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TESTIMONY OF
Jon Jenson, Vice Chairman and President
Consuming Industries Trade Action Coalition (CITAC)
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
Good morning. My name is Jon Jenson. I am Vice Chairman and President
of the Consuming Industries Trade Action Coalition (CITAC). CITAC
is an organization that advocates the interests of consuming industries
in the United States. CITAC, through its Steel Task Force, has worked
very hard to bring the attention of policy makers to the plight
of steel consuming industries, especially as a result of the steel
safeguard measures in force since last year.
I. Introduction.
In March, the House Ways and Means Committee requested a study
of the effect of steel safeguard measures on steel consuming industries,
resulting in this hearing. We strongly support this 332 study, which
is critical for American manufacturers. We hope it will help many
manufacturers and their workers, who otherwise would lose their
businesses and jobs. The ITC study unfortunately comes too late
for some.
As you will see, the structure of America's steel consuming industries
is very diverse. More than 100,000 businesses in America use steel
in manufacturing. For many, steel is a major portion of their manufacturing
cost (40-70 percent for many metal fabricators). But no matter how
great a percentage steel costs are to steel users, competitiveness
in purchasing of steel is not a negligible part of the business.
Competitiveness in the modern business world requires that every
cost be kept to an absolute minimum. Reducing costs means relying
on the best steel, delivered on time and with consistent quality
tailored for the particular user.
In their presentations today, steel consumers will make four basic
points:
- The steel safeguard measures have hurt steel consuming manufacturers.
Steel price increases are still making our manufacturers uncompetitive
with their foreign competition.
- Under any set of circumstances, steel consumers are worse off
with the safeguard measures than they would be without them.
- Continuation of the tariffs after September 2003 would continue
and likely intensify the damage to steel users.
- The steel industry's problems cannot be solved on the backs
of steel consumers.
II. CITAC Comments on Questions Raised by the Ways and Means
Committee
The Ways and Means Committee request included five specific questions.
The Commission is called upon to address each question:
1. Changes in employment, wages, profitability, sales, productivity,
and capital investment of steel consuming industries.
CITAC has done as much as anyone to outline the damage to the financial
well being of steel consuming industries arising from the steel
safeguard measures and rising steel prices. We have produced two
studies on steel already, in December 2001 and February 2003. A
third analysis has been prepared for this proceeding and will be
presented by one of its authors, Laura Baughman.
There is no doubt that the steel safeguard measures have caused
downstream damage. This is not surprising. There is no free lunch.
Trade restrictions generally cause significantly more economic harm
than good. The steel safeguard measures validate the general rule.
Also without doubt, American steel using manufacturers have faced
a number of other problems over the last two years. The economy
experienced a recession; demand for manufactured products continues
to be depressed; import competition in finished products is intense.
American steel using manufacturers do not expect a quiet life of
easy profits. However, they were stunned that their own government
placed disabling restrictions in the path of their success and,
in some cases, survival.
2. An examination of the reported effects of the safeguard remedies
on factors such as steel prices paid by consuming industries, steel
shortages/availability, the ability of steel consumers to obtain
required products or quality specifications, lead times and delivery
times, contract abrogation, sourcing of finished parts from overseas
by customers of steel consumers, and the relocation or shift of
U.S. downstream production to foreign plants or facilities.
You will hear in detail from a variety of sectors, how high U.S.
steel prices and lower steel availability is placing U.S. steel-using
manufacturers under a competitive disadvantage compared with their
foreign counterparts, at every price level. As long as prices in
the U.S. remain artificially high and steel availability is artificially
reduced, this disadvantage will persist, shifting more wealth and
more jobs outside the United States. Once lost, these jobs are not
likely to return after the steel tariffs are removed.
You will also hear how contracts for steel supply were abrogated
when prices were rising. Many steel consumers are small businesses
that cannot pass on their cost increases to powerful customers.
Many more steel users had to pay huge price increases at a time
of steel scarcity. Some are still working down that high-priced
inventory.
