Hon. Robert B. Zoellick

United States Trade Representative

Office of the United States Trade Representative

600 17th Street, NW

Washington, DC  20508

 

 

Dear Ambassador Zoellick:

 

We would like to express our sincere thanks for the time you spent with us this past Wednesday on the prospective trade remedy the President will adopt on steel imports.  Our minimill sector of the steel industry, which now accounts for almost one half of US steel production, is grateful for your leadership role on the steel trade problem.

 

President’s Steel Trade Objectives

 

As we indicated during our meeting, the President’s announcement on June 5, stated he would:  1) initiate negotiations to seek the near-term elimination of inefficient excess capacity, worldwide; 2) initiate negotiations on the rules that will govern steel trade in the future; 3) request the initiation of a steel industry 201 investigation.  In regard to his third request, the ITC unanimously found that on most steel products, the domestic industry has been seriously injured by imports.

 

An Effective Remedy is the Key Factor in Achieving the President’s Program

 

We wish to reiterate what we said in our meeting with you on January 9th, namely that there will be little hope of achieving the President’s first two policy objectives unless the President addresses the unimpeded and irresponsible importation of the world’s excess steel production.  To reestablish discipline in the domestic market, we are seeking a remedy that is uniform and easily applied:  i.e. an effective tariff on all ITC Section 201 affirmative rulings for steel mill products rather than varying tariffs mixed with quotas which would be both ineffective and an administrative nightmare to police.  The tariff must be substantial enough to get the steel industry adjustment job accomplished, otherwise the steel trade problem will recur, a development we believe the industry, the Congress and the Bush Administration all wish to avoid.  We emphasize that the tariff remedy recommendations of ITC Commissioners Bragg and Devaney are the trade remedies that would provide the basis for positive adjustment by the steel industry.  We also emphasize that the proposed recommendations of other Commissioners are inadequate to redress the injury sustained or to accomplish the adjustment the industry needs. 

 

The proposed tariff rate quota on slabs proposed by some commissioners, for example, will eviscerate relief for the flat-rolled industry.  Large quantities of extremely low priced imported steel slabs, converted to low priced finished products will prevent any meaningful price recovery from occurring in flat rolled product prices, nationally.  Importers will amortize any duty they pay on above quota steel slab imports over all their imports.  Low costs of importing additional slab to the US will encourage foreign steel producers like CSN to purchase rolling mills in the US, resulting in the closure of additional blast furnaces and encouraging all US flat-rolled producers, both minimills and integrated mills, to become slab converters.

 

We are similarly concerned with varying tariff recommendations on other key products.  Rebar imports, for example, have taken one quarter of the US market, and currently are increasing their US market share.  A 10% tariff on rebar would be useless in achieving viable relief.  Moreover, such a lower tariff on rebar (or on other products) would ensure further market devastation as import sources switch to more accessible product categories.  The tariff should be applied at a uniform level to prevent disruption of particular product markets through switching.

 

In addition, the remedy should be in place for four years.  Given the significant capital costs to achieve improvements in operating efficiency, and the time needed to develop technical improvements and produce favorable financial results, a remedy duration of four years is necessary.

 

An Effective 201 Remedy Will Not Adversely Affect the Competitive Position of US Steel Consumers

 

Our economic projections indicate that an effective trade remedy, combined with a rise in US market demand, could raise steel prices in the US by 15%.  This price effect translates into a modest cost increase of about six tenths of one percent in a $20,000 US-made automobile since the initial cost of the steel content is only $600.  Similar ratios hold true in other major steel-consuming industries as manufacturing value-added costs far outweigh the contained steel raw material input.

 

Furthermore, major steel consuming domestic industries will experience structural long-term injury if domestic steel prices remain at levels which will result in further sharp losses in domestic steel product capability.  That, unfortunately, is what is occurring today.  Add further massive dependency on foreign sources of steel, to the already unacceptable dependency on foreign oil and US steel users will have a major long-term structural problem.  Moreover, we do not agree with contentions that a reversion to 1997-1998 steel prices will injure the competitive capability of US steel users.  It didn’t then, why should it do so now?

 

An Effective Remedy Under Sections 201/203 Is WTO-Consistent

 

A unanimous affirmative determination of injury by the ITC Commissioners under Section 201, leading to a temporary presidential remedy, is a clear example of the way the international escape clause provision of the World Trade Organization is supposed to work.  The fact that 29 US steel companies are in bankruptcy, that major US companies are near or in liquidation, that there is major unemployment in the steel industry, all found by an independent agency to be triggered by imports, is a totally WTO-consistent use by the US of the international escape clause remedy.  Steel exporters to the US will claim that US mini-mills have caused US market disruption, but we can affirm that is untrue, as have six Commissioners of the ITC.

 

The Steel Industry is Most Grateful for the Support of the Bush Administration

 

Past Administrations have analyzed the persisting steel trade problem, but this is the first Administration which has taken the lead to achieve a definitive long-term solution.  We pledge to do our part to achieve effective industry adjustment, and hope we may count upon your support for an effective remedy.

 

 

Sincerely,

 

 

Phillip Casey                                         Daniel DiMicco                         Clyde Selig

President & CEO                                  President & CEO                      President & COO

AmeriSteel                                            Nucor Corporation                     Commercial Metals Steel Group