries against predatory actions from foreign companies or
countries. The problem is that the WTO dispute settlement body has
rejected every 201 remedy imposed by any country. This demonstrates
that we have a problem with how the WTO dispute settlement system is
working more than demonstrating any problems with this 201 remedy.
The President's 201 remedy plan was an enormous step toward
correcting the problems that ail the U.S. and global steel markets, but
it will be rendered meaningless unless it is allowed to continue for
the full term of three years. Congress must stand by the President's
remedy and help foster a marketplace where the domestic industry, one
of the strongest and most efficient steel industries in the world, can
actually thrive.
Chairman CRANE. Absolutely and we thank the gentleman for
his participation and his presentation. Now, the Honorable
Peter Hoekstra.
STATEMENT OF THE HONORABLE PETER HOEKSTRA, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. HOEKSTRA. Thank you, Mr. Chairman. Thank you for
allowing me to testify on section 201 this morning.
My testimony today regards the unintended but harmful
consequences of section 201, which impose a tariff of up to 30
percent on certain categories of imported steel products. These
unintended consequences affect the thousands of workers
throughout the country who process steel, bend steel, and
fabricate it for use. They are now forced to use--or what they
are finding is that they are losing their jobs to foreign
competitors whose products are built with perhaps cheaper
steel. When those products come to the United States, there are
no tariffs imposed.
The President introduced these measures in March 2001 to
give U.S. steel producers breathing space to restructure and
adjust to import competition. Unfortunately, section 201
tariffs have wreaked havoc with steel consumers and processors
by causing dramatically higher prices, some as much as 50
percent or more, long lead times, broken contracts, and a short
supply of steel in the United States, which has made U.S. steel
manufacturing users uncompetitive with foreign steel users.
Eliminating the tariffs would level the playingfield for U.S.
steel consumers, which are losing much of their customer base
as a result of the economic impact of these tariffs.
Under section 204 of the Trade Act of 1974 (P.L. 93-618),
the President is required to hold a midpoint review (MPR) for
measures imposed for more than 3 years. The section 201
safeguards run for 3 years and 1 day. The MPR starts with a
monitoring report prepared by the ITC and is due to the
President in mid-September 2003. I am encouraged that the
Committee on Ways and Means has requested that the ITC include
in its report an additional fact-finding investigation.
I believe that the results of these studies will validate
the claims of U.S. steel using manufacturers that imposing
these tariffs is creating an anti-competitive environment and
driving many companies out of business. The damage caused by
the economic disruption to steel manufacturers is spreading
throughout the economy.
This is especially troublesome with many steel using
manufacturers experiencing the worst business climate in 30
years. It is feared that many steel using businesses will not
survive the next 3 years. We do know that customers and jobs
lost will be very, very difficult, if not impossible to
reclaim.
The office furniture industry in Michigan's Second
Congressional District has laid off thousands upon thousands of
workers in the past 2 years and closed several production
facilities. Many of these jobs are being lost to foreign
producers of steel-containing products. Once lost, the jobs
will not come back.
In the State of Michigan, there are 794,795 steel-consuming
jobs and 11,744 steel-producing jobs. That is a ratio of 68 to
1. Some of the larger steel-consuming jobs in Michigan,
including transportation equipment, industrial machinery and
equipment, and fabricating metal products are fighting for
their very survival. In Michigan's Second Congressional
District there are at least 46,000 steel-consuming jobs,
scarcely any steel-producing jobs exist in the district.
The President is authorized to amend or terminate the
safeguard action if he finds that its effectiveness has been
impaired by changed economic circumstances when he conducts the
MPR. Since the administration could not have foreseen the
drastic impact of imposing steel tariffs on steel consumers, I
believe that the President should use the MPR as an opportunity
to end them. The market should dictate the price of steel, not
the government.
Thank you for the opportunity to testify.
[The prepared statement of Mr. Hoekstra follows:]
Statement of The Honorable Peter Hoekstra, a Representative in Congress
from the State of Michigan
Mr. Chairman, thank you for allowing me to testify on Section 201
Safeguard Action on Certain Steel Products. I appreciate the
opportunity to speak before the House Ways and Means Committee as it
examines the impact of steel tariffs on U.S. steel consuming
industries, which are vital components of the U.S. economy and
Michigan's Second Congressional District.
My testimony today regards the unintended, but harmful consequences
of these safeguards, which imposed tariffs of up to 30 percent on
certain categories of imported steel products in an effort to restrict
imports.
The President introduced the measures in March 2002 to give U.S.
steel producers ``breathing space'' to restructure and adjust to import
competition. Unfortunately, the safeguards have wreaked havoc with
steel consumers by causing dramatically higher prices--some as much as
50 percent or more--long lead times, broken contracts, and a short
supply of steel in the United States, which has made U.S. steel
manufacturing users uncompetitive with foreign steel users.
Eliminating the tariffs would level the playing field for U.S.
steel consumers and therefore benefit domestic steel producers, which
are losing much of their customer base as a result of the economic
impact of these tariffs.
Under section 204 of the Trade Act of 1974, the President is
required to hold a ``mid-point review'' (MPR) for measures imposed for
more than three years. The section 201 safeguards run for three years
and one day. The MPR starts with a monitoring report prepared by the
International Trade Commission (ITC) and is due to the President in
mid-September 2003.
I am encouraged that the House Ways and Means Committee has
requested that the ITC include in its report an additional fact-finding
investigation. The additional report will examine competitive
conditions facing steel-consuming industries in the United States with
respect to the tariffs imposed by the President and to foreign
competitors not subject to such measures.
I believe that the results of these studies will validate the
claims of U.S. steel-using manufacturers that imposing tariffs is
creating an anti-competitive environment and driving many companies out
of business.
The damage caused by the economic disruption to steel manufacturers
is spreading throughout the economy because of impacts to major
industries such as automobile manufacturers and furniture producers.
This is especially troublesome with many steel-using manufacturers
experiencing the worst business climate in 30 years.
It is feared that many steel using businesses will not survive
three years of tariffs.
The office furniture industry in Michigan's Second Congressional
District has laid off thousands upon thousands of workers in the past
two years and closed several production facilities over the past 18
months. Many of these jobs are being lost to foreign producers of
steel-containing products, and they won't come back.
In the state of Michigan, there are 794,795 steel-consuming jobs
and 11,744 steel-producing jobs, a ratio of 68 to one. Some of the
larger steel-consuming jobs in Michigan including transportation
equipment (300,837 jobs), industrial machinery and equipment (133,017
jobs), and fabricated metal products (130,588 jobs).
In the Michigan's Second Congressional District, there are at least
46,245 steel-consuming jobs. Scarcely any steel-producing jobs exist in
the district.
The President is authorized to amend or terminate the safeguard
action if he finds that its effectiveness has been impaired by changed
economic circumstances when he conducts the mid-point review.
Since the Administration could not have foreseen the drastic impact
of imposing steel tariffs, I believe that the President should use the
MPR as an opportunity to end them.
The market should dictate the price of steel, not the government.
Thank you for your consideration of my testimony. I would be happy
to answer any questions.
Chairman CRANE. I thank you for your testimony. Now the
Honorable Joe Knollenberg.
STATEMENT OF THE HONORABLE JOE KNOLLENBERG, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. KNOLLENBERG. Good morning, Mr. Chairman and Members of
the Subcommittee. I want to thank Chairman Thomas, and
certainly Chairman Crane, and all the Members of the
Subcommittee, for the effort they put into investigating this
issue.
I want to commend Chairman Crane for assembling a truly
balanced series of witnesses for this hearing. I know that both
steel consumers and steel producers have a great deal to say
about the subject.
As many of you know, I am the sponsor of the resolution
about the steel safeguard program known as House Concurrent
Resolution 23. Many of the Members of this Subcommittee are
cosponsors and there currently are 72 cosponsors total.
My resolution urges the President to direct the ITC to
report on the steel tariffs impact on steel producers and steel
consumers during the mid-term review. The ITC, as you know, is
required to review the steel tariffs and report to the
President on their effects in September of this year. While the
ITC must listen to the steel consumers, it is in no way
required by law to report to the President on what they heard
from the consumers. Much like this Subcommittee, I am seeking a
balanced and full review of how the steel tariffs are affecting
our economy.
Today I am happy to say the request in my resolution has
been fulfilled. Last week, Chairman Thomas sent a letter to the
ITC to initiate a section 332 investigation, which means that
the ITC will conduct an investigation on the impact of the
steel tariffs on steel producers and on steel consumers. This
will ensure that the full economic effects of the tariffs are
examined. All parties involved in this issue should welcome
this investigation and welcome the opportunity to present the
facts to the ITC and the President. Nobody should be afraid of
the facts. This investigation will simply put all of the
information on the table.
Let me briefly tell you about my Congressional District.
The Ninth Congressional District in Michigan is home to more
than 1,500 manufacturing establishments, 93 percent of which
employ less than 100 people. These establishments represent
nearly 21 percent of my district's work force.
One of the companies headquartered in my district is
America's largest automotive supplier, Delphi Automotive.
Several thousand of my constituents are Delphi employees. On
behalf of Delphi, I would like to submit their testimony for
today's hearing for the record. You will see Delphi describe
the pain that the steel tariffs have caused the company.
[The information follows:]
Statement of R. David Nelson, Delphi Corporation, Troy, Michigan
Mr. Chairman, thank you for holding this hearing on this critical
economic issue. I am pleased to provide written testimony for the
record on the impact of the Steel Safeguard Program on Delphi.
Delphi Corporation is a world leader in mobile electronics and
transportation components and systems technology. Delphi has
approximately 192,000 employees globally, and 60,000 in twelve U.S.
States, including Michigan, Ohio, Indiana, Wisconsin and New York.
Along with our trade association, the Motor and Equipment
Manufacturers Association (MEMA), Delphi supports Rep. Joe Knollenberg
(R-MI) and the 68 cosponsors of House Concurrent Resolution 23, who
have called on the International Trade Commission (ITC) to include an
analysis of the impacts of the steel tariffs on consumers as part of
the program's mid-term review. Delphi's Chairman, Chief Executive
Officer and President, J.T. Battenberg III joined 19 other automotive
supplier Chief Executive Officers in sending a letter to President Bush
last year describing our industry's concerns about the program.
Delphi's steel purchases are being affected both directly and
indirectly through the present tariff program. We currently purchase $1
billion in steel annually, including $200 million in direct steel
requirements and $800 million in steel related components. Over 98% of
our direct steel purchasing is from domestic suppliers.
The most significant impact to Delphi is with our suppliers, many
of who are smaller companies that have been affected by steel pricing
increases in the range of 5% to 30%. Like Delphi, these suppliers
cannot pass-on the price increases to their consumers, nor do they have
the ability to leverage away price increases delivered by the steel
industry.
Today's U.S. automotive supplier industry is dependent on reliable
and competitive materials to survive. The automotive industry's
original equipment manufacturers demand high quality products at
competitive prices and ``just-in-time'' delivery. Any disruption of
this system jeopardizes Delphi's relationship with our consumers and
our suppliers, many of whom are small and mid-sized manufacturers
already challenged by the struggling economy.
As the largest automotive supplier in the country, Delphi is
particularly susceptible to disruptions and price increases. Consumer
demands for lower prices coupled with the increased cost of steel have
left little room to maneuver for either Delphi or our supplier base.
The final factor I want to address is the lead-time inherent in the
production process of the automotive industry. Today, automotive
suppliers are making decisions that will impact job sourcing and
production for the next 10 years or more. The consequence of this is
that if Delphi or another supplier is forced to move production outside
the United States due to raw material or other costs, it is likely that
those jobs will never come back.
In conclusion, the negative impacts from the steel tariffs are
already hurting Delphi and our suppliers. The present economic
situation finds the automobile industry on the down-slope, thus
damaging the automotive supplier industry. By raising the prices of
steel--an intrinsic component in the manufacturing of parts--the cycle
only grows more vicious. The business decisions Delphi makes today will
impact the economy for the next 10 years or more.
In closing, I want to thank the Committee for holding this hearing,
and for urging the ITC to consider consumer issues during the upcoming
review. You are to be commended on your efforts in solving this problem
and allowing steel consumers a voice in the Administration's decision
whether to continue the steel tariff program.
Mr. Chairman, I would also like to submit for the record a
letter from the Motor and Equipment Manufacturer's Association
sent to President Bush and signed by 25 of the leading
automotive suppliers in the country.
[The information follows:]
Motor and Equipment Manufacturers Association
Research Triangle Park, North Carolina 27709
March 20, 2003
The President
The White House
1600 Pennsylvania Avenue, NW
Washington, DC 20500
Dear Mr. President:
March 20, 2003 marks the 1-year anniversary of the enactment of the
section 201 steel tariffs. As we approach this date, the Motor and
Equipment Manufacturers Association (MEMA) seeks to emphasize the
ongoing economic hardships faced by American manufacturers of
automotive parts and components resulting from the section 201 steel
tariffs. The automotive supplier industry encompasses thousands of
large, medium and small companies in all 50 States, directly employing
2.2 million Americans. Thousands of these jobs are located in
Pennsylvania, Ohio, Illinois, Indiana and West Virginia, as well as
Michigan. Automotive suppliers are one of this nation's leading
consumers of steel. The average vehicle sold in the U.S. contains more
than 1,810 pounds of steel parts and, historically, suppliers have
purchased the overwhelming majority of their steel from U.S. mills.
Our message, Mr. President, is that the effects of the section 201
steel tariffs on automotive suppliers, as well as other steel
consumers, requires careful and expeditious examination in the upcoming
section 201 Mid-Term Review, as proposed in House Concurrent Resolution
23. The steel tariffs are seriously damaging U.S. automotive suppliers
as well as other American manufacturers and, as a result, are damaging
the American economy as a whole.
Our industry has experienced significant losses over the past year
as a result of the tariffs, at a particularly sensitive time for our
industry as well as the U.S. economy. Upon the implementation of the
section 201 tariffs our companies suddenly faced widespread steel
shortages, delivery delays and quality problems. This uncertainty was
exacerbated by steep and sudden increases in raw material costs ranging
as high as 65 percent on items such as hot rolled and cold rolled
sheet. Recent reports indicate that certain U.S. steel producers are
seeking additional price increases of up to 10 percent. This will be
placed on top of the steel industry's present pricing structure for
auto suppliers; a burden that we cannot sustain.
Most U.S. automotive suppliers are under firm cost reduction
mandates and cannot pass higher raw material costs or production costs
forward to their customers. Nevertheless, in the last year many of our
customers have shifted from U.S. to foreign sources of automotive parts
and components to reduce their exposure to the uncertainty created by
the section 201 steel tariffs. Based on our experience in 2002, it is
clear that imports of intermediate and finished products, and the
related job losses from that shift of sourcing, will continue to grow.
The steel tariffs are also forcing large, Tier-1 auto suppliers to
shift from manufacturing or buying automotive components and assemblies
in the United States to foreign sources of supply. Several companies
are now debating the permanent relocation of manufacturing facilities
to other countries to avoid the disruption caused by the steel tariffs
and to remain internationally competitive.
In late 2002, MEMA gathered data from 17 select automotive parts
suppliers to assess the financial and business impact of the steel
tariffs on the industry. Our survey of this sample set of 17 companies
indicated losses in 2002 of $122 million directly attributable to
higher steel prices. Additional losses of $12 million in 2002 were
reported due to longer lead times and delivery problems arising from
the steel tariffs. Our sample set of only 17 automotive suppliers
projected a staggering cumulative cost of $224 million in 2003 due to
increased steel prices alone. This small sample points to far greater
financial and employment losses and lost competitiveness throughout the
American automotive industry, as well as other steel-consuming sectors.
Many automotive suppliers have sought relief under the
Administration's exclusion process. Obtaining exclusions, however, has
proved to be an expensive and complex legal and regulatory process,
essentially out of reach for many small and even medium sized
automotive suppliers. The exclusion process has provided little relief
to steel consumers in our industry as a whole due to our heavy reliance
on domestically produced steel products.
We clearly believe that it was not the Administration's intent to
damage the international competitiveness of our industry or to cause
job losses in American manufacturing; yet, the current situation poses
those very risks for our companies and other steel consuming industries
in this nation. The Administration is now facing a critical opportunity
to re-examine the effects of the section 201 steel tariffs and to
assess the effect of the tariffs on both steel producers and steel
consumers. Automotive suppliers, together with appliance manufacturers,
toolmakers, stampers, maritime manufacturers, and many other steel
consuming industries strongly support House Concurrent Resolution 23.
Introduced by Congressman Joe Knollenberg of Michigan on January 29,
this Resolution has drawn the support of 69 Republican and Democratic
cosponsors. Many of these lawmakers represent both steel producing and
steel consuming constituents, yet they all recognize the need to expand
the scope of the section 201 Mid-Term Review to ensure that the costs
and benefits to steel producers and steel consumers can be assessed in
concert. On March 20, 2003, we also welcomed the introduction of Senate
Concurrent Resolution 27 by Sens. Christopher Bond, Chuck Hagel, Peter
Fitzgerald and Mary Landrieu. SCR 27 reinforces our petition for the
inclusion of steel consumers in the Mid-Term Review. We urge the
Administration's prompt consideration and support for these two
Resolutions.
Thank you for the opportunity to express our views on this critical
issue.
Sincerely,
Christopher M. Bates
President and Chief Executive Officer
Ronald Cutler
Vice President, Automotive Marketing
TRW Automotive and
Chairman, Motor and Equipment
Manufacturers Association (MEMA)
Lawrence A. Denton
President and Chief Executive Officer
Dura Automotive Systems, Inc. and
Chairman, Original Equipment Suppliers Association (OESA)
Charles E. Johnson
President and Chief Executive Officer
Transpro, Inc. and
Chairman, Automotive Aftermarket
Suppliers Association (AASA)
J.T. Battenberg III
Chairman, Chief Executive Officer and President
Delphi Corporation
Troy, MI
John Doddridge
Chairman and Chief Executive Officer
Intermet Corporation
Troy, MI
John Plant
President and Chief Executive Officer
TRW Automotive
Livonia, MI
Timothy D. Leuliette
Chairman, President and Chief Executive Officer
Metaldyne Corporation
Plymouth, MI
Larry Yost
Chairman and Chief Executive Officer
ArvinMeritor, Inc.
Troy, MI
Edward E. Zimmer
President and Chief Executive Officer
Electronic Controls Company
Boise, ID
Joseph Magliochetti
Chairman, President and
Chief Executive Officer
Dana Corporation
Toledo, OH
Joachim V. Hirsch
Chairman, President and
Chief Executive Officer
Textron Fastening Systems
Grant H. Beard
President and Chief Executive Officer
TriMas Corporation
Bloomfield Hills, MI
Joel D. Robinson
President and Chief Operating Officer
American Axle and Manufacturing
Detroit, MI
Ronald I. Parker
Chairman and Chief Executive Officer
Indian Head Industries, Inc.
Charlotte, NC
Thomas Mowatt
President
Champion Labs
Albion, IL
Joseph V. Borruso
President and Chief Executive Officer
Hella North America, Inc.
Plymouth, MI
William J. Laule
Chief Executive Officer
TI Automotive
Warren, MI
Jeff Romig
Vice President, Strategic Resource Management
Eaton Corporation
Cleveland, OH
Wallace E. Smith
President
E&E Manufacturing
Plymouth, MI
D.W. Shaw
President
Means Industries, Inc.
Saginaw, MI
Timothy L. Tindall
President
Spring Engineering and Manufacturing
Canton, MI
Lawrence Sills
Chairman
Standard Motor Products, Inc.
Long Island City, NY
William D. Grote III
President and Chief Executive Officer
Grote Industries, Inc.
Madison, IN
Dennis M. Welvaert
Executive Vice President
Dayco Products, LLC
Tulsa, OK
Chairman CRANE. Without objection, so ordered.
Mr. KNOLLENBERG. Thank you. This letter describes the
financial losses attributed to the steel tariffs, which is in
the hundreds of millions. Like my resolution, this letter urges
the President to direct the ITC to fully consider the effects
of the steel tariffs on steel-consuming companies during the
mid-term review.
When the tariffs were announced in March 2002, we all knew
that steel-consuming companies would feel the pain, but we did
not know how bad the pain would be. Sadly, the increased prices
and supply disruptions came in more rapidly and severely than
anyone could predict, including the Administration.
A strong manufacturing base is critical to our Nation's
economy. These are already difficult times for manufacturers
and the steel tariffs are making them tougher. Steel-consuming
companies are global. They need access to their product inputs
at the global market price because they have to sell their
finished products in global markets.
I have heard from company after company that the current
environment is causing them to rethink their future here in the
United States. They are contemplating moving their
manufacturing operations overseas in order to remain globally
competitive. If steel consumers cannot get inputs in the United
States at global market prices, then they have to look
overseas. It is a business decision, pure and simple. When
those jobs move overseas, they are not coming back.
I do not want to see this happen anymore than it already
has. Everyone wants a strong domestic steel industry and this
is clearly stated in my resolution. I am glad the health of the
steel companies is improving, but the process of consolidation
that is occurring under the protection of tariffs is happening
at the expense of the customer base.
What good will the tariffs have achieved if there are no
customers left to buy steel from U.S. steel companies?
I want to thank Chairman Crane and the Members of this
Subcommittee again for holding this important hearing. Our
economic policymaking should be based on what is right for the
whole economy, including the whole manufacturing sector. Let us
not lose sight of that important point.
Again, Mr. Chairman, I want to thank you very kindly for
the opportunity to appear here today.
[The prepared statement of Mr. Knollenberg follows:]
Statement of The Honorable Joe Knollenberg, a Representative in
Congress from the State of Michigan
Good morning, Mr. Chairman and Members of the Subcommittee. I want
to thank Chairman Thomas, Chairman Crane and the Members of the
Subcommittee for investigating this issue.
I want to commend Chairman Crane for assembling a truly balanced
series of witnesses for this hearing. I know that both steel consumers
and steel producers have a great deal to say about this issue.
As many of you know, I am the sponsor of a resolution about this
very issue--H. Con. Res. 23. Many of the Members of this Subcommittee
are cosponsors. My resolution urges the President to require the
International Trade Commission to report on the steel tariffs' impact
on steel consumers. The ITC is required to review these steel tariffs
and report to the President on their effects in September of this year.
But while the ITC must listen to the steel consumers, it is in no way
required by law to report on what they heard to the President. Much
like this Subcommittee, I was seeking a balanced and full review of how
the steel tariffs are affecting our economy.
I am happy to say the request in my resolution has been fulfilled.
Last week, Chairman Thomas initiated a 332 investigation, which
means that the ITC will conduct an investigation to examine the impact
of the steel tariffs on steel producers AND consumers. This will ensure
the whole economic picture of this issue will be examined.
And we should all be grateful that this 332 investigation will be
included in the same document as the mid-term review and that these
reports will be made public. This means that the President, when he is
considering whether to extend the steel tariffs in September, will have
both reports in his hands and he can truly weigh the full economic
costs of his decision.
All parties involved in this issue should commend Chairman Thomas
for this action, and welcome the opportunity to present the facts to
the ITC and the President. Neither steel consumers nor steel producers
should be afraid of the facts. This investigation will simply put all
the information on the table.
Let me tell you a little about my congressional district. The Ninth
Congressional District in Michigan is home to more than 1,500
manufacturing establishments, 93 percent of whom employ less than 100
people. These establishments represent nearly 21 percent of the
district's workforce. The numbers are similar for Michigan as a whole,
and many States in the Midwest.
Since the Steel Safeguard Program was implemented just over a year
ago, manufacturers throughout my district have been telling me of steel
price increases, supply shortages, and quality problems. The steel
consumers panel can tell you much more forcefully and specifically than
I can about their struggles. Unfortunately, their stories are not
unique.
When the tariffs were announced in March 2002, we all knew steel-
consuming companies would feel the pain. But we didn't know how bad the
pain would be. Sadly, the increased prices and supply disruptions came
in more rapidly and severely than anyone predicted--including the
Administration.
A strong manufacturing base is critical to our Nation's economy.
But these are already difficult times for manufacturers and the steel
tariffs are making them tougher. Steel consuming companies are global.
They need access to their product inputs at the global market price
because they have to sell their finished products in global markets.
I have heard from company after company that the current
environment is causing them to rethink their future here in the United
States. They are contemplating moving their manufacturing operations
overseas in order to remain globally competitive. If steel consumers
can't get inputs in the United States at global market prices, then
they have to look overseas. It's a business decision pure and simple.
And when those jobs move overseas, they are not coming back. I
don't want to see this happen any more than it already has.
Everyone wants a strong domestic steel industry, and this is
clearly stated in my resolution. I'm glad the health of the steel
companies is improving. But the process of consolidation that is
occurring under the protection of tariffs is happening at the expense
of its customer base. What good will the tariffs have achieved if there
are no customers left to buy steel from U.S. steel companies?
I want to thank Chairman Crane and the Members of the Subcommittee
again for holding this important hearing. The strength of our economy
is not based on one sector. Neither should our economic policymaking.
Let's not forget the little guys who make our economy run. Thank you.
Chairman CRANE. Thank you for participating. Our next
witness is my good friend and neighbor, the Honorable Don
Manzullo.
STATEMENT OF THE HONORABLE DONALD A. MANZULLO, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF ILLINOIS
Mr. MANZULLO. Thank you, Mr. Chairman, Mr. Ranking Member.
I represent Rockford, Illinois, which is at the top of the
State. Rockford has a manufacturing base of 25 percent which is
double or triple the amount of manufacturing base in most
cities. Our unemployment rate is at about 8.7 percent, pushing
9 percent. In 1981, Rockford, Illinois led the Nation in
unemployment at 24.9 percent.
Traditionally known as the tool and die center and the
fastener center of the world, our city obviously is extremely
dependent upon the utilization of steel from various sources.
The small manufacturers are already under a tremendous
amount of pressure as a result of the high regulatory burden,
the overvalued dollar, the fact that there is a lack of
capital, and also double digit increases in health care
premiums. So, now they are facing stiff competition from China.
We lost 5,000 Motorola jobs within a matter of a year or a
year-and-a-half, we could lose in our district probably another
10,000 jobs if things do not turn around within the next 2
years.
When I go back home, my people hand me resumes and ask me
if I know of any opportunities where they can work. They are
the steel-consuming industry. They are the fabricators, the
people that take the steel and make it into different products.
So, they are at the brunt of the problem with a tremendous
increase in the cost of steel.
Everybody agreed, including the steel users, back at the
ITC hearing a year-and-a-half ago, that there is a need to keep
a strong steel manufacturing base in this country. The
testimony then that came from the steel manufacturers is that
at most there would be an increase of between 7 and 9 percent
in the cost of steel to the steel users.
The problem is that the cost of raw steel to the people in
my district has gone up anywhere between 25 and 79 percent. Let
me give to you an anomaly of a facility that is located in the
Speaker's district. It is National Hardware. National Hardware
is that last American manufacturer of hardware left. They are
the last ones. They are the only ones that are left. There are
900 people that work at National Hardware in the Speaker's
district, Mr. Evans' district, and people who live in my
district. They are struggling.
The cost of their domestic steel, because they want 100
percent domestic content, has gone up 25 percent. That is
uncalled for. That means the steel companies are gouging. That
means the promise to keep the increase of steel as a result of
protection from 7 to 9 percent has gone unheralded.
That is the problem with this whole scenario; there has to
be some type of balance. If the steel producers continue to
charge these types of prices for what they call profit
recovery, then they will knock out of business the very
customers that they are in the process of selling their
products to.
So, that is where the problem is. They are charging too
much for the steel. If you keep the steel price increase
modest, then it will work for everybody because that is how
this whole thing was intended.
We also had the anomaly of where I am working to try to
keep our titanium industry in this country. Why the Secretary
of the Air Force signed a waiver to allow Russian titanium to
be used on our military jets, closing down titanium mills in
this country.
You ask yourself, what type of intervention is this where
everybody ends up losing?
I am just very much concerned that we have to find a
balance here somewhere and the peas have to be on the knives of
the steel producers that charge these outrageous increases.
The steel producers themselves are breaking written
contracts with the steel users, and saying if you do not like
our increase in the price of steel, then go somewhere else,
holding the little guys hostage. This has to come to an end.
That is why I support Mr. Knollenberg's legislation,
because it goes right down the middle and it tries to help out
the steel producers while at the same time maintaining a
reasonable price of steel for our users. I thank you for the
opportunity to testify.
[The prepared statement of Mr. Manzullo follows:]
Statement of The Honorable Donald A. Manzullo, a Representative in
Congress from the State of Illinois
Mr. Chairman, Mr. Ranking Minority Member, Members of the
Subcommittee, the area of the Nation that I am privileged to represent
is in dire distress. This past January, the unemployment rate in the
three counties forming the center of the 16th District of Illinois
reached 8.7 percent, the highest level in 11 years. This is one-third
above the Nation's unemployment rate of 5.8 percent. Only 25 cities out
of 331 metropolitan areas in the entire Nation have a higher
unemployment rate than Rockford, Illinois. In the past four years,
8,000 factory jobs have been eliminated in Boone, Ogle, and Winnebago
Counties--the heart of the Rock River Valley.
How did this happen? Rockford, unlike most other cities, is
disproportionately dependent upon the manufacturing sector for its
economic livelihood. Twenty-five percent of Rockford's economy--double
the average for most American cities--relies upon a healthy
manufacturing base. The vast majority of these manufacturing jobs are
located in small firms of 30 to 50 person tool and die shops or
machining facilities.
These small manufacturing facilities were already struggling
against a high regulatory and tax burden. They were fighting against an
overvalued U.S. dollar. They were fighting a serious credit crunch as
banks would not extend credit to them--in some cases, banks were
recalling loans demanding immediate repayment. They were fighting
double-digit health care premium increases, making it extremely
difficult to continue extending coverage to themselves and their
workers. They were fighting to save their businesses as their larger
customers were moving production overseas, mostly to China, taking
their supply chain foreign shores. Then, to top it all, their steel
supplier informs them of record increases on the price of their raw
material, blaming it on Washington, and their customer refuses to
accept any price increase or else they'll go offshore to purchase their
product.
Last year, as Chairman of the Small Business Committee, I held two
hearings documenting the devastating impact these higher steel tariffs
were having on an overwhelming number of small manufacturers. I concede
that the steel industry and their suppliers have been temporarily
helped in the past year by these tariffs. The section 201 safeguard
protection has granted short-term stability to these manufacturers but
at an enormous cost. The decision has created extreme instability for
the vast majority of small manufacturers, particularly upon those rely
on a steady supply of steel. These manufacturers dominate the 16th
District of Illinois and many other Congressional districts across the
Nation.
This is not a problem just facing Rockford-based manufacturers. The
problems of Rockford are representative of the crisis in manufacturing
across this Nation. As a follow-up to the hearings the Small Business
Committee held last year, I sent a questionnaire last January to all
those who contacted the Committee on this issue to get an update. I
received a 17 percent response rate. These companies experienced an
average 25 percent increase in the price of their steel, one going as
high as 71 percent. Sixty-two percent of the respondent companies
experienced broken contracts from their steel supplier. Over half of
the respondents can demonstrate that their company lost business to
foreign competitors because of the higher price of steel in the United
States. Finally, a third of the companies that responded experienced
job layoffs or reduced work hours, some as high as 50 percent of their
entire workforce.
Mr. Chairman, we all want a strong and vibrant steel industry. But
when we've already lost 200,000 manufacturing jobs--more than are
employed in the entire steel industry--due primarily to higher steel
prices in 2002, I cannot help but conclude that the Section 201
Safeguard Action is an overwhelming failure. Illinois was the fifth
largest State in terms of job loss because of this decision. Nearly
10,000 Illinois workers at facilities like A-American Machine in
Rockford, which laid off 15 workers over the past year, lost their jobs
last year due to higher steel prices. Small manufacturers and their
workers are hurting from arbitrary price hikes and supply shortages.
They are also losing their global competitiveness, as foreign companies
are able to import finished goods made with steel bought at world
market prices, undercutting American small manufacturers. There's got
to be a better way to solve the problems facing the steel industry.
I commend this Committee for requesting the International Trade
Commission to examine the steel safeguard's effects on steel-using
manufacturers in time for the mid-point review next September. This
information is critical to developing a complete picture of the steel
tariff decision, which should provide sufficient rationale for the
President to rescind these tariffs as soon as possible.
We all need to step back and take a deep breath in order to
reexamine fundamental assumptions. We cannot have the problems of one
sector pushed onto other key sectors of our economy, many of which are
vital to our defense industrial base. This is also not a union/non-
union issue. Last year, the Small Business Committee heard from many
local labor union officials--including representatives from the United
Steel Workers of America--who argued against the higher steel tariffs.
We need a comprehensive manufacturing revitalization agenda to help all
industrial sectors, not pit part of our industrial base against
another. Much of my energy for the rest of this Congress will be
dedicated to this initiative. I ask you to join me in this effort.
Thank you very much, Mr. Chairman.
Chairman CRANE. I thank the gentleman for his testimony.
Now the Honorable Bart Stupak.
STATEMENT OF THE HONORABLE BART STUPAK, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. STUPAK. Thank you, Mr. Chairman, Ranking Member Levin,
and the rest of the Committee Members. Thank you for the
opportunity to be here.
I will disagree with my last colleagues who spoke in favor
of reviewing the section 201 action, because I believe the
Administration's section 201 action 18 months ago was
absolutely critical and came not a moment too soon. The future
of our domestic U.S. steel industry was being jeopardized as
steel companies were going into bankruptcy by the droves due to
the flood of the under-priced foreign imports.
In fact, Mr. Chairman, just looking at my blackberry here,
yesterday Bethlehem Steel, which has agreed to be bought by
International Steel Group (ISG) for $1.5 billion, won a U.S.
Bankruptcy Court permission to eliminate health care and life
insurance benefits for its retirees. About 90,000 retirees and
their spouses will be affected by the March 31, 2003 cutoff of
the benefits.
The point I am making with this news story that just came
out yesterday is the effect of the flood of under-priced
foreign steel in this country continues to hurt us today. As we
see here, 90,000 Americans losing their benefits, health and
life insurance benefits.
So, while some people complain about the tariffs and the
quotas that was put forth, I did not think they went far
enough. The tariffs on slab steel, which I am particularly
concerned about, as well as those other areas in this industry,
have allowed the U.S. industry to stabilize its downward
spiral. Companies have been able to charge market price. We
still do not produce enough to meet our own needs here in the
country. There have been many consolidation efforts, and some
of the companies are starting to plan for the future.
In my northern Michigan district, which is home to two of
the last few iron ore mines in this Nation that supply iron ore
to our steel companies, our mines experienced shutdowns as a
result of the depressed demand and industry bankruptcies, and
hundreds of our workers were forced out of work.
The section 201 remedy gave renewed hope to our troubled
mines. As a result of the section 201, Cleveland Cliffs, the
majority owner and operator of the Empire and Tilden Mines in
my district, have been able to re-open the mines and resume
partial production. Cleveland Cliffs has been making efforts to
consolidate the ownership of the mines, as other traditional
steel company owners sell their interest and concentrate on
making steel.
Some of my colleagues and industry groups have recently
suggested the section 201 remedies should be terminated at
midterm. I could not disagree more. To do so would wholly
obviate any progress that the industry has achieved.
The ITC set forth a 3-year remedy for a reason. In its
judgment, following a thorough investigation that considered
comments from every angle, including consumer groups, and it
decided upon a 3-year remedy in order to preserve the domestic
steel industry. The President reviewed this decision and agreed
with the need for relief to the steel industry. That decision
was correct, and nothing has changed to justify a departure
from that plan.
In addition, both last year and as recently as last week,
the Administration has granted numerous exclusions to steel
products from the steel safeguard remedy. In 2002, 727 products
were excluded from the tariffs. Last week another 295 products
were excluded. Clearly abundant consideration has been given to
the concerns of the steel consumers and these exclusions have
been given to accommodate their needs.
In fact, 79 percent of imported steel products are not
covered by the section 201 tariffs. These facts clearly
contradict those who argue that the voice of the consumer is
not being heard.
Mr. Chairman, I am further concerned about those who call
for terminating section 201 remedies would once again allow the
unchecked flow of foreign below market priced steel imports at
a time when our Nation's security is ever more important. The
prices at the gas pump around the country, as we have seen them
fluctuate in the last 2 weeks, should be a clear signal that we
should not rely on other countries for our vital products. To
put this country in a position where the domestic steel
industry may not survive, so that we would need to rely on
foreign steel, is totally unthinkable. Our national defense and
our Nation's infrastructure cannot be made dependent on foreign
steel providers.
I thank the Subcommittee for the time to allow me to
testify and hope you will give strong consideration to the
testimony. We must allow the tariffs to continue to work so we
can preserve and protect the U.S. steel industry.
With that, Mr. Chairman, I would yield back the balance of
my time.
[The prepared statement of Mr. Stupak follows:]
Statement of The Honorable Bart Stupak, a Representative in Congress
from the State of Michigan
Mr. Chairman, and Ranking Member Levin from my home State of
Michigan, I appreciate the opportunity to come before you and testify
about the important subject of the 201 Safeguard Action. I would also
like to acknowledge the Members of the Subcommittee who have been
supporters of the steel industry through their work on the Steel
Caucus.
The Administration's action in instituting the section 201 tariffs
was absolutely critical and came not a moment too soon. The future of
our domestic U.S. steel industry was being jeopardized as steel
companies were going into bankruptcy by the droves due to floods of
under-priced foreign imports.
While the tariffs were not quite at the level I would have hoped
for in the case of steel slabs, and were not straight tariffs but
rather tariff rate quotas, nevertheless, the tariffs on slabs as well
as other areas of the industry have allowed the U.S. industry to
stabilize its downward spiral.
Companies have been able to charge market prices, to start
consolidation efforts, and to plan for the future. My district in
northern Michigan is home to 2 of the last few iron ore mines in this
Nation that supply our steel companies.
Our mines experienced shut-downs as a result of depressed demand
and industry bankruptcies, and hundreds of workers were forced out of
work while the mines were idled. The 201 remedy, however, gave renewed
hope to our troubled mines. As a result of the 201, Cleveland Cliffs,
the majority owner and operator of the Empire and the Tilden mines in
my district, has been able to reopen the mines and resume partial
production.
Cleveland Cliffs has been making efforts to consolidate the
ownership of the mines as the other traditional steel company owners
sell their interest and concentrate on making steel.
Cleveland Cliffs has been focusing its own efforts on restoring
capacity production to the mines, and improving efficiency. While one
unfortunate result has been a downsizing of the workforce, I am hopeful
that Cleveland Cliffs efforts will benefit the long term survival of
the mines, and the surrounding industries and communities that depend
on these iron ore mines for their own survival.
Some industry groups have recently suggested that the section 201
remedies should be terminated at the mid-term review. I could not
disagree more. To do so would wholly obviate any progress that the
industry has achieved.
The International Trade Commission set forth a 3 year remedy for a
reason: in its judgment, following a thorough investigation that
considered comments from every angle, including consumer groups, and it
decided upon a 3 year remedy in order to preserve the domestic steel
industry. The President reviewed this decision and agreed with the need
for relief to the steel industry. That decision was correct, and
nothing has changed to justify a departure from that plan.
If anything, I am concerned regarding the scheduled phase-in of
reductions of the tariff rate quotas during this second year of the
remedy from a 30% tariff on slab imports above 5.4 million tons, to a
24% tariff on imports above 5.9 million tons. More foreign slab steel
will be allowed to flow into the United States under the second year
quota, and foreign slab steel that comes in above the quota will be
subject to a lesser tariff in this second year. Any critics of the
remedies should be satisfied with these phase-ins, rather than seeking
to deal the steel industry a mortal blow by terminating the section 201
remedies.
In addition, both last year and as recently as last week the
Administration has granted numerous exclusions to steel products from
the steel safeguard remedy. In 2002, 727 products were excluded, and
last week, another 295 products were excluded. Clearly, abundant
consideration has been given to the concerns of steel consumers, and
these exclusions have been given to accommodate their needs. In fact,
79% of imported steel products are not covered by the section 201
tariffs. These facts clearly contradict those who argue that the voice
of consumers is not being heard.
I am further disturbed that those who call for terminating the
section 201 remedies would allow once again the unchecked flow of
foreign, below-market priced steel imports, at a time when our national
security is ever more important.
The prices at the gas tanks around the country should be a clear
signal that we should not rely on other countries for vital products.
To put this country in a position where the domestic steel industry may
not survive, so that we would need to rely on foreign steel, is totally
unthinkable. Our national defense and our Nation's infrastructure
cannot be made dependent on foreign steel providers.
I thank the Subcommittee for allowing me to testify, and I hope
that you will give strong consideration to my testimony--we must allow
these tariffs to continue to work, so that we can preserve and protect
our U.S. steel industry.
Chairman CRANE. I thank you for your participation. Now the
Honorable Ted Strickland.
STATEMENT OF THE HONORABLE TED STRICKLAND, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OHIO
Mr. STRICKLAND. Mr. Chairman and Ranking Member Levin,
thank you for the opportunity to be here today to express my
strong support for the President's decision last year to impose
temporary safeguards to help the steel industry adjust to
imports surges that began in 1998.
The section 201 relief is working. I think the President's
steel tariff remedy, without a doubt, should stay in place for
its full 3-year term or we risk dependency on foreign steel
sources.
Over the past 20 years, the U.S. steel industry has
invested tens of billions of dollars to modernize facilities
and eliminate inefficient capacity, but these changes have not
been pain-free. The U.S. Department of Labor, Bureau of Labor
Statistics indicates that steel jobs have declined by more than
50,000 since 1998. The State of Ohio has felt that pain, losing
over one-third of its steel jobs since 1998.
These numbers underscore the human element in this debate
about tariffs and it is important because we cannot afford to
lose this skilled work force. The steel industry serves as the
cornerstone for our national defense and a shift away from the
President's steel program could do irreparable damage to this
industry and its work force.
Now some opponents of the steel program might claim that
the domestic steel industry is largely responsible for its own
problems and that relief is futile. I would like to remind
these critics that a vast majority of steel production outside
the United States is governed by cartels or funded by
subsidies. These practices by foreign competitors result in
enormous levels of excess capacity which lower domestic prices
and, in fact, lead to historically low prices at home in the
late nineties. These low prices, in turn, denied the domestic
industry the means to make critical investments in technology,
equipment, and training needed to ensure that the U.S. industry
can compete in the global market.
Today, over 30 American steel companies have gone into
bankruptcy. Relief is not futile. It is not a leap to assume
that weakening or revoking the section 201 relief before the
end of the full 3-year period could lead to a new surge of
imports causing another drop in prices and another decline in
industry profitability. This makes no sense at a time when the
industry is on the road to recovery.
I would like to take this opportunity to share with you
information about a specific steel company in my Ohio district.
Wheeling-Pittsburgh Steel Corporation operates steel mills in
the upper Ohio valley, employing approximately 3,800 workers in
Ohio, West Virginia, and Pennsylvania. About 20,000 retiree
families depend on the company for health care. The company is
one of the 30-plus steel companies that declared bankruptcy in
the last 5 years.
It has benefited from the President's steel program.
Wheeling-Pittsburgh has restructured in order to be more
competitive. Hourly workers have taken voluntary wage
concessions and the company recently laid off over 100
managers. Presently, the company is relying on the approval of
a $250 million loan guaranty from the Emergency Steel Loan
Guarantee Board so that it can modernize its operations and
emerge from bankruptcy.
Wheeling-Pittsburgh also happens to be an important source
of materials that are currently being used in the war zone. It
is companies like Wheeling-Pittsburgh that enable defense and
construction work to be completed around the United States in
emergency and compressed timetables that allow just-in-time
deliveries.
If the Emergency Steel Loan Guarantee Board makes a
favorable decision, and I pray to God that they do, I am
confident that Wheeling-Pittsburgh could continue to play a
significant role in this Nation's steel production and our
national defense. It is just the kind of company we need as a
part of our Nation's industrial base.
However, if we discontinue section 201 remedy before the 3-
year term is up, I fear we cut short this and other companies
efforts to be viable. Now is simply not the time to abandon
programs critical to the continued revitalization of this
Nation's steel industry.
Since the section 201 relief was implemented, a number of
companies have returned to profitability and other companies
have shown significant improvements. Recovery will take time.
The President's program should stay in place for the full 3-
year term or, in the long run, I think we will regret decisions
that send our steel workers home and our steel industry
overseas.
I thank you for the opportunity to speak before you this
morning.
[The prepared statement of Mr. Strickland follows:]
Statement of The Honorable Ted Strickland, a Representative in Congress
from the State of Ohio
Mr. Chairman, thank you for the opportunity to be here today and to
express my strong support for the President's decision last year to
impose temporary safeguards to help the steel industry adjust to import
surges that began in 1998. I think the section 201 relief is working.
And, I think the President's steel tariff remedy, without a doubt,
should stay in place for its full three-year term or we risk dependency
on foreign steel sources.
Over the past 20 years, the U.S. steel industry has invested tens
of billions of dollars to modernize facilities and eliminate
inefficient capacity. But these changes have not been pain free. Bureau
of Labor Statistics indicate that steel jobs have declined by more than
50,000 since 1998. The state of Ohio has felt that pain, losing over
one-third of its steel jobs since 1998. These statistics underscore the
human element in this debate about tariffs, and this is important
because we cannot afford to lose this skilled workforce. The steel
industry serves as the cornerstone for our national defense, and a
shift away from the President's steel program could do irreparable
damage to this industry and its workforce.
Some opponents of the steel program might claim that the domestic
steel industry is largely responsible for its own problems and relief
is futile. I would like to remind those critics that a vast majority of
steel production outside the United States is governed by cartels or
funded by subsidies. These practices by foreign competitors result in
enormous levels of excess capacity which lower domestic prices and, in
fact, led to historically low prices at home in the late 90's. These
low prices in turn deny the domestic steel industry the means to make
critical investments in technology, equipment and training needed to
ensure that the U.S. steel industry can compete in the global market.
Today, over 30 American steel companies have gone into bankruptcy.
Relief is not futile. It is not a leap to assume that weakening or
revoking the 201 relief before the end of the full three-year period
could lead to a new surge of imports causing another drop in prices and
another decline in industry profitability. This makes no sense at a
time when the industry is on the road to recovery.
I would like to take this opportunity to share with you information
about a specific steel company in my Ohio district. Wheeling-Pittsburgh
Steel Corporation operates steel mills in the upper Ohio Valley
employing approximately 3,800 workers in Ohio, West Virginia and
Pennsylvania. About 20,000 retiree families depend on the company for
health care. The company is one of the 30-plus steel companies that
declared bankruptcy in the last five years, but it has benefitted from
the President's steel program. Wheeling-Pitt has restructured in order
to be more competitive. Hourly workers have taken voluntary wage
concessions, and the company recently laid off 100 managers. Presently,
the company is relying on the approval of a $250 million loan guarantee
from the Emergency Steel Loan Guarantee Board so that it can modernize
its operations and emerge from bankruptcy successfully. Wheeling Pitt
also happens to be an important source of materials that are currently
in use in the war zone. It is companies like Wheeling-Pitt that enable
defense and construction work to be completed around the United States
in emergency and compressed time tables that allow just in time
deliveries.
If the Emergency Steel Loan Board makes a favorable decision, I am
confident Wheeling-Pitt could continue to play a significant role in
this Nation's steel production and our national defense. It is just the
kind of company we need as a part of our Nation's industrial base.
However, if we discontinue the section 201 remedy before the 3-year
term is up, I fear we cut short this, and other companies' efforts to
be viable international competitors into the future.
Now is simply not the time to abandon programs critical to the
continued revitalization of this Nation's steel industry. Since the
section 201 relief was implemented, a number of companies have returned
to profitability and other companies have shown significant
improvements. Recovery will take time and the President's program
should stay in place for the full three-year term or in the long-run, I
think we will regret decisions that send our steelworkers home and our
steel industry overseas.
Chairman CRANE. I thank the gentleman for his
participation. Now, the Honorable Thaddeus McCotter.
STATEMENT OF THE HONORABLE THADDEUS G. MCCOTTER, A
REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
Mr. McCOTTER. Mr. Chairman and Members of the Committee,
thank you for the chance to share with you one of the
challenges facing many of the families and employers at my
Eleventh District home in the Western Wayne and Oakland County
suburbs of Detroit.
Mr. Chairman, manufacturing moves Michigan. The auto
industry makes the world's finest cars. Primary, secondary, and
tertiary suppliers provide quality parts. Tool and die shops
provide the equipment to make it all possible. Defense
manufacturers provide vital parts for the fighters, airlift and
tanker aircraft liberating Iraq.
Yet in these uncertain economic times of falling demand and
rising prices, the manufacturing sector has seen the layoff of
thousands of employees and the loss of too jobs overseas. These
companies, both large and small, count on other suppliers to
provide the raw materials to make their ventures run. Often,
this material is steel, and now steel itself poses a real
problem.
True, our Nation's steel industry is also suffering
tremendous economic hardship. Consequently, the steel tariff of
2000 was implemented to bolster the U.S. steel industry and
protect American jobs. Only now, however, are we just beginning
to recognize the impact of these actions. Clearly, as is often
the case when government presents a solution, we now face a
well-intentioned policy's unintended consequences.
Tim Tindall, owner of Spring Engineering, a steel consumer
in Canton, Michigan and in my district, said it sadly and
succinctly. The tariffs made us uncompetitive overnight. I have
had an opportunity to visit Tim and meet with his workers. He
has many bright, highly skilled employees producing quality
parts and adding to our economy, as do other steel consumers
such as Wes Smith and Jim Heller, whose family founded
employers employ so many family breadwinners in my district.
These people are resourceful and they can weather whatever
the natural forces of our economy sends their way. In this
instance one of their problems is not caused by an economic
swing, but instead by a policy imposed upon them. Due in large
part of the steel tariff, in some instances, small
manufacturers have seen steel prices rise more than 70 percent.
Thus, steel users face arbitrary allocations and shortages
of product. Steel producers are breaking existing contracts and
forcing customers to renegotiate at higher rates. Small
manufacturers throughout southeast Michigan have been forced to
cope with these issues while trying to stay afloat amid an
economic down turn. From their perspective, some larger
businesses have the flexibility of simply expanding operations
overseas, where they can escape the tariffs. When those jobs
leave our shores, they are gone for good.
Mr. Chairman, we must take into account the real world
impact the tariff is having on workers who depend on steel. We
simply cannot afford to lose these jobs.
Ninety-five percent of all manufacturers are considered
small or medium-sized businesses. They account for more than $1
trillion in receipts. Even a conservative multiplier effect
shows a significant impact manufacturing has across our
country. One million dollars in manufacturing sales equates to
eight manufacturing jobs and six service jobs. The same $1
million in service sector orders only creates 3.5 service
sector jobs.
The ITC must complete a mid-term review of the steel tariff
by September 2003. The voices of Michigan workers worried about
their future and worried about their sector must be heard in
the review, which is why I am supporting legislation offered by
my colleague, Joe Knollenberg, calling for just such
consideration.
Mr. Chairman, I appreciate the opportunity to share with
you my concerns, for they are the concerns of the men and women
who every day must contend with the steel tariff as a direct
threat to their economic security and ultimate survival. These
stories are too common in my district and in our country. We
cannot afford to let these stories be the last chapter and the
storied history of American manufacturing.
Thank you, Mr. Chairman.
[The prepared statement of Mr. McCotter follows:]
Statement of The Honorable Thaddeus G. McCotter, a Representative in
Congress from the State of Michigan
Mr. Chairman and Members of the Committee, I appreciate the
opportunity to join you today to share with you the challenges facing
many of the families and employers in my home district in the western
suburbs of Detroit. If you were to visit my district and meet with some
of families who work there, you would find one simple, common thread
running throughout the region.
Manufacturing moves Michigan. Final assembly of some of the world's
finest cars. Primary, secondary, and tertiary suppliers providing
quality parts. Tool and die shops to provide the equipment to make it
all possible. And even defense manufacturers providing vital parts for
the fighters, airlift, and tanker aircraft liberating Iraq as we speak.
With the downturn and uncertainty facing our economy, the
manufacturing sector has been especially hard hit, laying off thousands
and sending many jobs overseas. Falling demand and rising prices are
taking a toll.
These companies--both large and small--count on other suppliers to
provide the raw materials to make their ventures run. Often, this
material is steel. And too often, steel is causing some real problems
for families across Michigan.
I recognize our Nation's steel industry is suffering under a great
period of economic hardship.
Though the steel tariff of 2002 was designed to bolster the U.S.
steel industry and protect American jobs, we are now just beginning to
recognize the impact of these actions. As is often the case when
government presents a solution, we are now facing unintended
consequences.
Tim Tindall, owner of Spring Engineering, a steel consumer in
Canton, Michigan said it best recently when he said ``The tariffs made
us uncompetitive overnight.'' I have had an opportunity to visit Tim
and meet with his workers. He has many bright, highly skilled employees
producing quality parts and adding to our economy.
They are resourceful and they can weather whatever the natural
forces of our economy sends their way. But I am growing frustrated when
I realize more and more of their problems are not caused by the
economic swings but instead by policies we have brought upon ourselves.
Thanks, in large part, to the steel tariff, small manufacturers
have seen steel prices rise more than 70% in certain instances. Steel
users face arbitrary allocations and shortages of product. Steel
producers are breaking existing contracts and forcing customers to
renegotiate at higher rates.
Small manufacturers throughout Southeast Michigan have been forced
to deal with these issues while trying stay afloat amid an economic
downturn.
From their perspective, some larger businesses have the flexibility
of simply expanding operations overseas where they can escape the
tariffs--when those jobs leave our shores, they are gone for good.
Mr. Chairman, we must take into account the real-world impact the
tariff is having on workers who depend on steel. We simply cannot
afford to lose these jobs:
95% of all manufacturers are considered small or medium sized
businesses. They account for more than $1 trillion in receipts--even a
conservative multiplier effect shows us the significant impact
manufacturing has across our economy. $1 million in manufacturing sales
equates to 8 manufacturing jobs and 6 service jobs--the same $1 million
in service sector orders only creates 3.5 service jobs.
The International Trade Commission must complete a mid-term review
of the steel tariff by September 2003. The voices of Michigan workers
worried about their future and worried about their sector must be heard
in the review. Which is why I am supporting legislation offered by my
colleague, Joe Knollenberg, calling for just such consideration.
Mr. Chairman, I appreciate the opportunity to share with you my
concerns. But listen not to me or my colleagues here on this panel,
listen to the men and women who fight these battles everyday, who must
contend with the steel tariff as a direct threat their to the employees
they lead.
Their stories are far too common in my district and in America
today. We cannot afford to let them continue.
Thank you very much.
Chairman CRANE. Thank you, Mr. McCotter. Now the Honorable
Dennis Kucinich.
STATEMENT OF THE HONORABLE DENNIS J. KUCINICH, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF OHIO
Mr. KUCINICH. Thank you very much, Mr. Chairman.
America needs a healthy domestic steel industry and we must
protect the steel workers who built up this great Nation.
Between 1997 and 2002, America's steel industry and its workers
were under attack by foreign companies illegally dumping steel
into the American economy, sending 35 steel companies into
bankruptcy and costing 54,000 industry employees their jobs.
As a result, I am proud of the efforts of the Steel Caucus,
which continually advocated for the Administration to initiate
a section 201 steel investigation into these imports. We also
succeeded in pushing the ITC to recognize the devastating
effect of steel imports through a finding of injury. We even
gathered with 25,000 steel workers on the ellipse to make sure
the President imposed an effective tariff to help stem the tide
of imports.
One year later this remedy is working, and it must be
continued. In my hometown of Cleveland it has helped us find a
new owner to keep our steel mills running. Industrywide, since
the section 201 relief was implemented, domestic steel is
beginning to see signs of a recovery. Domestic producers have
experienced incremental improvements in revenues, operating
income, and capacity utilization.
Additionally, the industry has made significant progress
toward restructuring and consolidation. The ISG, which came
into existence following its purchase of LTV Steel, has agreed
to acquire the assets of Bethlehem Steel. U.S. Steel announced
plans to purchase National Steel. Section 201 relief, if
allowed to run its course, will result in a more competitive
domestic industry.
The tariffs have also caused a modest price recovery in the
industry. Prices for hot-rolled steel rose from historic lows
of only $210 per ton in December 2001 to around $300 per ton
today. Even so, prices for all major flat-rolled products are
still below 20-year historical averages and steel imports will
remain approximately 25 percent of the market.
The tariffs are a good start and they must be allowed to
continue. The United States has finally made clear that is no
longer willing to serve as the world's steel dumping ground.
The United States also made clear that the domestic security of
our country requires a strong and viable domestic steel
supplier base. Only the continuation of the section 201 tariffs
will mitigate the harm of unfairly traded imports and assist
the industry in a critical recovery. Keep the steel tariffs
working.
Thank you, Mr. Chairman. I yield back.
[The prepared statement of Mr. Kucinich follows:]
Statement of The Honorable Dennis J. Kucinich, a Representative in
Congress from the State of Ohio
America needs a healthy domestic steel industry and we must protect
the steelworkers who built up this great Nation.
But between 1997 and 2002, America's steel industry and its workers
were under attack by foreign companies illegally dumping steel into the
American economy, sending 35 steel companies into bankruptcy and
costing 54,000 industry employees their jobs.
As a result, I am proud of the efforts of the Steel Caucus, which
continually advocated for the Administration to initiate a section 201
steel investigation into these imports.
We also succeeded in pushing the International Trade Commission to
recognize the devastating effect of steel imports through a finding of
injury. We even gathered with 25,000 steelworkers on the ellipse to
make sure the President imposed an effective tariff to help stem the
tide of imports.
One year later, this remedy is working and it must be continued. In
my hometown of Cleveland, it helped us find a new owner to keep our
steel mills running. Industrywide, since the section 201 relief was
implemented, domestic steel is beginning to see signs of a recovery:
domestic producers have experienced incremental improvements in
revenues, operating income, and capacity utilization.
Additionally, the industry has made significant progress toward
restructuring and consolidation. The International Steel Group (ISG),
which came into existence following its purchase of LTV, has agreed to
acquire the assets of Bethlehem Steel. U.S. Steel announced plans to
purchase National Steel. Section 201 relief, if allowed to run its
course, will result in a more competitive domestic industry.
The tariffs have also caused a modest price recovery in the
industry. Prices for hot rolled steel rose from historic lows of only
$210 per ton in December 2001 to around $300 per ton today. But even
so, prices for all major flat rolled products are still below 20-year
historical averages, and steel imports still remain approximately 25
percent of the market.
The tariffs were a good start, and they must be allowed to
continue. The United States has finally made clear that it is no longer
willing to serve as the World's Steel Dumping Ground. The United States
has also made clear that the national security of our country requires
a strong and viable domestic steel supplier base. Only the continuation
of the 201 tariffs will mitigate the harm of unfairly traded imports
and assist the industry in a critical recovery. Keep the steel tariffs
working!
Chairman CRANE. Thank you. Now the Honorable Bob Ney.
STATEMENT OF THE HONORABLE ROBERT W. NEY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OHIO
Mr. NEY. Thank you, Chairman Crane and other colleagues.
Thank you for calling this hearing this morning. On behalf of
my constituents, I want to thank the Chairman for providing me
the opportunity to submit testimony regarding steel imports.
For years, our jobs have been washing away in a flood of
cheap dumped foreign steel. Until the Bush Administration,
these calls for help fell on deaf ears. Thankfully, President
Bush took a good look and formally recognized the damage being
done to our domestic steel industry. On March 5, 2002, the
President imposed tariff relief for a period of 3 years. One
year later, the President's steel program is working. It is
critical to the continued success of the President's plan that
tariff relief remain in effect for its full term.
I have been engaged in this important issue for a number of
years. U.S. steel companies such as Wheeling-Pittsburgh Steel
Corporation and Weirton Steel Corporation in Weirton, West
Virginia, have made tremendous efforts to remain competitive in
the world market. That includes labor and management. They have
worked together to make some very difficult and tough
decisions. Wages have been cut. The number of workers and
managers have been reduced. New efficiencies and technologies
have been pursued. Bonds have been restructured to reduce
interest expense and avoid bankruptcy.
Despite these sacrifices and improvements, these steel
companies were still suffering from illegally dumped foreign
steel prior to the intervention of President Bush. Since
implementation of the section 201 tariff relief, several
positive trends have occurred. The industry has made
significant progress toward consolidation and these efforts
will continue. The international talks on overcapacity and
subsidies are making real progress.
In addition, domestic producers have enjoyed improvements
in revenues, operating income, and capacity utilization. A
number of companies have returned to profitability, while
others have showed significant improvement even though they
have not yet become profitable, but we trust that they will.
There have, however, been significant surges of imports
from certain excluded countries, and to the extent there is any
concern about the program, it is that too many imports could be
undermining relief. In fact, imports of flat-rolled steel
increased substantially after imposition of section 201
measures in 2002, as compared to the same period in 2001.
Therefore, the section 201 tariff measures must be fully
enforced if our industry is to arrive at a successful
conclusion. While recovery will take time, the President's plan
has allowed the industry to make a real start.
I would note, in the overall picture, it is very own
difficult to say that we should be competitive when we are
dealing with countries that used maybe World Bank money or used
government subsidies to produce steel at $400 a ton, but yet
sell it on our market at $100 a ton. We still have made the
industry, with the management and laborers working together,
have still fought the good fight to keep themselves alive.
I have no doubt in my mind that, had the President not done
the section 201, and had the President, in fact, not done the
30 percent tariff, at least one of our corporations would have
lost probably 3,000-some jobs, and the workers would have been
out on the street well over a year ago.
So, we are trying to keep our head above water with some
real unfair competition. It is hard to compete against
countries that work their people and give them 1 day off and 10
cents an hour, but we have managed to try to do that. So, we
need the support. Thank you.
[The prepared statement of Mr. Ney follows:]
Statement of The Honorable Robert W. Ney, a Representative in Congress
from the State of Ohio
Chairman Crane and other colleagues, thank you for calling this
hearing this morning.
On behalf of my constituents, I want to thank the Chairman for
providing me the opportunity to submit testimony regarding steel
imports. For years our jobs have been washing away in a flood of cheap,
dumped foreign steel. Until the Bush Administration, these calls for
help fell on deaf ears. Thankfully, President Bush took a good long
look and formally recognized the damage being done to our domestic
steel industry. On March 5, 2002, the President imposed tariff relief
for a period of three years. One year later, the President's steel
program is working. It is critical to the continued success of the
President's plan that tariff relief remain in effect for its full term.
Unlike some others, I have been engaged in this important issue for
a number of years. U.S. steel companies, such as Wheeling-Pittsburgh
Steel Corporation and Weirton Steel Corporation, have made tremendous
efforts to remain competitive in the world market. Labor and management
have worked together to make tough decisions. Wages have been cut; the
number of workers and mangers has been reduced; new efficiencies and
technologies have been pursued; bonds have been restructured to reduce
interest expense and avoid bankruptcy. Despite these sacrifices and
improvements, these steel companies were still suffering from illegally
dumped foreign steel.
Since implementation of section 201 tariff relief, several positive
trends have occurred. The industry has made significant progress toward
consolidation, and these efforts will continue. The international talks
on overcapacity and subsidies are making real progress. In addition,
domestic producers have enjoyed improvements in revenues, operating
income, and capacity utilization. A number of companies have returned
to profitability, while others have shown significant improvement even
though they have not yet become profitable.
There have however been significant surges of imports from certain
excluded countries, and, to the extent there is any concern about the
program, it is that too many imports could be undermining relief. In
fact, imports of flat-rolled steel increased substantially after
imposition of section 201 measures in 2002, as compared to the same
period in 2001. Therefore, the section 201 tariff measures must be
fully enforced if our industry is to arrive at a successful conclusion.
While recovery will take time, the President's plan has allowed the
industry to make a real start.
Chairman CRANE. Thank you, Mr. Ney. Now our final witness,
the Honorable Anibal Acevedo-Vila.
STATEMENT OF THE HONORABLE ANIBAL ACEVEDO-VILA, A
REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF PUERTO RICO
Mr. ACEVEDO-VILA. Good morning, Mr. Chairman, Ranking
Member Levin, and Members of the Committee.
I am pleased to have this opportunity to testify in support
of import relief for Puerto Rican manufacturers who are
unfairly burdened by trade remedies designed for mainland
markets but which, in certain circumstances, have unintended
consequences for our island economy.
I want to recognize the presence here of Mr. Victor
Gonzales, President of Mateco and Vice President of Celta
Agencies, Inc., two Puerto Rican corporations involved in the
importation, finishing and sale of steel rebar in Puerto Rico.
As a matter of principal, I believe in free but fair trade
with all of our trading partners. Puerto Rico's largest market
is the mainland United States, with whom we are the eighth
largest trading partner, generating over 270,000 jobs in the
U.S. mainland.
However, in certain cases, for reasons of geography and
cost, we must rely on imports from our neighbors in the
Caribbean and the other regions. One important example is in
small-sized steel rebar used in the housing construction
industry in Puerto Rico. Mills on the United States mainland
historically have supplied less than 3 percent of Puerto Rico's
requirements. Even after the imposition of section 201
remedies, domestic mills are still supplying less than 4
percent of Puerto Rico's requirements.
The 12 percent additional duty mandated by these sanctions
significantly increases the cost of building needed housing in
Puerto Rico while providing marginal, if any, benefit to
domestic steel producers.
The majority of imported rebar to Puerto Rico is in smaller
sizes, principally for the use in the construction of low
income residential housing in Puerto Rico. Housing in tropical
climates such as Puerto Rico must be built of concrete to
withstand hurricanes, earthquakes and pests. These cast
concrete structures employ smaller rebar size. Therefore, low
income residential construction in Puerto Rico depends on an
adequate supply of this smaller sized rebar and there is not
rebar production on the island.
The steel section 201 measures implemented last year have
had a very negative effect on Puerto Rico's ability to source
rebar from traditional and highly efficient foreign suppliers.
The impact is having a very tangible effect on low income
housing in Puerto Rico. They are adding between $2,000 to
$3,000 to the cost of a low income home.
U.S. rebar producers were never significant suppliers of
rebar to Puerto Rico, before or after the steel section 201
measures. This is because U.S. mills are not an option for
rebar supply. The United States does not and cannot meet the
demand for smaller sized rebar in Puerto Rico. U.S. mills
concentrate on producing larger sized rebar for use in the
commercial construction projects including highways, office
buildings, bridges or nuclear reactors.
U.S. Customs statistics confirmed that U.S. mainland
shipments to Puerto Rico are insignificant and unable to meet
the demand. Before the steel section 201 measures in 2001, U.S.
shipments represented only 2.8 percent of all rebar shipments
into Puerto Rico in 2001. After section 201, measures represent
only 3.7 percent of all rebar shipments into Puerto Rico.
Only three U.S. mills can supply rebar in smaller sizes to
Puerto Rico, SMI Steel Products, Nucor and Gerdau, but their
capacity to do so is very limited. Despite efforts to find
suppliers of rebar for the Puerto Rico housing market, there is
insufficient amounts available domestically. U.S. mills do not
have sufficient production to accommodate demand for larger
diameter rebar, much less to satisfy the Puerto Rican low
income market niche for smaller rebar.
Puerto Rico currently purchases its small-sized rebar from
foreign suppliers, but like U.S. mills many foreign mills are
not set up to efficiently produce smaller sized rebar and
cannot provide adequate supply.
There are exceptions. Venezuelan rebar, for example, is
efficient and is geared toward smaller sized rebar. Venezuelan
used to be a primary supplier to Puerto Rico. Venezuela is now
subject to section 201 tariffs and not excluded as a developing
country. Venezuela's request for exclusion of some limited
amounts of rebar from the section 201 measures in order to
supply Puerto Rico's tropical housing market was rejected by
the United States last week because U.S. producers insisted to
the Federal Government that they can supply Puerto Rico's
demand.
I am here to say that this has not been the case. As of
last week, Puerto Rican importers have still been unable to
obtain adequate supply from U.S. producers.
In 2003, it is estimated that Puerto Rico will require
approximately 300,000 tons of rebar and the low income housing
market is predicted to grow over the next year. Puerto Rico's
low income housing market and construction industry should not
be penalized for trade remedies designed to protect a U.S.
industry that does not and will not supply our demand. Thank
you.
[The prepared statement of Mr. Acevedo-Vila follows:]
Statement of The Honorable Anibal Acevedo-Vila, a Representative in
Congress from the Commonwealth of Puerto Rico
Good morning Mr. Chairman, Ranking Member Levin and Members of the
Committee. I am Resident Commissioner Acevedo-Vila, the Representative
of Puerto Rico in Congress. On behalf of Governor Sila Calderon, her
Secretary of Commerce and Economic Development, Milton Segarra, who is
with me today, I am pleased to have this opportunity to testify in
support of import relief for Puerto Rican manufacturers who are
unfairly burdened by trade remedies designed for mainland markets but
which, in certain circumstances, have unintended consequences for our
island economy. In addition to the Calderon Administration, I want to
recognize Victor L. Gonzalez, President of Mateco, and Vice President
of Celta Agencies, Inc., two Puerto Rican corporations involved in the
importation, finishing and sale of rebar in Puerto Rico.
As a matter of principle, I believe in free but fair trade with all
of our trading partners. Puerto Rico's largest market is the United
States, with whom we are the eighth largest trading partner, generating
over 270,000 jobs on the U.S. mainland. However, in certain cases, for
reasons of geography and cost, we must rely on imports from our
neighbors in the region.
One important example is in small-sized steel rebar used in the
housing construction industry in Puerto Rico. Mills on the United
States mainland historically have supplied less than 3 percent of
Puerto Rico's requirements. Even after the imposition of the section
201 remedies, domestic mills are still supplying less than 4 percent of
Puerto Rico's requirements. The 12 percent additional duty mandated by
these sanctions thus significantly increases the cost of building
needed housing in Puerto Rico while providing marginal, if any,
benefits to domestic steel producers.
The majority of imported rebar to Puerto Rico is in smaller sizes
principally for use in the construction of low-income residential
housing in Puerto Rico. Housing in tropical climates, such as Puerto
Rico, must be built of concrete to withstand hurricanes, earthquakes
and pests and these cast-concrete structures employ smaller rebar
sizes. Therefore, low-income residential construction in Puerto Rico
depends on an adequate supply of this smaller sized rebar and there is
no rebar production on the island.
The Steel 201 measures implemented last year have had a very
negative effect on Puerto Rico's ability to source rebar from
traditional and highly efficient foreign suppliers. Their impact is
having a very tangible effect on low-income housing in Puerto Rico:
They are adding $2,000 to $3,000 to the cost of a low-income home.
U.S. rebar producers were never significant suppliers of rebar to
Puerto Rico--before or after the Steel 201 measures. This is because
U.S. mills are not an option for rebar supply. The U.S. does not and
cannot meet the demand for smaller size rebar in Puerto Rico. U.S.
mills concentrate on producing larger-sized rebar for use in commercial
construction projects, including highways, office buildings, bridges or
nuclear reactors. Moreover, shipments to Puerto Rico from the U.S.
mainland must be made on Jones Act fleet, and this increases the price
of U.S. rebar almost 20%, making the cost of U.S. rebar prohibitive.
Thus, the U.S. mainland shipments to Puerto Rico generally are made to
satisfy Buy America requirements.
U.S. Customs statistics confirm that U.S. mainland shipments to
Puerto Rico are insignificant and unable to meet demand. Before the
Steel 201 measures in 2001, U.S. shipments represented only 2.8 percent
of all rebar shipments into Puerto Rico during 2001 and, after the
Steel 201 measures represented only 3.7 percent of all rebar shipments
into Puerto Rico.
Only 3 U.S. mills can supply rebar in smaller sizes to Puerto Rico:
SMI, NUCOR and Gerdau (Ameristeel), but their capacity to do so is very
limited.
I want the Subcommittee to understand that despite efforts to find
suppliers of rebar for the Puerto Rican housing market, that there is
insufficient amounts available domestically. U.S. mills do not have
sufficient production to accommodate demand for large diameter rebar,
and much less to satisfy the Puerto Rican low-income market niche for
smaller rebar. U.S. mills have their hands full supplying added demand
created by the reduction in steel imports in the continental USA. In
sum, all mills have claimed that they are already at capacity in
supplying existing customers and cannot provide any rebar beyond the
very limited amounts they are already offering.
Puerto Rico currently purchases small size rebar from foreign
suppliers. But, like U.S. mills, many foreign mills are not set up to
efficiently produce smaller-sized rebar and cannot provide adequate
supply. There are exceptions. Venezuelan rebar production, for example,
is efficient and is geared towards smaller sized rebar. Venezuela used
to be a primary supplier to Puerto Rico, and they shipped to meet
demand when the Puerto Rican housing market was booming in 1996-1997.
Because of these shipments, Venezuela is now subject to 201 tariffs and
not excluded as a developing country. Venezuela's request for exclusion
of some limited amounts of rebar from the 201 measures in order to
supply Puerto Rico was rejected by the U.S. last week because U.S.
producers insist to the U.S. Government that they can supply Puerto
Rico's demands. I am here to say this has not been the case. As of last
week, Puerto Rican importers have still been unable to obtain adequate
supply from U.S. producers.
Let me give you a sense of the situation of the current market for
rebar in Puerto Rico due to the 201 measures. Last week, an
international trader brought into San Juan a ship with 5,000 tons of
smaller rebar from Gerdau's Uruguayan mill. This is a small,
inefficient mill set up to take care of the Uruguayan market, now
capable of exporting because the section 201 measures exempted Uruguay.
It is no wonder that Gerdau-Ameristeel is one of the strongest
proponents of shutting an efficient producer like Venezuela out the
Puerto Rican market.
The Subcommittee should be aware that since Mateco has price
contracts for 75% of Puerto Rico's annual capacity and these prices are
set for the duration of a project (usually one year), Mateco has to
absorb the price increases of the section 201 safeguards. Mateco pays
the section 201 additional 12% to U.S. Customs if they buy from a non-
exempt country or a 12% higher price to the exempt country as they
charge more for their rebar when it is to be shipped to the USA.
In closing, I ask you to consider what lies ahead. In 2003, it is
estimated that Puerto Rico will require approximately 300,000 tons of
rebar, and the low-income housing market is predicted to grow over the
next few years.
Section 201 has limited foreign sources of smaller-sized rebar into
Puerto Rico, creating unnecessary shortages and a windfall to the
foreign mills lucky enough to win what can be described as the ``201
lottery.'' Ultimately, it is the end-users and Puerto Rican consumers
who are paying the price for the free trade distortions created by the
201 measures. Puerto Rico's low-income housing market and construction
industry should not be penalized for trade remedies designed to protect
a U.S. industry that does not and will not supply our demand.
Thank you.
Chairman CRANE. I thank you for your participation, Anibal,
and I thank all of our colleagues for their participation. Now
I would like to invite our next panel: Timothy Taylor,
President, MacLean Vehicle Systems, MacLean-Fogg Company,
Mundelein, Illinois; Paul Nixon, President, Bakersfield Tank
Company, Bakersfield, California; Timothy Leuliette, Chairman,
President and Chief Executive Officer (CEO), Metaldyne
Corporation, Plymouth, Michigan; Lester Trilla, President,
Trilla Steel Drum Corporation, Chicago, Illinois; Robert
Pritchard, President and Chief Executive Officer, A.J. Rose
Manufacturing Company, Avon, Ohio, on behalf of the Consuming
Industries Trade Action Coalition; and Wes Smith, President and
Chief Executive Officer, E&E Manufacturing, Plymouth, Michigan.
Before we get started here, I am going to yield to my
distinguished colleague, the Chairman of the Committee on Ways
and Means, the Honorable Bill Thomas.
Chairman THOMAS. Thank you very much, Mr. Chairman.
While the panel members are finding their seats I want to
compliment you and the Subcommittee. When you have the list of
distinguished Members in terms of a good cross-section of those
concerned with this issue, this panel of consumers to a certain
extent, and then producers, followed by third parties, it is
this kind of extensive hearing that lays the groundwork for us
to monitor those decisions made in front of the WTO and, in
fact, to it assist in making sure that this policy is concluded
in the most successful way possible.
I am here for a brief introduction, and it may be out of
order, but I do not want to disrupt the Committee any more than
I am. I do thank the Committee for that indulgence. I wanted to
just underscore the fact that Paul Nixon has come from
Bakersfield. It happens to be in my district. More importantly,
I think he is very representative of those people who produce
very needed and useful products, are consumers of steel
product, and of particular kind of steel product, as you might
guess from the name of his company, the Bakersfield Tank
Company. I believe it will be a useful contribution to
understand the full and complete impact on both sides for the
producer and the consumer.
Mr. Chairman, I want to thank you. Thank you Paul. Thank
you very much for coming back. We look forward to all of your
testimony and making a record that allows us to make the best
possible decision in a very difficult area. Thank you, Mr.
Chairman.
Chairman CRANE. Thank you. Let me remind the panelists that
each Member's oral presentation is to be limited to 5 minutes.
You will see the red light go on after 5 minutes. Any written
statement, however, will be made a part of the permanent
record. The same principle applies for Members of the Committee
when we get to questions. Now I would like to yield to Timothy
Taylor, President of MacLean Vehicle Systems and a constituent.
STATEMENT OF TIMOTHY N. TAYLOR, PRESIDENT OF MACLEAN VEHICLE
SYSTEMS, MACLEAN-FOGG COMPANY, MUNDELEIN, ILLINOIS
Mr. TAYLOR. Thank you, Mr. Chairman and Members of the
Subcommittee for the opportunity to speak to you today. I am
President of MacLean Vehicle Systems, a wholly-owned subsidiary
of MacLean-Fogg Company. MacLean-Fogg is a privately held
manufacturing company based in suburban Chicago, employing
about 2,000 people in 24 facilities, in 8 States, and 6
countries.
We produce fasteners and component parts for the
automotive, transportation equipment, general industrial,
electrical equipment, and telecommunications markets worldwide.
Approximately 10 percent of our $400 million in annual
sales is exported, and we import a similar amount of products
from our facilities and suppliers in Europe, Latin America, and
increasingly from Asia.
The majority of products we produce at MacLean-Fogg have
steel as a primary raw material. We purchase approximately
50,000 tons of steel annually in our businesses. About half of
the steel comes from the United States, 40 percent from
Canadian producers, and the remainder from European and Asian
producers.
We support a strong viable, profitable steel industry. We
prefer to buy U.S.-made steel when it is competitive in price,
quality and delivery, but we absolutely must have access to
globally priced steel on the same basis as our competitors
around the world if we are to remain competitive in the
products we produce.
Mr. Chairman, I am also immediate past-Chairman of the
Industrial Fasteners Institute (IFI). It is an industry trade
group representing 85 percent of North American fastener
production.
As Chairman of IFI, I am very familiar with what happens
when tariffs and other trade barriers are enacted on steel. In
the seventies and eighties voluntary restraint agreements,
tariffs, quotas and other trade restraints enacted to protect
steel producers resulted in 40 percent of U.S. fastener
manufacturing capacity disappearing or relocating offshore as a
result of the higher U.S. steel prices that resulted from these
protections.
I am here today in the hope of preventing an additional,
similar decline in the fastener industry and other steel-
consuming industries.
This principle of economic production never changes. When a
base raw material is protected by tariffs or other constraints,
imports of value-added products made from that material
increase and U.S.-based manufacturers are placed at a
competitive disadvantage.
What is different today is only the speed with which this
happens. What used to take decades now takes years. What used
to take years now takes months. In our globally competitive
economy, production changes happen far more rapidly than they
did 30 years ago, and I am concerned by the pace with which we
are exporting steel consuming jobs.
Our government has provided repeated tariff, countervailing
duty and other protection to the large integrated steel
producers since the seventies. Despite these ``temporary''
tariffs, many of the large integrated steel producers have not
been able to earn an acceptable return. I would suggest that
after more than 30 years of nearly continuous protection for
the steel industry, there are structural problems in the steel
industry that would be better solved by market forces than by
continued government action.
My concern is that in attempting to save jobs in the
domestic steel industry, we have severely damaged domestic
steel consumers. There are 50 manufacturing jobs in the
products produced from steel for every one job in the steel-
making industry. To protect one job in steel with tariffs, we
are placing the 50 steel-consuming jobs at risk.
In fact, according to a recent economic study commissioned
by the Consuming Industries Trade Action Coalition, 200,000
jobs in products produced from steel were lost between 2001 and
2002 in December as a result of higher steel prices brought on
largely by the tariffs. To put that in perspective, there about
180,000 jobs in the entire steel-producing industry.
Let me be more specific. We have a plant in Richmond,
Illinois that employs 19 people making steel nuts. This plant
is the most productive fastener plant in the world. It is so
automated these 19 people produce the equivalent of $12 million
of sales of fasteners, which is three times the industry
average on a per person basis.
In our Richmond plant, our steel costs us 30 to 35 cents
per pound. We can buy these nuts in Asia, complete and
delivered to Chicago, for 44 cents a pound. That is because in
Taiwan and China, steel costs 20 to 25 cents per pound. These
19 people are likely to lose their jobs this year if this
tariff remains in place.
Let me say again that MacLean-Fogg supports a strong steel
industry. We urge the removal of these tariffs at the earliest
possible opportunity and we ask Members of Congress to support
that goal.
Thank you for the opportunity to appear today and I would
be pleased answer any questions that you might have.
[The prepared statement of Mr. Taylor follows:]
Statement of Timothy N. Taylor, President of MacLean Vehicle Systems,
MacLean-Fogg Company, Mundelein, Illinois
Mr. Chairman and Members of the Subcommittee, my name is Timothy N.
Taylor and I am President of MacLean Vehicle Systems, a wholly-owned
subsidiary of MacLean-Fogg Company. MacLean-Fogg is a privately held
manufacturing company, based in suburban Chicago, employing about 2,000
people in 24 facilities in eight States and six countries.
We produce fasteners and component parts for the automotive,
transportation equipment, general industrial, electrical equipment and
telecommunications markets worldwide. Approximately 10 percent of our
$400 million in annual sales is exported, and we import a similar
amount of products from our own facilities and suppliers in Europe,
Latin America, and, increasingly, Asia.
