I. Introduction

First, I'd like to thank ESI for the release today of an important new study on cross-border steel cartels. The North American members of the American Iron and Steel Institute (AISI) view this issue as a serious, continuing problem in world steel trade, and hope this latest study will shed additional light on the substantial adverse impacts of private anticompetitive practices in steel.

But since we're on the subject of important new information, I've a question for the audience: how many of you have not made up your mind on the steel trade issue? Be honest. A show of hands.

My guess is that almost everyone has made up their mind, and I don't think many views will change due to today's discussion. That's because just about everything that can be said about the steel trade issue has been said. Our government has heard from all the key players. It has a good understanding of all major points of view. And, Florie, correct me if I'm wrong, but I also believe that the Administration probably needs only a short additional period of "quiet time" to reflect further on the issue (perhaps measured only in days) before it comes to a decision.

But, whether any positions get changed today or not, ESI is asking us to address two very important questions - (1) can the U.S. steel industry survive long-term? and (2) what needs to be done to ensure the long-term health of the domestic steel industry? The good news, I suggest, is that almost everyone does agree that it's critical to preserve a viable, competitive U.S. steel industry long-term and it's in the national interest to do so -- even if we don't all agree on how to get there. So with that, let the debate begin … once again.

II. We Have a National Steel Emergency Today; Can the U.S. Steel Industry Survive Long-Term?

So, can the U.S. steel industry survive long-term? I say, despite our current national steel emergency, we can and will. But the real issue is: will our industry prosper and grow long-term, or will we shrink into a mere shadow of our former self? And here, the answer is: it all depends, and it'll depend in large part on U.S. trade policy.

There's certainly every reason for the U.S. steel industry to survive long-term because -- I think we can all agree on this -- steel itself is an amazing material. It provides the best comparative value vs. competing materials in terms of performance and price, and is getting better all the time in terms of continuous improvement in strength-to-weight ratio, coatings, surface, forming, ductility and corrosion resistance.

A few examples: new high performance steels are now being used in 30 states and have enabled steel to make significant inroads in the bridge market; over 50% of the automotive steels today were not even made 7-8 years ago; aggressive campaigns have been launched to increase dramatically steel's market share in the residential framing, residential roofing, commercial framing and utility pole markets; U.S. steel prices, adjusted for inflation, are today 33% lower than they were in 1982; and since 1991, thanks in part to AISI market development efforts, U.S. finished steel consumption has risen by 53% (from 86 to 132 million net tons).

Thus, there's compelling evidence that steel (as a material) has a very bright future indeed. The only question is… where is it going to be made?

And that gets us back to this issue of survival. We're at a crossroads in our industry. We are in a national steel emergency, and I think most of you know its general outlines. I don't have time to detail all the damage. But…

• We've had an unprecedented three-year import surge from 1998- 2000 (41.5 MT à 35 MTà 38MT) -- the three highest years in history.
• As Bill Klinefelter will tell you, over 23,000 steel workers have lost their jobs since January 1998.
• Steel customs values are at a 20-year low, and published U.S. prices in April of hot and cold-rolled sheet were down 32% and 25%, respectively, since May of last year.
• Domestic steel shipments are down 14% in the first three months of this year compared to the same period last year (and automotive productive is down 19% in the 1st quarter).
• Steel capacity utilization is only 80% for the year to date, which is a huge cost penalty.
• Steel stock prices, in spite of the recent up-tick, remain decimated; our industry's total market cap (around $10 billion) is less than many individual companies in other sectors; and most steel companies have no access to capital markets at all.
• Surging energy prices (especially gas) have added another $25-30 per ton to overall costs, and have created a severe "cost-price squeeze."
• An over-valued U.S. dollar has further distorted our cost competitiveness -- and further obscured the significant positive restructuring our industry has accomplished since 1980.
• The vast majority of U.S. and North American steel companies had large losses in the 1st quarter of 2001; no integrated producer made money; the few exceptions saw sharply reduced profits; and the 2nd quarter is expected to be as bad or worse.
• So far, 20 North American steel companies have filed for bankruptcy since December 1997 (18 in the U.S.)… 21% of total U.S. steel capacity is in Chapter 11, and more bankruptcies are possible.
• The bottom line?
  • While unfair and disruptive imports are not the sole cause of current problems -- I've cited the effects of slowing demand, higher energy prices and an over-valued dollar -- the crisis itself and its main cause, contrary to what our trade opponents claim, is not home grown.
  • The root cause lies offshore - it is massive world steel overcapacity (as much as 275 million metric tons)… in many cases funded and sustained by governments through a variety of subsidies, closed markets, cartels and other private anticompetitive behavior.
  • The Commerce Department's July 2000 Global Steel Trade report provides an excellent explanation on how world steel overcapacity and foreign steel trade and market-distorting practices have turned the U.S. into the World's Steel Dumping Ground.
  • Today, notwithstanding lower imports in recent months, these un-addressed external imbalances and trade distortions pose a recurring threat of new surges of dumped imports, and this is putting the future viability of our entire industry at risk.
  • There should be no doubt: the record three-year surge of dumped, subsidized and disruptive imports has played a major role in causing America's national steel emergency; it's an industry-wide crisis; and it's affecting all industry segments.

