IMPORTS ARE NOT THE CAUSE OF US STEEL INDUSTRY’S PROBLEMS
The US has traditionally been a large net importer of
steel.
Steel imports are an essential input for US manufacturing. It has been estimated
that for every American worker producing steel, there are 50 workers in US industries
using steel. All of those latter workers would be hurt by import restrictions
on steel. A recent study by the CI-TAC Foundation documents this damage to US
users of steel.
It is true that in
1998, as a result of the Asian financial crisis, US imports of steel increased
by 10 million tons (falling back to an increase of 4 million tons in 1999 before
increasing again in 2000). But the EU saw an even greater shift in its
trade balance (see table attached).
In fact, the EU became a net importer of steel, reversing its traditional position
as a large exporter. Still, the EU did not experience the same problems in its
industry as the US and does not face the same calls for import protection. What
is the reason?
Firstly, it should be noted that sectors
of the US steel industry, notably mini-mills and competitive integrated mills,
are showing good financial results. For some producers (NUCOR, SDI), 2000 was
a year of record profits.
The key problem faced
by the majority of traditional, integrated steel mills in the US is legacy
costs (health and pension costs for laid off and retired workers). This burden
of financial obligations makes those companies unattractive candidates for consolidation
into larger and more streamlined entities. As a result, there are no US companies
among the top 10 largest producers in the world.
Part of the problem is also that US
states and local authorities often subsidise local steel plants to open or stay
open in their area. "Buy American" programs and federal loan guarantees
also provide artificial support to keep uneconomic capacity in business.
Because uneconomic
capacity was not sufficiently rationalized, total US productive capacity increased
by 19 million tons between 1993 and 2000, as new mini-mills came on line.
Current price levels
in the US are very low for some products. However, this is not caused by imports,
but by falling demand and cutthroat competition among US producers. Imports
have dropped to an average level for the last nine months that is well below traditional
US import volumes.
EU STEEL INDUSTRY
RESTRUCTURING IS SUCCESSFUL
The EU steel
industry went through two major cycles of restructuring, in the 1980s and 1990s.
The first cycle saw the removal of 31 million tons of outmoded, finished steel
capacity and the second 19 million tons. The number of EU workers in the steel
industry declined from almost 1 million in 1973 to around 270,000 today: a reduction
of 730,000 workers. In the same period (1993-2000) that the US increased capacity
by 18.9 million tons, the EU reduced capacity by 1.9 million tons. Importantly,
EU restructuring in the 1990s was accomplished without import restrictions
against WTO Members.
Assistance in the
EU has been given to close uneconomic capacity, not to keep it alive. All competitive
producers benefit from the closure of uneconomic facilities. EU producers do not
receive production subsidies.
EU
producers have been privatised and have consolidated into some of the largest
and most efficient producers in the world. Of the top 10 largest producers in
the world, 5 are European. As part of an on-going restructuring process in the
EU, 3 of these plan to merge, creating the world’s largest steel producer. In
the US, 12 companies produce two-thirds of total production. In the EU, 6 companies
(4 after the merger) produce the same proportion of total production.
The elimination of uneconomic capacity
through restructuring and consolidation has made the EU industry highly competitive.
An example to illustrate this: the cost of producing one metric ton of hot band
steel in 1999 was $241 in the EU, $262 in Japan, $280 in US mini-mills and $316
in US integrated mills.
UNILATERAL
US IMPORT RESTRAINTS WOULD UNFAIRLY DIVERT US IMPORTS TOWARD THE EU AND SEND A
DAMAGING POLITICAL SIGNAL
The threat of comprehensive, unilateral US import restrictions
on steel imports from all non-NAFTA countries is very worrying to the EU. Such
restrictions would affect EU exports of steel to the US. Even more, they would
have the effect of exporting—through trade diversion—a domestic US problem
to other markets around the world, in particular the EU. This would cause difficulties
for a number of fragile economies in Latin America, Asia and the CIS that are
still recovering from the Asian financial crisis. Such action would be simply
unfair burden shifting at a time of a worldwide economic slow-down.
At a time when the US Administration
has underlined its strong support for free trade and pursues important regional
and global trade liberalisation initiatives, it would send the wrong political
signal to the rest of the world to restrict imports of fairly traded steel products
unilaterally.
European Union - Delegation of the
European Commission to the United States
2300 M Street, NW, Washington, DC 20037
Telephone: (202) 862-9500 Fax: (202) 429-1766