The majority of products we produce at MacLean-Fogg have steel as a
primary raw material. We purchase approximately 50,000 tons of steel
annually in our businesses. About half of this steel comes from U.S.
producers, 40% from Canadian producers and the remainder from European
and Asian producers. We purchase wire rod in the form of finished alloy
steel wire for our cold forming operations, hot-rolled bar, cold-rolled
bar, and stainless steel wire rod as well as a small amount of plate
and cold-rolled sheet steel.
We support a strong, profitable, viable steel industry. We prefer
to buy locally made steel when it is competitive in price, quality and
delivery. But we must have access to globally priced steel, on the same
basis as our competitors around the world, if we are to remain
competitive in the markets we serve.
Mr. Chairman, I am also Immediate Past Chairman of the Industrial
Fasteners Institute, an industry trade group representing 85% of North
American fastener production. As Chairman of IFI, I am very familiar
with what happens when tariffs and other trade barriers are enacted on
steel. In the 1970s and 80s, Voluntary Restraint Agreements, tariffs,
quotas and other trade restraints enacted to protect steel producers
resulted in 40% of the U.S. fastener manufacturing capacity
disappearing or relocating offshore as a result of the higher U.S.
steel prices that resulted from these protections. I'm here today in
the hope of preventing an additional similar decline in the fastener
industry and other steel-consuming industries.
This economic principal of production never changes: when a base
raw material is protected by tariffs or other constraints, imports of
value-added products made from that material increase, and U.S.-based
manufacturers are placed at a competitive disadvantage. Very shortly,
production of those value-added products moves offshore, and those jobs
are lost forever. What is different today is only the speed with which
this happens. What used to take decades now takes years; what used to
take years now takes months. In our globally competitive economy
production changes happen far more rapidly than they did 30 years ago
and I am concerned by the pace with which we are exporting steel
consuming jobs.
MacLean-Fogg has suffered steel price increases averaging 7% on
most of our purchased steel items from both U.S. and overseas sources,
and up to 15% on our stainless steel wire as a result of the 201 steel
tariff implemented in March of 2002 and prior Administration actions
implemented in 2000. That may not seem like a lot, given the 30-50%
increases that other steel consumers have suffered, but it is more than
enough to place us at a competitive disadvantage, especially when we
started with a 25% disadvantage on steel costs before the 201 tariff.
That is a fundamental point: the price of the raw material is
irrelevant, so long as it is a global price. When it is artificially
increased in one country, manufacturers in that country are
disadvantaged and production moves to the lowest cost.
We have approached our customers, primarily large automotive
producers, who have denied our requests for relief from these increased
raw material costs. They have threatened to replace our products with
products originating outside of the United States if necessary. They
have indicated that their own vehicle prices are under severe pressure
and they are actively seeking lower cost components from other
suppliers while at the same time demanding that we lower our prices
further or face the loss of business to our competitors around the
world.
Our government has provided repeated tariff, countervailing duty
and other protection to the large integrated steel producers since the
1970s. Despite these numerous ``temporary'' tariffs many of the large
integrated steel producers have not been able to earn an acceptable
return. I would suggest that, after more than 30 years of almost
continuous protection, there are structural problems in the steel
industry that would be better solved by market forces than by continued
government action.
My concern is that in attempting to ``save'' jobs in the domestic
steel industry, we have severely damaged domestic steel consumers.
There are at least 50 manufacturing jobs in the products produced from
steel for every one job in the steel making industry. To protect one
job in steel making with tariffs we are placing the 50 steel consuming
jobs at risk. In fact, according to a recent economic study
commissioned by the Consuming Industries Trade Action Coalition
(CITAC), 200,000 jobs in products produced from steel were lost between
December of 2001 and December 2002 as a result of higher steel prices,
brought on largely by the tariffs. To put that in perspective, there
are only about 180,000 jobs in the entire steel producing industry.
Faced with increasing raw material costs, and with no ability to
recover those costs from their customers, many companies, including
MacLean-Fogg, are buying or building factories outside of the United
States to avoid increased raw material prices here. We have purchased
three factories in Mainland China recently in order to have access to
competitively priced raw materials. I cannot overemphasize the
importance of raw material costs. Many of these products, fasteners
included, have such low labor costs that labor is not the critical
factor. In our fastener product lines, for example, labor is less than
10% of the cost but steel is 30-50% of cost. Since the steel we buy is
33% cheaper in Asia we are buying and manufacturing in Asia
increasingly because of raw material costs, not labor.
The products we will be buying and manufacturing in Asia include
products produced with some sophisticated manufacturing technologies
that without the pressure of raw material costs would best be kept in
the United States. In other words, to remain a viable supplier to our
customers, we are being forced to export our technology by government-
induced economic forces, such as tariffs and other imposed constraints.
We would not need to make these decisions if we had access to
competitively priced raw materials in the United States.
Let me be more specific. We have a plant in Richmond, Illinois that
employs 19 people making steel nuts. This plant is the most productive
fastener plant in the world. It is so automated that these 19 people
produce the equivalent of $12 million of sales value of fasteners,
which is three times the industry average on a per person basis.
However, the steel we buy for our Richmond plant costs $.30-$.35
per pound today. We can buy these nuts in Asia, complete and delivered
to Chicago, for $.44 per pound, because the same steel we buy here for
$.30-$.35 per pound costs $.20-$.25 per pound in Taiwan and China. As a
result, these 19 highly skilled people may well lose their jobs this
year if the tariffs remain in place, because we will be forced to
manufacture these nuts in Asia where we can find competitively priced
raw materials.
We won't make this decision because we want to. We will do this
because, if we don't, our customers will do it for us. Mr. Chairman,
this is a travesty of the worst sort. It is an example of the
unintended consequences of government actions to meddle in the market.
And, when we go offshore the steel making jobs that supply us will go
offshore too, and none of these jobs will return once the technology is
transferred.
Let me say again that MacLean-Fogg supports a strong, globally
competitive domestic steel industry. We also support a strong, globally
competitive domestic steel-consuming manufacturing industry. In our
view the best way to accomplish those two goals is to allow the market
to work without undue influence from government. We therefore urge the
removal of the tariffs at the earliest possible opportunity, and we ask
Members of Congress to support that goal.
Thank you for the opportunity to appear before you today. I would
be pleased to answer any questions you may have.
Chairman CRANE. Thank you, Mr. Taylor. Our next
distinguished witness, President Nixon.
STATEMENT OF PAUL NIXON, PRESIDENT AND MAJORITY OWNER,
BAKERSFIELD TANK COMPANY, BAKERSFIELD, CALIFORNIA
Mr. NIXON. Thank you, Mr. Chairman and Members of the
Subcommittee for the opportunity to speak today.
My name is Paul Nixon and I live in Bakersfield,
California. I am President and Majority Owner of Bakersfield
Tank Company, a steel tank and vessel manufacturer founded in
1980. We currently employ approximately 25 people.
I am here to speak on behalf of my company, its employees,
and other similarly situated small steel-consuming businesses
about the impact of the section 201 safeguard action of March
2002.
I support a strong, healthy steel industry for America. I
do not wish, nor am I qualified, to speak on the complex broad
international trade and economic issues involved. I can only
comment on the significant and untimely effects the section 201
action had on the health of my business.
We have experienced a steady rise in the cost of our steel
materials since March 2002. The initial price increase was
approximately 10 percent and settled at around 28 to 32 percent
in the fall. It remains at that level today.
We buy our materials primarily from steel distribution
service centers. To their credit, it appeared that most of our
suppliers used some restraint in applying the expected
increases to existing or inbound inventories. Ultimately
however, our costs reflect their costs and those costs have
risen dramatically from a year earlier.
To appreciate the true impact of these increases however,
they must be viewed in the context of when they occurred. As is
well documented, the overall economy has been in significant
decline since the beginning of the year 2000. This is
especially true in California with the crash of the tech sector
and has been particularly pronounced since the events of
September 11, 2001.
In addition to a soft economy, small businesses have been
faced with several new financial challenges in the past year.
In California, workers compensation rates have virtually
doubled, even for businesses with exemplary safety records.
Health insurance for employees has increased at a rate of
15 to 20 percent per year with an even larger increase promised
for the upcoming renewal. I just found that was going to be 88
percent just before I left.
Liability insurance rates have increased 15 to 20 percent.
There is pressure from our major customers to increase
liability limits that will further add to the cost.
While the perfect storm analogy has been overused, I
believe it may be appropriate here. Given this array of
challenges for small businesses, you can understand why we
found the section 201 action, in our view optional, to be most
unwelcome.
We find that the current economy gives us little or no
opportunity to raise prices. A typical small manufacturing
business can realistically hope for no more than 8 to 10
percent net profit, even in good times. We have had to absorb a
30-percent increase in a cost component that makes up as much
as 20 percent of our revenue. Under the best of circumstances,
this represents up three-quarters of our net profit. Added to
the bottom-line pressures already present, the impact of the
tariff induced material cost increases are devastating.
We have taken a number of steps to cope. Three key
positions that were vacated through attrition were left
unfilled. We have switched our health coverage to a partially
self-insured plan, much to the displeasure of our employees. We
have begun declining contracts that require liability limits
greater than we can afford. Raises have been suspended for all
management and most line employees. Needless to say, bonuses
have been eliminated.
We have yet to find an antidote for the section 201-related
material cost increases. Until an economic climate returns
which allows us to reflect some of these cost factors in our
pricing, we simply are left to try and survive the squeeze.
I have informally surveyed other small steel consuming
businesses and found their experience to be similar to ours.
Some, like us, have seen their profits erased. Others have also
seen the loss of business to offshore producers as a result of
downstream dumping of manufactured items.
Our cynicism about the section 201 action is amplified by
the realization that a number of the more well-heeled
industries were able to obtain relief in the form of waivers.
An elaborately funded and coordinated lobbying effort is simply
not an option for small businesses like ours.
For that reason, I am most appreciative of the opportunity
to speak to you today and I would urge the Committee to
continue to carefully monitor the adverse effects of the
section 201 action. Thank you very much.
[The prepared statement of Mr. Nixon follows:]
Statement of Paul Nixon, President and Majority Owner, Bakersfield Tank
Company, Bakersfield, California
My name is Paul Nixon. I live in Bakersfield, California. I am
President and majority owner of Bakersfield Tank Company, a steel tank
and vessel manufacturer founded in 1980. We currently employ
approximately 25 people. I am here to speak on behalf of my company,
its employees, and other similarly situated small steel consuming
businesses about the impact of the Section 201 Safeguard Action of
March 2002.
I support a strong healthy steel industry for America. I do not
wish, nor am I qualified, to speak on the complex broad international
trade and economic issues involved. I can only comment on the
significant and untimely effects the 201 action had on the health of my
business.
We have experienced a steady rise in the cost of our steel
materials since March 2002. The initial price increase was
approximately 10%, and settled at around 28% to 32% in the fall. It
remains at that level today. We buy our material primarily from steel
distribution service centers. To their credit, it appeared that most of
our suppliers used some restraint in applying the expected increases to
existing or inbound inventories. Ultimately however, our costs
reflected their costs, and those costs had risen dramatically from a
year earlier. To appreciate the true impact of these increases,
however, they must be viewed in the context of when they occurred.
As is well documented, the overall economy has been in significant
decline since the beginning of the year 2000. This is true especially
in California with the crash of the tech sector and has been
particularly pronounced since the events of September 11th, 2001. In
addition to a soft economy, small businesses have been faced with
several new financial challenges in the past year. In California,
workers compensation rates have virtually doubled, even for businesses
with exemplary safety records. Health insurance for employees has
increased at a rate of 15 to 20 percent per year with an even larger
increase promised for the upcoming renewal. Liability insurance rates
have increased 15% to 20%. There is pressure from our major customers
to increase liability limits that will further add to the cost.
While the ``Perfect Storm'' analogy has been overused, I believe it
may be appropriate here. Given this array of challenges for small
businesses, you can understand why we found the 201 action, in our view
optional, to be most unwelcome. We find that the current economy gives
us little or no opportunity to raise prices. A typical small
manufacturing business can realistically hope for no more than 8 to 10
percent net profit, even in good times. We have had to absorb a 30%
increase in a cost component that makes up as much as 20% of our
revenue. Under the best of circumstances this represents up to three-
quarters of our net profit. Added to the bottom line pressures already
present, the impact of the Tariff induced material cost increases are
devastating.
We have taken a number of steps to cope:
LThree key positions that were vacated through attrition
and were left unfilled.
LWe have switched our health coverage to a partially self-
insured plan, much to the displeasure of our employees.
LWe have begun declining contracts that require liability
limits greater than we can afford.
LRaises have been suspended for all management and most
line employees.
LNeedless to say, bonuses have been eliminated.
We have yet to find an antidote for the 201 related material cost
increases. Until an economic climate returns which allows us to reflect
some of these cost factors in our pricing, we simply are left to try
and survive the squeeze.
I have informally surveyed other small steel-consuming businesses
and have found their experiences to be similar to ours. Some, like us,
have seen their profits erased. Others have also seen a loss of
business to offshore producers as a result of ``downstream dumping'' of
manufactured items. Our cynicism about the 201 action is amplified by
the realization that a number of the more well heeled industries were
able to obtain relief in the form of waivers. An elaborately funded and
coordinated lobbying effort is simply not an option for small
businesses like ours. For that reason I am most appreciative of the
opportunity to speak to you today. I would urge the Committee to
continue to carefully monitor the adverse effects of the 201 action.
Chairman CRANE. Thank you, Mr. President. Now our witness
is Tim Leuliette.
STATEMENT OF TIMOTHY D. LEULIETTE, CHAIRMAN, PRESIDENT, AND
CHIEF EXECUTIVE OFFICER, METALDYNE CORPORATION, PLYMOUTH,
MICHIGAN
Mr. LEULIETTE. Mr. Chairman and Members of the Committee, I
would like to thank you on behalf of Metaldyne Corporation for
the opportunity to present this testimony before you today.
I am Chairman, President, and Chief Executive Officer of
Metaldyne Corporation, a privately held company headquartered
in metropolitan Detroit.
Metaldyne and our affiliated companies employ over 11,000
people at over 100 locations worldwide, and we had 2001
revenues of $2.4 billion. We produce a safety critical chassis,
engine, driveline, and transmission products to the U.S. auto
industry.
In terms of steel, Metaldyne has historically purchased 98
percent of its primary raw material, special bar quality (SBQ)
forging steel, from U.S.-based steel manufacturers. That steel
represents a significant portion of our total cost, on some
components as much as 50 percent. At over 380,000 tons
annually, we are one of the largest consumers of SBQ steel in
North America. To say that we have been negatively affected by
the steel tariffs is an understatement. Since their inception,
we have experienced up to 10-percent increases in our SBQ
material cost in aggregate and up to 50 percent on specific
items.
We are also experiencing supply shortages domestically on
specific grades of steel, which is forcing us to go offshore
and pay the full 30 percent tariff in some cases. This was the
basis for exclusion requests that were rejected by the U.S.
Trade Representative (USTR) last week. The requests were not
granted because we had not suffered significant steel
unavailability in 2003 yet.
Unfortunately, the Administration's analysis went no
further. They do not understand, or worse choose to ignore, how
the manufacturing supply chain works, particularly in the
automotive sector. The truth of the matter is that domestic
steel producers are neither approved sources, nor in some cases
do they have the capacity or capability to supply some of our
requirements despite what they told the Department of Commerce
that they could.
The net result of the tariffs is that our competitive
position in the marketplace has been jeopardized because most
of our customers will not accept pass-through price increases.
In the automotive industry our customers, the vehicle
manufacturers, require that we deliver 3 to 5 percent price
reductions every year. Metaldyne has not had a price increase
from our vehicle manufacturer customers since 1991. Rather, we
have diligently implemented productivity improvements which are
the basis of our viability as a successful supplier today.
The point of all this is that steel tariffs have hand-
cuffed us with the highest SBQ steel prices in the world, and
the fact is seriously threatening our competitive position as a
global supplier.
The door has been opened for foreign companies to compete
for business against us. The bottom line, we have already lost
business due to foreign competition as a result of the tariffs,
and we are going to lose more business due to tariffs.
We are not ones to sit around when there is work to be
done. We are actively and aggressively pursuing alternatives to
losing business as a result of steel tariffs. Those
alternatives include resourcing up to 40 percent of our
domestic steel buy to exempt countries, including Turkey and
Brazil. We expect to achieve half of this by year end, and the
balance in 2004.
We are currently purchasing offshore components that before
the implementation of the tariffs were made in the United
States. Not only is this taking jobs and revenue away from
Metaldyne, this is damaging our supply base.
For example, this transmission clutch component here we
used to make at Royal Oak, Michigan facility which is North
America's most technically advanced hot-forging operation. We
are now buying it in Korea. This represents a $6 million loss
for Metaldyne and its suppliers. Our customers were unwilling
to pay a premium for U.S. steel.
The same principle applies to this performed differential
gear that we have begun to purchase offshore. We made this in
Detroit for 30 years, but now we have sourced it to Korea, $13
million of business, for a savings of 15 percent again because
our customers were unwilling to pay a premium for U.S. steel.
This particular example has already cost the U.S. steel
industry 2,500 tons of steel annually.
These jobs will never return to the United States.
With regard to capital investment, Metaldyne's plan for
this year is to invest over $100 million in new equipment
technology and facilities. Due primarily to the section 201
tariff, 75 percent of that capital will be expensed offshore,
including Korea, Mexico, China and the Czech Republic.
Before I close, I would like to take a minute to share some
employment data with you. When Metaldyne and its affiliate
companies were formed into January 2001, we had almost 11,000
U.S. jobs. At the beginning of 2003 we dropped to 8,500 jobs.
We will announce today another 600 jobs that will be lost in
Michigan, Indiana and Ohio to steel tariffs.
In these uncertain times, we cannot afford to shirt
production offshore and risk cutting employment in our domestic
operations, but our customers and their customers, the American
consumer, demand that we be globally competitive.
On behalf of our 8,500 U.S.-based hourly employees and
salaried employees and other steel consuming companies in the
global automotive industry, I would like to thank Chairman
Thomas, on behalf of the Committee on Ways and Means, for
representing the ITC study the impact of tariffs on consumers
and Congressman Knollenberg for his early and strong leadership
on behalf of steel users.
I thank you, Chairman Crane and Members of the Committee,
for providing me with the opportunity to speak. Thank you.
[The prepared statement of Mr. Leuliette follows:]
Statement of Timothy D. Leuliette, Chairman, President, and Chief
Executive Officer, Metaldyne Corporation, Plymouth, Michigan
Mr. Chairman and Members of the Committee, I would like to thank
you on behalf of Metaldyne Corporation for the opportunity to present
this testimony before you today. My name is Tim Leuliette, Chairman,
President and CEO of Metaldyne Corporation.
Headquartered in the metropolitan Detroit area, Metaldyne and its
affiliate companies employ over 11,000 people at over 100 manufacturing
locations worldwide and had 2002 revenues of $2.4 billion. Metaldyne is
a leading global supplier of metal-based components, assemblies, and
modules for safety-critical chassis, engine, driveline, and
transmission applications.
To put that into a larger perspective, Metaldyne is the 38th
largest automotive supplier in the world according to Crain's Detroit
Business Magazine. That means that there are some larger suppliers and
many smaller suppliers, most of whom are being negatively impacted by
the Section 201 Safeguard Action on Certain Steel Products. As a group,
we are world-class competitive companies who, when faced with
competitive issues, we take the necessary actions to retain our
competitive positions.
At Metaldyne, if we have to invest in new equipment and technology
to remain competitive, we do so. Last year we invested over $100
million into capital improvements. We will invest over $100 million
into our business again this year. Likewise, if we have to locate a
facility overseas to remain competitive and meet our customer's
requirements, we do so. Unfortunately, more of our investment dollars
and facility locations are ear-tagged for overseas as a direct result
of the steel tariffs. I'll address that in more detail shortly. The
point is, we allocate our assets to be globally competitive. Similarly,
we support and in fact, our business requires a strong U.S. steel
industry that is globally competitive.
In terms of steel, Metaldyne purchases 98% of its primary raw
material, Special Bar Quality (SBQ forging steel), from U.S. based
steel manufacturers. That steel represents a significant portion of our
total cost, in many cases in excess of 50%. At over 380,000 tons
annually, we are one of the largest consumers of SBQ steel in North
America.
With that background, it would be an understatement to say that we
have been negatively affected by the steel tariffs. Since their
inception, we have experienced 5-10% increases in our SBQ material cost
in aggregate and up to 50% on specific items. We are also experiencing
supply shortages domestically on specific grades of steel which is
forcing us to go offshore and pay the full 30% tariff in some cases.
This was the basis for our exclusion submissions which are being
contested by our steel suppliers who claim they can meet our
requirements. The truth is they are neither approved sources nor, in
most cases, do they have the capacity or capability to meet some of our
requirements despite the fact that they told the U.S. Commerce
Department that they can. The simple truth is that they misrepresented
themselves to the Commerce Department at our expense.
The net result of the tariffs is that our competitive position in
the marketplace has been jeopardized because most of our customers will
not accept pass-through increases. In the automotive industry, our
customers, the vehicle manufacturers and many first tier suppliers to
the manufacturers require that we deliver 3-5% price reductions on an
annual basis. Metaldyne has not had a net price increase since 1991.
Rather, we have diligently implemented productivity improvements, which
are the basis for our viability as a successful supplier today. Those
suppliers who have not focused on productivity improvements are no
longer in business. The point of all this is that steel tariffs have
hand-cuffed us with the highest steel prices in the world, and that
fact is seriously threatening our competitive position as a global
supplier. The door has been opened for foreign companies to compete for
business against us. Before the tariffs, this would not have been
possible. The bottom line, we have already lost business to foreign
companies as a result of the tariffs and we are going to lose more . .
. because of the tariffs.
The same market dynamics are true for countless other suppliers
whether they use SBQ, flat roll steel or any other category of steel
that falls under the classification of ``Certain Steel Products'' that
are protected by the 201 safeguard.
As I said earlier, we are not ones to sit around when there is work
to be done. . . .
We are actively and aggressively pursuing alternatives to losing
business as a result of steel tariffs. Those alternatives include:
LResourcing up to 40% of our domestic steel buy to exempt
countries including Turkey and Brazil. We expect to achieve half of
this by year-end and the balance in 2004. These are long-term sourcing
decisions that are clearly inconsistent with the Administration's
intentions when the 201 safeguard program was initiated.
LWe are currently purchasing offshore components that,
before the implementation of the tariffs, were made in our U.S.
facilities. Not only is this taking jobs and revenue away from
Metaldyne, this is damaging our supply base as well. For example, a
transmission clutch component that we used to make at our Royal Oak,
Michigan facility--North America's most technologically advanced hot
forging operation--is now being purchased in Korea. This represents a
$6 million loss in revenues for Metaldyne and its six affected
suppliers. The same principle applies to a preformed differential gear
that we've begun to purchase offshore. Maybe the most devastating
example to date is at our plant in Detroit. It is currently resourcing
11 jobs to South Korea that account for nearly $13 million in lost
revenue and ten Metaldyne jobs. By purchasing the preformed components
in Korea, we're saving 15 percent compared to what we would pay for
domestic steel. This particular example has cost the U.S. steel
industry over 2,500 tons of steel annually, and two of its own
employees have been cut as a result of the lost business. As a result
of these resourcing decisions, jobs are lost at Metaldyne and our
downstream suppliers including steel producers, tool and die makers and
heat treatment operations. These jobs will never return to the U.S.
LWith regard to capital investment, I mentioned earlier
that Metaldyne's plan for this year is to invest over $100 million into
new equipment, technology and facilities. Due primarily to the market
environment created by section 201, 75% of that investment is ear-
marked for offshore investment, including a new manufacturing facility
in Korea, a new sales, technical and purchasing office in China as a
first step toward establishing manufacturing operations there, and
additional investment in an existing facility in the Czech Republic.
Again, that translates into jobs.
Mr. Chairman, regardless of what the steel industry will tell you,
what I have just shared with you are the facts with regard to the
impact of section 201 on Metaldyne specifically and other automotive
steel consumers in general. They are the facts. They are undisputable,
and I do not believe for one minute that these were the intended
consequences of the Administration. The steel industry will try to tell
you otherwise with a lot of words and phrases that need to be
questioned.
Catch phrases such as:
L``Illegally dumped steel''--make them prove it item by
item. Two years ago, the steel producers reduced market capacity for
SBQ steel by 30 percent, and today they are simply reaping the
financial benefits of section 201 at Metaldyne's expense.
L``Artificially low prices'' or ``Prices have returned to
normal levels''--By whose determination the market or steel producers,
we have not had a net price increase since 1991, we'd be happy to go
back to 1997 pricing.
L``Far below historic levels''--join the club and get
competitive like we have. At the end of the day, the price of domestic
steel is irrelevant, we deal in a global market place, and what matters
is the cost of steel on a global basis.
L``Record imports in 2002''--How much of that is purchased
by U.S. steel producers under exemption for re-processing and resale at
tariff inflated prices?
L``Where are the profits going?''--We do not see the
reinvestment in technology or the drive to become more globally
competitive.
At the end of the day, there is only one reason why section 201
must be reversed immediately. It is costing us U.S. manufacturing jobs
that will never return. By some estimates, 201 has already cost more
jobs in the steel consuming segment (over 200,000) than even exist in
the U.S. steel industry (178,000). And it has only just begun.
Lastly, I'd like to tell you about the President of the UAW
bargaining unit at our Royal Oak, Michigan facility. He represents the
hourly employees at the most automated, technologically advanced hot
forging operation in North America. These workers are among the most
efficient in the world, operating $15 million automated forging
presses. His membership has, and will continue to lose jobs, not
because they are not productive or because their wages are non-
competitive. He is losing membership because section 201 has forced us
to buy the most expensive steel in the world and opened the door to
foreign competition and our response is to purchase offshore and
accelerate our plans to manufacture offshore. And the irony of all of
this is that every job lost in the steel consuming segment will not
save one single job in the steel producing segment. In fact, if other
companies like Metaldyne look to offshore alternatives, the U.S. steel
industry will be in worse shape than before the tariff program began.
Before I close, I'd like to take a minute to share some employment
data with you. When Metaldyne and its affiliate companies were formed
in January 2001, we had almost 11,000 U.S.-based employees. At the
beginning of 2003, our U.S employment dropped to about 8,500, and in
the next 60 days, we expect to lose about another 600 hourly and
salaried workers in the U.S. due in part to the steel tariffs, and in
part to decreased domestic auto production in the face of this
uncertain economy.
In these uncertain times, we cannot afford to shift production
overseas and risk cutting employment at our domestic operations. Even
when domestic auto production increases, if the steel tariffs are still
in effect, we will be forced to restore our manufacturing operations in
countries that allow us to be globally competitive.
On behalf of Metaldyne and our 8,500 U.S. based salaried and hourly
employees, both represented and not represent, and on behalf of all
other steel consuming companies in the global automotive industry, I
thank you Mr. Chairman and Members of the Committee for providing me
with the opportunity to testify.
Chairman CRANE. Thank you. Mr. Trilla.
STATEMENT OF LESTER TRILLA, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, TRILLA STEEL DRUM CORPORATION, CHICAGO, ILLINOIS
Mr. TRILLA. Thank you. Mr. Chairman and Members of the
Subcommittee, thank for the honor of appearing before you today
to discuss the impact of the steel section 201 tariffs on
steel-consuming industries.
My name is Lester Trilla. I am President and Chief
Executive Officer of Trilla Steel Drum Corporation, which is
located in Chicago. We are a leading manufacturer of new steel
drums used in filling and transportation of a variety of
products, including hazardous materials. We employ
approximately 50 union employees. Trilla is a third generation
family-owned business.
The steel safeguard has had significant negative
consequences for our company. The steel tariffs have increased
our steel costs and, by limiting us to domestic steel that does
not work well in our machinery, have increased our production
costs due to quality issues.
Cold-rolled steel is the major raw material used in our
drums and the increase in the price of steel last year
resulting from additional tariffs, caused our steel costs to go
up 70 to 80 percent. Prices have moderated in recent months,
but not nearly enough to restore our competitive position.
Moreover, we cannot get a steel product exclusion for the
steel we need.
Because of steel supply difficulties, we have been forced
to increase the price of our drums over 20 percent. Some of our
best and oldest customers have not accepted this increase and
have moved to foreign competitors who have much lower steel
costs. Our business today is down 30 percent.
We are particularly saddened that the major beneficiaries
of our lost business are steel drum manufacturers in foreign
countries. These drums are cheaper abroad because foreign drum
producers do not have high raw material costs as we do. We hear
credible reports from abroad that the cold-rolled steel prices
are lower than the ones we see by a substantial margin, which
is probably more than 20 percent.
Other customers have switched from steel drums altogether
and use non-steel containers like plastic or intermediate bulk
containers. These companies had to change their logistics
facilities and they will never come back to steel drums
produced by myself or anybody else in the United States.
The loss of business has done serious damage to us, not
only because we are a small business and not a large and
diverse corporation that can absorb or offset these losses, but
also because we take pride in relationships that we have built
over the years with our customers. Many of these lost customers
have used Trilla steel drums for over 30 years.
Meanwhile, the tariffs have effectively cut off our
previous source of imported steel and forced us to switch to
domestic steel. Unfortunately, domestic steel is of a
significantly lower quality than what we have been getting from
our foreign suppliers. The quality of the steel feedstock is
very important to us because our drums are used to carry very
hazardous, dangerous and flammable products and they are
subject to very stringent quality standards. Trilla's scrap
rate has doubled since we had to move to completely domestic
material.
In addition, for the first time, we have had a problem with
the coatings on our steel products. In the past year we have
had almost $100,000 in claims from customers for failed
coatings or linings, as we call them. That is directly related
to the problems we are having with cleanliness and the quality
of the steel. Before last May, Trilla has never had a failure
in its coatings.
Mr. Chairman, the steel tariffs imposed by the President
have had an effect of making Trilla significantly less
competitive. Steel costs in the United States skyrocketed last
year, causing me to lose business from customers that I will
never get back. Now, even though the prices have moderated
somewhat, the poor quality of steel I have to use from domestic
mills have caused other problems with customers and have
created additional costs for us at Trilla.
I appreciate the safeguards were supposed to help the U.S.
steelmakers, but I do not understand why the steel consumers
like myself and all of my union employees have to suffer.
Thank you for the opportunity to present my views.
[The prepared statement of Mr. Trilla follows:]
Statement of Lester Trilla, President and Chief Executive Officer,
Trilla Steel Drum Corporation, Chicago, Illinois
Mr. Chairman and Members of the Subcommittee, thank you for the
honor of appearing before you today to discuss the impact of the steel
201 tariffs on my business and my workers, as well as the industry in
which we participate. My name is Lester Trilla. I am the President and
CEO of Trilla Steel Drum Corporation, which is located in Chicago,
Illinois. We are a leading manufacturer of new steel drums used in the
filling and transportation of a variety of products, including
hazardous materials. Trilla is a family-owned, family run business--
three generations of the Trilla family have built the company from a
$500 investment in a drafty garage on the Southwest Side into a major
Midwest supplier of more than one million 55-gallon steel drums
annually to a diverse client base.
The steel 201 safeguards have had significant negative consequences
for our company. The steel tariffs have increased our steel costs, and,
by limiting us to domestic steel that does not work as well on our
machinery, have increased our production costs due to quality issues.
Cold-rolled steel is the major raw material used in our drums, and
the increase in the price of steel last year resulting from the
additional tariffs on imported steel caused our steel costs to go up
70-80 percent last year. Prices have moderated in recent months, but
not nearly enough to restore our competitive position. Moreover, we
cannot get a steel product exclusion for the steel we need.
Because of steel supply difficulties, we have been forced to
increase the price of our drums over 20 percent. Some of our best and
oldest customers could not accept this increase, and have moved to our
foreign competitors, who have much lower steel costs. As a result, we
have lost 30 percent of our longstanding customers. We are particularly
saddened that the major beneficiaries of our lost business are steel
drum makers in foreign countries. The drums are cheaper abroad because
foreign drum producers do not have as high raw material costs as we do.
We hear credible reports that foreign cold-rolled steel prices are
lower than the ones we see by a substantial margin, more than 20
percent.
Other customers have avoided the price increases by switching from
steel drums altogether and now use non-steel containers like plastics
and IBCs (``intermediate bulk containers''). The companies that have
made this switch have had to change their logistics facilities, and
will never come back to steel drums or Trilla or any drum manufacturer
in the United States. This loss of business has been seriously damaging
to us--not only because we are a small business, that cannot absorb
these losses, but also because we take pride in the relationships that
we have built over the years with our customers--many of these lost
customers have used Trilla steel drums for thirty years and more.
Meanwhile, the tariffs have effectively cut off our previous
sources of imported steel and forced us to switch to domestic steel.
Unfortunately, the domestic steel Trilla has to buy is of a
significantly lower quality than what we had been getting from foreign
mills. The quality of our steel feedstock is very important to us
because our drums are used to carry very hazardous, dangerous,
flammable products and they are subject to very stringent quality
standards. Without getting into the technical details of drum
production, I can say that Trilla's scrap rate has doubled since we had
to move completely to domestic material--we get some deliveries where
we just can't use the steel because it doesn't weld or clean properly.
In addition, for the first time, we have had problems with coating our
steel products. In the past year, we have had almost $100,000 in claims
from customers for failed coatings that are directly related to the
problems we have had with the cleanliness and quality of the steel.
Before last May, Trilla never had a failure of its coatings.
Mr. Chairman, all of this is to say that the steel tariffs imposed
by the President have had the effect of making Trilla significantly
less competitive. Steel costs in the U.S. skyrocketed last year,
causing me to lose business from customers that I will never get back.
Now, even though the prices have moderated somewhat, the poor quality
of the steel that I have to use from domestic mills have caused other
problems with the customers I have been able to keep and have created
additional costs for Trilla. I appreciate that the safeguards were
supposed to help the U.S. steelmakers, but I don't understand why steel
consumers like me have to suffer.
Thank you for this opportunity to present my views.
Chairman CRANE. Thank you, Mr. Trilla. Mr. Pritchard.
STATEMENT OF DAVID PRITCHARD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, A.J. ROSE MANUFACTURING COMPANY, AVON, OHIO
Mr. PRITCHARD. Good morning and thank you, Mr. Chairman.
Thank you very much for asking me to testify about the
consequences of the steel section 201 tariffs have had on my
company. My name is Dave Pritchard and I am President and Chief
Executive Officer at A.J. Rose Manufacturing. A.J. Rose is
headquartered in Avon, Ohio and we have plants for
manufacturing in both Cleveland and Avon.
A.J. Rose is a family-owned company with three generations
in the business since 1922. We have approximately 370
employees, 250 of which are members of the United Steelworkers
Local 735. We specialize in the manufacturing of high tolerance
metal stampings, airbag components and spun form products for
the automotive market.
We face all the dilemmas that the gentleman before me have
been speaking in regard to the automotive market and the
pricing situations. We buy hot-rolled steel flat products that
are subject to the tariffs. We buy from both domestic and
foreign sources. The tariffs have increased our steel prices
dramatically. We estimate that the tariffs have added $1.1
million to our cost of material in the last 12 months. We have
been able to obtain price increases on only one-third of our
products to cover that additional cost.
The increased costs have had a devastating effect on our
bottom line. The increased steel pricing has put us at a
distinct disadvantage with respect to our foreign competitors.
As a result, we have lost significant amounts of business
to our foreign competitors and it looks like it is only going
to get worse.
We have lost over half a million dollars in existing
business since the start of 2003 because one of our large
customers did not want to pay the increased amount we now need
to charge. This business was placed with a company in Korea
instead, a company where steel prices are considerably less
than the United States.
Also, in the last year alone, we have lost approximately
$7.5 million covering 15 contracts to competitors outside of
the United States. These contracts were awarded simply because
we could no longer meet our foreign competitors' prices due to
the steel tariffs.
This loss of $7.5 million in new contracts this year
translates to a loss of $45 million to $60 million over the
next few years. This is because, in our business, when you are
awarded a contract, it generally runs for the life of the part
in application, which could be 4, 6, 10 years even. This means
that the loss of a job now really costs you many times the
annual revenue in lost future sales.
The situation shows no sign of improving. In January, our
largest customer stated that they would no longer accept the
cost increase the tariffs forced us apply to their pricing.
They stated if we insisted, they would continue to pay the
increase but it would signal the beginning of the end of our
12-year relationship. They advised us of this in the same
meeting they informed us that they had awarded one of our
competitors a contract for parts that we had been told we would
get. Prior to this time, we were the only company supplying
this customer with this type of product in North America. The
competitor that was awarded this business is a Canadian
company.
In addition, a Canadian customer of ours that has accepted
one-half of the increased costs from the tariffs has been
demanding that we use Canadian steel and Canadian tool shops to
produce products for them. Over the past 30 days, they have
been actively soliciting bids for parts that we make for them
from Canadian and Chinese firms.
This loss of business has had a significant impact on our
day-to-day operations. Due to the loss of orders, we have had
to lay off over 33 people in the past 12 months--10 of those
since the start of 2003.
In addition, our cash flow and operating loan situation has
become tenuous. We have scheduled a meeting with our bank to
discuss our deteriorating financial condition. This is the
first time in 35 years that I have been involved with A.J. Rose
that I have ever had to have a conversation like this with a
bank.
We, and our suppliers, used the product exclusion process
to try to soften the negative effects of the tariffs. While we
had some degree of success in obtaining product exclusions,
these product exclusions have only provided us with very
limited relief. The basic problem remains--the tariffs have
made it virtually impossible for us to compete with our foreign
competitors.
This constant threat to our business is very real and will
get worse if we are forced to continue to pay such a premium
for the steel we need to run our business.
We sincerely hope that these tariffs can be lifted as soon
as possible. Thank you.
[The prepared statement of Mr. Pritchard follows:]
Statement of David Pritchard, President and Chief Executive Officer,
A.J. Rose Manufacturing Company, Avon, Ohio
Good morning. Thank you very much for asking me to testify about
the consequences the steel 201 tariffs have had on my company. My name
is Dave Pritchard, and I am President and CEO at A.J. Rose
Manufacturing Company. A.J. Rose, headquartered in Avon, OH, is a
family-owned company, with three generations in the business since
1922. We have approximately 370 employees, 250 of which are members of
the United States Steel Workers' Local #735. We specialize in
manufacturing tight tolerance metal stampings, air bag components, and
spun-formed products for the automotive market.
We buy hot-rolled steel flat products that are subject to the
tariffs. We buy from both domestic and foreign sources. We estimate
that the tariffs have added 1.1 million to our cost of material in the
last 12 months. We have been able to obtain price increases on only
one-third of our products to cover that additional cost. The increased
costs have had a devastating effect on our bottom line. The increased
steel pricing has put us at a distinct competitive disadvantage with
respect to our foreign competitors. As a result, we have lost a
significant amount of business to our foreign competitors and it looks
like it is only going to get worse.
We have lost over a half a million dollars in existing business
since the start of 2003 because one of our big customers did not want
to pay the increased amounts we now need to charge. This business was
placed with a company in Korea instead--a country where steel prices
are considerably less than the U.S.
Also, in the last year alone, we have lost approximately 7.5
million in new orders (15 contracts) to competitors outside of the
United States. These contracts were awarded simply because we could no
longer meet our foreign competitors' prices due to the steel tariffs.
This loss of 7.5 million in new contracts this year translates into a
loss of 45 to 60 million over the next few years. This is because in
our business, when you are awarded a contract, it generally runs for
the life of the part in application (approximately 4 years). This means
that the loss of a job now really costs you many times the annual
revenue in lost future sales.
The situation shows no sign of improving. In January, our largest
customer (MACI) stated that they would no longer accept the cost
increase the tariffs forced us to apply to their pricing. They stated
that if we insisted, they would continue to pay the increase but that
it would signal the ``beginning of the end of our 12 year
relationship.'' They advised us of this in the same meeting they
informed us that they had just awarded one of our competitors a
contract for a part we were told we would get. Prior to this, we were
the only company supplying MACI with this type of product in North
America. The competitor that was awarded this business is a Canadian
company.
In addition, a Canadian customer that has accepted one-half of the
increased cost from the tariffs, has been demanding that we use
Canadian steel and Canadian tool shops to produce products for them.
Over the past 30 days, they have been actively soliciting bids for the
parts we make for them from Canadian and Chinese firms.
This loss of business has had a significant impact on our day to
day operations. Due to the loss of orders we have had to lay off 33
people in the past 12 months--10 of those, since the start of 2003. In
addition, our cash flow and operating loan situation has become
tenuous. We have scheduled a meeting with our bank to discuss our
deteriorating financial condition. This is the first time in the 35
years I have been involved with A.J. Rose that I have ever had to have
a conversation like this.
We, and our supplier, used the product exclusion process to try to
soften the negative effects of the tariffs. While we had some degree of
success in obtaining product exclusions, these product exclusions have
only provided us with very limited relief. The basic problem remains--
the tariffs have made it virtually impossible for us to compete with
our foreign competitors.
This constant threat to our business is very real and will get
worse if we are forced to continue to pay such a premium for the steel
we need to run our business. We sincerely hope that these tariffs can
be lifted as soon as possible.
Thank you. I will take any questions you might have.
Chairman CRANE. Thank you. As you know, the bells have gone
off indicating votes over on the floor. We are going to break
for lunch after these votes and then reconvene at 1:00 p.m. Mr.
Smith, can you put off your testimony until 1:00 p.m.?
Mr. SMITH. Absolutely.
Chairman CRANE. All right. Then we will have your testimony
and then we will get to questions of the entire panel. With
that, thank you all, and the hearing stands in recess subject
to the call of the Chair.
[Whereupon, at 11:36 a.m., the hearing recessed, to
reconvene at 1:00 p.m., the same day.]
Chairman CRANE. We are sorry for a little bit of delay
here, but we would now like to hear from Mr. Wes Smith,
President and Owner of E&E Manufacturing in Plymouth, Michigan.
STATEMENT OF WES SMITH, PRESIDENT AND OWNER, E&E MANUFACTURING
COMPANY, INC., PLYMOUTH, MICHIGAN
Mr. SMITH. Thank you. My name is Wes Smith and I am the
President and Owner of E&E Manufacturing Company. I appreciate
the opportunity to submit testimony to bring attention to the
fact that the steel section 201 tariffs have resulted in a
significant and negative impact on our company.
E&E is located in Plymouth, Michigan and is a world-class
leader in metal joining technology. It meets the needs of its
world-class automotive customers by manufacturing heavy gauge
stamp metal fasteners such as these, progressive die metal
stampings such as this engine component, and high value-added
assemblies.
E&E was founded in 1963 by my father and provides
meaningful employment to over 250 dedicated employees.
Steel comprises 40 percent of our total costs of producing
these parts. For our raw steel needs we generally have relied
upon 6 month or yearly contracts with steel warehouses that
obtain their supply from domestic mills, with 75 percent of our
requirements met by one major supplier. Our relationship with
this supplier has been positive and constructive. The day after
the steel section 201 tariffs were imposed last March, this
supplier broke its contract with E&E and imposed a swift and
hefty increase in our pricing that left us in a state of shock
and awe.
What is ironic about this incident is that this supplier
obtains the majority of its product from a mini-mill, not an
integrated mill. The mini-mills have not been subject to the
legacy costs that the integrated mills have had to suffer.
Since February 2002, our steel costs have increased an
average of 34 percent, which amounts to over $3.3 million. The
consequences of the steel section 201 tariffs have impacted E&E
in a dramatic way. Nearly half of our stamp fastener product is
supplied to an automobile company, which has bought its
requirements from us since 1970. This account comprises a third
of our sales. In February 2002, E&E had to negotiate a
significant price decrease to keep this business because our
customer has made it clear that it has increasing options of
purchasing its requirements from offshore sources.
We applied to the USTR for steel exclusions on this product
and found out on March 21, 2003 that our request was denied.
Immediately after making this concession in 2002, at a loss
of over half a million dollars in revenue, the steel section
201 tariffs were imposed. We are currently negotiating another
significant decrease for 2003.
I fear that this illustrates the flaw and the reasoning
underlying the steel section 201 tariffs. The assumption was
that small businesses, the steel-consuming industry in this
country, would not get hurt by the steel section 201 tariffs.
We should be able to pass this cost down to our customers who
would pass the cost on to their ultimate customer or absorb the
costs themselves.
It does not work this way in reality, as my example proves.
If a component manufacturer like E&E tries to pass these
significant increases on to its customers, those customers will
procure their inputs from offshore sources, where the
production is cheaper for a lot of reasons, including a raw
material cost unfettered by significant additional tariffs.
Our customers tell us that in this economy we need to
compete globally. We are willing to meet that challenge but
cannot do so with our hands tied behind our backs by having our
government tax our largest input.
Smaller manufacturers rely on their larger customers for
work. However, the tariffs have been a catalyst for these
customers to source more work overseas, which threatens our
very existence. Of the approximately 355,000 manufacturing
locations nationwide, 90 percent of these have less than 100
employees and do not have either the wherewithal or the desire
to move their operations offshore.
Our larger customers have options and they are exercising
their options. They can bypass the tariffs by bringing in semi-
finished components from offshore sources, which is causing
epidemic job losses. There have been 31 consecutive months of
job loss in the manufacturing community, with the small and
medium manufacturing being hit the hardest.
Many so-called scholared economists feel that the market is
suggesting that perhaps manufacturing should go. Well, I
consider myself a Will Rogers economist, and I think it is
interesting to note that the United States has had a number of
false starts toward an economic recovery.
However, they have sputtered out due to, in large part, to
the fact that one of our largest and most significant
employment sectors, manufacturing, has been in an economic
depression with the loss of over 2 million jobs in the past 2
years.
It is also interesting to note that there has been a
country in this global economy that has been able to increase
their economic prosperity by double digits. That country is
China and they are basing their growth on manufacturing.
Working with Plante and Moran, a regional accounting and
consulting firm, and using an industry model that has been in
existence for over a decade, we reviewed 13 manufacturing
sectors whereby steel represents over 10 percent of the non-
value added input, representing 3 million jobs nationally. We
used a debt-to-equity ratio of 3 to 1 to determine the
threshold whereby a company's access to cash is cut off.
Basically the banks will refuse to loan you any more money at
that point.
Based on this data, it is certain that manufacturing jobs,
1.5 million by 2005, will be lost, or be in serious jeopardy,
as a direct result of the price increases incurred from the
steel tariffs.
From a personal standpoint, it has been very discouraging
that there has not been a cohesive effort by all industry
participants, producers, consumers and the government, to find
an appropriate solution to secure the health of the domestic
steel industry. Their losses have simply been transferred
disproportionately to the small and medium manufacturers who
are the least able to cope with them.
Quite frankly, the steel tariffs are the wrong medicine for
a sick industry. Thank you.
[The prepared statement of Mr. Smith follows:]
Statement of Wes Smith, President and Owner, E&E Manufacturing, Inc.,
Plymouth, Michigan
My name is Wes Smith, and I am the President and owner of E&E
Manufacturing Co. I appreciate the opportunity to submit this testimony
to bring attention to the fact that the steel 201 tariffs have had a
dramatic impact on the price and availability of steel in the market,
and have resulted in a significant and negative impact on our company.
E&E is located in Plymouth, Michigan, and is a world-class leader
in metal joining technology. It meets the needs of its world-class
automotive customers by manufacturing heavy gauge stamped metal
fasteners, progressive die metal stampings, and high value-added
assemblies. E&E was founded in 1963, and provides meaningful employment
to over 250 dedicated employees. Steel comprises 40 percent of our
total cost of producing these products.
For our raw steel needs, we generally have relied upon six-month or
yearly contracts with steel warehouses that obtain their supply from
domestic mills, with 75 percent of our requirements met by one major
supplier. Our relationship with this supplier has been positive and
constructive, but the day after the steel 201 tariffs were imposed last
March, this supplier broke its contract with E&E and imposed a hefty
increase on our pricing. What is ironic about this incident is that
this supplier obtains a majority of its product from a mini-mill, not
an integrated mill; the mini-mills have not been subjected to the
legacy costs that the integrated mills have had to suffer. I have
prepared a spreadsheet, which is appended to my testimony, that tracks
the significant and sudden price increases we have been experiencing in
our raw material purchases since the imposition of the steel tariffs.
This analysis illustrates the significant effect these additional
tariffs have had on the pricing and availability of steel, as well as a
drop in our revenue. Since February of 2002, our steel costs have
increased an average of 34 percent, which amounts to $3.3 million.
Aside from pricing, a continued reliable supply of steel is of
great concern to us. The lack of available steel has brought us close
to shutting down our Original Equipment Manufacturer (OEM) and Tier One
customers. Because of late deliveries due to capacity limitations that
the steel mills have had since the imposition of steel tariffs, we have
had to pay expedited freight costs in order to get our shipments in
time so that we can deliver the final product to our customers in time.
In addition, E&E has had to spot buy material at a significantly higher
cost because our suppliers have failed to deliver steel we have
ordered.
The consequences of the steel 201 tariffs have already impacted E&E
in a dramatic way. Nearly half of our stamped fastener product is
supplied to an OEM, which has bought its requirements from E&E since
the 1970's. This account comprises a third of our sales. It involves a
proprietary product that is now subject to a reverse auction process,
whereby the contract is auctioned off on a yearly basis. In February
2002, E&E had to negotiate a significant price decrease to keep this
business, because our customer has made it clear that it has the
increasing option of purchasing its requirements from offshore sources,
such as Chinese sources. We applied to the USTR for steel exclusions on
this product, and found out March 21, 2003 that our request was denied.
We are currently negotiating another significant decrease for 2003.
Immediately after making this concession--at a loss of a half-
million dollars in revenue--the steel 201 tariffs were imposed, and the
price spikes I described earlier hit us. At this point, it is
absolutely out of the question for E&E to approach this customer to
renegotiate this deal in a way that would cover the increased costs of
our raw materials. The customer has made it abundantly clear that it
will exercise its option to take its business offshore for this
product. In addition, another of our largest customers told us that
when the tariffs were imposed, they reforecast their budgets for the
end of last year and were so upset by the numbers they saw, that they
instructed their Purchasing Department to price all components
currently purchased and internally manufactured to Asia.
I fear that this illustrates the flaw in the reasoning underlying
the steel 201 tariffs. The assumption was that the small businesses,
the steel-consuming industries in this country, wouldn't get hurt by
the steel 201 tariffs. We should be able to pass this cost on to our
customers, who would pass the cost on to their ultimate consumers or
absorb the cost themselves. But this doesn't work in reality, as my
example proves. If a components manufacturer like E&E tries to pass
these significant increases on to its customers, those customers will
procure their inputs from offshore sources, where the cost of
production is cheaper for a lot of reasons, including a raw material
cost unfettered by significant additional tariffs. Our customers tell
us that in this economy, we need to compete globally. We cannot,
however, compete under the best of circumstances when our raw material
costs are artificially inflated as a result of the steel 201 tariffs.
We have lost other opportunities for new products that we have
designed, and there is increased pressure placed on our customers from
their customers to buy all their smaller components offshore. We are
willing to meet the challenge of competing with the Asians, however, we
cannot do that with our hands tied behind our backs by having our
government tax our largest input by 30%.
Smaller manufacturers rely on their larger customers for work,
however, the tariffs have been a catalyst for these customers to source
more work overseas, which threatens our very existence. Of
approximately 355,000 manufacturing locations nationwide, 90% have less
than 100 employees, and don't have either the wherewithal or desire to
move their operations offshore. Our larger customers have options. They
can bypass the tariffs by bringing in semi-finished components from
offshore sources, which is causing epidemic job loss (31 straight
months) in the manufacturing community, with the small and medium
manufacturers being hit the hardest.
I consider myself a ``Will Rogers economist,'' and I think it is
interesting to note that the U.S. has had a number of false starts to
the economic recovery, however, they have sputtered out due, in large
part, to the fact that one of the largest and most significant
employment sectors (manufacturing) has been in an economic depression
with the loss of over 2 million jobs in the past 2 years. It is also
interesting to note that there is a country in this global economy that
has been able to increase their economic prosperity by double-digits.
That country is China. They are basing their growth on manufacturing.
Working with Plante & Moran, LLC, a regional consulting firm, and
using industry models that have been in existence for over a decade, we
reviewed 13 manufacturing sectors representing 3 million jobs
nationally. A debt-to-equity ratio of 3-1 was determined to be the
threshold whereby a company's access to cash is cut off. Based on this
data, it is certain that manufacturing jobs (1.5 million by 2005) will
be lost or in serious jeopardy as a direct result of the price
increases incurred from the steel tariffs.
As you can see, the price increases and supply constraint resulting
from the steel 201 tariffs have had a significant impact on our company
and customer base. Unintended or not, the consequences of the increased
steel tariffs have been significantly detrimental to our company's
ability to protect and grow meaningful manufacturing jobs.
From a personal standpoint, it has been very discouraging. My own
reaction, as well as that of many of my peers, has been one of ``shock
and awe.'' The suddenness and size of the price increases seemed to
fall on us out of the sky; it was not a gradual or predictable
experience that you would expect from a decrease in capacity as a
result of bankruptcies in the steel industry. Also, there has not been
a cohesive effort by all industry participants (producers, consumers,
and government) to find an appropriate solution to secure the health of
the domestic steel industry. Their losses have been transferred to the
small and medium manufacturers who have been least able to cope with
them. Quite frankly, the steel tariffs are the wrong medicine for a
sick industry.
E and E Manufacturing Co., Inc., Plymouth, MI, 48170
This package represents E&E Manufacturing direct buy, non-customer supplied material only.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Width +/-
Ordered .010 ESTIMATED Jan-02 Monthly Apr-02 Monthly Jul-02 Monthly Oct-02 Monthly Jan-03 Monthly
P/N Gauge unless MATERIAL SPEC MONTHLY Price Cost Price Cost Price Cost Price Cost Price Cost
noted
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0685 .048/.052 2,4000 1050SS 4,000 $34.25 $1,370.00 $34.25 $1,370.00 $41.25 $1,650.00 $49.25 $1,970.00 $41.25 $1,650.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0684 .048/.052 3,3000 1050SS 5,000 $34.25 $1,712.50 $34.25 $1,712.50 $41.25 $2,062.50 $49.25 $2,462.50 $41.25 $2,062.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1171 .048/.052 4,7500 1050SS 7,000 $34.25 $2,397.50 $34.25 $2,397.50 $41.25 $2,887.50 $41.25 $2,887.50 $41.25 $2,887.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1266 .053/.057 4,1250 SAE J1392 050 XLF HR 7,000 $20.00 $1,400.00 $25.00 $1,750.00 $25.00 $1,750.00 $28.95 $2,026.50 $22.50 $637.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0970 .054/.064 2,7000 1008/1010 CR 1,000 $20.00 $200.00 $25.00 $250.00 $25.00 $250.00 $28.95 $289.50 $25.50 $255.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1047 .054/.064 8,0000 1008/1010 p o akdq CR 6,000 $20.00 $1,200.00 $25.00 $1,500.00 $25.00 $1,500.00 $28.95 $1,737.00 $25.50 $1,530.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1008/1010 HD Galv GM6185
0994 .059/.066 4,7500 70G 70GU 25,000 $21.95 $5,487.50 $21.95 $5,487.50 $28.95 $7,237.50 $28.95 $7,237.50 $27.95 $6,987.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
HRCQ ASTM A56
1110 .059/.070 5,5000 .05-.13C,.30 M 5,000 $16.95 $847.50 $24.65 $1,232.50 $26.95 $1,347.50 $27.60 $1,380.00 $21.95 $1,097.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
HRCQ ASTM A56
1140 .059/.070 16,8500 .05-.13C,.30 M45,000 $16.75 $7,537.50 $16.75 $7,537.50 $25.25 $11,362.50 $25.25 $11,362.50 $21.95 $9,675.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
ASTM A621 HRDQ
1227 .059/.067 2,2500 0.02% C. Min 1,200 $20.00 $240.00 $25.00 $300.00 $25.00 $300.00 $28.95 $347.40 $21.50 $258.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0906 .060/.066 1,1000 1008/1010 COLD R 100 $20.00 $20.00 $25.00 $25.00 $25.00 $25.00 $28.95 $28.95 $26.75 $26.75
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1245 .072/.084 6,2000 1008/1010 SAE 80,000 $15.95 $12,760.00 $18.95 $15,160.00 $22.95 $18,360.00 $23.95 $19,160.00 $20.45 $16,360.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1169 .074/.083 7,0000 ? ASTM A622 type B HRDS ? 27,000 $17.95 $4,846.50 $20.95 $5,656.50 $22.95 $6,196.50 $23.95 $6,466.50 $21.25 $5,737.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1277 .074/.084 5,8000 ASTM A622 type B HRDS 8,000 $17.95 $1,436.00 $19.95 $1,596.00 $23.95 $1,916.00 $23.95 $1,916.00 $20.25 $1,660.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1215 .074/.082 5,8000 sae J1392 050 xlf 6,000 $16.75 $1,005.00 $20.95 $1,257.00 $23.25 $1,395.00 $24.20 $1,452.00 $21.50 $1,290.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1218 .074/.082 35,0000 sae J1392 050 xlf 70,000 $16.75 $11,725.00 $20.95 $14,665.00 $23.25 $16,275.00 $24.20 $16,940.00 $21.50 $15,050.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1221 .074/.082 29,2000 sae J1392 050 xlf 45,000 $16.75 $7,537.50 $20.95 $9,427.50 $23.25 $10,462.50 $24.20 $10,890.00 $21.50 $9,675.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1223 .074/.082 17,0000 sae J1392 050 xlf 25,000 $16.75 $4,187.50 $20.95 $5,237.50 $23.25 $5,812.50 $24.20 $6,050.00 $21.50 $5,375.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1224 .074/.082 17,8800 sae J1392 050 xlf 35,000 $16.75 $5,862.50 $20.95 $7,332.50 $23.25 $8,137.50 $24.20 $8,470.00 $21.50 $7,525.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1226 .074/.082 10,0000 sae J1392 050 xlf 7,000 $16.75 $1,172.50 $20.95 $1,466.50 $23.25 $1,627.50 $24.20 $1,694.00 $21.50 $1,505.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0864 .078/.084 2,0600 1010 DQ 200 $15.75 $31.50 $20.50 $41.00 $20.50 $41.00 $24.45 $48.90 $22.50 $45.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
HRCQ ASTM A56
1120 .078/.088 3,9380 .05-.13 C, .30 1,200 $15.75 $189.00 $20.50 $246.00 $20.50 $246.00 $24.45 $293.40 $21.00 $252.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1259 .078/.086 20,9500 sae J1392 050 xlk 35,000 $16.75 $5,862.50 $20.95 $7,332.50 $23.45 $8,207.50 $24.45 $8,557.50 $21.50 $7,525.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0943 .079/.089 2,2800 1010 700 $15.75 $110.25 $20.50 $143.50 $20.50 $143.50 $24.45 $171.15 $21.75 $152.25
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0956 .079/.089 2,9100 1010 1,400 $15.75 $220.25 $20.50 $287.00 $20.50 $287.00 $24.45 $342.30 $21.75 $304.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0992 .079/.086 11,7000 1008/1010 70g 79gm 40,000 $21.95 $8,780.00 $21.95 $8,780.00 $28.95 $11,580.00 $28.95 $11,580.00 $26.95 $10,780.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1008/1010 AKDQ
1002 .079/.089 14,1250 .05 min C RB m 17,000 $15.75 $2,677.50 $20.50 $3,485.00 $20.50 $3,485.00 $24.45 $4,156.50 $19.95 $3,391.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1008/1010 AKDQ
1040 .079/.089 15,0000 .05 min C RB m 23,0005 $15.75 $3,622.50 $20.50 $4,715.00 $20.50 $4,715.00 $24.45 $5,623.50 $19.95 $4,588.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1116 .079/.087 18,3000 SAE J133392 050 XLK 32,000 $16.74 $5,356.80 $20.50 $6,704.00 $22.95 $7,344.00 $23.95 $7,664.00 $21.00 $6,720.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1045 .079/.085 20,3750 050 XLF HSLA 19,000 $16.25 $3,087.50 $20.95 $3,980.50 $22.95 $4,360.50 $23.95 $4,550.50 $20.95 $3,980.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1317A .079/.088 21,1000 SAE J 1392 050 XLK 55,000 $20.75 $11,412.50 $20.75 $11,412.50 $25.25 $13,887.50 $25.25 $13,887.50 $20.95 $11,412.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0867 .082/.093 10,8750 050 X F HRPO 3,000 $16.50 $495.00 $22.50 $675.00 $23.75 $712.50 $25.50 $765.00 $21.00 $630.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1308 .087/.094 7,1250 1008/1010 AKDQ 20,000 $16.25 $3,250.00 $16.25 $3,250.00 $23.75 $4,750.00 $23.75 $4,750.00 $20.00 $4,000.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0890 .091/.097 2,6200 1008/1010 9,000 $15.75 $1,417.50 $20.50 $1,845.00 $20.50 $1,845.00 $24.45 $2,200.50 $20.00 $1,800.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1239 .094/.102 11,5000 SAE J1392 050 XK HRS 200,000 $16.20 $32,400.00 $19.95 $39,900.00 $22.95 $45,900.00 $22.95 $45,900.50 $20.25 $40,500.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1044 .094/.102 10,6250 1008/1010 AKDQ 7,000 $15.30 $1,071.00 $19.95 $1,396.50 $23.95 $1,676.50 $24.95 $1,746.50 $20.45 $1,431.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0923 .094/.104 11,2500 1008/1010 AKDQ 18,000 $15.30 $2,754.00 $19.95 $3,591.00 $21.95 $3,951.00 $22.95 $4,131.00 $20.30 $3,654.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
ASTM A1011 Grade CS ?
1292 .097/.101 18,2000 .05-.13% C., .3 9,000 $15.95 $1,435.50 $15.95 $1,435.50 $15.95 $1,435.50 $21.95 $1,975.50 $20.00 $1,800.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0871 .097/.110 18,6100 SAE 1010 7,500 $14.50 $1,087.50 $21.50 $1,612.50 $22.50 $1,687.50 $23.50 $1,762.50 $20.00 $1,500.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
RCQ ASTM A56
1113 .098/.110 1.7500 .05-.13 C, .30 1,700 $14.50 $246.50 $29.95 $509.15 $27.50 $467.50 $24.95 $424.15 $20.00 $340.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
937 .098/.108 2.1000 950 XF 2,500 $19.00 $475.00 $21.95 $548.75 $23.95 $598.75 $23.95 $598.75 $20.45 $511.25
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0865 .098/.110 22.2500 SAE 1010 HRPO 3,500 $15.75 $551.25 $20.50 $717.50 $20.50 $717.50 $24.45 $855.75 $20.00 $700.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1238 .099/.110 13.8750 SAE J1392 050 XK HRS 215,000 $15.95 $34,292.50 $19.95 $42,892.50 $22.95 $49,342.50 $22.95 $49,342.50 $20.25 $43,537.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1121 .099/.106 31.0000 050 XLF HSLA 140,000 $16.50 $23,100.00 $19.95 $27,930.00 $22.95 $32,130.00 $22.95 $32,130.00 $20.37 $28,518.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0856 .101/.109 4.7600 945 XF 20,000 $14.75 $2,950.00 $19.50 $3,900.00 $21.75 $4,350.00 $23.95 $4,790.00 $20.50 $4,100.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0855 .101/.108 8.8750 1010 22,000 $14.50 $3,190.00 $19.50 $4,290.00 $21.50 $4,730.00 $23.50 $5,170.00 $20.00 $4,400.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0858 .101/.108 9.5600 1010 10,000 $14.50 $1,450.00 $19.50 $1,950.00 $21.50 $2,150.00 $23.50 $2,350.00 $20.00 $2,000.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0893 .102/.110 4.0000 1008 AKDQ 10,000 $16.25 $1,625.00 $18.95 $1,895.00 $22.95 $2,295.00 $22.95 $2,295.00 $20.00 $2,000.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
.1024/
1167 .1063 12.7500 SAE J403-1010 CR 10,000 $21.95 $2,195.00 $24.95 $2,495.00 $27.80 $2,780.00 $27.80 $2,780.00 $21.05 $2,105.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1000A .105/.110 3.8400 J1392 050 XLF 18,000 $16.95 $3,051.00 $19.95 $3,591.00 $23.95 $4,311.00 $23.95 $4,311.00 $20.25 $3,645.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1122 .106/.113 27.0000 050 XLF HSLA 350,000 $16.20 $56,700.00 $19.95 $69,825.00 $22.95 $80,325.00 $22.95 $80,325.00 $20.00 $70,000.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1310 .110/.118 8.2500 1008/1010 AKDQ 30,000 $16.25 $4,875.00 $16.25 $4,875.00 $23.75 $7,125.00 $23.75 $7,125.00 $20.00 $6,000.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1173 .110/.126 5.6250 SAE J1392 050 XLF 1,400 $14.75 $206.50 $21.50 $301.00 $23.00 $322.00 $24.50 $343.00 $20.50 $287.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1200 .110/.126 7.0000 SAE J1392 050 XLF 22,000 $14.75 $3,245.00 $21.50 $4,730.00 $23.00 $5,060.00 $24.50 $5,390.00 $20.50 $4,510.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1108 .110/.122 11.7500 SAE J1392 050 XLF 46,000 $16.49 $7,585.40 $19.95 $9,177.00 $22.95 $10,557.00 $23.95 $11,017.00 $21.00 $9,660.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1204 .110/.126 14.0000 SAE J1392 050 XLF 30,000 $16.49 $4,947.00 $19.95 $5,985.00 $22.95 $6,885.00 $23.95 $7,185.00 $21.00 $6,300.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1087A .113/.123 6.4000 J-1392-050 XLK 13% max C 22,000 $16.95 $3,729.00 $19.95 $4,389.00 $23.95 $5,269.00 $23.95 $5,269.00 $20.50 $4,510.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1261 .114/.122 11.0000 SAE J1392 050 XLF 22,000 $16.10 $3,542.00 $19.95 $4,389.00 $23.85 $5,247.00 $23.85 $5,247.00 $20.25 $4,455.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1254 .114/.122 11.3700 SAE J1392 050 XLF 30,000 $16.10 $4,830.00 $19.95 $5,985.00 $23.85 $7,155.00 $23.85 $7,155.00 $20.25 $6,075.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1255 .114/.122 13.1500 SAE J1392 050 XLF 55,000 $16.10 $8,855.00 $19.95 $10,972.50 $23.85 $13,117.50 $23.85 $13,117.50 $20.25 $11,137.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1180 .114/.122 17.0000 SAE J1392 050-XLF HRS 35,000 $16.10 $5,635.00 $19.95 $6,982.50 $22.95 $8,032.50 $23.95 $8,382.50 $20.95 $7,332.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0917 .115/.125 8.2500 1008/1010 AKDQ .05 MIN C 65,000 $14.00 $9,100.00 $20.50 $13,325.00 $20.50 $13,325.00 $24.45 $15,892.50 $19.75 $12,837.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0920 .115/.125 8.7500 1008/1010 AKDQ .05 MIN C 35,000 $14.00 $4,900.00 $19.50 $6,825.00 $21.50 $7,525.00 $23.50 $8,225.00 $19.75 $6,912.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0916 .115/.125 8.8750 1008/1010 AKDQ .05 MIN C 65,000 $14.00 $9,100.00 $19.50 $12,675.00 $21.50 $13,975.00 $23.50 $15,275.00 $19.75 $12,837.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1112 .116/.122 5.5000 050 XLK HSLA 68,000 $16.10 $10,948.00 $19.95 $13,566.00 $22.95 $15,606.00 $23.95 $16,286.00 $20.60 $14,008.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0707 .118/.134 2.2200 1008/1010 33,000 $14.95 $4,933.50 $20.50 $6,765.00 $20.50 $6,765.00 $24.45 $8,068.50 $19.95 $6,583.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1027 .118/.126 7.2500 1008/1010 akdq .02 min c 52,000 $15.25 $7,930.00 $18.95 $9,854.00 $21.95 $11,414.00 $22.95 $11,934.00 $19.95 $10,374.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1008/1010 akdq
1080 .118/.126 10.7500 .05 min C RB 5 85,000 $14.00 $11,900.00 $19.50 $16,575.00 $21.50 $18,275.00 $23.50 $19,975.00 $19.95 $16,957.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1008/1010 AKDQ
1079 .118/.126 11.2120 .05 min C rb 5 75,000 $14.75 $11,062.50 $14.75 $11,062.50 $14.75 $11,062.50 $21.45 $16,087.50 $19.75 $14,812.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1090A .118/.125 11.5000 1008/1010 115,000 $15.45 $17,767.50 $18.95 $21,792.50 $22.55 $25,932.50 $22.00 $25,300.00 $19.85 $22,827.50
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1035 .118/.128 3.6300 MS 6000 44A GAL akdq 20,000 $22.95 $4,590.00 $26.95 $5,390.00 $29.60 $5,920.00 $29.60 $5,920.00 $27.00 $5,400.00
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1055 .118/.134 6.4680 MS 264 035 sk 25,000 $14.75 $3,687.50 $19.50 $4,875.00 $21.75 $5,437.50 $23.95 $5,987.50 $19.95 $4,987.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1193 .118/.133 5.0000 HLSA MS264-035 4,000 $16.25 $650.00 $19.95 $798.00 $23.95 $958.00 $23.95 $958.00 $20.95 $838.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1191 .118/.133 11.7500 HLSA MS264-035 35,000 $16.25 $5,687.00 $19.95 $6,982.50 $23.95 $8,382.50 $23.95 $8,382.50 $20.95 $7,332.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
050 XLF H S S
1115 .118/.125 6.2500 0.3 min MN CQ 30,000 $16.25 $4,875.00 $19.95 $5,985.00 $22.95 $6,885.00 $23.95 $7,185.00 $20.50 $6,150.00
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1128 .118/.125 6.6000 050 XLF HSS 0.3 min MN CQ 30,000 $16.25 $4,875.00 $19.95 $5,985.00 $22.95 $6,885.00 $23.95 $7,185.00 $20.50 $6,150.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1004 .124/.134 3.0000 1008/1010 .05 MIN CARBON 1,700 $15.75 $267.75 $20.50 $348.50 $20.50 $348.50 $24.45 $415.65 $20.00 $340.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1294 .126/.136 3.5820 1008/1010 (A1011) 8,000 $14.75 $1,180.00 $14.75 $1,180.00 $14.75 $1,180.00 $21.95 $1,756.00 $20.00 $1,600.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0846 .129/.139 2.0600 1010 2,000 $15.75 $315.00 $20.50 $410.00 $24.45 $410.00 $24.45 $489.00 $20.00 $400.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0624 .129/.139 3.0000 1010 200 $15.75 $31.50 $20.50 $41.00 $20.50 $41.00 $24.45 $48.90 $20.00 $40.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0295 .129/.139 4.0000 1010 1,000 $15.75 $157.50 $20.50 $205.00 $20.50 $205.00 $24.45 $244.50 $20.00 $200.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1197 .132/.143 5.5000 SAE J1392-050-XLK 9,000 $16.95 $1,525.50 $20.45 $1,840.50 $23.95 $2,155.50 $23.95 $1,155.50 $21.00 $1,890.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0734 .135/.151 1.7500 1010 4,000 $15.75 $630.00 $20.50 $820.00 $20.50 $820.00 $24.45 $978.00 $20.50 $820.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0999 .136/.146 2.2000 1008/1010 1,000 $15.75 $157.50 $20.50 $205.00 $20.50 $205.00 $24.45 $244.50 $20.00 $200.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0739 .136/.149 2.6500 1008/1010 AKDQ .05 MIN C 110,000 $15.00 $16,500.00 $20.50 $22,550.00 $20.50 $22,550.00 $24.45 $26,895.00 $20.00 $22,000.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1235 .149/.165 13.3120 MS 264-035 SO 95,000 $16.45 $15,627.50 $19.95 $18,952.50 $23.95 $22,752.50 $23.95 $22,752.50 $20.50 $19,475.00
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1164A .154/.161 3.2500 SAE J1392-050-XLF 5,000 $16.25 $812.50 $19.95 $997.50 $23.95 $1,197.50 $23.95 $1,197.50 $20.50 $1,025.00
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1179 .154/.161 18.0000 HSLA 050 XLF 25,000 $16.25 $4,062.50 $19.95 $4,987.50 $22.95 $5,737.50 $23.95 $5,987.50 $20.50 $5,187.50
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0876 .156/.171 1.7500 1010 22,000 $15.75 $3,465.00 $20.50 $4,510.00 $20.50 $4,510.00 $24.45 $5,379.00 $19.85 $4,367.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0678 .156/.171 2.5000 1010 160,000 $15.25 $24,400.00 $20.50 $32,800.00 $20.50 $32,800.00 $24.45 $39,120.00 $19.85 $31,760.00
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1094A .157/.165 7.2500 SAE J1392 050 XK 45,000 $15.95 $7,177.50 $19.95 $8,977.50 $23.95 $10,777.50 $23.95 $10,777.50 $20.50 $9,225.00
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1008/1010 akdq
0833 .188/.204 4.0150 .05 min C RB 5 3,000 $16.45 $493.50 $20.95 $628.50 $23.95 $718.50 $23.95 $718.50 $20.95 $628.50
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0796 .189/.207 3.5000 1010 700 $16.25 $113.75 $18.50 $129.50 $29.00 $203.00 $29.00 $203.00 $20.95 $146.65
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1322 .196/.206 4.2500 SAE 1008/1010 15,000 $18.00 $2,700.00 $20.50 $3,075.00 $20.50 $3,075.00 $23.00 $3,450.00 $20.00 $3,000.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0989 .197/.207 2.1200 1010 9,000 $16.25 $1,462.50 $22.45 $2,020.50 $23.95 $2,155.50 $23.95 $2,155.50 $20.95 $1,885.50
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1008/1010 TO meet 36.2 Kn
0803 .197/.207 2.5600 Min Proof load per GM510-m 30,000 $16.25 $4,875.00 $18.95 $5,685.00 $22.95 $6,885.00 $22.95 $6,885.00 $20.95 $6,285.00
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1008/1010 TO meet 36.2 Kn
0722 .197/.207 2.7000 Min Proof load per GM510-m 1,300 $16.25 $211.25 $19.95 $259.35 $22.95 $298.35 $22.95 $298.35 $21.45 $278.85
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1008/1010 TO meet 36.2 Kn
0574 .197/.207 3.1000 Min Proof load per GM510-m 280,000 $16.24 $45,472.00 $18.95 $53,060.00 $22.95 $64,260.00 $22.95 $64,260.00 $21.45 $60,060.00
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1195 .197/.209 11.5000 GM6218M mpa XLF HRPO 330,000 $17.00 $56,100.00 $19.95 $65,835.00 $22.65 $74,745.00 $23.65 $78,045.00 $21.50 $70,950.00
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1008/1010 TO meet 36.2 Kn
0899A .200/.207 2.2000 Min Proof load per GM510-m 23,000 $16.45 $3,783.50 $18.95 $4,358.50 $22.95 $5,278.50 $22.95 $5,278.50 $21.45 $4,933.50
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0494 .206/.218 2.7000 1010 7,000 $16.95 $1,186.50 $22.45 $1,571.50 $23.95 $1,675.50 $23.95 $1,676.50 $20.95 $1,466.50
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1138 .207/.217 6.5000 1008/1010 .05 MIN CARBON 32,000 $16.45 $5,264.00 $18.95 $6,064.00 $22.95 $7,344.00 $22.95 $7,344.00 $20.45 $6,544.00
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0972 .213/.224 3.6900 1010 12,000 $14.95 $1,794.00 $21.50 $2,580.00 $22.50 $2,700.00 $23.50 $2,820.00 $20.95 $2,514.00
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0971 .213/.224 4.1300 1010 30,000 $14.95 $4,485.00 $21.50 $6,450.00 $22.50 $6,750.00 $23.50 $7,050.00 $20.95 $6,285.00
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0973 .213/.224 4.2500 1010 24,000 $14.95 $3,588.00 $21.50 $5,160.00 $22.50 $5,400.00 $23.50 $5,640.00 $20.95 $5,028.00
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1076 .215/.233 3.1000 1008/1010 80,000 $15.45 $12,360.00 $19.95 $15,960.00 $23.25 $18,600.00 $23.25 $18,600.00 $20.45 $16,360.00
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1296 .215/.234 4.5000 1008/1010 45,000 $15.45 $6,952.50 $18.95 $8,527.50 $22.95 $10,327.50 $22.95 $10,327.50 $20.45 $9,202.50
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0695 .217/.231 2.5000 1010 14,000 $16.45 $2,303.00 $22.50 $3,150.00 $23.95 $3,353.00 $23.95 $3,353.00 $20.95 $2,933.00
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1194 .217/.227 5.0000 SAE 1010 16,000 $16.45 $2,632.00 $22.50 $3,600.00 $25.25 $4,040.00 $25.25 $4,040.00 $20.95 $3,352.00
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1008/1010 TO meet 19.9 Kn
1014 .222/.232 2.1200 Min Proof load per GM510-m 95,000 $17.25 $16,387.50 $21.45 $20,377.50 $24.95 $23,702.50 $24.95 $23,702.50 $21.95 $20,852.50
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0625 .228/.250 0.7870 1008/1010 EDGE ROLLED 3,000 $26.95 $808.50 $36.95 $1,108.50 $37.95 $1,138.50 $37.95 $1,138.50 $37.65 $1,129.50
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0773 .236/.252 1.9300 1008/1010 .05 MIN CARBON 1,000 $16.50 $165.00 $25.95 $259.50 $26.95 $269.50 $26.95 $269.50 $21.45 $214.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0689A .236/.248 2.3600 1008/1010 .05 MIN CARBON 20,000 $15.95 $3,190.00 $19.95 $3,990.00 $23.25 $4,650.00 $23.25 $4,650.00 $20.95 $4,190.00
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0623 .236/.257 3.1300 1008/1010 .05 MIN CARBON 3,000 $20.00 $600.00 $22.95 $688.50 $23.25 $697.50 $23.25 $697.50 $20.95 $628.50
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1043A .236/.252 2.5000 050 XLF HSLA 140,000 $16.45 $23,030.00 $19.95 $27,930.00 $23.10 $32,340.00 $23.10 $32,340.00 $21.95 $30,730.00
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0601 .240/.260 2.7000 1010 12,000 $16.25 $1,950.00 $22.95 $2,754.00 $24.65 $2,958.00 $24.65 $2,958.00 $21.95 $2,634.00
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0984A .246/.256 3.1000 1008/1010 .05 min C 1,000 $17.00 $170.00 $19.95 $199.50 $24.65 $246.50 $24.65 $246.50 $22.50 $225.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0949 .248/.262 1.1800 1008/1010 1,000 $17.00 $170.00 $19.95 $199.50 $24.65 $246.50 $24.65 $246.50 $22.95 $229.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0572 .266/.284 2.6200 1008/1010 AKDQ .05 MIN C 200,000 $15.99 $31,980.00 $20.45 $40,900.00 $23.95 $47,900.00 $23.95 $47,900.00 $21.95 $43,900.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
155 .268/.282 2.5000 SAE 1008/1010 2,000 $19.00 $380.00 $20.45 $409.00 $23.95 $479.00 $23.95 $479.00 $21.95 $439.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0948 .276/.300 4,7500 1008/1010 22,000 $17.05 $3,751.00 $20.45 $4,499.00 $23.95 $5,269.00 $23.95 $5,269.00 $21.95 $4,829.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1104 .295/.310 2,5000 1050 XK 13 Max C HSLA 60,000 $16.95 $10,170.00 $21.45 $12,870.00 $24.65 $14,790.00 $24.65 $14,790.00 $21.95 $13,170.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0993 .295/.310 2,7500 950 XK HSLA FB 16-7J 30,000 $16.94 $5,082.00 $21.45 $6,435.00 $24.65 $7,395.00 $24.65 $7,395.00 $21.95 $6,585.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0995 .295/.310 3,5000 950 XK HSLA FB 16-7J 20,000 $16.93 $3,386.00 $21.45 $4,290.00 $24.65 $4,930.00 $24.65 $4,930.00 $21.95 $4,390.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1247a .295/.311 3,0000 GM6218M Grade 340 HSLA 25,000 $16.95 $4,237.50 $21.45 $5,362.50 $24.65 $6,162.50 $24.65 $6,162.50 $21.95 $5,487.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1069 .307/.323 3,4450 1008/1010 1,000 $18.00 $180.00 $22.00 $220.00 $24.65 $246.50 $24.65 $246.50 $22.95 $229.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0810 .331/.350 2,7500 1010 AKDQ 1,000 $21.25 $212.50 $23.95 $239.50 $27.60 $276.00 $27.60 $276.00 $22.95 $229.50
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0885 .354/.372 2,4500 MS-264-50 (slit TOL +/-.020) 60,000 $19.95 $11,970.00 $19.95 $11,970.00 $26.95 $16,170.00 $26.95 $16,170.00 $24.20 $14,520.00
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1248 .354/.370 3,4500 GM6218M Grade 340 HSLA 33,000 $21.99 $7,256.70 $23.95 $7,903.50 $26.95 $8,893.50 $26.95 $8,893.50 $22.45 $7,408.50
-------------------------------------------------------------------------------------------------------------------------------- ---------- ---------- ---------- ----------
Monthly Total
for the given quarter 3,917,800 $805,152 $987,149 $1,131,011 $1,173,209 $1,030,823
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Comparison from Jan-02
$181,997 23%
$325,859 40%
$368,057 46%
$225,672 28%
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Comparison from Apr-02
$143,862 15%
$186,060 19%
$43,675 4%
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Comparison from Jul-02
$42,198 4%
-$100,187 -9%
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Comparison from Oct-02
-$142,386 -12%
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Proprietary products that are
price sensitive to foreign competition 1,867,800 $309,340.20 $381,128.85 $436,549.35 $452,520.95 $402,376.25
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
12 Months Had Prices Stayed at Q1 2002 $9,661,820
Actual 12 Months From 4/1/02 to 3/31/03 $12,966,575
Total Cost Impact From 4/1/02 to 3/31/03 $3,304,755
Percentage of Cost Impact 34%
E&E Manufacturing direct-buy, non-customer supplied material only
Chairman CRANE. Thank you. Now it is time for questions.
