LESSONS OF AMERICA'S STEEL CRISIS: PAST AND PRESENT
(ESI-CELI Congressional Forum)
William H. Barringer
Willkie Farr & Gallagher
March 15, 2000

I would like to begin by thanking the Economic Strategy Institute and the Congressional Economic Leadership Institute for inviting me to appear at today's forum. I hope that my presence will help make this a more balanced assessment of the alleged "steel crisis" and the lessons learned from this crisis.
I have represented foreign steel interests, including Japanese, Brazilian and
other foreign mills, in steel trade proceedings for over twenty years. As such,
my perspective may be somewhat different than that of the other speakers.

When talking about U.S. trade laws and U.S. trade policy as they affect steel,
it is important to recognize that the U.S. steel industry has benefited from protection against imports for most of the past thirty plus years. This includes restraints on imported steel from Europe and Japan in the late 1960's, section 201 relief on specialty steel for much of the 1970's, the trigger price mechanism in the late 70's and early 80's which established minimum prices for all imports, the voluntary restraints from 1984 to 1992 and, for the last eight years, the pursuit of antidumping relief whenever imports began rising. Steel has been and remains the largest user of the antidumping laws. With the possible exception of textiles, no other manufacturing industry has had the level of sustained protection as the steel industry. And no industry has had as much influence on U.S. trade policy and the U.S. trade laws as the steel industry.

In 1992 there was an apparent change in strategy of the integrated steel mills in dealing with imported steel. Up until then, antidumping investigations had been used to pressure the U.S. Government to negotiate and impose comprehensive steel import relief with supplier countries. The threat of exclusion of steel imports from the market was used as leverage, against both the U.S. and foreign governments, to negotiate trigger prices in the 1970's and VRA's in the 1980's. In 1992, led by Bethlehem Steel, "big steel" advocated the pursuit of antidumping investigations to conclusion rather than using the threat of antidumping investigations excluding imported steel as the basis to negotiate other forms of import relief.

The decision by the large integrated steel mills to make antidumping the centerpiece of their efforts to gain import relief has had several consequences.

First, it undermined the effort of major steel trading countries to agree on disciplines to address the problems of steel within the context of the World Trade Organization - the Multilateral Steel Agreement. Confronted with an agreement that had the potential of addressing many of the industry's complaints about foreign subsidization and trade distorting practices, the industry blocked the successful conclusion of these negotiations primarily because the draft agreement contained a provision calling for bilateral "consultations" prior to the initiation of antidumping investigations. Although the consultation provision contained no mechanism to "settle" antidumping investigations and no authority to impose such a settlement on the complaining industry, the industry viewed the mere possibility of "consultations" as a threat to their unimpeded use of the antidumping laws for protection. The so-called Multilateral Steel Agreement (MSA) could have provided an early warning mechanism to address import surges resulting from extreme economic changes in steel supplying countries. The extreme position of the industry in rejecting the MSA resulted in a lost opportunity.

Second, with the U.S. steel industry no longer interested in extra-legal measures such as voluntary restraints to address steel import problems, the U.S. agreed to strict prohibitions on such measures in the negotiations of the Uruguay Round's Safeguards Agreement. This substantially limited the options available for dealing with steel problems, leaving the industry with only safeguard measures (an option which until recently has not been viewed as viable) and antidumping duties.

Third, with antidumping the chosen option, the U.S. industry worked to guarantee that the antidumping laws were not weakened and, preferably, strengthened. The Clinton Administration has made the U.S. industry's trade objectives the centerpiece of its multilateral trade policy. Under pressure from the industry, the Administration threatened to block the successful conclusion of the Uruguay Round over the antidumping issue, insisting on last minute changes to the agreement which had already been negotiated (most notably, the omission of anticircumvention from the agreement) and a special deferential standard of review for WTO panels in antidumping cases, a standard different that that applied to all other WTO disputes. Most recently, the U.S. insistence on no new negotiations on antidumping, a position dictated by the steel industry, contributed substantially to the failure of the Seattle ministerial to launch a new round of trade negotiations, a round which would have promoted the interests of sectors far larger and more important to the economy than steel, among them agriculture, information technology, telecoms and financial services.

