Viewpoint -- To Bolster U.S. Steel Makers, The U.S. Must Get Creative

Dec. 21, 2004
Remedies such as antidumping duties for importers may not be enough.

Two years after the U.S. steel crisis supposedly ended, the domestic steel industry is hemorrhaging again. Imports have returned to the high, punishing levels of 1998, while prices remain depressed. Layoffs, plant closures and, bankruptcy have begun anew. Among the most recent victims is LTV, employer of 18,000 workers, which filed for chapter 11 bankruptcy protection a mere four days after Christmas. Meanwhile, the market capitalization of Bethlehem Steel amounts to 2% of Yahoo!, even though Bethlehem employs 13,000 more workers. The current state of affairs demonstrates that conventional fair trade laws by themselves are only a temporary solution for industries suffering from chronic dumping. The initial surge in steel imports began in December 1997 and lasted through the following November. The expansion was breathtaking. For example, imports of hot-rolled products from Japan, Brazil, and Russia expanded an astounding 15% a month, on average. Even though the U.S. economy was in high gear, the domestic steel industry, integrated producers and mini-mills alike, found its revenue shrinking. The inevitable result was bankruptcies and rising unemployment. The surge abated soon after the first round of trade cases were filed in September 1998. Imports of hot-rolled products from the three dumpers virtually dried up by early 1999, and domestic employment levels stabilized. Thus, the trade cases decided in the domestic industry's favor did provide some relief to besieged U.S. producers. By early 1999 many observers were pronouncing an end to the crisis, but they were premature. Recognizing that duties would probably be imposed, importers had bought more dumped steel than they could sell in a reasonable amount of time. Hence, prices generally did not surpass pre-crisis levels. Also, global growth eased after recovering sharply in the aftermath of the Asian financial crisis, dashing hopes that a sustained rise in global demand would soak up the excess production. Worse, imports exploded from several unexpected sources. Imports of one product group from India went from a mere $20.5 million during the first half of 1999 to $143.2 million during the first six months of 2000. Imports from Taiwan experienced a similar jump. Neither country has historically been a major source of this product. Transshipped Russian steel (meaning steel transferred to another train or ship for reshipping) also may be fueling the latest import boom. Conventional trade remedies, for all their merit, are insufficient when widespread excess capacity enables transshipping and product switching. More aggressive trade remedies, like Section 201 of the 1974 Trade Act (an antidumping provision), are being considered. However, they take too long to implement. What else can be done? Clearly, Washington will have to be more creative than usual. Sen. Robert Byrd (D, West Virginia) has proposed compensating U.S. steel producers with antidumping duties paid by importers of dumped steel. Although this proposal would be a strong disincentive for dumpers, the so-called Byrd Amendment faces an uncertain future and is being challenged in the World Trade Organization. Some suggest Washington should investigate transshipping and initiate even more antidumping cases if warranted. Such a policy deserves consideration but is not a long-lasting solution. The experience of other industries holds lessons on how creative solutions can be used to overcome problems. In 1994 government-brokered global production cuts diffused a crisis in the aluminum industry. A memorandum of understanding, negotiated by 17 governments, called for Russia and several Western countries to reduce production over a two-year period. The industry's outlook improved dramatically due to the supply reductions and a resumption of global growth, and the full amount of proposed production cuts never occurred. This agreement raised serious antitrust concerns, as well as the ire of aluminum users, but avoided the destructive cycle of excess capacity, dumping, and trade relief that has plagued both steel producers and users for more than two decades. Such radical alternatives should at least be considered. These measures may have flaws, but they at least reach beyond the conventional trade law toolbox. Washington must quickly devise a strategy to address excess capacity pervading the global steel industry, or else risk irreparable harm to U.S. steel. Unless the dysfunctional dynamics of the global industry change, and fast, domestic steel producers won't be screaming "yahoo" any time soon. Andrew Szamosszegi is a fellow at the Economic Strategy Institute.

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