Let me remind my colleagues up here that we will limit that to
5 minutes per Member and that includes the answers from our
witnesses here who are testifying. So, if their time is eaten
into by the questions, you have got to depend upon written
responses at some point.
I would start out with Mr. Taylor. You mentioned in your
testimony that your company has purchased three factories in
China and that material costs, not labor costs, are your
primary motivation for moving production to China.
Do you believe the section 201 tariffs have accelerated the
transfer of manufacturing jobs to China?
Mr. TAYLOR. Yes, Mr. Chairman, I believe the section 201
tariffs have accelerated and are now in the process of further
accelerating job losses. If the section 201 action is not
reversed, this process will continue. The jobs that we have
lost so far will not be the only jobs that are lost. In fact, I
am afraid it is just the tip of the iceberg.
The economics of our situation, and I think it is very
similar in a lot of products that are made from steel, 30 to 50
percent of the cost of our products, primarily the fastener
products, are steel costs. Labor is less than 10 percent. In
fact, in most of them, 6 to 7 percent of the cost of the
product. Fasteners, in particular, are very highly automated
components in today's world.
So, raw materials drive what we do to an ever greater
extent. We do business in Taiwan and China extensively, as well
as Europe and South America. We know that the cost of raw
materials, particularly cold-headed quality wire that we use
for fasteners, is approximately one-third less in China and
Asia, and particularly in Taiwan, than it is here in the United
States.
That one-third on 30 to 50 percent of the total costs, you
can see a quick calculation of 10 to 15 percent of the total
cost of the product driven by that raw material difference.
Whereas regarding labor, if I had free labor, it would not be
that great.
Yes, the cost of raw materials is driving us to China. Our
customers have refused to pay price increases. They have told
us if you do not take it to China, we will take it to China,
around you.
We choose to at least retain the distribution portion of
the business and we are forced to take business to China that
otherwise would not go if we could have competitive, world
competitive, raw materials.
Chairman CRANE. Thank you. Several of you have expressed
your support for a strong, profitable, and viable steel
industry. The steel industry argues that the best way to
achieve that is by protecting it from imports while it
restructures. Do you believe the section 201 tariffs have
helped or hindered industry restructuring, and why? Please,
anyone that wants to respond, please do.
Mr. LEULIETTE. Mr. Chairman, I believe that any time you
have an artificial ingredient into the equation which precludes
you from head-to-head competition, you sometimes will not step
up to some of the changes that are necessary. In the SBQ area
where we are focused, a couple of those mills had already
restructured. We are very profitable and very competitive. All
they have used the tariffs for is to have record profits at our
expense.
The U.S. auto industry, the supplier industry, has never
been protected by tariffs. The supplier industry has not, and
we have grown to be competitive.
Over 35 of my competitors have gone bankrupt in the last 2
years. It is a very unfortunate action and an unfortunate
situation, but it is part of the evolution and the
restructuring of the competitive automotive supplier industry,
some industries hire and some restructure. We have not seen a
significant reinvestment on the part of our suppliers during
this section 201 period.
Chairman CRANE. Anyone else want to comment on that
question?
Mr. SMITH. Mr. Chairman, we commissioned a study by a local
college, Hillsdale College in Michigan. We did a cash flow
analysis based on the steel section 201 tariffs in terms of
whether steel prices had spiked in the fourth quarter of last
year.
Based on the cash flow projection, it was determined--we
did not see where any significant cash was being generated
where that moneys could be reinvested into plant and equipment.
In other words, the steel section 201 tariffs have pretty much
just forestalled the inevitable. We see that at the end of the
3 years, unless there has been significant improvement in terms
of operational efficiencies, serious reinvestment into plant
and equipment, that the only thing that we will have done
within that 3-year period is decimate a significant portion of
the economy, which is the steel-consuming industries.
We think that there are alternatives that could have been
looked at. There are alternatives that could have really helped
those that really needed it, the integrated mills.
Unfortunately, those that have benefited from it the most have
been the mini-mills.
Chairman CRANE. Hillsdale College is one of my alma
matters. I got my bachelor's degree at Hillsdale.
One final question for any of you. Can you tell me how many
people are affected by these tariffs in your company? Has this
change in your overall competitive position resulted in any
reductions in your work force or in a slowdown of hiring?
Mr. PRITCHARD. Mr. Chairman, we are fairly small, I guess,
by many standards. As I said, we have about 370 associates
working within the business now. Within the last 12 months we
have had to lay off 33 of those people. They were not just
hourly workers, they were managers, engineers, all the way up
to a top position of plant manager. It was truly an economic
hardship situation that forced us into this.
There is probably no harder thing that I have had to do in
my professional career than to look at people that I have
worked with for many years, and I had to tell them that we can
not longer afford to have their position filled.
This goes along with a lot of the slowdown issues that have
been brought about within our organization by the increased
cost and the degrading of our competitive position within the
industry.
Chairman CRANE. Anyone else want to comment?
Mr. LEULIETTE. As I said in my testimony, Mr. Chairman, we
have announced today 600 layoffs will occur in Metaldyne in the
next 60 days. About 400 of those are directly related to either
the product moving offshore because we cannot get the steel and
be competitive here because of steel, or because of lost
business that we have not been able to maintain because it has
been resourced offshore. That is 400 jobs in 60 days, and it is
just the tip of the iceberg.
Chairman CRANE. Mr. Levin?
Mr. LEVIN. Thank you, and welcome to all of you. I think it
is important that we hear from you. Our colleagues are busy on
other activities. We will try to convey the word to them.
All of you have talked about the critical importance of
manufacturing. I will not say sorry for the buzzer because I do
not have anything to do with it.
You have all talked very, very powerfully about the
importance of the manufacturing base of this country and I
think all of you know, or some of you, how strongly I feel
about its maintenance.
What we have here, though, is a conflict if not a clash
among different parts of the manufacturing base of this
country.
By the way, when you talk about labor and it is not such an
important part of your operation, there is a labor ingredient
in the supply in the materials and China has an immense
advantage over us when it comes to that.
I am sorry, in a way, that the panels are structured so
that we do not have part of the next panel up with you and part
of you up with the next panel to have some kind of a contrast
here. You come from different size companies and some of you,
especially Mr. Leuliette, I have had the privilege of knowing
for a good number of years. He comes, I guess, from the largest
of the companies represented here. So, let me just say a word
to someone who is kind of, I think, middle-sized, and just talk
for a few minutes with Mr. Taylor.
Two things. On page 3, you say I would suggest that after
more than 30 years of almost continuous protection there are
structural problems in the steel industry that would be better
solved by market forces than by continued government action.
Part of the problem in the steel industry is that there is
government action in many countries involved in steel
production. You do not have a free market. You have immense
subsidization, and that was very much reflected in the influx
of steel here in 1997 and 1998. A lot of it came, Russian steel
was is heavily subsidized. It was not free market produced
steel. The same was true, to some extent, in Korea or Brazil,
almost everywhere.
So, the simple formulation of free market versus government
does not quite fit the dilemma here.
So, let me just also, you referred to a study that was
undertaken by the association. Let me just read to you, maybe
you have seen it, the critique of the Financial Times on your
study. The study showed 200,000 jobs lost in the industries
from December 2001 to December 2002. Two hundred thousand due
to higher steel prices. Here is what it said. It opposed the
tariff actions. It said what the study also failed to mention
was that all the jobs lost in 2002 actually occurred in January
2002, 2 months before the tariffs were imposed, and when steel
prices were near historic lows.
Then it quotes Gary Huffbauer, who also opposed the
tariffs, saying the claim of 200,000 jobs lost is way out of
bounds. He estimated 5,000 to 10,000 jobs have been lost.
I think it is higher than that. You have indicated that by
your testimony. One thing we need to accomplish here today, and
after this, is to try to dig out what the facts really are. To
then find a way, if we can, to reconcile how we maintain the
manufacturing base.
Is steel not part of the manufacturing base of the country?
Would any of you be satisfied if all the steel or 75 percent of
the steel used in the United States came from outside this
country? Would any of you? None of you? Thank you.
Chairman CRANE. Thank you. Mr. English?
Mr. ENGLISH. Thank you, Mr. Chairman, and I am going to
keep my remarks brief.
This panel is a group of business leaders who have gone
through what a lot of manufacturers have in this economy, and I
tend to sympathize with them. I would like to sharpen their
testimony on a couple of specific points to maybe address my
curiosity or speak to the credibility of the conclusion I am
hearing here. Mr. Leuliette, I hope I am not mispronouncing
that.
Mr. LEULIETTE. Leuliette.
Mr. ENGLISH. What were Metaldyne's most recent financial
results as set forth in its most recent annual report? Are you
not significantly more profitable than the vast majority of the
steel industry that you have characterized as taking record
profits at your expense?
Mr. LEULIETTE. We are privately held, and if you notice on
a per-share basis we had a loss last year.
Mr. ENGLISH. I thought you had a profit of $114 million
last year with an operating margin of over 6 percent. That is
not accurate?
Mr. LEULIETTE. That is not accurate. If I may, sir. I do
not attest that we are not a profitable company. We strive to
be profitable.
Mr. ENGLISH. Metaldyne estimates that the higher steel
prices would reduce profitability by $5 million, which my
estimate was that that represented less than 0.3 percent of
your sales last year. Is that also inaccurate?
Mr. LEULIETTE. We had said publicly that we thought that
with our customers that we were going to be able to recover a
large percentage of that. That turned out not to be the case,
which is why the layoffs are occurring today.
Mr. ENGLISH. Mr. Trilla, before the last few years did you
not mostly purchase your steel from U.S. steel companies? If
so, why did you not have any failures of your coatings back
before you began using imported steel? My recollection is that
beginning in March 2001 imports of cold-rolled steel from Korea
surged. Their cost, insurance, and freight price was only $299
a ton, far less than the domestic price at the time. Is it not
really low price that drove your decision, rather than quality?
Mr. TRILLA. No, sir. We have traditionally bought, at
Trilla Steel Drum, 80 percent domestic steel. I am sitting in
Chicago, I have steel mills all over, and they are wonderful
suppliers.
As the quality issues started to develop, we found that
buying steel from Korea, it would reduce our costs in
laundering the steel, having to clean it. It gave us a better
adhesion. Our lined drum business went up better than 100
percent. We were rewarded with that.
Mr. ENGLISH. Very good. When Trilla Drum and several other
drum manufacturers apply to the U.S. Department of Justice
Antitrust Division to establish a ``joint selling and
purchasing company'' you asserted that ``because of the high
cost of shipping steel drums a manufacturer, in most cases, can
only efficiently compete for sales within a 100 to 200 mile
radius of its plant.''
You are now complaining that your customers have switched
to imports which would entail, as I understand it, very high
shipping costs. How can imports of steel drum compete in the
United States if your statement to the Antitrust Division is
true?
Mr. TRILLA. I am sorry for not being clear on that issue.
You are correct.
The import drums that I am talking about are not being
imported into the United States. My customers are feeling now,
they are producing in Michigan, Illinois, Iowa, and so forth,
and shipping bulk back to Singapore, South America, Brazil,
back to Amsterdam in large tankers and buying their drums and
filling their drums in these further ports and then shipping
them back, the product drum, back here to the United States.
Mr. ENGLISH. I appreciate your clarification.
Mr. Taylor, I read your testimony. You conceded up front
that, I believe, over 90 percent of the steel that you have
been using is excluded from the President's policy. You went on
to say that 40 percent of steel-consuming companies are moving
production offshore. You attribute it to the single cost of
steel prices without reference to rising health care costs,
non-border adjustable tax system, the liability issue and the
downstream dumping issue that Mr. Nixon mentioned, and currency
differentials.
Is this not putting an extraordinary burden on the factor
of one input, which you have testified increased your costs by
7 percent?
Mr. TAYLOR. We buy predominately wire rod. Wire rod was
under a Clinton Administration action prior to the section 201
action, was not involved in the action. Wire rod was, prior to
the Administration's action, more expensive in the United
States, approximately 25 percent lower cost in the Asian
countries. It is now about one-third lower cost in Asia versus
the United States.
There has been an overall elevation in the price of all
steel products, an umbrella created by the tariff action. I
happen to believe personally that that is because the steel
companies that can, are raising prices and that they can, to
some extent, choose to produce wire rod or bar, various
products, depending on whether they are covered by a tariff.
Mr. ENGLISH. We will get into that it on the next panel.
Mr. Chairman, thank you for your patience.
Chairman CRANE. Absolutely. Mr. Houghton?
Mr. HOUGHTON. This is a tough issue. It is tough for you,
tough for the steel companies. It is tough for us because we
have got to try to figure out how to create the atmosphere
which is better business conditions for you and the steel
companies.
So, you can get drowned in figures. For example, I have
figures here which said that steel imports in 2002 actually
increased 8 percent compared to 2001, despite the tariffs.
Also, imports on all sheet products were 10 percent higher from
March to November 2002.
So, you can say well, that is a factor that you ought to
take into consideration, but does it help the issue? How can we
keep companies like yourselves healthy and yet, at the same
time, not lose the steel industry?
I know what it is like personally to be in an industry
where there were uneconomic conditions from foreign sources
driving me out of business. I know that in the process of
trying to fight that that some of our customers were hurt.
We were going out of business, not because we wanted to,
not because we did not have the best technology, the best
price, the best costs, the best service, but there were other
factors working against us.
So, how do you put these two things in balance? What would
you say, you gentlemen, if you were the head of a steel
company? How would you react to this?
Mr. LEULIETTE. Let me say sir, that our customers did not
give us that choice. Our customers said very simply that the
American consumer was unwilling to pay a premium for U.S.
steel. As a result of that, they could not pay us a premium for
the components we sold the auto industry. They give us a very
simple statement, become globally competitive or lose your
business.
For decades, that has been the dogma and the premise from
which we have operated from.
Mr. HOUGHTON. So, you would say to the U.S. steel companies
if the economic conditions were such, too bad guys, that is
just your tough luck and you have got to move abroad the way we
have?
Mr. LEULIETTE. In some cases, two of our major steel
suppliers were U.S.-based, very competitive, and very
profitable. They had addressed their issues long before the
tariff came into play.
Mr. HOUGHTON. I see. So, the ones that are not doing well,
irrespective of the tariffs, are the ones that really have not
cleaned up their own house?
Mr. LEULIETTE. Well, I do not know their total operations
but I would say that some of them have legacy issues. There is
no question about it, this is a difficult issue, as you stated.
The problem is that we are moving the steel industry's
problem to the steel users, as opposed to addressing the
problem. We have moved it because we cannot move it through.
As one of my colleagues said before, we cannot take the
price problem that is generated here and pass it on down the
line. It is stopped at our level and we are squeezed.
Mr. HOUGHTON. We are in a war now and we need all the
strategic materials and production capacity that we can get. If
you were economic czar of the United States, what would you
tell the steel companies?
Mr. SMITH. I would like to have a comment on that, if I
could.
The issue, I think, is that alternatives have not been
explored, not seriously, in terms of how can we help the steel
industry to become a viable economic power in the United States
that it once was. Outside the fact that the steel industry has
been the most heavily subsidized industry since the sixties,
still nothing has really been done outside of just simply
taxing steel.
Mr. HOUGHTON. That is an opinion, not a fact.
Mr. SMITH. I think it is factual.
In terms of, the fact that an alternative has not been
explored, one of the things that we actually proposed and it
was not highly receptive, was that perhaps some other type of
loan guarantee that the steel industry could use to modernize
their facilities, to make sure at the end of the 3-year cycle,
that they can compete globally. We need a strong U.S. steel
industry. We recognize that. We support that.
We are just simply asking that the pain that the steel
industry has been suffering is not simply transferred and then
multiplied by factor of 10 or 20 to the steel-consuming
industries, because, in terms of the small to medium-sized
manufactures who are the backbone and have been the economic
engine that has driven us to prosperity in the nineties, are
the ones that get hit the hardest because we are least able
to--we do not have a big stick. We do not have the purchasing
power that the big guys have.
Mr. HOUGHTON. Could I just interrupt a minute, because my
time is running out. I appreciate, you are doing a great job
for your companies and I know you have got extraordinary
economic pressures on you, but so does the steel industry. I
really think this thing lends itself to far greater discussion.
Thank you, Mr. Chairman. Thank you gentleman.
Chairman CRANE. Thank you. Mr. Cardin?
Mr. CARDIN. Thank you, Mr. Chairman.
I want to follow up a little bit on Mr. Houghton's point
because I think he really laid it out well. We talk statistics,
but there is a face to this. Yesterday in Baltimore, a staff
person of mine attended a meeting with 3,000 Bethlehem Steel
workers whose health benefits will be terminated on March 31,
2003 and are now faced with decisions on how to cover
themselves for circumstances that they may not be able to find
health insurance to cover.
I mention that because there is a real cost to what we are
doing here. Mr. Smith, you indicated that there had not been
alternatives suggested. We went through a voluntary restraint
policy where U.S. steel companies reduced their capacity
substantially. We were misled, I think, by the international
community, and today we have overcapacity. I think we would all
agree on that, but the overcapacity is not in the United
States.
So, I guess I really want to follow up on Mr. Houghton's
point because I am not sure exactly you have answered that
question. We had a steel policy, and obviously it didn't work
because our steel companies are now in bankruptcy. We can't
produce enough steel for our own needs. We have to import
steel.
I am curious as to whether you think the anti-dumping and
countervailing duty laws in the United States are right or
wrong. Do you think we should have protection against dumped
steel in the United States? Do you think we should have
protection against the United States being attacked because of
the overproduction of steel internationally? Do you think it is
important that we have domestically produced steel in the
United States?
Mr. PRITCHARD. Sir, I would like to respond to that.
Certainly I think everybody on this panel who lives and
breathes with steel each day in their businesses wants this
steel industry strong in this country. I know we do in
Cleveland, and I am sure it is the same with the others.
You are right, there has got to be a solution to this
problem somewhere. I don't know that I--well, I am sure I am
not bright enough to come up with that answer. I think it will
take many more minds working on this than we have in our
company to provide a suitable solution. I think what we can say
is that it is evident to this group and to our segment of the
food chain in the steel industry that the tariffs are not
working. I think it was best put when we talk about the 3,000
steel industry folks that are going to be losing their
benefits; that is tragic. It is very difficult to accept for
any----
Mr. CARDIN. I think we all acknowledge that the imposition
of a tariff represents a failure. I think we all would
acknowledge that. None of us wants tariffs imposed. What we
want to do is get fair competition, and we don't want to see
products come into this country that are illegally subsidized.
Mr. PRITCHARD. Right.
Mr. CARDIN. That is what we are trying to prevent. So, you
can say lift the tariffs and close the U.S. steel companies,
and that is certainly one solution. That will reduce capacity.
That will get you cheaper steel, at least in the short run. It
will cost this country a capacity that I think is important for
not only national defense, but also as far as our economic base
is concerned. That is not the answer either.
Mr. PRITCHARD. Well, sir, because the tariffs have probably
weakened at least our segment of the economy more than any
single thing that has happened in the last decade or more. With
the jobs issue, one of the associates--a union associate, a
United Steelworker associate within our business, as part of
our United Steelworkers Union that represents them, said before
the House Committee on Small Business something that hit me
right between the eyes. He said, ``Why is my job less important
than someone making the steel?''
Mr. CARDIN. Every job is important. I guess it would be
better if we would have had more active help from you years ago
to strengthen our anti-dumping laws so that we didn't have to
reach the point that we have reached today. Believe me, the
steel companies, the steel manufacturers in this country are
not making out well under the current circumstance. They are in
bankruptcy. They are having to do extraordinary things. This is
not the ideal--this is not the solution for them. I am just
disappointed we didn't have more sensitivity to this issue
earlier so we wouldn't be faced with the type of crisis that we
have today in steel manufacturing. Thank you, Mr. Chairman.
Chairman CRANE. Thank you. Mr. Jefferson?
Mr. JEFFERSON. Thank you, Mr. Chairman. My timing is
apparently excellent.
I heard the testimony of the first panel and the start of
your testimony this morning, and I think on both sides there
are good-faith concerns and there are real concerns that this
panel, this Congress, the President has to take into account as
we go forward trying to make the best decision for all
concerned.
I know that the decision that was made doesn't have
anything to do with the anti-dumping or countervailing laws. It
is a separate issue; this Section 201 resolution question is a
separate issue. It has a narrow focus, and I guess it is about
injury in a particular sector. What you are saying today is
that there have been some perhaps unintended consequences that
flowed from that decision to assist industry that flowed into
where you are. Our challenge, it seems to me, is to try to
figure--and it wouldn't have been so bad, I guess, if the
prices hadn't risen so much.
If you had taken a Section 201 action and the price had
been somewhat moderated, the price increases had been
moderated, you wouldn't have felt the pain you feel now in your
own industry as consumers of steel. That is fair to say, I
think. Our job, it seems to me, is to try and figure how we
deal with the small companies that are the price takers in this
business, that can't pass it on to somebody else, that
themselves are laying off people and creating problems in their
own industry and their own business, and at the same time
trying to find a way to deal with the realistic issues on the
steel side.
Now, there are lots of issues which we can do without
condemning anybody about it. Section 201 doesn't deal with the
legacy questions, which are major issues to restructuring. The
President's 2002 decision asked for the steel industry to
restructure itself, and many of them are trying to do that. The
legacy issues and the benefit questions are hard problems as
they are trying these restructurings.
Nothing in Section 201 addresses those questions. Nothing
in the President's decision addresses those. Nothing we have
talked about today addresses those questions. Until they are
addressed, this restructuring that is the hope of this Section
201 process won't take place, and the unintended consequences
you guys are facing will continue to be problems for you.
So, I would just ask you this: When you say that you want
to see some help for the domestic steel industry, but you at
the same time want to make sure that it doesn't drive you out
of business and create job losses or dislocations that are
unfair and disproportionate in your industries--I have kind of
given my idea of what may be some broad ways to deal with it,
but what do--can anyone tell me how they see these two things
being reconciled without us taking a position that you are
right, they are wrong, or they are right and you are wrong?
What is the best way that we can suggest to the President as he
reviews this decision to deal with this question of these
apparently competing sides here, but that might have some way
to be reconciled? What is the recommendation on that?
We have heard what you said. I think that what you have
said is exactly right. These things have happened to ports, to
businesses, and no one saw it coming, at least not to the
extent they have. Now it is time to fix them so we can work on
both sides. How can we do that and reconcile both these
questions?
Mr. TAYLOR. Well, I personally believe in free trade. I
think in the long run that is the best thing for our society.
It forces the right things to happen, and over the long run,
those countries that are subsidizing their industries will pay
a price. It would have been better, frankly, if we would have
just granted direct subsidy to the industry or made loans to
the steel industry, generally the large integrated producers,
rather than to provide a blanket across most of the industry of
a higher price. It would have been better spent because it
wouldn't have forced the steel-consuming jobs out of the
country. I don't agree that that is right, but it would have
been better. It would have been a lesser evil.
Mr. JEFFERSON. Would it have been better also to do quotas
instead of the tariffs that end up with taxes on?
Mr. TAYLOR. My experience with quotas is that it creates
shortages and dislocations, and it might even be worse because
then you can't even get the product to produce. It is isolated
dislocations that provide no other remedy.
Mr. JEFFERSON. Thank you, Mr. Chairman.
Chairman CRANE. Thank you. Mr. Becerra?
Mr. BECERRA. Thank you, Mr. Chairman. To the panel, thank
you very much for your testimony. I apologize in advance that I
was not able to attend when you were providing your remarks,
and so you will forgive me if I ask a question that you may
have already responded to, and if so, please just let me know.
I will try to keep my questions brief, Mr. Chairman, and hope
that if they have not been answered, that anyone from the panel
would be willing to offer remarks.
I would like to know if any of you have had to move any of
your production facilities abroad since the imposition of the
Section 201 tariffs.
Mr. TAYLOR. Yes, we have. Going into the tariff period, we
purchased about 5 percent of our production value outside of
the country. In 1 year, that has now moved to 10 percent; in
other words, it has doubled. It will probably double or triple
again in the next year or two if the tariffs remain in place,
and a proportional number of jobs will, therefore, be exported
for our company if the tariffs remain in place.
Mr. BECERRA. So, that doubling or the 5-percent increase in
the production being done abroad, is that due solely to the
tariffs?
Mr. TAYLOR. The movement from 5 percent to 10 percent in
the past year is due primarily to tariffs, not solely.
Mr. BECERRA. Not solely. How big a factor were the tariffs,
if you are saying primarily?
Mr. TAYLOR. They were by far the largest single factor.
Mr. BECERRA. Okay. Can you tell us to where that production
was moved?
Mr. TAYLOR. Most of it to Taiwan and to mainland China.
Mr. BECERRA. Can you tell us what the tax rates, the labor
costs, your capital costs and other raw materials might be in
Thailand versus--did you say Thailand?
Mr. TAYLOR. Taiwan.
Mr. BECERRA. Taiwan.
Mr. TAYLOR. And mainland China.
Mr. BECERRA. Okay. In Taiwan and mainland China, can you
give us a comparison of your different costs, labor, taxes,
capital, other raw materials?
Mr. TAYLOR. Labor is less than 10 percent of our total cost
in the United States. Of course, it is lower in Taiwan. It is
about 40 percent of the cost of labor in the United States. In
mainland China, you might as well call it free. Labor is very,
very low.
Mr. BECERRA. Taxes?
Mr. TAYLOR. Taxes and other things are roughly comparable,
all things in. The biggest single factor in our cost base in
most of the products we make, the cost is 30 to 50 percent raw
material, and in those that are made from steel, which is the
majority, 30 to 50 percent is steel. So, the steel cost issue
is the largest of all the cost issues?
Mr. BECERRA. Anyone else?
Mr. LEULIETTE. As I said, I think in my testimony, we are
moving in two ways. First of all, we are moving our steel buy
offshore to non-tariff countries. We are moving enough of our
steel buy that it represents half of a mill as being resourced
offshore in the next 12 months.
Second, we have started to move our componentry to, first
of all, Korea; that will be followed with Mexico in about 8
months. So, it is a process that is continuing.
Mr. BECERRA. Anyone else? If we were to remove the Section
201 tariffs, would you return that production here and the
purchase?
Mr. LEULIETTE. Some of the jobs that have gone are gone for
good. We have made commitments. We put capital in place. I
think the issue with Section 201 is not to bring jobs back but
to stop the outflow of jobs.
Mr. BECERRA. If you are to stop the outflow and it is
because of Section 201, if Section 201 is gone, then we would
presume that those jobs would either remain or come back.
Mr. LEULIETTE. If we stop Section 201, there will not be a
continual migration of jobs, but with just having invested tens
of millions of dollars in new facilities in these countries, we
are not going to lock them up, walk away, and come back here.
We have trained people. We have put new facilities in place. It
is a long-term investment.
In this particular business, those are 10-, 20-year
commitments. They are not 6-month commitments.
Mr. BECERRA. Same thing, Mr. Taylor?
Mr. TAYLOR. Absolutely.
Mr. BECERRA. So, that production that is left probably
would not return even if Section 201 were removed.
Mr. TAYLOR. That is right. Once it is gone, it is very
unlikely that it would come back. There would have to be some
major dislocation. You have to understand there has to be a
significant cost differential--I would place that in the
vicinity of 8 or 10 percent--to cause a company to want to go
through the trouble and the pain of moving facilities. Often it
causes quality problems, delivery disruptions. You don't do
that lightly, but once you have done it, now you need another
barrier to go back. The way I see it, it is unlikely, barring
some major disruption, that that increment would be created.
Mr. BECERRA. I thank you.
Mr. TAYLOR. They are not coming back.
Mr. BECERRA. I thank you for the testimony, although I will
mention that it sounds like you are making long-term decisions
while Section 201 is meant to be a short-term relief. So, I
would be concerned that you might be mixing apples and oranges
here, because it seems like you are trying to make long-term
decisions, which every company must do to meet its bottom line,
whereas Section 201 is trying to address a short-term problem.
Thank you, Mr. Chairman.
Chairman CRANE. Mr. Houghton.
Mr. HOUGHTON. I would just like to add something very
briefly. I wonder whether we are not talking about the wrong
issue. Section 201 has come and it will go. You will still have
the basic pressures. I think the pressures on your industry, on
the steel industry, are going to be such that if we don't think
through what it is to have this precious asset we have, which
is our market, then we are all going down the drain.
Chairman CRANE. Let me express appreciation to all of you
for your appearance and your testimony and your patience in
letting us take that break of 1 hour and 20 minutes.
I just got a New York Times release here, and a couple of
our witnesses in the next panel are quoted from their testimony
before us at the Subcommittee on Trade meeting. I didn't
realize they had already spoken. Apparently they are not going
to appear in the next panel.
At any rate, the focus of the article, though, is about how
the United States said Wednesday it would appeal a preliminary
WTO ruling against steep steel tariffs imposed last year by
President Bush and that the trade body's final ruling was not
changed. So, I thought I would just give you the latest update
with regard to where we stand with the WTO.
With that, I want to again express appreciation to all of
you, and we will adjourn this panel and I will call the next
panel to the Committee.
All right. Our next panel is Mr. Dan DiMicco, President,
Chief Executive Officer, and Vice Chairman of Nucor
Corporation; Mr. Andrew Sharkey, President and Chief Executive
Officer, American Iron and Steel Institute (AISI); Leo Gerard,
International President, the United Steelworkers of America;
Charles Connors, President, Chief Executive Officer, and
Chairman of Magneco/Metrel, Addison, Illinois; and Peter
Dooner, President, Wheatland Tube, Collingswood, New Jersey.
Before you folks start your testimony, let me ask you to
please try and keep your oral presentations to 5 minutes, and
the little light in front of you will give you a high sign as
to where you are. Any written testimony that you have will be
made a part of the permanent record.
With that, Mr. DiMicco, you proceed first.
STATEMENT OF DAN DIMICCO, PRESIDENT, CHIEF EXECUTIVE OFFICER,
AND VICE CHAIRMAN, NUCOR CORPORATION, CHARLOTTE, NORTH CAROLINA
Mr. DIMICCO. Thank you, Mr. Chairman. Good morning. I am
Dan DiMicco, President and Chief Executive Officer of Nucor
Corporation, the largest steel producer in America, and the
Nation's largest recycler. I appreciate this opportunity to
testify.
The President's remedy has had a beneficial impact on three
classes of businesses: steel producers, companies supplying
goods and services to the steel industry, and steel users who
depend on a reliable source of domestic steel supply. There are
literally thousands of these companies in all parts of the
United States.
The President is addressing the big picture: a crisis that
threatened the steel industry and its supplier and customer
base. The President's steel decision must be put in context.
Our trading partners had repeatedly violated the anti-dumping
and countervailing duty laws with respect to steel so
pervasively that enforcement of our trade laws was virtually
impossible. As a result of the blatant violation of
international trade rules, the domestic steel industry was
undergoing unprecedented hardships. Even companies like Nucor,
which some analysts believe is the most efficient steel
producer in the world, were finding it difficult to compete in
our own home market. Clearly, something was dysfunctional with
the world steel market.
The President got it right with his three-part initiative.
The first two parts address the root causes of the import
surge: global excess capacity and government subsidies. The
last part provides temporary, limited breathing room for the
U.S. industry from imports. This breathing room is no free
ride. It is conditional on the industry spending billions to
reorganize, restructure, and make itself even more globally
competitive. The industry accepted this 3-year contract and is
carrying out its obligation. We are consolidating,
restructuring, cutting costs, and improving productivity. We
are bringing back capacity that is economically competitive on
a global basis. Our suppliers are benefiting. Each of our
plants supports dozens if not hundreds of small businesses
throughout the United States.
For example, the U.S. transportation infrastructure moves 2
tons of raw material for every 1 ton of steel produced. Trucks,
rail, barge, ports--we use them all. Yet this Subcommittee
requested a section 332 study by the ITC without one mention of
the beneficial impact of the President's remedy on suppliers
and the transportation industry.
I am surprised to see the Port of New Orleans here today
opposing the President's program because the U.S. steel
industry is one of their major customers. The U.S. industry
brings substantially more raw materials through the port system
in the State of Louisiana than do steel importers--fact.
Moreover, steel imports into Louisiana are up 26 percent, not
down, since the President's action. That is according to the
port's own statistics. Their complaint of lost revenue is
simply because they are losing business to more efficient up-
river ports.
The entire decline in steel imports last year to the Port
of Houston was caused by a sharp fall-off in oil country
tubular goods, a steel product not even covered by the
President's program. By the way, neither is wire rod that you
heard about a few minutes ago.
Steel users have also benefited. First, according to the
Bureau of Labor Statistics data, the American consumer is
paying less for a car and refrigerator since the President
acted. As former Secretary O'Neill put it last year, steel
prices were fictitiously low. Indeed, they were unsustainable.
A huge share of the U.S. industry was on the brink of being
shuttered permanently. This would have devastated domestic
customers who rely on that supply. The President's program has
brought back some needed shuttered capacity, but it is
returning with a new, internationally competitive cost
structure. This is good for steel consumers.
Today steel consumers are paying lower prices for steel
than they would have without the remedy. Prices are rising
faster outside the United States. As a result, the
international competitiveness of U.S. manufacturers who use
steel has increased, not decreased, in the last several months.
Just as our customers need a strong domestic steel
industry, we need strong customers. There are many real
problems facing American manufacturers. In particular, American
industry is being devastated by currency manipulation by China
and other governments. All U.S. manufacturers, and for that
matter our entire economic recovery, is being severely damaged
by these currency manipulations. In 1985, President Reagan
dispatched U.S. Treasury Secretary Baker to effect an end to
the grossly overvalued dollar through negotiations with the G-7
nations. The result became known as the Plaza Accord. It was
this action, together with the Reagan tax cuts, that laid the
foundation for economic recovery.
A $41 to $45 billion monthly trade deficit is not only
extreme, it is obscene. The currency manipulations are hurting
everyone appearing before you today. This is the real culprit,
not steel pricing, which is at historic lows at this time.
Finally, I would like to address one critical point, and
that is the systematic action by foreign diplomats who run the
WTO to strike down virtually every single American law that is
challenged, whether it is the Foreign Sales Corporation or
trade law enforcement actions. Unless Congress addresses the
WTO abuse of power and infringement on U.S. sovereignty, our
international rules-based trading system will disintegrate.
The President did the right thing in enforcing the
safeguard law. The program is working. The President made a 3-
year commitment to the industry, and the industry is carrying
out its obligation. The President deserves all of our support.
Thank you.
[The prepared statement of Mr. DiMicco follows:]
Statement of Dan DiMicco, President, Chief Executive Officer, and Vice-
Chairman, Nucor Corporation, Charlotte, North Carolina
Introduction
Mr. Chairman and Members of the Committee, my name is Dan DiMicco.
I am the President, CEO, and Vice Chairman of Nucor Corporation. I am
here today to state my unequivocal support for the President's steel
program. The program has been good for the U.S. steel industry, U.S.
steel consumers, and the U.S. economy.
The Origins of the President's Program
Nucor is the best example of why President Bush implemented his
steel program. With facilities in fourteen States, Nucor is the largest
producer of steel in the United States, and the largest recycler. We
are viewed by some industry analysts as the most efficient producer of
steel in the world.
Yet, as efficient as we are, by 2001 Nucor was unable to earn its
cost of capital. The reason was that a flood of illegally traded
imports had driven steel prices in the United States to twenty-year
lows. The Department of Commerce found in literally hundreds of cases
that foreign steel had been dumped or subsidized. The International
Trade Commission found in many of these cases that dumped or subsidized
imports had injured the U.S. steel industry. Yet as soon as one source
of steel became subject to an anti-dumping or countervailing duty
order, importers found another low-priced source of supply.
As a consequence of this flood of illegally traded imports, steel
prices hit rock bottom. When prices are so low that the best company in
an industry cannot justify spending money on its core business,
something is wrong. President Bush correctly realized that there was a
fundamental problem, and that a forceful response under the trade laws
was necessary.
The Multilateral Steel Initiative
That response was President Bush's Multilateral Steel Initiative.
It is important to remember that the Section 201 remedy was only one of
the three components of the President's program. The other two were
international negotiations to close permanently inefficient and
unnecessary steel making capacity around the world, and international
agreement to end government subsidies and anti-competitive practices in
the steel industry.
Negotiations among the steel making countries are yielding real
progress towards these vital goals. Were it not for the President's
decision to impose some temporary duties, this progress would not have
occurred. Any assessment of the effect of the President's Multilateral
Steel Initiative must include the impact it has had on the global
situation.
The Initiative and the U.S. Steel Industry
When President Bush announced his decision to provide temporary
import relief under Section 201, he made it clear that his decision was
not simply a gift to the domestic steel industry. The President
emphasized that ``[t]he U.S. steel industry must use the temporary help
today's action provides to restructure and ensure its long-term
competitiveness.'' The President's decision reflected an implicit
contract between the Administration and the industry. In return for a
``breathing space'' from import competition, the domestic steel
industry promised to undertake real consolidation and restructuring.
In doing so, the U.S. steel industry is incurring massive costs and
accepting substantial risks. Consolidation and restructuring require
investment. Nucor, for example, has taken on some $600 million in debt
in connection with its acquisition of the assets of Trico Steel and
Birmingham Steel. For a company that has always funded new investments
primarily from retained earnings, a decision to borrow like this
represents a real departure. Yet we decided that the opportunities the
President's program has created justify the risk.
Major changes are occurring within the domestic steel industry, as
producers consolidate and as inefficient capacity goes out of
production. The industry has billions of dollars at risk. Buying the
assets of another company isn't the difficult part; the difficulty
comes with integrating its operations into yours. That takes time.
President Bush promised three years of import relief. That was part
of the contract. If those who have benefited from dumped and subsidized
steel succeed in terminating the President's program early, the
opportunity we have to restructure the U.S. steel industry will be
lost. There would be devastating effects not just on the U.S. industry,
but on the thousands of businesses that supply the industry with
inputs, the thousands of small transportation companies that move two
tons of raw materials for every one ton of steel produced in the United
States--and the thousands of customers that depend on us for steel.
The President's Steel Program and the U.S. Economy
The President's program is only one component of a larger policy to
preserve and expand the manufacturing base of the United States. Many
manufacturing industries in the United States use steel as a vital
input into their products. It is impossible to have a healthy
manufacturing sector without a strong steel industry.
The President's program has created thousands of jobs in the steel
industry itself. A perfect example of how the President's program has
worked is that of the former Trico Steel mill in Decatur, Alabama.
Although Trico was one of the most modern mills in the world, it had
been unable to compete with the wave of dumped and subsidized imports
of hot-rolled steel that flooded the U.S. market. The company declared
bankruptcy, and stopped production in March 2000.
Nucor purchased the assets of Trico Steel in July 2002. Nucor
restarted production there in September 2002, months ahead of schedule.
This investment and reopening of efficient, low-cost U.S. capacity is a
direct result of the President's steel program. We have brought several
hundred high-paying jobs to an economically depressed area. And, Mr.
Chairman, because Nucor reopened this plant, customers throughout the
South are now able to get the hot-rolled coils they need for their
businesses. Indeed, in January we decided to add another crew. Over
7,000 people applied for 60 positions. In his State of the Union
address, President Bush spoke of the need for ``more employers to put
up the sign that says `Help Wanted.' '' We did--and 7,000 Alabamans
came knocking on our door, eager to work.
The President's program has also affected an important segment of
the economy--companies supplying the steel industry. You will hear
today from Mr. Chuck Connors about the very positive impact of the
President's steel program on his business. Nucor buys from literally
hundreds of small businesses. When we produce more steel, as we did in
2002, we buy more from our suppliers. University researchers using
Department of Commerce methodology have calculated that every new job
in one of our mills creates eight jobs in other industries. This means
that, when we added 60 workers at Decatur, nearly 500 more jobs were
created up- and down-stream.
Another example of the positive impact of the President's program
on suppliers is the Port of New Orleans. In 2002, imports of steel
through New Orleans were about 4 million tons. But that same year, the
U.S. steel industry imported 6 million tons of raw materials through
the Port of New Orleans--such as steel scrap, pig iron, and
ferroalloys--an increase of over 7% from 2001. This increase is
directly attributable to the increased domestic production made
possible by the President's steel program. Ironically, however, the
Port of New Orleans has been a vocal critic of the President's program.
The benefits of these raw material imports did not stop at New
Orleans. Most of these materials moved up the Mississippi River, to
Nucor mills in fact. In this way, they created jobs and produced income
for workers throughout the Mississippi transportation system. When the
U.S. steel industry is healthy and thriving, America moves.
The President's Program and Steel Consumers
Perhaps the biggest beneficiaries of the President's steel program
have been steel consumers. The President's program averted a crisis for
steel consuming industries in 2002 and 2003, a crisis that could have
driven hundreds of companies out of business and cost thousands of
workers their jobs. Because it is enabling the domestic steel industry
to reduce costs, the President's program will continue to benefit steel
consumers far into the future.
Let me explain. By 2001, steel prices had hit 20-year lows. Over 30
steel producers had declared bankruptcy, and many of them had stopped
production. In December 2001, LTV, once the third-largest producer of
steel in the United States, suddenly announced that it was ceasing
operations. Almost overnight, over six million tons of steel making
capacity went out of production.
The impact of LTV's closure was immediate. Customers that had
depended upon LTV suddenly found themselves scrambling to find
alternative sources of supply. Prices for flat-rolled products like
hot-rolled and cold-rolled sheet began to rise rapidly, and occasional
shortages appeared. Steel consumers were in a state of shock.
On March 5, 2002, the President announced his decision regarding
import relief. Since then, the U.S. steel industry has undergone a
tremendous amount of consolidation and restructuring, a process that
has really only just begun. Production reopened at LTV, Trico, and
other mills. As domestic supply increased, and imports from non-covered
developing countries increased, prices stabilized and then began to
move back down. Because of the President's program, the shortages and
price spikes that came in early 2002 are a thing of the past.
Consolidation and restructuring are not ends in themselves. The key
question is whether the domestic steel industry will be able to lower
its costs and increase productivity. The evidence so far is that it is
doing so. One analyst has stated that, a year ago, about 12% of flat
products such as hot-rolled and cold-rolled sheet were being produced
in ``low cost'' facilities. After only one year, that percentage is
rising to 45%. Studies by World Steel Dynamics, perhaps the leading
authority on productivity in the industry, show that U.S. mills are now
among the most productive in the world. The greatest beneficiaries of
this change will be steel consuming industries in the United States.
This improvement was possible because of the President's steel
program. Without the program, investors would not have been willing to
take on the debt and accept the risks that consolidation and
restructuring require. LTV, Acme and Trico would have remained closed,
and their eight million tons of capacity idle. Both Bethlehem and
National, both of which are currently in bankruptcy, would probably
have cut back production, and might well have stopped operations
completely. The same is true of Birmingham. Instead of eight million
tons of capacity closing temporarily, the domestic industry could have
seen over twenty-five million tons of capacity--over 20% of the U.S.
total--go out of production.
The impact on steel consumers would have been devastating. Prices
would have skyrocketed, and some steel-using industries would have
found that they could not obtain the steel they needed at any price.
The President's program kept prices from climbing higher than they
would have in the absence of relief.
The True Impact of the President's Program
Critics of the President's program have recited a litany of ill
effects for which they blame the President's 201 decision. The
shortages and price increases they cite are old news. These situations
have long since been rectified by the President's steel program.
Some users claim that they have been unable to get the steel they
need because of the 201 duties. Yet, the 201 duties do not keep any
steel from entering the United States. Duties can only affect price,
not availability.
Changes in steel prices mimic a pendulum, swinging from extreme to
extreme. By the end of 2001, prices were at the far end of the swing,
as they reached their lowest levels in twenty years. Much of the
testimony you may hear today is nothing more than complaints that
prices did not stay there. Just as a pendulum cannot arrest its motion
at the end of its swing, this was an economic impossibility. Precisely
because prices had fallen so far, many producers were forced to cease
production. The critics of the President's policy would seek to repeal
that most basic law of economics--that if supply falls, and demand
remains steady, prices must rise. Any company that was depending upon
the continuation of prices at record lows for an indefinite period was
trusting a fatally flawed business model.
According to the Bureau of Labor Statistics, the price for primary
steel products rose by only 10.8% from January 2002 to January 2003.
The big automotive producers agreed to a price increase averaging 7%
for their steel purchases, spread over a three-year period. Even after
this partial price restoration, prices in January 2003 were at or near
their 20-year averages. Transaction prices on flat rolled and other
products were well below those averages. The President's steel program
essentially put a minimal floor on prices. By encouraging the reopening
of shuttered production that could be operated efficiently, it also
effectively put a ceiling on them.
In terms of international competitiveness for manufacturers who use
steel, what matters most is not absolute price levels, but relative
price levels. Steel prices have been rising faster outside the United
States than in it. Prices are so attractive outside the United States
that U.S. steel producers have begun to export significant quantities
of steel. The United States now has some of the lowest steel prices in
the world, especially for hot-rolled sheet, probably the single most
widely used steel product. The international competitiveness of U.S.
manufacturers who use steel has increased over the last year.
The President's program did not stop steel imports. To the
contrary, steel imports were 8.4% higher in 2002 than in 2001. Imports
of hot-rolled sheet increased by 56% from 2001 to 2002, while imports
of coated sheet rose by 34%. This increase should not be surprising;
most countries were exempted from the 201 duties, as were many major
products. Over 700 individual products were excluded in response to
requests by steel users. By our latest estimates, the 201 duties apply
to only about 20% of all steel imports.
These import figures rebut one particular criticism of the
President's program--that it has hurt America's ports. One frequently
cited example is the Port of New Orleans. According to the Port itself,
imports of steel products through New Orleans were 25.7% greater in
2002 than in 2001 and represented its number one cargo. The increase
was not limited to semi-finished products, as imports of finished
products were nearly 13% greater in 2002 than in 2001. Much of this
increase was from developing countries excluded from the 201 relief.
And the Port of New Orleans recently stated that it expects continued
growth.
Critics of the President's steel program have used bogus economic
studies to claim that the program has cost hundreds of thousands of
jobs in steel consuming industries. But in fact, the Bureau of Labor
Statistics shows that employment in these industries increased after
the President's decision in March 2002, by over 52,000 jobs. Had the
President not acted, many, if not most, of the jobs in steel consuming
industries would have moved offshore with steel production.
Other Factors Affecting Steel-Using Industries
A number of factors have had a much greater impact on steel
consumers than the President's program. These were largely factors that
affected all manufacturing industries. This emphasizes the need for a
common agenda by manufacturers to address these problems.
The most obvious factor affecting steel users in 2002 was the
recession. The recession was not especially deep, but it did affect
many companies significantly. The recovery has so far been rather weak,
so that some companies are still hurting.
A second important factor, one about which I have spoken
frequently, is the strong dollar. A dollar that is too strong hurts
U.S. manufacturers by making their exports expensive and imports cheap.
Some foreign countries, especially China, are purposefully manipulating
their currencies to overvalue the dollar. The National Association of
Manufacturers calculates that this has cost the U.S. economy two
million jobs. If manufacturing companies are looking for a cause of
their problems, the excessive strength of the dollar, not the
President's steel program, is the real culprit. All manufacturers need
to work together in urging our leaders to address this problem.
Finally, some steel consumers in 2002 suffered the consequences of
their own buying decisions. Companies that use substantial amounts of
steel have two choices: they can purchase steel under long-term
contracts, or they can speculate on the spot market. Some steel users
made conscious decisions to gamble on the spot market as their primary
source of steel, so that they could take advantage of the
extraordinarily low prices that were prevalent in 2001, due to
widespread violations of our trade laws. Of course, when prices on the
spot market began to rise, they had to pay more for their steel.
Nucor's contract customers, on the other hand, were protected from
price increases; Nucor did not break any customer contracts in 2002,
even though we were selling much of our steel under contracts at prices
far below what we could have received on the spot market.
Conclusion
The U.S. steel industries has made tremendous progress in
consolidation and restructuring in the year since President Bush
announced his decision. We have kept our side of the bargain. Our work
is not finished, though. The industry must resume investment in new
technology and equipment. By one estimate, the domestic steel industry
will need to invest up to nine billion dollars over the next three
years just to maintain its current level of competitiveness. Investors
will be unwilling to make these investments if they believe that prices
will return to the unsustainable levels of 2001, or that the U.S. steel
market will be exposed to new tidal waves of dumped and subsidized
imports.
The best way to facilitate consolidation, restructuring and
investment is to ensure that the President's program remains in place
for its full three-year period. The U.S. steel industry will suffer if
this process does not continue. The companies in the United States that
depend upon steel to make their products will also suffer. The health
of the manufacturing sector depends upon the existence of a healthy
domestic steel industry. The President's steel initiative has done a
remarkable job of helping our industry regain its health. The
President's plan is working for steel producers, their suppliers and
their customers. It deserves your support.
Chairman CRANE. Thank you. Our next witness is Mr. Sharkey.
STATEMENT OF ANDREW SHARKEY, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, AMERICAN IRON AND STEEL INSTITUTE
Mr. SHARKEY. Thank you, Mr. Chairman.
When President Bush announced his three-part steel program
in June 2001--first, to initiate a Section 201 investigation;
second, to pursue international discussions to reduce world
steel overcapacity; and, third, to engage in international
negotiations to eliminate market-distorting practices in the
steel sector--it constituted recognition at the highest level
of our government that the steel crisis conditions in 2001 in
the United States and worldwide were not sustainable, not for
steel producers and, over the long term, not for our customers
who want and need steel to make their products.
It was not just that the U.S. steel market had become the
world's steel dumping ground. Because of massive global
overcapacity in steel and a whole host of resulting trade and
market-distorting practices, there was no free trade in steel
anywhere. Normal market forces were not working in the case of
steel anywhere.
So, when 40 governments met at the Subcabinet level at the
Organization of Economic Cooperation and Development (OECD) in
September 2001 to discuss the world steel crisis, all agreed
that a key characteristic of the steel crisis was artificial,
non-sustainable price depression. Simply put, the prices for
most steel products by late 2001 were at 20-year lows and well
below the cost of production for any steel producer, whether
here or abroad, regardless of how efficient they were.
Viewed against this background, the President's
international steel initiative is a pro-free trade policy
because it is designed to restore market forces to the global
steel sector. In much the same way, the President's Section 201
remedy represents a pro-competitive policy. It is designed to
provide our steel industry with a temporary breathing space
from injurious import surges so that we can again attract the
investment capital we need to consolidate, restructure, and
improve our competitiveness.
Our written statement describes why the President's Section
201 remedy was a last resort and why the President was right.
It explains, factually, how the President's remedy is working
precisely as intended and why it is serving the national
interest, not just by strengthening steel, but also by creating
long-term benefits for our suppliers, our customers, our
economy, and our national security.
In the short time remaining, I will focus on three key
points.
First, the President's Section 201 tariff remedy has
allowed a competitive, but fragmented, American steel industry
to restructure and consolidate--a goal virtually everyone
agreed was needed. At the 1-year anniversary point of the
remedy a couple of weeks ago, it is fair to say that this is
the most significant restructuring in decades for America's
steel industry, and the President's tariffs have played a key
role in facilitating this monumental change. Grant Aldonas,
Under Secretary for International Trade at the U.S. Department
of Commerce, was recently quoted as saying that he is
``absolutely'' convinced the President's tariffs have helped
the U.S. steel industry to restructure. According to Under
Secretary Aldonas, the President's Section 201 remedy has set
the stage for the steel industry ``to come back with a roar in
the United States'' instead of continuing the ``death spiral''
it was in before the President imposed his tariffs.
Second, while our government negotiators still have a long
way to go, the President's Section 201 tariff remedy has
encouraged real progress in the international talks to address
the root causes of the U.S. and global steel crisis.
Third, and in conclusion, the U.S. steel industry, the
financial community, and the President himself (and his trade
negotiators) all need the Section 201 tariffs to continue for
the intended, full 3-year duration.
U.S. steel companies who have incurred increased financial
risk relative to planned or recent mergers, acquisitions, and
investments need the tariffs to continue so they can complete
the job of restructuring and consolidating.
The financial community needs to know that this period of
relative steel import stability will continue so they can have
at least some assurance that we will have the breathing space
and time we need to put their money to effective use.
Our government negotiators need the Section 201 tariffs as
a continued ``stick'' to keep our trading partners at the
negotiating table so they can achieve as much progress as
possible in the ongoing multilateral talks.
The AISI very much appreciates this opportunity to testify
on the positive impact of the President's steel tariffs and the
need for them to continue in the national interest. I thank
you, Mr. Chairman.
[The prepared statement of Mr. Sharkey follows:]
Statement of Andrew Sharkey, President and Chief Executive Officer,
American Iron and Steel Institute
The American Iron and Steel Institute (AISI), on behalf of its U.S.
members who together account for approximately two-thirds of the raw
steel produced annually in the United States, welcomes this opportunity
to provide written comments for the record to the Subcommittee on Trade
of the House Committee on Ways and Means in connection with the
Subcommittee's March 26, 2003 hearing regarding the impact of the
Section 201 safeguard action on certain steel products. Our comments
will focus on:
1. LThe positive, intended effects--on domestic steel producers,
steel industry suppliers, steel-consuming industries, the U.S. economy
and America's national security--of the President's 201 tariffs; and
2. LThe very significant adjustment efforts taking place within
America's steel industry, and the key role of the President's tariffs
in facilitating this adjustment.
The Darkest Days
Before we address the impact of the steel Section 201 remedy to
date, it is useful to recall why this was the first Presidentially-
initiated 201 investigation in 16 years. President Bush initiated this
action as a last resort. It followed (1) more than 200 separate
government determinations, over a period of several years, that foreign
steel had been traded illegally in the U.S. market at prices that
violate international rules and U.S. laws and (2) immediately pertinent
to the President's decision, the single greatest surge of dumped,
subsidized and disruptive steel imports in U.S. history.
In many respects, 2001 and the immediate months leading up to the
Section 201 announcement on March 5, 2002 were the darkest days in the
long and proud history of the steel industry in the United States.
LPrices for most steel products were at artificial, non-
sustainable 20-year lows, well below anyone's cost of production--
globally.
LEven some of the most efficient U.S. steel companies were
hemorrhaging cash.
L35 domestic steel companies had declared bankruptcy in
less than five years.
LThis rash of bankruptcies affected 53 million tons of
U.S. steelmaking, or roughly 45 percent of total U.S. capacity.
LNational Steel filed for bankruptcy just a day before the
President's announcement.
LNearly 19 million tons of U.S. steel capacity was idled,
and domestic crude steel production dropped 18 percent between December
2000 and December 2001.
LWe were well on our way to over 50,000 unemployed steel
industry workers.
LThere was a huge negative ripple effect of financial
losses and lost jobs, affecting hundreds of suppliers of raw materials
and related services, including numerous small businesses and steel-
centric communities, in many parts of the country.
LTens of thousands of U.S. steel industry employees and
retirees were losing their pensions and medical benefits due to
bankruptcies.
LThis highly capital-intensive industry was essentially
shut out of the capital markets (debt or equity), with bankrupt
companies struggling even to secure debtor-in-possession (DIP)
financing.
LEven the lowest cost, best-managed U.S. steel companies
were drowning under the impact of a tidal wave of dumped and subsidized
imports.
LNotwithstanding all of this--and even after an
exhaustive, independent 8-month investigation by the International
Trade Commission (ITC) and its unanimous rulings of serious import
injury--it was far from certain that the President would impose
effective Section 201 trade relief and, if so, in time to prevent a
wholesale collapse of America's steel industry.
The President's Steel Program: Its Objectives, Critics and Results
The President's Steel Program, first announced in June of 2001, had
three inter-related parts: (1) a self-initiated Section 201
investigation to examine the role played by increased imports in the
U.S. steel crisis; (2) international discussions to reduce excess and
inefficient global steel capacity; and (3) international negotiations
to eliminate government subsidies and other market-distorting practices
in the global steel sector. This bold Presidential initiative was put
forth to address the root causes of the U.S. and global steel crisis
and--if warranted by the 201 investigation--to grant the seriously
injured domestic industry an opportunity to catch its breath, make
necessary adjustments and otherwise enhance its ability to compete in
the post-safeguard world.
The Objectives
As the President correctly recognized, market forces were not
working in the case of steel. Instead of free trade in steel, there was
a 50-year history of foreign government intervention in the steel
sector. There was a dysfunctional world steel market characterized by
massive foreign government subsidies to steel, pervasive private
anticompetitive practices among foreign steel mills, tightly restricted
foreign steel markets--and over 200 million tons of global excess steel
capacity in search of markets at virtually any price.
It was against this background that:
LIn September 2001, 40 governments met at the OECD to
declare that, with world steel prices at unsustainable, below-cost
levels, there was a world steel crisis; and
LOn March 5, 2002, President Bush announced his 201 remedy
decision to impose temporary and declining tariffs, for 3 years and a
day, on some steel imports from some foreign countries for the dual
purpose of (1) providing a period of time for the U.S. steel industry
to recover and restructure and (2) encouraging our trading partners to
engage in serious international discussions on the structural problems
that continue to exist in the steel sector outside U.S. borders.
The President's Section 201 decision was not everything the U.S.
steel industry had hoped for. Among other things, the 201 remedy
exempted, at the start, some 100 developing countries, and it included
a complex product exclusion process, which has so far resulted in more
than 1,000 product exclusions. Still, this was a courageous initiative
on the part of the President.
LInternationally, it was a pro-free trade policy, designed
to restore market forces to the global steel sector.
LDomestically, it was pro-competitive policy, designed to
provide our steel industry with a temporary breathing space from
injurious import surges, so that we could again attract the investment
capital needed to consolidate, restructure and improve our
competitiveness--to the long-term benefit of U.S. steel consuming
industries, the U.S. economy and U.S. national security.
The Critics
The President's 201 remedy was a reasonable, necessary and modest
response to a crisis of unprecedented proportions facing one of our
Nation's most critical industries. The President based his 201 decision
on fact, common sense and unanimous ITC rulings. If there ever was a
situation crying out for a safeguard, this was it, and the President
enforced the law. Nevertheless, almost immediately, the President's
action sparked a firestorm of outrage from expected quarters--from many
of our trading partners, foreign steel producers, steel importers,
steel trading companies, trade law opponents and some steel-consuming
industries. The 201 opponents have three main goals:
Lto secure, in the short-term, exemptions from the tariffs
(by country or product);
Lto use the Midterm Review (section 204) process to
pressure the Administration into early termination of the 201 remedy
after 18 months; and
Lto use the steel 201 issue as part of a larger campaign
to weaken U.S. trade laws.
As defined by the steel 201 critics, the major (false) themes of
what has become a well-organized, well-funded campaign are these:
LAmerica's major trading partners (e.g., the EU) will
retaliate against U.S. exports.
LSteel-consuming industries in the U.S. will be faced with
acute steel shortages, spiraling steel prices, an inability to pass
these increases through to their customers and a growing competitive
disadvantage vis-a-vis their offshore competition--who will continue to
have access to cheap steel in their home markets.
LThe cost of the 201 remedy to U.S. steel-consuming
industries, the U.S. consumer and the overall U.S. economy will far
exceed any benefit to domestic steel producers.
LNothing will happen on steel restructuring during the so-
called breathing period, and the industry will be back at the trough
again just as soon as the program ends.
The Results
As it turns out, at the one-year anniversary of the President's
steel tariffs, the results resemble the President's forward-looking
vision far more than the doomsday scenario painted by his critics.
No Foreign Government Retaliation
While it is highly questionable whether the foreign government
threats were ever actionable or relevant in the first place, the
generous product exclusions granted by the Administration blunted the
threatened retaliatory moves by U.S trading partners.
Imports Flowing Freely
Given the extensive country and product exclusions, steel products
covered by the 201 tariffs represent less than 20 percent of total
steel imports, and less than 5 percent of the U.S. steel market. Not
only have imports not been shut out of the U.S. market, but also total
2002 steel imports, at 32.5 million tons, were up 9 percent from 2001
in spite of the President's tariffs--and this in the face of a very
soft metalworking economy. Imports of many finished steel products,
including those with a then-30 percent tariff, were also up
substantially in 2002 (after the tariffs were put in place) compared to
the year before.
Competitive Gains for U.S. Steel-Using Industries
The temporary market tightening experienced in the first half of
2002 was due to many factors--including in particular, to the sudden
removal of 6-8 million tons of domestic steel capacity in late-2001.
Had the President not acted, still more domestic capacity would have
shut down, causing higher prices. What has happened is that U.S. flat-
rolled steel prices, after a brief spike in the ``spot'' market in the
first 7-8 months of 2002 (where they were restored to roughly their 20-
year averages), have since fallen substantially from their peaks of
last July-August. It is important to note that the only supply-related
steel price spike occurred where significant U.S. capacity was idled--
and only while it was idled. This significant downturn in U.S. spot
prices since the summer has occurred precisely as idled U.S. capacity
has been reorganized at a lower cost and come back on stream, thanks in
large part to the President's 201 remedy. Meanwhile, steel prices have
continued to increase offshore--and steel prices have increased much
more abroad than they have here during the 201 period. Thus, U.S. steel
users have actually gained competitive advantage since the President
imposed his 201 remedy. Today, the prices for most flat rolled steel
products are higher in Europe, Asia and other major steel-consuming
regions than they are in the United States.
Marginal Effect on U.S. Consumers
Steel represents less than 0.2 percent of the U.S. economy, so the
201 tariffs could not have a major effect on the economy or result in a
significant loss of U.S. jobs. Claims that U.S. consumers would pay
significantly higher prices for new vehicles or appliances because of
steel prices are also false. Steel represents a tiny percentage of the
total cost of most end-use products, and BLS/PPI data indicate that
steel price fluctuations in 2002 had little effect on most final
consumers of steel-intensive products. In fact, the wholesale price of
new vehicles, auto parts and household appliances actually fell 2.2,
0.7 and 1.0 percent, respectively, last year.
Most Significant U.S. Steel Industry Restructuring in Decades
Consolidation and restructuring of U.S. steel facilities are well
underway in both the electric arc furnace (or ``mini mill'') and
integrated sectors. The American steel industry is strengthening
itself, and addressing its structural problems. It is investing in
state-of-the-art technologies, and is beginning to access the capital
markets again to do just that. It is rationalizing and--consistent with
the primary objective of the President's 201 remedy--it is becoming
even more internationally competitive. The U.S. integrated steel
sector, which many had given up for dead, is improving dramatically its
cost structure through the infusion of new capital, lower capital costs
per ton of capacity, painful restructuring of legacy costs through
asset-only sales and the negotiation of new labor contracts that
promise significant improvements in flexibility and productivity. With
some industry observers now talking about a ``radical change in the
industry's cost curve,'' users of steel will ultimately benefit from
this improved steel industry cost structure and increased investment--
in the form of lower priced, higher quality steel.
Ongoing Progress to Attack Root Causes of U.S. and World Steel Crisis
Our trading partners have come to the table. International
discussions at the OECD on steel overcapacity are proceeding and have
been useful, and governments have initiated serious negotiations on an
agreement to eliminate steel subsidies worldwide.
Enhanced U.S. National Security
It is useful to note, with regard to ``Operation Iraqi Freedom,''
that the list of steel-supplying nations in the ``Coalition of the
Willing'' is substantially shorter than the one contemplated by those
who have said--in error--that the U.S. can get all the war-time steel
it needs, on a priority basis, from its ``allies.'' As America's
``Steel Wave'' proceeds toward Baghdad, we are reminded once again of
what President Bush stated on August 26, 2001: ``If you're worried
about the security of the country and you become over-reliant upon
foreign sources of steel, it can easily affect the capacity of our
military to be well supplied. Steel is an important job issue. It's
also an important national security issue. And that is why we took the
actions in this Administration.'' The President's steel tariffs, by
supporting the long-term development of a stronger, more viable
domestic steel industry, are improving the national security of the
United States.
Serving the National Interest
The President's Steel Program, including the 201 tariff remedy, is
serving the national interest. As the President stated when he imposed
his steel tariffs, this remedy is in the national interest of the
United States, because it will ``facilitate [steel] industry
restructuring without unduly burdening U.S. steel consumers or the
country as whole.''
Having Intended Consequences
The reality is the President's steel tariffs are working as
intended and their effects on steel consumers have been modest. To
summarize:
LU.S. steel prices have recovered from the unsustainable
historic lows seen in late-2001. However, since the summer, there has
been a ``Buyer's Market'' for steel according to Purchasing Magazine,
and U.S. steel prices have fallen substantially.
LU.S. steel prices today are at the low end worldwide, and
U.S. steel users have improved their position against foreign
competitors since the imposition of the 201.
LThere is no shortage of steel in the U.S. market today,
and both domestic and imported steel products continue to be readily
available.
Healthy suppliers need healthy customers, and healthy customers
need healthy suppliers. We know this better than most. AISI and its
U.S. members have been world leaders for decades in forging close, day-
to-day working partnerships between steel producers, engineers and
customers. Unfortunately, our market development efforts and our
critical steel-customer partnerships also suffered damage as a result
of the U.S. steel crisis. The steel 201 is not a ``steel wins,
customers lose,'' zero-sum game. Steel is a very capital-intensive
business, and it is only through ongoing investment in new plant,
equipment and technology that steel companies can increase
productivity, lower costs and improve quality, to the long-term benefit
of their customers.
A Promising Start, But Unfinished Business
A key purpose of the steel 201 tariffs is to create a sustained
period of import stability, so that we can get back to planning for the
future. This is happening, and it is working. However, these things
take time. No one envisioned this to be a 12 or 18-month process. After
a 50-year legacy of foreign government intervention in steel, the
President's Steel Program granted a 3-year period of declining U.S.
tariffs. The President' Program has made a promising start, but it
needs to continue for the full 3 years intended so that (1) U.S. steel
companies can complete their current restructuring plans and (2) U.S.
negotiators can address, as much as possible, the root causes of the
U.S. and global steel crisis. The bottom line is simply this: the
financial community, the U.S. steel industry and the President himself
(in terms of the success of his international steel initiative) all
need the tariffs to continue for the full 3 years intended.
Domestically
Prior to the 201, virtually all agreed that the U.S. steel industry
needed to consolidate and restructure. This process has begun in
earnest. While this restructuring is a work-in-progress, America's
steel producers are doing what it takes to keep their promise to the
Congress and the Administration. They are using the 3-year period of
relief to rationalize, reduce their cost structure, improve their
competitiveness and become even stronger suppliers to customers.
Industry observers agree: this unprecedented restructuring would not
have occurred without the President's steel tariff remedy in place.
Domestic steel companies, however, are incurring increased financial
risk relative to recent or planned mergers, acquisitions and
investments--and this is occurring at a time when U.S. steel prices
remain below historic 20-year averages, and there are significant
increases in the cost of steelmaking inputs. While our steel industry
has enhanced its global competitiveness over the past year, it has made
itself more vulnerable in the absence of the 201 remedy continuing for
the full 3 years. The Administration cannot turn its back on the
monumental change it has facilitated in the U.S. steel sector. These
things take time, and our industry's sources of capital also need some
assurance that we will have the time we need to put their money to
effective use.
Internationally
Thanks to the 201 and the Administration's determination not to
allow the United States to remain the World's Steel Dumping Ground, the
international talks to address the root causes of the U.S. and global
steel crisis are showing real signs of progress. There is, however, a
long way to go. We need the 201 tariffs to continue for the full 3
years intended so that our government negotiators can achieve further
progress in the ongoing multilateral efforts to reduce inefficient and
excess global steel capacity and eliminate steel market-distorting
practices worldwide.
The Distortions of the 201 Critics
Unfortunately, at a time when this remedy is just beginning to
work, it is under strong and constant attack by interests long opposed
to the 201. These interests have not hesitated to use false and
misleading information to describe conditions in the U.S. steel market
in the aftermath of the President's decision to impose 201 relief. Much
of the misleading information suggests that the 201 is having severe
and negative effects on U.S. steel-using industries and consumers. A
key purveyor of this false claim about the President's steel tariffs is
the Consuming Industries Trade Action Coalition (CITAC).
As but one example, CITAC recently released a study showing an
alleged loss of 200,000 steel-consuming jobs as a result of the
President's Steel Program. Almost as soon as this CITAC study was
released, an article in the Financial Times (``The Devil's in the
Details,'' 2/10/03) concluded that, with this study, CITAC ``hit a new
low'' in the tradition of misused statistics in the world of Washington
lobbying. The article noted that, two days after the study's release,
the authors altered their report to adjust the total number of steel-
consuming jobs lost over the last year--saying that actually referenced
lost jobs occurred over the last two years, a time period that included
the full year before Section 201 duties were put in place. The article
went on:
L What the study also failed to mention was that all the jobs lost
in 2002 actually occurred in January 2002, two months before the
tariffs were imposed and when steel prices were near historic lows.
Between January and December 2002, total employment in industries that
buy steel grew by about 228,000 jobs, despite higher steel prices.
(emphasis added).
What the House Ways and Means Trade Subcommittee needs to know is
that the CITAC study's own numbers show that U.S. steel-consuming jobs
went up, not down, after the 201 was put in place--and that job losses
in consuming industries correlated with low steel prices, not high
steel prices. This is why even an economist who opposes the steel
tariffs told the Financial Times that CITAC's claim is ``way out of
bounds.''
These are just a few of the problems with this latest CITAC study.
There are many other ways in which CITAC's most recent claims are
rebutted by the facts. This, however, is not the first time that CITAC
has been caught issuing deceptive information. CITAC's studies have
been flawed from the beginning. Its short-term goal is to dismantle the
President's steel tariffs. Its long-term goal is to weaken the trade
laws passed by Congress--and used by all domestic manufacturers. Its
ultimate aim is to provide increased, if not unfettered, access in the
U.S. market to dumped, subsidized and illegally traded imports. Since
CITAC knows that the Congress supports effective trade laws, it is
forced to use misinformation about the President's steel tariffs.
Unfortunately, this constant repetition of incorrect information by
CITAC and the other 201 opponents could leave some Members of Congress,
as well as the general public, with the impression that the President's
steel tariffs are not working as intended--when they are. It is
important that the Subcommittee understand what is going on here.
The steel consumers who benefited from the unsustainable and
artificially low steel prices that existed in the 1998-2001 period
would like to turn the clock back. This is understandable. However, had
U.S. steel prices continued at the unrealistic and severely depressed
levels of late-2001, we would no longer have a steel industry in the
United States. Prices had to go up. This was not a sustainable
situation for steel--and it was also not in the long-term interest of
any U.S. manufacturer that relies on steel and wants to keep steel-
containing products as a key part of its product mix in the future.
Illegal trade is not an acceptable practice or answer to
competitiveness challenges, and it is not appropriate for one sector to
gain from illegal trade at the expense of another.
CITAC and the other 201 critics remain fixated on a past period of
rising spot steel prices during a time (December 2001-August 2002) when
a lot of U.S. steel capacity was shuttered due to the import crisis.
Many CITAC members assume a false, one-to-one relationship between
higher steel costs (since late-2001) and the President's steel tariffs.
During the 201 period, U.S. steel prices have gone up, gone down or
hardly moved at all (depending on the product).
CITAC and the other 201 critics would like you to believe that the
President's steel tariffs are causing significant financial and job
losses in U.S. steel-using industries, increased imports and decreased
exports of steel-containing products and, worst of all, decisions to
relocate facilities to China and other countries where steel is
supposedly cheaper. The fact is: the President's steel tariffs and U.S.
steel prices cannot be causing U.S. job losses, because (1) steel
prices are higher outside the United States than they are here and (2)
steel prices abroad have risen much faster than they have in the U.S.
since the President imposed his tariffs. Jobs may be moving to China
because of lower wages or managed exchange rates, but not because of
steel prices. No one would move facilities to China because of steel
prices. Today, U.S. steel producers are exporting large amounts of
steel to China where, until recently, steel prices were at a 10-year
high.
One of the most frequently cited ``unintended consequences'' of the
President's steel tariffs, according to CITAC and the other 201
critics, is the alleged damage done to the Port of New Orleans and to
other U.S. ports from lower steel imports. As it turns out, when we
examine the facts, it is difficult to see that there has been any
damage. First, U.S. steelmaking inputs in the Port of New Orleans (such
as pig iron, ferroalloys and scrap) are even greater, on a tonnage
basis, than steel imports. Second, steel imports in the Port of New
Orleans actually increased by 27 percent in 2002; they were the number
one cargo in the Port last year; and the Port Authority expects to see
continued growth in steel imports according to its own recent press
release.
The facts do not seem to matter to CITAC and many of the 201
critics. They use incorrect figures to urge business groups to oppose
the President's tariffs--and they use anecdotes, distortions and
generalized allegations of undocumented harm to consumers to urge
Congressmen to support H. Con. Res. 23, the ``Knollenberg Resolution.''
It would promote an inappropriate, unnecessary change in the
congressionally mandated procedures relating to the ITC Midterm Review
of the President's steel 201 remedy.
The Real Problems in Manufacturing
Perhaps the worst part of the Big Lie perpetrated by the steel 201
critics is that, instead of stressing the need to work together to
address the real problems of U.S. manufacturing, the critics have
chosen to divert the focus and ignore the facts, make the President's
steel tariffs a scapegoat and pit one segment of U.S. manufacturing
against another. AISI and its U.S. members reject this way of thinking.
Manufacturing is at a crossroads in this country, and it has
nothing to do with steel prices or the President's steel tariffs.
Manufacturing lags the rest of the U.S. economy. Its recovery from the
recent recession has been slow. More than 2 million U.S. manufacturing
jobs have been lost since the beginning of 2000. There are many factors
responsible for our manufacturing recession, from the value of the
dollar, to slow demand to high health care costs. American
manufacturing continues at a distinct disadvantage in global
competition--due to:
Lthe lack of a pro-investment, pro-competitive tax system;
Lrising costs associated with U.S. Government regulations,
runaway litigation and employee health insurance;
Linadequate capital and workforce skill deficiencies,
which make it difficult to achieve sustained, high productivity growth;
and
Lmarket-distorting foreign trade practices--including
closed markets, dumping, subsidies, private anticompetitive behavior
and managed currencies, e.g., in China, whose currency is estimated to
be undervalued by as much as 40 percent.
We therefore urgently need a pro-manufacturing policy agenda in our
country, and much of it involves reform of key laws (e.g., on tax,
trade and benefits) that fall within the jurisdiction of the House Ways
and Means Committee. Accordingly, AISI would welcome an opportunity to
participate in another hearing on how current law renders American
manufacturing substantially less competitive than it might otherwise
be.
AISI greatly appreciates this opportunity to testify before the
House Ways and Means Trade Subcommittee on the positive impact of the
President's steel tariffs. It is an opportunity that was denied to us
at extremely one-sided hearings held last year by the House Small
Business Committee.
To help ensure a full and balanced understanding of the steel 201
issue in connection with the March 26, 2003 Trade Subcommittee hearing,
AISI is providing a packet of additional information under separate
cover to all Members of the Subcommittee.
______
Metaldyne and the Steel 201 Tariffs: What One Steel 201 Opponent Isn't
Telling You
The Consuming Industries Trade Action Coalition (CITAC), the Motor
Equipment Manufacturers Association (MEMA) and other groups opposed to
the steel 201 have claimed that President Bush's decision to impose
temporary import duties on imports of some steel products from some
countries has severe economic impact. These claims are false. One of
the most vigorous steel 201 opponents has been the Metaldyne
Corporation. It turns out that, when we look at Metaldyne's own filings
with the Securities and Exchange Commission, official import statistics
and basic economic texts, we find a very different story. Here is what
one steel 201 opponent isn't telling you.
The 201 relief did not cause a shortage of domestic special bar
quality (``SBQ'') steel. Metaldyne explained in its 2002 10-K that
``[u]nder supply contracts for special bar quality steel, we had
established prices at which we purchased most of our steel requirements
through 2002.'' \1\ These contracts guarantee Metaldyne's supply of SBQ
steel. Significantly, Metaldyne's 2002 10-K does not make any mention
of steel shortages in 2002.
---------------------------------------------------------------------------
\1\ Metaldyne 2002 10-K at 26.
---------------------------------------------------------------------------
Metaldyne's claims of shortages are also contradicted by an
official filing made by the ``SBQ Coalition,'' of which it is a member,
with the U.S. Government. In that filing, the Coalition stated that its
members ``do not have an identifiable shortfall'' of supply in 2003.\2\
Metaldyne's 2002 10-K does not indicate that Metaldyne has any concerns
about the availability of SBQ steel in 2003.
---------------------------------------------------------------------------
\2\ Letter from SBQ Coalition to Mr. Richard Weible and Mr. Andrew
Stephens, dated March 7, 2003, at 1.
---------------------------------------------------------------------------
Metaldyne has not been hammered by rising steel prices. In its 2002
10-K, Metaldyne stated that its steel purchases in 2002 were covered by
long-term contracts. These contracts protected Metaldyne against the
modest price increases for SBQ steel that occurred in 2002. Indeed, Mr.
Timothy Leuliette, the President and CEO of Metaldyne, stated in
testimony to Congress that, since the inception of the 201 tariffs,
``we have experienced 5-10% increases in our SBQ material cost in
aggregate. . . .'' \3\
---------------------------------------------------------------------------
\3\ Statement of Timothy D. Leuliette, House Committee on Ways and
Means, dated March 26, 2003, at 1.
---------------------------------------------------------------------------
The SBQ steel price increases of which Metaldyne has so vigorously
complained certainly do not appear to have had much of an effect on its
profitability. In 2002, Metaldyne earned a gross profit of $299.1
million on sales of $1,793.35 million, a profit rate of 25.3%. It
earned an operating profit of $114.09 million, or 9.7%.\4\ In fact,
Metaldyne's operating profits in 2002 were 62% higher than in 2001. In
contrast, General Motors, one of Metaldyne's largest customers, earned
an operating profit in 2002 of only 2.78%. Another major customer,
DaimlerChrysler, had an operating margin of only 1.51%. Despite
Metaldyne's complaints about the pricing pressures its customers place
upon it, Metaldyne is earning much better operating profits than its
customers.
---------------------------------------------------------------------------
\4\ Metaldyne 2002 10-K at 35.
---------------------------------------------------------------------------
According to Metaldyne, higher prices for SBQ steel will have only
a minor impact on its financial performance in 2003. Metaldyne stated
in its 2002 10-K that ``we expect the effect of the steel price
increases to have an approximate $5 million negative impact on our 2003
profitability.'' \5\ In 2002, Metaldyne's total cost of sales was
$1.494 billion.\6\ An increase in costs of $5 million because of higher
steel prices would represent an increase of only 0.3% in Metaldyne's
costs.
---------------------------------------------------------------------------
\5\ Metaldyne 2002 10-K at 6.
\6\ Metaldyne 2002 10-K at 35.
---------------------------------------------------------------------------
One thing Metaldyne has not admitted is that prices at the end of
2001 and the beginning of 2002 were the lowest they had been since
1987. The price increases that Metaldyne is seeing in 2003 are the
first price increases some of Metaldyne's steel suppliers have received
since 1993! Indeed, SBQ steel prices now are basically what they were
in 1993.
Metaldyne is not moving production offshore because of higher steel
prices in the United States. Relocating production to another country
is expensive. It is not something that companies do because the price
of one of their raw materials has increased by 5-10% per ton, allegedly
because of the impact of temporary import duties. This is especially
true for a product like SBQ steel, whose price can fluctuate by 5% or
more from month to month.
Metaldyne has in fact explained why it is investing overseas, and
it has nothing to do with steel prices:
L Global expansion is an important component of our growth
strategy since a significant portion of the global market for
engineered metal parts is outside of North America. Furthermore, as
OEMs continue to consolidate their supply base, they are seeking global
suppliers that can provide seamless product delivery across geographic
product regions.\7\
---------------------------------------------------------------------------
\7\ Metaldyne 2002 10-K at 4.
Metaldyne is moving workers and production to Asia because Asian
automotive producers are substantial customers of Metaldyne's, and
Metaldyne prefers to serve them from facilities located in the region.
``About one-third of Metaldyne's current growth, aside from
acquisitions, is with Asian carmakers.'' \8\ Indeed, the demands of
automotive producers for just-in-time delivery practically require that
parts suppliers be located relatively close to their customers.
Metaldyne is investing offshore, not because it can buy steel more
cheaply outside the United States, but because that is where its
customers are.
---------------------------------------------------------------------------
\8\ James Treece, Metaldyne Looks to Asia-Pacific for Growth,
Automotive News (October 7, 2002).
---------------------------------------------------------------------------
Chairman CRANE. Thank you, Mr. Sharkey. Mr. Gerard?
STATEMENT OF LEO W. GERARD, INTERNATIONAL PRESIDENT, UNITED
STEELWORKERS OF AMERICA
Mr. GERARD. Mr. Chairman, let me just say that, counter to
the last panel, I am here representing people as well as the
industry. This is not just some theoretical of what might
happen. In fact, in the back of the room, we have a few dozen
steelworkers who are here on their own time, at their own
expense, so that this Committee will know that this is really
about people as much as it is about the industry, and I would
like them to stand.
This is a representative body of steelworkers from steel
facilities that are what I call within driving distance. They
represent some of the 54,000 people who have already lost their
job in the steel industry, some of the additional 85,000 people
who have lost their job in that supplies the steel industry,
and more than anything, they are representing the quarter of a
million American citizens who, because of the 37 bankruptcies
in the steel industry from 2000 until now have lost their
health care, some of which are 80, 90, 70 years old, some of
which worked 30 or 40 years in those plants, the men and women
who fought America's wars, the men and women that made the
steel that built the World Trade Center, built the Golden Gate
Bridge, and built America's icons.
This is not some theoretical event. The reality, when you
come to steel prices, counter to the whining of the last
panel--and I am more than happy to defend that statement in the
question period--steel prices fell to under $210 a ton, brought
about by a systematic 30-year assault on America's steel
industry in a report commissioned by the Department of
Commerce, supported by the previous Administration and this
administration, that said that steel and trade has been
subjected to 30 years of market-distorting subsidies.
In the 3 years prior to the implementation of the Section
201, the industry and the union jointly filed 130-plus
violations of American trade law and were successful in one
degree or another in those cases. Companies who believe that
their business plan has to include steel prices that are
subsidized by illegal activity are, in fact, supporting at
least civil illegal activity, if not criminal. If you talk to
the 250,000 people who are losing their health care, I am sure
they would say that is at least morally criminal if not civilly
criminal.