III. This Should Not Be Happening to Competitive U.S.
Steel Producers

As we've said many times before, these should have been the best of times for a United States steel industry which, since 1980, has modernized and significantly restructured. We've done so by investing over $60 billion in modernization, eliminating almost 60 million tons of obsolete capacity, reducing employment by two-thirds, nearly tripling labor productivity, adding close to 20 million tons of new, world class capacity, dramatically improving product quality and becoming a world leader in the application of 21st century steel technology.

Now there are some things firms can control, and other things they can't, such as the over-valued dollar and the recent surge in energy prices, both of which are adversely impacting our current cost competitiveness.

But regardless of these aberrant factors that are skewing today's snapshot of U.S. steel industry competitiveness, no one should doubt that, at great cost and pain, America's steel industry has literally re-invented itself since 1980.

Yet, in spite of all this, we have today a national steel emergency.

IV. U.S. Customers Long-Term Require a Viable,
Competitive Domestic Steel Supplier Base

Yes, this crisis is hitting both steel producers and suppliers hard. But we also agree with Mr. Phelps that it's important to consider the long-term health of U.S. customers. Domestic steel producers do understand the need to keep U.S. steel-using companies competitive vis-à-vis foreign producers who ship their goods to the U.S. and other markets. We do support open export markets for our U.S. customers. And we do understand the possible short-term attraction of being able to purchase foreign steel at dumped prices.

At the same time, it's clear that U.S. steel-using industries can't depend over the long-term on "dump and run" foreign suppliers -- our U.S. customers long-term require a viable and competitive domestic steel supplier base:

• As world class steel producer Nucor, an AISI member, has repeatedly stressed -- there is no competitive steel fabrication and construction industry anywhere in the world that relies primarily on imported steel.
• As World Steel Dynamics' Peter Marcus has noted many times -- for the foreseeable future, our Great Lakes integrated producers remain essential to the U.S. auto industry.
• As Caterpillar, which has disagreed with us on some trade issues, has pointed out -- it relies on U.S. steel mill products for over 90% of its domestic steel needs.
• And as U.S. steel service centers have consistently made clear -- a viable, competitive domestic steel supplier base is critical, which is why the Steel Service Center Institute is urging that the President "immediately announce as Administration policy that investigations under Section 201 will be self-initiated…."
• The fact is that, in a world of just-in-time inventory, the customer rationale for a viable, competitive domestic steel supplier base is today stronger than ever.
• Unfortunately, unlike virtually every other major industrial country in the world, the United States today can't meet its own steel needs. And, as record levels of finished steel imports from offshore -- many of them unfairly traded -- have siphoned off a big chunk of our recent growth in steel consumption, we're becoming more, not less, dependent on imports. This is not in the national interest.
• As we wrote recently in response to a flawed and biased study on the "cost of steel protection" -- "U.S. steel users are the winners long-term if the United States has an effective policy to counter unfair and disruptive imports and, thus, preserve a healthy domestic steel supplier base. If this supplier base and competitive U.S. steel producers are allowed to be destroyed by unfair and disruptive imports -- and U.S. steel users are then held hostage to the pricing practices of offshore producers -- the long-term costs to the U.S. economy would be incalculable."

V. What Needs to be Done to Ensure the U.S. Steel Industry Survives Long-Term?

So, now that we know that the U.S. steel industry both can -- and should -- survive, the question is: what needs to be done to ensure that we survive long-term?

I think most of you know that AISI, other U.S. steel associations, Members of Congress and steel state governors have all urged immediate trade action by the President to address the steel crisis - that's essential. Because while our trade opponents claim that a temporary period of effective and comprehensive import relief will only delay further U.S. restructuring, this argument has it exactly backwards. It's the record surge of unfairly traded and disruptive imports that has forced much of our industry into day-to-day "survival mode," and it's the certainty of a multi-year breathing space from import surges that will allow sound, long-term business planning to start again.

What we're asking the President to do is initiate a steel industry-wide Section 201 case or use other authority available to him to provide an across the-board reduction in finished steel imports from non-NAFTA countries to pre-crisis levels.

What we need is a sustained period of steel import stability, during which time long-term structural problems, especially those outside North America, can be addressed. As we said in our February 16 trade statement on the crisis -- once the bleeding stops, we do need to focus on the longer-term issues, so we can help prevent the next steel crisis. This is why we've urged renewed international efforts to reduce global steel overcapacity and eliminate steel trade-distorting practices; why we want to see prompt U.S. implementation of a Canadian-style steel import monitoring and notification system; why we support the bill introduced today by Congressman English and others to strengthen our trade laws up to allowable WTO limits; and why we reject any weakening of U.S. trade laws -- whether in legislation, new free trade agreements, WTO dispute settlement or a new WTO round.

