Canton Repository

February 26, 2002

The final push for steel aid

By PAUL KRAWZAK
Copley News Service 

WASHINGTON -- With a national media blitz, the steel industry
is making a frantic final push this month to persuade President
Bush to clamp tariffs on foreign steel, which could help the steel
industry while raising prices for consumers.

“We are going to see rallies back in the states, we are going to
see people visiting their senators and congressmen, both back
home and here, we’re going to turn on all the resources of the
union both active and retired,” says William Klinefelter, chief
lobbyist for the United Steelworkers of America.

The industry is experiencing its worst crisis since the massive
layoffs and restructuring of the 1980s. More than a dozen steel
makers are in bankruptcy proceedings or shut down. Steel
prices are at their lowest levels in at least 20 years.

The industry pins the blame on imports, which peaked in 1998 and fell back to pre-1997 levels last year. Imports take
business away from domestic steel makers and help drive down the price of steel.

If Bush doesn’t come through with import relief, many of the remaining companies are headed for failure, advocates of
relief say.

Bush has until March 6 to announce how he will act on U.S. International Trade Commission recommendations that he
impose tariffs of up to 40 percent on about 80 percent of the steel imported to this country. The independent agency
recommended tariffs be slapped on for the maximum-allowed four years.

Many expect Bush to order at least some relief.

“There’s no doubt we will get a remedy,” says Dan DiMicco, chief executive officer of Nucor Corp., the nation’s No. 2 steel
maker. “But the question is, how strong is the remedy?”

In a six-month investigation, called a Section 201, the ITC determined that steel imports have caused substantial harm
to the domestic steel industry. It recommended import restrictions designed to give the industry time to restructure and
become more competitive. Section 201 investigations do not attempt to determine whether trade is fair or not.

Administration officials say Section 201 is one part of a three-part strategy for helping U.S. steel companies. Officials also are pushing for a reduction in worldwide steel production and pressing other nations to end subsidies for their producers.

Meanwhile, a coalition of U.S. companies that buy steel, as well as representatives of importers and foreign steel makers, are lobbying Washington to reject tariffs.

The artificially higher prices that would result would hurt U.S. companies that use steel, and consumers who buy appliances and other products made of steel, they say.

Caterpillar, the Peoria, Ill.-based manufacturer of earth-moving equipment, is one of the largest buyers of American steel. It is also a major exporter. The company opposes higher tariffs, which it said would raise its cost of steel while its foreign competitors would be able to get cheaper steel abroad.

“It would hurt our competitiveness and it would lead to retaliation by our trading partners,” said William Lane, a lobbyist for the company. “They could impose similar tariffs or more restrictive tariffs on American exports.”

A study by the Consuming Industries Trade Action Coalition, which represents steel-using companies, asserts that trade
restrictions would result in a loss of up to 74,500 jobs, depending how high tariffs are set.

The projected job loss is based on a computer model, which assumed that many steel-using companies either would not
be able to pass price increases on to their customers or would lose sales to foreign rivals with access to cheaper steel.

It is among several studies, with similar results, which were paid for by opponents of higher tariffs.

The older, integrated steel makers are urging the federal government to provide legacy cost relief, which they say would
make it financially feasible for one steel company to acquire another and save it from closing.

With Thomas J. Usher, chairman and chief executive officer of U.S. Steel Corp., in the lead, they are asking Congress to
pay for the pension and health care obligations that weak steel companies owe their retirees when those companies
are acquired by stronger steel makers.

Steel companies and their unions negotiated those benefits during better times.

U.S. Steel, for example, would like to acquire Bethlehem Steel Corp., which is in bankruptcy proceedings. But Usher said
the company won’t buy if it has to take responsibility for Bethlehem’s almost $5 billion in legacy costs.

Opponents of legacy cost relief argue there is no reason for the government to bail out companies for decisions they
made that have returned to haunt them. Government relief also would set a precedent for bailing out other companies
that have obligations to their retirees they can’t keep.

“The legacy costs for pension and health care benefits represent promises made to their work force by the management
of these steel companies when times were good and they simply aren’t able to meet those promises,” says Jon Jenson,
chairman of CITAC.

“But why is that a responsibility of steel consumers? Why in fact is it a responsibility of anybody other than the people
who made the promises? It’s simply a case of promises made and not kept.”

In their latest effort to cobble together a legacy relief package, the major integrated steel makers and steelworkers
union are working on a plan that would use revenues from tariffs to help pay legacy costs.

Rep. Phil English, R-Pa., chairman of the Congressional Steel Caucus, says the idea has a better chance of passage than
other steel bills languishing in Congress, including a plan to impose assessments on American steel sales to pay the tab.

“It recognizes, for example, that an assessment on steel as a financing device is a nonstarter,” he said. “It utilizes and
directs some of the revenue from penalty tariffs coming in as a financing device. I think that’s creative.”

While minimills previously opposed a bailout of legacy costs, they joined with integrated steel makers in early February
to support limited relief.

The Steel Manufacturers Association, which represents minimills, said it will support government provision of catastrophic
health coverage to retired steelworkers who lose their medical benefits and are still too young to qualify for Medicare,
the health insurance program for older Americans.

If the president orders Section 201 relief, it might not help American steel makers much, or it might simply put off the day
of reckoning for weak companies, some observers contend.

Industry analyst Charles Bradford doubts that higher tariffs will provide much help to failing steel makers.

“There are already dumping duties on most steel products that are high enough that imports are going to be down no
matter what,” he said, referring to 160 existing duties on foreign steel products that were unfairly dumped here or were
subsidized by foreign governments.

The tariffs sought from Bush would be “overkill,” Bradford said. He also believes the World Trade Organization would
rule they violate international trade law.

William G. Peluchiwski, who crafts mergers and acquisitions in the metals industry for investment bank Houlihan Lokey
Howard & Zukin, believes that higher tariffs ordered by the president would make steel companies more profitable.

“But in one way, it actually could (discourage) consolidations because you have everybody going back to what they
were doing before, pumping out more volume,” he said.

While imports have fallen, steel prices have begun to rise since December, when LTV Steel ceased production at its
plants in Cleveland, Hennepin, Ill. and East Chicago, Ind.

“LTV’s customers have been forced to redistribute their business to remaining producers and the tighter supply has
boosted hot rolled spot pricing as high as $225 to $230 a ton,” Morgan Stanley analyst Wayne Atwell wrote in a recent
report.