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TESTIMONY OF
William E. Gaskin, CAE
Precision Metalforming Association (PMA)
Hearing Concerning Investigation 332-452,
"Steel-Consuming Industries: Competitive Conditions with Respect
to Steel Safeguard Measures"
Before the
United States International Trade Commission
June 19, 2003
My name is William Gaskin, president of the Precision Metalforming
Association (PMA), the full-service trade association representing
the metalforming industry in North America — the industry that
creates precision metal components and products using stamping,
fabricating, roll forming, spinning, slide forming and other value-added
processes. Our nearly 1,300 member companies include contract metalforming
companies, end product manufacturers using metalforming technologies
to make their products, as well as suppliers of equipment, materials
and services to the metalforming industry. PMA members supply virtually
every manufacturing sector, including automotive, truck, medical
equipment, agriculture/off-highway, lawn and garden, telecommunications,
toys, defense/ordnance, consumer products, office/business machine
and industrial/consumer hardware markets. Metalforming companies
are primary users of hot rolled and cold rolled steel, accounting
for a large percentage of total flat-rolled sales in the U.S. steel-consuming
market.
PMA has several critical concerns about the 201 steel tariffs
and believes that they should be ended at the first possible opportunity,
at the mid-point review.
- Steel tariffs have had a devastating impact on a large segment
of the metalforming industry and other steel consuming companies
since their imposition in March 2002, costing tens of thousands
of jobs and jeopardizing the existence of hundreds if not thousands
of small and medium sized manufacturers.
- Steel tariffs unnecessarily intervened in the market-based solution
to the record-low prices for hot and cold rolled steel that occurred
in late 2001. Imposition of the tariffs helped spawn a feeding
frenzy of further price hikes and such extreme dislocations of
supply that many companies suffered canceled orders and broken
contracts for steel, allocations of supply, and frequent quality
problems with raw material when it was finally delivered.
- While spot market prices for flat rolled steel have declined
significantly over the past few months, the dislocation and instability
in the U.S. steel market created by 201 steel tariffs is far from
over and will continue to impact steel consuming companies for
years to come. In a recent survey, 72 percent of member companies
reported that price, availability and quality of raw materials
had been a problem for their company in 2002.
- Profitability of companies in the metalforming sector has declined
precipitously and an entire segment of the industry is threatened.
Average profitability reported in PMA's most recent Business Analysis
Survey was 1.6 percent, compared with long-time average profitability
of 4.5 to 6.0 percent; and nearly 40 percent of PMA member companies
reported that they were not profitable, compared with an 18 to
20 percent historical averages.
- A PMA member survey conducted in January 2003 revealed that
68 percent of companies had lost work to foreign competitors in
the past year. More than 40 of the 152 participating companies
specifically identified China as the new location of work they
had previously performed. Many decision-making timetables were
accelerated during 2002 resulting in decisions by OEMs to begin
relocating jobs using steel subject to tariffs to Canada, Mexico
and Asia in order to stabilize raw material costs. It is unlikely
that this work will ever return to U.S. manufacturers.
- Steel prices and availability must be globally competitive if
steel-consuming companies are to compete successfully in the world
market. Right now, they are not competing successfully and the
tariffs bear a large share of responsibility.
- Steel producers have repeatedly stated that the 201 steel tariffs
only seek to help "restore prices" to historical levels,
an irrelevant concept which has no more merit than if PMA argued
that its member companies should be entitled to restore prices
that they charge customers for component parts to "historical
levels." In fact, most steel-consuming companies must LOWER
their prices each year to retain business. With steel comprising
30 to 60 percent of the cost of sales, steel-consuming companies
are caught between higher steel prices and requirements for reduced
prices to customers, with the inevitable result that they will
increasingly cease to exist.
- 201 steel tariffs have done far more harm than good to the American
economy. Some 200,000 steel-using manufacturers' jobs were lost
last year due to higher steel prices, to which the tariffs and
other trade restraints contributed significantly. More steel consumer
workers were unemployed in 2002 as a result of higher steel prices
than the total number of workers employed by the U.S. steel industry.
Thousands of additional jobs will be lost over the next several
years as work moves offshore.
Most metalforming companies are small businesses, which were the
engine of growth for the American economy in the years preceding
the manufacturing recession of late 2000 and 2001. Steel-using industries
provide good jobs and are invaluable contributors to their communities.