I want to just briefly say a few words about some of the
stuff that was said about job losses. With all due respect to
the Chief Executive Officers that were here, anybody who says
that since the Section 201 was initiated they went to China,
did an investigation, did a due diligence, bought the
equipment, set up the equipment, bought the land, and moved
their plant to China in that year I suspect ought to be called
before their shareholders because they didn't do the right kind
of due diligence. If they went to China in the last few months,
they were planning it prior to this Section 201, and we ought
not to be fooled by that, and you might not want to be fooled
by that either.
Let me just say I was heartened to hear from the initial
panel of congressional leaders as well as some of the earlier
panel talk about the absolute devastation of America's
manufacturing base. We have lost in the last 2 years closer to
3 million direct manufacturing jobs, and for anyone who sits
before this Committee or any other Committee to try and
attribute that to a declining tariff of 3 years' duration that
is already now moving into its second phase of decline is
perpetrating an illusion.
Let me recommend strongly to this Committee, the steel
industry is not the problem in the manufacturing base of this
country. I would highly recommend that this Committee hold
hearings on escalating health care cost that is driving
millions of Americans and millions of retirees out of the
health care system, that you hold hearings on the overvalued
dollar and the manipulation of currency by our trading
partners, that you hold hearings on price gouging in the energy
sector, that you hold hearings on child labor, that you hold
hearings on the lack of legal environmental integrity amongst
our trading partners. I am prepared to pay as a citizen to have
clean air and clean water, but I don't think they should get a
break because they don't.
Let me last sum up by saying--and I commend a number of you
that asked these questions in your question period. Today
America's steel industry has one armor plate manufacturer left.
That armor plate built the USS Enterprise and the carriers that
are in the Gulf. Today America's steel industry doesn't make
the structural steel to rebuild the World Trade Center. Today,
if we wanted to have a high-speed rail system, we can't produce
the high-quality high-speed rail. We would have to build new
mills. Today, if we wanted to have an energy policy that could
produce large-diameter thick pipe, we couldn't produce that
unless we built new mills. Those mills have been destroyed by
30 years of systematic illegal activity documented in a
commission report supported by both Administrations.
This is not the time to be inflicting further damage on the
steel industry and creating more of those workers who gave
their lives to this industry and this country that lose their
jobs, lose their health care, and, yes, some of them are going
to lose their homes. They are going to have to choose between
their home and their health care. In the richest, freest
country on Earth, that should not be happening. Thank you.
[The prepared statement of Mr. Gerard follows:]
Statement of Leo W. Gerard, International President, United
Steelworkers of America
Mr. Chairman, Ranking Member Rangel, and distinguished Members of
the Ways and Means Committee, thank you for your invitation to appear
before you today to testify concerning the necessity of continuing the
Section 201 relief for America's steel industry that was put into place
last year by President Bush.
There are some who now call upon the President and Congress to
relax or retreat from the 201 tariffs that were imposed in March 2002.
They claim that the impact of the 201 tariffs upon steel users and
consumers has been devastating to them. But a closer look at the facts
reveals that their claims are as unsubstantiated as is their call for
us to abandon the 201 remedy.
Let us remember how we have come to this crossroads.
From 1997 to 2002, America's domestic steel industry was literally
under attack from foreign producers, aided and abetted by foreign
governments through subsidies and other market manipulations. Their
weapon was millions of tons of foreign steel, much of it illegally
dumped into our domestic market. At a time of growing global steel
capacity, many of these same countries were actually adding additional
capacity--not for domestic consumption in their own countries, but for
export into the United States. While many foreign governments continued
to support their steel industries, our government sat by and watched as
the American steel industry endured the most vicious assault in our
history.
The consequences of this assault have been disastrous for our
steelworkers and for the American steel industry. Thirty-seven
companies have been forced into bankruptcy and 54,000 steelworkers have
lost their jobs. Thousands of steelworkers have seen their work hours
reduced. Since 1998, The PBGC has announced its intent to initiate
distress terminations of the defined benefit pension plans of 14 steel
companies, involving nearly 240,000 participants and nearly seven
billion dollars in unfunded guaranteed pension benefits. And now, in
the cruelest blow of all, nearly 200,000 steelworker retirees, widows
and their dependants have lost health care benefits.
In June 2001, at the request of the President, the U.S.
International Trade Commission (USITC) undertook one of the most
exhaustive Section 201 investigations in the agency's history. After
hearing and reviewing the testimony of literally hundreds of witnesses
(both for and against the 201 remedy), after reviewing reams of
economic data on imports, exports, and prices for dozens of individual
steel products, the USITC made a unanimous determination that our steel
industry had suffered serious injury as a result of the surge of
imports and voted unanimously to recommend a remedy.
In March, 2002, President Bush imposed three years of declining
tariffs ranging from 8 to 30 percent on imports of 13 finished steel
products, and a three-year increasing tariff rate quota on imports of
slab, an important type of semi-finished steel product.
The President's safeguard tariff remedy excluded many products and
nations from coverage. The President granted 727 exclusions of nearly
1,300 requested by steel consumers and importers, after extensive
investigation by the Department of Commerce and the Office of the
United States Trade Representative. The President's 201 remedy excluded
steel imports from four partners in free trade agreements with the U.S.
(Canada, Mexico, Israel, and Jordan) and 99 developing nations.
The Union and the industry estimate that these exclusions amounted
to 15 million net tons in 2002. As a result, only about 7% of total
apparent domestic steel consumption was covered by the tariffs in 2002.
The Department of Commerce and the Office of the United States
Trade Representative announced the exclusion of an additional 295 steel
products from the steel safeguard remedy. Industry sources estimate
that these additional exclusions will affect another 400,000 tons of
steel products.
It is important to note that imports of steel in the product
categories covered by the tariffs actually increased by 11% in 2002,
from 22.6 million net tons in 2001 to 25.1 million net tons in 2002.
Let me say that again. Steel imports in categories subject to the
safeguard tariffs actually increased in 2002. Thus, steel consumers and
importers can make no credible argument that the safeguard tariffs
injured consumers or prevented manufacturers from obtaining necessary
raw materials.
What has happened since the President's 201 decision?
The American steel industry is in the midst of the biggest
consolidation in the history of the industry. Since the President's 201
decision was announced only a year ago, numerous companies have been
moving to merge or have been put up for sale. Steel prices, which had
plummeted to historic lows, have begun to stabilize. Layoffs have
ceased and the number of companies entering bankruptcy has now slowed.
LBethlehem Steel has been sold to International Steel
Group (ISG) in a deal that could bring Bethlehem out of bankruptcy and
creates the Nation's largest steelmaker.
LEarlier this year, ISG acquired LTV Steel and Acme Steel
(which had ceased operations). Wilbur Ross, Chairman of W.L. Ross,
which purchased LTV, identified ``strong relief under Section 201'' as
one of the reasons he believes ISG will be successful.
LU.S. Steel and AK Steel are both vying to acquire
National Steel.
LIn May 2002, Nucor moved to acquire Birmingham Steel's
assets for $615 million. The deal was completed in December 2002.
LIn July 2002, Nucor also purchased the assets of Trico
Steel in Decatur, Alabama.
But this consolidation has led to further heartache for tens of
thousands of steelworkers and their families. Some of the distressed
companies, such as Bethlehem Steel and others, have moved to terminate
health care benefits for their retirees. For a 75-year-old retired
steelworker who has numerous prescription medications, or has been
hospitalized, the loss of their health care benefits is quite literally
a life-threatening event. For a retired steelworker who faces cancer
and is wondering how he will pay for doctors and chemotherapy
treatments, the loss of health insurance is a life-threatening event.
The USWA is conducting an outreach effort to the 95,000 retirees
and dependants from Bethlehem Steel, including many salaried retirees,
who will lose their health care benefits on March 31, 2003. We have
received enormous cooperation from the various State Departments of
Aging, Veterans' Administration and Centers for Medicare and Medicaid
Services. However, the reality is that there are no attractive options
available for most of these retirees. I would invite the critics of the
safeguard tariffs to visit Johnstown, PA or Lackawanna, NY to tell
these retirees that no further assistance to the steel industry is
needed.
The USWA is working hard to ensure that the Health Insurance Tax
Credit (HITC) provision in the Trade Adjustment Assistance Act is made
available to the greatest number of steelworkers who lose their health
insurance coverage. However, in order to make the program meaningful,
we will need the cooperation of the Bush Administration and the State
governors. In Pennsylvania, Governor Rendell has put the full weight of
his administration behind the effort to develop a State-based health
care plan that will qualify for the HITC. Unfortunately, no other
States are as far along.
We realize that the crisis facing steelworkers and our retirees who
are losing their health care is only a small piece of a much bigger
problem. Some 41 million Americans have no health insurance at all.
More are losing their insurance every day. Many of our seniors who need
prescription drugs to stay alive are being forced to choose between
buying their medication and eating. In a country as wealthy as America,
this is a choice no one should have to make. The Congress has a
responsibility to respond forcefully to this crisis. We call upon you
to pass H.R. 1199, the Dingell-Rangel Medicare Prescription Drug bill.
This measure provides a meaningful prescription drug benefit for
seniors through the existing Medicare program. It does not push seniors
into HMOs to get their prescription drugs. It does not give them
discount cards whose value is wiped out by the 15 to 18 percent annual
increases in the cost of prescription drugs. For only $25 a month,
seniors would have 80 percent of their drug costs picked up by the
government with seniors picking up the remaining 20 percent. No
gimmicks, no gaps, no excuses.
We also call again upon the Congress as we have for many years now,
to pass national goal that no American should go without the health
care they need.
Other companies are moving to terminate or renegotiate their
defined-benefit pension plans with profound financial consequences for
thousands of steelworkers and retirees. In some instances, the Pension
Benefit Guaranty Corporation (PBGC) has moved on its own to terminate
certain pension plans, resulting in the denial of early retirement
benefits to many steelworker retirees.
As a condition of granting the 201 relief to the steel industry,
the Administration insisted upon consolidation. It is now happening,
but at a tremendous cost to our steelworkers and retirees. They have
borne and continue to bear more burdens than anyone can imagine for the
failure of our own government over many years to effectively enforce
our trade laws.
I want to close by adding that it is simply inconceivable to me
that anyone could now suggest, just a year after they were imposed,
that the Section 201 remedy granted by the President should now be
curtailed or eliminated. In this regard, it has not gone unnoticed that
many of those who argue for the elimination of the 201 remedy have
employed shockingly phony arguments.
For example, a recently released study by the Consuming Industries
Trade Action Coalition (``CITAC'') purported to show job losses in
steel-consuming industries as a result of higher steel prices. But upon
review, CITAC's arguments fell apart. The Financial Times concluded
that CITAC ``hit a new low'' with the release of the study, referencing
multiple factual inaccuracies, surreptitious revision of data, and
misleading conclusions. Gary Hufbauer, an economist with the Institute
for International Economics, which opposes Section 201 relief, called
CITAC's claim of 200,000 lost jobs ``way out of bounds.''
The CITAC study claimed ``200,000 Americans lost their jobs to
higher steel prices during 2002.'' As the Financial Times noted,
however, CITAC's own figures show that employment in steel consuming
industries actually increased by 229,000 from March 2002--when relief
was implemented--to the end of the year.
Some steel users opposed to continuing the 201 relief say that they
are now paying more for steel products than they did in 1998 or 1999.
The fact is that domestic steel prices are still below their 20-year
average. Indeed, while there was a temporary price increase that
occurred at the outset of the tariff program--chiefly due to the loss
of 20 million tons of domestic capacity in late 2001--steel prices in
the U.S. have significantly declined since August of 2002. And to the
extent steel prices have risen in the U.S. from the untenably low
prices of 1998 and 1999, they have risen less and risen more slowly
than steel prices around the world during this period. U.S. steel
consumers do not suffer a competitive disadvantage compared to their
steel-consuming competitors around the world. U.S. steel consumers
continue to have ready access to steel that is priced low, both
historically and in relation to what consumers are paying around the
world.
In any event, the truth is that for most manufacturers of steel-
containing products, steel represents only a small portion of their
total costs. For automobile and appliance manufacturers, there is no
evidence of added cost to the end consumers attributable to the 201
remedy. In fact, many automobile manufactures are offering zero-percent
financing on new cars as an incentive to get customers into their
showrooms.
A recent study by Dr. Peter Morici from the University of Maryland,
titled, ``An Assessment of Steel Import Relief Under Section 201 After
One Year,'' finds that ``steel users have not been harmed by the
President's (201 remedy), nor have consumers seen rising prices because
of it. The program does not appear to have had a significant effect on
producer prices.'' Furthermore, Dr. Morici states that ``continuation
of the temporary 201 tariffs through 2005, and application of the
provisions of the President's program that protect against surges of
imports from uncovered countries, will be necessary to ensure the U.S.
industry has a `breathing space' long enough to allow it to complete
the process of consolidation, rationalization, and modernization that
it has begun.''
Critics of the tariffs ignore the real problem in steel facing this
country. The problem is not too little steel available at too high a
price. To the contrary, the real problem is that worldwide, there is
too much steel being produced, and this has led to years of dumping of
steel by foreign producers in violation of U.S. laws and international
agreements. The steel tariffs imposed last year have broken this cycle
of dumping and price suppression. With prices stabilized the domestic
industry has begun the difficult but necessary job of consolidation and
restructuring. This is critical if the domestic steel industry is to
achieve long-term health and competitiveness. And at the end of the
day, U.S. steel consumers will benefit from having a strong, viable,
domestic steel industry to supply them with their needs. U.S. steel
consumers should be rooting for the U.S. steel industry, not seeking
repeal of the 201 relief that is so critical to the survival of the
industry.
In my opinion, it would be a tragic mistake if the 201 remedy were
to be curtailed or revoked prematurely. Please do not let that happen.
Too many steelworkers and too many of our retirees have already paid
too high a price to solve a steel crisis created abroad and ignored for
too long by our own government. Stand firmly behind the President's 201
remedy for the full term. Thank you.
Chairman CRANE. Thank you. Mr. Connors?
STATEMENT OF CHARLES W. CONNORS, CHIEF EXECUTIVE OFFICER,
MAGNECO/METREL, ADDISON, ILLINOIS
Mr. CONNORS. Thank you, Mr. Chairman. My name is Chuck
Connors. My company is Magneco/Metrel, located in Addison,
Illinois, with manufacturing facilities in Gary, Indiana, and
Columbiana County, Ohio. We are a producer of refractories and
a supplier to the steel industry, and I appreciate that the
word ``supplier'' has come up a couple times here. Sometimes
this argument seems to be one where the consumers, who usually
get the last word in any business, like to act like it is only
between the steel company and the person who buys steel. There
is a chain of supply that goes back to mines and railroads and
things that have been mentioned here that is at least as big as
the chain of supply that goes on after the steel is
manufactured.
Refractories are high-temperature ceramics that are
necessary in just about everything that you encounter in your
life if it has been made in a plant that made steam or treated
anything above a thousand degrees or handled acid. About 80 to
85 percent of all the refractories made are consumed by the
steel industry. The steel industry is the driver.
Magneco/Metrel has 143 employees and about 330 people who
are dependents of employees who receive our health care.
Approximately 80 percent of our sales go to the iron and steel
industry.
Our company lost about $2.5 million--well, greater than
$2.5 million in the last 2 to 3 years due to bankruptcies, both
Chapter 7 and Chapter 11, which we feel will never be recouped,
on product that we sold to the steel industry companies that
went bankrupt. They went bankrupt because they were selling
their products at below cost, and the windfall that was
appreciated by the people who bought those products was made up
by Magneco/Metrel by not getting paid.
We have about 300 suppliers for our company. Given those
numbers for just one medium-sized downstream company in the
steel industry, you can see there is a network of thousands and
thousands of small businesses whose ability to thrive depends
on the continued strength of the domestic steel industry.
In terms of using transportation and import systems, the
Port of New Orleans was referred to. Our company brings in
about 30,000 tons of raw materials through the Port of New
Orleans, and we export about 10,000 of those tons in the form
of finished product to Europe and Latin America. We can only
continue if the tariffs remain in effect for the full 3 years.
Having lost the money that we lost, we are under tight scrutiny
from our bank, and we can't continue--we could not absorb
another bankruptcy. There has not been a bankruptcy affecting
us since the tariffs went into effect.
Prior to the President's program announcement, to give you
an example with the write-offs, in 1 year, in 2001, our small
company had a loss of $2 million on about $32 million in sales.
In January and February 2002, we lost $300,000. After the
tariffs went into effect, in the remaining 10 months of the
year we made $1.2 million. Our employees went from 135
employees to 143 employees.
When the President initiated the steel program, he did so
recognizing that our domestic steel industry was in crisis and
the roots of the crisis laid outside of the United States. His
three-part program was designed to address the underlying
causes: global excess capacity, closed markets, subsidies,
cartels, and other private anti-competitive behavior that would
not be tolerated in this country if it was done by one domestic
corporation against another.
After 1 year, the program is working. It is critical to my
company and to thousands of small businesses throughout the
country whose viability depends on having a healthy,
independent, and strong American steel industry, that the
President's remedy not be undermined, and that it remain in
effect for the full 3-year term as the President intended.
Thank you.
[The prepared statement of Mr. Connors follows:]
Statement of Charles W. Connors, President, Chief Executive Officer,
Magneco/Metrel, Addison, Illinois
Thank you, Mr. Chairman. I appreciate the opportunity to testify
today, as a representative of small business, regarding the impact of
steel Section 201 relief on U.S. manufacturing. This is a critical
issue to my company and to thousands of small businesses throughout the
country whose viability depends on having a healthy, independent and
strong American steel industry.
Magneco/Metrel is located in Addison, Illinois with manufacturing
facilities in Northern Indiana and Eastern Ohio. As a producer of
refractories that are used in steelmaking furnaces, we are both a steel
industry supplier and a customer. My company has 143 employees and we
also provide health care and other benefits to a total of 330 people,
including employee dependents.
We purchase approximately $300,000 of steel molds annually, with
more than half of the total value coming from Lake County, Indiana.
Over the past 12 years, we have spent approximately $6,000,000 (or
$500,000 per year) on equipment for use with our products. The
equipment includes mixers, pumps, gunning machines, backhoes and fork
trucks. We maintain a fleet of 30 cars, small trucks and medium size
trucks, as well as four semi trucks with trailers. All of this
equipment is manufactured in the United States. In total, Magneco/
Metrel has approximately 300 suppliers, the vast majority of which are
small businesses. Given those numbers for just one downstream company
in the steel industry, you can see that there is a network of thousands
and thousands of small businesses whose ability to thrive depends on
the continued strength of the domestic steel industry. That will only
happen if the President's steel remedy is maintained for the full three
years intended and thus allows the industry to continue to strengthen
itself from within and complete the restructuring and consolidation
that is already underway as a result of the 201 safeguard.
In the case of Magneco/Metrel, we had 2002 sales of $39.5 million.
That was an increase of 16.3 percent over 2001. Our annual purchases
from the steel industry are about $300,000, mostly lightweight plate,
which is 100 percent domestically produced. Our sales breakdown was
about 85 percent to the iron and steel industry in 2001 and 80 percent
to the iron and steel industry in 2002. In addition, about 30 percent
of our 2002 sales were exported, divided equally between Europe and
Latin America, with our biggest customer being Mexico. These sales are
all of unique and proprietary products, which have been developed and
proven in world class iron and steel plants in the United States.
Without healthy and competitive American iron and steel plants, we
would have no export sales.
During the height of the steel crisis, severe human and economic
devastation was done to steel-related small businesses from one end of
our country to the other by repeated surges of illegally traded and
injurious steel imports. As the toll of steel company bankruptcies
mounted, hundreds of small business suppliers to the steel industry
were left reeling. For those suppliers who had all or most of their
business with a Chapter 7 steel company, the end result was usually the
bankruptcy of that small business supplier.
Prior to the President's program announcement one year ago,
Magneco/Metrel had a net loss of approximately $300,000 for January and
February of 2002. Following a loss in 2001 of $2 million, one more
month with that rate of loss would have put us out of business. After
the President's timely announcement, the situation reversed and the
year ended with a net income of approximately $1.2 million. From 135
employees a year ago today, we have 143 employees today. There have
been no substantial bankruptcy filings that affected Magneco/Metrel
since the President's program announcement.
When the President initiated his steel program, he did so
recognizing that our domestic steel industry--including steel
producers, suppliers and customers--was in crisis, and that the roots
of the crisis lie outside of the United States. His three-part program
was designed to address these underlying causes--global excess
capacity, closed markets, subsidies, cartels and other private anti-
competitive behavior that could not be tolerated in this country.
After one year, the President's program is working. The steel
industry is starting to turn the corner and for the first time in many
years, we feel a sense of hope for the future of our industry. The
previous situation before the President launched his steel program was,
in terms of steel pricing, not sustainable for the steel industry. It
was also not in the long-term interest of any U.S. manufacturer who
relies on steel and wants to keep steel-containing products as a key
part of its product mix in the future.
It is interesting to note that the price spike that occurred early
in 2002 was due not to the initiation of the steel tariffs, but rather,
it was the result of the steel crisis itself. After LTV Steel in Ohio
closed its doors, along with a number of other smaller steel producers
who ceased operations, there was a sudden but brief period when 18 to
20 million tons of capacity was removed from the market. However, as
consolidation intensified, mills were re-started and capacity came back
online. The price stabilized and has, in fact, declined to where the
price of steel in the United States now is generally below what it is
in most markets around the world. There is adequate supply readily
available without lags in delivery. It is my belief that without the
President's program, the crisis would have worsened, more capacity
would have been shut down and prices would be at a much higher level
than is the case today.
The President's program is working. Since it was initiated, we have
seen the most dramatic consolidation and restructuring to occur in this
industry in decades. This will not be completed overnight. Much of the
progress and investment underway will require the President's program
to remain in place for its full intended duration for the deep roots of
this, the worst crisis in the history of America's steel industry, to
be fully addressed and remedied. It is of serious concern to my
company, and to many other small businesses that depend on a domestic
steel industry, that the President's remedy not be undermined and that
it remains in effect for the full three-year term as the President
intended. Thank you.
Chairman CRANE. Thank you. Mr. Dooner?
STATEMENT OF PETER DOONER, PRESIDENT, WHEATLAND TUBE COMPANY,
COLLINGSWOOD, NEW JERSEY, ON BEHALF OF THE COMMITTEE ON PIPE
AND TUBE IMPORTS 201 COALITION
Mr. DOONER. Thank you, Chairman Crane, Congressman English,
and the Subcommittee. I am here as the President of Wheatland
Tube Company. Wheatland has been a leader in the consolidation
of the welded pipe and tube industry in the United States.
Wheatland is a 126-year-old private, family owned company. Last
year, we acquired Sawhill Tubular, formerly a division of A.K.
Steel. Today we have two major pipe mills in western
Pennsylvania in the town of Wheatland and Sharon. We also have
another major pipe mill in nearby Warren, Ohio, along with
mills in Little Rock, Arkansas, and Chicago, Illinois. We have
nipple plants in Texas and Ohio which go by the name of
Seminole Tubular Products; overall, 2,000 workers, of which
approximately 1,000 work in western Pennsylvania in Congressman
English's district.
Unfortunately, we recently announced the closure of the old
Sawhill Tubular cold drawn mill, which is also located in
Wheatland. This will result in the loss of 125 jobs.
I am not only here today on behalf of Wheatland Tube
Company. I also represent the Committee on Pipe and Tube
Imports (CPTI) 201 Coalition, a coalition formed by the CPTI, a
trade association. The CPTI is comprised of 33 welded pipe and
tube producers, collectively with 20,000 workers and consumes 8
million tons of flat-rolled steel annually.
Today, I wish to make three important points on the impact
of the Section 201 relief on the welded pipe and tube group.
Number one, the Section 201 relief provided for first year
tariffs of 30 percent on flat-rolled products, but only 15
percent tariffs on pipe and tube. This has put my industry and
my company in a cost-price squeeze. Manufacturers of welded
pipe and tube have approximately 65 percent of their total cost
derived from steel. So, you have heard some of the other
panelists say 30 and 50 percent. We are probably the highest.
This has hurt our efforts to consolidate. As many of you know,
we are now in the second year. We are now being protected by 12
percent tariffs for certain countries.
My second point, many foreign pipe and tube producers have
simply been able to absorb the 15-percent tariffs, and their
shipments to the United States have increased. Korea and
Thailand would be two examples, along with a massive surge in
pipe nipples from China.
In addition, uncovered, developing, and excluded countries
such as Turkey have increased their share of our market of
welded pipe and tube. The results of these increased shipments
in the face of weak demand have resulted in layoffs at both the
hourly and salaried level at Wheatland and at my CPTI
counterparts.
Finally, my third point, Wheatland Tube and all of the CPTI
producers who are welded pipe and tube producers, will benefit
in the long run from the breathing space which was given to the
flat-rolled industry by the Section 201 relief. In a short span
of 6 months in late 2001 and early 2002, four flat-rolled
producers shut down. Three of these have since been reopened.
Nucor and ISG have consolidated three of these four. We believe
that without the Section 201 action we could have possibly lost
these producers and several other very important regional flat-
rolled producers, such as Weirton, Wheeling-Pittsburgh, and
Warren Consolidated.
We believe that by the end of the Section 201 relief, we
will have a higher quality, more competitive industry to supply
the welded pipe and tube group. That ends my testimony. Thank
you.
[The prepared statement of Mr. Dooner follows:]
Statement of Peter Dooner, President, Wheatland Tube Company,
Collingswood, New Jersey, on behalf of the Commitee on Pipe and Tube
Imports 201 Coalition
These written comments are submitted by the CPTI 201 Coalition for
the official Committee record with regard to the Section 201 Steel
Safeguard hearing. To supplement the Coalition's testimony provided on
March 26, 2003 the written testimony elaborates on three main points
made to the Committee about the impact of the 201 relief on the welded
pipe and tube industry. The differential relief of 30% tariffs on flat
rolled products and 15% tariffs on welded pipe and tube products has
caused a cost price squeeze on the domestic industry which is
particularly evident in the latter part of 2002 and early 2003. Unlike
the flat rolled industry in which three of the four flat-rolled mills
shut down during the time period between President Bush's June 2001
Section 201 request and the beginning of 201 relief in March 2002, none
of the pipe and tube mills shut down since November 2001 have been
reopened by new buyers.
In November 2001, Laclede Steel shut down its operations including
continuous weld pipe mills located in East Alton, IL and Fairless,
Pennsylvania. These mills had a combined capacity of 450,000 tons
annually of welded pipe and tube. While there has been a recent
announcement of a purchase and plant reopening of the Laclede melt shop
in East Alton, Illinois to produce special bar quality products, this
new owner has no plans to reopen the pipe mills. In addition, Geneva
Steel shut down a 150,000 ton pipe mill producing welded pipe up to 16
inches in outside diameter. Maverick Tube announced the closure of the
former LTV tubular mill in Youngstown, Ohio with 170,000 tons of
capacity to produce welded pipe and tube up to 16 inches outside
diameter. This plant is being shut down at the present time. In
addition, Excalibur Tube Company went into Chapter 7 liquidation in
early 2002. Their mills had an estimated total capacity of 150,000
tons. Olympic Steel Tube shut down its operations in mid 2002 and had
an estimated 100,000 tons of capacity. Thus, over a million tons of
capacity has been removed from the U.S. pipe and tube market in the
past 18 months. (See attached chart.)
The industry has also seen two major consolidation and
restructuring efforts. First, in April 2002 Wheatland Tube acquired the
Sawhill Tubular division of AK Steel. In December 2002 Maverick Tube
acquired the LTV Tubular division from the bankruptcy court and LTV.
Overall, imports of welded tubular products other then OCTG which
is the pipe and tube product category that received 201 relief,
declined by approximately 10% in 2002 compared to 2001. However, we
believe that due to the significant downturn in non-residential
construction which is the primary driver of demand for welded tubular
products other than OCTG, that import market share of these products
actually increased after the imposition of 201 relief. The reason for
this increase in import market share even after 201 relief is that
imports of pipe and tube subject to 201 duties from certain countries
did not decline after the imposition of relief and that imports of pipe
and tube from some excluded developing countries have surged.
For example, as seen on the attached charts, imports of welded pipe
and tube from Thailand increased in 2002 after the imposition of the
15% tariffs. The reason for this is that the Thai producers limited the
amount of 201 duties they had to pay by reducing the customs value of
their exports to the United States. This is truly incredible given the
sharp rise in steel costs in Asia that occurred in 2002. We believe
there is no rational commercial reason that would allow producers in
Thailand to reduce reported customs values by $50 per ton in order to
reduce 201 duties paid during a period of higher steel prices and pipe
and tube prices in Asia, and for that matter higher steel prices and
pipe and tube prices in the U.S. market during 2002.
The same is true of pipe nipples from China, a product produced by
Wheatland's Seminole Tubular Division, and other members of the CPTI.
Pipe nipples obtained 201 relief in the pipe fittings category of an
additional 12% tariff. However, as seen in the attached chart, after
the imposition of 201 relief, pipe nipple imports from China actually
increased by more than 50% despite the imposition of the 12% Section
201 tariffs. Thus, the nipple industry has continued to experience a
serious injury even after receiving 201 relief.
The biggest problem for the pipe and tube industry has been the
tremendous import surge in imports from excluded countries since the
period of 201 relief was granted. In particular, imports of welded pipe
and tube other than OCTG from India and Turkey have surged incredibly.
As demonstrated on the attached chart, imports form India and Turkey,
which each accounted for below 3% of total imports of welded pipe and
tube in 1996 and 1997 each accounted for more than 4% of imports in
2002. On a monthly basis, imports from India and Turkey increased from
2-3,000 tons a month in 2000 to almost 10,000 tons a month from each
country in the 9 months of 2002 after 201 relief was granted.
Incredibly, there were 28,000 tons of welded pipe and tube other than
Oil Country Tubular Goods (OCTG) imports from India in January 2003 and
17,000 tons of imports from Turkey in January 2003. Imports from just
these two excluded countries accounted for 22% of total welded pipe and
tube imports subject to the 201 remedy in January. The welded pipe and
tube industry has seen relief under the 201 program seriously
undermined by these rapid import surges. The CPTI 201 coalition filed a
petition in September 2002 with Secretary Evans and Ambassador Zoellick
requesting action against these import surges from Turkey and India. No
action to impose 201 duties against imports from these countries has
been taken.
As a consumer of 800,000 tons of flat rolled steel annually, and as
a part of a trade association whose members consume approximately 8
million tons of flat-rolled steel annually, Wheatland and the CPTI 201
Coalition support Administration efforts to preserve and revitalize an
efficient flat rolled steel industry in the United States. Prior to the
imposition of 201 relief, the U.S. had witnessed the permanent closure
of Gulf States Steel of Gadsden, Alabama, and the closure of all of the
LTV steel mills, Trico, Geneva Steel and Acme Steel. Since the
imposition of 201 relief all of these mills except Geneva have
reopened. In addition, significant suppliers of steel to Wheatland and
other CPTI members such as Wheeling Pittsburgh, Bethlehem Steel and
National Steel were in Chapter 11 bankruptcy and in peril of being
closed down and liquidated. Many other flat rolled steel producers
including Weirton Steel, Rouge Steel and WCI Steel were facing serious
financial pressures and were in danger of bankruptcy. The steel 201
program has now produced significant consolidation, restructuring and
reinvestment in the flat-rolled steel industry. Wheatland Tube and
other CPTI members believe that the long term health of the pipe and
tube industry will require healthy, efficient, and world class cost
competitive flat-rolled steel producers in the United States. Wheatland
and the CPTI do not wish to be dependent upon foreign steel in the
future to supply steel to pipe and tube mills. But for the imposition
of 201 relief, it is quite likely that after the closure of domestic
mills there would have been surges of imported flat-rolled steel to
furnish the U.S. market instead of the reopening of domestic supply. We
are pleased that domestic steel mills have been reopened and are
hopeful that new management and new labor agreements with the USW will
result in the reinvigoration of the domestic steel industry.
Welded Tubular Products Other Than OCTG, 1998-2002
Quantity in short tons
----------------------------------------------------------------------------------------------------------------
Country 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
Subtotal of subject countries 1,173,186 1,005,130 1,191,156 1,492,826 1,002,153
----------------------------------------------------------------------------------------------------------------
Subtotal of non-subject countries 1,088,310 1,110,727 1,436,078 1,345,919 1,530,672
----------------------------------------------------------------------------------------------------------------
Total of all countries 2,261,495 2,115,857 2,627,235 2,838,746 2,532,825
----------------------------------------------------------------------------------------------------------------
Welded Tubular Products Other Than OCTG, 1998-2002
Import Share (%)
----------------------------------------------------------------------------------------------------------------
Country 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
Subtotal of subject countries 51.88% 47.50% 45.34% 52.59% 39.57%
----------------------------------------------------------------------------------------------------------------
Subtotal of non-subject countries 48.12% 52.50% 54.66% 47.41% 60.43%
----------------------------------------------------------------------------------------------------------------
Total of all countries 100.00% 100.00% 100.00% 100.00% 100.00%
----------------------------------------------------------------------------------------------------------------
Welded Tubular Products Other Than OCTG
Post 201 Import Surges
----------------------------------------------------------------------------------------------------------------
2001 2002 01 2003 01 2003
Country (Short 2001 Import (Short 2002 Import (Short Import
Tons) Share (%) Tons) Share (%) Tons) Share (%)
----------------------------------------------------------------------------------------------------------------
India 38,321 1.35% 106,790 4.22% 28,428 13.96%
----------------------------------------------------------------------------------------------------------------
Turkey 41,937 1.48% 102,828 4.06% 17,219 8.46%
----------------------------------------------------------------------------------------------------------------
Welded Tubular Products Other Than OCTG
Post 201 Import Surges
------------------------------------------------------------------------
2001-2002 Volume 2001-2002 Value
Country Change (%) Change (%)
------------------------------------------------------------------------
India 178.67% 165.74%
------------------------------------------------------------------------
Turkey 145.20% 129.87%
------------------------------------------------------------------------
Welded Tubular Products Other Than OCTG, 2001-2002
Quantity in short tons
------------------------------------------------------------------------
Country 2001 2002
------------------------------------------------------------------------
Thailand 62,487 89,171
------------------------------------------------------------------------
Welded Tubular Products Other Than OCTG, 2001-2002
Quantity in short tons
------------------------------------------------------------------------
Country 2001 2002
------------------------------------------------------------------------
Thailand 62,487 89,171
------------------------------------------------------------------------
Steel Pipe Nipples, 1996-2002
Quantity in short tons
----------------------------------------------------------------------------------------------------------------
Country 1996 1997 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
China 294 316 1,161 1,532 2,249 4,256 7,681
----------------------------------------------------------------------------------------------------------------
Consolidation and Capacity Shutdowns in Welded Pipe and Tube
------------------------------------------------------------------------
------------------------------------------------------------------------
Consolidation
Wheatland--Sawhill April 2002
Maverick--LTV Tubular December 2002
Capacity Reductions (tons)--since November 2001
Laclede 450,000
Geneva 150,000
LTV Youngstown 170,000
Excalibur 150,000
Olympic Steel Tube 100,000
Total: 1,020,000
------------------------------------------------------------------------
Chairman CRANE. Thank you, and I would like to address my
first question to Mr. DiMicco.
Mr. DiMicco, it is my understanding that Nucor has received
certain State and local incentives to build modern steel-making
facilities. Part of the President's steel initiative involves
multilateral negotiations to eliminate market-distorting
subsidies. Do you believe State and local subsidies should be
included in the OECD discipline on subsidies to the steel
sector? Some would say that if a plan can't be built without
subsidies, it shouldn't be built. How would you respond?
Mr. DIMICCO. First off, the State tax issues referred to
that Nucor has taken advantage of have not been subsidies. They
only do anything if you actually make a profit.
Second, we are against all subsidies, and we would be very
happy to not be in a position to take advantage of those quite
legal incentives that exist in States until the rest of the
world gets its act together with respect to doing away with
subsidies everywhere.
[Additional information follows:]
As I stated at the hearing, we do not believe that Nucor receives
any subsidies within the meaning of the WTO Agreement on Subsidies and
Countervailing Measures. Any economic development incentives Nucor
receives from State and local governments are nonspecific and generally
available to any company in the United States.
Unfortunately, the foreign steel lobby has perpetuated the myth
that a small amount of generally available incentives somehow equate to
the massive government intervention provided to the non-U.S. steel
industry by foreign governments. There is no comparison.
Chairman CRANE. This is to all of you out there. I don't
know whether you heard the New York Times quote earlier about
the WTO ruling against our steep steel tariffs, and it has been
suggested that the threat of European Union (EU) retaliation is
not real. While retaliation prior to an adverse WTO ruling was
avoided through exclusions, the EU has already published a
retaliation list of $557 million worth of tariffs ranging from
8 to 30 percent that would automatically go into effect 5 days
after an adverse WTO ruling.
Do you think that retaliation is something that Congress
and the Administration should consider when deciding the best
course of action following the mid-term review? I put that to
all of you.
Mr. Gerard.
Mr. GERARD. Let me be the first to respond. I am sure that
it is well-documented in this room and other rooms that are in
these buildings, the steelworker position on the WTO. It is
interesting that America is losing almost every case that goes
before it, and it is undermining our very ability to set laws
for America.
I would hope that the House and the Senate, as well as the
Administration, would fight as hard for the American steel
industry as it did for bananas. We grow no bananas in America,
and we went to the wall to defend whoever sells them. The steel
industry is a vital, integral part of America's manufacturing
base, and dare I say, today, a strong, viable steel industry is
a national security issue.
When I talk about national security, I am not just talking
about ships, and tanks and guns. I am talking about roads, and
bridges, and computers, and all of the infrastructure that you
need to have a modern economy that can keep itself safe and
secure.
We, from the beginning, were convinced that the European-
based secret bureaucracy of the WTO would rule against us. We
have opposed the WTO from the beginning, and we will continue
to oppose it, but we will not stop defending the steel industry
and our members' jobs.
Mr. DIMICCO. Mr. Chairman, Dan DiMicco.
First of all, I never respond very well to blackmail and
threats from people for enforcing our laws. The Europeans have
these laws on the books. They file trade cases every bit as
much as we do. They file them against the Russians, they file
them against the Ukrainians, the Turks, the Indians, you name
it. This is a practice that is globally there to ensure that
trading takes place in a free, fair, and responsible manner.
For any entity--European or otherwise--to come out and threaten
that because we enforce our trade laws through a due process
system, not by just a knee-jerk reaction, they are going to
retaliate? I find that a bunch of hot air.
Number two, I would be very concerned if I were them
because last time I checked, we had a $45-billion-a-month trade
deficit. That means we are buying $45 billion a month more
goods from overseas than they are buying from us. It seems to
me, talking about killing the goose that lays the golden egg, I
see it as an idle threat, and I don't think our President
should pay any attention to it.
Chairman CRANE. Much has been said about global
overcapacity in the world steel market. At the same time, I
understand that U.S. firms have increased steel production
capacity since the Section 201 safeguard went into effect last
year.
Couldn't it be argued that the current problems in the
steel industry are caused, in part, by the addition of new
production capacity in the United States?
Mr. SHARKEY. I will take a crack at that.
I think, to place this question in perspective, the United
States is the only major steel-producing country in the world
that does not produce enough steel to meet its needs, and so it
is not a case of adding capacity to export, which is the
pattern around the world. It is capacity that is not built for
their home market, it is capacity that is built for export, and
it gets exported into the biggest, most open market in the
world, which is here. I think that is the critical point with
this particular question.
Second, the capacity that is being brought back on stream
is very low-cost capacity. Fundamental restructuring has taken
place. Steelworkers have been an important part of that. It has
gone on in the electric arc furnace sector as well. This is
low-cost capacity that is coming back. This is not surplus,
inefficient capacity.
Mr. GERARD. I would just add or support what Andy said,
that in a number of product lines, America has been driven out
of those product lines by the 30 years of market-distorting
practices, and I refer to some of them. Of major industrial
democracies, America is the only major industrial democracy
that does not produce enough steel to meet its domestic demand.
During the Section 201 hearings, we created a chart that
was based on steel consumption by a major country, producing
country and steel demand--excuse me--steel demand by producing
country and steel production. In almost every one of those
countries, they produced somewhere between 117 up to 210
percent of what their own domestic demand was, and I would be
more than happy, if you are interested, to make that available
to the Committee.
[The chart follows:]
[GRAPHIC] [TIFF OMITTED] 89863A.000
Chairman CRANE. Please do.
Mr. CONNORS. Could I add a little something to that? If we
are looking at it as a consumer-driven reason to have a steel
industry, why do all of these other countries make the numbers
that we just heard here way more than they consume? They make
more than they can consume as a national policy because they
recognize the economic impact on not just the steel companies
in their country, but on the entire supply infrastructure
pyramid that supports those companies. They get a supply
infrastructure that supports, in some cases, 210 percent of
their needs and export 110 percent of it, but keep all that
supply impact at home.
Mr. DIMICCO. Mr. Chairman, one final point. The capacity
that is coming back is actually going to be a benefit to
consumers in this country because it is coming back at globally
competitive cost structures, and that is a good thing.
The second thing I would like to say is the overcapacity
issue is not a U.S. issue. The overcapacity issue is a global
issue, and it really has its roots back to the collapse of the
Soviet Union, where they had several hundred million tons of
steelmaking capacity and after the collapse, they only had
about 30 million tons of consumption, and that is where this
whole thing started, and it just kept building through the
nineties, and it culminated in the late nineties with the
collapse in Asia of the Asian economies.
This has got a long history, but the problem is not rooted
here in the United States. We cannot supply our own needs. How
in the heck could we have an overcapacity issue here? That is
not the problem.
Chairman CRANE. Thank you. Mr. Levin?
Mr. LEVIN. Thank you. There has been reference to the WTO
decision. We are now just getting some of the details that are
supposed to be confidential. It is a preliminary report, and I
would hope that another look would be taken at it.
I supported a WTO dispute settlement system with finality,
and I still do, but what is happening with the WTO is I think
they are undermining their credibility surely as to safeguard
measures. We negotiated safeguard measures into the WTO. In the
12 cases involving safeguards, the panels have overthrown use
of the safeguard mechanism in every single case.
So, I think it isn't our use of safeguard mechanisms that
is on trial, it is mainly the WTO implementation, and I think
that is what is more on trial.
Let me also say, in terms of excess capacity, there has to
be a much more vigorous effort by this administration and
everybody else to deal with global overcapacity. If we simply
put our house in order here, and the international house is not
put in order, it isn't going to work.
Let me then ask about putting our house in order because I
don't think it is understood very well what steps have been
taken these last 18 months, say, to restructure, and all of you
have been involved in it in one way or another.
So, somebody graphically describe, in a minute or two, that
is all we have, what has been going on here, the restructuring?
It has been considerable. What has it meant? Don't divulge your
negotiating strategy, but just describe for everybody what has
been happening. Who wants to address that?
Mr. DIMICCO. Dan DiMicco from Nucor.
Before you can have any major restructuring,
rationalization and major competitiveness issue effected, you
have to go through a process of consolidation first. It is the
natural course of events in a market economy, and that takes
time, and people are not going to consolidate; i.e., go and buy
other companies if there is not a payoff down the road.
The Section 201 lent hope, a ray of hope, that there would
be a payoff, and a number of companies and organizations,
including Leo's organization, have taken some bold moves to----
Mr. LEVIN. Like what? Just describe the adjective.
Mr. DIMICCO. Well, first off, I would like Leo, in a
second, to comment about what has been going on, on the
integrated side because he is more familiar with that.
Even on the mini-mill side, of which Nucor has been a part
for 35 years, where it is considered to have a very efficient
type of steelmaking process and culture, we still have a lot of
inefficiencies that we need to take out of our operations and
out of our mini-mill sector. So, ourselves and Gerdau
Ameristeel have been consolidating the industry on the long-
product side. Nucor has acquired Birmingham Steel, Auburn
Steel, just this past week Kingman from North Star Steel, we
have acquired TRICO, which was a flat-rolled plant. The other
ones were all long-product plants.
By doing this, we were able to improve our cost structures
from an operating standpoint, a geographical coverage
standpoint in servicing the customers, and also from a
purchasing standpoint in pooling our purchasing.
Mr. LEVIN. Mr. Gerard, let me just interject, you mentioned
Mr. Gerard. So, what has been going on? Describe it.
Mr. GERARD. I guess I want to do this very cautiously
because I think----
Mr. LEVIN. I understand that, but just give----
Mr. GERARD. We have to be very careful that we are not
demanding a restructuring, and a reorganization and a
consolidation that happens on the backs of workers.
Mr. LEVIN. Right.
Mr. GERARD. Right now what has happened is--I made a point
of introducing some folks--a quarter of a million Americans
have lost their health care in the steel industry. What has
happened is that we have managed to find an investor ISG. We
have brought LTV Steel back on stream. We have reorganized the
workplace. We have taken out all kinds of layers of management.
We have completely organized the lines of progression. We have
put all new work practices in place. We did all of the new
rules. We negotiated a new pension plan after it was terminated
by the Pension Benefit Guaranty Corporation (PBGC). We have
negotiated new health care benefits after they were terminated
by the bankruptcy court.
The ISG has purchased Bethlehem, just closed a few weeks
ago, a week ago. We are in bargaining, as we speak, with that.
U.S. Steel is attempting to buy National Steel, as A.K. is.
They are in a bit of a competitive environment to try and get a
collective agreement, and someone is going to try to save
National Steel. Acme Steel has been brought back by ISG under
new rules, new consolidation.
The problem, up until now, with all due respect to
everybody in the room, is that consolidation has been done on
the backs of our retirees and our folks who have lost their
pensions and their health care benefits.
If you really wanted to help the consolidation, the PBGC
would not have preemptively terminated the pension plans
because by preemptively terminating the pension plans, the PBGC
has made it doubly hard to consolidate. The cost of delayering
the work force now falls on the purchaser, and the rules of the
game have been changed in midstream.
Let me just say that in the consolidation process, to even
have the review that you are asking for of the Section 201
makes the ability to consolidate the industry in the integrated
industry that much harder because you have got to go get the
money out of the marketplace. The ISG is going to do an initial
public offering.
If there was a pulling of the Section 201, the market would
respond. U.S. Steel and A.K. are going to have to find a way to
absorb National, whoever wins it. The market is going to
respond, and if you pull the Section 201, just the fact that
you are doing this hearing is affecting that marketplace.
Mr. LEVIN. Thank you.
Chairman CRANE. Mr. English?
Mr. ENGLISH. Thank you, Mr. Chairman, and let me just say I
am very appreciative of the way you have handled this hearing.
Let me say I am just becoming aware of the WTO decision that
has been handed down, and I am absolutely outraged. The WTO is
apparently not content merely to micro-manage our tax system.
They are also trying to dismantle America's trade laws and
change the rules in mid-stream. This is an essay in Yankee
bashing, and I am sick of it, and I can tell you we, in the
Steel Caucus, are sick of it, and we are not going to put up
with any more of it.
Now, Mr. DiMicco, I was motivated by something that was
said by the prior panel. Mr. Smith testified that your industry
is the most highly subsidized in America, the most highly
subsidized, I presume, more so than sugar, cotton, peanuts,
ethanol or wheat. Aside from local economic development
assistance, which I presume every one of that previous panel
had access to, what subsidies do you get, Mr. DiMicco?
Mr. DIMICCO. Zero.
Mr. ENGLISH. Zero? Donut?
Mr. DIMICCO. Zero, donut, nada.
Mr. ENGLISH. Mr. Dooner, you are a great employer in
western Pennsylvania, and I am sorry one of your plants is no
longer in my district, but certainly your employees still are.
You have been lean, you have been hungry, you received far less
benefit from the President's trade policy as a pipe and tube
company than other producers have. May I ask you what subsidies
do you get?
Mr. DOONER. Zero.
Mr. ENGLISH. Donut?
Mr. DOONER. Yes, sir.
Mr. ENGLISH. Your competitors, do they get subsidies?
Mr. DOONER. I don't know of any.
Mr. ENGLISH. Very good. Let me move on to a couple of other
questions. Mr. DiMicco, how much have you increased your prices
during the first year of the President's remedy and what are
the current pricing trends?
Mr. DIMICCO. You have to look at different product lines.
We will talk about flat rolled, being the one that has been
most impacted by the marketplace and potentially by the Section
201.
Just prior to January 1, 2002, LTV Steel announced that
they were shutting down in their previous quarter. That
shutdown created a shortage of steel and a change in the
pricing dynamics of the marketplace. Prices started going up
effective January 1, 2002, not based upon a Section 201 tariff,
which had not even been put in place or ruled on yet. It wasn't
going to go into place until March, a couple months later.
The major pricing dynamics that took place in flat rolled
had to do with a change in the balance of supply and demand
brought about by the LTV Steel closing. At that point in time,
a pricing dynamic materialized, where pricing, over the period
of the next 6 to 9 months, went up and peaked, in terms of
actual transactions for hot band, from $200 a ton to maybe $350
a ton.
Since LTV Steel has brought back on their additional
capacity, that pricing has now softened back to $300 a ton or
in that neighborhood. So, we have gone through that type of
move. The only reason why it has not gone back to $200 a ton is
because the Section 201 has effectively stopped the illegal
trading activity that was going on, except in a very few cases
where there were some surges coming from developing countries
that we are asking the USTR to address today.
Mr. ENGLISH. So, your products haven't experienced the
price surge that you heard described during the last two
panels.
Mr. DIMICCO. There was a price surge initially, but not due
to the Section 201, and it has since moderated and come back
down because of the balance of supply and demand, and it is----
Mr. ENGLISH. You have not heard of in your product lines,
30- to 50-percent price increases?
Mr. DIMICCO. Well, first of all, the price went down by 50
percent, from $400 a ton to $200 a ton, and so what we have
achieved is a partial restoration of already historically low
pricing. I would like to know what people did with the money
they made when the price of steel went from $400 to $200 while
they were still experiencing their higher contract prices with
their customers.
Mr. ENGLISH. So would I. Mr. Sharkey, what would be the
consequences of terminating the remedy before the full 3 years?
Mr. SHARKEY. Can I make just one quick comment on Dan's?
Mr. ENGLISH. Yes.
Mr. SHARKEY. One other thing we need to keep in perspective
here is that a substantial amount of steel that is bought in
this country is bought on contract. It is not necessarily
bought on the spot market, and so a lot of the customers, last
year in 2002, who had negotiated annual contracts, negotiated
those contracts late in 2001, and Nucor and other steel
producers, with very, very few exceptions, honored those
contracts throughout 2002.
So, the increases that you are hearing about were primarily
from buyers buying from a service center market, buying on the
spot market, who tend to have much more volatility in their
pricing.
Mr. ENGLISH. Before my time is up, early termination of the
policy, your anticipation of the consequences?
Mr. SHARKEY. Early termination, I would simply support what
Leo Gerard said. It will have a significant impact on the
capital markets. That is critical to the restructuring of the
industry. This industry is fragile right now. There has been
some improvement, but early termination would basically send
the signal that it is going to go back to the way it was
before.
Mr. ENGLISH. Thank you all, and thank you, Mr. Chairman.
Chairman CRANE. Mr. Cardin?
Mr. CARDIN. Thank you very much, Mr. Chairman.
Mr. Gerard, I was struck by your comment about the
relocation of companies by the last panel, which I think you
are stating the obvious. You don't make those decisions in a
few months, so I think that point is very well-taken, and I
would like to get a response from the last panel, and maybe we
will have a chance to do that by inviting a written response.
I also share your concerns that we have restructured on the
backs of our steel retirees. Again, I would invite Members of
this Committee to join me at some of the meetings that we are
having with Bethlehem Steel retirees and listen to their
stories because I do think it is a broken commitment by our
Nation to the steelworkers, and it goes back many, many years,
when we talked about working to reduce capacity in this country
and gave at least an implicit assurance to our workers that
they would be protected and, in fact, they are not.
I would just like to get your response on the language we
use here about restructuring. I understand the politics of
restructuring. We have to show the world that we are doing
things differently here, but we are doing things differently
here, and we have for the last several decades. Whereas, the
rest of the world has not, the steel producers have not.
You have mentioned several times that we don't produce
enough steel for our own needs, that we have reduced capacity.
You haven't, I think, emphasized enough the type of investments
that we have made in steel in modernization over the last
couple decades to become a very cost-effective, efficient
operation.
So, I understand the politics of talking about
restructuring, and we have to do that as part of our
international discussions, but I wish you all would talk a
little bit more about what we have already done, not in the
last 18 months, but we have done in the last 15 to 20 years,
because there has been dramatic changes in the steel industry
in the United States, which has not been matched by our
partners, and I would invite your comments.
Mr. GERARD. Not to give another history lesson, but we have
been driven out of a lot of product lines in this country over
the last 30 years by what the U.S. Department of Commerce
reports as 30 years of systemic, market-distorting practices by
``our trading partners,'' and I went through a small list of
what we can't produce any more, but that list is much, much
greater.
During the 15 years prior to the imposition of the Section
201, the domestic steel industry invested $60 billion--with a
``B''--in ongoing modernization. One of the first mills to
close in this last round of steel crisis, brought about, as Mr.
DiMicco said, by those collapses of those other global
economies.
One of the first mills to close was Gulf State Steel in
Alabama. Gulf State Steel was able to produce steel at a rate
of man-hours per ton lower than 300 million tons of the global
overcapacity that existed outside of the United States. For
example, Russian mills were producing 2 million tons, with
22,000 workers, 16 man-hours per ton. Yet they were selling
steel in this country at $100 a ton lower than we could.
We can't compete. It is immoral to ask us to compete with
that. So, that the steel industry has been continuously
investing in a modernization program, and we understand that
that investment in the modernization can mean only one of two
things: You are either going to produce the same amount of
steel with less people or you are going to produce more steel
with the same amount of people.
We have not been able to produce more steel with the same
amount of people because we have been systematically targeted,
product line by product line, and once we have been driven out
of that market, they move to another one. That is why we filed
130 dumping complaints, and we won them all, but that is why
nothing changed and why we went to a Section 201.
Now, the end result is I think it would be tremendously
appropriate for this Committee to hold a hearing on what is
happening to the quarter of a million citizens who have lost
their health care as a result of illegal trade activity. I
think it would be totally appropriate for this Committee to
hold a hearing on what the overvalued dollar is doing to not
only the steel industry, but the manufacturing industry's
ability to compete in the world.
At some point, we have got to quit being the world's
``patsies'' for some kind of ideological stuff that does not
exist. Free trade does not exist unless it is fair trade, and
no one can demonstrate any of our trading partners that are
abusing us that are trading fairly with us.
Mr. CARDIN. Let me thank all of you for your testimony.
Thank you, Mr. Chairman.
Chairman CRANE. Thank you. Mr. Becerra? Oh, I am sorry. I
missed someone.
Mr. BECERRA. Mr. Chairman, I will yield to Mr. Houghton
from New York if he is next.
Mr. HOUGHTON. No, no, go ahead.
Mr. BECERRA. No, go right ahead, Mr. Houghton.
Mr. HOUGHTON. Age takes its place.
[Laughter.]
Mr. BECERRA. I was going to say beauty, but either one.
Mr. HOUGHTON. Age before beauty, is that it?
Well, first of all, thank you very much for being here. You
give really a balanced position and, again, I am sorry that
there was not a little dialog or debate between the users and
the producers.
Mr. DiMicco, nice to see you. You have a plant in our
district. I have got just a couple of questions, and then I
would like to ask a broader question. First of all, you have
never been involved in a trade dispute discussion like this--
why now? Then, second, wouldn't you be doing what you are doing
even without the Section 201 tariffs?
Mr. DIMICCO. To answer your first question, for over 35
years, Nucor was not a company that would get involved in trade
issues. Typically, our rationale behind that had more to do
with the way our operations continued to grow through new
technologies. We have become known as an innovator in the steel
industry, not just in the United States, but globally. We have
reduced the cost to produce steel by 50 percent over the last
35 years.
However, things got so bad with the illegal trading
activities that were taking place, the fact that our laws were
being blatantly ignored that even Nucor couldn't sit on the
sidelines any more. Companies as efficient, worldwide
recognized as efficient as Nucor, could no longer earn their
cost of capital.
Companies like Nucor, who reinvested in new technologies
like thin slab casting, and today in cast strip, casting sheet
steel directly from liquid, could no longer earn their cost of
capital and reinvest in those technologies because of the
blatant disregard for our trade laws.
When people start ignoring our laws and breaking the law,
it is our right, as citizens and businesspeople, in this
economy of ours, to stand up and ask our government to enforce
those laws, and that is all we did. That is all we were asking
for, and it was so bad that even Nucor could not ignore it any
more.
As far as what we would be doing today in the way of
consolidation, Nucor has taken a very active role in
restructuring and consolidating the industry on the long
product side, on the mini-mill side, we would not be doing it
today without the Section 201. You cannot invest a dollar into
something you can't get your cost of capital out of, and it
would not be happening, and it certainly would not be happening
on the integrated side either. Thank you.
[The information follows:]
Congress should also correct the flaws in our trade laws that
actually lead to import surges and repetitive dumping. Today, we can
spend a year or more prosecuting a dumping case only to see imports
increase from new, non-covered sources. This ``country/product
switching'' scheme is repeated over and over again. As noted above, we
also need to close a loophole that allows ``duty absorption,'' in which
the target of a successful trade case simply absorbs the duties and
continues dumping. And we need an effective import licensing program to
provide early warning of import surges. These flaws and others in the
trade laws are addressed in legislation introduced in the 107th
Congress by Rep. English, Levin, Houghton, and Cardin, H.R. 1988, and
by Rep. Berry, H.R. 3571. They should be supported by this
Subcommittee.
Further, as I indicated in my testimony, this Administration should
pursue a sounder dollar. At the least, the United States should send
the message that we expect our trading partners in the Far East to stop
the widespread and deliberate currency manipulations. Every sector of
our economy, from agriculture to manufacturing to services, is hurt by
currency manipulation by China and other governments. For example,
China has pegged its currency against the dollar at a rate that is
estimated to be 40 percent lower than its actual value. This is a
massive subsidy that is causing a huge trade deficit with China. Every
day, U.S. jobs are going to China because of this advantage. While the
Chinese economy grew at 17% last quarter, our economy is sputtering.
Our economic recovery is being thwarted by the currency management
policies of China and others. This situation demands our government's
action.
Mr. HOUGHTON. Thank you. Well, I can't speak for anybody
else, but I think a lot of us will try to keep the Section 201
as it is and not shorten it, and also we will try to put some
rules, and some understanding, and some manners in the WTO
decision, which is wrong, but I want to look over the next
hill.
As Bill Kleinfetter knows so well, I have said many times,
if we are not careful, we are going to become a country and a
warehouse for goods we can't afford to buy. So, the question
is, after Section 201, what happens? Where do we go? How do we
protect ourselves? How do we protect this market of ours? This
is a temporary deal, as you know, and we will get over this WTO
ruling in some way, but long term we are constantly going to be
barraged by people who use their own economic system to
undercut ours, and therefore get a share of the market, which
ultimately we won't be able to afford. Tell us what we should
do.
Mr. GERARD. I guess it may lead us into an ideological
discussion because----
Mr. HOUGHTON. Well, we don't have time for that.
[Laughter.]
Mr. GERARD. My comment would be to reiterate the comment I
made at the end of my last comment, and that is that America
can't throw open its markets without having a series of rules
that demand unfair trade. Make the point one more time. America
is the only industrial democracy in the world where the ability
of a retiree to have health care is directly related to the
ability of his employer to stay in business.
Mr. HOUGHTON. Can I just interrupt a minute? So, what you
are saying is that we are going to have a series of Section 201
or 301, super 301 cases; that is the inevitable course of our
trade?
Mr. GERARD. I think what will happen in steel, and God only
hope I am wrong, is that no matter how low we can drive the
price of steel domestically by the efficiencies we are putting
in place, unless we have a series of rules, pick the Russian
mill that I just talked about, they are not trading in steel
here for competitive reasons; they are trading in steel here to
bring dollars home, and they are using their steel industry as
an employment industry.
Mr. HOUGHTON. I am not worried about Russia. I am worried
about us.
Mr. GERARD. My argument about that is that unless we have a
series of defensible rules, they will continue to dump into
this market.
Mr. HOUGHTON. The 301 or Section 201 are not sufficient; is
that right?
Mr. GERARD. I don't think they will be sufficient in 5
years because the next downturn in their economy, they are
going to dump into ours.
Mr. HOUGHTON. Could I just ask one thing, Mr. Chairman?
Maybe you could tell us what you think the rule structure ought
to be. Thank you.
Mr. GERARD. I will be glad to send you some written stuff.
[The information follows:]
1. A Strong Rules-Based Trading System is Essential
First and foremost, defensible trade rules require the maintenance
of the system of rules-based international trade established by the
GATT and WTO agreements on anti-dumping, subsidies and countervailing
measures, and safeguards, in particular. This rules-based system must
be strengthened, not weakened.
Over the course of many multilateral negotiating rounds since the
beginning of the GATT in 1947, tariffs on goods have been reduced
substantially. The lowering of tariffs, however, intensifies the need
for effective trade rules that can address unfair trade practices.
The promise of trade liberalization can only be achieved through a
rules-based system that promotes fair trade. Indeed, a healthy and
vigorous rules-based system will promote increased trade because it
will create a trading environment that establishes the ``rules of the
road'' for all players and maximizes benefits for all. However, without
the availability of trade remedy mechanisms, such as anti-dumping,
antisubsidy, and safeguard laws, to address market distortions, trade
liberalization will fail. As Ambassador Zoellick has noted, ``(g)iven
America's relative openness, strong, effective trade laws against
unfair practices are crucial toward maintaining domestic support for
trade.'' USTR, President's 2002 Trade Policy Agenda, April 2002, at 7.
2. Proposals for Reform/Improvement of International Trade Rules
The Committee to Support U.S. Trade Laws (CSUSTL), of which the
USWA is a member, is an organization comprised of American companies,
trade associations, agricultural producers, labor organizations, and
law firms. CSUSTL supports the efforts of the U.S. Government to
strengthen international disciplines and U.S. laws against unfair trade
and to counter efforts to weaken U.S. trade laws. CSUSTL believes that
strong and effective laws against unfair trade are critical to the
survival of competitive U.S. industries and actively promotes reform of
U.S. trade laws to make them more effective. To this end, CSUSTL has
formulated proposals for the improvement and reform of the rules-based
system. In particular, CSUSTL has identified numerous examples of trade
distorting practices of foreign governments that need to be addressed
to assure that the usefulness and effectiveness of the rules-based
trading system is not undermined. Such trade distorting practices
include
1. Lemployment-based industrial policies that result in maintenance
of vast overcapacity in steel, agriculture, textiles, and other
industries,
2. Lthe buildup of strategic industries by foreign governments
(e.g., steel, semiconductors, agriculture, aerospace and technology),
3. Lclosed home markets, and
4. Lexport targeting that results in excess capacity and export
flooding to maintain an employment base.
In an effort to improve the rules-based system, CSUSTL has compiled
a Priority Issues list that identifies twenty-two issues of prime
importance to ensuring that the American business and agricultural
communities and their workers are beneficiaries of trade rules, instead
of victims of trade distortions. CSUSTL also proposes corrective
actions with respect to each issue. The 22 Priority Issues are:
LWTO dispute settlement in trade relief actions;
Lprohibited subsidies;
Lalternative causes of injury;
LContinued Dumping and Subsidy Offset Act (CDSOA);
Lprivatization;
Lelimination of injury test;
Leffective action against fill-in countries;
Lpresumption of injury for repeat offenders;
Lsunset reviews;
Lcircumvention based on upstream dumping;
Lcircumvention based on input products;
Lde minimis thresholds;
Lnew shipper reviews;
Lindirect subsidies;
Laccess to trade remedies by farmers and ranchers
producing perishable, seasonal and cyclical products;
Lzeroing;
Lcalculation of all other rates;
Lnegligibility thresholds;
Lstanding;
Lverification;
Lfacts available;
Ladjustments.
The full text of CSUSTL's proposals for reform and improvement of
international trade rules may be found at: www.rulesbasedtrade.org/cms/
fileadmin/user_upload/Proposals_for_Reform_CSUST L_01.pdf. For further
information, the Subcommittee may consult CSUSTL's website:
www.rulesbasedtrade.org.
3. The Problem of Structural Excess Capacity in the Context of
International Trade Rules
In Mr. Gerard's testimony, his reference to the ``Russian mill''
example was a reference to the problem of global excess capacity in
steel, and how in many countries (e.g., Russia) market signals do not
operate properly, but rather, governments interfere in the market and
maintain steel excess production, among other reasons, as a means of
providing employment for their citizens. The result, of course, is that
too much steel is produced worldwide, and that steel, needing to find a
market, is likely to be dumped in the most open market available, the
United States. Structural excess capacity and production has been a
persistent problem, not just in the steel sector, but in other sectors
as well. Because excess capacity is the result of governments and
companies ignoring market signals, the trade rules in place at present,
such as the anti-dumping laws, antisubsidy laws, and safeguard laws,
are not completely effective in dealing with this trade distortion.
This is the case because, while the existing WTO trade rules address
individual member rights and obligations, they are not fully capable of
addressing multilateral problems needing multilateral solutions.
Also, because the problem of structural excess capacity is global,
without multilateral rules individual nations cannot adequately address
the problem through the use of trade remedies alone, although many have
tried. Almost every steel producing nation with trade remedy laws has
conducted anti-dumping, antisubsidy, and/or safeguard investigations
concerning steel products, with some countries conducting dozens or
even hundreds of investigations. The sheer number of these
investigations, however, demonstrates that the underlying root causes
of global excess capacity have not been corrected. It is time to
reconsider the problem of structural excess capacity and to formulate
new multilateral rules and disciplines to correct this chronic problem.
Indeed, with respect to steel, one of the goals of the President's
3-part steel program has been to finally address and fix the root
causes of global excess capacity in the steel sector. As Undersecretary
of Commerce for International Trade Grant Aldonas has said: ``The time
has come to find a lasting solution--one that restores market
conditions to the steel trade globally. We must find a way to get rid
of the government interference and underlying distortions in the market
that have produced the global glut in the first place.'' Testimony
before the Senate Finance Committee, February 13, 2002. Thus, one part
of the President's steel program (another part being the President's
request for the Section 201 investigation) is focused on working to
address the problem of global excess capacity through multilateral
negotiations with other steel-producing countries. In addition, the
President, in the third prong of the steel program, is trying, through
the OECD, to correct market distorting practices through enhancing
disciplines on steel subsidies and other distorting practices.
Undersecretary Aldonas has noted that ``the problem of overcapacity
will likely recur without effective market disciplines.'' Id.
In sum, given the persistent problem of global excess capacity in
the steel sector as well as others, it is apparent that, in addition to
the existing trade remedy measures, multilaterally agreed rules are
called for in order to efficiently address the distortions in trade
flows that result when actions of governments distort market signals.
The current efforts of the OECD steel negotiations are a start, and,
from that basis, countries should work to achieve a multilateral
agreement that adds effective rules aimed at eliminating inefficient
excess capacity.
With respect to the problem of, and ways to address, structural
excess capacity in the context of a rules-based trading system, I note
for your consideration two publications authored by Terence P. Stewart,
of the Law Office of Stewart and Stewart in Washington DC (Mr. Stewart
has acted as the USWA's special counsel in a number of international
trade matters, including the Section 201 investigation on steel). Both
of the following publications address the problem of structural excess
capacity, using the steel sector as an example.
LRules in a Rules-Based WTO: Key to Growth; The Challenges
Ahead (Transnational Publishers 2002).
LOpportunities in the WTO for Increased Liberalization of
Goods: Making Sure the Rules Work For All and That Special Needs Are
Addressed, 24 Fordham International Law Journal 652 (Nov.-Dec. 2000).
(Electronic versions of these publications are attached).
With respect to Russia, I would note that, one condition that
contributes to excess production of steel and other products is the
artificially low prices of natural resource inputs in Russia. Even
despite continuing concerns about Russia's regulation of ``natural
monopoly'' prices (e.g., natural gas, oil, electricity, transport
services, and so forth.), both the EU and the U.S. have now recognized
Russia as a market economy. In the case of the EU, the EU apparently
insisted that Russia agree to raise natural gas prices closer to world
levels before the EU would agree to give Russia market economy status.
And, in their revised anti-dumping law, the EU added a provision that
addresses unrepresentative costs of production. It states that if costs
associated with production and sale of the product under investigation
are not reasonably reflected in the records of the party concerned,
then the costs shall be adjusted based on costs of other producers or
exporters or on an other reasonable basis including information from
other representative markets. Council Regulation (EC) No. 1972/2002 of
5 November 2002, OJ L 305/1, 7.11.2002, p.2 (http://europa.eu.int/eur-
lex/pri/en/oj/dat/2002/l_305/l_30520021107en000100 03.pdf).
The U.S. decision to recognize Russia as a market economy notes
that ``despite repeated double-digit annual percentage increases, most
regulated prices, particularly those for gas and electricity (43
percent of the generation of which is gas-based), remain well below
world-market levels and may not even cover the cost of production.
Thus, . . . regulated energy prices in Russia remain a significant
distortion in the economy, as they encourage the wasteful use (mis-
allocation) of Russia's energy resources and slow the adoption of more
efficient production methods.'' Department of Commerce, Decision
Memorandum re Inquiry into the Status of the Russian Federation as a
Non-Market Economy Country Under the U.S. Antidumping Law, June 6, 2002
(emphasis added) (available at http://ia.ita.doc.gov/download/russia-
nme-status/russia-nme-decision-final.htm). The Decision Memorandum,
however, does not indicate how, in the context of future antidumping
proceedings involving imported products from Russia, the Department of
Commerce intends to account for the ``significant distortion'' of
regulated prices that are below the cost of production. This will be a
persistent problem as long as Russia continues to regulate the prices
of natural gas, electricity, oil and other resources and keeps them
below world market levels.
4. The Problem of Misaligned Currencies
Another persistent problem that creates trade distortions in
international trade is misaligned currencies. Currency misalignment can
be characterized by under-valuation or over-valuation, either of which
can significantly affect the rules-based trading system, because
misalignment results in misallocation of economic resources and
undermines stability. Undervalued currencies, in particular, can
produce false market signals--making it appear that industries in the
country with an undervalued currency are more competitive than they
actually are, leading to overexpansion of production and export
flooding by particular products.
Moreover, the existing trade rules are not adequate to address the
problems caused by misaligned currencies. Indeed, where countries do
resort to using WTO trade rules to address floods of injurious imports,
currency misalignment can affect dumping margin calculations by
producing distorted or inaccurate margins.
Of late, China has been singled out as a country with an
undervalued currency that has had substantial negative effects on
trade. Economists have observed that China manipulates its currency
through large and persistent central bank purchases of dollars and
other foreign currencies, resulting in the RMB being undervalued by
about 40 percent. The effect of this undervaluation is that the U.S.
trade deficit is about $100 billion larger than it would otherwise be,
which translates into one million fewer U.S. jobs in manufacturing. See
Chinese Currency Manipulation and the U.S. Trade Deficit, Statement
Before the U.S.-China Economic and Security Review Commission by Ernest
H. Preeg, Senior Fellow in Trade and Productivity, Manufacturers
Alliance/MAPI, September 25, 2003, (available at http://www.mapi.net/
filepost/PreegTestimonySep2503.pdf). The current concern about China's
undervalued currency and its effects on U.S. manufacturing and
increased imports has led to a number of proposals presently introduced
in Congress to address this problem. One example is the recent bill (S.
1586) introduced by Senator Schumer (see http://
frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_cong_bills&doc
id=f:s1586is.txt.pdf).
S. 1586 notes that:
1. LChina's currency is artificially pegged below its market value
by 15-40 percent, or an average of 27.5 percent;
2. Lthe undervaluation of the yuan makes exports from China less
expensive for foreign consumers and foreign products more expensive for
Chinese consumers, which effectively result is a subsidy to China's
exports and a virtual tariff on foreign imports;
3. LChina's undervalued currency and the U.S. trade deficit with
China is contributing to significant U.S. job losses and harming U.S.
businesses;
4. LChina has intervened in the foreign exchange markets to hold
the value of the yuan within an artificial trading range; and
5. LChina's undervalued currency and intervention in the value of
its currency violates the spirit and letter of the world trading
system.
To address this problem, S. 1586 would ``impose a rate of duty of
27.5 percent ad valorem on any article that is the growth, product, or
manufacture of the People's Republic of China, imported directly or
indirectly into the United States'' unless the President certifies to
Congress that China is no longer manipulating its exchange rate and
that its currency is valued in accordance with accepted market-based
trading policies.
The example of S. 1586 shows that the existing WTO Agreements on
antidumping, subsidies and countervailing measures, and safeguards,
while designed to address injurious or increased imports, are not
designed to correct the effects of currency misalignments, even though
that problem may cause or exacerbate injurious or increased imports.
The problem of currency misalignment, like that of global excess
capacity, should be addressed on a multilateral level with the aim of
adding effective rules to the rules-based system that will prevent and
eliminate the injurious trade distortions caused by currency
misalignment.
For further review of this issue, I would direct your attention to
the Stewart publications noted above, as they also address the problem
of currency misalignment.
[The attachments are being retained in the Committee files:]
Mr. HOUGHTON. Thank you.
Chairman CRANE. Mr. Becerra?
Mr. BECERRA. Thank you, Mr. Chairman. I am wondering if
anyone on the panel would like to venture to give us an
estimate of what this means to the average American, the
average family out there, in terms of cost to him or her or to
a family. So, Section 201 is a tariff, it is a cost. It means
that we can't have a steel product brought into this country at
a cheaper price, and some would say that we should always let
in whatever is cheapest come in so that we could have it at the
best price so American consumers can save as much as possible
so their pocketbook isn't hit.
I am wondering if you can give me a sense of how much
Americans are having to pay in extra cost as a result of
Section 201 so we can see if it is really something Americans
would be willing to absorb, given that you otherwise lose, and
Mr. Gerard said 275,000 people with their health care. I think
if Americans had a chance to see what the consequences are of
letting an industry die in America, that they might be willing
to absorb the additional cost that they may have to pay for the
automobile or for the dishwasher because it has steel in it.
How much are we talking about the American family having to
pay in extra cost to preserve an industry that is facing
dramatic increases in imports that are, for the most part,
being produced because of major subsidies by those foreign
countries where those imports are produced?
Mr. SHARKEY. Sir, I can't give you a macro number, but
maybe I can give you a specific example that might be helpful.
In a typical four-passenger sedan that, on average, costs
$25,000 to $26,000 a year, there is $700 worth of steel.
Mr. BECERRA. That is it.
Mr. SHARKEY. Seven hundred dollars worth of steel. There is
more health care in the car than there is steel.
Mr. BECERRA. A Section 201 action over the last few years--
--
Mr. SHARKEY. A Section 201 action, even if you assumed that
it raised the price of that automobile $100, which we think is
high----
Mr. BECERRA. That would be one-seventh, or it would be
about 14 percent.
Mr. SHARKEY. Correct.
Mr. BECERRA. That would seem very high that the Section 201
action would have increased the price of that steel for that
auto manufacturer that much.
Mr. SHARKEY. What we know is that, basically, the price of
automobiles fell last year, and so if you look at the producer
price index for most steel-containing products, they actually
declined. My point is it is really pretty minimal.
Mr. BECERRA. You don't buy a new car every year.
Mr. SHARKEY. No, I don't anyway.
Mr. DIMICCO. Dan DiMicco. A new car, if I could?
Mr. BECERRA. Go ahead.
Mr. DIMICCO. The real cost to the American consumer will be
the continuing loss of manufacturing jobs in this country,
high-paying jobs.
Mr. BECERRA. Mr. DiMicco, I know that. I am trying to,
because most Americans aren't going to be told, as much as they
might be concerned about their fellow Americans losing a job,
at the end of the day they are going to be told, ``Do you want
to pay X amount more for that car, for that dishwasher, for
that whatever it might be?''
I am trying to get a sense, if Americans knew what the
additional cost would be to help fellow Americans retain a job
and help fellow Americans retain an industry that has been part
of America for time and memorial, I am wondering, if we could
give them a sense, they might be willing to say, ``Okay, wait a
minute. Let us have the Section 201. We are willing to do this
because we understand that if we don't we have that loss for
Americans of those jobs.''
If you could give me a sense, I am trying to quantify, as
difficult as that might be, and Mr. Sharkey tried to do that.
Mr. CONNORS. Could I jump in and show off my math skills?
Mr. BECERRA. Let me see if Mr. DiMicco wanted to answer,
and I know Mr. Gerard wanted to say something, and then, of
course, Mr. Connors, you can chime in as well.
Mr. DIMICCO. My point to you would be this: The average
American consumer doesn't give a hill of beans about the
Section 201.
Mr. BECERRA. Right, they don't know about it.
Mr. DIMICCO. They don't know about it because it is not
impacting their pocketbook, it is not impacting their bottom
line.
Mr. BECERRA. The argument is made----
Mr. DIMICCO. There are other macros things that are, and I
know you don't want to talk about them right now, but that is
something we need to talk about.
Mr. BECERRA. It is not that I don't want to, it is just
that what I am trying to get a sense is, is that the argument
is being made to the American public we have to have the most
competitive products come to America, and right now people will
say that the most competitive markets we can get in America on
steel come from abroad. What I am trying to say is can we
explain to the American public what they are sacrificing to get
those cheaper products?
Mr. DIMICCO. As more and more people lose their jobs while
you follow that logic, more and more Americans are going to be
concerned about just getting the cheapest thing instead of
getting something that is balanced.
Mr. BECERRA. They won't have the jobs to pay for them
afterward, either. Mr. Gerard and Mr. Connors?
Mr. GERARD. I will be really brief. I was holding this up,
and you can probably see the red lines. There is the bottom of
the crisis in steel. That was the price. This line is the 20-
year average price of steel, and there is the price of steel
today. So, when I say there is a lot of whining going on, on
the last panel, this is a fact. This isn't just me.
[The chart follows:]
[GRAPHIC] [TIFF OMITTED] 89863A.001
Mr. BECERRA. So, prices are still lower than they were or
the average----
Mr. GERARD. Prices are lower than the 20-year average. To
quote Dan, I want to know what they did with all of the money
when the prices went down.
Last, the average increased cost of a refrigerator, to give
you a specific, if the full implementation of the tariff was
passed on, and it is never all fully passed on, is $4.
Mr. BECERRA. Mr. Chairman, I know my time has run out, but
Mr. Connors did want to answer.
Mr. CONNORS. Well, 260 million people in the United States,
130 million tons of steel. That is one-half a ton per person. A
$100 increase in the price of a ton of steel is a dollar a
week.
Mr. BECERRA. Thank you.
Chairman CRANE. Mr. Jefferson.
Mr. JEFFERSON. I want to ask about what is going on with
restructuring in the industry. The whole point of the Section
201 action was to I suppose achieve some efficiencies in the
industry through restructuring, which is one way. There may be
other ways, but what has happened with respect to that?
I have seen varying reports on it, but is there any
progress being made? If so, specifically what is it in, and is
it all going to be done, and how long is it going to take to
get this done? On the mini-mill side and the big companies.
Mr. DIMICCO. The restructuring that is going on is of an
order of magnitude never seen before in the United States and
very seldom seen anywhere in the world. There are massive
reorganizations taking place, both on the integrated and
minimal side. The fragmented industry is becoming significantly
less fragmented. Costs are going down by not 2 or 3 percent, by
20 or 30 percent, and this process has to continue--it just
takes time to get through to its completion.
The first thing you do is you go through a process of
consolidating. The ISG buys Bethlehem. It takes a year to get
that done. Then you have to go in, and you have to organize,
you have to get your systems working together. You look at what
operations should be kept going or shut down, if any. You look
at what kind of money you have to reinvest to take advantage of
that consolidation to its fullest.
That is why this is not something that can be dealt with in
a 6-month period, a 1-year period or a 2-year period, and 3
years may not be enough to get us all the way there, but
shortening it certainly makes it even more difficult, if not
impossible. That is why the full 3 years is needed.
The second thing I want to emphasize here is that these
people were breaking the laws, and this Section 201 that has
been put in place is to deal with the fact they were breaking
the laws repeatedly. Even though it is not required by the
Section 201 to prove that they were breaking the law, they were
so good at breaking it and getting around our trade laws that
the safeguard measure was put in place. The WTO maintenance
safeguard measure, a rule of law in the WTO for that very
purpose, and we put it in place to stop the illegal activity
that was going on because that was the only way we could do it.
I will let Leo talk some more about the consolidation on
his side.
Mr. GERARD. The consolidation in the integrated side is
more profound than it has been since the birth of the industry,
I guess. My concern, quite frankly, is that the consolidation
is going on, on the backs of our retirees, both through the
termination of the pensions, as a result of the preemptive
action by the PBGC, and the fact that the bankruptcy courts, as
was reported earlier, the bankruptcy courts just yesterday
terminated the health care provisions of 90,000 Bethlehem
retirees.
I think that the Committee on Ways and Means could do the
country a real service by holding hearings on the termination
of pensions and on the loss of health care by a quarter-million
Americans and judging what that has done to America's
competitiveness.
Mr. JEFFERSON. Is a major part of the issue here that
impedes restructuring or whatever, is it the issue of this
legacy cost?
Mr. GERARD. This is a catch-22 for the industry and for our
members.
Mr. JEFFERSON. If that is true, does Section 201 really
have enough coverage to address that issue?
Mr. GERARD. No, and let me come at it another way. When I
talked about the $60 billion that had been invested in
modernization in the last 15 years, and if you do the series of
steel crises, the industry went through a series of
modernizations, and rationalizations and closing any fishing
facilities to get productivity up, and that resulted in a lot
of plant closures resulted in a lot of retirees. It resulted in
a lot of cost to the employer.
The Section 201 provided a breathing space, but it didn't
take anybody out of bankruptcy. No company that went into
Chapter 11 bankruptcy, as of yet, has come out on its own.
Mr. JEFFERSON. Let me switch gears here because Mr. DiMicco
said some things about the Port of New Orleans coming in. When
I first heard him start speaking, and of course that is my port
and my city, and they, of course, are complaining to me about
the loss of jobs, the loss of business at the port, and your
report is quite different from their report.
