Letters to the Editor

To the Editor:

Andrew Sharkey's critique (Letter to the Editor, May 14, 2001) of the Consuming Industries Trade Action Coalition (CITAC) Foundation's recent study on "Costs to American Consuming Industries of Steel Quotas and Taxes" is a classic case of trying to kill the messenger when you can't fault the message.

Unable to cite to a single substantive deficiency in the CITAC Foundation study's conclusions, Mr. Sharkey attempts to discredit it as a product of foreign interests. He irresponsibly claims that the study was done by CITAC "and the American Institute for International Steel (AIIS)." Wrong. AIIS, while a member of CITAC, was not involved in initiating, financing, researching, preparing or presenting the study. Also, not that it matters, but no foreign money sponsored the study, which was conducted for the CITAC Foundation in the interest of thousands of American businesses and millions of American workers who depend on free markets for their livelihoods.

Next, Mr. Sharkey seeks to link the CITAC study to another document published last year by another organization. Last year's publication shattered a few cherished steel industry myths, but has precisely nothing to do with the CITAC study.

Mr. Sharkey questions the general equilibrium model employed in the study, and claims that it does not "provide sufficient data and results to enable a thorough analysis." Wrong again. The Appendix to the study refers to the web site of the organization responsible for the model (www.gtap.org). The model is maintained through a consortium involving the World Trade Organization, the World Bank, the Organization for Economic Cooperation and Development, the U.S. International Trade Commission, the U.S. Department of Agriculture, and others. AISI import data were used in the study, and the model, its database and all relevant software are available for purchase to anyone, including AISI and Mr. Sharkey. It was not invented for CITAC's "political" purposes, as Mr. Sharkey alleges.

Despite Mr. Sharkey's erroneous assertion, steel does indeed represent a significant part of the cost of making products in steel-consuming industries. Examples: In the metalforming industry, which uses about one-quarter of the steel produced in North America, steel represents between 40 and 70 percent of the total cost of manufacturing parts, components, sub-assemblies and assemblies for automobiles, appliances, machinery and thousands of other products. A small change in steel prices makes a big difference in a manufacturer's competitiveness and financial performance, especially in industries where competition is intense.

To suggest that there are not significant differences in quality and processing characteristics between foreign and domestic steel is vintage steel industry deception, which is demonstrably false. Domestic steel cannot be substituted for foreign steel on a "nearly one-to-one basis." Some products are not available at all from domestic producers. Others are not produced in sufficient quantity to satisfy customer demand. Economic studies that have measured the substitutability of U.S. and foreign steel all conclude they are "imperfect," not "perfect" substitutes. Mr. Sharkey should consider these studies before making clearly erroneous statements.

Here are some real-world examples: foreign steel is used in fire extinguishers, because properties of applicable domestic steels are not consistent enough to assure the necessary processing efficiencies and pressure resistance. Foreign steel is specified and mandated for certain truck brake parts because domestic steel does not satisfy the customer's concern for quality and safety. For certain other drawing applications, domestic steel is not competitive for reasons of quality and consistency of processing characteristics, making it more efficient to pay a premium for European steel because it causes fewer manufacturing problems and less down-time.

More examples: Stainless steel floor plate; radiation-free steel for metal detectors; catalytic converter foil, tire cord quality wire rod; and other steel products are not sufficiently available from domestic sources. Imports are not optional. They are a necessity.

Mr. Sharkey complains that CITAC provides no examples of U.S. manufacturers who have lost business abroad due to uncompetitive steel prices. While downstream manufacturers are not eager to share lost sales information publicly, we are well aware of the loss of business and jobs to offshore production in industries as diverse as automotive parts, motors, machinery and others (and those just involve steel!). But he may be assured that manufacturers in Illinois, Indiana, Iowa, Michigan, Ohio, Wisconsin and other states have lost business to firms in Brazil, Germany, Mexico and other countries because lower-cost steel (sometimes as much as 25 percent lower) is available there. And this is the point: if steel prices in the United States are significantly higher than elsewhere, U.S. industry loses jobs. It is not nearly as important whether steel prices are higher or lower than they were a year or two years ago; they must be competitive here and now.

Yes, steel prices in the United States (and around the world) are lower than domestic steelmakers would like. The same is true for a number of other products and services. But the United States is not an island of low steel prices. The reverse is true. For American manufacturers to be competitive in world markets, they must have access to world-competitive steel. And when it comes to the question of overall economic impact, there are indeed 50 American workers in steel-using industries for every steelworker.

While there have been productivity improvements in the domestic steel industry, foreign producers have not stood still. Mr. Sharkey well knows that a significant number of U.S. producers (especially "integrated" producers) are clearly not world-competitive. Many of them are, or will be, in financial trouble. Yet he continues the rhetoric that "global excess steel capacity and market-distorting steel trade practices" are the root causes of the steel industry's problems. Further, he expects the steel industry to receive special treatment at the expense of its customers and American consumers. He doesn't say why special treatment is justified.

Mr. Sharkey conveniently overlooks the fact that the quotas he proposes would restrict all steel imports, fairly and unfairly traded. And he fails to note that the antidumping and countervailing duty laws, which the steel industry has used so frequently over the years, are specifically designed to deal with dumped and subsidized (i.e., "unfairly traded") steel imports. In fact, at present more than half of all steel imports already is covered by AD/CVD orders, which means they are now "fairly traded."

Contrary to Mr. Sharkey's accusation, the CITAC study and its conclusions are neither "flawed" nor "biased." Indeed, Mr. Sharkey does not dispute the study's central conclusion: that steel quotas would cost far more jobs in steel-using industries than they would protect in the steel industry. And it should be equally obvious that, while they will hurt others, quotas will not undo poor management decisions, improve productivity or make the domestic steel industry more competitive. The quota "cure" is truly worse than the disease.

With the current economic uncertainties facing all Americans, and the especially difficult economic conditions facing the manufacturing sector, this is a particularly bad time to be promoting legislation that would threaten steel availability and tax steel sales.

The solution to the steel industry's woes is not to flail at the realities of the world market, or to penalize steel-using industries and U.S. consumers through trade restrictions designed to inflate steel prices. The answer is to restructure the steel industry to make it truly world-competitive - an undertaking that would receive wide support. The appropriate public policy is one that promotes these ends.

Jon E. Jenson
Chairman
Consuming Industries Trade Action Coalition