We know that this issue of the steel crisis is complex, with no quick or easy fixes. There are obvious domestic and international cross-currents, with strongly held views on all sides. This is true whether the subject is trade protection (whether to have it and, if so, on which products) or whether the subject is legacy costs (e.g., retiree health care obligations) and other domestic restructuring/consolidation issues.

However, in spite of the differences, one of the great untold stories of this crisis is the unprecedented degree of unity among U.S. steel producers on key issues. For example:

• Virtually all U.S. steel producers agree there's a major role for the U.S. government to promote a long overdue, much needed restructuring of steel industries abroad -- to attack global steel overcapacity, end steel subsidies, open steel markets and eliminate private anticompetitive practices in steel.
• We are all convinced that -- unless the U.S. steel market is further restricted to imports for a sustained period of time -- bloated, inefficient foreign steel industries will have little incentive to restructure and downsize.
• And we all believe that -- only when these global steel imbalances and distortions are addressed -- will renewed profitability bring back the financial community and enable U.S. steel producers to continue the necessary investments in new technology, which in turn will benefit steel's customers and related industries.

As many of you know, key Cabinet Officers are meeting this week with Steel Caucus and industry leaders, and we expect the Administration to decide very soon what it intends to do about the crisis. But before they make their final decisions, and before I end my remarks, I'd like to take a minute or so to review a few key points that emerged from two AISI-sponsored events last week. I refer to our General Meeting trade panel and a NAFTA-wide Interparliamentary Exchange on Steel Trade that we sponsored on the Hill:

• During our trade panel, we learned from a member of Mr. Phelps' Board that his group's survey of future activity is now beginning to see a rise in foreign offerings to the U.S. 4-5 months out, and we were told that we need to be "very concerned" about another possible ramp-up in imports and yet more market instability, which is precisely why this gentleman supports a sustained period of steel import stability in the United States.
• We heard that the North American steel industry is highly fragmented -- and it is -- that U.S. steel industry consolidation could contribute to a more stable steel market and that it's almost certainly part of the solution. But we also heard it's not the only solution, that it could have uncertain impacts on competitiveness and that some industry leaders remain skeptical about its long-term benefits.
• We found out, again contrary to what our trade opponents have been saying, that more world class steel capacity in the U.S. and North America is part of the solution, not the problem, since this is the only major region in the industrial world that's steel short.
• We were told how "complex" and "political" the global excess steel capacity problem is and how exceedingly difficult it will be to devise a pragmatic solution.
• And yet, we also saw at our NAFTA-wide Interparliamentary Exchange, that there is now growing unity among North American steel producers -- and legislators -- about the need for NAFTA governments to work more closely together to address the global steel crisis that has engulfed our region - and that, in spite of the difficulties, it's time to attack global excess steel capacity and to end market-distorting practices in steel.

VI. Conclusions

My conclusions are these:

• The steel crisis has been studied and talked to death. The time for action is now. The decisions taken - or not taken - in the next 6-18 months will have major effects on U.S. steel producers, suppliers and customers for the next 10-plus years.
• Steel remains the key building bloc of our industrial economy and a viable and competitive domestic steel supplier base remains vitally important to the U.S. economy, U.S. steel using industries and U.S. national security.
• The future of our industry is at stake and, for the foreseeable future, our nation will require both steel producing segments - integrated and electric arc furnace - to be viable and competitive. Whether the concern is more bankruptcies of U.S. integrated producers or the view of still-profitable Nucor that, under current conditions, it just can't justify making new investments in steel, America's steel industry has been weakened to the point were we cannot stand further import surges over the next few years.
• I have no doubt that, in one form or another, the 21st Century, like the 20th, will be a steel century and that U.S. and North American steel producers, in one form or another, will be center stage. Significant further change, however, is inevitable in the size and structure of the U.S. steel industry. We'll almost certainly see more consolidation, and we may see more foreign ownership. But we will have a steel industry in the United States long-term… even if its final shape and size right now aren't clear.
• The current price depression and market conditions in the U.S. and global steel industry are not sustainable. And yes, the market itself is forcing change, as over 9 million tons of U.S. steel capacity have been taken out in this crisis. But as I suggested at the start of my talk, much will depend on whether the U.S. has a sound public policy with respect to regulations, taxes, energy, the exchange rate value of the dollar and, in particular, trade laws. I'd like to leave you with two final thoughts:
  • First, while we need to address the long-term structural problems affecting the U.S. and global steel industry, we need, first and foremost, to make sure we have enough U.S. steel production around in the short-term to be able to tackle our longer-term problems.
  • And second, regardless of how much restructuring and consolidation the U.S. steel industry does, no industry -- whether it's steel or semiconductors -- can compete for long against the treasuries of foreign governments, and record levels of dumped and subsidized imports. So, by all means, let's intensify our efforts to attack the root causes of the current crisis -- the steel trade barriers, distortions and excess capacity offshore. But, at the same time, we should all give kudos to Congressman English for recognizing that, if steel and other vital U.S. industries are to survive long-term, the United States must enhance, not weaken, its trade laws. Thank you, and I look forward to a constructive discussion.