The panel before talked about the prices, but they talked
about prices spiking up considerably. I saw the 20-year average
that you had there, but there has been a spike-up in it, and
they complain of something they call it as egregious as price
gouging. Of course, you deny that on your end of it.
I read this report that somebody did about the Port of New
Orleans, but it contradicts what our folks are saying. I will
have some questions about that when our people get up there,
but how can we have such contradictory reports about what is
happening in the Port of New Orleans without our folks haven't
been talked to. They tell me that no one has talked to them.
They make their reports to me about what is going on, and yet
you make a different representation.
Mr. DIMICCO. Well, some people misrepresent the facts, some
people don't.
Mr. JEFFERSON. Are you claiming the Port of New Orleans is
misrepresenting the facts?
Mr. DIMICCO. I am saying that you can make numbers say
anything you want, and I know that the numbers that we put in
there are from the Port of New Orleans' own numbers, and the
State of Louisiana's own numbers and not something we made up.
The other thing I would like to say is there is a big
difference between price gouging and price restoration.
Remember, the price dropped 50 percent before prices went back
up again. They never went back up to the original levels prior
to the illegal trading. This is not an issue of price gouging,
as some people earlier proclaimed. It is an issue of a price
restoration from illegally traded goods that destroyed the
pricing structure.
Mr. JEFFERSON. We will try to get the records straight when
the Port of New Orleans shows up in a few minutes.
Chairman CRANE. Mr. Neal?
Mr. NEAL. Thank you very much, Mr. Chairman. I want to
thank the panelists as well.
Mr. Gerard, that testimony you delivered, with such great
passion and emotion, that could have been a speech delivered at
the Democratic Caucus 2 days before a trade vote. The issues
you raised have bedeviled most of us on this side of the aisle
largely because in the seats where you are sitting we often
hear from professors, economists, business executives, and even
editorial writers. Do you know what happens when these trade
agreements go into effect? Not one of them ever loses their
job. Not one of them loses their pension benefits. None of them
ever lose their health care, and they walk out of here holding
the same job that they held when they walked in.
I have had this argument with the previous Administration,
and I have had this argument with the current Administration,
and like many on our side have been schizophrenic with free
trade, voted for some of the agreements; opposed others.
How do you, as panelists, respond to the often esoteric
argument offered here that these relocations and these
adjustments are nothing more than the free market at work?
Mr. GERARD. I will be very blunt. These are not agreements
that are managed. In fact, if you tell me that workers in
America need to compete with China based on China's rules not
our rules, I am going to tell you we are out of business. That
is not a free market in China. It is a totalitarian regime that
uses child labor, slave labor, has no environmental rights,
manipulates currencies. I love that Russia's trying to move to
a democratic free-market system, but don't tell me that making
2 million tons of steel with 22,000 workers and selling that
steel in America at any price that you can has anything to do
with the free market. Pick the country in the world. The fact
of the matter is that we are for fair trade. Given a fair set
of rules, our Members can compete with anybody in the world.
American manufacturing workers can compete with anybody in the
world, given a fair set of rules.
Right now the playing field isn't level. That is why we are
losing--that is why we are losing more than 2.5 million
manufacturing jobs to date. That is why we have got a trade
deficit that is $45 billion a month. That is unsustainable. I
am told--I'm not an economist, but I am told that that trade
deficit is going to grow. You heard these people sitting here
who have told you and you and you that the jobs they moved to
China they aren't bringing back.
When they start moving the tube mills to China, what are we
going to do when we need tubes and pipe to make gas lines? When
they move all the auto parts to China, what are we going to do
when we want to build the cars and they decide they aren't
going to ship?
Mr. NEAL. Mr. DiMicco, as shy as you have been, do you want
to say something?
Mr. SHARKEY. I would like to make just a quick comment, if
I could. I think this line of questioning, and I go back to
Congressman Houghton as well, this really focuses on the real
issue that is at stake here. The Section 201 will come and go.
What unites this panel and the panel before is that we all are
part of this broader manufacturing crisis. I don't know of a
single metalworking industry that doesn't have the same issues
with China, as we participate in those discussions.
What we really need to be about here is figuring out how we
are going to continue to make things in this country. We need a
strong manufacturing policy. We need public policies that
support it from a tax and regulatory standpoint. That is what
unites us all here. We are fighting over this issue today, but
we have a lot more in common than we have in conflict. That is
where our focus really needs to be in the long term.
The National Association of Manufacturers (NAM) is trying
to work on this issue. We are all Members of NAM. I think that
is where our energy really needs to be invested. That is the
longer term issue.
Mr. DIMICCO. I would like to first apologize for my
shyness. I would suggest to you, on a big-picture issue, our
world-trading system is broke. It doesn't work. The fact there
was a Section 201 needed at all or even looked at is evidence
of that. The fact that no safeguard measures have been upheld
by the WTO is proof of that. The fundamental distortion is
this. There is no freedom in this world that we believe in,
particularly in this country, that doesn't come with a set of
rules, that doesn't come with a set of responsibilities, and
doesn't imply fairness and legal behavior.
The world has distorted the concept of free trade. I am
afraid some of the Members of Congress have also distorted the
concept of free trade. Free trade means responsibility,
responsible trade, rules-based trade that people adhere to. Our
system is broke, folks. If we don't fix it, we are going to
have some serious global consequences.
Mr. NEAL. Thank you all. Thank you, Mr. Chairman.
Chairman CRANE. Thank you. Before we wrap up here, just one
final question. Mr. DiMicco, you mentioned you haven't received
any subsidies other than local development incentives. I was
curious what types of local incentives have you received and
how much?
Mr. DIMICCO. I don't have those numbers on the tip of my
tongue, but I can get those to you. They are basically
incentives that have to do with hiring employees in the area,
you might have training incentives, you might have some State
and use tax incentives, sales tax incentives, and some income
tax forgiveness based upon bringing high-paying jobs into the
area. I would add that's available to any company in the United
States, not just Nucor or any steel company. I would also
mention to you that globally those things are also available at
the local levels around the world, and are not the subject of
the global anti-subsidy negotiations that we're talking about,
where governments give wholesale forgiveness of billions of
dollars in debt and give away facilities for nothing to people
just so they can keep other people employed.
Chairman CRANE. Have you received any money from the Byrd
amendment disbursements?
Mr. DIMICCO. I think we might have gotten $100,000. You can
take that and put it someplace else, too if we could be assured
of free trade.
[Additional information follows:]
Nucor received total distributions of $1,004.45 in 2001 and
$291,366.89 in 2002 under the Continued Dumping and Subsidy Offset Act
of 2000, also known as the ``Byrd amendment.'' As I stated at the
hearing, we would gladly give up the Byrd moneys if the illegal trade
activity stopped. Antidumping duties continue to be collected under
dumping orders precisely because the antidumping and countervailing
duty laws continue to be violated.
One of the reasons that Byrd moneys exist is that U.S. trade law
allows dumping duties to be absorbed by the foreign producer or
exporter. Without duty absorption, foreign producers would either
correct pricing in their home market, or they would have to sell at
full prices in the U.S. During an administrative review, the
antidumping margin would be reduced to zero. We would much rather that
this be the situation than to collect Byrd money due to the
perpetuation of the unfair trade practices. Many of our trading
partners, including Europe, require that the dumping duty be passed on
to the customer.
There is no intellectually justifiable reason to continue the
practice of tolerating duty absorption, which undermines the ability of
dumping laws to correct distortions in markets. We support an amendment
to the trade law contained in Rep. Berry's bill in the 107th Congress,
H.R. 3571, which reflects European practice.
Mr. GERARD. We will take it for health care.
Chairman CRANE. Well, thank you all for your testimony.
With that, this panel is adjourned.
We will now call up our final panel. Charles Bradford,
President, Bradford Research, New York; David Schulingkamp,
Chairman, Board of Commissioners, Port of New Orleans; James
Campbell, President, International Longshoreman's Association
(ILA) Local No. 3000, New Orleans; Walter Niemand, Board
Member, Texas Free Trade Coalition, Houston, Texas; Laurie
Moncrief, President, Schmald Tool & Die, Burton, Michigan; and
James Jones, Vice President, Dixie Industrial Finishing,
Tucker, Georgia.
If our next panel will please take seats. All right, we are
ready to proceed. Mr. Bradford, you will be kicking off. Let me
remind everyone to try and keep your oral testimony to 5
minutes or less, and any additional testimony will be made a
part of the permanent record. We will include it. With that,
Mr. Bradford, you go first.
STATEMENT OF CHARLES A. BRADFORD, PRESIDENT AND CHIEF FILE
CLERK, BRADFORD RESEARCH, NEW YORK, NEW YORK
Mr. BRADFORD. Thank you, Mr. Chairman for the invitation to
speak today. I am President and Chief File Clerk of Bradford
Research. We are an independent investment research firm
specializing on the metals. I have been a metals analyst for 38
years. I thought today it might make some sense to try to hone
in on what are the problems of the steel industry, which people
have mentioned, and how do we go at it to try to solve the
problems.
Mr. Levin, I think, got it very right before when we said
we have to have the correct information. First of all, our
understanding and our view of the problem, which we have said
for many years, has been the strong dollar. Unfortunately, the
strong dollar is good for the economy but lousy for basic
industry.
Second, excess capacity. Everybody has talked about it but,
in effect, no one has done much about it. There has been a
consolidation in Europe, there has been a consolidation in
Japan, and they have taken out capacity. The consolidations in
this country have added capacity. In fact, capacity has been
added during the Section 201. That is not solving the problem.
There have been some other comments made that I think are
interesting. Mr. Danicek in his prepared remarks--I don't think
he was here to give them--talked about how the mini-mills have
grown to where they are now 50 percent of the industry
capacity, from 15 percent. Well, guess whose capacity that was
aimed at? That was the integrateds that they took capacity away
from.
Mr. DiMicco just said that Nucor reduced their costs by 50
percent over the last 35 years. That is pretty impressive, but
guess again. That went to the customer and was a very serious
problem for the integrated companies who also did a pretty good
job at reducing costs. They deal with very large customers, and
the customers took advantage of them.
Last year, as an example, contract steel prices went down
despite the Section 201. It was only spot prices which Nucor
primarily benefited from, as did Steel Dynamics and other mini-
mills that got the benefits of the higher prices. DiMicco again
got it right when he said it was the sudden closure of LTV
Steel that panicked the customers, who double-ordered and ran
up pricing. When they realized LTV Steel was coming back on
again, prices retraced half of the gain. It was a 100-percent
gain. It is now a 50-percent gain.
High costs. We have some of the highest-cost steel mills in
the world. We talk a lot about averages, and I am as guilty as
anybody, but the fact of the matter is there are some very low-
cost mills, like Steel Dynamics and Nucor, and there are some
very high-cost mills. I was shaken up I guess a couple of
months ago when I realized that Wheeling-Pittsburgh had a blast
furnace from 1905. That is the one they want to replace with an
electric furnace. I know of a couple of rolling mills in this
country, big, hot strip mills--the key to a plant--that date to
the thirties. Yet there are other plants that are absolutely
first-rate.
I personally believe that foreign steel has been largely
scapegoated. There isn't any 10-cent-an-hour wage rates in the
major countries that supply steel to the United States. The
biggest supplier is Canada. Next biggest has wage rates that
are not too far from Canada. China with relatively small
tonnage, less than 800,000 tons last year out of 30 million
metric, does have low wages, but the big one is Canada. Japan
is also relatively small in tons. Japanese wages, by the way,
are $75,000 per man per year. Korea is $35,000 per man per
year. Not 10 cents.
I think we have to understand where the problem is. There
are some very efficient steel companies in the United States,
and there have been some very inefficient. We cannot have the
inefficient running the industry. This is a situation where you
have comparative advantage. If you were to start off with a
piece of plain paper today, you would not build an integrated
steel mill in the United States, but you would build mini-
mills. That is where the growth has been. I think they are as
responsible as anybody for the problems of the integrated
mills. They have gained 35 percent market share. The imports
are 20 percent of the market.
I think I am getting close to being out of time, but I
think poor data is one of the big problems. The industry is
smaller than they think they are, they double-count imports. If
somebody imports a slab, it counts as a slab, then it counts
again as hot roll. Or U.S. Steel imports hot roll for
California; when they cold it, it becomes cold roll. Counted
twice. I welcome your questions.
[The prepared statement of Mr. Bradford follows:]
Statement of Charles A. Bradford, President and Chief File Clerk,
Bradford Research, New York, New York
The Steel Industry
What are the problems in the steel industry?
a. Excess world capacity
i. Subsidies to build new plants in U.S.
ii. High cost plants should be closed
b. Strong dollar over the last several years
i. Dollar has weakened recently and U.S. mills are now exporting
c. Rapid capacity expansions by flat rolled mini-mills during the
1990's
d. Poor economic analysis--
i. Industry is actually a lot smaller than it believes
ii. LDouble counting of imports with the domestic steelmakers
the largest buyer of foreign steel
e. Weak managements
i. Some with 17th and 18th century mercantilist ideas
f. Section 201 impact
i. Did it help the price of steel recover last year?
ii. Did it hurt domestic steel users?
iii. Any help in solving underlying industry problems?
a. LDomestic capacity increased more than 10% after the
Section 201 put into place and steel prices fell sharply as plants
reopened
g. Subsidies
i. Loan guarantee program
a. LThe one steelmaker that received a loan guarantee
(Geneva) closed up 10 months later. Someone did a poor job of due
diligence.
ii. States and local governments
a. LCapacity built in the 1990's by mini-mills all had State
and local ``incentives.''
h. Value of the dollar
i. Strong dollar the real cause of the industry's problems
ii. Recent dollar weakness very helpful.
i. Steel and the national defense
i. LDepartment of Defense says 0.3% of domestic steel ends up
being used by the DOD
j. Which plants should close to eliminate the excess capacity around
the world?
i. Second Chapter 11s filing shouldn't be allowed
ii. High cost plants should be closed
k. LJust how many steelmakers actually filed for bankruptcy
protection during the last few years? Thirty-five seems to be the
number that we see in print the most.
i. LAlmost one-half of those on the USWA list of 35 never were
steelmakers
ii. LAll the steelmakers on the list were either startups (3)
that made poor equipment choices or USWA organized operations (at least
partially)
l. The domestic steelmakers need foreign steelmaking equipment and
technology
m. Consolidation
i. Didn't happen after 201 announced
ii. LDid occur once the USWA and ISG announced an agreement that
recognized major cost savings
iii. Most legacy costs related to retirees eliminated
Key issues
In the interest of time, the comments below will not cover all the
items mentioned in the above outline since some are self explanatory.
Nearly all observers of the steel industry believe that worldwide
excess capacity is the largest problem that the industry faces. We
differ as to how much excess capacity exists. Without a solution to
this problem, any industry rebound is likely to be short lived, such as
was the case last year. We know that the strength of the dollar caused
serious harm to not just the domestic steelmakers, but also many of
their customers. Recent weakness has been helpful, but we are unable to
predict whether or not this will continue. We have never been very good
at predicting the value of the dollar. A weaker dollar makes foreign
goods more expensive. Thus the focus today, as we understand it, is to
see whether or not the Section 201 program has made the domestic steel
industry's situation better or not. In addition, the impact of the
Section 201 on the steel user is being investigated.
In some ways the downfall of the domestic steel industry began in
1959 when a 116 day strike by the United Steelworkers of America led to
the introduction of foreign steel into the U.S. Until that strike,
foreign steel was regarded as inferior to the product of the domestic
steelmakers, but was found to be actually superior in many ways, such
as gauge control and flatness. Foreign steelmakers developed
relationships with domestic steel users that continue to this day.
Nearly all studies that we have seen from reputable analysts show the
average domestic steelmaker to have much higher costs than many of
their foreign competitors and much higher costs than their domestic
mini-mill competitors. Some of this has been due to the strong dollar,
some due to lower raw material costs elsewhere and a lot due to much
newer and more efficient equipment outside the U.S. It should be
pointed out that the domestic steelmakers have made major progress
during the last decade to lower costs and to improve the quality of
their product, but these gains have all either been offset by the
strong dollar or have flowed to their major customers. The domestic
steelmakers have not earned their cost of capital during the last few
decades. They have thus been self liquidating.
At the same time, newly developed German technology was accepted by
U.S. mini-mills with one-fifth the capital cost per ton and much lower
operating expenses than that of the old line integrated steelmakers. In
addition, the new producers were non-union, thus no legacy obligations.
These companies were able to benefit from various state and local
government incentives and more than 20 million tons of new capacity was
built. With limited market growth, steel prices fell sharply in line
with the lower costs of the new producers. These mini-mills were also
very aggressive in pricing their products, with Nucor, for example,
apparently believing that their order book should be entirely filled
before anyone else gets any business since they are the low cost
producer.
The domestic steel industry through the American Iron and Steel
Institute has for years double counted imports of semi-finished steel,
but recently began to correct its data for imported slabs.
Unfortunately, some industry leaders still refuse to recognize that the
mills themselves are the largest importer of foreign steel and when
these slabs and hot-rolled coils are processed in the U.S., they are
reported as a domestic shipment. Some industry leaders still double
count, which leads to a mistaken impression that the industry is much
larger than reality. The latest Department of Labor data covering steel
employment shows only 187,600 total steel industry employment or 0.1%
of total nonfarm payrolls. This compares to 511,900 steel industry
employment in 1980 or 0.5% of total nonfarm payrolls. It is also
interesting to us that the United Steelworkers of America union appears
to represent 90% of the steel production employees, who account for
about one-half of the domestic steel delivered. The decrease in
employment is the result of improved productivity in the domestic
industry and the new flat rolled mini-mills that use few people in
their mills.
In regard to steel usage by the Department of Defense, a
particularly important issue at this time, the DOD has publicly stated
that their usage of steel amounts to 0.3% of domestic steel deliveries
and they do not generally buy imported steel. I personally think that
it is incredible that certain steel leaders seem to believe that they
know better than the Department of Defense and usually claim major
steel usage by the DOD. Maybe the steel industry/union leaders believe
that we are still building Liberty ships.
But the real questions that you want to focus on today involve the
Section 201 steel tariffs and industry consolidation. Have these two
situations helped or harmed the steel industry and its customers? We
believe that the Section 201 tariffs have led to increased steelmaking
capacity of more than 10% from February 2002 (the month before Section
201 was invoked) through February 2003. Thus the improved steel pricing
during the first half of 2002 reversed and U.S. Steel recently forecast
that it would report a loss for its first quarter of 2003. By the way,
last year U.S. Steel's Slovakian subsidiary reported an operating
profit of $110 million with an average steel price of $276 per ton
while U.S. Steel domestic flat rolled steel operations had an operating
loss of $31 million despite a much higher average selling price ($410/
ton). This is with U.S. Steel's accounting in Slovakia and no subsidies
according to them.
We believe that the real reason what flat rolled steel prices
increased last year was the closure of steelmaking capacity in 2001. It
is interesting to us that only some steel prices increased despite
other products also ``benefiting'' from high tariffs. The product lines
that did show much higher prices are also the products where capacity
was sharply reduced. When much of this capacity was reopened, steel
prices fell sharply. We thus believe that the Section 201 tariffs did
not directly lead to higher steel prices during the first half of 2002.
Another part of the President's program to aid the steel industry
was a plea for consolidation. Here again, we doubt that the Section 201
tariffs aided the consolidation of the industry, something that we
applaud. Except for some mini-mill mergers, nothing happened among the
large integrated steelmakers until the International Steel Group and
the United Steelworkers union agreed to a labor contract that
essentially eliminated most of the legacy liabilities for retiree
health care and early pensions. Once that was announced a number of
proposed steel mill acquisitions were proposed. We are concerned
because in each of the cases announced so far, no capacity is to be
closed, a major benefit we had hope would come of the industry
consolidating. There have been statements about cost savings from some
of the mergers, but as we analyze it, the savings come from an ISG like
labor contract. There are also substantial risks from consolidations
such as computer systems that can not communicate, corporate cultures
that clash and management compensations that increases to whoever has
the highest level of compensation. We like consolidation because we are
hopeful that the price negotiations between the large steelmakers and
their largest customers would be more balanced. For the last decade,
the ``big'' three automakers have used their market clout to have their
will with the nine major steelmakers. It seems to us that the contract
negotiations would be more balanced with three buyers negotiating with
three or four steelmakers.
What about the steel users? Clearly some steel prices doubled and
this couldn't have been good news for the steel users. Many steel users
have to compete with foreign competitors who were able to buy their
steel at very low prices until steel prices reversed last summer as the
dollar weakened and China boomed. We believe that it is more
interesting to look at steel prices over time and we have found that
spot hot-rolled coil prices during the last decade averaged $347.61 in
the U.S., but only $307.41 in Europe and $291.49 in Asia. Thus
manufacturers using steel in areas outside the U.S. have a large
advantage compared to their U.S. competitors, if steel is a large
portion of their cost of production.
Automobiles, often discussed since about one-half the weight of a
car is steel, are an interesting subject. We understand that the steel
cost in a car is only 5% of the total cost. These companies also did
not pay the surging flat rolled steel prices last year because they buy
under contracts, often multi-year, which had been signed before steel
prices rose. However, there are a lot of suppliers to the automobile
companies who we understand had to pay the higher spot prices, but whom
had sold fixed priced products to the automakers. These companies were
squeezed badly. We have read in the trade press that a number of these
companies moved production overseas. The higher steel prices in the
U.S. over time harmed the steel using customers of the steelmakers and
thus steel demand grew slowly. This has been a trend over many years
and partially explains why steel shipment growth has been very slow in
the U.S. The situation of Corus (formers British Steel) is very similar
to that of the U.S. steelmakers with the strong pound decimating steel
consuming industries in Britain and making the U.K. plants of Corus
noncompetitive compared to its Continental European plants.
To us it is fascinating to hear some of the statements of the
steelmakers/union leaders and how inconsistent they are. For example,
ISG is now operating the LTV plants with one-third less people. How
then could the company have been competitive as it had claimed? The
USWA now seems to recognize that there are substantially too many
steelworkers in many of the integrated plants. In some cases,
electricians were called in on overtime to change a light bulb.
Nonunion mini-mills don't operate this way. U.S. Steel now has the
clear evidence that the low costs apparently achieved by Central
European steelmakers are for real and not due to subsidies since they
are achieving very low costs at USSK, their Slovakian mill. Another
company's CEO in discussing a foreign joint venture stated that they
were building the plant overseas because construction costs were much
lower.
Now the steelmakers are exporting steel because the weaker dollar
made it feasible. When the dollar was strong, foreign steel exporters
were benefiting from a weaker local currency and thus were exporting.
However, the U.S. steelmakers claimed dumping. Many of these cases,
however, were overturned on appeal, something that gets little press
coverage. Some steelmakers claim that all they are seeking is the
enforcement of U.S. trade laws, but whenever the WTO rules against
them, they act as if the U.S. never signed the WTO treaty, making it
the law of the land.
One steelmaker, whose management has been particularly aggressive
in demanding trade protection, now wants a government guaranteed loan
to fund new steelmaking facilities to replace a blast furnace dating
from 1905. Funny how the age of some of this company's facilities were
never mentioned before when they were claiming to be viable ``if it
just wasn't for those unfair foreign steel makers shipping low prices
steel into the U.S.'' They also claimed how solvent they would be when
they were reorganized after their first bankruptcy. Now, after their
second bankruptcy they was a government guarantee so they can build an
electric furnace not apparently understanding that EAFs alone do not
make a mini-mill or a successful steelmaker. They even defaulted on a
previous U.S. Government loan. In fact, a number of mini-mills filed
for bankruptcy during the last couple of years. These were all USWA
companies, which is a much more common thread dividing success from
failure. In fact, two steelmakers are still using hot strip mills from
the 1930's and claiming how competitive they are. Give me a break.
What did cause the industry problem in 2001?
Domestic steel deliveries fell about 9.3% in 2001 compared to 2000.
Imports fell 20.8%, but one large producer increased its market share
by 25% and had average flat-rolled steel prices $150 per ton below that
of U.S. Steel and $40 per ton below that of Steel Dynamics. These
numbers alone say a lot about what/who was the problem. Of course, this
company blamed imports.
What caused the excessive capacity and how can it be fixed?
State and local ``incentives'' were obtained by each of the new
mini-mills in the U.S., which we believe had the largest impact on the
health of the old line integrated steelmakers. This is still continuing
with Minnesota currently offering major sums to get a steel mini-mill
built in that State. The situation at foreign mills is more difficult
to generalize. Clearly some foreign mills benefited from governments
building infrastructure, such as ports, and other benefits. Other
situations that we have information about show the mills actually
channeling money to politicians, in effect a reverse subsidy. We know
of some situations where large amounts of debt were used to build new
steel mills with nearly no equity. However, inflation accounting in
some countries allowed equity to be generated as inflation raised the
value of the steel mill, but not the debt. In other cases, mills have
gone bankrupt and have been purchased at low prices. ISG is a major
beneficiary of this.
We suggest that the real elimination of subsidies would be a good
first step, maybe even with some repayments as often required in
Europe. No company should be allowed to file for Chapter 11 protection
more than once. Clearly when they were reorganized they filed with the
court a business plan that claimed that they would be solvent.
Obviously their analysis was faulty otherwise they would not have
bankrupt again. Why believe them the second time when their analysis
was so faulty the first time? Maybe there should be some provision to
cushion the plant closings by payments to the employees that lost their
jobs, but only if the steel mill stayed closed, as was done in Europe.
Clearly the high cost steel plants are the one that should be
closed. Comments by some the steel mill managements that since we are
importers of steel others should close capacity is nonsense, in our
opinion. The fact that the U.S. imports steel should not be a factor
unless oil imports are also to be controlled, etc. In fact, this type
of analysis smacks of 17th century mercantilism. Modern economics
suggest that the plants with a comparative advantage (lowest cost)
should be allowed to prosper. Unfortunately, average steelmaking costs
in the U.S. are quite high, although there are some very competitive
plants in the U.S. Local subsidies, such as by West Virginia, Ohio and
Pennsylvania may have ``saved'' local plants, but facilities in other
nearby States were negatively impacted and eventually went bankrupt.
There was no consideration of the macro impact before local authorities
offered funds to save jobs. This is a zero sum game. None of these
programs added to steel usage.
Consolidation
Mergers and acquisitions without plant closures are not helpful to
the industry. Some costs can be taken out and the companies thus get
somewhat more competitive, but the industry as a whole is not helped
since the excess capacity remains. Statistics about mergers and
acquisitions also show that most do not achieve what is expected at the
time of the combination.
During the 38 years that I have been covering the steel industry, I
have seen a lot of companies acquired by ``financial types'' and nearly
all have failed. Mergers among the major steelmakers have also usually
failed, with computer systems not able to communicate with each other
and corporate cultures clashing.
Conclusion
Don't stand in the way of plant closures. Eliminate incentives for
companies to build new plants. If the business plan can't be financed
conventionally, the plant shouldn't be built. No loan guarantees, no
State and local subsidies. How can we complain about foreign subsidies
when we are guilty ourselves?
There needs to be serious consideration of the impact of programs
to help the steel industry on their customers. There may be 40
employees in customer plants for each steelworker job.
Measures of industry injury should focus less on steel industry
averages and more on the successful companies. If one or two companies
have been able to compete, but a number of others have not, the fact
that some are successful should be proof that maybe imports are not the
problem. Maybe there are other factors since some companies were
successful.
Chairman CRANE. Thank you. Mr. Schulingkamp.
STATEMENT OF DAVID P. SCHULINGKAMP, CHAIRMAN, BOARD OF
COMMISSIONERS, PORT OF NEW ORLEANS, NEW ORLEANS, LOUISIANA
Mr. SCHULINGKAMP. Good afternoon, Chairman Crane. My name
is David Schulingkamp and I am Chairman of the Board of
Commissioners of the Port of New Orleans. I am pleased and
honored to appear before you and the other Members of the
Subcommittee.
The Port of New Orleans is one of the busiest U.S. ports
for steel product imports. For better or worse, over 40 percent
of the port's revenue is derived from steel trade. As far as we
are concerned, free trade is the engine that powers our growth,
that powers our development, not only in the Port of New
Orleans but in the ports throughout our region and throughout
the country. It is in that light that we remain very concerned
about the additional duties imposed under Section 201 on fairly
traded steel products.
Mr. Chairman, over a year ago you met with myself and other
port and maritime and labor leaders in the effort to preserve
the economic and employment opportunities provided by the
import steel trade. You, Congressmen McCrery and Jefferson and
others in the Congress realized that many U.S. companies and
their employees, including those in the port and maritime
industries, would pay the price for protected restrictions on
fairly traded steel.
The Port of New Orleans was indeed adversely affected by
Section 201 tariffs on steel. Port estimates show that the
imposition of tariffs and other restrictions on steel imports
has resulted in a direct loss to the port of over $1.6 million
in calendar year 2002 alone. Actual steel tonnage crossing the
docks at the port decreased from 1.9 million tons in 2001 to
1.36 million in 2002, a reduction of over 550,000 tons of steel
handled at the port terminal facilities.
This reduction in steel handled by facilities at the port
is directly related to a commensurate and dramatic reduction in
the number of hours worked by our longshoremen, our union labor
who handle the unloading of steel cargo shipments. Our review
and discussions with the local ILA officials indicate that the
members have suffered a reduction over the past year of
approximately 25 percent in the hours associated with the
handling of general cargo, the majority of which involve steel
shipments. Similarly, terminal operators, truckers, stevedores,
customs house brokers, and so forth within the Port of New
Orleans have been adversely affected by the protectionist
tariffs under Section 201.
In addition to the problems experienced by the Port of New
Orleans, I know well from our work with other port customers
that there has been an increase in the price of both domestic
and imported steel products, and much of that is directly
attributable to Section 201. Such price increases have caused
significant loss of jobs in manufacturing sectors, as we heard
from the second panel today, and transfer business activities
to overseas.
Mr. Chairman, the Administration just last week announced
an additional 295 exclusions from Section 201 tariffs imposed
on imported steel products of almost a year ago. This is a
small step in the right direction. The Administration should be
strongly encouraged to favorably consider future exclusions and
requests to provide relief to the U.S. port and maritime
industries and to domestic consumers of such products.
Furthermore, I strongly support your efforts and those of
Chairman Thomas of the Committee on Ways and Means requesting
the ITC to closely examine the impact of the tariffs on steel-
consuming industries and on industries which rely on steel
imports, including the American port industry.
Thank you, Mr. Chairman, for standing up for free trade and
listening to the travails of the port and maritime industry.
[The prepared statement of Mr. Schulingkamp follows:]
Statement of David P. Schulingkamp, Chairman, Board of Commissioners,
Port of New Orleans, New Orleans, Louisiana
Good Morning, Chairman Crane and Members of the Subcommittee. My
name is David P. Schulingkamp and I am Chairman of the Board of
Commissioners of the Port of New Orleans. I am honored to appear before
you today to discuss the difficulties encountered by the imposition of
Section 201 tariffs on imported steel products.
The Port of New Orleans is one of the busiest U.S. ports for steel
product imports. Over 40 percent of the Port's revenue is derived from
that steel trade alone. Free trade is the engine that powers the
economy of our Nation, and the steel trade itself is of the utmost
importance to the business health of the New Orleans region. It is in
that light that I remain perplexed that protectionist measures were
imposed under Section 201 on fairly-traded steel products.
Mr. Chairman, over a year ago you met with me and other port,
maritime industry and labor leaders in the effort to preserve the
economic and employment opportunities provided by the import steel
trade. You, Congressman Jefferson, and others in the Congress realized
that many U.S. companies and their employees, including those in the
port and maritime industries, would pay the price for protectionist
restrictions on fairly-traded steel.
The Port of New Orleans was indeed adversely affected by the
Section 201 tariffs on the steel trade. Port estimates show that the
imposition of tariffs and other restrictions on steel imports has
resulted in a revenue loss to the Port of approximately $1,600,000 in
calendar year 2002 alone. Actual steel tonnage crossing the docks at
the Port decreased from 1,925,000 tons in 2001 to 1,361,000 in 2002, a
reduction of over 564,000 tons of steel handled at Port terminal
facilities.
This reduction in steel handled by facilities at the Port of New
Orleans is directly related to a commensurate and dramatic reduction in
the number of hours worked by longshoremen who handle the unloading of
steel cargo shipments. Our review shows that local International
Longshoremen's Association members have suffered a reduction over the
past year of approximately 25 percent in the hours associated with the
handling of general cargo, the majority of which involves steel
shipments. Similarly, terminal operators, truckers, stevedores, and
customhouse brokers within the Port of New Orleans have been adversely
affected by the protectionist tariffs under Section 201.
In addition to the problems experienced by the Port of New Orleans,
I also know from my work with Port customers that there has been a
dramatic increase in the price of both domestic and imported steel
products that is directly attributable to the Section 201 tariffs. Such
price increases have caused a significant loss of jobs in manufacturing
sectors, and in many cases, the transfer of business manufacturing
activities to overseas companies.
Mr. Chairman, the Administration just last week announced an
additional 295 exclusions from the Section 201 tariffs imposed on
imported steel products almost a year ago. This is a small step in the
right direction to eliminate the Section 201 steel tariffs entirely.
The Administration should be strongly encouraged to continue to
favorably consider future exclusion requests to provide relief to the
U.S. port and maritime industries and to domestic consumers of such
products. Furthermore, I strongly support your efforts and those of
Chairman Thomas of the Ways and Means Committee requesting that the
U.S. International Trade Commission closely examine the impact of the
tariffs on steel consuming industries and on industries which rely on
steel imports, including the American port industry, in its mid-term
review of the Section 201 safeguard measures.
Thank you, Mr. Chairman, for standing up for free and open trade to
the benefit of the port and maritime communities. I look forward to
responding to any questions that you or other Subcommittee Members may
have.
Chairman CRANE. Thank you, Mr. Schulingkamp. Mr. Campbell.
STATEMENT OF JAMES O. CAMPBELL, PRESIDENT, INTERNATIONAL
LONGSHOREMEN'S ASSOCIATION LOCAL NO. 3000, NEW ORLEANS,
LOUISIANA
Mr. CAMPBELL. Good afternoon.
Chairman CRANE. You might pull that mike over a little more
in front of you there.
Mr. CAMPBELL. Good afternoon, Mr. Chairman, the Committee.
First, may I ask you to bear with me. I have a sinus infection.
My name is James Campbell, President of the ILA's Local
3000 Union, New Orleans, Louisiana. I am honored to appear
before you today to present our views of ILA Local 3000
concerning the impact of Section 201 tariffs imposed over a
year ago on steel products.
I represent more than 800 working men and women who provide
labor required to load and unload cargo vessels engaged in
international trade that call at the Port of New Orleans. Our
ILA members provide a skilled labor force at a competitive
price by the companies in the port which depend on the
longshore service. I am proud of our work force. I am proud of
our workers, especially our steel gang. They are the most
productive in the business.
More than a year ago, I joined other port, maritime, and
labor leaders from across the Nation and this country and met
with this Committee in expressing our regard in response to the
tariffs under Section 201 and the quotas that would restrict
the imported steel trade. I stated then and I continue to
believe today that the economic health of the Port of New
Orleans and the related employment opportunities for the
Members directly depends upon the preservation of fairly traded
import steel through the New Orleans region.
My concerns over a year ago were well-founded. The
imposition of Section 201 tariffs on various imported steel
products has had a negative impact on ILA Local No. 3000
workers in the Port of New Orleans. Since the imposition of the
Section 201 tariffs, our workers have experienced a decline in
the volume of work in handling steel products at the docks. The
numbers of hours worked for steel cargo by members has declined
25 percent from 2001 to 2002.
During the last year, Section 201 tariffs directly affected
steel imported into the Port of New Orleans from countries that
traditionally have been our largest trading partners, namely
Japan, Korea, Brazil. Steel imports from Japan and Korea
declined approximately 35 percent in the Port of New Orleans
from 2001 to 2002. This represented a loss of 232,165 tons of
steel. The steel from Brazil is 50 percent, a loss of 150,000
tons. Overall, the Section 201 tariffs reduced the steel
handled by ILA workers in the docks by approximately 564,000
tons and their works hours have been reduced accordingly.
The livelihood of our working men and women in the Port of
New Orleans would greatly improve by the elimination of Section
201 restrictions on imported steel products. The international
trade in steel and other products is vital to the economy of
the Port of New Orleans and its region. We strongly favor the
immediate elimination of Section 201 tariffs in order to
preserve the longshoremen of ILA Local No. 3000 jobs and
opportunities and provide fairly traded steel products.
Thank you for the opportunity.
[The prepared statement of Mr. Campbell follows:]
Statement of James O. Campbell, President, International Longshoremen's
Association Local No. 3000, New Orleans, Louisiana
Good morning Mr. Chairman and Members of this Trade Subcommittee.
My name is James Campbell, and I am the President of the International
Longshoremen's Association (ILA) Local No. 3000 in New Orleans,
Louisiana. I am honored to appear before you today to present the views
of ILA Local No. 3000 concerning the impacts of the Section 201 tariffs
imposed over a year ago on steel products.
I represent more than 800 working men and women who provide the
labor required to load and unload cargo vessels engaged in
international trade that call on the Port of New Orleans. Our ILA
members provide a skilled labor force at a competitive price for the
companies at the Port who depend upon our longshore services. I am
proud of our workers, and especially our ``steel gangs,'' who are the
most productive in the business.
More than one year ago, I joined other port, maritime and labor
leaders from across the nation to meet with the U.S. Trade
Representative in Washington to express our concerns regarding proposed
Section 201 tariffs and quotas that would restrict the import steel
trade. I stated then, and continue to believe today, that the economic
health of the Port of New Orleans and the related employment
opportunities for our members are directly dependent upon the
preservation of fairly-traded import steel products through the New
Orleans region.
My concerns over a year ago were well-founded. The imposition of
the Section 201 tariffs on various imported steel products has had a
negative impact on ILA Local No. 3000 workers in the Port of New
Orleans. Since the imposition of those Section 201 tariffs, our workers
have experienced a decline in the volume of work in handling steel
products at the docks. The number of hours worked for steel cargo by
our members has declined by 25 percent from 2001 to 2002.
During the last year, the Section 201 tariffs directly affected
steel imports into the Port of New Orleans from countries that
traditionally have been our largest trading partners, namely Japan,
Korea, and Brazil. Steel imports from Japan and Korea declined
approximately 35 percent in the Port of New Orleans from 2001 to 2002.
This represented a loss of 232,165 tons of steel. Steel from Brazil
decreased 50 percent, a loss of 150,000 tons. Overall, the Section 201
tariffs reduced the steel handled by ILA workers at Port docks by
approximately 564,000 tons, and their workhours have been reduced
accordingly.
The livelihood of the working men and women in the Port of New
Orleans would be greatly improved by the elimination of the Section 201
restrictions on imported steel products. International trade in steel
and other products is vital to the economy of the New Orleans region.
We strongly favor the immediate elimination of the Section 201 tariffs
in order to preserve for the longshoremen of ILA Local No. 3000 those
job opportunities that are provided by fairly-traded steel products.
Mr. Chairman, thank you for the opportunity to testify today, and I
look forward to responding to any questions from you or Members of the
Subcommittee.
Chairman CRANE. Thank you, Mr. Campbell. Mr. Niemand.
STATEMENT OF WALTER A. NIEMAND, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, WEST GULF MARITIME ASSOCIATION, AND BOARD MEMBER,
TEXAS FREE TRADE COALITION, HOUSTON, TEXAS
Mr. NIEMAND. Thank you, Chairman Crane. I know everyone has
had a long day, and I have submitted some written comments into
the record. I don't see any reason to go through them
specifically.
I have brought some additional material that was prepared
by the Texas Free Trade Coalition, and I will leave copies here
for the Chairman and also for Committee Members. Also, I am not
going to take the time to go through all of that material
today. If there are any questions, please feel free to ask and
we will try to provide the answers.
I am President and Chief Executive Officer of the West Gulf
Maritime Association. It is a group of maritime employers,
their carriers, terminal operators, stevedores, and agents,
most of whom are small businesses to medium-size businesses.
Section 201 has adversely affected all of our member companies.
We have joined in an unusual coalition, if you will, with Texas
Free Trade, joining with ports and also union and non-union
employers, really, to try to address the adverse effects on the
maritime industry itself in the State of Texas and more
specifically in the Port of Houston.
The companies that we represent employ approximately 10,000
individuals per year throughout the State of Texas and Lake
Charles, Louisiana. These are middle-class jobs where we have
union employment that provide full benefits of retirement,
medical both for active works and retirees. The member
companies that we represent, several are minority-owned. They
also create middle-class jobs not only for the unionized
employees, but the people who work in their work force in
offices and other related feeding services for our industry.
The problem that we have seen is really reflected in this
booklet, which we have called ``The Bible of Pain.'' What we
have seen is major reductions from our members from anywhere to
40 to 70 percent of their regular work force. In the longshore
industry, many of the people employed are employed on a casual
basis through union halls and hiring centers. In the Port of
Houston alone, we lost 34,000 man-hours of highly skilled,
highly paid work because of Section 201, or at least right
after it was introduced. That equated to $1.29 million in lost
pay to individuals that we employ, and that is only half the
work force because half of the work force that handles these
commodities is not represented by organized labor.
Historically in our industry we have a 6-percent increase,
$6 for every $1 spent on the waterfront. So, the actual loss to
the Houston economy with the loss of steel tonnage in Houston
alone was $7.8 million. The Port of Houston is the number one
water-commerce port in the United States. Their own statistics
show they lost 184 full-time positions within the organization,
they lost $13.5 million in revenue, and they lost 430 tons of
steel since the introduction of Section 201.
I don't believe that the lost to the maritime industry is
the end of the comments concerning this act, because it has
adversely affected a lot of other industries in the State of
Texas. A lot of the steel vessels that came in would deliver
steel; they would have to go back empty. They, in turn, were
very efficient ways of moving farm products and other goods,
U.S. goods, to foreign markets. Since Section 201 has been
enacted, there has not been sufficient capacity to carry a lot
of the farm products at competitive prices from Texas and the
United States to foreign markets.
The problems that we've seen I think justify the section
332 investigation. We believe that the number of jobs lost in
the economy by Section 201 is going to far outweigh the number
of jobs protected. We feel that the steel industry deserves
protection. It is an important part of our economy. They have
some basic problems, and they have to do with their costs, the
number of people working, the number of people supported. We
feel that some relief there would be far more meaningful, and
basically it would leave us to have free trade, a level playing
field in our minds, and we would encourage the Committee--we
appreciate the Subcommittee's efforts concerning this matter.
We would be glad to participate in the investigation and
provide information.
Thank you for the invitation and time.
[The prepared statement of Mr. Niemand follows:]
Statement of Walter A. Niemand, President and Chief Executive Officer,
West Gulf Maritime Association, and Board Member, Texas Free Trade
Coalition, Houston, Texas
I would like to thank the Chairman and the Subcommittee on Trade
for this opportunity to speak to you about this important issue. Most
importantly, thank you for your willingness to consider the downstream
effects that the Section 201 duties have had on the U.S. industry.
The Texas Free Trade Coalition consists of over 30 members, who
employ over 18,000 people, which was formed because of the loss of jobs
and income to families due to a constant and recurring barrage of
protectionist legislation. FREE TRADE IS AMERICAN JOBS! The impacts of
Section 201 duties not only affected the steel consuming industries,
but also the companies which service the international steel trade.
The Section 201 duties on steel that were instituted one year ago
galvanized a hugely diverse cross section of steel consumers, as well
as groups like ours, that transport, handle, check and simply depend on
a free and world competitive flow of steel into this country.
An important function of our coalition is to educate all levels of
decisionmakers, including local, State and Federal lawmakers. Please
allow me to provide a summary of how our members have been negatively
impacted as a result of the Section 201 duties.
LThe Port of Houston, one of the top revenue generators in
the entire State of Texas, much less the city of Houston, has been
negatively impacted. As a direct result of the Section 201 tariffs on
steel, the country's largest steel port has experienced the following:
+ L185 direct jobs lost.
+ L$13.5 million dollars loss of business revenue.
+ L430,000 tons of lost steel imports.
LWest Gulf Maritime Association (WGMA) which, among many
other responsibilities, serves as the payroll agent for the union
employees of the ILA, tracked a reduction of 34,000 man hours, between
Fiscal Year 2001 and 2002, specifically related to steel jobs. At an
average wage of $38 (includes fringe benefits), the reduction of man
hours equates to $1,290,000 dollars that workers were unable to take
home to their families.
LInbesa America, Inc., the largest non-union steel
handling terminal in Texas, has experienced a 40% reduction in steel
receipts. Consequently, the work force has been cut 40%. Furthermore,
the reduction in steel imports has resulted in non-union employees
taking home $1,440,000 dollars less.
LCooper T. Smith Terminals, the largest union based steel
receiver and top 10 receiver of all import cargos in the U.S. Gulf, has
had to lay-off four highly experienced and long term crane operators
(50% reduction), as well as two gear room personnel. The downsizing
trend is an ongoing process.
LShippers Stevedoring Company is the second largest
stevedore and port terminal operating in Houston. It has invested over
$20 million in receipt upgrades and expansion. As a result of the
Section 201 duties it had to reduce work force by over 100 people (from
160 down to 50). Also, there has been a 70% reduction in man hours
worked since January 1, 2002, when the 201 ``waiting period'' started.
LGulf Stream Marine Stevedores business relies 50% on the
importation of steel. Since the inception of Section 201 duties, 15
full time employees and 80 union longshoremen have been laid off.
LCapt. I.S. Derrick Independent Ship and Cargo Surveyors,
Inc. is a leading cargo surveyor in the U.S. Gulf. Capt. I.S. Derrick's
business relies 85% on surveying imported steel. This company, prior to
imposition of Section 201 duties, had never laid-off employees for 39
years.
LThe ILA Local 1351, which provides a hiring hall for port
day labor jobs, had a loss of 25% man-hours that can be directly
related to steel 201.
LAll Trans Port Trucking, Inc. has experienced the worst
year in the 10-year history of their company in terms of volume and
income. All Tran is a minority owned company that has lost 50% of its
volume base. All Trans had to release 10 of its 35 employees (30%)
because of fewer steel vessels arriving at Port of Houston.
LChaparral Stevedoring Company, Inc., a stevedoring
company with over 36 years presence in the U.S. Gulf, has drastically
reduced hours and wages for their longshoremen, truckers and
warehousemen.
LCoastal Cargo of Texas, which provides terminal and
stevedoring services, experienced a 35% decline in their steel business
since Section 201 went into effect.
The company chronicles, listed above, are but a few of those
compiled in our ``Bible of Pain,'' which has shown a direct correlation
to job, revenue and tax losses within Harris and surrounding counties
in the State of Texas.
Mr. Chairman, in summary, the imposition of this ``subsidy to
domestic steel producers'' has and will continue to cause loss of
American jobs and is not an effective solution to the travails of the
domestic steel manufacturers. Bottom line, President Bush well knows
that ``There is no right way to do the wrong thing''--and Section 201
duties is ``THE WRONG THING!''
Thank you for allowing me to appear before you today.
Chairman CRANE. Thank you, Mr. Niemand. Now, Ms. Moncrief,
I think you testified while we were at lunch.
Ms. MONCRIEF. Probably.
Chairman CRANE. No, I am kidding you about the newspaper
article. Did you see it yet?
Ms. MONCRIEF. No.
Chairman CRANE. Well, they quoted you and your testimony
before the Committee. It was filed at 1:09 p.m., and we had
just gotten back here after breaking for a little over an hour.
We are interested, those of us on the panel here are interested
in hearing your testimony.
STATEMENT OF LAURIE MONCRIEF, BOARD MEMBER, COALITION FOR THE
ADVANCEMENT OF MICHIGAN TOOLING INDUSTRIES, AND PRESIDENT,
SCHMALD TOOL & DIE, FLINT, MICHIGAN
Ms. MONCRIEF. Thank you. Mr. Chairman and Members of the
Subcommittee, I appreciate the opportunity to testify before
you today. I am sorry you had to read it in the paper first,
though.
I am testifying on behalf of my business and the employees
specifically in the tooling sector generally. I am the
President of Schmald Tool & Die, located just outside of Flint,
Michigan. Founded in 1948, we are a third-generation family-
owned business. We design and build stamping dies, injection
molds, and do special machining. Today we employ 31 workers,
down from 45 just a year and a half ago.
In addition to serving as President of Schmald Tool & Die,
I am also co-founder and Board Member of the Coalition for the
Advancement of Michigan Tooling Industries. It is heartening to
be invited to testify today. I am somewhat surprised that as an
owner of a small, 31-employee company, there is room for me at
a congressional hearing which includes the likes of AISI
President Andrew Sharkey, Nucor Chief Executive Officer Dan
DiMicco, and United Steelworkers of America President Leo
Gerard.
I hope the Subcommittee will receive and treat my testimony
with the same urgency and credibility accorded the steel
representatives. In this regard, I am compelled to say to the
steel guys, I am all for a healthy and vibrant steel industry.
You are important to our national security and economic
vitality. I buy domestic steel to make my dies and molds and
most of my customers stamp domestic steel in their shops. My
business probably cannot live without a domestic steel
industry. However, right now, I can't live with it. The steel
tariffs threaten the long-term viability of my company and 31
families in Flint, Michigan. While the intent of the tariffs
may be good, the impact is mostly wrong.
Depending upon how the sector is defined, there are
approximately 1,300 tooling shops providing 40,000-plus direct
jobs in the State of Michigan. Michigan accounts for roughly 25
percent of the tooling sector nationally. Other tooling-
intensive States include Pennsylvania, Illinois, Ohio, and
Indiana. Our industry provides tools, dies, and industrial
molds for a wide array of industries including automotive,
defense, aerospace, medical, and residential consumer goods, to
name a few. Anyone who truly knows the manufacturing supply
chain will tell you that without tooling there really cannot be
any manufacturing. Tool makers are the backbone in metal
bending and forming.
As a die maker, the impact of the tariffs has been
indirect, but very real and dramatic. At an alarming rate, our
customers are significantly reducing their stamping of sheet
metal and are turning to importing semi-finished and finished
products which are not subject to the tariff. Based on the
statements of earlier witnesses, it is painfully obvious that
this is an accelerating trend, one that bodes ill for a wide
array of manufacturing sectors, including tool and die makers.
With regard to the tooling sector, the impact of the tariff
was not a surprise. Six months ago, upon a request from the
Committee on Ways and Means, the ITC released a fact-finding
study on the tool and die and industrial mold sector. I would
encourage you to review this ITC study. The study identified
many problems already plaguing the tooling sector, but
important to note is that the ITC determined that the steel
tariffs would be yet another additional burden.
Please permit me to quote two brief excerpts. According to
industrial officials, higher sheet prices have adversely
affected the price of domestic stamped parts, causing companies
to seek out foreign stamped-parts sources, thereby reducing
demand for domestic tooling. Discussions with officials of U.S.
firms involved in the production of stamped parts confirm that
the effect that the program has had on sheet steel pricing and
availability in the U.S. market has caused them to start
investigating a relocation of stamping operations offshore.
Later in the ITC report, they were more explicit and
ominous. Delphi, the world's largest parts supplier, has
announced it has already begun to place contracts for some new
steel-intensive parts and products with overseas manufacturing
as a result of cost increases related to rising steel prices.
Although the additional duties are staged and will expire after
3 years, it is unclear whether any stamping production that
actually moves from the United States will return at the end of
the program.
Mr. Chairman, I know my time is about to expire. I wish to
thank you again for inviting me to this hearing, as well as
Chairman Thomas for requesting the ITC to study the impact of
these tariffs, and Congressman Knollenberg for his leadership
on the issue.
I would like to leave this Subcommittee with one Orwellian
thought. We in the manufacturing supply chain are all equal,
except some seem to be more equal than others, at the expense
of others. This needs to change. Thank you.
[The prepared statement of Ms. Moncrief follows:]
Statement of Laurie Moncrief, Board Member, Coalition for the
Advancement of Michigan Tooling Industries, and President, Schmald Tool
& Die, Flint, Michigan
I am the President of Schmald Tool & Die, located just outside
Flint, Michigan. Schmald Tool & Die is a third-generation; six decade-
old, family-owned and operated tool and die shop. We design and build
stamping dies and injection molds for a wide array of industries,
including: automotive; defense; aerospace; and residential consumer
goods. Today, we employ approximately 31 workers, down from 45 just a
year and a half ago. My company is one of approximately 1,100 tool and
die companies providing 31,000 jobs in the State of Michigan.
Nationwide our industry employs nearly 129,000 workers. These numbers
are significantly reduced in the last couple of years.
As a die maker, the impact of the tariffs has been indirect, but
very real and dramatic. At an alarming rate, our customers are
significantly reducing their stamping of sheet metal and are turning to
importing semi-finished and finished products, which are not subject to
the tariffs. We anticipate that this activity will only accelerate in
the near future.
Tool making companies such as Schmald truly are the backbone of
manufacturing. Tooling is, in its simplest sense, the means of
production. ``Special'' tooling, such as dies and molds, is custom
designed and made to manufacture specific products, generally in
quantity, and to the desired levels of uniformity, accuracy,
interchangeability, and quality.
Why is tooling and machining important to the United States? The
broad industrial group known as tool and die includes mold making
(molds produce plastic parts), die cast dies (die casting means forming
aluminum parts), forging dies (used to form iron and other metal
pieces), stamping and trim dies (tools that stamp parts out of metal
sheets), tools and fixtures (used to hold pieces in place to perform
additional manufacturing steps), precision machining (forming objects
by cutting to specifications within .001") and many other manufacturing
specialties. These industries build the tools that are used as the
building blocks of manufacturing. All mass manufactured objects begin
at the hands of a tool and die maker.
Unfortunately, the demise of U.S. manufacturing and therefore the
tool and die industry is accelerating at an alarming rate. Unlike
typical business downturns of the past when manufacturers simply cut
back and waited for recovery, in the current downturn manufacturers are
rapidly relocating outside the U.S. and large numbers of small and mid-
sized U.S. manufacturers are closing down permanently due to foreign
competition. The resulting loss of family sustaining blue-collar jobs
is undermining the U.S. middleclass and devastating rural communities
where manufacturing is essential to the local economy.
Many have argued that manufacturing is just facing a down cycle and
will rebound. However, I wonder that any increase in domestic steel
costs relative to steel costs in foreign markets provides an added
incentive for customers to move production overseas. For example,
Delphi, the world's largest automotive parts maker, has announced that
it has already begun to place contracts for some new steel-intensive
parts and products with overseas manufacturers as a result of costs
increases related to rising steel prices. Although the additional
duties are staged and will expire after 3 years, it is unclear whether
any stamping production that actually moves from the U.S. would return
at the end of the program.
The International Trade Commission (ITC) has recently completed its
(332-435) investigation on the conditions in the U.S. Tool, Die and
Mold industry and submitted their report to the House Ways and Means
Committee. The study paints a very bleak picture of the tool and die
industry and the future of the U.S. economy. The industry is currently
facing a problem with overcapacity. The overcapacity has been created
in part because American companies are closing their U.S. manufacturing
plants and moving offshore in search of fewer government regulations,
lower taxes and cheaper labor. The steel tariffs have only made a bad
situation worse.
ITC pg 3-16. Of greater concern for die producers were the effects
of tariffs and increased prices on sheet steel used by their stamping
customers. According to industry officials, higher sheet steel prices
have adversely affected the price of domestic stamped parts, causing
companies to seek out foreign stamped-parts sources, thereby reducing
domestic demand for stamping dies. Discussions with officials of U.S.
firms involved in the production of stamped parts confirm that the
effect the program has had on sheet steel pricing and availability in
the U.S. market has caused them to start investigating the relocation
of stamping operations offshore.
The steel tariffs imposed by the President last March, which were
intended to provide the domestic steel industry with protection from
imports and an opportunity to restructure in order to become
competitive on a global scale, have unfortunately resulted in
dramatically higher prices, longer delivery times, shortages,
allocations and lower quality for steel consumers. The tooling industry
is poised to collapse under the additional weight of the steel
safeguard tariffs.
What will happen to this country if things continue to go poorly
for the manufacturing sector? The U.S.'s economic strength has been
based on its manufacturing capability. In order for these companies to
continue to improve and grow they have relied on innovations in
manufacturing that are brought on by the tooling and machining
industry. If we are to continue to grow economically we need innovative
American companies. For every manufacturing job lost we see ripple
effects throughout the economy. However, as the market continues to
falter for the industry, fewer companies are open and thus a large
percentage of the creativity and innovations are lost.
The broader U.S. economy is suffering as well because manufacturing
does more than any other sector to stimulate the economy. The average
income of $44,700 for an employee and the consequent spending power of
manufacturing workers is higher than that of any other sector and, due
to its high multiplier effect, manufacturing directly or indirectly
generates more jobs than any other sector. The manufacturing sector and
the non-manufacturing industries that are directly linked to
manufacturing, account for 45 percent of U.S. GDP and 41 percent of
national employment. In fact, a study done by Penn State University
showed that when a manufacturing company cut 155 jobs, the total
direct, indirect and induced effect on the community for employment saw
an additional loss of 227 jobs; total economic output lost $19,758,655;
sales of goods and services fell $8,212,764; personal income dropped
$3,330,358; and local payroll taxes fell $3,330. But as we see the
closure of business, many of the new jobs created by small
manufacturers in recent years are being permanently lost.
In summary, the U.S. tool, die, mold and precision machining
industries as well as general manufacturing are in serious trouble. The
causes and solutions are broad and complex. I encourage the
Subcommittee to hold future hearings to examine the findings of the
International Trade Commission's 332 investigation into the Tool, Die
and Mold industry. Also, the Committee should pay close attention to
the ITC's 332 investigation into the impact of the President's
imposition of the tariffs of certain steel on consuming industries to
help steer future actions. You as our elected officials have a huge
job, but in order for them to keep our economy growing and our Nation
safe we need your support for the tooling and machining industry.
Chairman CRANE. Mr. Jones?
STATEMENT OF JAMES M. ``JIM'' JONES, VICE PRESIDENT, DIXIE
INDUSTRIAL FINISHING COMPANY, TUCKER, GEORGIA, AND PRESIDENT,
GEORGIA INDUSTRY ASSOCIATION, ON BEHALF OF THE NATIONAL
ASSOCIATION OF METAL FINISHERS, ORLANDO, FLORIDA, THE METAL
FINISHING SUPPLIERS ASSOCIATION, AND THE AMERICAN
ELECTROPLATERS & SURFACE FINISHERS SOCIETY, ORLANDO, FLORIDA
Mr. JONES. Mr. Chairman, Members of the Committee, I am Jim
Jones, Vice President of Dixie Industrial Finishing Company. We
are located in Tucker, Georgia, and have 85 employees. For 43
years, we have supplied metal finishing services on steel and
other metals to a range of industries, including automotive,
aerospace, construction, lawn and garden, heavy equipment,
electronic cabinetry and a host of others.
I am testifying today on behalf of the National Association
of Metal Finishers, the Suppliers of the Metal Finishing
Industry, the American Electroplaters and Surface Finishing
Suppliers, and I am also the current President of the Georgia
Industry Association, who has established an existing industry
task force on saving jobs and growing our manufacturing base.
My reason for being here today is jobs. Leaders in our
industry are commenting this year that the metal finishing is
possibly experiencing the worst period we have seen in the past
40 years. Some in our industry tell us they have seen declines
by as much as 60 percent and others are closing their doors.
One metal finishing company in the Atlanta area operating for
over 100 years is now completely out of business as of this
year.
Our own company has 25 fewer employees since the beginning
of last year. Our experience is typical of the industry as a
whole, though not as drastic as some. We believe that one of
the major reasons for this is the downstream or ripple effect
of the Section 201 steel trade action on key segments of the
U.S. manufacturing base. This effect is now becoming painfully
clear to industries like the metal finishing. Our economic
livelihood depends on the health of our customers, the steel-
consuming industries. When our customers suffer, we suffer.
Like numerous other industries, we play a significant
value-added role in the steel manufacturing supply chain. We
make most of the things Americans come in contact with every
day work better, look better and last longer. We apply a range
of coatings onto literally millions of different types of
fabricated steel, castings, stampings, forgings and wire. Steel
products account for an estimated 60 percent of finished goods
by volume, and our role in corrosion protection alone in the
United States provides about a $200 billion economic benefit.
As others have testified here today, material costs for
steel are increasing significantly, and the steel consumers
face extremely difficult times. Once the business of a domestic
steel-consuming industry disappears, another piece of the metal
finishing market disappears, and seldom does it return.
In fact, not only are metal finishing firms seeing a
dropoff in business from their steel-consuming customers, many
finishers are taking price reductions from customers just to
keep the work they have. The dynamics have become very
destructive. Essentially, the steel consumer that is
fabricating a part is faced with uncontrollably higher
materials cost, but he must find a way to lower the overall
cost of his product.
What are his options? One is to make up for his higher raw
material costs by extracting a lower price for his metal
finishing services. Another, if he can, is to simply source the
manufacturing and the finishing out of country.
This puts in motion a second problem: Most finishing firms
are quite small, and therefore are true price-takers in this
market, so they end up competing against one another just to
get the business in the door, even if they have to lose money
in the short term. Thus, the steel tariffs have both shrunk
domestic demand and have increased downward pricing pressures
for metal finishing services. These combined effects have had a
significant negative impact on the U.S. metal finishing
industry.
While my industry clearly recognizes there is a combination
of factors responsible for our financial pain, tariffs on steel
have played a significant role in compounding and accelerating
the problem.
We thank the Committee for the opportunity to appear today
and request that the ITC conduct a section 332 investigation to
consider the impact of the steel tariffs on the U.S. economy.
We hope that in the context of that investigation, the ITC will
include consideration on the impact that the steel tariffs have
had on the U.S. metal finishing industry. Thank you.
[The prepared statement of Mr. Jones follows:]
Statement of James M. ``Jim'' Jones, Vice President, Dixie Industrial
Finishing Company, Tucker, Georgia, and President, Georgia Industry
Association, on behalf of the National Association of Metal Finishers,
Orlando, Florida, the Metal Finishing Suppliers Association, and the
American Electroplaters & Surface Finishers Society, Orlando, Florida
Good morning, Mr. Chairman and Members of the Subcommittee. I am
Jim Jones, Vice President of Dixie Industrial Finishing Company. We are
located in Tucker, Georgia, and have 85 employees. For 43 years, we
have supplied metal finishing services on steel and other metals to a
range of industries, including automotive, aerospace, construction,
lawn and garden, heavy equipment, electronic cabinetry, and a host of
others.
I am testifying today on behalf of the National Association of
Metal Finishers (NAMF), the leading industry trade association for the
metal finishing industry, as well as its sister organizations, the
Metal Finishing Suppliers Association (MFSA) and the American
Electroplaters and Surface Finishers Society (AESF). I am also the
current President of the Georgia Industry Association, which has
established an existing industry task force focusing on saving jobs and
growing our current manufacturing base.
My reason for being here today is simple. Leaders in our industry
are commenting this year that metal finishing is possibly experiencing
the worst period we have seen in the past 40 years. Some in our
industry tell us they have seen declines by as much as 60 percent, and
others are closing their doors. One metal finishing company in the
Atlanta area operating for over 100 years is now completely out of
business as of this past year. Our own company has 25 fewer employees
since the beginning of last year. Our experience is typical of the
industry as a whole, though not as drastic as some.
We believe that one of the major reasons for this is the
downstream, or ``ripple effect,'' of the 201 steel trade action on key
segments of the U.S. manufacturing base. This effect is now becoming
painfully clear to industries like metal finishing. Our economic
livelihood depends on the health of our customers--the steel consuming
industries. It's basic economics--when our customers suffer, we suffer.
Like numerous other industries, we play a significant value-added
role in the steel manufacturing supply chain. We make most of the
things Americans come in contact with every day work better, look
better and last longer. We apply a range of coatings onto literally
millions of different types of fabricated steel, castings, stampings,
forgings, and wire. Steel products account for an estimated 60 percent
of finished goods by volume, and our role in corrosion protection alone
in the U.S. provides about a $200 billion annual economic benefit.
As others have testified here today, materials costs for steel are
increasing significantly, and the steel consumers face extremely
difficult times. Once the business of the domestic steel consuming
industries disappears, another piece of the metal finishing market
disappears, and seldom does it ever return.
In fact, not only are finishing firms seeing a drop-off in business
from their steel-consuming customers, many finishers are taking price
reductions from customers just to keep the work they have. The dynamics
have become very destructive. Essentially, the steel consumer that is
fabricating a part is faced with uncontrollably higher materials costs,
but he must find a way to lower the overall cost of his product. What
are his options? One is to make up for his higher raw material costs by
extracting a lower price for his metal finishing service. Another, if
he can, is to simply source the manufacturing--and the finishing--out
of country.
This puts in motion a second problem. Most finishing firms are
quite small and therefore are true ``price takers'' in this market, so
they end up competing against one another just to get business in the
door, even if they have to lose money in the short term.
Thus, the steel tariffs have both shrunk domestic demand and have
increased downward pricing pressures for metal finishing services.
These combined effects have had a significant negative impact on the
U.S. metal finishing industry.
Many who follow the chronology of the Nation's economic plight
recognize that the current downturn for manufacturing began in the 2nd
quarter of 2000. While my industry clearly recognizes there is a
combination of factors responsible for our financial pain, tariffs on
steel have played a significant role in compounding and accelerating
the problem.
We thank the Committee for requesting that the ITC conduct a
section 332 investigation to consider the impact of the steel tariffs
on the U.S. economy. We hope that in the context of that investigation
the ITC will include consideration of the impact that the steel tariffs
have had on U.S. metal finishers.
Thank you for this opportunity to appear before you today.
Chairman CRANE. Thank you. Ms. Moncrief, some of the
testimony has focused on the number of jobs lost in your
industry that are attributable to higher steel tariffs. Of
course, this discussion today is about these jobs versus steel
jobs. Can you comment on how you feel about the government
making decisions that cut jobs in your business in order to
save jobs in another business?
Ms. MONCRIEF. Yes. I mean, I am not following the question.
Are you asking me a question about that?
Chairman CRANE. Yes.
Ms. MONCRIEF. My steel prices are not affected, but my
customers' steel prices are affected. Our industry is facing
the exact same thing that the steel industry is facing: high
health costs, high utilities, high taxes, Occupational Safety
and Health Administration, the whole 9 yards. So, we are facing
the same things, as well as foreign competition. China is a
dollar an hour compared to us in our industry, and so we are
facing the exact same things the steel industry is facing, but
the steel tariff has been destructive to our customer base who
now can't compete, is moving overseas, and when they move that
business overseas, they buy the tooling overseas. Did that
answer the question?
Chairman CRANE. Mr. Jones, do you want to comment on that?
Mr. JONES. I would agree with Ms. Moncrief. When the tool
and die go overseas, the stamped parts go overseas, the
finished product goes overseas, the finishing of the
electroplating, normally, the packaging, then we just have an
importation and a distribution. We have then lost many, many
jobs in the steel-consuming sector, and it goes beyond tools,
dies, and stampings.
Chairman CRANE. Mr. Bradford, in your written testimony,
you state that reputable analysts show the average domestic-
integrated steelmaker has much higher costs than its foreign
competitors, as well as its domestic mini-mill counterparts.
What do you think are the long-term prospects for integrated
mills who have recently restructured, such as the ISG?
Mr. BRADFORD. It is actually a quite different and
difficult problem, because if you were to pick a place to build
a steel mill, integrated, you would go to Brazil, you would go
to South Africa, places that have cheap iron ore. Their waste
iron ore is higher than what we mine in the United States, and
that is a major cost. This is not a favorable place. Frankly, I
know that President Bush has been against the Kyoto Protocol,
something I applaud, that would wipe out the integrated steel
industry because the integrated steel companies emit three
times more carbon dioxide than the mini-mills do.
I saw a study done by one of the integrated companies, so
you have to take it with a little bit of a grain of salt, that
suggested that there would have to be a tax of $25 per ton of
carbon dioxide emitted, which would be $75 per ton of steel for
an integrated, $25 for a mini-mill. That is not sustainable.
Actually, the restructuring of LTV Steel with ISG,
principally the labor contract, is what I think led to the
consolidation of the industry. You didn't have any of the
integrated companies consolidating or talking about until that
labor contract was signed or at least agreed to. Why? It
eliminated a lot of the legacy liabilities that the integrated
steel companies were afraid of taking over. Nucor did make a
couple acquisitions, but they were adding to capacity. The real
big changes came with that ISG labor contract. It makes a big
difference.
Consolidation may not be the panacea that people say it is.
I think the most respected steelmaker in the United States in
the last couple generations was a guy by the name of Tom
Graham, who the union has called a smiling barracuda, but who
ran U.S. Steel's steel-making operations and took it from
rivers of red ink to quite substantial profits.
He has recently put out a paper--actually, maybe it is a
year and a half ago--claiming that, first of all, computer
systems will not be able to communicate with each other. If you
have the same largest customer, you may lose some business.
Management salaries may be different at the two companies that
merge, and you would end up with the higher one. They had a
whole long list of reasons against consolidation.
I am personally in favor of consolidation because I think
we have had an unbalanced playing field, with three big
customers beating up on nine suppliers. If there were three big
automobile companies against three or four steel companies,
there wouldn't have been continuous steel price declines for
the last decade. So, I would like to see consolidation from a
commercial standpoint. I am not an operating guy, so I am the
wrong guy to talk about in that regard, but Graham I think was
the best operator that I have ever seen, and he was against
consolidation.
Chairman CRANE. Mr. Schulingkamp, I appreciate the
cooperation and communication with your Washington
representation. What is the overall effect on the New Orleans'
economy or the change in make-up of steel imports as a result
of Section 201?
Mr. SCHULINGKAMP. Well, as I have testified, we have lost
over a half million tons of cargo that was passing over our
docks in 2001 from 2002, and you have to put that in the
context of in 1998 we had almost 8 billion tons of cargo
coming. As Mr. Gerard testified correctly, largely due to the
efforts of the successful dumping and countervailing duty
complaints which he won, that had been reduced to about 2.8
million tons in 2001, even before Section 201 was enacted.
So, the effects on the economy, my colleague, Mr. Campbell,
I think has already testified about direct jobs. The Port of
New Orleans has lost revenue, but our tenants, who are the
stevedores and the terminal operators, the barge lines, the
handlers, the truckers, all of those people involved in steel,
including, by the way, the Admiralty Bar in New Orleans, who
handles cargo claims, their business is down significantly
because of lost steel.
Chairman CRANE. Mr. Levin.
Mr. LEVIN. Thank you, and welcome. Mr. Bradford, it seems
like it was a day ago, but it was just, what, about 45 minutes
ago, you testified about the surge that occurred, and I just
went back quickly with the help of staff. I don't have the
exact figures, and I am going partly also from my memory, but
when you look at the surge in 1998, I think the bulk of it came
from Russia, Japan, Brazil and Korea, and they are not 10-
cents-an-hour economies, steel producers, but they are heavily
subsidized, and also the wages are much, much lower. In Russia,
they weren't paying people anything. So, I think to simply
dismiss it is really a mistake.
The surge, in substantial measure, came as a result of
excess capacity, with a good portion of that capacity coming
from economies that heavily subsidize their steel production.
That is part of the problem.
Mr. BRADFORD. I didn't refer, frankly, to 1998. I was
talking about 2002 figures. I would agree with you that there
was a----
Mr. LEVIN. Okay, but the surge occurred, that is when the
surge occurred. It started, it really hit us in 1998.
Let me just ask, so I am clear, in terms of the port, and,
Mr. Jefferson, my pal, will go into this further, are steel
shipments up or down this year and last year from 2001?
Mr. SCHULINGKAMP. Yes, the amount of steel, and I think the
statistics come from the Customs Department, that have come in
through the Customs Port District of New Orleans have
increased. However, what has gone over the docks and has
happened within the physical limits of the port has gone down.
Moreover----
Mr. LEVIN. Explain that.
Mr. SCHULINGKAMP. The Customs Port District runs beyond the
physical limits of the Port of New Orleans. Additionally, a big
part of the increase which came was a result of two main
products. One is steel slabs, which of course were imported for
the domestic steel industry, which was I think favorably
treated under Section 201. While we welcomed that business,
that business has an economic value much less than the other
types of steel that were more prevalent prior to Section 201.
For example, to unload slabs, that cost can be less than
$2, $1.75, or $1.85 a ton. The cost for handling coils runs in
the neighborhood of $6 to $8. Additionally, of course, Mr.
Levin, the further handling of that cargo through the docks
creates further value. So, we are not complaining about the
business that came; we are just distinguishing it and saying
that it actually resulted in a net economic loss.
Mr. LEVIN. That helps. Ms. Moncrief, let me just say a
word. The irony is the machine tool and tool and die business
has been in trouble for years. I come from near you, and I have
seen the decline. The irony is that those who don't like the
steel tariffs, by and large, here are also those who opposed
any action to help the tool and die or the machine tool
industry. Those who felt that there had to be something done
about the steel industry after the surge in 1998, including
myself, have been those who have urged there be some attention
to the health of the tool and die industry.
As I understand it, if you look at the causation factors,
the price of steel over the last 6, 7, or 8 years, hasn't been
the major source of decline, right? Canada, as I understand it,
there is an influx from Canada, where there is some heavy
subsidization of your competitors.
So, I think if you put them on a scale, you have to look
far beyond the price of steel, in terms of the decline of your
industry in our State in the last 10 years; isn't that true?
Ms. MONCRIEF. Yes, I do agree with that. As I said in my
statement, and in accordance with the ITC study, there are
other problems in our industry. Actually, those other problems
are very similar to what the steel unions or the steel mills
are facing.
Mr. LEVIN. Right.
Ms. MONCRIEF. We are facing the same things they are, but
the steel tariff added to our problems.
Mr. LEVIN. I finish by I think saying what you were saying.
You are in the same boat with them on most factors, and you
have picked out one where you have conflict, but the rest of
the time you are facing some of the competitive factors that
they are.
Ms. MONCRIEF. Yes, that is exactly true. I totally agree
with the statement that something needs to be done with--it
needs to be a fair playing field.
Mr. LEVIN. Right.
Ms. MONCRIEF. The tooling, we are facing the exact same
thing with the dumping, and Canada, and the dollar, and
everything is the exact same.
Mr. LEVIN. Okay, thanks.
Ms. MONCRIEF. We don't have a tariff, and I don't think it
is the answer because then it is just going to push it onto
somebody else.
Mr. LEVIN. Thanks.
Chairman CRANE. Mr. English.
Mr. ENGLISH. Thank you. I would like to follow up on that,
Ms. Moncrief. The gentleman from Michigan, as always, is
extremely knowledgeable on points of trade policy. You had
mentioned the section 332 study, which I happen to have right
here. My role in this was that I had requested that the
Committee move forward with it and, as a result, we have a
better picture of the tool and die industry than just about any
industry in the manufacturing sector in crisis today. You are
picking on one factor which I think, as a stamping operation,
particularly affects you.
Having actually read this report and having reviewed it,
what I have found is that raw materials, as a cost share, only
make up typically 19 percent on the average within tool and
die. Also, the concerns of tool and die producers who testified
before the ITC were in this order: One, competition from low-
cost imports; two, shift of production by U.S. customers to
foreign production locations; three, high U.S. labor costs,
health care costs, insurance costs, and then the market forces
of the slow economy.
My concern with the testimony I have heard today is we have
had almost a single-minded focus on one factor that has been
changed, but as a practical matter, doesn't this report suggest
that the problems with tool and die are not only hardly limited
to the steel pricing, but more to the point, for most tool and
die producers, steel price fluctuations have been a very minor
factor; is that not the case?
Ms. MONCRIEF. Yes. As I stated earlier, we buy domestic
steel, and actually tool steel is exempt from the tariff--both.
Mr. ENGLISH. Absolutely, and I think there was a reason for
that exemption.
Ms. MONCRIEF. Yes, there is.
Mr. ENGLISH. The other point is I took the liberty of
reading your testimony before the section 332, and at the time
you testified before the ITC, you didn't cite steel as one of
your concerns. What has changed your mind since then?
Ms. MONCRIEF. Well, as in my statement, and the ITC's
investigation, Delphi is a very big customer of ours.
Automotive----
Mr. ENGLISH. I understand they are a substantial customer
of yours, but at the time you were testifying, in your verbal
testimony, you didn't cite the pricing of steel as a problem,
did you?
Ms. MONCRIEF. Well, at that time, our customers were not
relocating at the rate they are currently. Business has gone
down significantly even since that hearing.
Mr. ENGLISH. I understand that, but obviously the crisis in
the tool and die industry, which some on Capitol Hill are
wholly attributing to the price of steel, is something that
pre-dates the steel policy, and for most tool and die
manufacturers this has really been only a marginal factor.
In fact, when you testified before the ITC, weren't you
seeking remedies that were similar to what the steel industry
has been seeking?
Ms. MONCRIEF. As a matter of fact, I don't think, again,
the tariff is the answer. Remedies may be one thing. We never
pinpointed any specific remedies, nor did I choose any specific
remedy in my testimony.
Mr. ENGLISH. Well, we are delighted to have you here
because I know, from my tool and die guys, that you are highly
regarded in the industry, and it is a real privilege to have
someone here of your stature.
Now, quickly, while I have time left, Mr. Bradford, do you
agree that the U.S. steel industry has undergone extensive
consolidation and restructuring in the last year? Based on
this, do you agree that the industry is using its remedy period
to adjust to import competition, as the President has
requested?
Mr. BRADFORD. Actually, there hasn't been much
consolidation yet, other than by Nucor. There are proposals by
U.S. Steel to acquire National, A.K. to acquire National, ISG
to acquire Bethlehem.
Mr. ENGLISH. Don't those take a long time in the pipeline?
Mr. BRADFORD. Oh, they do. They do. They absolutely do.
Mr. ENGLISH. Now, spot prices for flat products have fallen
25 percent or more from their peaks in July 2002. An article,
on March 24, 2003, in American Metal Market, states that an
attempted price increase on sheet products, one that was sought
in order to offset scrap-price increases fell flat. Would you
agree, then, that the price trends continue to point downward?
Mr. BRADFORD. I would say they are more stable, but
certainly the price increases did not go into effect.
Mr. ENGLISH. Final question. According to World Steel
Dynamics, hot-rolled sheet prices in the United States are now
lower than those in many other countries, including our buddies
in France, Germany, China and the United Kingdom. Doesn't this
confirm that the President's Section 201 program is not
creating unusually high price levels for steel consumers in the
United States?
Mr. BRADFORD. I am not so sure, frankly, that it is the
Section 201 or the weaker dollar, but clearly you are correct
that prices today are very, very close all around the world
except for Korea where prices are the lowest in the world.
There is a gap in China, until recently, and now the Chinese
have shut off the market. I just hope, frankly, that the U.S.
mills who have shipped a lot to China will get paid.
Mr. ENGLISH. A ray of light. Thank you very much.
Chairman CRANE. Mr. Jefferson.
Mr. JEFFERSON. Thank you, Mr. Chairman.
I would like to take the special privilege of welcoming
these two distinguished men from my home city of New Orleans,
Mr. Schulingkamp and Mr. Campbell, who represent different
sides of the street there--one management and one labor--but
who are together on this issue because of the effect of it. It
crosses both in quite significant ways, and I am very
privileged to have you in front of our Committee, and welcome,
and I have enjoyed your testimony.
Mr. Levin cleared up an issue for me from the last round of
testimony from I think Mr. DiMicco, who said I guess what is
true; that you can prove anything with figures if you decide
how you want to argue them. The fact of it is that, as you
point out, as slab and other products were not subject to the
tariff, they have increased as they have moved through the
port, but, nonetheless, the cost of handling them has been
quite less than for the higher priced goods, and so it explains
a great deal about what happened there, when you talk about
increases in activity and loss of money at the same time.
I want to ask one question before I ask anything be cleared
up on that. I don't often quote the Times Picayune, my
newspaper. I don't always agree with it, but it says something
here that a policy, speaking of the President's Section 201
tariff policy, that requires 1,022 exemptions, so much
tinkering, it says, in such a short period of time, clearly, is
a bad one.
Have you ever seen a Section 201 action put in place or any
other action that has required this many exceptions to try to
make it right? Would you conclude that, as our newspaper,
anyone here, that if you have to do that much tinkering to it,
it couldn't be a good policy to start with, huh?
Mr. BRADFORD. Are you asking me?
Mr. JEFFERSON. Yes, or anyone.
Mr. BRADFORD. I am not a trade expert, but I have talked to
the people involved with those exemptions, and the steel
business is not as homogeneous as people think it is. There are
a lot of very specialty products that aren't made in this
country.
Mr. Gerard talked about rail. There are no producers of
really high-quality rail in this country. There will be in a
couple weeks. There is a brand new mill about to start up, but
there hasn't been any, so that has been imported, and it is not
part of Section 201 anyway.
Mr. JEFFERSON. If you put together a Section 201 policy
that requires 1,022 exemptions in less than 18 months--in 12
months or so--that is a sign of a pretty bad policy, at least
one that was not well thought-out, don't you think or a
shortsighted one?
Mr. BRADFORD. Let me give you a couple thoughts you might
find interesting. Of all of the products covered by the Section
201, the only ones that really ran up in price were flat-rolled
steel. Rebar prices didn't go up, even though they had a 15-
percent tariff; merchant bars had 30-percent, they didn't go
up; plate had 30-percent, it didn't go up. The difference was
the closure of LTV Steel, the sudden closure panicked their
customers, and they not only rushed out to find new suppliers,
they double ordered. By last summer they ended up with excess
inventory.
It wasn't, I don't think, the Section 201 that did it, and
I don't think the Section 201 also did the consolidation, but
the fear of the coming Section 201 did contribute. It was the
industry that asked for the Section 201. I don't think the
President would have done it on his own, but I don't know the
man, so I don't want to put words in his mouth.
Mr. JEFFERSON. Dave. Mr. Schulingkamp.
Mr. SCHULINGKAMP. Well, I think that your illustration just
shows how difficult it is for government to attempt to
interfere and impose broad policies in the economic arena. We
heard from so many witnesses today about the downstream effects
in a variety of industries, and if they all came in and asked
for intervention by the executive or congressional branch, I
think that we would find a situation where we would have
confusion and more distortions of the market.
