TESTIMONY OF

Erick Ajax Before The
House Committee On Small Business

"Lost Jobs; More Imports — The Unintended Consequences of Steel Tariffs"

September 25, 2002

Mr. Chairman, thank you for inviting me to testify today about the unintended consequences of higher steel tariffs. My name is Erick Ajax. I am the Vice President of EJ Ajax and Sons, Inc., in Fridley, Minnesota. We primarily produce hinges and other steel parts that are used in appliances and electrical enclosures worldwide.

EJ Ajax has made a concerted effort to be internationally competitive. In the past 10 years, we made sizeable investments in employee training and productivity equipment that reduced our labor costs from 15% to 9% of total costs. These efforts were successful and allowed EJ Ajax to service a wide range of companies located all over the world. Until recently EJ Ajax exported almost a third of our metal stampings. The Section 201 steel tariffs have, however, undermined our competitiveness. They have made it difficult for us to continue to sell parts domestically, let alone abroad.

We buy hot-rolled, cold-rolled and galvanized steel from service centers. We estimate that seventy to eighty percent of the steel we use is from domestic sources.

Since the imposition of the Steel Tariffs, raw material lead times have gone from days to months. Most of our long-term contracts were broken within weeks of the President's Proclamation imposing the Steel Tariffs. We have been forced into the spot market. This uncertainty as to supply makes it very difficult to continue to do business.

In addition, the steel tariffs have also increased our costs. Our steel prices have increased 30 to 60 percent. Since steel represents close to 50% of our costs, these increases have had a significant impact on our bottom line--particularly since we have not been able to pass the vast majority of these increased costs to our customers. Where we have been successful passing a small portion of our steel tariff increases on to our customers this has forced them to turn to global market for competitive bids so that they can stay competitive in the world market.

As a result of the steel tariffs, we are simply no longer able to compete in the international market. In eight short months several of our customers have already begun to purchase their parts from other countries, and some are seriously considering moving more of their manufacturing out of the United States where companies are not saddled with unpredictable and dramatic increases in material costs or late deliveries. Indeed, one of our larger clients recently informed us that our price for a family of parts was 50 - 70% more than the bid of three of our international competitors. Clearly we are in danger of losing this business. This is a sizeable contract that constitutes almost 10% of our annual sales.

Since the steel tariffs were imposed on March 5th, we have had to lay off 20% of our workforce. This was unbelievably difficult for us. Our employees are a huge part of our small family business, and we have always sought to provide all EJ Ajax employees with a safe, positive working environment.

Thus, because of the steel tariffs, all of our investments in productivity and employee training and professional development have basically been for naught, we have had to lay-off 20% of our work force, and our entire business is threatened. The very business that three generations of my family has spent almost six decades building. On behalf of the employees at E.J. Ajax and Sons and the other 13 million Americans that consume steel in manufacturing, we urge you to lift these tariffs as soon as possible. Thank you.