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WRITTEN TESTIMONY OF
Dr. Jack H. Goldman
On behalf of
the Hearth, Patio & Barbecue Association
And its U.S. Member Companies
Hearing Concerning Investigation 332-452,
"Steel-Consuming Industries: Competitive Conditions with Respect
to Steel Safeguard Measures"
Before the
United States International Trade Commission
June 20, 2003
Good morning, Secretary Abbott and ladies and gentlemen of the
Commission. My name is Jack Goldman and I serve the 2,500 members
of the Hearth, Patio & Barbecue Association as General Counsel
and Director of Government Affairs. I want to thank you for the
opportunity to testify before you today on behalf of our U.S. member
companies, who are experiencing losses as a result of the Section
201 steel tariffs that took effect in March of 2002.
I come before you today representing more than three hundred fifty
American manufacturers of factory-built fireplaces, wood stoves,
pellet stoves, barbecue grills, liquified-petroleum gas cylinders,
gas controls, accessories for these appliances, and chimneys and
venting products. Our industry manufactures these products for consumer
households throughout the U.S. Our members' products are used year-round,
both indoors and outdoors. The hearth and barbecue industries combined
account for roughly nine billion dollars worth of economic activity
in the United States annually. In 2002, our hearth manufacturers
shipped 1.7 million fireplaces and stoves in North America alone.
In the same year, our barbecue grill manufacturers shipped more
than 15 million units - including charcoal, gas, and electric grills.
We estimate that two-thirds of our products are manufactured in
the U.S. Although our industries are diverse and small in comparison
to some other U.S. industries, we are indeed a significant user
of steel in our products and our members rely on the availability
of steel at globally-fair prices to make fireplaces and grills at
affordable prices for the U.S. market.
Hearth and barbecue manufacturers use different types and quantities
of steel while making their products. Hearth appliances typically
use a combination of cold-rolled sheet steel, cut-to-length/clad
plate, and corrosion-resistant and other coated steel, while barbecue
appliances and related components use stainless steel or hot-rolled
coils. A standard firebox in a factory-built fireplace, which is
the most popular kind installed for builders in new homes, consists
mostly of corrosion-resistant or "coated" steel. Product
components that are used in some barbecues, specifically liquified-petroleum
gas cylinders, are made from hot-rolled coils.
Because of the diversity of steel used in our products, our manufacturers
buy nearly 100% of their steel from U.S. service centers, instead
of purchasing it directly from steel producers. Since the implementation
of the Section 201 steel tariffs, our manufacturers report that
service centers have cancelled long term contracts, imposed significantly
longer lead times, delayed deliveries of raw materials, and increased
prices from 12 to 25%, depending on the type of steel. For some
companies, these tariffs have resulted in increased production costs
of more than $1million, profit losses of nearly $1.5 million, employee
layoffs of 30%, and lost contracts to foreign competitors worth
$5 million. It's one thing to suffer business losses as a result
of changing markets or a slow economy, but it's a completely different
type of loss when it results specifically from a government-sponsored
tariff program.
Because of the moderate size of our industry, it is impossible
for our manufacturers to simply look for another steel supplier.
Like so many other industries, our manufacturers depend on the "just
in time" deliveries and rely on the integrity of their contracts
with service centers to provide the steel at the time and price
that was agreed upon. The steel tariffs have restricted the flow
of steel into the U.S. so that larger customers get their supplies
first, leaving smaller industries, like ours, to absorb the costs
of delays, lengthened lead times, and broken contracts. Our manufacturers
are unable to meet the demand from their customers when their steel
service centers cannot provide on-time deliveries of the raw materials
needed to manufacture their products.
In addition to delivery delays and broken contracts, perhaps the
most egregious effect of the tariffs on our manufacturers is price
increases. While it may be true that the Section 201 steel tariffs
are intended to be scaled down each year in the percentage of the
tariff applied, our manufacturers report that the initial increases
applied in April 2002 have not been reduced by their suppliers as
a result of the decreased percentage of the tariffs. The price of
corrosion-resistant, coated steel from one service center increased
20% after April 1, 2002 and that increase is still in effect as
of March 2003, despite a reduction of 6% in the tariff. We are only
aware of two instances of an actual decline in the percentage of
a price increase after April 1, 2002. In every other case, the price
increases reported by our manufacturers have not dropped at all
from the initial increase after April 1, 2002. They are still paying
a premium to purchase steel in the United States.
In the current economy, our manufacturers cannot simply increase
the price of the finished products to builders and retail customers
because of increased steel costs. Home builders are extremely price
sensitive because of all the other costs of development which they
must bear. If they are forced to pay higher costs for our products,
then they could easily choose to eliminate them from their homes.
Likewise, if our barbecue manufacturers started raising the prices
of their grills and accessories to cover increased production costs,
then consumers will simply start purchasing the lower-priced foreign
imports that they find sitting on the shelf next to the American
made models. Foreign grill manufacturers can charge less because,
among other factors, they can purchase globally-priced steel and
import finished products into the U.S. tariff-free. This pricing
disadvantage could force our American manufacturers to move their
production overseas where they can obtain steel at cheaper, global
prices. This is the true irony of the steel tariffs: to protect
the domestic steel industry, other American manufacturers will be
forced to operate overseas.
As a consumer-driven industry, our members are adept at managing
the trends in the market that determine what types of products consumers
are buying. However, our market's natural flow has been interrupted
by the steel tariffs, which artificially raise the cost and availability
of hearth and barbecue products. Because our industry relies on
a healthy supply of steel, we wholeheartedly support a viable domestic
steel industry in the U.S. Our members, however, cannot support
a federally-imposed price increase to bail out the domestic steel
industry from its economic crises and jeopardize our own industry's
survival.
The Section 201 steel tariffs are having the unintended consequence
of damaging the customer base of steel producers - that is, consuming
industries like ours. Because of the negative impact on our manufacturers,
as I have described to you today, our members ask that the steel
tariffs be terminated as soon as possible.
I thank you very much for privileging us with an opportunity to
tell you about the effects of these tariffs on our industry.
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