Mr. JEFFERSON. Mr. Campbell, you represent not just the
Port of New Orleans, but there are workers all over this
country who have been affected in the same way. How large is
this coalition that you and Mr. Schulingkamp represented, and
others here, with respect to those who have come together to
fight against these tariffs who represent ports, and labor
unions, seafarers and longshoremen, across the----
Mr. CAMPBELL. It is really growing, but may I correct
something here? When we get talking about the Port of New
Orleans and the increase of steel, we are talking about steel
slabs and rail rods which is up. It represents 25 percent of
the steel in the Port of New Orleans, and that is up 26 percent
from what it was the year before.
So, somewhere we might have got some misreading here, but
overall, steel is up slightly, but we are talking about the
steel that affects our work force here in the Port of New
Orleans.
I sympathize with my other steel mill brothers because each
and every one of us has the same amount of salt in our sweat,
blood and tears. I feel their pain, and I hear their cry. The
reason why I can say that, because I represent the people in
the Port of New Orleans that is being unemployed with the
Section 201 tariffs on steel. I represent the people that are
part-time employed now because of the Section 201 on steel.
We got to talking about loss of health care, I have got
people that are not going to have health care, no kind of care,
not even funds to purchase groceries during the week because of
jobs lost.
So, I understand. I understand a whole lot more than some
of us think that we understand, but we are talking about the
effect that the Section 201 imposes on the worker and
especially the maritime industry in the United States.
Mr. JEFFERSON. Thank you, Mr. Chairman.
Chairman CRANE. Thank you. Mr. Becerra.
Mr. BECERRA. Thank you, Mr. Chairman, and thank you all for
your testimony today.
I would like to follow up on a question that I asked of the
last panel with regard to consumer prices, not the steel-
consuming industries, but to the end consumer folks out in
America, the 280 million Americans.
We were told that to impose these Section 201 tariffs would
ultimately lead to higher prices for consumers, and my
understanding is that, over the last 6 or 7 months that have
seen these tariffs in place, that consumer prices on products
that contain substantial amount of steel, that those prices
have not gone up; in fact, in many cases, they have gone down.
Now, I know there are a lot of factors involved here. We
have got a slowing of the economy. We have got other factors
that could be involved as well, but can you give me your sense
of what the impact has been of the tariff to the American
consumer? To date, I don't think we have seen a lot of
increases in prices of products that contain a substantial
amount of steel.
Mr. BRADFORD. If you want to overly generalize, there are
really two kinds of steel consumers in the United States. There
are those that are capital related--heavy construction,
machinery and that type--and there are the consumer goods. Now,
the consumer goods tend to be sheet steel products made by
automobile, appliance and companies of that type. They did not
have to pay higher prices last year.
Those contracts, as someone had said earlier, were signed
either in late 2001 or, in some cases, 3 years earlier, and
those prices went down 2 to 3 percent last year, despite the
spot price going up in hot-rolled coils 100 percent. The hot-
rolled coils going into the construction market to people who
are putting up factory buildings, which is not a good market
these days. It goes into a number of the heavier goods. The
automobile companies have protected themselves.
The people that got hurt were the guys in the middle who
were supplying auto parts, didn't have the contract pricing,
but had to pay the spot price. Those are the people that got
caught, and it was a timing issue.
Mr. BECERRA. To go further into that point, and I think
that my friend from Pennsylvania, Mr. English, got into this a
bit as well, it appears that the actual price of hot-rolled
steel is actually less in America than it is with many of our
competitors abroad.
So, again, the question comes back, how are we providing
the steel-consuming industry or placing them at a disadvantage,
placing our steel-consuming industries at a disadvantage, if
the price of, in this case, hot-rolled steel is actually less
in America than it is in many of the countries that compete
with us?
Mr. BRADFORD. I do a lot of work in Asia and Europe, and
the prices right now are very, very close. You have got to
convert to metric tons, but if you take the U.S. price, which
is about $300 a ton, as someone said, that is $330 metric.
Mr. BECERRA. Right.
Mr. BRADFORD. The Japanese charge the Korean re-rollers
$300. That is a big market. The Korean price is $275 per net
ton.
Mr. BECERRA. Then, maybe the information we have is
incorrect.
Mr. BRADFORD. That is close.
Mr. BECERRA. I am looking at a chart that says--and the
source is CRU International, Limited, this is from some of the
steel publications--that the price out of Japan is closer to
$360 a metric ton versus the U.S. price at about $325/$330 a
metric ton.
[The chart follows:]
[GRAPHIC] [TIFF OMITTED] 89863A.002
Mr. BRADFORD. Well, the $350/$360 is a list price to some
markets, but I know, specifically, to the re-rollers in Korea,
which is a very big market, it is $300.
Mr. BECERRA. Now, you are getting into some specific niche
areas, and it would be difficult to make the comparisons.
Mr. BRADFORD. A lot of people have list prices, and they
are not the real prices.
Mr. BECERRA. Let me make one other----
Mr. BRADFORD. There was some going into China, by the way,
at $400, now down to less than $300.
Mr. BECERRA. Ms. Moncrief, I think we all appreciate your
testimony because too often we see industries showing signs of
illness, and by the time we try to address the problem, it is
too late, and we see the industry die away. Perhaps that is one
of the reasons why, for many of us, Section 201 is so
important. This is too important an industry to let it die
away.
Tool and die, I don't think anyone wants to see that die
away because we know how important it is. The jobs that you
offer are critical to a lot of folks and helping families
retain a status within the middle class, and so I think a lot
of us want to hear very closely what you say.
I think one of the difficulties I have is that, when you
take a look at the price of steel over the last 10 or 20 years,
it is actually much lower today than it has been in the past.
So, if you are suffering right now, compared to the prices of
5, 6, or 7 years ago when they were twice as high, I am not
sure what your status was then, how you were surviving then,
but right now the prices are certainly lower than they were
well before, they are obviously higher than they were a year
ago perhaps, but given the trends, it is a much lower price.
So, I am wondering how you relate that to your current
prices and relate that to your last 10 years of prices, and I
think you said you have been around since 1948.
Ms. MONCRIEF. Yes, I have not, personally, been around,
thank you, since 1948.
[Laughter.]
Mr. BECERRA. Absolutely not.
Ms. MONCRIEF. I think that was a slam.
Mr. BECERRA. Absolutely not. Please let me make sure that
that is clear for the record, that 1948 you were still
someone's imagination and beautiful thought, okay.
[Laughter.]
Ms. MONCRIEF. Again, tool steel is exempt from the tariff.
So, the steel prices, and the increase in the steel prices, are
not affecting me directly. What I get from my customers, the
Delphis, the Chamberlains, the large corporations are telling
us, ``Our sales are way down, our manufacturing is way down,
steel prices are up, and we are moving to China. So, thanks, we
don't need any more tools.'' That is what we are hearing.
Mr. BECERRA. Thank you. Thank you, Mr. Chairman.
Chairman CRANE. Thank you all.
Well, that concludes our hearing, and the record will be
open until the close of business on April 9, 2003, but let me
again express appreciation to all of you for your
participation. It is vitally important for us in the decision-
making process, and this input today has been valuable.
So, with that, we will adjourn.
[Whereupon, at 4:22 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Advance Transformer Company
Rosemont, Illinois 60018
April 4, 2003
Honorable Phil Crane
Chair, Subcommittee on Trade
Committee on Ways and Means
House of Representatives
Washington, DC 20515
Dear Chairman Crane:
Please accept this letter as testimony for the record in lieu of a
personal appearance at the hearing held on March 26th on the topic of
the ``Impact of the Section 201 Safeguard Action on Certain Products.''
I submit this testimony as Chief Executive Officer of Advance
Transformer Company, a division of Philips Electronics.
Advance Transformer Company, headquartered in Rosemont, Illinois is
the market leader in manufacturing and sales of electronic and
electromagnetic ballasts for fluorescent and High Intensity Discharge
lamps. Advance employs 400 people in its Rosemont headquarters, and
operates three U.S. factories employing 450 in Boscobel, WI, 175 in
Monroe, WI and 20 in Chicago. Advance also operates manufacturing
facilities in Mexico and is a sister company to other Philips
Electronics ballast businesses that manufacture in Asia, Europe and
South America. North American sales approximate $500 million annually.
The 201 tariffs have severely harmed Advance Transformer Company.
The tariffs have caused severe disruptions in steel supplies, double
digit increases in steel prices, and substantial market share losses to
our competitors, who manufacture nearly all of their products outside
of the United States.
The 201 tariffs created severe supply disruption.
Advance purchases 60,000 tons of steel annually, nearly all of
which is purchased from multiple domestic steel producers. Advance
typically negotiates annual contracts with these suppliers that cover a
calendar year. The terms of the contracts set prices and expectations
for quantities to be delivered and other performance standards.
Historically, this arrangement has been beneficial, and only rarely has
any supplier missed a delivery date. All this changed dramatically
beginning July 2002. Two of our suppliers, including our largest,
routinely missed scheduled deliveries of substantial quantities of
steel. In some weeks, less than 70% of steel ordered was received (see
attachment). This disruption continued until the end of the year, when
Advance began purchasing steel at the higher prices that went into
effect in 2003.
I believe that the 201 Action created such a substantial increase
in demand for domestic steel, that our suppliers could not meet it all.
Rather than deliver steel to Advance at a price negotiated prior to the
201 Action, these manufacturers chose to sell to those who would pay
the price commanded in a protected market.
LThe 201 has led to substantial steel price increases which in turn
have been the direct cause of substantial lost business for
Advance.
Steel represents 30% of material costs for electromagnetic
ballasts. Our steel contracts beginning January 2003 carried an average
price increase exceeding 10%. In turn, Advance increased its prices to
customers and immediately experienced a drop of 18% in its
electromagnetic ballast sales. This occurred because our competitors
manufacture nearly all their product outside the U.S. Already they
enjoy substantially lower labor costs than Advance. They now have the
additional benefit of purchasing steel at lower prices, undistorted by
the 201 tariffs.
LThe 201 puts at risk the 600 manufacturing jobs in Advance's three
United States factories.
Advance is the market leader in its product line because it
successfully responds and adjusts to marketplace demands and
challenges. An 18% loss in market share is not an acceptable situation
when a remedy is available, as it is in our case. Advance must be able
to obtain steel at globally competitive prices, and can do so by
relocating its U.S. manufacturing to existing Philips facilities in
Central or South America, Asia or Europe. Advance can import to the
U.S. finished products made in most of those locations with no tariff.
Doing so will allow us to be price competitive and recapture lost
business.
LCongress should urge the International Trade Administration to
consider the effect of the tariffs on steel consumers.
The ITC will issue its legally mandated report on the effects of
the 201 on steel producers by September 22nd. This report can and
should include a thorough analysis of the tariff's effects on steel
consuming industries. It is my fervent hope that the President will,
upon reviewing the report, eliminate the 201 tariffs and end this
distortion of the marketplace.
Thank you for your consideration of our views.
Brian Dundon
President and CEO
______
[GRAPHIC] [TIFF OMITTED] 89863A.003
[GRAPHIC] [TIFF OMITTED] 89863A.004
[GRAPHIC] [TIFF OMITTED] 89863A.005
AllTrans Port Services, Inc.
Galena Park, Texas 77547
March 26, 2003
Chairman Philip Crane
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
Re: LWritten statement for consideration by the Committee and for
inclusion in the printed record of the hearing.
Dear Chairman Crane and Subcommittee Members:
I am writing to inform you of the impact that the 201 investigation
and resulting tariffs have had on my businesses. I am one of few known
woman-owned businesses functioning within the Port of Houston as a
material handler and transloader. I have an additional company that is
a local steel transporter. My company has been in the material handling
business since 1993 and had previously enjoyed steady growth.
Being located within the Port of Houston we see economic impact in
the economy almost immediately, usually within 2-3 weeks of the actual
event. Since the announcement of the 201 investigation and the
terrorist attacks, both within approximately one (1) week of each other
in 2001, we saw a huge drop in shipping orders.
While we tried to hold on to our best people, the two companies had
to release approximately 29% of our staffs between the period of
September 2001-June 2002, when we began to see new orders for July due
to the tariff reductions on specific products such as carbon steel
pipe, structural steel beams, abrasion resistant plate and forty plus
categories of specialty metals. Wages decreased accordingly and wage
increases were frozen. As for me, I have not been able to take a
paycheck since September 2001. As you can imagine, this has not been
easy, and has resulted in my having to liquidate investments for money
to live on. I had hoped to have these investments for retirement.
As for additional investments, no new or replacement steel handling
equipment (forklifts, cranes, etc.) could be purchased nor could any
new steel hauling equipment be bought.
Even though we have drastically cut our expenses, we have been
unable to achieve profitability quarter-to-quarter or for the year on
either company. Once the 201 tariffs were lifted on carbon steel pipe,
structural steel beams, abrasion resistant plate and forty plus
categories of specialty metals, we actually thought for a while we
might break even due to our careful scrutiny and reduction of expenses.
There are however some fixed costs of doing business and the
replacement of inventories on these items by steel consumers was short-
lived; thus revenue losses have continued into the 1st quarter of 2003.
Steel consuming industries must receive their products via truck or
rail and therefore neither transportation nor rail shipments can be
ignored as major components to be considered in the impact of steel
consumption.
Since the inception of the 201 tariffs, we have seen some increase
of rail movements of domestic steel plate to steel consumers.
Unfortunately, the loss of import steel shipments, moving by rail and
truck has not come close to being replaced by shipment of domestic
products.
While I completely understand the focus of this hearing is the
impact of Section 201 regarding small and large steel consuming
businesses, safeguards for U.S. steel producers and testimony of
economic and financial analysts in the steel industry, indicators in
transportation movements via truck and rail cannot be ignored as
additional industries feeling the negative impact that the Section 201
has had on the economy.
As difficult as business has been since the announcement of the 201
investigation and the placement of high tariffs on steel imports, the
negative economic impact of the 201 tariffs is ``snowballing.'' With
the general public opinion of economic uncertainty, fueled by terrorism
and the necessity of war, the result is compounding the lack of
consumer confidence.
Mr. Chairman, let me close by simply saying that over the past two
(2) weeks, I have seen two (2) of my competitors sell out to larger
firms. There are relatively few of us material handlers and
distributors remaining in the Port of Houston, and if business remains
at it's current level of orders and revenue, many more businesses may
fall to a single larger firm within the Port, who is seeking a
monopoly. I believe that the result of allowing one company to
monopolize this business within the Port would be disastrous.
Small businesses are the ``heartbeat'' of our Nation. If the 201
tariffs are allowed to continue until 2005 with no tariff relief,
during these complex economic times, the small business in this
industry will become a thing of the past. I respectfully request that
the Congress and the President remove all import tariff restrictions
for the duration of the armed conflict with Iraq, as a measure of
relief of the wide-reaching economic negative impact created by the
tariffs. Once the war has ended, new hearings could be conducted
regarding the 201 which are inclusive of not only domestic steel, but
steel consumers and manufacturing, transportation, rail, handling and
distribution industries.
If I can provide additional information I am happy to provide my
companies' historical data. Thank you for your attention in this
important matter.
Donna V. Rains
President
American Axle & Manufacturing, Inc.
Rochester Hills, Michigan 48309
April 10, 2003
House Ways and Means Committee:
On behalf of American Axle and Manufacturing, Inc. I am pleased to
hear that this Committee has agreed to hear witness accounts on the
unintended consequences and impact that the steel tariffs are having on
steel consumers. American Axle and Manufacturing is headquartered in
Detroit, MI and operates numerous plants in Michigan, Ohio and New York
and also has operations in the UK, Mexico and Brazil. American Axle
employs over 12,000 people in these plants with the overwhelming
majority employed in the U.S.
We are the largest consumer of hot-rolled SBQ bar in the country
and a member of the SBQ Bar Coalition. We purchase approximately
350,000-400,000 tons of SBQ bar annually. This is currently 100%
supplied by steel mills in the U.S. and Canada. Therefore, you can see
that we strongly support the need for a viable domestic steel industry.
That said, we have serious concerns regarding the impact of the steel
tariffs on our business.
We are a major tier one and tier two supplier to the automotive
industry in this country. The effects of the tariffs have impacted us
dramatically on not only the steel we buy directly but also on tubing
for axles as well as propeller shafts (made from flat rolled product
and rolled and welded into tubes), stampings (produced from flat rolled
product and stamped into brackets etc. for welding to the tubes), and
fasteners. Many of these component parts are produced by small
businesses that have been seriously hurt by the higher steel costs
imposed by domestic mills. These increases are directly tied to the
steel safeguard program. As I am sure you will hear from others, these
higher costs cannot be passed on to the customers and must be absorbed
by the steel consumer. Many of the increases experienced have been in
the area of 30% or more.
American Axle has several issues related to the imposed steel
tariffs. First of all, the SBQ steel bar industry represents a very
small portion of domestic steel production. The largest SBQ bar
consumers, i.e. members of the SBQ Coalition, have historically
purchased approximately 95% of their needs in North America. Hence, one
could argue that these producers had not been injured by off-shore
steel suppliers. Secondly, it is important to note that not all SBQ bar
produced either domestically or internationally meets the stringent
quality requirements of the automotive industry. Many steel suppliers
who produce SBQ bar in this country, some of whom objected to the
coalitions' exclusion requests as well as those of individual companies
in the coalition, cannot meet these requirements and are not today
approved for these items, many of which are safety critical.
The SBQ bar industry in this country, able to meet these very tight
quality requirements, is much smaller than publicized. American Axle
suffered extreme shortages throughout the fall and into late last year.
In some cases, we were forced to ship steel via air freight in order to
meet production requirements and keep our plants running. Even today,
we are being told in some cases that our requirements cannot be met and
the amount of steel we can purchase is being limited. As a result of
these type of difficulties, American Axle believes we must be able to
purchase internationally in order to protect our customers and in fact
our very existence.
The automotive industry in this country will not allow any downtime
due to parts shortages or price increases. If we are not able to supply
parts due to material shortages and stay competitive globally, our
customers have the ability and in fact are buying parts anywhere in the
world, in order to satisfy their production requirements. This very
situation makes it vital for us to be able to compete internationally.
Our competitors overseas are now at a competitive advantage due to
steel costs. As a result, American Axle is in a position in which we
must look at options of sourcing parts off-shore or manufacturing off-
shore to meet competitive pressures. This will no doubt lead to a loss
of jobs in this country.
The exclusion requests American Axle submitted represented less
than 5% of our total steel requirements, leaving 95% to be purchased in
North America and 99% of that in the U.S. We are only attempting to
supplement current supply and maintain our competitiveness. As stated
earlier we strongly support our domestic steel industry, however, we
want to survive as well.
Sincerely,
Jim Thompson
Commodity Manager-Direct Material Procurement
Statement of William A. Sullivan, American Micro Steel, Inc.,
Watertown, Connecticut
On March 26, 2003, Puerto Rico Resident Commissioner Anibal
Acevedo-Vila presented testimony before this Subcommittee in support of
relief for a Puerto Rico enterprise from a trade ruling. As the
President of a company soon to make a major investment in Puerto Rico,
I congratulate the Resident Commissioner for his initiative in taking
the lead to support an important Puerto Rico company. The encouragement
received from the government of Puerto Rico has been a major factor in
the decision of American Micro Steel to invest in Puerto Rico. The
willingness of the Resident Commissioner to bring the issue before this
Subcommittee is further evidence of the commitment of the government of
Puerto Rico to support local business ventures and reinforces our
belief that Puerto Rico is a good place to do business.
In this instance, American Micro Steel has a somewhat different
perspective on the impact of Section 201 tariffs on Puerto Rico and I
would like to share that perspective with the Subcommittee.
American Micro Steel, Inc. (AMS) was organized under the laws of
Puerto Rico after a five-year review of steel market opportunities in
the Caribbean. In the course of the review, AMS has studied both the
gross demand for rebar in Puerto Rico and the distribution system for
rebar in Puerto Rico. In terms of market size, AMS has found the data
available from the Junta de Planificacion, Programa de Planificacion
Economica v Social subprograma de Analisis Economico (the Puerto Rico
Planning Office) to be the most reliable and that is the source of the
import numbers used in this testimony.
Rebar is used exclusively in the construction industry. Before it
is used, it is cut and bent to engineering specifications either in the
field by the contractor or in one of three major or two or three minor
``fabricating'' shops. Fabricators differ from main-line manufacturers
in two significant respects. First, they are ``job shops'' cutting and
bending to the customer's order rather than producing a standard
``product.'' Second, the economics of the business make the import of
pre-fabricated rebar impractical. This is extremely important. The
traditional manufacturer of a steel widget can logically argue that an
import tariff on raw steel can lead to domestically made steel widgets
being displaced by imported steel widgets. The facts may or may not
support the manufacturer's claim, but it has a logical basis. That is
not the case for fabricated rebar for two reasons. First, no fabricated
rebar is being imported into Puerto Rico and second, if it were, it
would be subject to the same tariff.
Were there credible evidence of a shortage of rebar in Puerto Rico
resulting from Section 201 tariffs, AMS would be the first to support
relief, however no such evidence has been presented. Indeed, during the
first year of Section 201 tariffs (2002) imports of rebar into Puerto
Rico reached a record high.\1\ It seems to AMS that it is significant
that only a single importer/fabricator has come forward to seek relief
from the Section 201 tariff. The other major importers and fabricators,
the Island's construction companies and the Associated General
Contractors have not sought relief and the Puerto Rico Housing
Department has stated that Section 201 is not creating any problems for
the Puerto Rico housing industry.\2\
---------------------------------------------------------------------------
\1\ The Puerto Rico Planning Board data reports imports of 286,416
tons in the year 2000, 286,267 tons in 2001 and 301,722 in 2002.
\2\ ``For the moment, I don't think it will have a negative
effect.'' Quote attributed to Puerto Rico Housing Department Deputy
Secretary at page 38 of the April 1, 2003, San Juan Star, in an article
titled Conflicting reports on the impact of steel tariff increase.
---------------------------------------------------------------------------
One of the inherent risks of an import-dependent business is the
danger of becoming overly dependent upon a single source. While there
are many exporters of rebar to Puerto Rico, from the tenor of the
testimony, one suspects that the company for whom the Resident
Commissioner seeks relief has become dependent upon a Venezuelan
supplier. With privatization of a significant amount of capacity,
dumping of steel products on their domestic market and a challenging
domestic economy, the problem faced by Venezuelan steel exporters goes
far beyond Section 201 duties.
The lack of any showing of widespread concern within the Puerto
Rico housing or construction industry, of course, is not determinative.
In reviewing the testimony of the Resident Commissioner, AMS has
identified five premises with which it cannot concur.
---------------------------------------------------------------------------
\3\ Testimony of Resident Commissioner Anibal Acevedo-Villa,
paragraph 2. ``However, in certain cases, for reasons of geography and
cost, we must rely on imports from our neighbors in the region.''
---------------------------------------------------------------------------
1. Puerto Rico must rely (for rebar) on imports from (its) neighbors in
the region.\3\
REBAR IMPORTS IN TONS
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Country 2000 2001 2002 TOTALS
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Brazil 6,449 23,059 14,068 43,576 5.0%
Dominican Republic 0 0 37,393 37,393 4.3%
Mexico 39,733 10,805 23,984 74,522 8.5%
Trinidad & Tobago 331 6,742 0 7,073 0.8%
USA 14,374 3,737 9,333 27,444 3.1%
Venezuela 7,767 44,952 27,534 80,253 9.2%
Region Total 68,654 89,295 112,312 270,261
Region Market Share 24.0% 31.2% 37.2% 30.9%
Non Region Total 217,762 196,972 189,410 604,144
Non Region Market Share 76.0% 68.8% 62.8% 69.1%
Grand Total 286,416 286,267 301,722 874,405
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The preceding chart, based upon Puerto Rico Planning Office data
shows that for the years 2000, 2001 and 2002, the region (defined as
the Americas plus the Caribbean) never supplied as much as one-third of
the rebar imported into Puerto Rico. Interestingly, the region's share
increased (in terms of both total tons and market share) after the
Section 201 duties were imposed.
Equally interesting is the fact that of the countries exporting a
total of over 50,000 tons to Puerto Rico in the last three years for
which data is available, five were far removed from the ``region''--
Turkey, Moldova, Korea, Latvia and Japan. From the region, only Mexico
and Venezuela made the list and, as the following chart illustrates,
the shipments from these countries was far from consistent even over a
short three-year period. The evidence suggests that Puerto Rico
importers aggressively work the spot market for the lowest available
price. Price, not geography has driven the market.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
COUNTRY 2000 2001 2002 TOTAL
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Turkey 22,688 49,719 79,787 152,194
Venezuela 7,767 44,952 27,534 80,253
Mexico 39,733 10,805 23,984 74,522
Latvia 15,616 31,178 26,751 73,545
Korea 62,488 10,090 0 72,578
Japan 26,521 0 39,532 66,053
Moldova 58,434 0 0 58,434
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2. Section 201 measures have had a very negative effect on Puerto
Rico's ability to source rebar from traditional and highly
efficient foreign suppliers.\4\
The reported data suggests that part of Puerto Rico's rebar supply
problem has been that it lacks ``traditional suppliers.'' Again looking
at the years 2000 through 2002, twenty different countries exported to
Puerto Rico. Eleven different countries placed within the top 5
exporters to Puerto Rico during those three years. Rather than being
served primarily by a cadre of dependable ``traditional'' suppliers,
the data indicates that Puerto Rico has been primarily supplied by a
shifting band of predatory ``dumpers.'' In the year 2000, sixty-three
percent of the rebar imported into Puerto Rico came from countries that
have since been found guilty of dumping.\5\ This would seem to place in
doubt the conclusion that Puerto Rico has traditionally been served by
``efficient producers.''
---------------------------------------------------------------------------
\4\ Testimony of Resident Commissioner Anibal Acevedo-Villa,
paragraph 5. ``The Steel 201 measures implemented last year have had a
very negative effect on Puerto Rico's ability to source rebar from
traditional and highly efficient foreign suppliers.''
\5\ Moldova, Indonesia, Korea, Latvia, Turkey, Belarus and the
Ukraine.
---------------------------------------------------------------------------
3. Section 201 measures have added $2,000 to $3,000 to the cost of a
low-income home.\6\
One can only suspect that this contention reflects a misplaced
decimal point. A $2,000 to $3,000 increase resulting from a 12% tariff
would require the use of between $16,666 and $25,000 of rebar in each
house.\7\ The San Juan Star reports that a low-income home in Puerto
Rico is defined as a home selling for $70,000 or less.\8\ To increase
the cost by $2,000 to $3,000, rebar would need to represent between 23%
and 25% of the total cost of the home.
---------------------------------------------------------------------------
\6\ Testimony of Resident Commissioner Anibal Acevedo-Villa,
paragraph 5. ``They (Steel 201 measures) are adding $2,000 to $3,000 to
the cost of a low-income home.''
\7\ 12%X=2000, X=2000/.12, X = 16.666 12%X = 3000, X=3,000/.12,
X=25,000.
\8\ San Juan Star, April 1, 2003, in an article titled Conflicting
reports on the impact of steel tariff increase.
---------------------------------------------------------------------------
Even at a base price of $350 per ton, that translates to between 41
and 71 tons of rebar per unit. Assuming #4 bar (\1/2\" diameter) that
tonnage amounts to between 137.725 and 212,575 running feet of rebar
per unit.\9\ That simply isn't possible.
---------------------------------------------------------------------------
\9\ #4 bar weighs .668 lbs/ft. 46 tons = 46 2000 lbs =
92,000 lbs. 92,000 lbs/.668 lbs per ft = 137,725 feet 71 tons = 71
2000 lbs = 142,000 lbs. 142,000 lbs/.668 lbs per ft = 212,575
feet.
---------------------------------------------------------------------------
4. Venezuela used to be a primary supplier (of rebar) to Puerto
Rico.\10\
The maximum Venezuelan market share in the years 2000, 2001 and
2002 was 16% (in 2001). In the year 2000 (when there were no Section
201 tariffs) the Venezuelan market share was 3%. While 2002 imports
from Venezuela were 17,000 tons below 2001 levels, they were nearly
20,000 tons above the 2000 imports. While Venezuela has from time to
time been a major exporter to Puerto Rico, it stretches credulity to
call it a primary supplier.
---------------------------------------------------------------------------
\10\ Testimony of Resident Commissioner Anibal Acevedo-Villa,
paragraph 10. ``Venezuela used to be a primary supplier to Puerto
Rico.''
---------------------------------------------------------------------------
5. Section 201 has limited foreign sources creating unnecessary
shortages and windfalls to foreign mills.\11\
This argument seems contradictory on its face. To create a
shortage, foreign mills would need to stop exporting to Puerto Rico--
but if they stopped exporting one cannot perceive how they could at the
same time enjoy a ``windfall.'' ``Without sales there can be no
``windfall.''
---------------------------------------------------------------------------
\11\ Testimony of Resident Commissioner Anibal Acevedo-Villa,
paragraph 13. ``Section 201 has limited foreign sources of smaller-
sized rebar into Puerto Rico, creating unnecessary shortages and a
windfall to the foreign mills lucky enough to win what might be
described as the `201 lottery.' ''
---------------------------------------------------------------------------
The testimony suggests that the only alternative to Venezuelan
rebar is U.S. rebar while at the same time noting that the U.S. has
never been a major supplier of rebar to Puerto Rico. In fact there are
a multitude of options to replace Venezuelan rebar if the 12% tariff
has driven them from the market.
In 2000 there were 14 countries exporting to Puerto Rico, in 2001
there were 16 and in 2002 (after Section 201 sanctions) there were 12.
It was not Section 201 that forced countries out of the market,
however, it was anti-dumping duties. Moldova, Indonesia, Korea, Belarus
and the Ukraine exited the Puerto Rico market as a result of anti-
dumping duties. Interestingly enough, since the 201 sanctions, the
Dominican Republic has entered the Puerto Rico market and more than
made up for a decline in Venezuelan exports. If one looks at the sum of
imports from Venezuela and the Dominican Republic, the total increased
by 20,000 tons after Section 201 remedies.\12\
---------------------------------------------------------------------------
\12\ The combined imports from Venezuela and the Dominican Republic
totaled 7,767 tons in 2000; 44,952 tons in 2001 and 64,927 tons in
2002.
---------------------------------------------------------------------------
AMS has no doubt that the company for which the Resident
Commissioner seeks relief has been disadvantaged by Section 201 tariff.
The damage, however, is to one company whose primary supplier has
decided that Section 201 makes the Puerto Rico market less attractive.
It is the unfortunate nature of an import dependent industry that
whenever there is a shift in trade patterns, someone is disadvantaged.
It is also reality that shifting trade patterns are inevitable. The
world steel industry is in flux. A chronic problem of non-economic
export dependent capacity is finally being addressed. The United States
steel industry has been given minimal protection for a minimal time to
reorganize itself. Without government fiat it is doing so with no
little pain to its investors, managers and workers.
Importers, with little regard to quality or loyalty grew fat in the
days of government subsidized dumping. Those days are coming to an end.
Those who grew fat on dumping will now grow lean. They have no room to
complain.
Rebar fabricators, whether in Ohio or Puerto Rico are an integral
part of the American steel industry and are not exempt from the
commitment of the industry to restructure for the new century.
AMS urges the Committee to resist special pleading that will
inevitably erode the program the President has launched and inevitably
undermine the tremendous effort being made by the American steel
industry to reinvent itself--to the ultimate benefit of the steel
consumer and the whole nation.
Statement of Larry Yost, ArvinMeritor, Inc., Troy, Michigan
This written testimony is submitted on behalf of ArvinMeritor,
Inc., in connection with the March 26, 2003, hearing conducted by the
House Ways and Means Subcommittee on Trade. The purpose of this hearing
was to examine the impact of the President's Section 201 safeguard
action on the U.S. steel consuming industries, the domestic steel
producers, and the U.S. economy.
ArvinMeritor thanks Chairman Crane and the Members of the
Subcommittee for the opportunity to present this testimony.
ArvinMeritor is a premier, Tier One automotive supplier offering the
world's largest Original Equipment Manufacturers (``OEMs'') a broad
range of integrated systems, modules and components. We serve the
passenger car and commercial truck and trailer markets, as well as
their related aftermarkets. ArvinMeritor has 32,000 employees among
more than 150 facilities in 27 countries. ArvinMeritor's 2002 sales
were $6.8 billion, of which 62 percent were in North America, 30
percent were in Europe, and 8 percent elsewhere in the world. Our
products include air and emission, aperture (door and roof), and
undercarriage systems and components for light vehicle OEMs, complete
drivetrain systems for heavy and medium duty trucks and trailers and
their related aftermarkets, as well as ride control, exhaust, and
filters for light vehicle aftermarket.
A key common denominator of the above-mentioned products is that
each has significant steel content. In 2002, ArvinMeritor purchased
more than 1 million tons of steel globally. In excess of 95 percent of
the steel consumed by ArvinMeritor in the United States in 2002 was
sourced from North American steel mills. With virtually all of our
steel coming from North American sources, a healthy and competitive
domestic steel industry is vital to our U.S. and North American
operations. Toward this end, ArvinMeritor endorses the President's
efforts to reduce global overcapacity and market-distorting government
subsidies.
The President's additional action of proclaiming safeguard tariffs
on a broad range of steel products, however, is having unexpected, but
nonetheless tremendously damaging, impact on a wide cross section of
steel using industries and companies, including automotive suppliers
such as ArvinMeritor. In our case, since the tariffs were proclaimed,
we have been subject to price increases ranging from 7 to 15 percent on
long-term contracts, and up to 40 percent or more on spot market
purchases. Additionally, and perhaps more significantly, we are
increasingly faced with supply uncertainty. For example, U.S. capacity
to produce special bar quality steel (``SBQ'')--one of the steels we
consume in great quantities--is approximately 30 percent lower today
than just a few years ago.
As those on the Subcommittee who are familiar with the auto sector
are aware, suppliers cannot pass on raw material or other price
increases to OEM customers--particularly ``artificial'' price increases
that are inconsistent with global market conditions. Indeed, in our
industry, OEM customers expect annual price decreases from their
suppliers. While ``cost down'' formulas differ from OEM to OEM and from
component to component, it is not uncommon for the expected price
reductions to equal 20 percent or more over a four or five year period.
In other words, if an OEM customer purchased a particular part from
ArvinMeritor for 100 dollars in the year 2000, this year, 2003, that
OEM expects the exact same part for 80 dollars. While this is a
difficult challenge in a perfect world, it is nearly impossible when
the price of the input steel has increased 40 percent. Profit margins
are simply too thin to absorb the safeguard tariffs.
With regard to steel prices, ArvinMeritor would like to address a
misperception that may exist among the Subcommittee Members. Although
we cannot pass our increased raw material costs on to our customers,
the OEMs, in the event we could, the ultimate cost to the consumer
would be quite substantial. The domestic steel industry often suggests
that the safeguard tariffs might increase the cost of an average car by
65 dollars or so. However, that figure is misleading as it is derived
from the amount of steel purchased directly by the OEMs and does not
include parts purchased by the OEMs.
But again, it is not just price that is a problem, it is
availability. While ArvinMeritor managed to put under contract
sufficient quantities of steel for 2003, it was at great expense. And
going forward, we do not know whether these sources will continue to
supply. Particularly for SBQ steel, certainty of North American supply
is tenuous.
Indeed, the tariffs do not just threaten our bottom line, they
severely jeopardize our industry's competitive position in the U.S.
automotive supply chain. Foreign companies that were never before
competitive for our U.S.-based customers, suddenly can compete for
lucrative, long-term contracts, because their automotive parts are
produced with globally priced steel.
On behalf of our shareholders and our global employee base, we are
responding to the tariffs aggressively and proactively. For example:
LWe are purchasing semi-finished and finished products
from both related and unrelated offshore suppliers, whose steel costs
are far lower than that which ArvinMeritor must pay in the United
States.
LWe are developing steel suppliers among producers in
exempt, non-NAFTA countries.
LWe have begun downsizing U.S. operations as a result of
these other actions.
In other words, to protect our shareholders and our enterprise-wide
operations, we must export manufacturing jobs and import components.
And, this is really just the beginning. Resourcing decisions will
accelerate this calendar year, especially in view of the
Administration's rejection of the vast majority of exclusion requests
filed by the automotive supplier sector.
We are heartened by the fact that more policymakers are beginning
to understand the impact of the tariffs on the steel consumers like
ArvinMeritor. In the House of Representatives, 72 Members have
cosponsored Congressman Knollenberg's resolution (House Concurrent
Resolution 23), which calls upon the Administration to review the
impact of steel tariffs on consuming industries, as well as the steel
industry. In addition, Chairman Thomas recently requested the
International Trade Commission to conduct a ``section 332''
investigation of the impact of the steel tariffs on consuming
industries. This study is to be conducted in conjunction with the
statutory mid-term review of the impact of the steel tariffs on the
steel industry. And in just the past few days, Senators Bond, Dodd,
Landrieu, Hagel, and Fitzgerald, introduced in the Senate a companion
measure to Congressman Knollenberg's resolution. Taken together, the
Knollenberg and Bond resolutions and Chairman Thomas' request,
represent reasoned, measured approaches on this issue and are an
important step in the process.
Thank you for the opportunity to submit testimony as the
Subcommittee investigates the array of consequences associated with the
proclamation of steel safeguard tariffs in March of 2002.
Statement of Association of Cold-Rolled Strip Steel Producers
On behalf of the Association of Cold-Rolled Strip Steel Producers
(``Association''), we submit this statement regarding the impact of the
Section 201 safeguard action. The Association is composed of twelve
domestic producers of cold-rolled carbon steel flat products: Blair
Strip Steel Company, Duferco Farrell Corporation, Gilbraltar Group of
Companies, Greer Steel Company, Rome Strip Steel Company, Samuel-
Whittar, Inc., Steel Technologies Inc. (``Steel Technologies''),
Stripco Inc., Theis Precision Steel Corp. (``Theis''), Thomas Steel
Strip Corp., Thompson Steel Company, Inc., and Worthington Steel.
The Association participated in the Section 201 safeguard action.
As set forth below, the members of the Association have already
benefited from the relief provided by the Section 201 safeguard action
and very much need this relief to continue for the full term of the
Section 201 safeguard action.
A. LThe Relief Provided by the Section 201 Safeguard Action Has Had a
Positive Effect on the Members of the Association
The relief provided by the Section 201 safeguard action has had a
positive effect on the members of the Association. It has, among other
things, provided the members the opportunity to evaluate and recoup
business lost due to low import prices and has allowed the members to
find ways to regain market competitiveness.
Since the relief has been instituted, the members of the
Association have received many more inquiries, as well as orders, for
their cold-rolled products. For example, Theis has seen many customers,
who in the past purchased cold-rolled products produced mainly
overseas, inquire, and order Theis' cold-rolled products. Accordingly,
Theis, like other members of the Association, has been able to increase
its sales volume. This increased sales volume provided by the Section
201 relief has, in turn, enabled the members to maintain their present
workforce and avoid layoffs that would otherwise have occurred. Members
of the Association, like Theis, have invested in productivity system
improvements in order to be able to compete successfully in the future.
The Section 201 relief has also had the desired effect of
stabilizing the overall price of the members' cold-rolled products in
the marketplace. The historic and severely damaging price deflation
that resulted from the enormous flood of imported steel prior to the
Section 201 safeguard action has subsided, bringing relative stability
to the marketplace.
In short, the Section 201 safeguard action has been effective and
essential for the members of the Association. They have begun to
reverse the trend of layoffs and plant shutdowns and have begun to
rebuild the cold-rolled strip segment of the American flat-rolled steel
industry with increased hiring and capital investment.
Unfortunately, however, the positive effect of the Section 201
relief has been dampened by the granting of product exclusion requests.
Product exclusion requests have been granted in extraordinary numbers
and have been granted for products that members of the Association
clearly produce in the United States. In the initial round of product
exclusion requests, the government received more than 1,300 product
exclusion requests. The government granted 727 of these requests,
accounting for about 3.2 million metric tons (out of 13.0 million
metric tons), or approximately 25%, of foreign steel initially subject
to the safeguard action. In the second (anniversary) round of product
exclusion requests, the government received 661 product exclusion
requests. The government granted 295 of these requests, accounting for
an additional 400,000 metric tons (out of 4.0 million metric tons of
requested exclusions).
The granting of product exclusion requests has damaged the
profitability of the members of the Association. Foreign competitive
cold-rolled products granted exclusion are no longer subject to Section
201 relief, and as such, are allowed into the U.S. market without any
tariffs and at lower prices. Members have, in turn, had to reduce their
prices to remain competitive. This has been an especially pronounced
problem with respect to some of the niche, high value-added products
that the members of the Association produce.
B. LThe Relief Provided by the Section 201 Safeguard Action Has Had a
Positive Effect on Members of the Association's Efforts to
Restructure
As a microcosm and subset of the larger flat rolled steel industry,
members of the Association have begun to restructure as a result of the
Section 201 safeguard action. In their efforts to reduce fixed costs,
some members of the Association have changed their corporate structure
to become more competitive. For example, Theis now has one manager for
sales and operations, whereas prior to the Section 201 safeguard
action, there were two. In addition, Theis' reporting structure is more
focused and streamlined to solve problems and to create new
opportunities more quickly.
The Section 201 relief has also resulted in consolidation. While
one member (Cold Metal Products) has been forced to go out of business,
the consolidation of that former member's more modern assets into a
current member (Steel Technologies) and the shutdown of the former
member's older, non-competitive plants has begun to reduce excess
capacity and build a healthier industry that is better able to compete
on a global playing field. In addition, the members of the Association
have benefited from International Steel Group's (``ISG's'') restarting
of production at Acme, as ISG is able to provide raw input material--
i.e., hot-rolled steel--at competitive prices to members of the
Association due to its lower fixed cost structure and leaner startup
costs.
While the need continues to restructure in the broad steel
industry, in general, and for producers of strip steel, in particular,
the members of the Association have already begun to improve
productivity and increase global competitiveness through the
restructuring that has already occurred.
C. LThe Relief Provided by the Section 201 Safeguard Action Must
Continue for its Full-Term
The benefits of the Section 201 safeguard action have only just
begun to provide the ``safeguard'' environment necessary to
restructure, to encourage financial investment, and to move the
strategic focus of the members of the Association from survival to
development and growth. Just as consolidation and investment efforts by
ISG and Bethlehem, U.S. Steel and National, and Nucor and others have
recently begun at the sheet mill level, so, too, have the consolidation
and investment efforts by Steel Technologies and Cold Metal, and Blair
Strip Steel and others at the strip mill level. The benefits of this
restructuring are not yet in place. More time--the complete three-year
program outlined by the President--will be necessary to encourage long-
term spending and hiring and investment among the members of the
Association.
In addition, the Section 201 safeguard action should proceed to its
full term because the actions that members of the Association are
implementing to become more productive are gradually recognized over
time, and the effects of the Section 201 relief take time to manifest
themselves. For example, the new orders that members of the Association
now are receiving as trials and early production orders would likely be
canceled if the Section 201 relief were now terminated. The time
granted by the Section 201 safeguard action allows the members to
recover some of the volume lost over the years to foreign imports.
Further, inventories of imported products are slowly being depleted,
and only now are U.S. consumers searching domestically for a new
supply.
Moreover, continuing the Section 201 relief for its full term would
not be detrimental as the product exclusion mechanism provides for
companies that are truly unable to find a supply of their needed steel
products in the United States an avenue to have such products exempted
from Section 201 relief. Exclusion requests that have been granted have
already reduced the coverage of the Section 201 relief by over twenty-
five percent in terms of volume.
* * * *
Based upon the foregoing, the relief provided by the Section 201
safeguard action has already benefited members of the Association.
However, the members of the Association need this relief to continue
for the full term of the Section 201 safeguard action.
Association of International Automobile Manufacturers, Inc.
Arlington, Virginia 22209
April 9, 2003
The Honorable Philip Crane
Chairman, Trade Subcommittee
House Committee on Ways and Means
Washington, DC 20515
RE: LWritten statement for 3-26-03 hearing entitled ``The Impact of the
Section 201 Safeguard Action on Certain Steel Products.''
Dear Mr. Chairman:
The Association of International Automobile Manufacturers (AIAM) is
pleased to submit this written statement for the record in conjunction
with the March 26th Trade Subcommittee hearing on ``The Impact of the
Section 201 Safeguard Action on Certain Steel Products.''
AIAM member companies procure more than 95% of the steel consumed
in their U.S. operations from domestic sources. AIAM therefore supports
a strong, profitable and viable U.S. steel industry. As steel
consumers, however, AIAM companies believe that the U.S. auto industry
must also have access to fairly priced steel products from U.S. and
global sources to remain competitive.
Background
AIAM is a trade association representing 15 international motor
vehicle manufacturers who account for 40 percent of all passenger cars
and 20 percent of all light trucks sold annually in the United States.
AIAM members have invested over $26 billion in U.S.-based production
facilities, have a combined domestic production capacity of 2.8 million
vehicles, directly employ 75,000 Americans, and generate an additional
500,000 U.S. jobs in dealerships and supplier industries nationwide.
AIAM members include Aston Martin, Ferrari, Honda, Hyundai, Isuzu, Kia,
Maserati, Mitsubishi, Nissan, Peugeot, Renault, Saab, Subaru, Suzuki
and Toyota. AIAM also represents original equipment suppliers and other
automotive-related trade associations.
Importance of Auto Industry
The domestic auto industry has been an integral and important
component of the health of the U.S. economy. Commerce Secretary Don
Evans recently stated, ``The auto industry has been a driving force
behind the economic recovery since the [terrorist] attacks on
America.'' New vehicle sales account for roughly one-fifth of all
retail sales in the United States.
Health of Auto Industry
Economic uncertainty and other factors have led many auto analysts
to forecast a decline in overall auto sales during 2003. In addition,
the unintended consequences associated with the President's Section 201
steel program have and will continue to harm the auto industry.
Specifically, the industry is concerned with the impact of this
decision on steel prices and steel supplies.
Steel Prices
Within weeks of the President's decision to place tariffs on
imported steel in March 2002, companies without long-term contracts
faced price hikes as high as 50%. Prices for steel needed for
automobile production surged to $300 a ton from approximately $200
prior to the imposition of tariffs. Toyota has estimated that this
increase will add as much as $100 to the cost of every vehicle it
produces in North America.
Additionally, Honda Motor Company was compelled to take
extraordinary measures in the aftermath of the tariff decision and
airship more than 2,000 tons of steel from Japan to its production
facilities in the United States. This move became necessary when a key
U.S. supplier of high-grade steel demanded an immediate 30 percent
price increase.
Finally, while many auto companies have had long-term contracts
with U.S.-based steel suppliers, these contracts are beginning to
expire, and steel makers are demanding price increases ranging as high
as 15%. These increases are likely to extend into 2004 as well.
Steel Supply
According to recent analysis, AK Steel is one of only three
integrated steel companies in North America with the financial health
to reliably supply the large quantity of coated steel critical to the
auto industry. Last year, bankruptcies forced eight flat-rolled steel
mills to close. Four of those mills are resuming production, but annual
production capacity suffered a net loss of 10 million tons. AIAM fears
that the U.S. steel industry could continue to deteriorate in early
2003, leading to further reductions in domestic supplies and higher
prices.
In the end, steel tariffs are threatening the very industry that
the U.S. Commerce Secretary and many economists have cited as an
integral part of our Nation's economic recovery.
Steel Consumers as a Whole
According to the Consuming Industries Trade Action Coalition
(CITAC), there are at least 50 U.S. manufacturing jobs in steel
consuming industries for every one job in the steel making industry. To
protect one steel producing job, therefore, places 50 other jobs at
risk.
A recent economic study commissioned by CITAC found that 200,000
steel consuming jobs were lost between December 2001 and December 2002
due to higher steel prices. This loss represents more jobs than the
entire steel producing industry employs nationwide--about 180,000.
These lost jobs represented approximately $4 billion in lost wages over
ten months. Every State lost employment as a result of the higher steel
costs.
It is important to note that another segment of the automotive
industry that has been adversely impacted by the Section 201 tariffs is
the automotive supplier industry, because they too are major steel
consumers. Many of these companies have experienced steel prices
increase between 5 to 30 percent. Such price increases have had serious
consequences for parts suppliers and in many cases have seriously
harmed their ability to remain globally competitive.
Conclusion
AIAM members remain concerned about the unintended consequences of
the steel tariffs, particularly the adverse impact on the industry of
higher prices, supply shortages, and unreliable deliveries. These
unintended results should be considered as the Administration conducts
its upcoming mid-point review of the program.
AIAM supports House Concurrent Resolution 23, sponsored by
Representative Joseph Knollenberg and supported by over 60 of his
colleagues from both parties. Consistent with this resolution, AIAM
supports an examination of the impact of the Section 201 tariffs on
U.S. steel consumers by the International Trade Commission (ITC). Such
information is crucial to any determination regarding whether to
continue or modify this safeguards program.
AIAM also supports the section 332 investigation by the ITC
recently requested by House Ways and Means Committee Chairman William
Thomas. This investigation also focuses on the impact of the Steel
Safeguard program on steel consuming industries in the United States.
Thank you for the opportunity to submit these comments. We
appreciate your assistance and interest in the impact of the steel
tariffs on the U.S. auto industry. Should you have any questions or
require additional information, please do not hesitate to contact me.
Sincerely,
Timothy MacCarthy
President and CEO
Statement of Automotive Trade Policy Council
On behalf of its member companies--DaimlerChrysler Corporation,
Ford Motor Company and General Motors Corporation--the Automotive Trade
Policy Council (ATPC) submits the following statement for the record:
The Automotive Trade Policy Council recognizes that both a strong
domestic steel industry and a strong domestic manufacturing base are
vital to the U.S. economy. In that light, ATPC has and continues to
urge Congressional support of H. Con. Res. 23 (sponsored by Congressman
Knollenberg), which is a constructive and meaningful attempt to broaden
the mid-term review of the temporary steel safeguards on steel to
include the impact on domestic steel consuming industries. ATPC
supports the resolution's request that the International Trade
Commission initiate a process to monitor and review the ongoing impact
of temporary steel safeguards on steel consuming industries, including
the U.S. automotive supplier industry. ATPC also supports Chairman
Thomas' recent request for the ITC to hold a section 332 hearing on the
impact of Section 201 steel safeguards on steel consuming industries,
which include the U.S. automotive sector.
The U.S. automotive supplier industry is presently facing
considerable challenges as a result of the Steel Safeguard Program
implemented in March 2002, as well as shifts in domestic steel capacity
that occurred around the same timeframe. Over that period, American
manufacturers of vehicles and automotive parts, components and systems
have witnessed sudden changes in the price of domestic steel. If this
situation is left unresolved, along with the shift in domestic steel
capacity, it could have the possibility of disrupting automotive
production by ATPC member companies across the United States. Last
year, ATPC member companies purchased over $500 billion in automotive
components and supplies from Tier I, II and III automotive supplier
companies.
The U.S. auto industry serves as leading purchasers of steel within
the broader U.S. automotive sector. ATPC member companies consume
roughly 13% of all steel in the United States annually. Further, the
U.S. automotive and auto supplier industry purchase the majority (over
95%) of its steel from U.S. domestic mills. This dependence has left
the industry vulnerable to price adjustments and supply disruptions.
Although several suppliers have filed for product exclusion requests
under the guidelines of the Safeguard Program, this particular avenue
of relief does not address the scope of the industry's dilemma.
Statement of The Honorable Marion Berry, a Representative in Congress
from the State of Arkansas
Mr. Chairman, much has been written and said in the way of dire
predictions about this program and its consequences on American
industry and jobs. Well, a year has passed now since the President
imposed his program and we can look at the actual experience of the
program, its actual effects, not just on predictions, some of which
strained the imagination. From what I am hearing, I expect that the
record will show that the President's steel program is working well. We
are rebuilding our steel industry, to make it healthy and competitive
in world markets in the long run.
No other Member in this body will be happier to see the President's
program succeed than I will because my district produces more steel
than any other district in this Nation. I saw the devastating effects
of the flood of foreign steel imports, not only on the plants and their
workers, but also on the surrounding economy. Across the country, about
50,000 American steel workers and iron ore miners lost their jobs as a
consequence of these imports. Even the most efficient American
technology and 21st century management cannot hope to compete with
steel imports that are subsidized by foreign governments or dumped on
our shores at prices that are less than the cost of production.
While my district is very steel intensive, I remind my colleagues
that downstream manufacturing in the United States cannot exist without
a healthy and strong domestic supply of steel. That includes our
defense industries. There are manufacturing companies that tried to
play the foreign spot market for steel. Things looked good for them
when spot prices were down. But the inevitable volatility of spot
prices can, and does, catch up with them. Even U.S. companies who buy
foreign steel on long-term contracts don't have the flexibility
available to companies who buy steel from domestic sources. It's nice
to be able to pick up the phone, give a change order, and expect in
short order to see a truck roll up with the steel you really need. And
of course, the domestic steel companies depend on downstream
manufacturing in the U.S. for the core of their business. This mutual
reliance has been the base of manufacturing in the U.S. for more than a
century. So all of us have a stake in the success of the President's
program.
After a year of the President's program, we see several thousand
steel workers have now returned to work. The President is also pursuing
multilateral negotiations at the Organization for Economic Cooperation
and Development to reduce global excess steel making capacity and to
eliminate subsidies in the global steel sector. Those negotiations are
essential if we are to fix the underlying problem that caused so much
misery for American steel workers and their employers. The negotiators
would not be making progress without the Safeguard remedy--it's what
brought our trading partners to the negotiating table.
The President's program is designed to phase out over three years.
That was the prescribed remedy for the domestic steel industry and the
world steel industry. Some are suggesting now that we should cut the
program short because mills are reopening, workers are being rehired,
and a recovery is clearly beginning. Well, I was trained as a
pharmacist. I learned very early in that career that if a medicine is
working, you don't stop taking it just because you feel a little
better. You administer the full regimen of prescribed doses, and that
is what the President should do with his steel program.
I also learned early on in my life as a farmer, that our ability to
produce a bountiful supply of food is a paramount to our national
security. Our domestic steel industry works on this same principle. We
must maintain a strong steel industry in this country, our national
security depends on it.
Statement of Thomas Reardon, BIFMA International, Grand Rapids,
Michigan
On March 5, 2002 President Bush announced that he would impose
tariffs of up to 30% on imports of selected steel products. Cold-rolled
steel is the single largest raw material used by many in the office
furniture industry and is subject to the maximum 30% tariff.
Regrettably, this tariff action has had an immediate and increasingly
dramatic detrimental effect on an already reeling U.S. office furniture
industry.
U.S. office furniture manufacturers are in the midst of a business
climate never before experienced. Office furniture shipments in
calendar year 2002 were down over 33% from their peak in 2000. The
industry has laid off more than an estimated 20,000 workers and closed
several production facilities over the past two years. Now the
furniture industry is experiencing dramatic cost increases and
potential supply problems in an economic environment where it is
virtually impossible to recover these increases.
Price increases of 25% to 85% on raw material have been reported.
Steel price contracts are being broken, and reports of supply
interruptions and material shortages are increasing. Material shortages
are the combined result of U.S. anti-dumping duties that range from 5%
to 125%, the imposition of tariffs and U.S. steel mill closures.
In this global economy, an increasingly occurring response to
tariffs is the sourcing of component parts offshore. Higher prices and
material shortages are forcing manufacturers to source steel components
from foreign suppliers who have a cheaper raw material source. This
inevitable action will cause further harm to the U.S. economy and U.S.
workers. In fact, some furniture component suppliers have already
indicated that they are now sourcing component parts offshore rather
than producing the components domestically. These instances will surely
increase in the months ahead unless quick action is taken.
Another very likely possibility is the further erosion of U.S.
market share for U.S. furniture manufacturers. U.S. office furniture
imports already exceed U.S. exports by 5 to 1. The steel tariff
situation will only serve to make U.S. products less price competitive
and further open our market to offshore competition.
Certainly, the Administration could not have foreseen the drastic
impact (i.e. cost increases, supply interruptions, profitability, jobs,
taxes, market share, etc.) that steel tariffs would have on U.S. steel
consuming industries. The U.S. office furniture industry implores our
legislature and the Administration to grant immediate relief from the
detrimental impact that the steel tariffs have had on an already
depressed industry. The office furniture industry respectfully requests
a significant reduction in the tariff rates and/or an accelerated phase
out in order to halt the loss of additional jobs in the U.S. office
furniture industry.
U.S. House of Representatives
Washington, DC 20515
April 8, 2003
Chairman Phil Crane
Trade Subcommittee
House Committee on Ways and Means
1104 Longworth Building
Washington, DC 20515
Dear Chairman Crane:
I would like to submit the following study to be made part of the
record for the House Trade Subcommittee hearing on March 26, 2003
regarding the Impact of the Section 201 Safeguard Action on Certain
Steel Products.
The study, The Unintended Consequences of U.S. Steel Import
Tariffs: A Quantification of the Impact During 2002, was done at the
request of the Consuming Industries Trade Action Coalition (CITAC)
Foundation to illustrate the impact of higher steel costs on American
steel-consuming industries. The tariffs, combined with other challenges
present in the marketplace at the time and in the months that followed,
boosted steel costs to the detriment of American companies that use
steel to produce goods in the United States. Thank you for your
attention to this request.
Sincerely,
Dave Camp
Member of Congress
Attachment
______
The Unintended Consequences of U.S. Steel Import Tariffs: A
Quantification of the Impact During 2002
The Cause
On March 5, 2002, President Bush imposed tariffs on imports of many
steel products into the United States for three years and one day. The
duties became effective March 20, 2002.\1\ They affect a wide range of
steel products used by American manufacturers to produce steel-
containing products in the United States, which in turn are sold to
U.S. and international customers.
---------------------------------------------------------------------------
\1\ See Proclamation 7529, 67 Fed. Reg. No. 45 (March 7, 2002);
Department of the Treasury, Customs Service, ``Payment of Duties on
Certain Steel Products,'' Federal Register, Vol. 67, No. 54, March 20,
2002.
Steel Products Subject to Import Tariffs, March 20, 2002-March 19, 2003
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Plate 30.0%
Hot-rolled sheet 30.0
Cold-rolled sheet 30.0
Coated sheet 30.0
Tin mill products 30.0
Hot-rolled bar 30.0
Cold-finished bar 30.0
Rebar 15.0
Certain welded tubular product 15.0
Carbon and alloy fittings and flanges 13.0
Stainless steel bar 15.0
Stainless steel rod 15.0
Stainless steel wire 8.0
Slab A quota of 5.4 million short tons, plus a
tariff
of 30.0% for shipments in excess of quota
----------------------------------------------------------------------------------------------------------------
Source: Office of the U.S. Trade Representative, ``Background Information,'' March 5, 2002.
The Effect
To understand the impact of the steel tariffs on steel consumers,
it is helpful first to understand the dynamics of U.S. steel-consuming
industries. Steel-consuming industries in the United States span a
broad range of manufacturing sectors, including fabricated metal
products, machinery and equipment, and transportation equipment and
parts. Companies in these sectors often produce parts, components and
subassemblies to very exacting customer specifications (such as
original equipment manufacturers or aftermarket suppliers of parts and
components for automobiles and appliances). But steel consumers also
include chemical manufacturers, who use steel products extensively to
store and transport the products they manufacture; petroleum refiners
and their contractors, who use steel pipe and oil field equipment to
drill for and transport petroleum and natural gas; tire manufacturers,
which put steel belts and beads in tires for safety and durability; and
nonresidential construction companies, which use a variety of steel
products to build office buildings, bridges, and roads. All these
industries need to purchase steel and steel-containing products readily
at internationally competitive prices or lose business. The ability to
do so is crucial to the economic health of these sectors.\2\ This
analysis focuses on the impact of higher steel prices on these
industries.
---------------------------------------------------------------------------
\2\ Our definitions of steel consumers are conservative. The narrow
definition includes manufacturers and workers in the metal
manufacturing sector (Standard Industrial Classification Code 34),
machinery manufacturing (SIC code 35) and motor vehicle equipment and
parts (SIC 37). The broader definition includes manufacturers in the
following sectors: fabricated metal products (SIC 34); industrial
machinery and equipment (SIC 35); electric distribution equipment (SIC
361); electrical industrial apparatus (SIC 362); household appliances
(SIC 363); electric lighting and wiring equipment (SIC 364);
transportation equipment (SIC 37); chemicals and related products (SIC
28); tires (SIC 301); petroleum refining (SIC 291), and nonresidential
construction (SIC 15-17 minus SIC 152). These other sectors should be
included in any definition of steel consumers because they use
important quantities of steel as inputs to production. For example,
according to 1998 input-output tables, steel products represent 5.8
percent of the non-petroleum intermediate inputs in the petroleum
sector, 18.0 percent in the new construction sector, and 5.0 percent in
the industrial and other chemicals sector. See Table 2, ``The Use of
Commodities by Industries, 1998,'' Mark A. Planting and Peter D.
Kuhbach, ``Annual Input-Output Accounts of the U.S. Economy, 1998,''
Survey of Current Business, December 2001, page 62.
---------------------------------------------------------------------------
The vast majority of steel-consuming manufacturers are small
businesses. In fact, 98 percent of all the 193,000 U.S. firms in steel-
consuming sectors employ less than 500 workers, according to the Small
Business Administration.\3\
---------------------------------------------------------------------------
\3\ Small Business Administration, Office of Advocacy, www.sba.gov/
advo/stats/us99_n6.pdf.
---------------------------------------------------------------------------
Thus, most significantly, the majority of these companies are
generally described as ``price takers.'' This means that they have
little or no influence over the prices at which they can sell the
products they make. They are simply too small to be able to demand that
their customers pay more for the products they sell because their input
costs, for example, have gone up.\4\ Indeed, the prices of key products
made by steel consumers have been dropping significantly over recent
years. Charts below show that producer prices for metal cans today are
7.6 percent lower than they were in January 1996, motor vehicle parts
prices are 3.4 percent lower, and machinery and equipment prices are
3.8 percent lower. Steel consumers have been reducing prices in recent
years because of intense competitive pressures; and they are in no
position to exact higher prices from their customers now because their
steel costs have soared.
---------------------------------------------------------------------------
\4\ Even U.S. automobile producers are becoming ``price takers'' in
today's marketplace. Car purchasers have become accustomed to zero-
percent financing, cash-back discounts, and other incentives that eat
into auto-producer profits. There is very little leeway for auto makers
to increase prices, despite material cost increases. Over the last four
quarters for which data are available (fourth quarter of 2001 through
third quarter of 2002), companies in the motor vehicles and equipment
sector lost a total of $36.1 billion (U.S. Department of Commerce,
Survey of Current Business, ``Table 6.16C, Corporate Profits by
Industry Group,'' January 2003). See, for example, Sholnn Freeman,
``Clearing the Lot: Detroit Rolls Out Best Deals Yet,'' The Wall Street
Journal, December 24, 2003 (``I've never seen it like this. It is truly
a buyers' market,'' says Ronald Thomas, a Cadillac sales manager in New
Orleans. ``The competition is very fierce.''); Jeremy Grant, ``Car
chiefs expect recovery in two years,'' Financial Times, January 2, 2003
(``The global automotive industry is not expected to return to the
record levels of profitability seen three years ago until at least
2005, according to a survey released today by KPMG, the auditing and
consulting group'').
[GRAPHIC] [TIFF OMITTED] 89863A.006
---------------------------------------------------------------------------
Source: U.S. Department of Labor, Bureau of Labor Statistics.
[GRAPHIC] [TIFF OMITTED] 89863A.007
Source: U.S. Department of Labor, Bureau of Labor Statistics.
[GRAPHIC] [TIFF OMITTED] 89863A.008
Source: U.S. Department of Labor, Bureau of Labor Statistics.
It is also important to note that other events were affecting steel
markets immediately before and after the Section 201 steel tariff
remedies were imposed. In early 2002, steel supplies were beginning to
tighten. Several million tons of steel-making capacity had shut down
over recent years, with significant amounts at LTV Steel, one of the
largest U.S. producers, leaving the market in the last half of 2001,
most notably in December 2001. Total U.S. steel shipments dropped from
8.6 million tons in October 2001, to just 6.9 million in December
2001.\5\ International Steel Group ultimately purchased LTV and other
failing steel companies, and brought some of that production back on
line, but it did not start resupplying the market in any significant
manner until May 2002. So during the first quarter of the year steel
producers began to push for higher prices and they had the market power
of steel shortages to force through some price increases.\6\
---------------------------------------------------------------------------
\5\ American Iron and Steel Institute (AISI), ``Steel Industry
Data,'' www.steel.org/stats.
\6\ Tom Stundza, ``Steel Flash Report: No End to Confusion About
Pricing,'' Purchasing Magazine Online, 2/28/2002.
---------------------------------------------------------------------------
In addition, a host of antidumping and countervailing duties went
into effect at the end of 2001, raising steel costs. Antidumping and
countervailing duties were imposed on imports of hot-rolled carbon
steel flat products imported from 11 countries between September and
December 2001, boosting costs--or eliminating foreign supply--of this
important product. Antidumping or countervailing duties were imposed on
imports of stainless steel bar from five countries in March 2002 with
the same consequences. These duties were imposed in addition to the
steel tariffs. Ultimately unsuccessful investigations were launched
against imports of oil country tubular goods and cold-rolled carbon
sheet, disrupting supplies and prices of these products during the
course of the investigations.
The steel supply shortage problem deepened because of uncertainty
associated with the tariffs. Importers stopped ordering steel in
January waiting to see what the President would decide. Thus, product
that would have been entering the market in March, April and May was
absent. Import supply did not recover to the benefit of steel consumers
until September (and it has since fallen off again). Steel consumers
scrambled to order steel from U.S. producers, many of whom would not or
could not supply them with needed product, and spot prices for steel
soared.\7\ Domestic steel supplies were so tight that in May 2002 U.S.
producers supplied over 90 percent of the market, when 80-85 percent is
more typical.\8\
---------------------------------------------------------------------------
\7\ In April, it was reported that some U.S. steelmakers were
rationing sheet steel to their customers because their main steelmaking
plants were near capacity and their rolling mills were fully booked
through June. Tom Stundza, ``Steel Flash Report: Short-Term Spot Prices
Will Continue to Escalate,'' Purchasing Magazine Online, 4/30/2002.
\8\ Derived from AISI data, www.steel.org/stats.
[GRAPHIC] [TIFF OMITTED] 89863A.009
* ``Raw Steel'' includes ingots, steel for castings, blooms,
billets and slab--products imported for use by the steel industry.
Source: U.S. Department of Commerce.
The results: shortages and very high prices, particularly last
summer and fall. Steel transaction (spot) prices--more than half of
major carbon and stainless steel producers purchase steel on the spot
market \9\--began to accelerate in March, reaching a peak in July and
August. According to price tracking data from Purchasing Magazine, hot-
rolled sheet transaction prices were 81.8 percent higher in July 2002
than in January 2002; cold-rolled sheet prices were 69.4 percent
higher, and hot-dipped galvanized prices 62.1 percent higher. These are
key products, used to make products ranging from cars to lawn-mower
blades. Increases in the prices of steel sold directly by steel
manufacturers (the so-called ``producer price index'') to their
customers also showed strong increases over the period. In December
2002, the producer price index for hot-rolled steel was 27 percent
above the index recorded in December 2001, and the index for cold-
rolled steel was 19 percent higher over the same period.\10\
---------------------------------------------------------------------------
\9\ Steel Service Center Institute, ``Statement of The Steel
Service Center Institute Before the Congressional Steel Caucus,'' March
21, 2001, found at Internet address http://www.ssci.org/
final_caucus.adp, cited in International Trade Commission, op.cit.,
OVERVIEW-53.
\10\ In light of pressures to cut end-product prices noted earlier,
the steel industry's effort to suggest that recent increases in the
cost of steel are unimpressive because steel prices today are still
lower than they were in the mid-1990s is hardly persuasive. (See, for
example, Peter Morici, ``The Impact of Steel Import Relief on U.S. and
World Steel Prices: A Survey of Some Counterintuitive Results,'' July
2002, www.steel.org.) It matters little what steel costs were six to 10
years ago. What matters is what steel-containing products can be sold
for today and how U.S. steel costs compare to those abroad (see next
page).
[GRAPHIC] [TIFF OMITTED] 89863A.010
---------------------------------------------------------------------------
Source: Purchasing Magazine, Flash Reports, various issues.
[GRAPHIC] [TIFF OMITTED] 89863A.011
Source: Bureau of Labor Statistics.
On top of a domestic competitive squeeze, steel consumers faced an
international squeeze as well. U.S. steel market prices were generally
higher than steel prices paid by competitors abroad (the only major
exception was the price of steel in the United Kingdom, see charts), so
foreign producers of steel-containing products maintain a cost
advantage over U.S. producers of steel-containing products. The result:
customers began to shift orders for steel-containing products from U.S.
manufacturers to foreign manufacturers.
[GRAPHIC] [TIFF OMITTED] 89863A.012
Source: CRU Monitor.
[GRAPHIC] [TIFF OMITTED] 89863A.013
Source: CRU Monitor.
[GRAPHIC] [TIFF OMITTED] 89863A.014
Source: CRUspi (Steel Week Online), January 2003.
Quantifying the Unintended Consequences
Thus, American steel consumers have borne heavy costs from higher
steel prices caused by shortages, tariffs and trade remedy duties. Some
customers of steel consumers moved sourcing offshore as U.S. producers
of steel-containing products became less reliable and more expensive,
due to steel supply problems. Other customers refused to accept higher
prices from their suppliers and forced them to absorb the higher steel
costs, which put many in a precarious financial condition. The worry of
many proved true: that the high prices would cancel or delay the
manufacturing recovery that had begun to show signs of finally
materializing.\11\
---------------------------------------------------------------------------
\11\ A March 2002 Purchasing Magazine survey on the business
environment found that 71 percent of metals buyers thought business was
the same or better than the month before, leading the publication to
conclude that ``the metalworking recession appears to be over.'' Tom
Stundza, ``Steel Flash Report: Spot Prices Exploded in March,''
Purchasing Magazine Online, 3/29/2002. However, by June the same
publication was reporting that metalworking growth had slipped for two
consecutive months. Tom Stundza, ``Steel Flash Report: `Steel Has
Become a Major Headache,' Say Buyers,'' Purchasing Magazine Online, 6/
28/2002.
Steel Consumers' Corporate Profits Evaporated
(Billions of Dollars)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Seasonally Adjusted at Annual Rates 2001 2002
2000 2001 -----------------------------------------------------------------------------------------------------------------------
III IV I II III
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Primary metals industries * $1.0 $-1.6 $-0.1 $-2.2 $0.5 $0.3 $1.3
Steel consumers ** 27.4 -1.0 -3.1 -14.2 -11.5 -1.5 -2.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Largely, steel producers.
Narrowly defined as fabricated metals producers, industrial machinery and equipment manufacturers, and motor vehicle and equipment manufacturers.
Source: U.S. Department of Commerce, Survey of Current Business, ``Table 6.16C, Corporate Profits by Industry Group,'' January 2003.
Eventually steel-consuming manufacturers lost business due to the
high steel prices. And while it was delayed as long as possible, some
steel consumers were forced to lay off workers. The continuing
recession also cost jobs. Over the last two years, total employment in
steel-consuming sectors dropped by about 915,000 jobs. In just the last
year (2002), 224,400 jobs were lost in the metal manufacturing,
machinery and equipment manufacturing and transportation equipment and
parts manufacturing sectors alone.\12\
---------------------------------------------------------------------------
\12\ Bureau of Labor Statistics, Covered Employment and Statistics
Survey, total employment, not seasonally adjusted.
---------------------------------------------------------------------------
How many of these job losses are attributable to high steel prices?
This is not an easy question to answer. To explore the apparent
linkages over the 2001-2002 period between steel prices and downstream
employment, we employed a straightforward log-linear regression
model.\13\ (We used a variety of combinations of price and employment
data to maximize the reliability of the results.) Our methodology and
results are detailed in Annex A. Briefly, we disaggregated the impact
on steel-consuming sector employment of general conditions in the
manufacturing sector (i.e., the recession), and steel price
changes.\14\ The results give an estimate of the recent sensitivity of
employment in steel-consuming industries to price changes in steel.
---------------------------------------------------------------------------
\13\ Regression analysis is a standard and widely-accepted
technique for quantifying relationships between data (like economic
price and quantity data). It involves finding the equation that best
fits a set of data points. This ``best-fit'' estimate is then used to
measure quantitative relationships within the data. In other words, we
look for an equation that generates as closely as possible the actual
data sets examined, in this case employment and general economic
conditions. ``Log linear'' regression analysis involves evaluating the
relationships between data in natural logs. It is a standard approach
in economics because the resulting coefficients can be interpreted as
``elasticities'' that measure relative sensitivities--in this case, the
sensitivity between steel prices and employment levels. A good ``fit''
means that the equation soundly predicts actual data within the sample.
In the present case, model ``F-statistics'' tell us that we are more
than 99 percent certain that the relationships modeled are significant,
and over 95 percent certain that the negative relationship we identify
with respect to steel prices is significant (based on a one-sided ``t-
test''). See the Annex for more detail.
\14\ We present here results based on a composite price index,
representing the average of PPI price data for hot-rolled and cold-
rolled steel. Almost identical results hold for alternative steel price
indexes (other BLS series, and CRUspi index data).
---------------------------------------------------------------------------
Despite the fact that the tariffs and other factors raising prices
have not been in place long, some simple relationships are apparent in
the data, no matter which data sets are used. To gauge these
relationships, we used the estimated steel price elasticity of
employment (the value a2 in Annex Tables A-1 and A-2) to
calculate the apparent impact of steel price increases on downstream
employment. If we take December 2001 as a ``benchmark'' for steel
prices, then higher steel costs reduced steel-consuming sector
employment in December 2002 by roughly 200,000 (of that, 50,000 jobs
were lost to higher steel costs in the metal manufacturing, machinery
and equipment and transportation equipment and parts sectors). Steel-
consumers have lost more jobs to higher steel costs than the total
number employed by steel producers in December 2002 (187,500).
These lost jobs represent about $4 billion in lost wages from
February-November 2002, assuming workers found new jobs within four
weeks.\15\
---------------------------------------------------------------------------
\15\ We multiplied the number of job losses for a given month by
the average monthly wage for steel consumers during that month, and
then summed the results from February 2002 (the first year of price-
related job losses) through November 2002 (the last year wage data for
all these relevant SICs are available). Unpublished Bureau of Labor
Statistics data indicate that in 2001 (the most recent year for which
data are available) manufacturing workers went a median 4.4 weeks
without work. Data are from the Bureau of Labor Statistics, National
Employment, Hours and Earnings Database, and Table A-3 of this study
(in Annex).
---------------------------------------------------------------------------
Charts 1 and 2 show actual employment relative to what employment
would have been in the absence of increases in steel prices on a
monthly basis.
Chart 1
[GRAPHIC] [TIFF OMITTED] 89863A.015
Chart 2
[GRAPHIC] [TIFF OMITTED] 89863A.016
State Impacts
Statewide employment effects were estimated on the basis of
national effects and the State distribution of employment by sector.
Every State lost jobs due to higher steel costs. The States
experiencing the greatest employment losses in steel consuming-
industries resulting from higher steel prices include California
(19,392 jobs), Texas (15,826 jobs), Ohio (10,553 jobs), Michigan (9,829
jobs), Illinois (9,621 jobs), New York (8,901 jobs), Pennsylvania
(8,402 jobs) and Florida (8,370) jobs. Sixteen States lost at least
4,500 steel-consuming jobs each over the course of 2002.
Employment Effects by State
(Number of jobs)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fabricated Metals, Other Steel Total Steel
Machinery, and Consuming Consuming
Transport Equipment ---------------------------------------------
State ---------------------- SIC: 15(less152), 16,
SIC: 15(less152), 16, 17, 291, 301, 331,
SIC: 34, 35, 37 17, 291, 301, 331, 34, 35, 37, 361, 362,
361, 362, 364 364
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama -731 -2,459 -3,190
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Alaska -6 -284 -290
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Arizona -632 -3,023 -3,655
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Arkansas -522 -1,279 -1,800
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
California -4,628 -14,764 -19,392
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Colorado -516 -3,009 -3,524
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Connecticut -1,011 -1,820 -2,831
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Delaware -86 -833 -919
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Florida -1,140 -7,230 -8,370
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Georgia -1,032 -4,335 -5,367
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Hawaii -9 -388 -397
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Idaho -144 -679 -824
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Illinois -2,760 -6,861 -9,621
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Indiana -2,419 -3,624 -6,043
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Iowa -732 -1,551 -2,283
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Kansas -821 -1,363 -2,184
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Kentucky -991 -2,085 -3,076
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Louisiana -496 -3,157 -3,653
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Maine -167 -531 -698
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Maryland -341 -2,999 -3,339
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Massachusetts -1,031 -2,843 -3,874
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Michigan -5,127 -4,703 -9,829
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Minnesota -1,157 -2,451 -3,607
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Mississippi -487 -1,472 -1,960
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Missouri -1,192 -3,332 -4,524
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Montana -34 -327 -361
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Nebraska -268 -915 -1,183
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Nevada -74 -1,575 -1,649
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
New Hampshire -259 -534 -793
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
New Jersey -677 -4,560 -5,237
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
New Mexico -59 -779 -838
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
New York -1,660 -7,241 -8,901
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
North Carolina -1,293 -5,540 -6,833
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
North Dakota -88 -314 -403
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Ohio -3,855 -6,699 -10,553
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Oklahoma -666 -1,397 -2,064
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Oregon -507 -1,564 -2,071
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania -2,163 -6,239 -8,402
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Rhode Island -148 -384 -532
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
South Carolina -774 -2,677 -3,451
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
South Dakota -170 -300 -470
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Tennessee -1,389 -3,474 -4,863
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Texas -2,937 -12,889 -15,826
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Utah -338 -1,396 -1,734
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Vermont -92 -261 -353
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Virginia -789 -4,250 -5,038
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Washington -1,269 -2,761 -4,030
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
West Virginia -138 -839 -977
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Wisconsin -1,910 -3,062 -4,971
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Wyoming -20 -351 -371
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
TOTAL -49,753 -147,401 -197,153
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Starting basis is Statewide employment levels as reported by U.S. Bureau of Labor Statistics.
Conclusion
Clearly, higher steel costs hit American manufacturers of products
using steel quickly after the tariffs were imposed, and with force.
Because their customers for the most part have sufficient market power
to refuse to accept price increases from steel-consuming manufacturers,
steel consumers had to look for other ways to pay for higher-priced
steel. Some absorbed the higher costs out of profit margins; others had
insufficient profits to fund the higher costs. Some simply lost
customers to foreign competitors. Many had to lay off workers.
Unfortunately, insufficient data exist at this time to measure the
precise role steel tariffs played in causing such significant price
increases, relative to the other factors that pushed steel prices up.
But this much is certain: tariffs clearly played a leading role. As
noted, steel tariffs caused shortages of imported product and put U.S.
manufacturers of steel-containing products at a disadvantage relative
to their foreign competitors. In the absence of the tariffs, the damage
to steel consuming employment would have been significantly less than
it was in 2002.
Annex A: The Employment Models
Overview
We estimated the impact of steel price increases using a
combination of producer price and employment data. Obviously, the
remedies have not been in place long, and relevant data are quite
limited in availability. Even so, some simple relationships are
apparent in the data. Using a simple log-linear regression model, we
have explored the apparent reduced-form linkages between employment in
two definitions of steel-consuming industries, general conditions in
the manufacturing sector, and steel price changes.
Data
Price data are taken directly from the U.S. Bureau of Labor
Statistics published producer price index (PPI) price series for steel.
We constructed an average of the PPI for cold-rolled steel (series:
PCU3316#71) and hot-rolled steel (series: PCU3312#311). Employment
data, on an SIC basis for the total number of workers, not seasonally
adjusted, are also from the U.S. Bureau of Labor Statistics. Our narrow
definition of steel-consuming industries includes SIC 34, 35, and 37
(metal fabrication, machinery, and transport equipment). Our broader
definition includes SIC 15 (less 152), 16, 17, 28, 291, 301, 34, 35,
361, 362, 363, 364, and 37. We use monthly data from January 2000
through December 2002.
Method
For both our narrow and broad steel-consuming employment series, we
regressed the log of employment on the log of overall manufacturing
employment and the log of steel prices.
(1) ln(E) = a0 + a1 ln(M) +
a2 ln(PPI) + e
In equation (1), E is downstream employment, M is our indicator of
overall manufacturing employment (less the most steel-intensive
sectors), and PPI is our steel price index. Manufacturing employment M
serves to capture combined effects related to the general health and
related trends of the overall manufacturing sector. The a2
term measures the reduced-form sensitivity (elasticity) of employment
to changes in the price for steel.
Results
We estimated equation (1) using ordinary least squares (OLS). The
overall fit is actually quite good, as summarized in Charts A-1 and A-2
and also in Tables A-1 and A-2 below. For the narrow definition of
steel-consuming industries (metal manufacturing, machinery and
equipment and transportation equipment and parts), 98 percent of total
variation in employment over the 2000-2002 period (measured by the
model R-squared) is accounted for. For the broader definition, 82
percent of the variation in employment is accounted for over the same
2000-2002 period covered by our data. (Seasonal dummies are also
included, though not shown in the table.)
In our narrow downstream sector, a 10 percent increase in steel
prices yields a 0.41 percent drop in employment. For the broader
sector, a 10 percent increase in steel prices yields a 0.64 percent
drop in employment. To estimate employment effects of recent price
increases, we use the a2 coefficients to calculate the
implied difference in employment if steel prices had stayed at December
2001 levels throughout 2002. Once we have an estimate of the change on
ln(E) due to steel price changes, we estimated a notional level of
employment E which equals actual employment plus any notional change in
employment following from restoring steel prices to December 2001
levels.
