I would like to comment on an opinion piece by Andrew Z. Szamosszegi
of the Economic Strategy Institute that appeared in Bridge
News on January 17.
First, I find a number of constructive criticisms in Mr. Szamosszegi's
piece. He correctly points out that the "conventional trade
toolbox" has not brought relief to the domestic steel producers
in need of such support. The cycle of antidumping cases and import
surges is not helping the steel industry, nor will more such cases.
There should be a better way.
What he's suggesting is a government-sponsored cartel that would
divide production worldwide and require production cuts. This
is clearly anti-competitive and anti-market. It would also require
permanent closure of uncompetitive domestic facilities. We should
be willing, if we consider such a "radical alternative"
approach, to close inefficient domestic facilities if, objectively
speaking, they are not as competitive as those of other countries.
We know that some US facilities would have to close under that
standard. (It seems as if he should be going
into an argument here about the real problem which is inefficiency
and continuing government subsidies, but instead he goes off on
a track that says Washington should lower the burdens on steel
producers. Why does he want to make this argument instead?)
Our house is not in order. Steel companies are not failing because
of imports; they are failing because of their own structural weakness.
They are in a downward spiral from which they will not emerge
without attracting capital, and with excess inventory and production
capacity, excessive debt and overhead, they will not attract capital.
Government-imposed costs from pensions, environmental requirements
(especially dealing with plant closures) and tax policy make them
bad investments.
If Washington is to be tasked with resolution of the current
state of affairs, perhaps the focus should be not trade law or
any creative alternatives, but an enabling environment that addresses
the federally imposed burdens placed on the industry. For example,
there are 4-5 workers on pensions for every active steel worker.
Companies cannot support their pensioners in their current weakened
state and still make enough return. This is a public policy issue
that must be addressed at the federal level. Steel users and consumers
as well as producers would benefit from intelligent and balanced
pension reform.
Another example — steel companies are prevented from making
new investment by environmental rules that make new plants (but
are we talking about new, greenfield plants, or modernization?)
prohibitively expensive. Again, the companies' current structure
would not allow them to make these investments. They simply cannot
afford them.
A more acute problem is closing plants that are not efficient.
Under environmental rules, plant closures require extensive clean-up.
As long as the plants are "open," these costs are not
incurred. Thus, steel companies keep making steel at inefficient
plants and complain about imports when the rational economic decision
would be to close inefficient capacity (needs to be confirmed
and fleshed out).
In addition, capital-intensive industries like steel are ill-served
by a tax system that does not encourage capital investments. Depreciation
schedules are too long — new investment in this industry
will occur in other countries (especially NAFTA countries) and
only lead to more complaints about imports.
Before we launch negotiations for a global steel cartel, we ought
to look in our own back yard.
Jon E. Jenson
Chairman
Consuming Industries Trade Action Coalition (CITAC)
President Emeritus, Precision Metalforming Association (PMA)
5700 Brookside Rd.
Independence, OH 44131
T/F 216-524-8919