You have already heard from many of these companies during this
hearing and you will hear from many more, later in this panel. Between
1995 and 2001, steel-consuming manufacturers added some 1,255,000
new jobs to the economy, according to the Bureau of Labor Statistics,
while jobs in the manufacturing sector as a whole declined by 829,000.
Today, steel-consuming manufacturers still employ over 12 million
Americans, even after the devastating loss of an estimated 200,000
jobs by steel-using manufacturers in 2002 due to higher steel prices.
This compares to the 160,00 to 200,000 jobs remaining in the steel-producing
industry. Steel tariffs have favored retention of a small number
of jobs in steel-producing companies, at the expense of a large
number of jobs in steel-consuming companies.
Even the steel-producing industry did not anticipate the impact
that the 201 steel tariffs would have on steel-consuming companies.
In its publication "A Perspective on Steel Prices and Section
201 Relief: Why a Strong and Effective Steel Tariff Remedy Will
Not Cause Harm to Steel Customers", the US steel industry
projected that U.S. tariffs of 40-50 percent would have only a modest
impact on steel-consuming companies, stating: "the resulting
U.S. steel price increases would be reasonable and non-disruptive
— at most 10 percent - due to world steel overcapacity and
intense global competition . . .". The same publication also
referenced statements from steel manufacturers made during the 201
hearings in January 2002, as follows: "U.S. steel producers
are projecting price increases of . . . 2-8 percent for finished
flat rolled . . ."!
The "unintended consequences" of the 201 steel tariffs,
as they became known during U.S. House Small Business Committee
Hearings conducted by Chairman Manzullo in September 2002, have
indeed been serious and substantial. Price increases of 30, 40 even
70 percent during the period April to September 2002 were documented
repeatedly in statements before Congressional Committees. The often-cited
reports on spot-pricing by Purchasing Magazine support that the
serious disruption in the steel marketplace has been far more dramatic
than anticipated — even by the steel industry. The aftermath
of the ill-advised steel tariffs will be felt by many companies
for a very long time.
Over the past 18 months, but most notably since the 201 steel
tariffs were imposed in March 2002, the metalforming industry has
been severely impacted by the consequences of an artificially disrupted
steel market. Higher prices due to the steel tariffs have been cited
repeatedly as a cause of bankruptcy or closure for steel-consuming
companies. One recent example was reported in the Cleveland Plain
Dealer, on April 30, 2003, when Midland Steel Products Co., a supplier
of heavy-duty truck frames closed its doors, ending the remaining
170 jobs from the 450 UAW hourly workers who were employed at Midland
in March 2002. Among the reasons cited for the closure, was "high
domestic steel prices caused by tariffs on imported steel."
Most closures of small and medium sized manufacturers do not receive
coverage in the local paper, however the job losses have been severe
and loss of business relationships with suppliers are no less real
even though they are not featured in the news media.
As a result of the steel tariffs, many PMA members have become
uncompetitive in global markets and are losing business to foreign
manufacturers and left uncertain about how much longer their own
business will be able to survive. The steel tariffs have helped
make a bad economy for all metalforming companies unsustainable
for many. At least 25 PMA member companies have closed their doors
and resigned from the Association since the steel tariffs were imposed
in March 2002. And there are countless others who have laid off
up to 50% or more of their workforce, just to stay in business.
As you will hear from the other steel-consuming witnesses during
the hearings today, the decisions which have been made over the
past year will be causing damage among steel-consuming companies
for years to come.
The exodus of business to offshore manufacturers who can obtain
steel at globally competitive prices is accelerating. PMA was delighted
when Federal Reserve Chairman Alan Greenspan recently joined the
chorus of those citing the 201 sanctions as one reason American
steel consumers are moving their production overseas, stating, "Artificially
increasing the price of steel in the United States has and will
induce steel users to move out from under steel tariffs." PMA
members will tell you that he is right, and once this business leaves
the country, it is not likely to return. Furthermore, the steel
tariffs have had a ripple effect. As U.S. steel-consuming industries
suffer, so do the companies that supply those industries, such as
service centers, finishers, metal treating companies, assemblers
and manufacturers of capital equipment. Last week, the Wall Street
Journal carried a small article citing a decision by Honda Motor
Co. to transfer production of its new Inspire sedan from Ohio to
Japan to "improve efficiency" at a plant in Saitama, Japan.