Steel producers generally do not know steel consumers. Some steel
users buy mill direct, but most, especially small steel users, buy
through service centers. Steel producers do not meet or deal with
steel consuming manufacturers for the most part. The lack of communication
from end users may have given some steel producers the impression
that their customers are not complaining. Just listen.
3. The impact of international competitive factors, such as
relative differences in steel costs to foreign steel consuming industries,
on steel consumers' exports and imports of steel-containing products.
The Commission will no doubt hear steel producers note the reduction
in steel spot market prices in the last few months. Steel consumers
have consistently noted that the important international steel comparison
is to prices paid by competitors in other countries for the same
products. U.S. producers cannot easily make up a cost disadvantage
on steel.
CITAC STF has prepared reports on global steel prices based on
the information available to us. The most recent was attached to
our pre-hearing brief. We believe these prices to be as reliable
as we can find; the analysis shows that the United States remains
one of the highest-priced markets for steel in the world, especially
for cold-rolled and corrosion resistant flat steel and especially
on the West Coast.
We also have less formal sources that tend to confirm that the
United States market has high prices by global standards, even though
the prices are lower than they were six months ago (and certainly
they are lower than the steel producers would like).
It does not matter whether steel prices are lower than they were
in 1982, or lower than their average over the last 20 or 22 years.
What matters to consumers is whether steel prices are at a level
that will allow return on investment and recovery of costs on the
sale of the products manufactured. No steel consumer depends on
buying "unfairly" priced steel as a part of his or her
business plan. Steel consumers depend on prices that they can achieve
in the marketplace.
If steel users are at a competitive disadvantage, which appears
to be the case at present, then they will suffer at the hands of
their lower-cost international competitors. This is happening now;
and we believe that the tariffs, imposed on American manufacturers
by their own government, bear a substantial share of responsibility
for that.
4. An examination of any shifts in steel consuming patterns
in the United States, i.e., how much steel was purchased from domestic
steel producers by U.S. steel consuming industries before the safeguard
action, and how has this sourcing changed following the implementation
of the tariffs.
The most important shift in steel consuming patterns since March
of last year is down. Manufacturing with steel is down, and steel
using jobs are down, year on year. This is due, in part, to the
steel safeguard measures.
The safeguard measures are contributing to a loss of steel consuming
manufacturing jobs in the United States. Imports of steel products
have been replaced by imports of downstream products. The measures
are also causing shifts away from developed country imports and
toward developing countries, and from finished steel products to
semi-finished products (e.g., slabs). The latter are rapidly increasing
their share of the U.S. market. This is not necessarily a bad thing-the
point is that the U.S. steel measures have unintended consequences
that do not necessarily benefit U.S. steel producers.
5. A discussion of the likely impact on employment, profitability,
capital investment, and international competitiveness of steel-consuming
industries of (1) continuation of the steel tariffs for the period
September 2003 - March 2005 and (2) termination of the tariffs effective
September 20, 2003.
We look forward to the Commission's report on these economic indicators.
Our own CITAC analysis indicates that continuation of the tariffs
to March 2005 would cause significant additional employment and
economic welfare losses. Laura Baughman will share with you the
latest analysis.
The conclusions of the CITAC analysis are not surprising. High
tariffs cause job losses at home that dwarf the gain to the protected
industry. Therefore, the tariffs are a drain on the economy. We
should not tolerate them longer than necessary.
The harm from the safeguard measures will continue as long as they
are in effect, and beyond. The benefits to steel producers will
continue to diminish, as the steel users that survive the price
and availability shocks make arrangements to maintain their competitiveness.
The consolidation of the integrated portion of the industry has
largely taken place. New investment is not likely to increase because
of another 18 months of tariffs. In short, the negative impact on
consumers from continuing these measures will be far greater than
the positive impact on steel producers.
III. Conclusion.
Steel users need and want a vibrant and competitive steel supply
base. CITAC does not oppose the prosperity of the steel industry.
We need to think of ways to foster prosperity and open markets without
forcing steel consumers out of business by paying for steel they
cannot afford. We are also very concerned that further protection
is just what the steel industry does not need in its effort to become
globally competitive.
CITAC very much appreciates the opportunity to participate in this
proceeding.
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