_Dumping of Steel _
By: Terry Smith
INTRODUCTION Foreign steel producers plague the U.S. steel industry with
unfair competitive practices. This practice is referred to as "dumping".
Dumping of foreign steel has been a problem throughout the history of the U.S.
steel industry. In the 1990s dumping has become more of a problem, due to the
breakdown of the Russian economy and its transition from Capitalism to a
free-market economy. According to Microsoft Encarta 98 (1998), Free-Market
Economy, is an economic system in which individuals, rather than government,
make the majority of decisions regarding economic activities and transactions.
In addition, the Asian financial crisis has led to another round of dumping
into the U.S. markets by many Asian countriesThe effects of dumping have a
positive as well as a negative impact on the health of the overall U.S.
economy. On the positive side, steel-using industries enjoy lower prices for
steel used in the manufacture of their products. Turning to the negative side,
the U.S. steel industry has suffered tremendously through layoffs and a
collapse of a number of steel makers. Should the U.S. Government provide
protection against dumping? The debate on protectionism has gone on for years.
Protection of one industry by the U.S. Government has come at the cost of
another including the U.S. consumer. BREIF HISTORY OF THE STEEL INDUSTRY The
steel industry grew out of the need for stronger and more easily produced
metals. During the last half of the 19th century, many technological advances
in steelmaking played an important role in creating modern economies. These
economies depended on the steel industry to supply rails, autos, girders,
bridges, and many other steel products. Iron making can be traced as far back
as 3,500 b.c. in Armenia. The Bessemer process, created independently by Henry
Bessemer in England and William Kelly in the United States during the 1850s,
allowed the mass production of low-cost steel; the open hearth process, first
introduced in the United States in 1888, made it easier to use domestic iron
ores. By the 1880s, the growing demand for steel rails made the United States
the world's largest producer. The open-hearth process dominated the steel
industry between 1910 and 1960, when it converted to the oxygen process, which
produces steel faster, and the electric furnace process, which makes it easier
to produce alloys such as stainless steel. After World War II, the U.S. steel
industry faced increased competition from Japanese and European producers, who
rebuilt and modernized their industries. Later, many Third World countries
such as Brazil built their own steel industries and large U.S. steelmakers
faced increased competition from smaller, nonunion mills. The U.S. produced
about half of the world's steel in 1945; by 1991 it was the third largest
producer, with only 11% of the world market, behind the former Soviet Union
and Japan. Since the 1970s, growing competition and the increasing
availability of alternative materials, such as plastic, slowed steel industry
growth; employment in the United States steel industry dropped from 2.5
million in 1974 to 1.6 million in 1991. Global production stood at 736 million
tons in1991, down from 786million tons in 1988 (The Columbia Encyclopedia,
1993). DUMPING Columbia Encyclopedia, (1993) defined dumping as the selling of
goods at less than normal price, usually as exports in international trade. It
may be done by a producer, a group of producers, or a nation. However, dumping
is usually done to drive competitors off the market and secure a monopoly,
and/or to hinder foreign competition. Nations, in an effort to counterbalance
international dumping, often resorted to flexible tariffs. International trade
through acute competition from foreign producers often leads to dumping
infractions of law. A policy regarding dumping, depends on its effectiveness
in maintaining separate domestic and foreign markets, the monopolistic
mechanism that influences the stability of high prices in the home market, on
export bounties, or on low import duties in the foreign market help maintain
economic balance. Dumping disturbs those markets that receive dumped goods and
it may drive local producers out of business. Governments may condone, even
sponsor, dumping in other markets for political reasons and/or to achieve more
favorable balance of payments. In the late 19th century, dumping became part
of the trade policy of great European cartels, especially German cartels.
Britain, France, Japan, and the United States have also practiced dumping.
Canada first passed antidumping legislation in 1904. The United States in an
effort to discourage dumping, imposed various tariff acts that dealt with
different types of dumping; in particular the Emergency Tariff Act of 1921,
imposed special duties on goods imported for sale at less than their fair
value or cost of production. It was amended by the Customs Simplification Act
of 1954. The General Agreement on Tariffs and Trade (GATT) prohibits dumping
and provides for increased import duties to combat the practice (Columbia
Encyclopedia, 1993). DUMPING IN THE 1990s The dumping of steel products into
the U.S. market has been going on throughout history. Nevertheless, it has
become more prevalent during the 1990s. According To Robert J.Grow (1998), the
first major shock of the 1990s came from the near total collapse of steel
plate demand in the former Soviet Union and a concomitant surge in exports to
the U.S. Fortunately, U.S. producers successfully challenged the dumping of
plate into the U.S. market with trade cases filed in Nov. 1996. After findings
of massive dumping margins and affirmative determinations of injury, the
governments of Russia, Ukraine, and China reached suspension agreements that
will reduce imports from these countries by 70 percent from 1996 levels of
over 1 million tons. These countries essentially had not shipped to the U.S.