PMA members in the U.S., who had been told by Honda that they would
supply parts for the Inspire sedan, will no longer make the expected
parts and related jobs will be lost. While other specific reasons
for Honda's decision were not cited in the article, it does lead
me to recall that Honda received significant attention during the
height of the post-tariff dislocation in the steel market for airlifting
steel from Japan to their U.S. facilities by chartering 747 aircraft
at the reported cost of $300,000 per plane. It seems more than plausible
that the need to airlift steel on 747 aircraft may well be related
to Honda's decision on the Inspire.
The reasons for ending the steel tariffs are clear:
(1) More jobs have been lost from the safeguard measures than
have been "saved." Steel-using jobs vastly outnumber
steel-producing jobs in every state. Nationally, the ratio
is 59 to 1. Jobs are being lost as customers of steel consumers
source their projects offshore. As the damage mounts, pre-tariff
studies which had indicated that eight steel-using jobs will be
lost in the United States for every steel-producing job "saved,"
have become true. The question we continue to ask, is: "Why
are steel-consuming industry jobs less important than steel-producing
jobs?"
(2) Steel tariffs have made U.S. steel consumers uncompetitive
in global markets. The dramatic disruption of the U.S. steel market
caused by the safeguard measures has hurt steel consumers substantially.
The effects of massive tariff increases have worked to transfer
money from steel consumers to domestic and foreign steel producers,
as well as to the United States Treasury, a tax increase of several
billion dollars at a time when the manufacturing economy needs
to be stimulated, not held back from growth.
(3) The steel tariffs, if, as believed by some, indeed had a
purpose to serve, have surely served this purpose and should be
ended. Steel producers have restructured substantially and the
ongoing damage being caused among steel-consuming manufacturers
is clearly greater than any benefit that could be gained by if
the tariffs are left in place. The mid-point review requires the
President to determine whether there have been "changed economic
circumstances" that diminish the effectiveness of the safeguard
measures. PMA believes that compelling changes have occurred.
(4) Last winter, it became quite common for those in Washington
who supported tariffs to make several observations including comments
that "The tariffs will only last for three years," and
"The exclusion process has taken care of any problems companies
have had obtaining raw material." In fact, if the steel tariffs
last for the full three years, Plante & Moran, L.L.P., a respected
consulting firm serving automotive middle-market manufacturers,
has projected that up to 30 percent of steel-consuming companies
will not survive. Further, the product exclusion process does
not work for companies (especially small and medium size manufacturers)
who purchase primarily domestic steel. The steel market for these
companies was seriously disrupted by the 201 steel tariffs. Product
exclusions will simply not help the vast majority of steel-consuming
companies survive if tariffs are continued.
Thank you for the opportunity to testify today. Attached to my
statement are several charts characterizing current conditions among
metalforming companies. I would be happy to answer any questions
or provide supplemental information as may be appropriate.
The manufacturing recession for metalforming companies was signaled
by a sharp decline in orders booked which began in September 2000
(more erratic line, which indicates current monthly orders). The
12-month rolling average (smoother line) documents the precipitous
drop and indicates that recover of new orders has been only modest
during the period.
Shipments in the metalforming industry plummeted sharply between
October and December 2000. For 2001, average shipments were down
17% compared to 2000. There was 0% growth between 2001 and 2002
and 56% of reporting companies experienced declines in shipment
value. Through April, 2003 is up 4% year-to-date over 2002.
Capital equipment producers, who sell equipment to metalforming
companies, have experienced a substantial business decline since
March 2001 reflecting weakness among their customer markets. Machine
tool consumption was down 23% for 2002 vs 2001 and an additional
26% in first quarter 2003. The capital equipment market for metalforming
machine tools is unlikely to recover until steel tariffs have been
ended. Thousands of jobs have been lost in machine tool markets.
Spot market prices for flat rolled steel reached their bottom in
the 4th quarter, 2001. Due primarily to soft manufacturing conditions
post-September 11th among metalforming companies (see the Oct-Dec
2001 drop in shipments on page 9). During this period, LTV Steel
ceased operations, creating an immediate correction in spot prices
which began to recover from late 2001 lows. By March 2002, spot
prices had risen by some 20% for hot rolled sheet, 23% for cold
rolled sheet, and 19% for galvanized sheet. Imposition of the tariffs
in late March 2002 had an immediate impact on prices reflected in
substantial jumps in April 2002 which continued to rise through
July.
The metalforming industry experienced 20-year low average profitability
in PMA's 2002 Operational Cost Survey, with average profits totaling
only 1.6% of sales before taxes. Nearly 40% of member companies
reported losses. Average profit historically has been 4.5 to
6% while the historical average of companies reporting losses is
approximately 18%.
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