Fourth, the U.S. industry objective in using the antidumping law is not simply to ensure that imports are priced fairly, the objective of the antidumping law. What the industry is seeking when it pursues an antidumping case is a guarantee that the targeted imports are excluded from the U.S. market. This industry objective is clear from the industry's opposition to the suspension agreements involving Brazil in the hot-rolled investigation. These agreements not only provided for a dramatic rollback in imports from Brazil, but also guaranteed that Brazilian steel would be priced above both "normal" value (i.e,. not dumped) and at or above a minimum price based on prices in a healthy domestic steel market. The industry recognizes that large cash deposits of estimated antidumping duties which will not be refunded for at least two years are usually a sufficient disincentive to export that an antidumping duty order effectively stops trade regardless of whether prices are fair or unfair. The added disincentives of not having a cap on importer liability for antidumping duties and the refusal of the Department of Commerce to guarantee that its methodology in any review will mirror its methodology in the initial investigation create a degree of uncertainty that makes it impossible to ship under an antidumping duty order in all except the most unusual circumstances. In insisting on antidumping duties and opposing suspension agreements the industry makes its objective clear: the objective is not fair trade but no trade.

The question then is what has protection of the U.S. steel industry and allowing it to capture U.S. trade policy accomplished.

Has it resulted in an industry which is cost competitive with other major steel producing industries in the world? The answer is an emphatic no. According to World Steel Dynamics and other industry analysts, the vertically integrated U.S. mills remain among the high cost producers in the world, with costs higher than not only the Koreas and Brazils of the world, but higher than Germany, Japan, and other developed country steel industries.

Has it saved jobs in the U.S. industry? Again the answer is no. The U.S. industry, specifically the vertically integrated mills, has been losing an average of 10,000 jobs per year. This has occurred during periods with protection as much as in periods without protection and in periods of profitability as much as in periods of losses. The good news is that job losses are not related to imports; rather they reflect increased productivity in response to the emergence of the efficient domestic minimills and the increased market share being captured by the minimills.

Has it encouraged investment by the integrated mills to upgrade their steelmaking capability and to diminish the need for imports to meet domestic demand? Again, the answer is no. Rather than investing in competitive steelmaking facilities, the integrated mills have rushed to invest in production of downstream products so that today, by the industry's own admission, there is substantial excess capacity in corrosion resistant steel. At the same time, escalating imports of semifinished steel by these same vertically integrated mills -- probably at record levels in 2000 -- are necessary to produce sufficient upstream products -- raw steel, slab, hot rolled coil and cold rolled coil -- to feed the downstream production lines.

Finally, let's consider the industry's two most recent complaints: (1) that the ITC negative determination in cold rolled steel is unjustified; and (2) that the antidumping laws need to be amended to provide more effective and more timely relief.

While the industry has expended great effort on amending the antidumping law to ensure success no matter how flimsy its claims, it has not been able to eliminate the essential requirement of U.S. law and the WTO antidumping agreement -- the necessity to demonstrate a causal connection between injury to the domestic industry and imports. In the cold rolled case, the record of the investigation failed to show this causal connection. This is not a failure of the law -- it only requires the domestic industry to show a minimal connection between imports and injury. Nor is it the fault of the decision-makers -- the Commission has consistently found in favor of the domestic steel industry in steel investigations. While the steel industry may believe that it is its "manifest destiny" to succeed in any antidumping investigation regardless of whether it can demonstrate injury and a causal connection between the injury and imports, there must be some standard for granting relief other than the fact that the industry seeking relief is the steel industry.

Finally, is antidumping relief too slow? Notwithstanding the complaints of the steel industry, the record indicates otherwise. In the hot rolled investigation, contracts for imported steel ceased immediately and entries of imports contracted before the filing of the petition ended within 3-4 months of the filing of the petition. Given that there is a lag of between 120 and 150 days between contracting for imports and entry into the United States, the flow of imports was stopped almost immediately upon the filing of the hot rolled petition. This was also the case in virtually every other steel investigation conducted in the last 18 months. Put in perspective, we defy the steel industry to point to any other legal proceeding which grants remedial relief any more quickly than the antidumping law. Immediately may not be fast enough for big steel, but, unfortunately, there is nothing faster than immediately.

Let me end by quoting from a letter which appeared in Monday's American Metal Market commenting on the U.S. industry reaction to the negative ITC decision in the investigation of cold rolled sheet:

The U.S. steel industry has captured U.S. trade policy, has written the U.S. trade laws, and has prevented multilateral negotiations to change those trade laws. As a result, it has won most of the cases it has brought. Today it enjoys capacity utilization of over 90 percent, increasing production and near record shipments, strong prices and healthy profit margins on its products. Where is the complaint?