market before 1993 The entire U.S. steel industry is attempting to overcome
the second major shock of the 1990s the Asian financial crisis. The Asian
financial crisis has meant collapsing currencies for many Asian countries,
International Monetary Fund (IMF) bailouts for several of these countries,
soaring domestic interest rates, bankruptcy filings, and significantly reduced
home-market demand in Asian countries (Grow, 1998). This crisis has forced
many Asian countries to resort to dumping steel on the U.S. market due to low
demand at home. THE CAUSE For years, the Asian model involved
government-directed lending within a closed financial system to favored
companies and industries in export-targeted sectors like steel despite the
creditworthiness of the enterprises receiving the financing. Long-term capital
expenditures were financed with short-term debt, and increased capacity was
used to fuel higher exports and increases in the standards of living for
workers. Workers in Korea were granted lifetime employment. Profits or the
lack thereof, was not important; instead, market share and increased exports
were emphasized. When the poster child of these Asian financial abuses, Hanbo
Steel, filed for bankruptcy in Jan. 1997, the dominoes began to fall.
Incredibly, at the time of the bankruptcy, Hanbo had received $5.8 billion in
loans, led by the Korean-government-owned Korea Development Bank. Since the
bankruptcy, Hanbo has been managed by Pohang Iron and Steel, now the world's
largest steel producer and still 36-percent-owned and controlled by the Korean
government (Grow, 1998) Because of the lack of demand for steel products in
many Asian countries coupled with subsidized over capacity the U.S. has
witnessed an inflow of steel products into the country. Korea has exported
record numbers of steel pipe to the U.S. Also, increased exports of plate from
Korea and Indonesia, and increased imports of hot-rolled sheet from Japan,
among other countries in the region. According to American Metal Market
(1999), By June of 1999, the list of countries allegedly dumping steel has
grown to include Argentina (28 percent), Brazil (32 percent to 63 percent),
China (27 percent), Japan (49 percent to 53 percent), Russia (76 percent to
100 percent), South Africa (17 percent), Slovakia (35 percent to 44 percent),
Taiwan (38 percent to 59 percent), Thailand (94 percent to 122 percent),
Turkey (33 percent and Venezuela (25 percent to 56 percent). Cold-rolled
imports from these countries totaled 2,283,710 tons in 1998, accounting for
13.7 percent of the total U.S. domestic market and 63.2 percent of all
cold-rolled imports. THE EFFECTS The dumping of foreign steel into the U.S.
market can have a positive effect on the economy; However, dumping can effect
the economy in a negative way as well. First lets look at the positive effects
dumping has on the economy. The dumping of steel by foreign countries has
caused the price of commodity grade sheet steel to drop to as little as $220 a
ton, down from around $300 a ton. The lower prices due to steel imports have
been a boon to steel-using industries, from carmakers to lawnmower
manufacturers. Companies are always looking for ways to cut costs and increase
their total profit. Companies that use steel in the manufacture of their
products will benefit from the use of substitutes that the foreign steel
companies provide through lower priced steel. This will allow the steel-using
industries to hold the line on price increases of their products, allowing the
American consumer to benefit from lower prices due to dumping. In 1998, the
demand for steel was so great that domestic producer's were themselves taking
advantage of cheap foreign produced steel. A number of domestic steel
producers were buying cheap slabs from foreign producers to run through their
mills. Domestic producers found that it was cheaper to buy slabs from foreign
mills than to make the slabs themselves (Robertson, 1998) For the U.S. steel
industry, the negative effects of dumping out-weigh any positive effects.
