Steel Caucus Presentation September 30, 1999:
The Steel Import Crisis Continues in 1999

Bethlehem Steel Corporation
For Immediate Release

My colleagues will discuss some of the reasons behind the crisis and some of the measures we can take to resolve it. I want to focus my remarks today on the ongoing effects of the crisis � effects that steelworkers and communities across the country are feeling every day.

Let me be clear: This crisis is not over. It continues � and it will continue � unless we inject a sense of urgency into enforcing our trade laws. The fact is that the joint effort by the steel industry and its workers to vigorously prosecute our rights under the trade laws has been the most effective response to this steel import crisis. But our work must not stop there. The Administration must not enter into suspension agreements negotiated without the consent of the domestic industry. These agreements guarantee a market share to dumped and subsidized imports. We must also make a commitment to enhance our trade laws. Today�s global economy has changed the face of international trade and commerce. Our trade laws must be updated to respond to the realities of those changes.

The statistics speak for themselves. Total finished steel imports into the United States surged by 10 million tons in 1998, an increase of 40 percent over 1997. And finished steel imports in 1997 were already at a record level. In 1999 � with the exception of imports affected by the hot-rolled antidumping and countervailing duty cases � imports of all finished steel products have increased.

The surge in import volume has been accompanied by a free-fall in import prices � which in turn has driven down domestic prices. In the first quarter of 1998, as the flood of dumped steel began to wash ashore, the average customs value per ton for steel mill products was $455. By July of this year, it had dropped to $329. That�s $126 per ton � a 28 percent decrease. I challenge anyone in this room to compete with that kind of pricing pressure.

What is perhaps most frightening about this crisis is that it started � and continues � during a period of record U.S. demand. Domestic consumption of steel products has increased 38 percent since 1990. In other words, this crisis is happening in a robust American economy. What happens if the economy slows down? If unfairly traded imports undermine the U.S. industry in a period of peak demand, what will the effect be as demand inevitably declines? If the effects of the crisis thus far are any indication, the impact of a continuing crisis cannot be overstated.

Already, five U.S. steel companies have filed for chapter-11 bankruptcy protection since the onset of the steel crisis. Last year, Acme Metals in Illinois and Laclede Steel in Missouri filed for bankruptcy. Earlier this year, they were joined by Geneva Steel in Utah and Qualitech Steel in Indiana. The most recent bankruptcy, Gulf States Steel in Alabama, came only a couple of months ago � in July.

Bankruptcies, of course, are only one of the many effects. U.S. steel mills have lost orders and sales, and both domestic shipments and capacity utilization remain down this year compared to 1998. Comparing the first half of 1999 to the first half of 1998, steel shipments have declined by more than 4 million tons. Steel-industry-capacity utilization is also down � from 91.8 percent to 80.4 percent. And I don�t need to tell you what operating that much below capacity can do to your profitability.

Companies now face the problem of committing future capital investment to an industry that cannot generate a satisfactory return on its investments. And this is one of the most troubling aspects of this crisis. This is not a one-year or two-year crisis that will magically go away. If steps are not taken to solve this crisis � and prevent future crises � we will lose long-term competitiveness.

This industry transformed itself in the 1980s into a cutting-edge, world-class competitor. But some tough decisions were made. Thousands of steelworkers lost their jobs. Mills were shut down. The industry succeeded, however, because it invested in itself � $50 billion of capital investments in the 1980s and billions more every year since then � not only in equipment and technology, but in worker retraining and environmental activities.

Over the past five years, U.S. Steel alone has invested $1.5 billion in capital improvements. And capital investment for 1999 is estimated to add about $300 million more. How can U.S. Steel continue this level of investment when unfairly traded imports continue to devastate our company? Let me define "devastate" for you: For the first half of 1999, revenue was off by $900 million compared to the same period last year. Ladies and gentlemen, that�s a loss equal to three years� capital investment. The effect of unfairly traded steel on first-half net income was even more dramatic. It dropped 83 percent below net income for the first half of 1998 � from $218 million to $36 million. Losses like that don�t leave much to invest, and if we don�t invest we cannot remain a leader.

