Canton Repository

June 21, 2003

Buyers, sellers dispute steel tariffs

By PAUL M. KRAWZAK
Copley Washington correspondent

WASHINGTON — From the outset, the domestic steel industry has hailed President Bush’s decision last year to hike tariffs, crediting the temporary boost in duties with stabilizing prices and allowing troubled companies to restructure.

But this week, the U.S. International Trade Commission heard a different story from more than a dozen steel-using companies, whose representatives painted a dire picture of the harm caused by import fees.

“The steel tariffs have handcuffed us with the highest steel prices in the world, and that threatens our competitive position as a global supplier,” said Timothy D. Leuliette, chairman and chief executive officer of Metaldyne Corp., a Plymouth, Mich.-based manufacturer of automotive components.

The trade commission, an independent federal agency, is investigating the impact the tariffs are having on steel-using businesses and will send a report to Bush in September.

The president must decide whether to end the tariffs this year or extend them for a full three years until 2005.

After the tariffs took effect in March 2002, Metaldyne stopped making transmission clutch components in its Michigan facilities and now buys them from South Korea “for 25 percent less than the we can make” them in the United States, Leuliette said.

Rising steel prices, which he attributed to the tariffs, made it more costly to buy steel and produce the components here than to purchase them abroad, he said. As a result, jobs have shifted overseas.

During the hearings on Thursday and Friday, the trade commission also heard from defenders of the program. They said the tariffs have helped to preserve domestic steel-making capacity, which they said is good for steel buyers.

Mitchell A. Hecht, vice president of external affairs and public policy for International Steel Group in Cleveland, gave the tariffs at least partial credit for the company’s decision to purchase and reopen what was formerly LTV Steel last year. LTV struggled to survive before shutting down in December 2001.

“ISG used the market stabilizing impact of the ... tariffs to invest $1.5 billion of new capital into the restructuring of its assets, negotiate a groundbreaking new labor contract in partnership with the leadership of the USWA (United Steelworkers) and increase the productivity rate of the former facilities by 100 percent versus the old mode of operating,” he said.

ISG also purchased Acme, another steel company that had closed, as well as Bethlehem Steel, which was bankrupt.

Bush imposed the tariffs to ease a crisis in the U.S. steel industry, which has seen one company after another declare bankruptcy or cease operations since a surge of imports in 1998. The tariffs are part of a larger administration effort to reduce the surplus of steel making capacity worldwide and end foreign subsidization of steel exports.

U.S. steel prices had fallen to 20-year lows in 2001.

By raising the price of foreign steel, the tariffs at least contributed to a dramatic rise in steel prices last year. But many analysts believe the shutdown of companies such as LTV, which reduced steel supply, played an even larger role in rising steel prices. Since last summer, prices have fallen somewhat, but they are still higher than before the duties took effect.

Making their case to the trade commission, steel users insisted that domestic steel prices are among the highest in the world, putting U.S. manufacturers at a competitive disadvantage.

Defenders of the tariffs challenged that assertion, saying U.S. prices are among the lowest anywhere.

Peter Morici, a professor at the University of Maryland who testified on behalf of the steel industry, submitted charts showing that in May, the price of hot rolled sheet steel in the United States was lower than in Europe and China.

In April, the Consuming Industries Trade Action Coalition, which represents steel users, distributed a different set of figures showing American steel prices exceeding those in Europe and Japan but lower than the price of steel in China.

Charles Bradford, an independent steel analyst, said “for most of last year the U.S. was way above the rest of the world (in steel prices) but now it’s pretty similar.”

In an unusual development, the trade commission revealed that it is investigating the source of a “tip sheet” that allegedly encouraged opponents of the tariffs to exaggerate the harm they had caused.