Demand for steel in the U.S. has been perfectly inelastic for much of the
1990s meaning that whatever the steel makers could produce the market would
absorb no matter what the price. If demand is inelastic, a price rise leads to
an increase in total revenue, and a price fall leads to a decrease in total
revenue (Arnold, 1998). Dumping leads to lower prices, although demand is the
same, total revenue decreases. Since 1997, The U.S. steel manufacturing
industry has been suffering from the record level of steel imports that have
been flooding the country. The situation has caused the collapse of a number
of steelmakers, a reduction in operating levels and the layoff of thousands of
workers. Before 1998, the peak level of U.S. steel imports was 27 million
tons. Steel imports, in 1998 reached an all-time high of 41.5 million tons, a
54-percent increase over the previous record level (Garvey, 1999). U.S. Steel
producers blame more than 10,000 layoffs in late 1998 and the bankruptcies of
three steel companies in 1999 on the surge in steel imports. PROTECTION The
illegal dumping of foreign steel products in the U.S. is depressing the
steel-manufacturing sector in the U.S. America's steel industry wants special
protection from falling prices in the global marketplace. Should this come at
the expense of our nation's overall economic health? U.S. steelmakers and
their unions have banded together and petitioned for protection against
illegally dumped foreign steel. This campaign "Stand Up For Steel" has worked
by putting the pressure on politicians in Washington to "do something." Doing
something, particularly when it comes to a political heavy hitter like steel
means relying on anti-dumping statutes. Anti-dumping laws, which penalize
companies for selling their products for less than production cost, have been
a useful cover from global competition for the steel industry: one out of
three anti-dumping actions in the past 20 years was directed at imported steel
(Morrissey, 1999). The U.S. anti-dumping law is stacked in favor of domestic
producers, virtually guaranteeing that a dumping margin will be found. The
Commerce Department upholds more than 95 percent of all dumping charges. In
addition, U.S. law punishes foreign producers for engaging in practices that
are legal, and common, in the domestic U.S. economy, where struggling
companies often sell at a loss to clear inventory and cover fixed costs
(Griswold, 1998). In March of 1999, the House of Representatives voted
overwhelmingly, (289-141), to slap quotas on dumped steel imports. The quota
bill would cost the private sector almost $900 million over the next three
years, according to a Congressional Budget Office report (Morrissey, 1999).
The quota bill would drive up domestic steel prices; this would be a boon to
the relatively small steel-producing sector but a burden to far larger
steel-using industries. Higher steel prices will drive up costs and depress
sales and employment in steel-using sectors such as automobiles, construction,
home appliances and food packaging. For Example, the average five-passenger
sedan contains $700 worth of steel, a fact that has prompted General Motors to
file a brief this fall with the U.S. International Trade Commission urging
caution about steel dumping duties. Caterpillar Inc., a major exporter of
construction equipment, buys 600,000 tons of steel a year. General Electric
uses 750,000 tons a year in home appliances and a range of other products.
Overall, the major steel-consuming sectors of the U.S. economy transportation
equipment, fabricated metal products, and industrial machinery and equipment
employ 3.4 million production workers, compared to 175,000 employed by the
basic steel industry (Griswold, 1998, p.2). For every steelworker whose job is
made more secure by protection, nearly 20 workers in steel-using industries
will be made less secure (Griswold, 1998, p.2). Propping up steel prices will
cheer unions and stockholders of domestic steel, but will hurt far more
numerous Americans who buy and make steel products. Most steel companies
posted profits in late 1998 and all of 1999. Lower prices will potentially
drive some of the less efficient U.S. producers out of business, but the more
efficient among them, will survive and thrive, leaving the U.S. industry more
competitive overall. FUTURE OUTLOOK The U.S. steel industry can look forward
to a prosperous year 2000 and beyond. Kenneth Hoffman, steel industry analyst
with Prudential Securities, .New York, predicted hot-rolled sheet prices would
be in the range of $365 per ton to $400 per ton. Hoffman also predicted prices
for cold-rolled sheet would be in the range of $425 per ton to $465 per ton
(up, from current prices of around $410 per ton) and galvanized sheet up to
$525 per ton to $600 per ton from current prices of around $420 per ton. "I
think U.S. prices will go nuts next year," Hoffman said. "Asia right now is a
boom or bust economy. It is the U.S. of 100 years ago, and it will be
significantly stronger next year. That strength will help curb the high levels
of imports that came from Asia to the U.S. in the second half of 1998 and
early 1999" (Robertson, 1999). This will cause less dumping into the U.S.
market, thereby allowing domestic steelmakers to raise their prices.
Furthermore, supply will decrease as demand rises. Thus increasing total
revenue for most steel companies. CONCLUSION Dumping is a worldwide problem,
the breakdown of the Russian economy and the Asian financial crisis were
problems during the 1990s. Finding ways to deal with dumping is one of the
major issues facing U.S. steel makers in the new millenium. Should the U.S.
Government protect the steel industry at the expense of the rest of the U.S.
economy? Furthermore, at the chance that foreign countries will retaliate due
to punishment levied against them because of dumping. As global expansion
continues, U.S. steelmakers will have to become more aggressive in finding
ways to compete in the global marketplace. This will have to be done through
modernization of old mills and the use of new technologies to make a better
product at lower costs. Dumping will always be a threat to the U.S. steel
industry. Finding the way to fight it will be the big challenge facing the
U.S. steel industry in the 21st century. BIBLIOGRAPHY Arnold, R. (1998) .
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