To: Editor, AMM 12/3/01

In response to your recent article on legacy costs on November 30, it’s important that someone other than the proponents of legacy cost recovery contribute to your reader’s comprehension of the issue.

It’s time to reveal the disinformation on “legacy costs” that a few steel companies are presenting to public policy makers. The ITC recently affirmed the severe damage sustained by America’s steel producers from the onslaught of imported steel. But the request for legacy cost welfare by a few failing companies, is hampering rational public policy debate on the issue.

Legacy costs are more clearly defined as commitments made to employees by a few companies that exceed their ability to pay. Over years of negotiating their labor contracts, a few steel companies made promises they simply cannot keep. Now, finding it difficult to honor these health-care cost commitments, they are pressing politically to obtain a corporate welfare program cloaked in the legitimacy of a government solution to the steel trade problem.

The companies pressing for this government largesse are specifically those which have mismanaged their businesses. They have failed to maintain competitive processes and facilities. Several have demonstrated their inability to compete by filing multiple bankruptcies caused in part by their failure to achieve competitive unit labor costs over many years. The majority of U.S. steel companies, despite the import disruption of the past few years, are not pressing for an infusion of undeserved government cash.

The legacy cost issue endangers the entire fabric of remedy actions being considered by the Bush administration in support of a much needed and rational approach to the world steel problem. Establishment of strong tariffs to address the import disruption found by the ITC in the recent 201 case is one such critical need. Successful conclusion of the OECD discussions regarding global steel capacity is another. Assuring that implementation of any trade remedy is effectively carried out, then eliminating opportunities for circumvention is a third. Diversion from these goals to give a few inefficient and mismanaged companies unwarranted balance sheet relief would be gross mismanagement of government policy, providing an optical illusion that the steel industry’s problems have been solved.

If the bailout of a few companies is substituted for legitimate government action to address the predatory import problem, the rest of the industry will have paid dearly for a windfall to these few. Restoring free, fair and efficient steel markets worldwide will enable the fit to survive. Limiting the scope or efficacy of those solutions in any way in the name of underwriting the inefficiency of a few failing steel makers will not only dilute the needed remedy it will guarantee the inability of the US government to deal effectively with the world problem of excess, subsidized, protected, and inefficient steel-making capacity.

There is no question that restructuring and rationalization in the domestic steel industry will have social costs. Some jobs may be lost, and some employees will find that the promises their employers made won’t be honored. Steel is little different in this respect from the airlines, financial, and other industries. Providing direct assistance to workers displaced by capacity reductions is a reasonable expansion of current worker adjustment assistance programs. Providing a safety net for individuals damaged by industry restructuring focuses the help where it belongs, on the people affected. But even here, assistance should only be available when capacity is permanently dismantled.

Thomas A. Danjczek

President

Steel Manufacturers Association