TESTIMONY

OF LESTER TRILLA
TRILLA STEEL DRUM, CORPORATION

HEARING ON UNINTENDED CONSEQUENCES OF INCREASED STEEL TARIFFS
ON AMERICAN MANUFACTURERS

BEFORE THE
HOUSE COMMITTEE ON SMALL BUSINESS

July 23, 2002

Good morning. My name is Lester Trilla. I am the president of Trilla Steel Drum Corporation. Mr. Chairman and Members of the Committee, I want to thank you very much for the honor of appearing before you to testify about the impact of the Steel 201 tariffs on my business and on my workers. I want to thank the Chairman especially for his leadership on behalf of small business owners. I also would like to express my appreciation to the Consuming Industries Trade Action Coalition, or "CITAC," for its good work in standing up for America's steel users, especially small businesses like mine.

By way of short introduction, Trilla Steel Drum is located in Chicago, IL. We are a leading manufacturer of new steel drums used in the filling and transportation of a variety of products, including hazardous materials. Trilla is a family-owned, family run business - three generations of the Trilla family have built the company from a drafty garage on the Southwest Side into a major Midwest supplier of more than one million 55-gallon steel drums annually to a diverse client base. Cold-rolled steel is the major raw material used in our drums.

The imposition of a 30 percent additional tariff on the steel that Trilla needs to import has been a disaster for Trilla. It has effectively cut off our supply of the major raw material we need. The significant shortfall in domestic capacity and expanding lead times give us grave concern that we may not be able to get enough steel from domestic sources to meet our needs. Furthermore, its inconsistent quality makes it poorly suited for Trilla's use.

Trilla has a stringent qualification process. Only imported steel consistently meets our exacting requirements and those of our customers. Trilla's customers include an increasing number of companies that ship hazardous, sensitive, and expensive materials. The integrity of the steel drums used to ship these materials is critical, as any contamination or leakage into the environment could be disastrous. Drums with cracks, fractures, and leaks - which can easily result from the use of steel that is unsuitable for our steel drums - are unacceptable, but will be inevitable if we are forced to use steel that does not consistently meet our strict specifications. Not only would this have a severe impact on our ability to compete effectively- increasing our costs due to scrap and rejections - but it would impact the quality of our drums, and undermine our credibility with our customers.

In order for Trilla to certify to its customers that each drum meets the stringent performance requirements set forth by the United Nations and required by the U.S. Department of Transportation, we can only use raw materials that meet exacting gauge control requirements, hardness value, and surface cleanliness, and are free of defects caused by laminations or pinholes. For instance, steel that does not have a consistent, low hardness value will not withstand the state-of-the-art expansion process we employ, which ensures a stronger container with better stacking and vacuum strength and dent resistance.

The imported steel has better gauge tolerance, resulting in an increased yield. In addition, while less than one percent of the imported steel is rejected, the domestic steel scrap figure is two to three times higher.

The 201 tariffs, coupled with the threatened antidumping duties, have removed our imported steel from the market. The price of the domestic steel that we now must buy has increased by over 54 percent since the imposition of the steel tariffs. That equates to around a 20 percent increase in the cost of a drum. Add to that the cost of increased scrap, breakdowns, and rejected drums because of the quality of the steel, and you can see our competitive damage.

Trilla simply cannot absorb these huge cost increases.

Our customers are balking at significantly higher prices necessitated by steel tariffs, and are starting to look for lower-cost plastic and bulk packaging. More significantly, if this situation continues for any length of time, some of our larger customers will choose to fill drums overseas. This would not only dramatically reduce production and jobs at Trilla and other American drum manufacturers, but at domestic filling operations as well.

While we appreciate that the Steel 201 remedy was put in place to aid the U.S. steel industry in its time of crisis, it does not make sense if it creates a crisis for us. Because of the steel tariffs we have had to cut back our production hours, effectively reducing employment. Because the President could not have intended to help the steel industry by sacrificing the steel consuming industries in this country, we need to have a product exclusion to keep Trilla Steel Drum from being a victim of the 201 remedy.

Thank you for this opportunity to present my views. I would be happy to answer any questions you have.