• Total cold-rolled imports are up 9 percent (from 1.417 million tons to 1.544 million tons);
• Imports from Brazil are up 163 percent (from 83,379 tons to 219,263 tons);
• Imports from Argentina are up 168 percent (from 27,757 tons to 74,314 tons);
• Imports from Venezuela are up 1,057 percent (from 3,669 tons to 42,444 tons);
• Imports from Taiwan are up 2,635 percent (from 1,762 tons to 48,196 tons); and
• Imports from Thailand are up 48,655 percent (from 143 tons to 69,720 tons).

There have also been enormous increases in imports of corrosion-resistant steel. Again, comparing the first half of 1999 to the first half of 1998, total imports are up 35.9 percent (from 694,499 tons to 944,118 tons). Imports from Mexico, Taiwan, and Argentina are up dramatically.

These statistics � on production, on return of investment, and on price depression and imports � are important because they demonstrate the continued severity of the crisis. But I want to conclude my comments today by talking about the people who come to work every day and work hard. Thousands of steelworkers have lost good jobs, and many laid-off steelworkers still cannot return to work. Other workers face short work weeks, reduced overtime, and lower pay. Workers who have worked their entire lives in a steel company must now find new jobs � and for many, these jobs simply will not exist. I know this is not Congress�s vision for American workers.

And this crisis is not limited to any particular geographic area. Affected mills and workers include those in West Virginia, Pennsylvania, California, Ohio, Maryland, Utah, Texas, South Carolina, and many other states. And countless others are impacted � outside contractors, suppliers, downstream users, and, in fact, nearly everyone in steel-mill communities. For every one million tons of domestic steel lost, nearly 5,000 U.S. jobs are directly or indirectly affected.

The steel crisis is not over. It continues to have a damaging impact on our workers, their families, their communities � and it threatens the competitiveness of our industry. I hope that this Congress and this Administration will commit to enforce our trade laws � and enact new laws to prevent this from happening again. We have worked too hard to cede our industry to unfair trade.

As Mr. Wilhelm described, the steel crisis is continuing, and the effects are severe. I want to focus my remarks today on why the crisis continues � that is, the fundamental causes of the steel crisis.

There has been a great deal of discussion over the last two years about the remarkable efficiency of the U.S. steel industry � and the painful restructuring we went through to get where we are today. The U.S. industry is fortunate to have the benefit of some of the most productive workers in the world. Our enormous capital and technological investments have resulted in cutting-edge manufacturing processes. American steel companies are, in fact, the low-cost producer for this market. And we have achieved all of this while meeting [and surpassing] some of the most stringent environmental regulations in the world.

The steel crisis has put all of this at risk. Despite the successes of this industry, we will continue to feel the effects of this crisis � and we will continue to risk future crises � so long as the underlying causes are not addressed. And if one takes a look at the international market today, many of the forces behind the steel crisis remain: foreign steel industries are more subsidized, more protected, and more cartelized than any other industrial sector. While the U.S. industry restructured, many of our foreign competitors did not make the same painful decisions. Instead, many foreign steel companies have made decisions driven by national industrial and social policies, such as maintaining artificially high employment.

This, in fact, is the very heart of the continuing crisis: uneconomic decisions by foreign governments and foreign producers creating vast worldwide overcapacity. This glut of foreign steel continues to end up in the United States because the United States is the world�s only open market of any size. We witnessed dramatic increases in 1998. And despite trade cases, foreign production in many countries in 1999 is actually up. Comparing the first seven months of 1999 to the same period in 1998, crude steel production in Russia, for example, has increased by 11.1 percent. Production in Asia is also up � at a time when its production should have declined in response to declining demand. The excess-supply problem is exacerbated by our suspension Agreement with Russia � and more recently with Brazil. These agreements encourage inefficient production by guaranteeing access to the U.S. market � even for dumped and subsidized steel.