For example, formally, we calculate the change in employment from
price increases between December 2001 and December 2002 in natural
logs, Dln(E), as follows:
(2) Dln(E) = a2[ln(PPIDec2001) -
ln(PPIDec2002)]
Chart A-1
[GRAPHIC] [TIFF OMITTED] 89863A.017
Chart A-2
[GRAPHIC] [TIFF OMITTED] 89863A.018
Table A-1 Narrow Definition of Steel-Consuming Industries
----------------------------------------------------------------------------------------------------------------
Standard
--------------------------------------------------
Independent Variable t-
Coefficients Error statistic Significance *
----------------------------------------------------------------------------------------------------------------
a0 : Constant -2.8806 0.2722 -10.583 3.8E-12
a1 : Change in General Conditions Index 1.2337 0.0259 47.506 5.8E-32
a2 : Change in Steel Prices Index -0.0414 0.0138 -2.998 2.5E-03
----------------------------------------------------------------------------------------------------------------
Number of observations: 36
Adjusted R2: 0.98
F-statistic: 1328.6
F-significance: 2.9E-32
Durbin-Watson statistic: 2.11
* based on one-tailed test for price index
Table A-2 Broad Definition of Steel-Consuming Industries
----------------------------------------------------------------------------------------------------------------
Standard
--------------------------------------------------
Independent Variable t-
Coefficients Error statistic Significance *
----------------------------------------------------------------------------------------------------------------
a0 : Constant 7.5674 0.3325 22.759 1.8E-20
a1 : Change in General Conditions Index 0.2577 0.0295 8.737 9.6E-10
a2 : Change in Steel Prices Index -0.0643 0.0356 -1.807 4.0E-02
----------------------------------------------------------------------------------------------------------------
Number of observations: 36
Adjusted R2: 0.79
F-statistic: 26.7
F-significance: 3.3E-10
Durbin-Watson statistic: 1.82
* based on one-tailed test for price index
Table A-3 The Monthly Impact of Price Increases: Relative to December 2001, Not Adjusted for Seasonal
Variations
----------------------------------------------------------------------------------------------------------------
Broad Definition of Steel-Consuming Narrow Definition of Steel-Consuming
Industries (Thousands) Industries (Thousands)
--------------------------------------------------------------------------------
B Estimated C E Estimated F
A Actual Total Employ- Estimated D Total Employ- Estimated
Em- ment with- out Impact of Actual Em- ment with- out Impact of
ployment Price Price ployment Price Price
Increases Increases Increases Increases
----------------------------------------------------------------------------------------------------------------
Dec-01 12475 12475 0 5051 5051 0
Jan-02 12053 12050 3 4965 4965 1
Feb-02 11997 12009 -12 4957 4960 -3
Mar-02 12052 12097 -44 4944 4956 -12
Apr-02 12218 12283 -65 4940 4956 -17
May-02 12393 12503 -110 4942 4970 -28
Jun-02 12587 12720 -133 4959 4993 -34
Jul-02 12571 12718 -147 4890 4927 -37
Aug-02 12588 12756 -168 4906 4948 -42
Sep-02 12492 12672 -180 4876 4921 -45
Oct-02 12424 12608 -184 4859 4905 -46
Nov-02 (p) 12292 12494 -202 4837 4888 -51
Dec-02 (p, e) 12478 -197 4827 4876 -50
12281
----------------------------------------------------------------------------------------------------------------
p = preliminary
e = partly estimated
B = exp(ln(A) + a2(ln(PPIsteel,DEC01) - ln(PPIsteel)))
C = A - B
E = exp(ln(D) + a2(ln(PPIsteel,DEC01) - ln(PPIsteel0)))
F = D - E
Note that for column B, the value of a2 is taken from Table A-1. Note that for column E, the value of a2 is
taken from Table A-2.
Statement of Michael L. Shor, Carpenter Technology Corporation,
Reading, Pennsylvania
My name is Michael L. Shor, and I am the Senior Vice President of
Carpenter Technology Corporation's Specialty Alloy Operations.
Carpenter Technology Corporation is a major U.S. producer of specialty
metals and other high-performance materials, including stainless steel
bar, stainless steel rod and stainless steel wire.
I am submitting this statement on behalf of Carpenter and the other
domestic producers of stainless steel bar, rod, and wire. Our company
and our industry have been hurt by imports, leading to lay-offs, job
eliminations and historically low volumes. The Industry desperately
needed a relief package to position itself to compete head-to-head with
imports upon the expiration of a relief program.
When the President ordered relief to our industry, we were very
hopeful that the relief would allow the domestic industry to accomplish
three important goals.
First, the domestic industry must be able to increase its sales
volume and recapture the market share it has lost to imports.
Increasing sales volumes will enable us to run our mills more
efficiently, by permitting a more widespread absorption of the
significant fixed costs associated with our industry. With respect to
Carpenter, an increased sales volume will permit us to take full
advantage of the investments totaling more than $500 million dollars
that we have made in facilities, equipment and acquisitions over the
past five years.
Second, we need to restore prices to levels that allow a fair
return on our investments for our stainless steel products. We are very
conscious, however, of the impact that price changes may have on our
customers. We recognize that our ability to increase sales volumes is
linked directly to our customers' willingness to purchase our products.
Our goal is to produce and market stainless steel long products in a
way that maximizes our customers' ability to grow and excel in the
markets in which they operate. It should be noted, that in stark
contrast with the carbon steel industry, our stainless steel prices
since the 201 was enacted have actually decreased due to a combination
of poor business conditions, over-supply, reduction of inventory and
the massive exclusions involved with the first round of the 201.
Finally, the domestic industry must return to profitability in
order to generate the returns required to continue to invest in the
people and equipment that will keep domestic producers competitive in
the future.
The Section 201 import relief program has started to help the
stainless industry, but we have not yet seen the full benefits that we
still hope we can realize by the end of a full-term relief program.
For example, even with the Section 201 program, we still see
negative pricing trends and capacity utilization that is even lower
than it was during the time of the Section 201 investigation. While
import penetration of stainless bar and rod decreased marginally,
imports still control more than 42% of the stainless bar market and 65%
of stainless rod market in the United States.
However, I can assure you that the conditions in our industry today
would be even worse had we not received the relief. We need to continue
the relief if we are to have any chance of reaching the three goals I
just outlined.
We also have been very mindful of our customers' needs throughout
this time. We have worked with our customers and have agreed to product
exclusions where they are appropriate. We have accommodated customers
by agreeing to increased import volumes for certain products. We also
have had to object to certain exclusion requests, however, where the
requests simply had no merit--because Carpenter and other industry
members already can or have produced these products.
For example, one of our most important products is high-performance
machining bar. Despite our strenuous opposition to exclusion requests,
and our demonstration to the Administration that we produce large
quantities of these exact products on a daily basis, the government
granted very generous exclusions. At the same time, the investment in
equipment we made to produce even more of these products, is under
utilized. These exclusions directly benefit two of our biggest foreign
competitors. This surprised and hurt Carpenter driving us to our first
operating loss in 114 years of business. To date, we have been forced
to eliminate 1,300 salaried and manufacturing positions. This has
seriously undermined the relief we need.
Century Metal Products, Inc.
Lowell, Massachusetts 01851
April 7, 2003
The Honorable Phil Crane
Chairman, Trade Subcommittee
House Committee on Ways and Means
Washington, DC 20515
Re: L3-26-03 hearing titled ``The Impact of the Section 201 Safeguard
Action on Certain Steel Products''
Dear Congressman Crane:
I am writing on behalf of my company, Century Metal Products, Inc.
We are located in Lowell, MA and we employ 20 workers. We need your
help.
The steel tariffs imposed by the President last March, which were
intended to provide the domestic steel industry with protection from
imports and an opportunity to restructure in order to become
competitive on a global scale, have unfortunately resulted in
dramatically higher prices, longer delivery times, shortages,
allocations and lower quality for steel consumers. We have seen a 15-
20% increase in the cost of raw material.
As a result of the tariffs and the slowing economy, my company has
had to lay off 20% of our employees. Unless things change rapidly, my
company will continue to lose business to foreign competition that now
has a built-in cost advantage, thanks to the actions of our own
government. I believe these tariffs should be removed at the earliest
possible time to prevent further damage to the steel-using economy.
Thank you for your consideration.
Sincerely,
Jeremy D. Field
President
Statement of Consuming Industries Trade Action Coalition
The Consuming Industries Trade Action Coalition Steel Task Force
(CITAC STF) is a coalition of companies and associations--many of them
small businesses--that rely on open channels of trade to be competitive
in their U.S. manufacturing, transportation, construction, retailing,
energy production and other activities. CITAC STF commends the
Subcommittee for conducting this hearing and for finally allowing steel
consuming industries to be heard concerning the impact of the steel 201
remedies on our businesses and workers.
CITAC STF also commends the Ways and Means Committee for requesting
that the ITC initiate a Section 332 investigation to institute a fact-
finding investigation of the current competitive conditions facing the
steel consuming industries in the United States with respect to the
steel safeguards measures and to foreign competitors not subject to
such measures. This investigation is critically important to steel
consumers. The steel safeguard remedies have had a profound and
negative effect on steel consumers since their imposition in March
2002. Steel-using manufacturers have lost numerous orders and many
thousands of jobs to offshore competitors. These unintended effects are
clearly relevant in the President's determination whether the safeguard
remedies should last another 18 months at further cost to steel
consuming industries. The Mid-Point Review provides the opportunity for
a full analysis. The 332 study, which will be presented to the
President in the same document as the mid-point review report, must
provide that information.
Since the hearing on March 26, 2003, the International Trade
Commission (ITC) has formally initiated the 332 investigation on the
impact of the steel remedies on steel consumers. CITAC STF urges the
Committee to assure that the 332 investigation and the Mid-Point Review
of the safeguard remedies are integrated and complement each other, as
was the Committee's intention.
The Safeguard Measures Should Be Terminated as Soon as Possible
CITAC STF's top priority is the termination of the steel safeguard
measures because they are wreaking havoc in the markets for downstream
steel-using manufacturers. Skyrocketing prices, uncertain supply due to
allocations and lengthening lead-times, broken contracts and growing
quality problems are forcing many steel users to the brink of disaster.
These unintended consequences are not only disastrous for steel users
but for steel producers as well. We hope that the Bush Administration
will act to end this destructive tax on American steel-using industries
as soon as possible.
At the March 26 hearing, several steel producer witnesses suggested
that the steel industry's survival is essential in this time of war.
While we agree that it is in everyone's interests to have a strong U.S.
steel industry, any concerns about defense are misplaced. The Defense
Department's usage of domestic steel only amounts to 0.3% of domestic
steel delivery and the Department of Defense generally does not buy
imported steel. The steel safeguard measures are completely irrelevant
to national defense.
The tariffs should be ended at the Mid-Point Review for the
following reasons:
1. LThe tariffs are doing far more harm to steel consumers than any
benefit to steel producers could justify.
2. LThe economic downturn since March 2002 has vastly magnified the
injury to steel using manufacturers.
3. LPrice increases during 2002, which have abated only moderately
in 2003, are far beyond any predicted level of price increases. These
prices have seriously damaged the international competitiveness of
American manufacturers that use steel.
4. LThe steel safeguards threaten trading relationships. When the
WTO case is over this fall, a loss in the WTO could result in
retaliation against exports of U.S. products of $1 billion or more.
5. LThe safeguards can do no more than they have already done to
realize the goal for which they were imposed--the rationalization,
restructuring and consolidation of non-competitive U.S. steel capacity.
6. LThe safeguards do not address the root causes of the steel
industry's problems, which is the non-competitiveness of certain
integrated producers due to relatively high costs and operating
inefficiencies.
7. LThe safeguards interrupt critical steel imports that are
absolutely essential, since we must depend on imports to supply 20 to
25 percent of our domestic demand. Exclusions have not permitted
sufficient quantities of the steel American manufacturers need.
More Jobs Have Been Lost From The Tariffs Than Have Been ``Saved''
A particularly onerous consequence of the tariffs is the threat to
U.S. jobs--many of which are union jobs--in steel-consuming sectors.
Steel-using jobs vastly outnumber steel-producing jobs in every state.
Nationally, the ratio is 59 to 1. Already, jobs are being lost as
business leaves the country. As the damage mounts, studies show that
eight steel-using jobs will be lost for every steel-producing job
``saved,'' even in the short run. We believe that steel-using jobs are
no less important than steel-producing jobs.A recent economic analysis
published by the CITAC Foundation, Inc. concluded that about 200,000
jobs were lost in steel consuming industries due to higher prices. The
steel safeguard measures caused the price increases in large part.
The CITAC Foundation study evaluated job effects in steel consuming
industries both narrowly and broadly defined. In the steel consuming
industries, narrowly defined, about 50,000 jobs were lost in 2002 from
higher steel prices. In steel consuming industries, broadly defined,
some 200,000 jobs were lost in 2002. The CITAC study's numbers indicate
that serious damage was done to downstream industries from steel price
increases and the safeguard tariffs.\1\
---------------------------------------------------------------------------
\1\ The study used a commonly employed regression analysis to
develop these estimates of job losses. No other analysis exists of the
jobs effects of the steel safeguard measures. Clearly a government-
sponsored analysis is long overdue.
---------------------------------------------------------------------------
Between 1995 and 2001, steel-using manufacturers added 1,255,000
new jobs to the economy, according to the Bureau of Labor Statistics
(while jobs in the manufacturing sector as a whole actually declined by
829,000). Today, steel-using manufacturing employ nearly 13 million
Americans, compared to less than 200,000 jobs in steel-production. Many
steel users are small businesses, which have been and remain the engine
of growth for the American economy. Steel-using industries provide good
jobs and are invaluable contributors to their communities. Furthermore,
the steel safeguards have had a ripple effect. As U.S. steel-consuming
industries suffer, so do the companies that supply those industries,
such as service centers, finishers, platers, assemblers and port
workers. We urge the Committee to find policy options that assist
industries throughout the economy, rather than imposing tariffs, which
only transfer pain from producing to consuming industries.
The Steel Safeguards Have Made U.S. Steel Consumers Uncompetitive
Steel consumers are in trouble because of price hikes and other
dislocations in the U.S. that have resulted in a severe competitive
disadvantage for steel consumers compared to their overseas
competitors. While some of these price increases have moderated in the
last few months, as indicated on the attached chart, the United States
remains at the high end of the world's steel price markets. As a
result, U.S. manufacturers that use steel are operating under a
competitive disadvantage compared with their foreign counterparts. It
is not important to compare prices to the levels in the past; it is
important to compare U.S. prices to overseas prices to competitors.
Accurate international pricing data is a key component of sound
policy making. Unfortunately, data in this area is very incomplete. For
example, a chart published by the American Iron and Steel Institute in
January provided an incomplete and misleading picture of the situation
faced by steel consumers in the United States. The AISI chart was
misleading in the following respects:
LAISI only posted prices for hot-rolled steel and excluded
cold-rolled and galvanized steel--the latter products are more
important to steel consumers than hot-rolled. When all three flat-
rolled products are included in the calculations, and countries such as
Russia and Japan are added (Russia, for example, is the world's largest
steel exporter, although trade restrictions keep much Russian steel
from the U.S. market), the U.S. is shown to have higher prices than in
most markets.
LAISI failed to include prices on the West Coast of the
U.S., where a large portion of steel users manufacture products, and
where prices are substantially higher than in the Midwest or Gulf
Coast.
LAISI failed to note that prices in most world markets are
stated in ``C&F'' or ``delivered'' terms, while U.S. prices are listed
in ``FOB mill'' terms. This means that world market prices are based on
the steel cost plus freight charges, while the U.S. prices are based on
the price of steel at the factory gate, with no freight charges added
in. AISI, in making a comparison using the FOB mill prices for the
U.S., therefore understates U.S. prices.
The attached CITAC STF information corrects these problems and
gives a more accurate picture of global market prices. The price
differential between steel in the U.S. and foreign markets has led to a
dramatic increase of imports of value-added products made from steel,
as well as shifts in production of these value-added products offshore.
These production shifts have occurred very rapidly in response to the
steel safeguards. As Timothy Taylor testified before this Subcommittee,
in our globally competitive economy, production changes happen far more
rapidly than they did 30 years ago. Thus, if the tariffs remain in
effect for another year and a half, even more U.S. steel-consuming jobs
will be lost. Once these jobs are lost, they are lost forever.\2\
---------------------------------------------------------------------------
\2\ Obviously, the steel safeguard measures are one of several
factors affecting U.S. manufacturers. We believe the evidence indicates
that it is an important factor and one that the U.S. government is
truly able to control. It has made a bad situation much worse and will
continue doing so as long as it remains in effect.
---------------------------------------------------------------------------
In recent Senate Steel Caucus testimony, steel producers repeated
their refrain about pricing. It is important to note that their
attempts to rebut the hard evidence of competitive disadvantage for
steel consumers are entirely wrong. For example:
LUS Steel Claims: Prices have risen faster abroad than in
the United States.
LThe Facts: Even if true, what matters is whether prices are
lower abroad than in the U.S. for comparable steel products.
They are lower abroad, and domestic producers do not argue the
contrary.
LUS Steel Claims: Steel tariffs are not responsible for US
manufacturers moving offshore.
LThe Facts: Because prices abroad are lower than in the U.S.,
our steel consuming manufacturers are at a competitive
disadvantage. Jobs are being lost every day because prices in
the U.S. are higher than they would be without the tariffs.
LUS Steel Claims: Steel consumers have not been denied
important steel imports, because imports are higher for flat-rolled
steel than they were in 2001.
LThe Facts: Steel consumers need certain grades and
specifications of steel. Many cannot get them due to the
safeguard measures. Exclusions do not fill the gap. Aggregate
import levels do not change this fact. Indeed, a major reason
for increased imports of ``flat-rolled'' steel is the slabs and
hot bands that are used by the steel companies themselves. Even
steel companies, therefore, are steel-using manufacturers.
LUS Steel Claims: Inventory levels of flat-rolled steel
were higher at the end of 2002 than the end of 2001, meaning that there
were not shortages of steel.
LThe Facts: Increasing inventory levels from one year to the
next do not reveal whether companies suffered from steel
shortages during 2002. In fact, many companies did suffer
supply disruptions, and these continue.
LUS Steel Claims: Steel consumers aren't hurt by price
increases, because prices have come down from levels of last summer and
fall.
LThe Facts: Price levels in mid--to late 2002 had risen 50-70
percent for flat rolled products from January 2002 levels.
Steel users could not absorb these increases. Jobs lost
overseas, plus the general economic downturn, led to a decline
in demand, and prices moderated. But prices are still well
above 2001 levels, continuing to hurt steel users.
LUS Steel Claims: 201 tariffs are not hurting
manufacturing because the ISM Index has gone up 10 of the 12 months
since the steel tariffs were put in place.
LThe Facts: US Steel apparently is unaware of the serious
plight of US manufacturing. The ISM Index in March 2003 is at
its lowest level in nearly two years. The steel tariffs are
contributing to the malaise in US manufacturing.
Price ``Restoration'' Is Not a Measure of Success
U.S. steel producers have persistently tried to portray the damage
of steel tariffs to steel-using manufacturers as either non-existent or
a ``payback'' for ``unsustainably'' low steel prices in the past.
The underlying premise of the steel producers' argument is that
higher steel prices somehow help steel consumers, and that, in any
event, the dramatic steel price increases currently being visited on
steel users are somehow justifiable because prices are only at or below
their 20/22 year ``historical averages.'' CITAC STF rejects the notion
that the ``fairness'' of prices should be measured by their 20- or 22-
year averages. This is an obviously meaningless benchmark. Televisions,
computers cars, auto parts and many other products have been declining
in price for years. Productivity improvements and technological
innovation enable companies in many industries to reduce costs and, in
competitive markets, end product prices. Steel is no different from
other industries in this respect. Nor have the steel producers made any
connection between 20-year average prices and ``sustainable'' prices.
Steel users are largely unable to pass along price increases to
their customers. Several witnesses made this point on March 26. The
squeeze of sharply rising steel prices against product prices that are
not changeable puts steel using manufacturers at risk of destruction.
The steel safeguards, imposed by our own government, have sharply
aggravated this problem.
Steel as a production input should be priced by the market. In the
United States, the price must be comparable to prices charged in other
world markets. Higher prices will damage American manufacturers that
use steel by driving business offshore. This is precisely what is
currently happening in the U.S.
The steel producer witnesses on March 26 largely ignored the fact
that the safeguards inevitably hurt their customers. They cannot be
successful by imposing punishing price increases on their own
customers. The safeguard measures therefore are doomed to fail in their
goal of making the U.S. industry internationally competitive. They are
driving steel purchasers, and steel purchasing offshore--never to
return. While some may argue that long-term decisions are not based on
a three-year tariff program, our observation is exactly the opposite.
Thus, the longer the steel safeguard measures remain in effect, the
more damage will be done to consuming industries.
Exclusions Have Not Solved the Problems of Consuming Industries
While exclusions have benefited some steel consumers, the exclusion
process has not solved a primary concern of small- and medium-sized
steel-consuming businesses in the U.S.--reliable and competitively
priced steel.
The exclusion process has many shortcomings. The tariffs had an
impact on all steel, both imported and domestic. Steel consumers buying
100 percent of their steel from U.S. producers also experienced price
hikes, shortages and long lead times. Exclusions do nothing to help
these steel consumers. Also, exclusions do not benefit steel consumers
that buy steel from service centers. Finally, the process is complex--
some steel consumers cannot afford to apply for exclusions that are at
best uncertain.
Thus, the exclusion process cannot be viewed as a substitute for
resolving the challenges the steel safeguards pose for steel consumers.
Steel consumers who are continuing to suffer from prices and supply
shortages from the steel tariffs should not have to come to Washington
to buy steel.
The Safeguard Measures Have Served Their Purpose
Since the steel safeguard remedies were put into effect, the
following significant changes have occurred:
LThe U.S. steel industry has initiated significant
consolidation and restructuring.
LThe ``legacy'' costs of several bankrupt companies have
been reduced or eliminated.
LThe Administration has made significant progress in its
multilateral steel initiatives (especially defining subsidies).
To the extent these changes are a function of the tariffs (a
doubtful proposition, since the consolidation and restructuring were
poised to happen in any event), the tariffs have achieved a
considerable measure of success. Little purpose would be served,
however, by keeping the tariffs in place for another 18 months. Mergers
and acquisitions without plant closures are not helpful to the industry
since the excess capacity remains. To the extent that the tariffs allow
uncompetitive plants to come back on-line and produce longer, the
tariffs are, in fact, counterproductive to the long-term health of the
steel industry.
Efforts to reduce the world excess capacity of non-competitive
steel production are laudable (assuming governments of the world can
define what is ``excess'' capacity). However, steel using manufacturers
who are struggling now for their survival should not be held hostage to
this process. The steel negotiations have proceeded to the point where
they can clearly proceed without the ``stick'' of the tariffs--
especially when the tariffs have caused such harm to the economy as a
whole.
Conclusion
The Section 201 steel tariffs are clearly causing far more harm
than benefit to the U.S. economy. Thousands of American small
businesses are threatened, and the threat is worsening. All available
data support this conclusion. Yet until now, there has been no
government analysis of the impact of the steel tariffs on steel
consumers. We applaud the Committee's role in initiating such a study.
We now urge the Committee to monitor the progress of the study and the
statutory Mid-Point Review of the steel safeguard measures to assure
that the ITC and the President give full consideration to the effects
of this program on the entire economy.
CITAC STF stands ready to work with the Committee toward these
ends. We thank you for the opportunity to include our views in the
record.
______
[GRAPHIC] [TIFF OMITTED] 89863A.019
SOURCE: CRU Monitor, January 2003
Statement of The Honorable Jerry F. Costello, a Representative in
Congress from the State of Illinois
Thank you, Mr. Chairman, for holding this hearing and allowing me
to testify on the impacts of the Section 201 agreement on the domestic
steel industry.
President Bush's decision last year to impose temporary tariff
relief on behalf of the domestic steel industry has allowed for
substantial recovery of the domestic steel industry.
Since 1998, our domestic steel industry has been in crisis, with
the worst year coming in 2001. The fundamental cause of this crisis was
massive foreign overcapacity, which had caused the United States to
become the dumping ground for world excess steel products. As a result
of this, 35 steel companies have filed for bankruptcy, and over 50,000
American steel workers have lost their jobs.
In my home state of Illinois, the crisis has resulted in four steel
companies filing for bankruptcy, including Laclede Steel and the parent
company for Granite City Steel, which are in the Congressional District
I represent. Approximately 5,000 steel workers have lost their jobs in
Illinois alone.
In 2000, I joined my colleagues on the Congressional Steel Caucus
in urging the President to implement a Section 201 investigation by the
International Trade Commission to determine if our domestic markets had
been harmed by illegal dumping. I also testified before the ITC to
express my concerns regarding the steel crisis. The ITC ruled
unanimously that the steel industry had indeed been harmed.
While the ITC's decision was welcome, it didn't guarantee relief
for the domestic steel industry. That decision was left to the
President to determine what type of remedy should be afforded to the
industry. I was pleased that the President decided to impose the
tariffs, rather than quotas, which would not have been as helpful to
the industry.
In the past year, we have seen the positive results of the
President's decision to impose tariffs. The steel industry is beginning
to show signs of recovery. Prices are stabilizing and steel companies
are returning to profitability. The industry is restructuring and
consolidating. All of this has happened without hampering the
availability of competitively priced steel products. In fact, steel
imports were higher in 2002 than they were in 2001.
However, for the industry to continue its recovery, it is
imperative that as the Section 201 tariff measures are reviewed, they
remain fully enforced for at least three years as ordered by the
President, and that exemptions to the tariffs are limited.
I urge my colleagues to join me in supporting our domestic steel
industry by supporting the existing tariffs on foreign steel. This
support will allow for the continued recovery of this nation's domestic
steel industry.
Thank you, Mr. Chairman.
Statement of Dana Corporation, Toledo, Ohio
Dana is one of the world's largest suppliers of products and
systems for the automotive commercial and off-highway vehicle
manufacturers and their related aftermarkets. The company was founded
in 1904, and is headquartered in Toledo, Ohio. Dana employs
approximately 40,000 people in the United States and 60,000 throughout
the world.
Dana believes that it consumes approximately 1% of the total volume
of steel consumed in the U.S. per year. Of this amount, Dana estimates
that roughly 95% is sourced from United States sources. Dana,
therefore, has a major interest in the United States steel industry.
The Section 201 safeguard action has created very real hardships
for Dana, compromising its ability to realize an adequate return on its
investments, and in some instances, forcing Dana to utilize foreign
manufacturing options for some of its products that would otherwise
have been produced in the United States.
Overview
The vehicular supply industry has been under intense domestic and
international pressure in recent years. During this time, Dana has
undertaken the most aggressive restructuring effort in the company's
history. This has been a very difficult and painful process, but it has
been necessary in order for Dana to remain viable and competitive in
the global marketplace. Consequently, Dana is particularly sensitive to
the difficult decisions that must be made by the United States steel
industry as it undertakes changes that may be necessary for it to
adjust to international competition. While Dana appreciates the
difficulty of the restructuring efforts undertaken by the U.S. steel
industry, Dana does not support the imposition of safeguard duties, and
the corresponding increase in the price of steel.
Dana must buy steel. Dana's customers are unwilling to accept price
increases that reflect Dana's increased costs. Consequently, Dana and
similarly situated companies have borne nearly the entire burden of the
steel industry's restructuring efforts. This is an unfair burden on
Dana, its employees, and its shareholders, and compromises Dana's
ability to compete in the global marketplace.
The Scissors Effect
Dana operates in a global marketplace. Today's global vehicular
manufacturers can, and will, source their parts from any supplier,
foreign or domestic, that can reliably deliver quality merchandise at
the lowest cost. Therefore, Dana must ensure that its pricing is in
line with its competitors around the world. When confronted with
uncontrollable rising prices from either its domestic steel suppliers,
or its domestic component suppliers, Dana is caught in a dangerous
``scissors effect'' which diminishes Dana's ability to compete with its
global competitors.
As noted, Dana's customers have been unwilling to accept any price
increases from Dana in response to its higher steel costs. This
reflects the difficulties that the automotive industry is undergoing.
Indeed, manufacturers have been offering zero interest rate loans and
similar incentives to spur new car sales to counter the current
difficult economic environment. In fact, there has already been
testimony before this subcommittee indicating that wholesale prices for
motor vehicles actually fell by 2.2% last year. This demonstrates the
constant pressure on the automotive manufacturers to contain costs. In
light of this pressure, the automotive manufacturers simply will not
accept price increases from its suppliers.
Imported automotive components, modules, and assemblies not subject
to the safeguard duties add to the economic pressure encountered by the
U.S. automotive suppliers. Vehicular components manufactured off-shore
typically enter the United States at either very low duty, or duty
free. Thus, foreign suppliers have ready access to the United States
market while U.S. suppliers must compete with one hand tied behind
their back. This is true even where the foreign manufacturers use the
same foreign steel in their production that Dana may use in its
production. This creates the highly inequitable situation where Dana
must pay increased material costs for the identical material to produce
the identical component in the United States.
While Dana's customers require that it maintain, if not lower, its
prices, it is now also subject to cost increases as direct result of
the safeguard duties that it cannot refuse. For products such as
automotive stampings, where 80% of the cost of the product is
attributable to the cost of sheet steel, the safeguard duties have led
to huge increases in Dana's costs. Dana cannot refuse to pay its steel
suppliers these higher costs without risking cutoff of supply.
Similarly, where Dana subcontracts elements of production to smaller
subcontractors, those companies are typically not in position to
bargain with their steel suppliers, and are not financially able to
bear the rising cost if Dana refuses to accept the increase. Thus, Dana
must either absorb the increased price from its subcontractors, or
refuse to accept it, and likely drive these companies out of business.
Dana's Response to the ``Scissors Effect''
In response to this situation, Dana has been forced to go to
offshore sources to supply components when it is no longer possible for
the current suppliers to compete. For instance, Dana's Commercial
Vehicle Systems division has awarded 90% of its new steel containing
component supply subcontracts to offshore producers. This is an
unprecedented volume of component supply contracts to be sourced
offshore, and includes components that had been manufactured in the
United States for a majority of the last century. Similarly, Dana's
Automotive Systems Group has already begun to purchase some steel
containing components from overseas, switching away from suppliers that
use U.S. steel content. Dana's Automotive Systems Group is expected to
triple its offshore purchases of finished steel components in the near
future.
It is important to note that the ``scissors effect'' is not only a
tremendous burden on Dana and companies like Dana, but it is also
inequitable. Dana has been undergoing a significant restructuring to
ensure that the company puts itself in as good a position as possible
to compete in its market. There has been no governmental or other
outside subsidization of this activity. Instead, the burden of Dana's
restructuring has fallen on Dana its employees, and shareholders. Now a
disproportionate amount of the steel industry's efforts to restructure
are also falling on Dana and companies like Dana. This additional
burden is simply not fair.
Domestic Disruptions to Dana's Production
At the same time that Dana is facing the ``scissors effect''
described above, it has experienced serious operational disruptions in
its United States manufacturing plants as a result of long lead times
for steel orders, and the inability, in many cases, of the domestic
steel producers to react to changing customer schedules. Since the
imposition of the steel duties, Dana has experienced more production
interruptions than at any other time in the company's history. The
ripple effect of this is tremendous. In several instances, while Dana
waited for its suppliers to replenish their steel inventories, Dana's
production was disrupted, while suppliers were forced to close their
facilities until steel could be procured. In these instances, idled
workers are typically not paid.
In order to try to minimize these sorts of disruptions in both
Dana's production, and the production of its customers, Dana has been
forced to more than double its raw steel inventory investment. This
action is very costly. First, the necessity of maintaining this volume
of inventory has had serious negative effects on both Dana's operating
cash flow and working capital. Also, Dana's ability to purchase new,
more efficient manufacturing equipment and invest in research and
development is significantly decreased.
Conclusion
As Dana seeks to maintain its global competitiveness and
profitability, it cannot stand idly by in the face of rising costs that
cannot be passed on to its customers, disruptions in its production
capabilities, and the enormous costs of inventory maintenance. Dana has
no choice but to explore shifting more manufacturing abroad and
importing finished components. By the time the tariffs expire according
to the present three year schedule, it is likely Dana will have already
shifted significant production overseas to minimize the impact of the
safeguard tariffs on its operations. Such unavoidable production shifts
will result in Dana purchasing correspondingly less United States made
steel. This will also result in the tremendous disruption and
dislocation of both Dana employees, and employees of Dana's U.S. based
suppliers.
For the reasons stated above, Dana believes that the steel
safeguard duties are having tremendous unintended negative
consequences, and are bad for both the domestic consumers of steel, and
domestic producers of steel.
Statement of Emergency Committee for American Trade
Chairman Crane, Representative Levin, Members of the Trade
Subcommittee of the House Ways and Means Committee, the Emergency
Committee for American Trade (ECAT) is an association of the chief
executives of major American companies. Three decades ago, at a
difficult and challenging time in U.S. trade policy, David Rockefeller
and other prominent U.S. business leaders founded ECAT to promote U.S.
economic growth through opening doors to U.S. trade and investment.
Today, ECAT's members include many of America's largest global
companies. We represent all of the principal sectors of the U.S.
economy, including manufacturing, finance, agriculture, and services.
Our companies have annual sales of nearly $2 trillion, and employ over
5 million people.
ECAT wants to express our appreciation for the Ways and Means
Committee's bipartisan leadership on trade and for the Subcommittee's
decision to hold a hearing on the impact of U.S. steel safeguard
tariffs on America's steel-consuming industries. For decades, this
Committee has been at the forefront of efforts to liberalize U.S. trade
and build a strong, open, rules-based global trading system through the
GATT and the WTO. The Committee can be justly proud of the many
accomplishments of U.S. trade policy, including the Tokyo Round
Agreement, the Uruguay Round Agreements, the North America Free Trade
Agreement, Permanent Normal Trade Relations with China, and the GATT/
WTO system itself.
The U.S. integrated steel industry is not alone in facing global
competition. In the 1980s, at a time when many experts believed that
the United States was in the midst of a precipitous economic decline,
the Ways and Means Committee challenged America's major companies to
rebuild U.S. economic leadership. Our ECAT companies worked with this
Committee to meet this challenge. We embraced innovation and change;
adopted best practices from around the world; pioneered six sigma
quality controls; invested in innovative products and technologies; and
accepted the unrelenting discipline required to compete and win in the
global marketplace. Today, the United States is again recognized as a
global leader in manufacturing, finance, agriculture, and services, and
the U.S. economy is viewed as the world's key economic engine. American
companies succeeded in meeting these challenges by embracing
competition, innovation, and globalization, not protectionism.
These are not easy times. American manufacturing and agriculture
are in the midst of a prolonged economic downturn. Sales are flat, even
at leading U.S. companies. America's consumers are worried. In February
2003, over 50,000 U.S. factory jobs vanished. The European and Japanese
economies are also struggling, and may require long-term structural
reforms. As a result, overseas demand for U.S. products is likely to be
uncertain for some time. Even the best U.S. companies face intensifying
global competition, and the looming threat of price deflation in some
overseas markets.
Despite these challenging times, we at ECAT are confident that once
a sustained global economic recovery takes hold, America's leading
businesses will again prosper, creating good high-paying jobs and
renewed U.S. growth, if the United States continues to adhere to sound
economic principles, such as our traditional support for open trade and
investment policies in the United States and around the world.
Mr. Chairman, the long-running debacle of steel protectionism
underscores that trade protection for one sector of the U.S. economy
can have serious consequences for other industries and for tens of
thousands of American manufacturing workers, who are hammered by the
unintended consequences of government intervention. The steel industry
has benefited from various forms of trade restrictions for over 30
years. Such protection has accomplished little, since the integrated
steel industry is facing problems other than imports: most notably, the
sustained market share gains by U.S. mini-mills and massive and
economically unsustainable pension and health care obligations owed to
retirees from commitments that were made decades ago.
The bottom line is: a sustained U.S. economic recovery requires a
healthy U.S. manufacturing sector, and a healthy American manufacturing
sector requires a timely end to steel protectionism.
ECAT's member companies produce some of America's best-known
industrial products--construction equipment, electric motors, tools,
household appliances, food processing machinery, and automobiles. Our
factories go head-to-head with competitors from around the world. There
are over 3.1 million workers employed in America's steel-consuming
industries, compared to just under 200,000 in the integrated steel
industry, over half of whom are employed by highly efficient and
competitive U.S. mini-mills.
The U.S. steel industry cannot prosper if protectionist steel
tariffs continue to undermine America's vital manufacturing base and
drive its key customers offshore. Our members include some of America's
best-known companies. These companies are also huge steel purchasers
and among the American steel industry's best customers. The
overwhelming majority of steel purchases by many ECAT companies have
traditionally come from domestic mills. Our members have longstanding
supply relationships with many American integrated steel producers. We
know that the steel industry wants the best for their workers and
shareholders, just as we do for ours.
However, the current trade protection for the steel industry poses
a real and imminent threat to the rest of American manufacturing and to
tens of thousands of high-wage, highly-skilled American workers whose
jobs are now at risk.
Last year, U.S. steel tariffs were increased by 30 percent on many
categories of imports under Section 201 of the Trade Act of 1974, as
amended. Despite repeated assurances to the contrary, the results of
steel protectionism have been devastating for some of America's major
industrial companies.
The prices of some key steel products--inputs that are vital to the
competitiveness of American steel-consuming industries--quickly
skyrocketed by nearly 45 percent. While prices have since declined
somewhat subsequently, U.S. steel-consuming manufacturers continue to
pay much more for their steel and steel components than competitors in
Europe, Japan, Brazil, Asia, Russia, and Latin America. The result has
been an increase in imports of many steel-intensive products.
Because of widespread shortages, U.S. steel producers put even
longstanding loyal U.S. customers on ``allocation.'' While large steel
purchasers were supposed to be insulated from the 30 percent tariffs by
their 3-year supply contracts, this expectation also proved wrong.
Quickly after the adoption of the 30 percent safeguard tariffs, pricing
and on-time delivery came under pressure. U.S. steel producers tore up
many existing contracts and insisted on hefty price increases. Supplies
of many key grade and gauge combinations became difficult to obtain
from U.S. producers, even under the clear terms of written supply
agreements. We believe that the primary reason was that U.S. steel
producers diverted steel into the higher-priced spot market in order to
reap a quick, short-term profit.
If the price of one of its key input goes up, a U.S. manufacturing
company must cut costs elsewhere to remain competitive. If prices for
our U.S.-manufactured products are not competitive, our European,
Canadian, Japanese, Chinese, and Brazilian companies will win our
customers. In many cases, such ``adjustments'' mean laying off loyal,
hard-working U.S. employees, negotiating further cost reductions with
our key U.S. suppliers, and when we have no absolutely other choice,
moving production and sourcing offshore to an overseas plant which has
access to cheaper steel.
ECAT companies have some leverage because of our size and large
steel needs in dealing with U.S. steel mills, but we are also concerned
about our network of small parts and component suppliers. Every large
U.S. manufacturing company depends on hundreds of small, often family-
owned businesses to supply parts and components. We have worked with
these small U.S. suppliers for many years. We trust them to supply
high-quality inputs for American industrial products. These
relationships are vital to our competitiveness and quality, and cannot
easily be replaced. Without a network of trusted suppliers, we cannot
meet our commitment to build high-quality cars, construction equipment,
appliances, and farm machinery that meets our customers' needs at a
price they can afford. Today, because of protectionist Section 201
tariffs, many small U.S. steel fabricators and U.S. auto parts
companies are being ravaged by price-increases and widespread shortages
triggered by safeguard tariffs. Because small U.S. companies typically
lack the leverage and finances to negotiate long-term supply contracts,
they are at the mercy of the steel spot market, where prices fluctuate
rapidly.
ECAT is deeply concerned that America's steel predicament could
worsen shortly. There are reports that the United States may have lost
a key WTO ruling regarding the Section 201 steel safeguard, and copies
of the draft ruling are circulating on the Internet. This outcome would
not come as any surprise. Experts have long pointed out that the GATT/
WTO safeguard rules were designed for situations where increasing
imports are causing serious injury, but the U.S. International Trade
Commission found serious injury even though imports of flat-rolled
steel products declined during the period of investigation. The remedy
chosen by the Administration also went well beyond even the
recommendation by the Commission majority of a 20 percent tariff. It
should come as no surprise if the WTO were to approach the U.S.
safeguard with a high degree of skepticism.
If the United States were to lose a WTO ruling, we must either
comply by lifting the safeguard tariffs, or face potential WTO-
sanctioned retaliation against billions of dollars of America's leading
industrial and agricultural exports. This would be a disaster for
America's trade. In effect, the United States would be required to
sacrifice our most globally-competitive export industries--
manufacturing, high-technology, and agriculture--in order to continue
to protect an industry which does not compete significantly in foreign
markets.
We believe that there's got to be a better way. ECAT has the
following preliminary recommendations:
First, a key objective of the Section 201 safeguard tariffs was to
support a fundamental restructuring of bankrupt integrated steel
companies. It is clear that this process is already well underway, and
that this process, moreover, is primarily being driven by the hard
realities of the bankruptcy process. Because the finances of the
integrated producers are no longer sustainable, the industry is finally
making the tough decisions that were avoided for decades, such as
closing antiquated mills, seeking to reduce its massive pension and
health care liabilities, cutting costs, and seeking to compete
globally, as opposed to focusing exclusively on supplying the U.S.
market. These difficult steps, which were implemented by other American
manufacturers twenty years ago, should eventually make the industry
leaner, more efficient, and more globally competitive.
A continuation or expansion of government protection will
undermine, not advance, the restructuring process by encouraging the
reopening of bankrupt mills, expanding excess U.S. capacity, driving
down prices, discouraging cost-cutting and needed efficiencies, and
encouraging the industry to continue to focusing on lobbying the
government for additional protection, as opposed to getting its
economic house in order. We, therefore, seek the elimination of these
tariffs as soon as possible.
Second, we applaud the strong leadership from Chairman Thomas and
Representative Knollenburg in requesting the U.S. International Trade
Commission (ITC) to investigate the impact of steel tariffs on
America's steel-consuming manufacturing industries. The failure of our
trade laws to take account of the downstream costs of trade
protectionism for other American manufacturers is a slap in the face to
tens of thousands of U.S. companies and U.S. workers, whose jobs are on
the line. We urge the ITC to thoroughly review the impact of steel
tariffs on steel-consuming American industries as part of the Section
332 investigation requested by the Ways and Means Committee, and the
President to take these concerns into account as part of his Mid-Point
review of the steel import safeguards under Section 204 of the Trade
Act of 1974.
Third, we support Chairman Crane's recommendation that the
Administration work with steel-consuming manufacturers to address the
burdens imposed by the Section 201 safeguard tariffs. While we
appreciate the Administration's willingness to consider product
exclusions when key steel inputs are not available from U.S. producers,
this process is not a substitute for an end to steel protectionism.
Instead of product exclusions, a far better approach would be to
include America's steel-consuming manufacturing industries in the
decision-making process.
Finally, we believe that the best way to support a restructuring of
the integrated industry would be to explore innovative approaches to
assisting dislocated workers and retirees. It is becoming increasingly
clear that the benefits of steel protection for workers and retirees
are illusory. Given their unsustainable financial circumstances,
bankrupt integrated steel producers have little choice but to reduce
current employment and shed massive unfunded pension and health care
obligations. While the restructuring process will lead to the
consolidation of the integrated steel sector into a handful of
globally-competitive and financially viable producers that can compete
with the U.S. mini-mills, the beneficiaries will be astute investors
and turn-around specialists, not steel workers or retirees.
Protectionism won't bring these jobs back or restore lost benefits. We
believe that more innovative approaches than protectionism need to be
developed to promote the long-term restructuring of these industries,
while providing needed assistance to their workers and retirees.
Congress undertook just such an innovative approach in the Trade Act of
2002 with respect to the major reforms to the Trade Adjustment
Assistance programs. It can and should be done again here.
Last year, in a speech to factory workers in Moline, Illinois, the
President said: ``Fearful people want to build walls around American.
Confident people want to tear them down. . .I'm confident we need to
open up markets, not close them.'' We agree.
In these difficult and uncertain times, the world needs strong U.S.
leadership on trade, not protectionism. Because of this Committee's
leadership on free trade and free markets, the U.S. economy is the most
open, prosperous, innovative, and dynamic in the world. We urge the
United States and other steel-producing nations to intensify their
efforts in the OECD to reduce excess global steel capacity and refrain
from a dangerous protectionist spiral. We urge the Administration and
the Congress to redouble U.S. efforts to open markets, strengthen the
rules-based global trading system, and bring the benefits of free trade
and open markets to millions of people around the world. Such
leadership requires a new approach to U.S. steel policy.
Statement of Energizer Battery Company, St. Louis, Missouri
I. Background
On March 5, 2002, pursuant to Sec. 203 of the Trade Act of 1974,
President Bush announced a series of trade measures to protect the U.S.
steel industry against competition from foreign steel imports. As a
result of the ensuing International Trade Commission (``ITC'')
investigation, additional import duties were imposed upon steel
products--ranging from 8 percent to 30 percent on nine broadly defined
categories of steel. The additional duties against imported steel took
effect on March 20, 2002. The duty rates are scheduled to decrease
until phased out after three years and one day (March of 2005).
While the Administration's plan to protect the domestic steel
industry excluded free trade agreement partners from the remedy as well
as certain developing countries, the bulk of imported steel products
are covered by the additional 201 steel import taxes. Because the steel
products covered by the 201 duties are so broadly defined by the 201
investigation and because the products of countries with specialized
and unique steel production capacities are included in the 201
penalties, many domestically unavailable steel products upon which U.S.
steel consumers rely were included in the Section 201 case.
The overly broad scope of the 201 steel duties has negatively
impacted U.S. steel consumers--resulting in economic and employment
burdens for U.S. manufacturers and their employees. While the USTR has
granted product exclusions to those steel consumers who have the
wherewithal and the resources to seek an exclusion for products that
the domestic steel industry does not or cannot produce, the domestic
steel industry has opposed many of these exclusion requests with
inflated or unsubstantiated claims that they can or do produce some of
the products for which exclusions have been requested.
In accordance with section 204 of the Trade Act of 1974, the
International Trade Commission is scheduled to release a mid-term
review of the safeguard measures by September 20, 2003. The Commission
must admit that the United States' domestic manufacturing community,
which relies upon access to a global free market for steel, has been
injured by the 201 case's overly broad inclusion of products that the
domestic steel industry does not or will not produce.
The ITC's determination that imported steel constituted a primary
cause of serious injury to the domestic steel industry failed in two
respects. First, the ITC failed adequately to include product
exclusions in its decision. Second, the ITC decision failed to consider
whether other causes of injury to the domestic steel industry i.e.
massive legacy costs, caused more of the steel industry's current
status than imported steel products.
Unfair trade practices by foreign steel producers have been
assertively investigated and neutralized through the application of
antidumping and countervailing duties for decades. The purpose of those
duties is to level the playing field so that foreign steel products
received no market advantage and domestic producers suffered no
corresponding disadvantage from the unfair practices. The 201
investigation, by its nature, admits that domestic steel requires help
despite the lack of unfair trading practices. However, the ITC
investigation focused on the depth of injury that the domestic steel
industry has suffered, not its actual causes nor the likely costs of
201 duties to the greater United States economy.
Energizer supports a healthy domestic steel industry and would
welcome a domestic producer's entry into a niche steel market, known as
Battery Quality Hot Band. However, in the spirit of free trade, open
competition, and healthy U.S. manufacturing bases, the ITC's mid-term
review should admit that the Section 201 steel remedy applied tariffs
to steel products that were too broadly defined. In accordance with
that conclusion, the Subcommittee on Trade should recommend that the
remedy be more narrowly tailored so as not to unduly burden U.S.
consumers of steel products.
Because no domestic steel mill produces the steel product upon
which domestic battery producers rely, a product exclusion was
solicited. Certain members of the domestic steel incorrectly based an
opposition to the exclusion request upon an unsupported claim that a
domestic producer makes the product. No one has approached Energizer
with product and, when Energizer requested product sample in 1994, the
domestic product failed the same quality specifications that steel
imported from the Netherlands has consistently satisfied. In spite of
the domestic industry's lack of interest in making the product, the
USTR and Department of Commerce refused to grant an exclusion for
Battery Quality Hot Band, but, instead, granted a tariff rate quota
that allows for exclusion from 201 duties for the first 25,000 metric
tons of product to enter on an annual basis.
II. Effects of the Section 201 Steel Action Against Domestic Battery
Producers
Steel used in battery can production must satisfy out-of-the-
ordinary product purity and quality requirements. Domestic battery
producers rely upon a specialized steel product known as Battery
Quality Hot Band (``BQHB''). BQHB is an extremely pure steel product
that is essential to making battery cans.
Battery cans are the cylindrical, steel tubes that most consumers
recognize as giving a battery its recognizable shape. More importantly,
the use of BQHB in the manufacture of battery cans is crucial for
product safety, quality, and reliability. Battery cans are functional
parts of batteries that not only play a role in the distribution of
energy, but also protect users from injury that could be caused by the
release of substances contained within the batter can. Use of inferior
materials may result in increased battery rupture and leakage.
BQHB is not available from domestic steel producers.
Energizer's understanding of battery production is second to none.
Energizer produces more than 6 billion primary batteries annually and
has been producing and selling alkaline batteries in the United States
since the mid 60's. In fact, the inventor of alkaline batteries, Lou
Urry, still works for Energizer. Of the 6 billion batteries produced
annually, all alkaline batteries (or approximately 4 billion) utilize
BQHB steel for indispensable reasons generally described as safety and
quality reasons.
Battery cans are pressure vessels which interact, directly and
indirectly, with caustic substances contained within the battery. This
interaction along with the physical stresses that battery cans endure,
such as being dropped and naturally existing within a corrosive
environment, requires hot-rolled steel that is extremely pure, clean,
and workable. We believe that our standards have allowed Energizer's
brand names, ``Eveready'' and ``Energizer,'' to become synonymous
throughout the world with quality, reliability and safety.
Energizer's research shows that no U.S. domestic producer has the
combination of capability and interest to produce battery-quality
steel. In 1994, Energizer conducted domestic sourcing and testing
investigations. Our testing showed that the use of domestic hot-rolled
steel for battery-can manufacture significantly increased the incidence
of battery failure and leakage.
Leakage of potassium hydroxide, which is contained in all alkaline
batteries, has, in the past, resulted in severe, acid-like burns to
those who have come into contact with it.
Battery leakage can cause human contact with dangerous battery
substances. For example, small children may not be aware that battery
leakage should not be ingested or placed in contact with one's eyes.
Additionally, battery leakage or ruptures may also damage the devices
into which the batteries are incorporated, making them inoperable.
Given the extreme range of use of Energizer batteries, quality issues
easily overlap with safety issues. For example, emergency devices may
be battery powered. Battery failure due to poor quality battery can
material could also create a safety concern.
Consumers of specialized steel products that are not available
domestically have been placed in the unenviable position of bearing the
substantial costs of the 201 case for products that do not injure the
domestic steel producers because the domestic industry lacks the
interest or the ability to produce these products. The cost to the U.S.
battery production industry has been great, there are no corresponding
benefits to domestic steel producers.
a) The Section 201 Duties Have Been Applied Too Broadly
As stated above, there is no domestic source of BQHB. Energizer has
tested domestic product. It has failed to pass the same tests that
certain, high-quality, foreign products pass. The product
specifications are not arbitrary. They are directly correlated to
battery quality and safety.
Section 201 duties are not imposed in retaliation for unfair trade
practices. They are extreme measures that our WTO trading partners have
challenged before international dispute resolution bodies. Our
international obligation is to impose these extreme measures in a
targeted manor that avoids unnecessary damage to other industries (both
foreign and domestic) where the intended beneficiaries, U.S. steel
producers, receive no benefit.
U.S. steel producers cannot and do not benefit from 201 steel
categories that are so broadly defined that they include products like
BQHB. It is the responsibility of the U.S. steel producers and the duty
of the ITC to narrowly tailor Section 201 duties to avoid collateral
damage to U.S. steel consumers. The ITC's mid-term review must refine
the scope of the 201 duties to completely exclude BQHB.
b) LThe Costs of the Section 201 Steel Duties to Domestic Battery
Manufacturers have Outweighed any Corresponding Benefits to the
Steel Producers
Section 201 duties have made U.S. steel the most expensive steel.
The duties have artificially inflated prices in the United States to
levels far exceeding the global steel market's free trade prices.
However, Energizer and most domestic battery producers are American
companies that must compete in the global arena.
The 201 duties have created an uneven playing field where domestic
battery producers must pay exaggerated prices for raw materials, but
their foreign competitors do not. A review of the testimony provided
before the Subcommittee by those who support the 201 duties repeat two
points. First, the 201 case is part of a larger steel initiative that
seeks to remove distortions from global steel markets by removing
excess global capacity. Second, the initiative sought to effect this by
increasing steel prices, and domestic steel prices have increased. The
failure of 201 steel duties is evidenced by the interplay of these two
governing objectives.
While the initiative seeks to remove global market distortions by
artificially inflating domestic prices, there is neither testimony nor
indication that global steel markets outside of the United States have
been proportionately impacted by the 201 duties. There is no evidence
that excess foreign capacity is diminishing or that it will diminish
during the next two years. Continuing along the present course will
increase costs for domestic producers without significantly impacting
the March 2005 global steel production capacity. While the present
duties have failed to promote the desired impact, given the testimony
about the negative impact on the U.S. economy, increasing them is out
of the question.
The increased costs to domestic steel consumers, caused by the 201
environment, disproportionately decreases the competitiveness of
manufacturers without any real proof that domestic steel will be able
to compete in the global market. Free trade decisions in the present
recessed economy have been complicated by strong dollars, escalating
health cares costs, and foreign competition. They have been distorted
by 201 duties directly and indirectly. The direct price increases are
readily apparent. The indirect distortions of 201 have damaged long
term relationships with reports of broken supply contracts, supply
shortages, allocations.
The costs of producing batteries domestically have increased even
with the granting of a tariff rate quota for some quantities of BQHB.
The costs of acquiring exclusions are substantial. TRQ's tend to
inspire ``races to the port,'' where buyers abandon established,
rational supply schedules and attempt to lock-in all purchases at or
near the time when the tariff quota first opens. This decreases a
company's market responsiveness throughout the year and escalates
inventory costs. The dollar costs to domestic battery producers exceed
the large percentage increases that would apply to over quota steel.
The indirect costs are substantial, as well.
c) LForeign Battery Producers Have Benefited from the Section 201
Duties against Battery Quality Hot Band, Not the Domestic Steel
Industry.
Only one group has benefited from the 201 process that sought to
impose up to 30% duties on BQHB, then required a lengthy exclusion
petition process, and finally resulted in a tariff rate quota. Foreign
battery producers have benefited. No one else.
Domestic steel producers do not make or sell BQHB. The domestic
mills do not receive additional sales or revenue for 201 steel products
they do not sell. Domestic battery producers have endured upward
pricing pressure despite the tariff rate quota exclusion for limited
quantities of BQHB. Foreign battery producers have access to BQHB
without paying 201 duties. Foreign battery production is not a novel
idea or in its infancy. It is a well-established industry that is
perfectly situated to enjoy the competitive advantage that the 201
duties have handed to it.
While domestic battery producers have incentive to remain in the
United States because batteries marked ``Made in the USA'' are
perceived to enjoy a marginal competitive advantage in certain domestic
markets, the corresponding disadvantage would disappear if the
production of high-quality batteries were moved to foreign locations.
It is Energizer's opinion that all major domestic battery producers
already have foreign production facilities. A shift to foreign battery
production could occur rapidly--much more rapidly than a return to
domestic production.
III. Conclusion
The Section 201 duties have disproportionately damaged domestic
battery producers when compared to the negligible benefits to the
domestic steel industry, if any. The 201 duties have not been well
targeted or responsibly applied. Energizer supports a stronger domestic
steel industry and notes that the costs discussed above are harmful,
but unintentional. The 201 duties are not producing a stronger domestic
steel industry that would be significantly more competitive in the
global steel market of March 2005. It is damaging U.S. manufacturers
who depend upon access to globally competitive steel markets. Foreign
competitors, more than anyone else are benefiting from the increased
costs that American manufacturers have endured.
U.S. steel producers have cited consolidation as a major effect of
the 201 case. The merits of consolidation are highly debatable in a
society that champions anti-trust laws and believes in free
competition. Legacy costs, such as unfunded pension funds, are probably
more significant causes of the current steel industry's status. Section
201 duties are inappropriate solutions to these causes. Antidumping and
countervailing duty investigations are more appropriate to help the
domestic steel industry protect itself from unfair trade.
The domestic steel industry has benefited from a long history of
antidumping and countervailing duties. If the industry failed to
compete in that leveled playing field, the 201 duties will also fail.
The 201 duties have been more damaging to other sectors of our economy
than AD or CVD's. They have done more harm than good.
Statement of Ramzi Hermiz, Federal-Mogul Corporation, Southfield,
Michigan
Mr. Chairman and members of the Subcommittee, on behalf of Federal-
Mogul Corporation I would like to thank you for the opportunity to
submit these comments regarding the impact of the Section 201 steel
tariffs on our company.
Federal-Mogul Corporation is a $5.5 billion global supplier of
automotive components and sub-systems serving the world's original
equipment vehicle manufacturers and the aftermarket. Headquartered in
Southfield, Michigan, Federal-Mogul was founded in Detroit in 1899 and
today employs 47,000 people at 130 manufacturing plants in 24
countries. Federal-Mogul employs 20,000 people at 40 manufacturing
plants in 21 U.S. states, including Michigan, Pennsylvania, Ohio,
Illinois and Indiana.
Familiar Federal-Mogul brands servicing the aftermarket include
Champion spark plugs, Anco windshield wipers, Moog chassis
components, Fel-Pro automotive gaskets, Sealed Power engine
components and Wagner brake and lighting products. The majority of
parts manufactured by Federal-Mogul are produced from steel. These
parts include automotive sealing gaskets, engine bearings, brakes,
rings and liners, and chassis components.
Federal-Mogul consumes approximately 300,000 tons annually in
direct steel purchases or $135 million. We consume another $512 million
annually in indirect steel purchases from stampings, castings, forgings
and other steel-related component parts. Approximately 80 percent of
the steel Federal-Mogul consumes globally is purchased from domestic
steel suppliers and over 96 percent of Federal-Mogul's domestic
consumption is purchased from domestic sources. Federal-Mogul supports
a strong and profitable steel industry. It is obvious from the above
that our global operations depend on it.
Since the advent of the Section 201 steel tariffs, Federal-Mogul
has experienced significant price increases on direct steel purchases
as well as for indirect purchases in the steel-related components it
buys. Federal-Mogul's firm pricing contracts have been broken by many
of its steel suppliers in favor of higher pricing. Approximately 90
percent of Federal-Mogul's major steel supply contracts were broken,
shortly after the implementation of the Section 201 in March of 2002.
As a result, we have seen price increases as high as 30 percent. On
some manufactured products, such as brake friction components, the raw
material portion represents 50 percent of the total cost of the
product. A 30 percent steel price increase therefore represents a 15
percent direct price impact in the total cost of these products. Our
customers will not and have not accepted any price increases related to
steel. On the contrary, they expect year-over-year decreases in the
price of our products. Needless to say, this results in an extremely
challenging situation requiring drastic measures to resolve.
Federal-Mogul, like all other OEM automotive suppliers, relies on
consistent and competitive production supply to survive and compete in
a global marketplace. Our customers, vehicle manufacturers, Tier-1
automotive suppliers and aftermarket distributors, demand high-quality
products at competitive prices and in most instances, just-in-time
delivery. We pride ourselves on meeting those challenges. Yet, over the
past year, as a direct result of the steel tariffs, we have experienced
an interrupted supply of steel that has jeopardized our ability to
serve our customers. On several occasions we have drawn close to
shutting down a vehicle manufacturer's production line as a direct
result of a steel shortage. We find this unacceptable. In some
instances we have incurred significant and unrecoverable production
costs to maintain a consistent production supply to our customers. Due
to the reduced volumes of steel available over the past several months,
Federal-Mogul has been forced, on a number of occasions, to pursue
additional capacity on the spot market at significantly higher prices--
in some instances at a premium of 100 percent.
In this environment of rising steel prices, Federal-Mogul has
pursued and will continue to pursue a number of strategies, drastic in
some cases, aimed at mitigating these price increases. Federal-Mogul,
unlike the majority of small domestic automotive supplier businesses,
can produce identical products and systems at our sister plants in
Mexico, Europe, Eastern Europe and Asia. This manufacturing flexibility
affords us the opportunity to shift production overseas, thereby
avoiding tariffs by importing Federal-Mogul produced finished goods
into the U.S., manufactured from steel that is more globally
competitive. In many cases we are also able to supply to OEM customers
who have increased their manufacturing capability in these established
regions.
We are also aggressively pursuing alternative sources for steel.
Recently we returned from a trip to Eastern Europe to pursue steel
suppliers in a region consisting of countries that are exempt from the
Section 201 steel tariffs. We have been quoted prices from suppliers in
this region that remain extremely competitive to pre-Section 201 market
pricing.
Both of the actions briefly described above will ultimately result
in the loss of manufacturing jobs in the U.S., including steel industry
jobs. The current policy has had serious unintended consequences on the
automotive supplier industry as well as other steel-consuming
industries in the U.S. Consideration must be given to a policy that
seeks to strengthen not only the steel industry but the manufacturing
industry as a whole. The current Section 201 is not accomplishing this.
It is simply transferring this burden from one industry to another that
quite frankly cannot absorb the impact.
Federal-Mogul Corporation, along with the Motor and Equipment
Manufacturers Association (MEMA) strongly supports House Concurrent
Resolution 23, introduced by Congressman Joe Knollenberg (R-MI) on
January 29, 2003 and supported by 73 Republican and Democratic co-
sponsors. Federal-Mogul would also like to thank the House Ways & Means
Trade Subcommittee for its decision to request a 332 investigation on
behalf of the U.S. steel consuming industry. The 332 ``fact finding''
investigation will result in the much-needed assessment and evaluation
of the impact the Section 201 has had on the steel consuming industry.
Finally, on behalf of Federal-Mogul, I would like to thank Chairman
Philip Crane of the House Ways & Means Trade Subcommittee for the
opportunity to express our views on the Section 201 steel tariffs.
Please feel free to contact me with any questions or comments.
Gross-Given Manufacturing Co.
Saint Paul, Minnesota 55107
April 1, 2003
The Honorable Phil Crane
Chairman, Trade Subcommittee
House Committee on Ways and Means
Washington, DC 20515
Dear Chairman Crane:
I am writing on behalf of my company, Gross-Given Manufacturing Co.
We are located in St Paul, Minnesota and we employ 300 workers
producing glassfront snack-vending equipment. Our production workers
are members of local 1042 CWA/IUE. I am writing to you to request your
help.
The steel tariffs imposed by the President last March were intended
to provide the domestic steel industry with protection from imports and
an opportunity to restructure in order to become competitive on a
global scale. Instead, they have unfortunately resulted in dramatically
higher prices, longer delivery times, shortages, allocations and lower
quality for steel consumers.
Gross-Given Manufacturing Co. processes 8 million pounds of steel
annually. Since the implementation of the steel tariffs, we have
experienced a 30% increase in our steel costs and longer delivery
times, which required us to increase our steel inventories by 20%. We
have also experienced lower quality steel, which increases our setup
times and our scrap rates. Due to foreign competition in our markets,
we are unable to pass these costs on to our customers. Thus, we find
ourselves struggling to stay competitive. We not only lack the capital
to reinvest into the business for future growth; we are forced to look
overseas for cost saving solutions.
Unless things change very soon, Gross-Given Manufacturing Co. will
continue to lose market share to foreign competition that now has a
built in cost advantage. I believe these tariffs should be removed at
the earliest possible time to prevent further damage to the steel using
economy.
Thank you for your consideration.
Sincerely,
Jack Flynn
Vice President-Manufacturing
Guarantee Specialties, Inc.
Cleveland, Ohio 44108
March 25, 2003
The Honorable Phil Crane
Chairman, Trade Subcommittee
House Committee on Ways and Means
Washington, DC 20515
Dear Congressman Crane:
I am writing on behalf of my company, Guarantee Specialties, Inc.
and its Garvin Division. We employ 33 people in Cleveland, Ohio and 25
people in Adamsville, PA. Our production workers are members of UAW
locals 70 and 204. We need your help.
The steel tariffs imposed by the President last March, which were
intended to provide the domestic steel industry with protection from
imports and an opportunity to restructure in order to become
competitive on a global scale, have unfortunately resulted in
dramatically higher prices, longer delivery times, shortages,
allocations and lower quality for steel consumers. Some of our lead
times have increased by 50%, we have had numerous rejections of
material for quality specifications and recently have had a supplier
tell us that they will no longer be able to supply a raw material that
we use for one of our higher volume parts. Attrition has prevented
layoffs, but the fact of the matter is that we now employ fewer
regular, full-time people than we did and make no use of temporary help
when we used to use as many as 12 temporary workers per day between our
two plants.
As a result of the tariffs, my company has incurred expenses that
have forced us to lose some or all profitability from various products.
We have lost one customer
and are considered to be in bad standing with another. Unless things
change rapidly, my company will lose more business to foreign
competition that now has a built-in cost advantage, thanks to the
actions of our own government. I believe these tariffs should be
removed at the earliest possible time to prevent further damage to the
steel-using economy.
Thank you for your consideration.
Sincerely,
Frank R. Makar,
Materials Manager
Hearth, Patio & Barbecue Association
Arlington, Virginia 22209
April 3, 2003
The Honorable Philip M. Crane, Chairman
Subcommittee on Trade
Committee on Ways and Means
United States House of Representatives
Washington, D.C. 20515
Re: LStatement for the Record--``The Impact of Section 201 Safeguard
Action on
Certain Steel Products'' Hearing, March 26, 2003
Dear Chairman Crane:
On behalf of our more than 2,400 members, representing
manufacturers, distributors, and retailers of fireplaces, woodstoves,
and barbecue grills, I appreciate the opportunity to provide our
comments on the impact of the Section 201 tariffs on certain steel
products to the Subcommittee on Trade. I commend you for your decision
to hold this important hearing on such a crucial issue.
Our members represent a diversity of interests that cover all
aspects of the hearth, patio, and barbecue industries. Combined, the
industries together generate $9 billion worth of economic activity in
the United States. Most of our members are small and medium-sized
manufacturers or specialty retailers. Because of the relative size of
our members' businesses, it is critical that they be afforded a level
playing field with respect to production, distribution, and sale of
product in the United States. The Section 201 steel tariffs directly
affect our members' market share, both in price and quality, against
larger U.S. companies and offshore competition. Our American members
are not large enough to absorb the costs of trade protection for steel
producers in the United States, nor are they fairly placed to compete
against foreign companies who can purchase globally-priced steel while
they are forced to pay a premium.
Since implementation of the Section 201 steel tariffs, our hearth
manufacturers are paying higher prices (approximately 20%) for the
steel used to manufacture fireboxes and our propane tank manufacturers
are forced to compete with Korean manufacturers who can purchase steel
cheaper and import finished product into the U.S. tariff-free. I urge
the Subcommittee to consider that protecting the U.S. domestic steel
industry at the expense of its customers, i.e., steel consumers like
our members, is a significant hardship on small and medium-sized
manufacturers and retailers and these grave effects should be examined
carefully before the Section 201 midterm review in September 2003.
Steel tariff proponents argue that foreign steel producers are
heavily subsidized by their governments and have been dumping cheaper
steel into the U.S. for years, specifically leading to the crises faced
in the last few years. But, to respond to this alleged subsidization
with protective tariffs for the U.S. steel industry cannot be the
solution to controlling foreign governments' policies with respect to
their own industrial output. If anything, the United States' support of
the tariffs will generate even further ire among the WTO and our
trading partners and in these unstable economic and political times,
that is not the vulnerable position the U.S. should be in.
More than 70 of your colleagues are currently supporting House
Concurrent Resolution 23--The Knollenberg Resolution--primarily because
they realize that a balanced, complete review of the tariffs with
respect to both producers and consumers of steel is fair and warranted.
To argue that an additional 18 months of tariff protection for the U.S.
steel industry will cure all the problems they've encountered with
legacy costs and lack of global competitiveness is flatly unreasonable.
Furthermore, industries like ours, who comprise mostly small and
medium-sized manufacturers and businesses, depend on the ability to get
reasonably-priced materials for production, distribution, and sale in
order to remain viable and stay in business.
The impact of the Section 201 steel tariffs on smaller steel-
consuming industries like ours needs to be carefully examined and
reviewed in full by the International Trade Commission (ITC) at its
midterm review in September. I urge the Subcommittee on Trade to
encourage the ITC to consider the unintended and negative impacts of
the tariffs on consumers of steel. The Section 201 steel tariffs'
detriment to consumers far outweighs its benefit to the domestic steel
industry and a prompt removal of the tariffs before they expire is both
justified and economically defensible.
Thank you for the opportunity to comment on this important issue.
Respectfully,
Carter Keithley
President & CEO
Hedstrom Corporation
Bedford, Pennsylvania 15522
March 31, 2003
Honorable Phillip M. Crane, Chairman
Subcommittee on Trade
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515
Dear Representative Crane:
Hedstrom Corporation is a manufacturer of gym sets and trampolines
sold through mass merchants for resale to consumers. We are one of the
largest employers in Bedford County, Pennsylvania. And, believe we are
a very important party of the local economy. The imposition of 201
duties has been crippling to our business. In 2002 we incurred a cost
increase of over $1.8 million compared with our cost for steel in 2001.
For the first Quarter of 2003 alone we will incur a cost increase of
over $1.1 million over the prior year. We have worked hard to find
alternate domestic sources for steel, but have suffered these dramatic
increases despite those efforts.
In addition to our strenuous efforts to source steel at the best
prices possible, we have invested heavily in our business to improve
efficiencies and reduce costs. We believe we are a low cost
manufacturer and can be competitive against foreign manufacturers,
except for our steel costs resulting from the 201 duties. As you can
imagine, increases of this magnitude are threatening our continued
ability to manufacture our products domestically. We are not able to
pass these cost increases along to our mass merchant retailers. For
example, Wal-Mart, our largest customer, purchased 50,000 trampolines
from China last fall and is considering another 100,000 Chinese
trampolines this coming fall, at a lower price than ours.
Sincerely,
Craig S. Marton
Vice President & General Manager
Statement of Eric Arroyo, Henry Technologies, Inc., Woodstock, Illinois
Thank you for the opportunity to submit this testimony to the House
Ways and Means Committee regarding the impact of the Section 201
tariffs on steel consumers, especially on small to medium companies.
My name is Eric Arroyo and I am Vice President and General Manager
of Henry Technologies, Incorporated. Henry Technologies manufactures
components used in commercial and industrial refrigeration and air
conditioning systems. Henry Technologies has been privately held since
its inception in 1914 and employs about 350 in the United States,
Canada and the United Kingdom. Our plant in Melrose, IL employs 150
workers.
We are a Tier 1 and Tier 2 supplier, providing our customers, as
well as our customers' customers, with components used to manufacture
air conditioning and refrigeration equipment. Henry Technologies sells
to leading companies such as Carrier Corporation, Trane and York
International, and also supplies replacement parts to wholesalers and
exporters. The material content of our product is significant and
encompasses various materials with steel as the primary metal used in
the form of castings and tubing as well as machined components. Due to
the variety of product manufactured and our relative size in the
industry, it is difficult to offset the effect of major industry price
increases for material.
Since the imposition of tariffs, our average cost has risen 10-20%
for a representative sample of our affected purchases. With the
industry softness as well as competition from larger companies, we have
had to absorb 90% of the increased costs. The impact on our
profitability has been significant for those products--with a dollar
for dollar reduction in profits for each dollar increase in cost we
cannot offset.
To compensate for the increased cost of steel, we have reduced
spending, including employment in the United States. It is difficult to
reduce costs further without seriously impacting our ability to
compete.
The steel tariffs also caused a temporary shortage of some of the
steel products we purchase. This resulted in late deliveries from
suppliers and increased cost on our part to compensate with overtime in
production and, in some cases, premium freight costs to deliver our
products.
There are foreign competitors, particularly from Mexico, who pose a
continuing threat to our market position. If we are forced to increase
prices, because additional cost reduction is not possible, we most
certainly will suffer serious loss of market share to those foreign
competitors. This will impact our ability to continue to produce those
products in the United States. In addition, we supply over 33% of the
finished goods sold by our UK company into Europe. These additional
costs will cause loss of market share in what has been a strong market
for our U.S. produced products.
Continuation of these tariffs will force us to seriously consider
off-shore production with its negative impact on our U.S. employment
and our contribution to the local economy.
It is critical that these tariffs be removed as soon as possible.
Our situation cannot be unique. Significant United States manufacturing
capability of small to medium-sized companies utilizing steel affected
by the tariffs is at stake. We need relief from this artificial cost.
Thank you.
Hi-Craft Products
Gardena, California 90248
April 10, 2003
The Honorable Phil Crane
Chairman, Trade Subcommittee
House Committee on Ways and Means
Washington, DC 20515
Re: Steel Tariff
Dear Congressman Crane,
I am writing on behalf of my company, Hi-Craft Metal Products. We
are located in Gardena, California, and employ 20 workers. We need your
help.
The steel tariffs imposed by the President last March, which were
intended to provide the domestic steel industry with protection from
imports and an opportunity to restructure in order to become
competitive on a global scale, have unfortunately resulted in
dramatically higher prices, longer delivery times, shortages,
allocations and lower quality for steel consumers. As a supplier, our
profit margins have been slashed in order maintain our customer base.
Our customers simply will not share in the expense of these material
cost increases.
As a result of the tariffs, my company has been late on orders,
lost contracts to foreign suppliers, and been forced to lay off 5
employees. Unless things change rapidly, my company will continue to
experience these devastating problems. I believe these tariffs should
be removed at the earliest possible time to prevent further damage to
the steel-using economy.
Thank you for your consideration.
Sincerely,
Bill Gerich
President
Illinois Tool Works Inc.
Glenview, Illinois 60025
April 11, 2003
Mr. Chairman and Members of the Committee:
If you leave with no other impressions from our comments today, let
it be:
1. LSteel is not steel is not steel;
2. LMarket dynamics have changed inalterably; and
3. LThe tariffs are a manufacturing issue not just a steel producer
issue.
Mr. Chairman, in meetings here in the District, you have referenced
to the decisions the US sheep industry were forced to make when lamb
produced in Australia could be delivered to American kitchens cheaper
than could be produced here at home. That example, Mr. Chairman, is
appropriate when comparing commodities; but does not apply to all types
of products.
ITW produces value-added proprietary products for which specific
requirements are generated for the entire production process, including
raw materials. That means we must be able to source raw materials of
specific and consistent quality at a globally competitive price. We
must also contend with rapidly changing market dynamics, even for our
proprietary value-added products, which has changed inalterably from
those which existed even one year ago. Yet, domestic steel producers
would have Congress and the Administration believe that they operate in
a ``closed system'' and that the government can virtually stop all
competitive imports by imposing tariffs and duties with little or no
impact on their customers or other sectors of the economy. They are
dead wrong.
Steel is not steel is not steel
The process by which the International Trade Commission
investigates claims by domestic steel producers is constrained somewhat
by our system of identifying products and materials, regardless of
where from around the globe they are made. This system, Harmonized
Tariff Schedule of the US (HTSUS), makes a credible effort, via a ten
digit designator, to segregate what appear to be ``like'' products. But
within the context of this discussion, it fails.
While a Fortune 200 Company with global revenues of $9.5 billion,
ITW operates nearly 400 separate operational units here in the United
States as entrepreneurial enterprises run by dedicated men and women
based in 145 congressional districts. For ITW, the tariffs and
complementary duties cost our individual business units over $6 million
net of accepted price increases in 2002 and this number is expected to
increase by $3 million in 2003. While price, an ongoing lightning rod
of this debate, is important to ITW, we are even more concerned about
the issues of chemistry and quality.
When one examines the President's Proclamation, you will count
dozens of HTS codes as being subject to the tariffs. Even when taken to
their tenth digit, the HTS codes are still only categories of products
not descriptions. An examination of the exclusion requests will provide
the committee with true material descriptions. The list of exclusions
for cold rolled and hot rolled steel, in our opinion, are so numerous
because American industry has, over the past decade, continued to
achieve significantly higher levels of productivity by refining the
chemistry and quality requirements of their raw materials and sourcing
those materials from suppliers who choose to provide them, regardless
of their geographic location. In many cases, these requirements alone
increased the cost of the material; but these costs were offset by the
savings derived from dispensing with some end of line inspection
processes and far fewer defective parts. Domestic steel suppliers, as
evidenced by their testimony, would have you believe that there are
minor differences in steel and that their customers are simply fickle
and are buying on price alone. For many companies that use ``vanilla-
type'' steel for their products, price can be the most critical
determinant in their sourcing efforts; but many, many fabricators will
cite chemistry and quality as the most critical purchasing criteria.
Every ITW manager lives by the 80/20 Rule. That is, 20% of our
customers generate 80% of our revenue; or 20% of our products generate
80% of our revenue. We will turn away or find an alternative source for
a customer when their business declines below the 80/20 point. We
accept a steel supplier's decision to not produce or even bid on an
order for a steel chemistry that does fit their 80/20. We are outraged,
however, when that same company(ies) turn(s) around and seek(s)
protective tariffs or duties on products they either choose not to make
or have been unable to demonstrate an ability to produce to our and our
customers' satisfaction.
For example, the domestic steel wire rod industry brought a
dumping/countervailing duty case against several offshore producers of
wire rod. The HTSUS does not distinguish clearly between industrial
quality (IQ) and cold heading quality (CHQ) wire rod. CHQ wire rod is
used in the production of many, many safety related components for the
automotive industry, for example, and is often specified by the OEM
customer. In fact, ITW may be one of the largest domestic consumers of
CHQ in the United States. All of ITW's recent sourcing of CHQ has been
foreign (including Canada) because the two domestic producers chose not
to meet our chemistry, quality and/or servicing requirements.
The domestic fastener industry asked the International Trade
Commission (ITC) during a public hearing (since purchasers have no
standing in a dumping case) to find CHQ wire rod to be a similar like
product. We cited the fact that neither of the two domestic mills,
Charter and Republic, which produce CHQ were parties to the petition
before the ITC because they knew they already could not meet domestic
demand. Nonetheless, petitioners claimed a Texas-based company, North
Star Steel, had recently announced its CHQ wire rod production and was
prepared to take orders in the rear of the Commission's chambers. Since
that claim was made, Republic Steel has announced plans to focus its
operations on steel bar, limiting, we suspect, its likelihood to
produce CHQ wire rod and North Star still does not produce the
chemistry, quality or quantity we require of CHQ wire rod. Hence, the
domestic industry manipulated the market for its own benefit and to the
detriment of its customer base.
ITW is also one of America's largest consumers of stainless steel
sheet, a product not subject to the President's tariffs. For decades,
we have purchased virtually all our raw material from domestic mills.
However, soon after the imposition of the tariffs, we found that
domestic mills began shifting production and attention to products
directly benefited by the tariffs. Customers of products produced by
domestic mills, which did not fit their new profit equation, were
informed that contracts would not be honored and we saw quality
degenerate because they shipped virtually everything they produced.
ITW's business units that consume stainless steel sheet found that
nearly 30% of deliveries fell below contracted quality requirements
forcing our plants to slow production and extend delivery times to our
customers.
Overall, where offshore suppliers refused to ship steel because of
the tariffs, we moved our purchases to the spot market and saw our
productivity decline, in some cases by over 30%. This meant that we had
to implement manual inspections, early tool replacement and other
heretofore abandoned practices which do little but increase the cost of
production--on top of the tariff enriched steel prices.
However, where our chemistry and quality requirements could be met
only by off shore producers, we continue to purchase offshore,
regardless of the cost; but these costs are not recoverable from our
customers.
Market dynamics have changed inalterably
Mr. Chairman, for nearly forty years, the domestic steel industry
has sought and, for the most part, received decisions from the ITC that
imposed duties and tariffs on many different types of steel products.
The purpose of these suits and subsequent decisions was to provide the
petitioners the opportunity to modernize, consolidate and become
profitable and globally competitive despite challenging market
conditions.
Productivity gains achieved by steel consumers over the last
decade, we now realize, were only a warm-up for the pressure Original
Equipment Manufactures (OEMs) now impose on their supply chains.
Suppliers are now expected to create the products/materials and
processes that enable OEMs to lower their costs. Not only are suppliers
not allowed to pass along price increases, they are expected to cut
their prices every year. On top of these pressures, the nation's
largest auto producers, General Motors and Ford Motor Company have
announced their intention to lower costs further by sourcing over $10
billion in components in China. The inference is that if, as a
supplier, you want to continue in that role, you will establish
operations in China. Lurking behind this inference is the reality that
the single largest cost driver for many suppliers is raw material
savings.
Mr. Chairman, ITW had planned to open a manufacturing plant in
China for the sole purpose of serving the growing (Chinese) domestic
automobile industry. This business model has worked for ITW for
decades. Now, through the interaction of our government and the
domestic steel industry we find several of our American operations
unable to procure reliable sources of globally competitive steel.
Concurrently, we are challenged constantly by automotive and other
OEM's absolute unwillingness to accept any increase in end-product
pricing, especially when they can import the end products duty free.
Hence, no matter how we try to keep production in the United States,
the aforementioned facility in China will be designed to produce
finished products for export to the United States--to the detriment of
our employees in Illinois, Michigan, Ohio, Wisconsin and several other
states.
The tariffs are a manufacturing issue not just a steel producer issue
Last year, the National Association of Manufacturers was faced with
a plethora of its members who urged the Organization to change its
decade old policy with regard to steel. At the same time, steel
producing members urged the NAM to refrain from becoming embroiled in
this debate since, in their opinion, it was a ``single sector'' issue.
Nonetheless, after many hours of testimony from representatives of
some 100 members and associated trade associations and some additional
sixteen hours of intense negotiations and wordsmithing, participants
from steel producing and steel consuming interests, together with the
assistance of NAM staff, forged a consensus document that was adopted
by the full NAM Board of Directors on February 8, 2003.
This new NAM Policy contains the following statements:
L``Changes in the steel market affect multiple sectors in
the US economy, including agriculture, construction, plastics,
appliances, electrical equipment, automotive, aerospace and defense
equipment.''