While the U.S. industry must contend with these new imports, it also must deal with the fact that America�s docks and warehouses are overflowing. The unprecedented surge in imports in 1998 caused steel inventories held in the United States to increase to extremely high levels. Despite the decline in hot-rolled imports at the end of 1998 as a result of trade cases, this inventory continues to overhang the market in 1999, depressing prices and suppressing orders from U.S. mills.

All of this demonstrates that the trade laws are the most effective response � in fact, the only line of defense � against unfair trade. Our recent experience, however, illustrates that we cannot become complacent. We must continue vigorous enforcement of our fair-trade laws. Where possible, we must improve them.

At the same time, we must aggressively combat foreign subsidies. Excess capacity will not go away until foreign governments end the massive subsidization of their steel industries. We see new subsidies � and we live with their effects � every day. The Korean government, for example, recently channeled more than $6 billion in capital to a non-creditworthy new steel venture. Korea also limits access to its home market through tariffs and toleration of cartel activity. Many other governments also support un-economic production: The governments of Spain and Italy recently wrote off enormous debts incurred by their steel companies. The Government of Brazil continues to manage its internal market. And there are numerous other examples.

The bottom line is that all of these factors � overcapacity, continued foreign government subsidies to support non-competitive production, and weak foreign economies � all of these problems result in pressure to dump excess steel in open markets such as the United States. We must seize this opportunity to focus our efforts on what we can do � and what we must do � to ensure that our steel industry is not lost to unfair trade.

As we have heard from my colleagues, the U.S. steel industry continues to suffer from the effects of the steel crisis, and the conditions that caused the crisis remain. Now we must commit to an appropriate response. That response will require much work. But the solution is a straightforward one. We must ensure vigorous enforcement of the existing trade laws. And that means not undercutting those laws by entering into suspension agreements over the objection of the domestic industry. We also must update and enhance our trade laws to make sure that they continue to be responsive to the new world economy. And finally, we must ensure that other countries do not succeed in weakening our antidumping and countervailing duty laws in the upcoming WTO negotiations.

First, there must be uncompromising enforcement of our trade laws. The surge of imports of carbon hot-rolled sheet from Japan, Russia, and Brazil in 1998 was abated primarily as a result of trade cases filed by U.S. producers. Following the November 1998 affirmative determination by the Department of Commerce of preliminary critical circumstances, hot-rolled imports from Japan, Russia, and Brazil � which had reached 1.2 million tons in November 1998 � fell in one month to 192,000 tons. By March 1999, these imports were down to 4,300 tons. (See Chart B)

To ensure, however, that unfairly traded imports from one country are not simply replaced by different unfairly traded products � or by dumped or subsidized products from another country � it is imperative that we maintain aggressive enforcement of our antidumping and countervailing duty laws.

The President, in his August Steel Action Program, committed to "zero tolerance of unfair trade," and he insisted that his Administration will "continue to vigorously enforce our trade laws to ensure that our trading partners play by the rules."

The Administration must follow through on this promise. For example, we suggest an internal directive by the Secretary of Commerce to Import Administration staff to take every action possible to ferret out all dumping and subsidization. This means strengthening regulations and methodologies where permitted by WTO rules, and fully implementing the President�s policy of zero tolerance of unfair trade.

At the same time, we must commit to make improvements in our laws � to reduce the risk that the U.S. steel industry will be subject to this kind of crisis in the future. To this end, the U.S. steel industry commends the efforts of many members of the Congressional Steel Caucus, who have proposed and supported much � needed reforms.

I want to talk specifically today about H.R. 1505, which seeks to put long-term reforms in place so that nothing like the current crisis can ever again plague our industry � or any other industry.