L``A vigorous debate within the NAM has helped to
illuminate the competitive difficulties of both the steel producing and
steel consuming sectors of the US economy.''
L``Subsequently, . . . Many steel consuming firms have
found that, due to the lack of pricing power, this caused business and
financial losses and employment reductions.''
L``The NAM believes that the needs of steel producers and
consumers should be taken into consideration in formulating
international policy on steel. The NAM supports . . . the timely phase
out of Section 201 measures . . . .''
L``. . . the NAM recommends that the President appoint a
blue ribbon . . panel . . . to analyze the competitive challenges
faced by all manufacturers . . . . AND the analysis should include
input from manufacturers that produce raw and semi finished products in
the United States as well as those who import such products . . . to
make finished goods in domestic plants.''
L``The [Blue Ribbon Panel] report should be completed by
July 2003 so that it can lay the foundation for actions in the course
of the year.''
L``. . . the NAM recommends that the President instruct
the International Trade Commission to gather evidence on the impact of
the Section 201 steel tariffs on both steel producing and steel
consuming industries and to report its findings no later than July 31,
2003; . . . .''
In the end, Mr. Chairman, I reiterate the three points articulated
at the outset of our comments--steel is not steel is not steel; the
market dynamics of the 21st century does not resemble even those of the
last decade of the 20th century; and the tariffs effect a broad segment
of US manufacturing not just steel producers. The consequences of the
domestic mills' decisions over the last four decades, which have caused
them to seek and secure repeated market protection from the government,
should not be borne by their customers who have worked diligently to
change with the times.
American consumers of raw material, of any kind, have only a
marginal statutory voice in trade law and practice. We appreciate your
effort to provide us a venue where we can speak publicly on this
matter. We encourage you further to address the inequities of trade law
that limit severely the role of purchasers in trade actions.
Respectfully,
Michael J. Lynch
Director, Public Affairs
Indianapolis Metal Spinning Co., Inc.
Indianapolis, Indiana 46214
March 25, 2003
The Honorable Phil Crane
Chairman, Trade Subcommittee
House Committee on Ways and Means
Washington, DC 20515
Dear Congressman Crane:
I am writing on behalf of my company, Indianapolis Metal Spinning
Co., Inc. We are located in Indianapolis, IN and we employ 13 workers.
We need your help.
The steel tariffs imposed by the President last March, which were
intended to provide the domestic steel industry with protection from
imports and an opportunity to restructure in order to become
competitive on a global scale, have unfortunately resulted in
dramatically higher prices, longer delivery times, shortages,
allocations and lower quality for steel consumers.
As a result of the tariffs, my company has my customers are moving
away from me to oversea companies. Unless things change rapidly, my
company and other companies like me will continue to lose business to
foreign competition that now has a built-in cost advantage, thanks to
the actions of our own government. I believe these tariffs should be
removed at the earliest possible time to prevent further damage to the
steel-using economy.
Thank you for your consideration.
Sincerely,
James C. Kaufman
KMS, Inc.
West Columbia, South Carolina 29170
April 2, 2003
The Honorable Phil Crane
Chairman, Trade Subcommittee
House Committee on Ways and Means
Washington, DC 20515
Re: L3-26-03 hearing titled ``The Impact of the Section 201 Safeguard
Action on Certain Steel Products''
Dear Congressman Crane:
I am writing on behalf of my company, KMS, Inc. We are located in
West Columbia, South Carolina and we employ 75 workers. We urgently
need your help.
The steel tariffs imposed by the President last March, which were
intended to provide the domestic steel industry with protection from
imports and an opportunity to restructure in order to become
competitive on a global scale, have unfortunately resulted in
dramatically higher prices, lower profit margins, longer delivery
times, shortages, allocations and lower quality for steel consumers. As
a direct result of these tariffs, many of our competitors have been
forced to close their doors.
As a result of the tariffs, my company has lost contracts to
foreign suppliers and has been forced to cut salaries just to stay in
business. Unless things change rapidly, my company will lose business
to foreign competition that now has a built-in cost advantage, thanks
to the actions of our own government. I believe these tariffs should be
removed at the earliest possible time to prevent further damage to the
steel-using economy.
Thank you for your consideration.
Sincerely,
Jeffrey S. Dickson
C.O.B.
Larson Tool & Stamping Co.
Attleboro, Massachsetts 02703
April 8, 2003
The Honorable Phil Crane
Chairman, Trade Subcommittee
House Committee on Ways and Means
Washington, DC 20515
Re: L3-26-03 hearing titled ``The Impact of the Section 201 Safeguard
Action on Certain Steel Products''
Dear Congressman Crane:
I am writing on behalf of my company, Larson Tool & Stamping Co. We
are located in Attleboro, Massachusetts and we employ 85 workers. We
need your help.
The steel tariffs imposed by the President in March, 2002, which
were intended to provide the domestic steel industry with protection
from imports and an opportunity to restructure in order to become
competitive on a global scale, have unfortunately resulted in
dramatically higher prices, longer delivery times, shortages,
allocations and lower quality for steel consumers.
We use a blend of foreign and domestic steel, but for quality
reasons have historically relied heavily on foreign material for the
production of fire extinguisher cylinders that must undergo rigorous
safety testing procedures. The imposition of tariffs resulted in price
increases of 25-30% and, for a time, elimination of the foreign mill as
a source. We were forced to order solely from the domestic mills and
deal with the quality problems that ensued. Not only did we have higher
priced metal, but also the added expense of higher scrap and reduced
productivity. This goes against every effort that my employees and I
put forth on a daily basis to help ensure the success and financial
health of this company.
As a businessman I am willing to compete in the global economy, but
disparities in labor and transportation factors alone, for example,
make competing hard enough without the government imposing additional
roadblocks. My company this year has lost $500,000 in annual sales to a
company in France, and lost a bid on $1,500,000 worth of business to a
company in South Africa.
If the tariffs remain in place for another two years, I am sure
there will be other lost orders, lost profit, lost investment and lost
growth. The tariffs should be removed at the earliest possible time to
prevent further damage to the steel-using economy.
Sincerely,
Daniel G. Larson
President
Lincoln Electric Company
Cleveland, Ohio 44117
April 9, 2003
Honorable Phil Crane
Chairman
House of Ways and Means Trade Subcommittee
Washington, D.C. 20500
Re: Foreign Steel Tariffs
Dear Mr. Crane:
I wish to add the voices of the 2,800 Lincoln Electric employees in
northeast Ohio to those concerned that well-intentioned efforts to
protect our nation's steel industry have had a detrimental impact on
our own industry. Lincoln Electric is the only American owned producer
of certain welding wires used in the defense industry (submarine and
tanks). Our plant in Mentor, Ohio is the largest welding wire facility
in the world.
We join the National Electrical Manufacturers Association and
National Association of Manufacturers in urging the termination of
Section 201 foreign steel tariffs. These tariffs have negatively
affected Lincoln Electric, the world's leading designer, developer and
manufacturer of arc welding products, and are contributing to major job
losses.
We sell welding products to fabricators of steel. Our customers
have suffered injury due to these tariffs which impose unacceptable
cost increases. The result is that fabricators are leaving our shores
in droves.
The raw materials price increases that followed last year's
implementation of the tariffs have also negatively affected our cost
structure and put us at a distinct disadvantage relative to our
competitors. While we must incur higher costs to source steel from
outside the United States, our competitors can ship their welding
consumables into our country without penalty because their products are
viewed as ``finished goods.''
We reiterate the position of NEMA and the electrical industry that
the U.S. government must take seriously the statutory language of
Section 201, which requires that any remedy adopted by the President
must ``provide greater economic and social benefits than costs.''
Unfortunately, the additional tariffs placed on imported steel last
March have done much more harm than good for our industry and for
electrical manufacturing. Many more jobs have been lost in consuming
industries than have been protected in the steel industry by the steel
tariffs, and the trend is going in the wrong direction very rapidly.
I am certain that the International Trade Commission would confirm
the negative impact on U.S. steel-consuming industries. Therefore, I
urge you to look beyond the steel industry and consider the wide-
ranging implications of the Section 201 foreign steel tariffs. It is
not too late to remove the restrictions and allow U.S. manufacturers to
compete fairly in the global economy on an equal footing.
Sincerely,
John M. Stropki, Jr.
Executive Vice President
President, North America
LMC Industries, Inc.
Arnold, Missouri 63010
March 22, 2003
The Honorable Phil Crane
Chairman, Trade Subcommittee
House Committee on Ways and Means
Washington, DC 20515
Dear Congressman Crane:
I am writing on behalf of my company, LMC Industries, Inc. We are
located in Arnold Missouri and we employ 300 associates. We need your
help.
The steel tariffs imposed by the President last March, which were
intended to provide the domestic steel industry with protection from
imports and an opportunity to restructure in order to become
competitive on a global scale, have unfortunately resulted in
dramatically higher prices (as much as 30%), longer delivery times
(some have doubled), and lower quality.
As a result of the tariffs, my company has lost contracts to
foreign suppliers totaling 12%. We had to lay off 18 employees as
result of this loss. Other customers are looking at China and will move
business soon if we cannot compete. Unless things change rapidly, my
company will continue to lose business to foreign competition that now
has a built-in cost advantage, thanks to the actions of our own
government. I believe these tariffs should be removed at the earliest
possible time to prevent further damage to the steel-using economy.
Thank you for your consideration.
Sincerely,
Keith A. Suellentrop
Chief Financial Officer
Statement of Doug Ruggles, Martin Supply Co., Sheffield, Alabama
Introduction
My name is Doug Ruggles, and I am the owner and vice president of
Martin Supply Co. My company, like hundreds of other small businesses
across the United States that supply goods and services to the steel
industry, had been badly hurt by the flood of illegally traded steel
imports prior to the imposition of the President's steel 201 remedy.
Without a healthy domestic steel industry, small businesses like ours
cannot survive. The President's decision to provide relief to the
domestic steel industry has benefited us directly.
I understand the Committee requested a study of the impact of 201
relief on steel users. Unfortunately, companies that service and supply
the steel industry are not covered under the request. The President's
program is helping hundreds of small businesses around the United
States. Not only is there a direct benefit to companies like mine, but
Martin sources materials and supplies for use in steel mills from
hundreds of vendors nationwide.
About Martin Supply Co.
Martin Supply Co. is a supplier of industrial products and services
based in Sheffield, Alabama. The company was founded by my grandfather
in 1934, in the depths of the Great Depression, to provide industrial
and maintenance supplies to local industry. The company has expanded to
16 branches and 200 employees. We offer a range of products and
services to manufacturing companies. With the exception of raw
materials, the company provides its customers with the supplies and
services needed to operate a factory.
Martin and the Alabama Steel Industry
When LTV's Trico Steel began production in 1996, Martin Supply saw
a unique opportunity to expand its operations. Trico quickly became
Martin's largest customer in the material management area, with
Martin's sales to Trico totaling as much as $15 million per year.
Because Trico was such a promising customer, Martin was willing to
invest in the resources needed to serve Trico, including the
accumulation of $3 million in inventory. Three million dollars may not
sound like very much, but for a small company like Martin it was a very
substantial investment.
In 1998, though, Trico began to suffer declining sales, largely
because of competition from unfairly traded imports. These imports had
a dramatic negative effect on domestic steel prices and sales, as we
saw almost daily in our dealings with Trico. Finally, on Thursday,
March 22, 2000, at 5:05 p.m., Trico shut its doors. It is no accident
that I remember the precise date and time, because my company's future
hung in the balance. We all wondered how we would survive the closure
of Trico.
We survived, but it was not easy. Unfortunately, we had to lay off
the 14 employees who worked full-time on our contract with Trico. Much
of the inventory we had accumulated was geared specifically to steel
mills. Despite scouring the globe, we were only able to find buyers for
about 10% of it. Our ability to borrow was devastated. By the end of
2000, we had run through all the company's cash, and were trying to
come up with some plan to revive our company's fortunes.
The Impact of the President's 201 Decision
Things started looking up in 2001, when Nucor Corp. announced an
offer to buy Trico's assets and recommence production as Nucor-Decatur.
We immediately contacted them to see if we could provide Nucor with the
same sorts of products and services we had provided to Trico--and
received a positive response. For the first time since Trico shut down
in 2000, there was excitement and optimism in our community.
We became even more hopeful a year ago, when President Bush
announced his decision to provide meaningful relief to the domestic
steel industry under Section 201.
I believe our optimism was well-founded. Because of the stability
the President's decision has brought to the U.S. steel market, Nucor
got the mill up and running in record time. As a result, steel workers
in Decatur went back to work--and employees at small businesses
throughout the community went with them. Martin has hired twelve
additional employees to service the Nucor-Decatur mill.
The President's decision has helped Martin directly. Because of
Nucor's decision to restart production at Decatur so quickly, we have
begun selling the inventory of mill supplies we had accumulated, and
started a new relationship with a valuable customer we hope will last
for many years.
Remembering The Supply Side
In assessing the impact of the President's 201 decision on the U.S.
economy, I think it is very important that the Committee take into
account the beneficial impact that decision has had on small businesses
like ours that supply the U.S. steel industry, and its employees, with
goods and services. The President's decision has literally been the
difference between life and death for hundreds of small businesses
across the country. The President's decision has helped put the
domestic steel industry back on its feet--and that action has helped
hundreds of small businesses across the United States, including ours.
Statement of Mastercoil Spring Company, McHenry, Illinois
The Mastercoil Spring Company is a medium size spring maker with
sales in excess of $12,000,000. Mastercoil is a major producer of
springs for the aerosol pump and trigger spray industry and consumes
approximately 3,000,000 pounds of stainless wire per year. The majority
of this wire is less than .039'' in diameter.
When we began in this business, we purchased wire domestically, but
as our business grew, the requirements for the wire became more
stringent. We found that, by using Sandvik Steel wire from Sweden, we
reduced our internal rejects and improved our running speeds. This was
over 10 years ago and our primary reason for switching to a Foreign
source was the quality, which was not available domestically. In the
ensuing 10 years, we tried repeatedly to purchase this material
domestically, but we were unable to find any supplier with the same
commitment to our market that we had in Sandvik. Recently, another
source, KOS of Korea has presented us with comparable quality and
pricing and a commitment to our market. We have had little or no active
interest by domestic producers during this same period. Domestic
producers are interested when business is slow in other areas, but lose
interest quickly when other, more profitable, products are available.
This is a high volume, low margin product for us and it is the same for
the wire producer. Unfortunately, domestic wire drawers expect it to be
a high volume, high margin product.
It is a bit disingenuous for these domestic producers to now object
to our request for an exclusion by claiming that they can produce the
product in the quality and the quantity we require when they have shown
no such interest in the past.
We would like to have a level playing field so that our
competition, which is primarily European, has no advantage due to the
wire price. Prior to the tariffs, the price of stainless wire in Europe
was approximately 25% less than the United States. With the addition of
the 8% tariff, we are now at a 33% disadvantage. We have been able to
maintain our market share by reducing internal costs and taking a lower
profit margin than we should. This has now reached the point where we
can no longer do this by internal cost cutting. The wire cost
represents approximately 65% of the final selling price and any upward
trend is devastating unless it is felt by all producers. Since our
major competitors in the world market are all located in Europe, we
must view their costs as being the ones to follow. Unfortunately, the
domestic wire producers have lived in a protected vacuum for so long
that they have failed to keep pace with the reality of the world
market.
Sumiden states in their Objection that we buy wire at 35% below
domestic pricing. This is incorrect. What we told them was that their
prices were 35% higher than we were currently paying. We are buying
wire from the domestic production units of Sandvik Steel and KOS at
these prices. Secondly, Sumiden claims we want to buy at less than our
competitors. For all intents and purposes, we have no domestic
competition at our major accounts. There are two other producers of
these springs in the US and they produce for their own internal
consumption and do not sell on the outside. No one else buys this size
wire in these quantities in the United States, period. In addition, I
was told that they were really uninterested in this volume of business
even at the higher prices they quoted. When they say that they informed
us that they could not immediately supply our requirements, it is,
quite simply, not true. What they said was, ``SWPC does not have
production capacity to produce 100% of requirements. We would have to
provide delivery information on an order-by-order basis.'' Sumiden
knows how this market operates and that we that have a need for them to
maintain inventories and production schedules based on our estimates.
Our current suppliers are willing to do so and if they want to play the
game, they will have to do so, also. In addition, they are requiring
sensitive information not required by our current vendors as well as
payment terms that are totally unacceptable. What this means is that
they have no real interest in this market or in our business unless we
are willing to conform to their way of doing business.
The objection by Industrial Alloys is more of the same. Only after
we contacted them subsequent to the tariffs did they show any interest.
In the past, they had refused to even respond to our inquiries. When
they did respond, it was with significantly higher prices and had a
``take it or leave it'' attitude. One would think that, if they were
truly interested, they would come to us and sit down and discuss the
situation to see if there were any way to negotiate. They did not. More
to the point, they have studiously resisted responding to our
subsequent inquiry and only made an effort to contact us after we filed
the second exclusion request. Their actions speak louder than words and
by their inaction; they show their lack of interest in our business.
I'm sure that if we were to show an interest in buying at their
inflated pricing, they would happily drop other business in favor of
this very profitable business.
Quite simply put, both objectors have offered pricing which is, in
our opinion, at a level that appears to be price gouging. Our current
sources sell to our market at prices that are 20 to 35% less than the
objectors pricing. They understand that our market is different than
the general spring wire market and treat it accordingly. Treating
different markets with different pricing is a well accepted practice
both legally and practically. Unfortunately, these objectors appear to
be unaware of this.
These two companies have filed their objections not because of any
real interest in our business or this market, but rather as a means to
punish us for even daring to buy from their competitors. The fact that
our two suppliers produce this product in the US at the same pricing
would seem to indicate that they are better at it than the two
objectors. If we were to pay the pricing that they ask, we would be out
of business very quickly. At that point, the domestic market would have
disappeared and all the springs would be produced offshore. The
objectors appear either unable or unwilling to understand the dynamics
of the market.
Both Objectors have filed objections which are filled with the same
half-truths and innuendo as they had in their objections to our
original filing. For instance, Industrial Alloys says that, ``This is a
relatively common product for which Industrial Alloys or most other
domestic spring wire producers could supply trial shipments within a
few weeks. Under these conditions, the approval process should be
between one and three months.'' If they truly believe this, then they
are completely unfamiliar with this market segment and the requirements
of our customers. Both objectors have listed numerous customers to whom
they ``say'' that they sell the exact product. Since we are unable to
see the names of these customers, we cannot refute them specifically.
We can say, however, that none of these customers would buy the exact
product that we do. The reason I can say this is that none of them deal
with our customers. We were able to show this in a response to the
Trade Commission, but nothing was done. It appears that the mere
presence of an objection, whether valid or not, is sufficient for the
Trade Commission to uphold the tariff and fail to grant the exclusion.
We should not be penalized in the world market because US wire
producers have failed to keep pace with the rest of the world. This is
the same thing that has happened with the US steel industry, in
general, and the resulting loss of jobs in the steel consuming
industries is tragic.
We have taken steps to ensure our continued presence in this
market. We have recently purchased an Italian spring making company so
that we can be competitive in the European market. At present we still
hope that this will be an addition to our current operations rather
than taking away from them. However, if the tariffs continue and the
disparity of costs between Europe and the United States continues, we
may well see additional jobs produced in Europe to be sent back to the
USA. This is the real danger for the economy, that the tariffs will
force production out of the country, but will not result in any
meaningful improvements in the domestic steel industry. By the
continued protection of this industry, they are encouraged to maintain
the status quo, rather than accepting that they need to make changes.
Matenaer Corporation
West Bend, Wisconsin 53090
March 26, 2003
The Honorable Phil Crane
Chairman, Trade Subcommittee
House Committee on Ways and Means
Washington, DC 20515
Dear Congressman Crane:
I am writing on behalf of my company, Matenaer Corporation. We are
located in West Bend, Wisconsin and we employ 55 workers.
The steel tariffs imposed by the President last March, which were
intended to provide the domestic steel industry with protection from
imports and an opportunity to restructure in order to become
competitive on a global scale, have unfortunately resulted in
dramatically higher prices, longer delivery times, shortages,
allocations and lower quality for steel consumers. Every grade of steel
we purchase has become much more expensive. For example the cost of
high carbon strip steel, the second most common type we require has
increased by 40-70%. Often, we can not even obtain certain grades
because of shortages. We are then forced to cancel the order from our
customer. The customer then finds an offshore producer who can obtain
the steel. Believe me, that work is never coming back!
As a result of the tariffs, my company has lost millions of
dollars of work to offshore suppliers. I never thought I would say
this, but our next expansion will be offshore--hiring foreign workers,
not American workers. Unless things change rapidly, my company will
continue to lose business to foreign competition that now has a built-
in cost advantage, thanks to the actions of our own government. I
believe these tariffs should be removed at the earliest possible time
to prevent further increases in unemployment and damage to the economy.
Thank you for your consideration.
Sincerely,
Warren Stringer, Jr.
President
Statement of G.J. Bliss, Sr., Metal-Matic, Inc., Minneapolis, Minnesota
Background
Metal-Matic, Inc. is a Minneapolis-based manufacturer of carbon and
alloy welded tubular products. Established in 1951, it now operates
from three facilities: two in Minneapolis and one in Bedford Park,
Illinois. With over 600 employees at these locations, the company
manufactures welded steel tubes serving customers in the automotive,
defense, furniture, appliance, construction, and agriculture equipment
industries, among others. Each of these products is carefully crafted
to one of various specifications, including DIN 2393, ASTM A513, SAE
J356 and J525, and other proprietary customer specifications. Each one
is individually engineered and custom made by Metal-Matic, Inc. to meet
specific performance and durability criteria required in various
applications by its customers, including the automobile industry.
Considerable resources are invested into the development of each
product including development of modified steel grades with our flat
rolled steel suppliers. Metal-Matic, Inc. has a well-earned reputation
for quality and ability to meet its customers' product demands,
specifications and delivery requirements.
The mounting turmoil in the domestic steel industry has created a
serious operating hardship for the entire domestic steel tube
manufacturing industry. Metal-Matic, Inc. is especially vulnerable to
these difficulties because as steel producers disappear from the
landscape it becomes increasingly difficult to find producers willing
to provide steel to the very demanding specifications (i.e. uniform
mechanical properties, modified chemistries, free of non metallic
inclusions) needed to reliably perform in the end use.
In addition, upheaval in global markets adds to the inability of
U.S. manufacturers to purchase raw materials at a price even close to
prices available to their European competition.
See Fig. 1: ``2 year steel price trend''
Simply put, European manufacturers can produce and ship most steel
tubing to U.S. customers cheaper than domestic producers, such as
Metal-Matic, Inc. Prior to the exemption granted to a European
competitor, Rothrist Tube (Switzerland), Inc. (``Rothrist''), domestic
manufacturers, most notably Metal-Matic, Inc. the leading manufacturer
of these exempted products, were in a serious competitive disadvantage.
Now the future is even more bleak. If Rothrist is able to further
undercut domestic tube prices and Metal-Matic, Inc.'s market share
shrinks it will have dire consequences on its ability to purchase
custom alloys from steel producers, perhaps at any price. Therefore,
Metal-Matic, Inc. and domestic steel producers will suffer additional
loss of business.
Overview of the Current Situation
In November of 2001 a request for an exemption from Section 201 was
filed on behalf of Rothrist. Section 201 was established by the United
States Government as a safeguard measure on steel products. Section
203, the regulation under which the exemption was sought, was
established to protect U.S. customers unable to obtain the required
products domestically and also fully meet the standard of not
undermining the steel safeguard's relief.
Three product exemptions were granted to Rothrist in the action of
the USTR of August 22, 2002. Those products now excluded from Section
201 are:
1. LWelded drawn over mandrel tubes for swaged or straight prop
shafts--X-162.2
2. LWelded drawn over mandrel tubes for shock absorbers--X-162.3
3. LWelded drawn over mandrel tubes for gas springs--X-162.4
Metal-Matic Inc.'s Objection
Metal-Matic, Inc. maintains that the above exemptions were granted
in error. At the most basic level U.S. customers are able, and do,
obtain the required products necessary to meet their product or
inventory needs. Further Metal-Matic, Inc. maintains that this action
provides Rothrist and other European companies with a competitive
advantage, and directly undermines the relief intended by the Section
201 safeguards.
The document filed on behalf of Rothrist has several gross errors
and omissions. In the public version provided by USTR dated November
13, 2001, Rothrist states that ``The U.S. tube industry does not
produce like or competitive products and where it does, production is
limited . . ..'' (exh. 1). In fact Metal-Matic, Inc. and other domestic
competitors manufacture these products serving the same customers as
Rothrist as a matter of regular course. Metal-Matic, Inc. can and will
document, when requested, its customer base and would request
documentation from Rothrist or the USTR of any customers for whom we
have been unable to meet the needs in these product areas, in terms of
specifications or supply.
Rothrist infers that its sales of precision tubes demand a quality
not otherwise available (page 3, Ibid.). These products are available
and provided by Metal-Matic, Inc., again on a regular basis, meeting
specifications and supply demands. Rothrist also asserts that its price
is generally higher on the majority of the tubes than similar U.S.
products. Rothrist makes this assertion several times, but see exh. 2
for one example. While it is interesting to note that Rothrist
acknowledges the production of similar tubes in the U.S., but claims to
charge higher prices than U.S. producers charge, Metal-Matic, Inc. has
data from our customers which indicates otherwise. Metal-Matic, Inc.
will provide this data upon request. Metal-Matic, Inc. does not export
gas spring or shock absorber tubes to Europe, even though we are
acknowledged by our customers to be a quality supplier (exh. 3).
Stabilus is the largest gas spring manufacturer in the world and the
U.S. We do not supply Stabilus of Germany. This is certainly evidence
that our prices are not competitive in Europe.
The comments made in the U.S. industry's document, while true for
the various affiliates it represents, is grossly incomplete as it might
apply to Metal-Matic, Inc. because the exempted products have been, and
continue to be a significant part of Metal-Matic, Inc.'s business. In
addition, Metal-Matic, Inc. has the capacity, and has in fact supplied
all the domestic demand for gas spring tubing, including the demand for
Mexico.
In addition to the Rothrist exemptions, we believe exemptions have
been granted to Sumitomo for welded, square SCM 815 alloy steel tubes
for TV picture tube frames. There is also an exemption N-458, for
drawn-over mandrel steel tubing for gas springs. Metal-Matic, Inc. can
and does manufacture both these products, from domestic produced steel.
In summary, the increased tariff, while protecting the U.S. steel
producing industry, has caused prices to increase to users (including
Metal-Matic, Inc.). We must attempt to recoup these increased costs,
but to grant exemptions to our foreign competitors, who for a number of
years (strong dollar and cheap foreign steel, plus help from their
governments?) have been underselling us by 20-30%, could cause our
company to fail.
Metal-Matic has already lost $20 million in orders since the
exemption was granted to Rothrist, and this has involved our largest
volume, most efficiently produced goods. In addition, productivity in
the facilities has dropped 3 to 5 percent since 2000. It should have
increased during that period by 5 percent as a result of substantial
equipment changes but has been badly hurt by foreign under pricing and
other developments in the industry. As a result, employment in our
facilities has already been reduced about 10 percent since 2000.
Metal-Matic Inc.'s Request
Metal-Matic, Inc. accordingly has requested that the Administration
reconsider the exemptions granted to Rothrist. To paraphrase the trade
act of 1974 itself, the company believes that the current exemption is
damaging to the short--and long-term economic and social costs relative
to the short--and long-term economic and social benefits. Specifically,
if unchecked we believe that this action, coupled with the continued
uncertainty in the steel industry, will have a dire impact on the
company, its 600 employees and several hundred customers.
Your help in this matter is greatly appreciated.
______
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[GRAPHIC] [TIFF OMITTED] 89863A.024
MiTek Industries, Inc.
Chesterfield, Missouri 63017
April 9, 2003
Chairman Philip M. Crane
Subcommittee on Trade
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515
Subject: LThe Impact of the Section 201 Safeguard Action on Certain
Steel Products
As a steel consumer, MiTek Industries, Inc. has suffered both
business and financial losses resulting from the Section 201 steel
tariffs imposed by the Bush Administration in 2002. Unless these
tariffs are removed, many unintended, adverse conditions will continue.
The losses to MiTek Industries, Inc. include:
LOur steel costs increased over 27% from March 2002
through December 2002, of which less than 6% was recovered during 2002
because MiTek Industries, Inc. honored all pre-existing customer
pricing contracts. As a note, all of our steel suppliers broke
agreements during 2002.
LMiTek Industries, Inc. has historically purchased
material from both U.S. and foreign suppliers to meet steel
requirements, diversify our supply base, and obtain the most
competitively priced steel available to us. Since enactment of Section
201, foreign sources are hesitant to supply any pricing and will not
commit to any tonnages even after pricing is agreed upon.
LDuring the 3rd and 4th quarters of 2002, MiTek
Industries, Inc. realized a supply shortage as we were put on
allocation with some of our steel suppliers and could not obtain
foreign material. Our customers were negatively impacted, as we could
not provide finished goods to meet their timing requirements. To
minimize this effect from reduced tonnages and late deliveries, we were
forced to either pay excessive freight charges to ship product from
another MiTek facility, or purchase more costly material on the spot
market. MiTek spent over $200,000 to transfer steel intra-company to
ensure operations were not impacted by steel shortages.
LHowever, we were not able to cancel any purchase orders
with mills behind on delivery, so we received highly priced, unneeded
material at yearend and into 2003. The inventory carrying costs on this
higher priced steel, which we are unable to pass through to our
customers, exceeds $150,000 minimum.
LThe majority of MiTek Industries, Inc. products are used
for residential building structures. The costs of higher steel and late
deliveries are impacting not only our company, but also our customers--
the truss manufacturers, and the end consumer--the American home buyer.
MiTek Industries, Inc. is in favor of the early termination of the
Section 201 tariffs. While MiTek Industries, Inc. believes that
industry consolidation is required within the steel market, we do not
believe the consumer should bear the cost of this process. We are
evaluating every aspect of our business looking for efficiency
improvement opportunities in an attempt to offset our ever-rising
costs. We applaud those steel producers who are actively doing the
same. However, we believe other steel producers are using the Section
201 tariffs as a crutch to artificially inflate pricing to compensate
for their inefficiencies. The free market supports natural selection,
which ensures survival of the fittest. The Section 201 tariffs are
prolonging this process, with significant cost to all parties involved.
Respectfully submitted,
Thomas J. Manenti
Executive Vice President
Mitsubishi Motors North America, Inc.
Normal, Illinois 61761
April 9, 2003
The Honorable Philip Crane
Chairman, Trade Subcommittee
House Committee on Ways and Means
1104 Longworth House Office Building
Washington, D.C. 20515-6354
RE: LWritten Statement for 3-26-03 hearing entitled, ``The Impact of
the Section 201 Safeguard Action on Certain Steel Products''
Dear Mr. Chairman:
Mitsubishi Motors North America, Inc. (``MMNA'') appreciates this
opportunity to present its views to the Trade Subcommittee of the House
Ways and Means Committee on the impact of the Section 201 safeguard
duties imposed on certain steel products. From the perspective of MMNA,
the provision of safeguard relief to the U.S. steel industry has had an
extremely undesirable affect on the cost of steel, on its availability,
and on its quality. This is so even though MMNA has adopted a policy of
obtaining all of its steel from U.S. sources whenever possible, and
imports steel only when it is not available from U.S. sources.
Since March 20, 2002 when the safeguard duties became effective,
Mitsubishi Motors has seen a significant increase in the cost of the
U.S. produced steel it purchases. These price increases have not been
negotiated, but unilaterally imposed at times, despite the existence of
supply contracts (which have been deliberately breached by the U.S
steel companies). Essentially, MMNA was told that if it wanted steel,
it would have to agree to these unilateral price increases, some for
periods that far exceed normal contract terms and exceed the Section
201 safeguard timeframe.
MMNA's experience in purchasing steel for its resale program
mirrors its experience in purchasing steel for in-house use. For
example, in March, 2002, hot rolled steel sold at approximately $370.00
per ton. On April 15 of that year a price increase of $25.00 per ton
was announced, followed by increases of another $25.00 per ton on May
1, 2002 and another $20.00 per ton on June 1, 2002. In six weeks, the
price of hot rolled steel increased by $70.00 per ton (almost 19%).
Then, on August 1, 2002, another increase of $60.00 per ton was
announced, resulting in a $130.00 per ton (35%) increase in the price
of hot rolled steel in three and one-half months.
The situation with respect to cold rolled steel and coated steel
was similar. Before the imposition of the safeguard import duties, cold
rolled steel sold for approximately $440 per ton, and coated steel sold
at approximately $540 per ton. On April 15, seven months after the
safeguard duties were imposed on imported steel products, a price
increase of $80 per ton was announce for both products, followed by a
second increase of $70 per ton on July 1. Thus, over a two and one-half
month period, the cost of cold rolled steel increased 34%, while the
cost of coated steel increased 28%.
The unilateral price increases imposed by U.S. steel companies for
steel purchased for MMNA in-house and resale program use resulted in
cost increases of nearly $14 million in 2002-2003.
Since 1994, Mitsubishi Motors has purchased virtually all of its
steel from U.S. sources. In May of 2002, however, MMNA was forced to
seek a small amount of specialty steel from a foreign supplier due to
its unavailability from U.S. sources. Our experience with this imported
steel mirrored our experience with domestic steel. It was originally
quoted $988.00 per ton in May 2002. By September, the steel was subject
to three separate price increases, raising the price to $1,214.00 per
ton--an increase of about 23%. The safeguards appear to have resulted
in price inflation globally.
However, it is not just the price increases that adversely affect
Mitsubishi Motors. It is also the fact that supply contracts are not
being honored by either U.S. or foreign suppliers. For example, it is
not uncommon that steel which is under contract to MMNA be sold to a
third party if that party is willing to pay a higher price. The
resulting uncertainty in supply (and price) leads at times to an
inability to source steel, or to source it in a timely fashion,
resulting in production delays.
Further, because of the difficulty of getting steel from suppliers,
steel that at one time would have been rejected for not conforming to
customer requirements has had to be purchased and refined in-house
(resulting in additional costs) so as not to compromise the quality of
the finished product. Thus, MMNA, a company that has made a conscious
decision to source steel from U.S. suppliers, finds itself in a
position where it is paying higher and higher prices for steel which at
times is of a quality that would not have been accepted in the pre-
safeguard period. Additionally, the supply of product has become
uncertain, and contracts are routinely ignored, with customers having
to accept unilaterally imposed price increases, or face the prospect of
having steel already contracted for sold to other customers.
From the perspective of Mitsubishi Motors, the safeguard relief
provided to the U.S. steel industry has proven to be an incredibly
disruptive force in the steel marketplace. It appears that U.S. steel
companies, instead of using this relief period to adjust to import
competition, are using it as an opportunity to make as much money as
possible during the period that these additional tariffs are imposed on
imported product, and even beyond. This surely was not the intent
behind the safeguard remedy.
MMNA appreciates the opportunity to present its view on the impact
of the steel tariffs on our company to the House Ways and Means Trade
Subcommittee. Should the Subcommittee or its members have any questions
concerning these comments, please do not hesitate to contact me at
(309) 888-8210.
Sincerely,
Gary Shultz
Vice President and General Counsel
Statement of The Honorable Alan B. Mollohan, a Representative in
Congress from the State of West Virginia
Mr. Chairman and Members of the Subcommittee: My Congressional
District is home to both Weirton Steel Corporation and Wheeling
Pittsburgh Steel--respectively the nation's seventh and eighth largest
integrated steel producers. Steel mill related employment--in the
mills, at suppliers, transportation companies, customers located close
to the mills, and jobs in the service sectors--are the livelihood of my
district.
I commend the President for taking the important first step in
defense of the steel industry with the Section 201 tariff program. The
tariffs have provided Weirton Steel and Wheeling Pitt with a much
needed ``time-out'' from years of surging steel imports.
Of particular importance to these companies was the tariff set on
Tin Mill Products, or TMP for short. Weirton is the nation's second
largest TMP producer, with approximately 25 percent of the domestic TMP
market, accounting for nearly 50 percent of its annual revenues.
Wheeling has a subsidiary across the Ohio River, Ohio Coatings, which
produces TMP and utilizes a significant portion of Wheeling's
production.
Both Weirton and Wheeling have used the first year of the program
to restructure their companies. Though these restructurings cost jobs,
they will hopefully result in the continued steelmaking in the Ohio
Valley, which has now gone on for a century. Weirton trimmed its work
force, reduced its debt by $115 million dollars, and lowered its
interest costs by $25 million dollars each year for the next three
years. Because of the relief the tariffs provided, this comprehensive
restructuring prevented the company from filing for bankruptcy.
Wheeling, which has been in Chapter 11 for two years, trimmed its
workforce, reduced costs significantly, and just obtained loan
financing which will allow it to emerge from bankruptcy and install a
state of the art electric furnace.
There is no question that, without the respite provided by the
tariff program, these companies would not have been able to engage in
their restructuring plans, more steel companies would have filed for
Chapter 11, and I believe some of the bankrupt steelmakers may have
liquidated by now.
Upon delivering the tariff program, President Bush made it clear he
expected the domestic steel industry to use the program's three-year
duration to rebuild itself through consolidations, acquisitions and
restructurings. One year into the program, the industry has made good
use of the time, and progress is being made towards the
Administration's expectations.
It is unfortunate that a World Trade Organization panel recently
ruled against the U.S. 201 case. We know the Administration plans to
appeal the WTO ruling. However, we know we cannot take anything for
granted. Given the massive problems in the U.S. manufacturing sector
and repeated WTO rulings against the U.S., I urge the Ways and Means
Committee to hold hearings on the harm to the U.S. trade deficit and
employment caused by the WTO.
I now want to switch to an issue that is deeply disturbing--one I
and others believe must be expeditiously addressed.
When the tariff program began, the Administration exempted certain
``developing countries'' from the process. As the tariff program
unfolded, we began to notice a growing trend.
While steel imports from nations saddled with the tariffs
decreased, many of the exempted developing countries have taken, and
continue to take, advantage of the void in the domestic marketplace by
increasing their steel shipments to the U.S. As a result, producers in
developing countries are the benefactors from the 201 relief instead of
the domestic steel industry.
The tariff program is working. However, the rise in imports from
the exempted countries is chiseling away at its effectiveness. The U.S.
industry is not benefiting from the full force of the program because
of growing imports from the developing nations.
For this reason, I encourage the Ways and Means Committee to urge
the Administration to reconsider its position on these particular
countries and include them in the tariff program. At the onset of the
tariff program, the Administration indicated it would monitor the
developing nations' import rates to determine whether or not
significant increases were taking place. We know now that increases
have occurred and action should be taken. The attached chart
demonstrates the surge in imports from these developing countries.
Clearly, these import surges must be stopped. Again, I ask that you
help us address and resolve this issue with the Administration. The
Appropriations Committee is addressing its concerns on these
enforcement issues with Ambassador Zoellick and Secretary Evans.
My District is also home to many steel consumers, large and small.
I know that many steel consumers testified at your hearing on the harm
to consumers of the 201 program. I believe their testimony was
misguided. First, without the program, the steel companies in my
District and many other producers would have gone out of business,
forcing U.S. consumers to be dependant on imported steel instead of
having local suppliers. Second, while steel prices initially increased
as a result of the tariffs, though they never reached the pre-crisis
levels of 1996, they have since receded and are well below ten-year
averages. Steel consumers cannot base their business models on access
to steel at unsustainably low prices that will force their suppliers
out of business.
I am very sensitive to the competitive pressures on steel
consumers. I believe many of these pressures come from our unfair
trading relationship with China. Your Committee has primary
jurisdiction over trade and I urge you to address China trade issues,
in particular, our continued tolerance of the Chinese government fixing
their currency at an undervalued rate.
Thank you for this opportunity to present testimony in this
hearing.
______
[GRAPHIC] [TIFF OMITTED] 89863A.025
Statement of Christopher M. Bates, Motor & Equipment Manufacturers
Association, Research Triangle Park, North Carolina
On behalf of our more than 700 member and affiliated companies, the
Motor & Equipment Manufacturers Association (MEMA) appreciates the
opportunity to provide our comments on the impact of the Section 201
tariffs on certain steel products to the House Ways & Means Trade
Subcommittee. This hearing marks a critical landmark for our member
companies, both large and small, and the 2.2 million individuals that
they employ in the United States. Automotive suppliers serve as one of
the country's leading steel consuming sectors, with an overwhelming 95
percent of that consumption stemming from U.S. steel producers. We
thank Chairman Philip M. Crane and the members of the Subcommittee for
their decision to convene this hearing and permit debate on this grave
issue.
MEMA represents and serves manufacturers of motor vehicle
components, tools and equipment, automotive chemicals and related
products used in the production, repair and maintenance of all classes
of motor vehicles. The association represents the three distinct
segments of the motor vehicle supplier industry: aftermarket, heavy
duty, and original equipment. Combined, MEMA serves and represents more
than 700 companies. The automotive supplier industry encompasses
thousands of large, medium and small companies in all 50 states,
directly employing more than two million Americans.
Thousands of these jobs are located in the key states of
Pennsylvania, Ohio, Illinois, Indiana and West Virginia, as well as
Michigan. The average vehicle sold in the U.S. contains more than 1,810
pounds of steel parts and, with the evolution of the automotive
industry over the past few years, suppliers have assumed a far greater
percentage of the industry's overall steel purchases and heavy
manufacturing. Combined with the supplier industry's present lack of
pricing power in the global automotive market, our sector has faced
significant financial and competitive ramifications due to the Section
201 steel tariffs.
MEMA's principle argument in addressing the steel safeguard program
and the related tariffs is that difficult economic times require sound
economic policies. The current policy has had serious, albeit
unintended, consequences on the automotive supplier industry, as well
as other steel consuming industries in the United States. This
additional pressure and financial instability comes at a time when the
manufacturing sector of this nation is already in a weakened state.
According to the Bureau of Labor Statistics, the United States has lost
1.8 million manufacturing jobs in the last two years. This nation now
registers only 16.5 million factory jobs--the lowest number in 40
years. Given this set of circumstances, an analysis of the consequences
of the steel tariffs on steel consuming manufacturers becomes of even
greater importance. The Administration must seek to collect and analyze
this data in order to properly assess the interaction between the
nation's economic health and the steel safeguard program. Consequently,
MEMA strongly recommends that the Administration commence the
collection of this information in order to ensure its integration with
the formal mid-term review in September 2003. From our perspective,
government and industry must cooperate to craft a preferable
alternative for all manufacturers in the United States.
The Section 201 steel tariffs sparked a rapid and dramatic
escalation in the price of the domestic steel products utilized by
automotive suppliers in the United States. Suppliers of all sizes have
incurred significant financial loss as a result of this shift, but the
impact on small and medium sized automotive suppliers, who possess the
least bargaining power against large steel producers, has been far more
damaging. Upon the implementation of the tariffs in March 2002, many
domestic steel producers and distributors simply disregarded existing
supply contracts. Automotive suppliers remain among the leading
customers of the domestic steel industry; thus, many of our companies
had long standing relationships with mills, mini-mills and service
centers in the United States. They did not anticipate the nullification
or amendment of their existing contracts and were not in the financial
position to suddenly absorb sharp price increases.
Despite the general expectation that steel prices would rise in the
United States following the announcement of the tariffs, the automotive
supplier industry has witnessed price peaks far beyond the predicted
levels. A survey of our members, taken in December 2002, revealed the
following range of price increases pursuant to the President's
announcement in March 2002:
Hot Rolled Sheet +18 % to 65%
Cold Rolled Sheet +10% to 65%
Galvanized +35% to 43%
Welded Tube +28% to 30%
Tin Plate +30%
AKDQ +36%
Bar Stock +15% to 77%
MEMA gathered data from 17 select automotive parts suppliers to
assess the financial and business impact of the steel tariffs on the
industry. Our survey of this sample set of 17 companies indicated
losses in 2002 of $122 million directly attributable to higher steel
prices. Our sample set of only 17 automotive suppliers projected a
staggering cumulative cost of $224 million in 2003 due to increased
steel prices alone. This small sample points to far greater financial
and employment loss and diminished competitiveness throughout the
American automotive industry, as well as other steel-consuming sectors.
Recent reports indicate that certain domestic steel producers intend to
institute additional price increases of up to 10 percent in order to
recoup their production costs. These demands will be placed on top of
the steel industry's present pricing structure for auto suppliers; a
burden that our industry cannot sustain.
Price increases, however, are only one of the mechanisms by which
the Section 201 tariffs have caused disruption and dislocation in our
industry. After the tariffs took effect, many steel producers and
distributors placed their automotive supplier customers on allocation
and failed, or refused, to make timely deliveries. Among the same
sample set of automotive suppliers lead times (the period of time
necessary for a steel mill or distributor to make delivery on a
shipment) increased from approximately 8 to 12 weeks before the tariffs
took effect to approximately 16 to 20 weeks. Losses due to longer lead
times and delivery problems arising from the steel tariffs in 2002
totaled $12 million among the sample set of 17 automotive suppliers. It
is now clear that the supply and delivery problems present in 2002 are
not a temporary or transitional distortion and will, unfortunately,
continue to affect our industry throughout 2003. Automotive suppliers
run on strict ``just-in-time'' delivery systems; balancing a complex
and sensitive supply chain that depends heavily on the prompt delivery
for materials and the reduction of inventory as a cost-efficient
mechanism. Supply problems, triggered by the tariffs, have disrupted
production schedules, budgets and in some cases prevented our companies
from fulfilling promises made to their customers. Many automotive
suppliers have been forced to idle production lines and send employees
home over the past 13 months due to missed steel shipments. This
irrevocably damages the supplier and its employee base.
The Section 201 steel tariffs were imposed upon the sometime
supplier industry at a time when the industry is already facing a
number of considerable challenges. Many of these challenges mirror
those of the domestic steel industry: global overcapacity in the
automotive industry, loss of domestic market share over the past
decades, rising foreign competition, and unfair trade practices by
which other nations support their domestic automotive industries or
block the imports of U.S.-manufactured vehicles and automotive parts.
U.S. automotive suppliers are further facing strict cost reduction
mandates from their customers. Failure to meet the targets can often
disqualify a supplier from winning future business with a particular
automaker and result in the loss of current business. Most U.S.
automotive suppliers cannot pass higher raw material costs or
production costs forward to their customers, leaving automotive
suppliers in a ``cost-price'' squeeze.
Higher raw material costs and supply disruptions have further
damaged our competitive position in relation to foreign auto parts
manufacturers in the U.S. market and in overseas markets. Since March
2002, automotive suppliers have witnessed a shift in their customers'
purchases from U.S. to foreign sources of automotive parts and
components in order to reduce their exposure to the uncertainty created
by the Section 201 steel tariffs. Based on our experience in 2002, it
is clear that imports of intermediate and finished products, and the
related job losses from that shift of sourcing, will continue to grow.
High steel safeguard tariffs are presently forcing large tier-1
automotive suppliers to begin manufacturing or buying components or
complete assemblies, that they previously made or purchased in America,
from overseas. This development threatens a substantial number of U.S.
jobs and the viability of smaller U.S. tier-2 and tier-3 automotive
suppliers who make such products. Other companies are responding to the
pressure of high steel tariffs by slowing production lines or
considering the permanent relocation of manufacturing facilities to
other countries. If these product lines, and the associated
manufacturing plants, are moved to overseas locations, it is highly
unlikely that they will ever return to the United States. The loss of
jobs will be a permanent scar from the steel safeguard program.
Automotive suppliers, representing each tier of the industry, have
sought relief under the Administration's steel exclusion process.
Obtaining exclusions, however, has proved to be an expensive and
complex legal and regulatory process, essentially out of reach for many
small and even medium sized automotive suppliers. Other automotive
suppliers who could not obtain the necessary raw materials from their
U.S. sources sought exclusions, but failed to secure any relief due to
opposing claims from the U.S. steel industry. Overall, the exclusion
process has provided little relief to steel consumers in our industry
and is not a remedy to the supply problems arising from the tariffs now
faced by our industry.
The impact of the steel safeguard program and the Section 201
tariffs on all stakeholders in the United States--including steel
consumers--must be considered and factored into the formal mid-term
review. The current policy is costing America jobs and profits in steel
consuming sectors and its damage will continue far beyond the next few
years. Although the tariffs are presently scheduled to phase out in
2005, automotive suppliers are losing business that is set into place
several years in advance; thus, we will continue to suffer financial
and business losses far beyond that point. The cost to our competitive
stance in the global industry exceeds even those calculations, as it
will be irrevocable.
Protecting jobs in the domestic steel industry at the cost of high-
paying manufacturing jobs in the automotive sector is not a sound
policy nor is it a desired long-term result. From the standpoint of the
United States' long-term economic and trade policies, we do not view
this issue purely in terms of comparative job losses and business
losses between steel makers and steel consumers. That is not our
intent. Rather, we seek to demonstrate the factual claims concerning
the impact on our companies and to highlight the potential damage to
the U.S. manufacturing sector as a whole if the Administration does not
address this immediate crisis.
The automotive supplier industry, and the Administration, cannot
simply wait until the tariffs have diminished American competitiveness
and employment in our industry and other steel consuming sectors. An
examination of the tariffs' effects on steel consumers must occur
before any additional steps are taken to determine the viability of or
the requisite for the steel safeguard program. MEMA has worked in
conjunction with other interested parties over the past years to boost
awareness of the challenges faced by U.S. manufacturers and to
demonstrate the need for American companies to be able to procure raw
materials, including steel, at global, competitive prices.
Congress is now facing a critical opportunity to examine the
consequences of the Section 201 steel tariffs and to assess the effect
of the tariffs on both steel producers and steel consumers. Automotive
suppliers, together with appliance manufacturers, toolmakers, stampers,
maritime manufacturers, and many other steel consuming industries
strongly support House Concurrent Resolution 23. Introduced by
Congressman Joe Knollenberg of Michigan on January 29, this Resolution
has drawn the support of 69 Republican and Democratic cosponsors. Many
of these lawmakers represent both steel producing and steel consuming
constituents, yet they all recognize the need to expand the scope of
the Section 201 steel tariffs mid-term review to ensure that the costs
and benefits to steel producers and steel consumers can be assessed
together. We urge all members of the House to support this critical
Resolution.
MEMA also expresses its appreciation to the Trade Subcommittee and
the full House Ways & Means Committee for its decision to request a 332
investigation on behalf of U.S. steel consuming industries. The
Committee's formal petition to the International Trade Commission,
requesting the completion of a section 332 ``fact finding''
investigation to assess and evaluate the impact of the Section 201
steel tariffs on steel consuming industries, will provide a voice for
our companies and the many other manufacturers that use steel across
the country.
The House Ways & Means document further requests that the
International Trade Commission consolidate its section 332 ``steel
consumers'' investigation and its Midterm Review (section 204) into a
single document for President Bush's review in September 2003. On
behalf of its member companies, MEMA applauds the Committee's intent to
ensure that the two reports are presented simultaneously and, thus,
provide a complete economic assessment of the tariffs and their related
impact.
The automotive industry is a leading contributor to our nation's
economic health and its ongoing recovery. The automotive industry
remains the single largest manufacturing sector in the United States,
accounting for more than 5 percent of America's gross domestic product.
Automotive suppliers serve as one of the nation's leading high
technology sectors, directly driving much of the overall industry's
research and development efforts. Suppliers are the foundation for
vehicle production, sales and vehicle maintenance in the United
States--a network that provides jobs for 6.5 million Americans. MEMA
believes that the economic hardships caused by the Section 201 steel
tariffs have placed thousands of American jobs at risk and may
significantly erode the ability of our industry to contribute to our
nation's economic recovery and remain a viable U.S. manufacturing
sector.
MEMA thanks Chairman Philip Crane of the House Ways & Means Trade
Subcommittee for this hearing and for the opportunity to express its
views on this critical issue. Several of our member companies will
provide testimony at today's forum. Their stories serve as the best
means to communicate our industry's present concerns. We thank you for
their ability to participate as witnesses on the steel consumers panel.
MEMA would be pleased to be of any assistance we can to the Trade
Subcommittee as you continue your work in this important area. Please
feel free to contact MEMA's Washington, DC office with any additional
questions.
M.S. Willett, Inc.
Cockeysville, Maryland 21030
April 3, 2003
The Honorable Phil Crane
Chairman, Trade Subcommittee
House Committee on Ways and Means
Washington D.C. 20515
RE: L3-26-2003 hearing titled ``The Impact of the Section 201 Safeguard
Action on Certain Steel Products''
Dear Congressman Crane:
I am writing on behalf of my employer, M. S. Willett, Inc. Willett
is a metalforming company and we manufacture parts for our customers
from steel. We are located in Cockeysville, MD and we employ 110
workers. We need your help.
The steel tariffs imposed by the President last March, which were
intended to provide the domestic steel industry with protection from
imports and an opportunity to restructure in order to become
competitive on a global scale, have unfortunately resulted in
dramatically higher prices, longer deliver times, shortages,
allocations and lower quality for steel consumers.
As a result of the tariffs, Willett is facing the loss of major
contracts, layoffs of workers and is being pressured to move overseas.
Unless things change rapidly, Willett will lose business to foreign
competition that now has a built-in cost advantage, thanks to the
actions of our own government. I believe these tariffs should be
removed at the earliest possible time to prevent further damage to the
steel-using economy.
Thank you for your consideration.
Sincerely,
David R. Sandy
Vice President Support Services
Muncy Corporation
Enon, Ohio 45323
April 4, 2003
The Honorable Phil Crane
Chairman, Trade Subcommittee
House Committee on Ways and Means
Washington, DC 20515
Re: L3-26-03 hearing titled ``The Impact of the Section 201 Safeguard
Action on Certain Steel Products''
Dear Congressman Crane:
I am writing on behalf of my company, the Muncy Corporation. We are
located in Enon, Ohio and we employ 85 workers. Our production workers
are members of International Association of Machinists and Aerospace
Workers AFL-CIO union. We need your help.
The steel tariffs imposed by the President last March, which were
intended to provide the domestic steel industry with protection from
imports and an opportunity to restructure in order to become
competitive on a global scale, have unfortunately resulted in
dramatically higher prices, longer delivery times, shortages,
allocations and lower quality for steel consumers. Shortly after the
tariff was imposed our steel prices went up by 30%. They have now gone
down somewhat but are still over 25% above pre tariff levels.
As a result of the tariffs, the Muncy Corporation is loosing
business to Canada and other foreign countries that can import parts
with-out paying these duties. We have had no new stamping contracts
since the tariff was imposed and we have lost several contracts that we
had. Our stamping department is now operating at less than25% capacity.
Unless things change rapidly, my company will continue to lose
business to foreign competition that now has a built-in cost advantage,
thanks to the actions of our own government. I believe these tariffs
should be removed at the earliest possible time to prevent further
damage to the steel-using economy.
Thank you for your consideration.
Sincerely,
Wayne Brumfield
President
Statement of National Electrical Manufacturers Association, Rosslyn,
Virginia
The National Electrical Manufacturers Association (NEMA) strongly
urges the Administration to end its Section 201 foreign steel tariffs--
tariffs that the World Trade Organization (WTO) have now declared
illegal. Despite the many exemptions granted since the safeguard
program was launched a year ago, we firmly believe that protectionist
steel tariffs such as these do not help the domestic steel industry
become more globally competitive, and are costing far more jobs in
consuming industries than might be saved among domestic steel
producers. Especially in today's economy, NEMA member companies are
letting us know that they cannot pass the higher prices of steel
inputs--due to the tariffs and the pricing decisions of protected U.S.
steel companies--along to their customers.
As a first step, we would very much like to see the International
Trade Commission conduct a study of the tariffs' effects that takes the
concerns of steel consumers into consideration. This would comprise an
important part of a mid-term review of the ``safeguard'' remedy put in
place by the President in March 2002--a review that would hopefully
lead to the tariffs' termination. In this respect, NEMA prefers the
Administration's initiative to bring together global steel producers
under the auspices of the OECD to negotiate real and enforceable limits
on excess steel production capacity.
NEMA is the largest trade association representing the interests of
U.S. electrical industry manufacturers. Its mission is to improve the
competitiveness of member companies by providing high quality services
that impact positively on standards, government regulation and market
economics. Our more than 400 member companies manufacture products used
in the generation, transmission, distribution, control, and use of
electricity. These products, by and large unregulated, are used in
utility, industrial, commercial, institutional and residential
installations. The Association's Medical Products Division represents
manufacturers of medical diagnostic imaging equipment including MRT, C-
T, X-ray, ultrasound and nuclear products. Domestic shipments of
electrical products within the NEMA scope exceed $100 billion.
In closing, the electrical industry asks the U.S. Government to
take seriously the statutory language of Section 201--which requires
that any remedy adopted by the President must ``provide greater
economic and social benefits than costs.'' Based on what our members
are telling us about the damage these tariffs are causing them, NEMA
believes that the current safeguard policy clearly fails to meet these
criteria.
Thank you for your consideration of these remarks.
Statement of Nels R. Leutwiler, Parkview Metal Products, Chicago,
Illinois
Parkview Metal Products is a second generation, family owned
business that was founded in Chicago in 1950. Originally located in the
shadow of Wrigley Field, hence the name Parkview, the Company produces
precision metal stampings and assemblies for the automotive and
consumer electronics industries. Parkview's customer base includes
companies such as: Motorola, Bose, Visteon, Delphi, and Sony.
Parkview operates five manufacturing plants in North America,
located in Illinois, Texas, New Mexico, and Tijuana, Mexico, with sales
in 2002 of $58 million.
Doing business in the intensely competitive automotive and consumer
electronics industries, Parkview has seen its profit margins shrink in
recent years, as our customers have demanded yearly price decreases,
while our costs for labor, insurance, taxes and technology have
steadily increased. Our customers are mandating expensive investments
in quality certifications such as ISO/QS, just in time manufacturing,
electronic data transfer, etc., while stretching out their payment
terms.
Steel comprises roughly fifty percent of the cost of what we
produce and sell. The competitive steel pricing and stable steel
supplies we have experienced in the past several years were the only
factor keeping many metal stampers such as Parkview afloat and
profitable.
However, when the tariffs were imposed last year, the days of a
stable and reliable steel supply abruptly ended. Although Parkview
purchases almost all of its steel domestically-and all of it under
twelve month pricing agreements-the imposition of the tariffs resulted
in almost immediate, and dramatic, increases in price and reductions in
supply. While the LTV shutdown around this time contributed to the
problem, the lack of steel had more to do with the fact that the supply
of foreign steel had dried up due to the looming threat, and subsequent
imposition, of the tariffs.
Our steel prices, despite our ``agreements,'' shot up 30 percent or
more. When we couldn't obtain steel from our suppliers-who had
committed to have an adequate supply on hand throughout the year as a
component of our agreement, we were forced onto the open market, where
we paid as much as 60 percent more per pound for steel.
In addition, as supplies got tight and deliveries became highly
unreliable, Parkview was forced to constantly reschedule production to
conform to the sporadic arrival of our steel. Parkview operated every
weekend last summer, not because our production volumes warranted it,
but because we were living hand to mouth on steel, and our customers
were living hand to mouth on our parts. Parkview also incurred
significant costs in premium freight, both to get raw material in, and
to get finished parts to our customers in time to keep their production
lines operating. Our steel suppliers assumed none of the liability for
these costs.
For the most part, Parkview had to absorb these increased costs, as
most of our customers were adamant that they would not agree to pay
more for their parts. The net result was virtually a break even year
for Parkview in 2002, on $58 million in sales! In one instance, we
forced a customer to accept a price increase, to cover our 40 percent
increase in steel costs on a very high steel content part. The customer
has since retooled that project elsewhere, with the resulting loss of
$2 million in revenue for Parkview.
The loss of that program, plus other work for our Chicago plant,
has resulted in a 50 percent reduction in business volume for our
Chicago plant in 2003. Parkview has begun the painful restructuring
required in response to that reduction in work, laying off roughly one
fourth of the Chicago workforce on March 20.
Serving the consumer electronics and personal computer industries,
Parkview Metal Products is acutely aware of the threat China and other
low cost countries pose to manufacturing in the United States. Parkview
tooled up and built the metal components for Michael Dell's first
personal computer. At one time Parkview listed Dell, Compaq, and Tandy
Computers as our top three accounts. Virtually all personal computer
manufacturing has left the U.S.: it is now leaving Mexico and settling
into China and India.
Parkview for fifty three years was a major supplier to RCA (now
Thomson Consumer Electronics). In fact, we built a 107,000 square foot
plant in Las Cruces, New Mexico, primarily to serve Thomson. The
manufacture of DVD players and many of the other products we produced
components for has now moved to China. Parkview is scrambling
desperately to find customers to backfill in Las Cruces for that lost
work.
Automotive components are now Parkview's leading market segment,
but we see our major first tier customers, and the big three auto
makers pushing to source more and more work in China.
We obviously have an enormous disadvantage to China and much of the
rest of the world in terms of labor costs. Regulatory costs and
customary employee benefit costs further add to our higher costs. The
tariff-driven 30 to 40 percent increase in the price of steel, our
primary raw material, has greatly increased our competitive
disadvantage, and has greatly increased the motivation on the part of
major OEMs in this country to resource products-not just metal parts,
the entire end products-overseas.
This results in the loss of jobs, not just in the metal consuming
industries, but in all the ancillary support industries: equipment
dealers, painters and platers, plastic injection molders, die casters,
packaging suppliers, logistics providers, etc. These steel prices, plus
customer price pressures, the recession, and other cost pressures, are
driving countless metalformers, tool and die shops, and other related
companies, out of business at an alarming rate. A week no longer goes
by that I don't receive a handful of auction notices for companies in
the Chicago area, and throughout the country, that are being foreclosed
upon, or closing voluntarily.
The tool and die industry, once a foolproof source of high paying
jobs in the metals trades, has absolutely crashed. Where the Chicago
Tribune used to have two columns of tool and diemakers wanted ads every
Sunday for decades, a typical Sunday Chicago paper over the past twelve
months has had one or two ads total!
The Precision Metalforming Association's membership used to
consistently identify the lack of skilled employees as the number one
threat to the industry. This has now been replaced by high steel prices
and the threat posed by China as the major challenges to the industry.
There is much talk of how the higher steel prices are not an issue,
as they have just returned to historic levels from 10 or 20 years ago.
The problem is that Parkview's prices it receives from our customers
are significantly lower than 20 years ago. We cannot offer globally
competitive product, while paying non-competitive steel prices.
Furthermore, the steel makers claim prices are now moderating.
While our steel prices, effective April 1, are down roughly ten
percent, this is not even close to the pre-tariff prices. We can't even
get pricing beyond the third quarter of this year, as there is still
too much tariff-driven uncertainty in steel supplies and the resultant
prices.
Please urge the President to eliminate the tariffs at the mid-term
review this September. Parkview Metal Products' 350 U.S. jobs depend
upon it.
Perfection Spring & Stamping Corp.
Mount Prospect, Illinois 60056
April 8, 2003
The Honorable Phil Crane
Chairman, Trade Subcommittee
House Committee on Ways and Means
Washington, DC 20515
Dear Congressman Crane:
I am writing on behalf of our company, Perfection Spring & Stamping
Corp. We are located in Mt. Prospect, Illinois and we employ 103. Many
of our production workers are members of the Manufacturing, Production,
& Service Workers Union Local No. 24, AFL-CIO. We need your help.
The steel tariffs imposed by the President last March, which were
intended to provide the domestic steel industry with protection from
imports and an opportunity to restructure in order to become
competitive on a global scale, have unfortunately resulted in
dramatically higher prices, longer delivery times, shortages,
allocations and lower quality for steel consumers. Steel prices have
increased from an average price per pound of.307# to.37# or 19% since
March 2002. The delivery and overall product quality has eroded as
well. It is common to receive quotes of 8-10 weeks for material
delivery and various material defects are common. Domestic steel mills
no longer offer many engineered materials i.e. AKDQ R/B hardness 40
maximum or tight gauge tolerances. This has forced the metal consuming
industries to make due with run of the mill material, that has a higher
profit margin for the steel producers.
Because of the tariffs, our company has lost contracts to foreign
suppliers (especially China). We have had increased pressure to move to
Mexico and China by our customers and have had to lay off 40 employees!
Unless things change rapidly, our company will continue to lose
business to foreign competition that now has a built-in cost advantage,
thanks to the actions of our own government. I believe these tariffs
should be removed at the earliest possible time to prevent further
damage to the steel-using economy.
Thank you for your consideration.
Sincerely,
David J. Kahn,
President
Port of Milwaukee
Milwaukee, Wisconsin 53207
April 09, 2003
The Honorable Philip M. Crane
Chairman
House Ways and Means Subcommittee, Trade
233 Cannon House Office Building
Washington, DC 20515-1308
Re: LHouse Ways and Means Subcommittee Hearing Section 201 Steel
Tariffs and Quotas
Dear Congressman Crane:
In announcing the above referenced hearing held on March 26, you
stated, ``the past year has shown us that the steel safeguard action
has had wide-ranging effects on steel consuming industries and the US
economy. . .[and] we will examine just how much of an impact that
action has had on jobs in industries that are key participants in the
American economy.'' The purpose of this letter is to bring to your
attention the dramatic negative impact that Section 201 steel tariffs
and quotas have had on the maritime and transportation industries in
the Great Lakes region and the Port of Milwaukee.
The Sec. 201 action has for the past year and a half caused a
dramatic decline in steel cargoes handled at Milwaukee having fallen
55%. Longshore, terminal and trucking work hours have declined
proportionately, as have business revenues and resultant local and
federal tax receipts.
We respectfully request that you include the Martin Study in the
record of the March 26, 2003, House Ways and Means Trade Subcommittee
Hearing. We would further request that the Subcommittee Report urge the
ITC to conduct a Section 332 investigation on the impact of the Section
201 safeguard action on the maritime transportation system as well as
steel consuming industries.
We thank you for your support and look forward to working with you
to ensure that the economic and employment opportunities generated by
the U.S. port, maritime and transportation industries, are given full
consideration by the ITC during the Section 201 mid-term review
process.
Please feel free to contact me at 414-286-8132 should you have any
questions regarding this request.
Sincerely,
Eric C. Reinelt
Marketing Manager
Precision Metalforming Association
Independence, Ohio 44131
April 8, 2003
The Honorable Phil Crane
Chairman, Trade Subcommittee
House Ways & Means Committee
Washington, DC 20515
Re: L3-26-03 hearing titled ``The Impact of the Section 201 Safeguard
Action on Certain Steel Products''
Dear Congressman Crane:
The Precision Metalforming Association (PMA) respectfully submits
the following comments in regard to the March 26, 2003 hearing titled
``The Impact of the Section 201 Safeguard Action on Certain Steel
Products.''
PMA is the voice of America's $41-billion metalforming industry of
North America--the industry that creates precision metal products using
stamping, fabricating and other value-added processes. The metalforming
industry, which employs approximately 380,000 workers in the United
States, gives utility to sheet metal by shaping it using tooling in
machines. PMA members include metal stampers, fabricators, spinners,
slide formers, and roll formers, as well as suppliers of equipment,
materials and services to the industry.
Since the Section 201 steel tariffs were imposed by President Bush
last March, PMA member companies and the entire steel-consuming
industry have been suffering and the impact has been severe. Our
members have experienced extreme steel price increases, lengthened
delivery times, steel shortages and allocations, loss of business to
foreign competitors and layoffs.
The tariffs, which were intended to aid the domestic steel
industry, are threatening the viability of American steel-consuming
manufacturers that rely on access to fairly priced steel in order to be
competitive in the global market. Since the tariffs were imposed, PMA
members have reported raw material price hikes between 20-50 percent.
The assumption was that the tariffs would not hurt steel-consuming
companies, as they should be able to pass these price increases along
to their customers, who could pass the cost on to their ultimate
consumers or absorb it themselves. However, this does not work in
reality. Steel consumers have been unsuccessful in trying to pass the
price increases along to their customers. Some have threatened to take
their business overseas if our members do not absorb the increased
cost. In many cases, our members' customers require annual cost
decreases of 5 to 15 percent. Steel-using manufacturers cannot absorb
such high steel prices as steel represents 35 to 60 percent of their
cost of sales and profitability averages only 4.5 to 6 percent before
taxes.
Therefore, these conditions make it impossible for U.S. steel
consumers to compete globally. As a result, our members are laying off
workers, some have been forced to close their doors and others are
considering moving their businesses offshore. A January 2003 survey
found that 68 percent of PMA manufacturing member companies lost
business to foreign competition in 2002. Unless things change, we
expect even more of our members to lose business to foreign
competition, which now has a built-in cost advantage because of the
tariffs.
These import restrictions need to be removed at the earliest
possible opportunity to prevent further damage to the steel-using
economy. The tariffs are not saving the steel industry; they are
killing the steel industry's customer base.
Thank you for the opportunity to voice our concerns on this matter.
Sincerely,
Christopher E. Howell, CAE
Director of Government & Public Affairs
Statement of The Honorable Ralph Regula, a Representative in Congress
from the State of Ohio
Mr. Chairman and Members of the Subcommittee, I thank you for the
opportunity to testify regarding the positive impact that the
President's Section 201 Safeguard action has had on the domestic steel
industry.
The President took decisive action in March of 2002 to provide the
U.S. steel industry with some breathing room from the onslaught of low-
priced imports that had reached an all-time high in 1998. This surge of
imports drove over 35 domestic steel producers to seek bankruptcy
protection and led to numerous permanent closures.
I would argue that the President's steel program is having the
intended effect of allowing the domestic steel industry time to
consolidate, restructure and become more competitive. There are those
who argue that the President's program has led to price spikes and
significant job loss in the steel consuming community. I would argue
that the President's program allows for exemptions from the tariffs if
products cannot be produced in the U.S. and there are no functional
substitutes.
This process has been effective by allowing a total of 1,022 steel
products to be exempted from the tariffs.
I would also like to commend to you a recent study by Dr. Peter
Morici of the University of Maryland who has studied the impact of the
Section 201 program after one year. I ask that this study be placed in
the record. According to this study, steel prices did rise in the first
half of 2002, but then tapered off and actually fell from the high in
July by about 25 percent at the end of 2002.
When the President implemented the Section 201 tariffs, domestic
steel prices were at a 20-year low. These prices were unsustainable and
led to the many bankruptcies we witnessed. They also led to the idling
of nearly 20 million tons of steel-making capacity in the U.S. Prices
did rise in 2002 due to the loss of steel-making capacity and because
the tariffs slowed the rate of imports into the U.S. However, the price
increase during the first half of 2002 tapered off by about 25 percent
by December of 2002.
As a result of the stability created by the steel tariffs, new
investors have come into the market and purchased the assets of
shutdown plants and restarted them in a lower-cost and more efficient
manner. There are several examples in Northeast Ohio, including
selected assets of the bankrupt LTV Corporation being bought and
restarted by International Steel Group (ISG). The addition of
substantial capacity, which is being brought on at relatively low cost,
has again brought down domestic steel prices.
The consolidation and restructuring of the domestic steel industry
has not been without pain to many steelworkers and their families. As a
result of the restructuring, pension obligations of many bankrupt
facilities have been shifted to the Pension Benefit Guarantee
Corporation (PBGC). Many workers who were expecting pension benefits
before the age of 62 now find themselves without those pension benefits
and without health benefits. As selected assets of these bankrupt
companies are being purchased and restarted, it does mean jobs for some
and not for others.
The President's 201 program has created the environment that has
encouraged consolidation of the U.S. steel industry. This consolidation
has led to the closing of inefficient capacity and the restarting of
efficient plants at much lower costs. This will lead to an overall
lower cost U.S. steel industry which will be beneficial to all who use
domestic steel in their manufacturing and production processes.
However, I would caution that this restructuring is costly and will
take time to complete and pay for. Therefore, the premature ending of
the President's 201 program could once again push the industry in the
wrong direction. I have urged the President and his cabinet members to
keep the declining three-year tariffs in place for the entire three-
year duration that was announced last March.
During these difficult times when the U.S. is at war, I do not
believe that we as a nation would like to become more dependent on
foreign steel. We need a healthy basic steel industry to ensure that we
can meet our defense needs. A stable basic steel industry is also
necessary to ensure that there is a steady supply of steel for all
steel users in this country. I would urge the Subcommittee not to take
any action to prematurely end the President's 201 steel import relief
program. I thank you for the opportunity to appear before the
Subcommittee.
[Attachment is being retained in Committee files.]
Res Manufacturing Company
Milwaukee, Wisconsin 53223
March 21, 2003
The Honorable Phil Crane
Chairman, Trade Subcommittee
House Committee on Ways and Means
Washington, DC 20515
Dear Congressman Crane:
I am writing on behalf of my company, Res Manufacturing Company. We
are located in Milwaukee, Wisconsin and we employ 50 workers. We need
your help.
The steel tariffs imposed by the President last March, which were
intended to provide the domestic steel industry with protection from
imports and an opportunity to restructure in order to become
competitive on a global scale, have unfortunately resulted in
dramatically higher prices, longer delivery times, shortages,
allocations and lower quality for steel consumers. During this period
we have experienced our purchased steel prices increase by at least
30%. Since raw material costs are the major cost driver of our business
we have suffered severe erosion of our profitability.
As a result of the tariffs, my company has seen numerous customers'
resource to offshore suppliers. In addition several have announced
plans to relocate their manufacturing operations outside the US. Unless
things change rapidly, my company will continue to lose business to
foreign competition that now has a built-in cost advantage, thanks to
the actions of our own government. I believe these tariffs should be
removed at the earliest possible time to prevent further damage to the
steel-using economy.
Thank you for your consideration.
Sincerely,
Dr. John Ormerod
President
Free Trade in Steel Coalition
Philadelphia, Pennsylvania 19106
April 3, 2003
The Honorable Philip M. Crane
Chairman
House Ways and Means Subcommittee, Trade
233 Cannon House Office Building
Washington, D.C. 20515-1308
RE: LHouse Ways and Means Subcommittee Hearing Sec. 201 Steel Tariffs
and Quotas
Dear Congressman Crane:
In announcing the above referenced hearing held on March 26, you
stated, ``the past year has shown US that the steel safeguard action
has had wide-ranging effects on steel consuming industries and the US
economy . . . [and] we will examine just how much of an impact that
action has had on jobs in industries that are key participants in the
American economy.'' The purpose of this letter is to bring to your
attention the dramatic impact that these tariffs and quotas have had on
the maritime and transportation industries.
The Free Trade in Steel Coalition (FTSC) is compromised of port
authorities, port terminal operators, long-shore labor unions, and
other U.S. port and transportation industry organizations who operate
in the Ports of New Orleans, Los Angeles/Long Beach, Houston,
Philadelphia/Camden/Wilmington, the Great Lakes port region, and other
ports throughout the U.S. Attached to this letter is a listing of
current coalition members.
As we enter the International Trade Commission (ITC) Section 201
mid-term review process, significant attention has been paid, and
rightly so, to the adverse impact these tariffs and quotas have had on
the downstream steel consuming industries. A recent study commissioned
by The Consuming Industries Trade Action Coalition (CITAC) entitled,
The Unintended Consequences of US Steel Import Tariffs: A
Quantification of the Impact During 2002 demonstrated that over 200,000
manufacturing and related jobs have been lost since the imposition of
these tariffs and quotas on March 5, 2002.
However, it must be pointed out that jobs in the maritime and
transportation industries are also at risk as a result of this 201
action. A recently completed study by Martin Associates, The Economic
Impact of Imported Iron and Steel Mill Products on the Nation's Marine
Transportation System (Martin Study), concludes that more than 38,000
direct, induced and indirect jobs for U.S. residents were dependent in
2000 upon the handling of imported steel products. Furthermore, this
level of economic activity generated $1.7 billion of direct business
revenue, $1.7 billion in wages and salaries, and $576.3 million of
federal, state and local tax revenues.
We respectfully request that you include the Martin Study in the
record of the March 26, 2003, House Ways and Means Trade Subcommittee
Hearing. We would further request that the Subcommittee Report urge the
ITC to conduct a Section 332 investigation on the impact of the Section
201 safeguard action on the maritime transportation system as well as
steel consuming industries.
We thank you for your support and look forward to working with you
to ensure that the economic and employment opportunities generated by
the U.S. port, maritime and transportation industries, are given full
consideration by the ITC during the Section 201 mid-term review
process.
Please feel free to contact me at 215-925-2615 should you have any
questions regarding this request.
Sincerely,
Dennis Rochford
Coordinator
______
Membership List
LAmerican TransPort--Paulsboro, NJ
LAssociated Branch Pilots of New Orleans
LAstro Holdings, Inc.--Philadelphia, PA
LBARTHCO International
LBoard of Commissioners, Port of New Orleans
LCalifornia United Terminals, Inc.--Long Beach, CA
LCeres Terminals Incorporated--Chicago, IL
LChampion Service Inc.
LChristina Service Company--New Castle, DE
LCooper T. Smith Stevedores and Terminal Operators--
Houston, TX
LCorporation of Professional Great Lakes Pilots
LD & M Transportation Services, Inc.--Bellmawr, NJ
LDelaware River Stevedores, Inc.
LDetroit Marine Terminals
LEmbarcadero Systems Corporation--Alameda, CA
LEmEsCo Marine Terminal--Chicago, IL
LFederal Marine Terminals--Portage, IN
LGS Profiles--Norcross, GA
LHolt Cargo Systems, Inc.--Gloucester, NJ
LIllinois International Port at Chicago International
Federation of Professional Tech Engineers, Local 18--Audubon, NJ
LInternational Freight Forwarders and Customs Brokers of
New Orleans
LJacobsen Pilot Service--Port of Long Beach, CA
LLakes Pilot Association, Inc.--Port Huron, MI
LLogistec USA Inc.--New Haven, CT
LMarine Terminals--Oakland, California
LMaritime Association of the Port of New York and New
Jersey
LMaritime Exchange for the Delaware River and Bay
LNational Association of Maritime Organizations--Norfolk,
VA
LNicholson Terminal and Dock Company--River Rouge, LAP & O
Ports New Orleans
LPan Ocean Shipping Co., Ltd.
LPasha Stevedoring and Terminals--Port of Los Angeles, CA
LPhiladelphia Customs Brokers & Forwarders Association
LPilots' Association for the Bay and River Delaware
LPort of Detroit Operators Association
LPort of Milwaukee
LPort of New Orleans
LPort of Wilmington, Delaware
LPorts of Philadelphia Maritime Society
LPorts of the Delaware River Marine Trade Association
LReserve Marine Terminals--Chicago, IL
LShipping Federation of Canada
LSouth Jersey Port Corporation
LStevedoring Services of America--Savannah, GA
LTampa Port Authority
LTeamsters Local Union No. 500 of Philadelphia, Camden and
Vicinity
LTerminal Shipping Co., Inc.--Philadelphia, PA and
Baltimore, MD
LThe Holt Group, Inc.--Philadelphia, PA
LUnited States Great Lakes Shipping Association
LWest Gulf Maritime Association--Houston, TX
LWFC Associates--Crofton, MD
LWWP Maritime Specialists--Glen Eagle, PA
As of February 2003
______
Maritime Exchange for the Delaware River Bay
April 3, 2003
The Honorable Philip M. Crane
Chairman
House Ways and Means Subcommittee, Trade
233 Cannon House Office Building
Washington, D.C. 20515-1308
RE: LHouse Ways and Means Subcommittee Hearing Sec. 201 Steel Tariffs
and Quotas
Dear Congressman Crane:
In announcing the above referenced hearing held on March 26, you
stated, ``the past year has shown US that the steel safeguard action
has had wide-ranging effects on steel consuming industries and the US
economy . . . [and] we will examine just how much of an impact that
action has had on jobs in industries that are key participants in the
American economy.'' The purpose of this letter is to bring to your
attention the dramatic impact that these tariffs and quotas have had on
the maritime and transportation industries.
The Maritime Exchange for the Delaware River and Bay, compromised
of approximately 300 members, is a non-profit trade association
representing the ports and related businesses in Philadelphia,
Pennsylvania, Camden, New Jersey and Wilmington, Delaware.
As we enter the International Trade Commission (ITC) Section 201
mid-term review process, significant attention has been paid, and
rightly so, to the adverse impact these tariffs and quotas have had on
the downstream steel consuming industries. A recent study commissioned
by The Consuming Industries Trade Action Coalition (CITAC) entitled,
The Unintended Consequences of US Steel Import Tariffs: A
Quantification of the Impact During 2002 demonstrated that over 200,000
manufacturing and related jobs have been lost since the imposition of
these tariffs and quotas on March 5, 2002.
However, it must be pointed out that jobs in the maritime and
transportation industries are also at risk as a result of this 201
action. A recently completed study by Martin Associates, The Economic
Impact of Imported Iron and Steel Mill Products on the Nation's Marine
Transportation System (Martin Study), concludes that more than 38,000
direct, induced and indirect jobs for U.S. residents were dependent in
2000 upon the handling of imported steel products. Furthermore, this
level of economic activity generated $1.7 billion of direct business
revenue, $1.7 billion in wages and salaries, and $576.3 million of
federal, state and local tax revenues.
Specific to the Delaware River and Bay regional port complex, the
Martin Study concluded that 4,400 jobs were dependent upon the handling
of imported steel in 2000, and that this level of economic activity
generated $303 million in business revenues, $175 million in wages and
salaries, and $70 million in federal, state and local taxes.
We respectfully request that you include the Martin Study in the
record of the March 26, 2003, House Ways and Means Trade Subcommittee
Hearing. We would further request that the Subcommittee Report urge the
ITC to conduct a Section 332 investigation on the impact of the Section
201 safeguard action on the maritime transportation system as well as
steel consuming industries.
We thank you for your support and look forward to working with you
to ensure that the economic and employment opportunities generated by
the U.S. port, maritime and transportation industries, are given full
consideration by the ITC during the Section 201 mid-term review
process.
Please feel free to contact me if you have any questions regarding
this request.
Sincerely,
Dennis Rochford
President
______
Executive Summary
The Martin Economic Study on Imported Steel and Port Jobs
October 25, 2001
In 2000, 36.4 million net tons of iron and steel mill products were
imported into the United States. Five port regions in the United States
handled 70% of the iron and steel imports. These port ranges are:
LPort of New Orleans Customs District