As a preliminary matter, H.R. 1505 would strengthen trade-law enforcement in a fully WTO-consistent manner. Every one of the bill�s reforms fits into this category � where WTO rules allow more, but the United States is actually doing less. Existing U.S. criteria for injury findings, market-share calculations, and a host of other determinations are biased against domestic companies in a way that is totally unnecessary under WTO standards.

The ITC�s current injury test, for example, is heavily biased against petitioners. H.R. 1505 would correct anomalies in current rules so that industries harmed by unfair imports can get relief they deserve. The bill also contains guidance for the ITC and the Commerce Department that will make the laws more effective in responding to especially sharp import surges coupled with rapid price declines.

Importantly, the bill also would curb the troublesome practice of using suspension agreements � without the support of the domestic industry � to frustrate the statutorily-guaranteed right to full relief against dumped and subsidized imports. The recent agreement with Russia is a prime example of the misguided use of suspension agreements. This agreement reduces the pressure for much-needed reform in Russia, while it allows continued injury of the U.S. industry. It is a lose-lose policy for U.S. steel mills and steelworkers � and also for Russia. Another example of this problem is the agreement with Brazil, where � over the objections of the U.S. industry and its workers � the United States ceded a share of our market to heavily subsidized Brazilian producers.

H.R. 1505 also establishes a WTO-compatible program for tracking steel imports � comparable to the one maintained by Canada. These provisions would expedite the collection, analysis, and release of critical import data, thereby facilitating more rapid public and private responses that are more in keeping with the speed with which import crises can now develop.

Many Members have promoted important legislation that would help protect U.S. firms and workers from unfair trade, including Senator Specter's bill that would provide for a private right action to respond to unfair trade practices. In addition, Senators Rockefeller, Byrd, DeWine and other Senators have continued to be vocal advocates for the U.S. steel industry, and their legislative efforts have set the stage for what could be the most important year for the U.S. industry and its workers. There are many necessary reforms that we can and must make. Congressmen Regula, Visclosky, Levin, Houghton and others have introduced important legislation that would, for example, compensate U.S. mills and workers for harm caused by unfair trade. Congressmen Levin and Houghton have introduced legislation that would make critical changes to our safeguard laws. Many other Members also have either introduced or co-sponsored legislation � it is a sign, I believe, of the enormous importance of this issue.

The Administration�s Steel Action Plan proposes to establish an informal group to meet to discuss legislative proposals, and we hope this will be implemented. The bottom line is this: The U.S. Government should state as a matter of principle that no U.S. trade-remedy law should be more restrictive, in terms of the burdens placed on domestic industries seeking relief, than required by international agreements. How can we possibly justify domestic laws that are weaker than our international agreements allow?

Finally, we must commit that there will be no weakening of U.S. trade rules in any new multilateral negotiations. As a preliminary matter, we hope there will be widespread support for a Congressional Resolution introduced by Representative Visclosky and Representative Ney � and more than 100 other Members of Congress � stating that trade laws should not be on the table in any of the negotiations. Congressional representation is needed in Seattle to ensure that U.S. negotiators follow through with this Congressional mandate. And Congress should continue to communicate a clear message that it will not accept weakening changes to the antidumping rules.

The United States should refuse to participate in any international negotiation in which antidumping and anti-subsidy rules are part of the negotiating agenda. And the President should commit now not to submit for Congressional approval such agreements that require changes to the United States� current antidumping and countervailing duty laws and enforcement policies. Similarly � while under appropriate circumstances I support fast-track authority � Congress should not grant this authority if the implementing legislation contains any changes to the antidumping or countervailing duty laws.

The steel crisis has been � and continues to be � an extraordinary burden on American steel companies and steelworkers. But I am hopeful that out of this crisis will come a renewed commitment to the American steel industry. Commitments that we will enforce our trade laws. Commitments that we will not destroy our industry in the name of elusive foreign-policy goals. And commitments that we will improve our laws to make them at least as strong as our international commitments allow them to be.

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