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Steel companies prepare for impact of president's tariff removal
By LORRAINE SENCI

   One of the largest employers in the Metro-East - U.S. Steel Granite City Works, which employs about 2,500 people - is hoping that positive forces in the global economy will offset the negative impact the recently lifted steel tariffs could have on its industry.

   On Dec. 4, President George W. Bush lifted Section 201 steel safeguard tariffs - more than 15 months ahead of schedule - citing "changed economic circumstances." The protective tariffs, which were enacted in March 2002 and scheduled for a three-year duration, were a hard-won reprieve for an industry that has seen 42 bankruptcies since the late 1990s.

   "Five companies filed for bankruptcy while the tariff protection was in place," said Dennis Barker, chairman of the political action committee for United Steelworkers of America Local 1899. Barker, who is a zone safety chairman at U.S. Steel Granite City Works, was appointed Stand Up For Steel Coordinator for USWA District 7, Sub district 2 in the summer of 2003.

   "Lifting the tariffs ahead of schedule could lead to more devastation in the steel industry," he said.

   Prematurely lifting the tariffs was a betrayal to the industry and its workers, who were committed to making the changes necessary to better position the domestic steel market for global competition, Barker said.

   "The tariffs were designed to level the playing field. Both the industry and the union feel it was a mistake to open the market and allow heavily subsidized steel into the country," he added. "Only time will tell," he said about the outlook for 2004 without the protective tariffs in place. "We have to wait and see what the imports will do."

   The tariffs were implemented after the U.S. International Trade Commission determined that imports were a substantial cause of serious injury to domestic producers of flat-rolled steel. In 2003, the World Trade Organization declared the tariffs illegal and the European Union threatened to retaliate by imposing tariffs on certain American exports.

   U.S. Steel spokesman Michael Dixon said the tariffs were one part of the president's three-part program designed to address the 200 million tons of excess capacity in the world. The program included working with other governments to reduce excess capacity and working with governments and companies to eliminate market-distorting practices.

   "None of the foreign governments came to the table until the tariffs were enacted," Dixon said. "The tariffs showed that the United States was serious. The tariffs helped us a great deal."

   The U.S. cannot produce enough steel to meet domestic demand, he said; about 25 million tons of steel must be imported into the country, but imports were hitting historic highs and selling at below-market value.

   "In 1998, the surge of imports was flowing into the country unimpeded, and steel was being traded unfairly. The surge lasted three years with record levels of imports flooding the United States, driving prices down to historic lows," said Dixon.

   "We are deeply disappointed that the tariffs were lifted because it introduces a new degree of uncertainty in the market," he said. "We felt like we needed the full three-year term. The tariffs set a floor on what prices would be and they led to consolidations in the industry, such as we did with National Steel."

   The domestic steel industry is still in need of consolidation, according to Dixon. Companies need to make capital improvements to their facilities, but without the protective tariffs in place, it may be more difficult to secure the funding for acquisitions and upgrades, he said.

   Russ Saltsgaver, president of USWA Local 1899 - which represents 1,800 employees who work at U.S. Steel Granite City Works, Robinson Steel, Stein Steel and the Granite City Steel Credit Union - said the tariffs gave the bigger companies the breathing room they needed to restructure and lower costs.

   "We negotiated a new labor contract while tariffs were in place, reducing 34 job classifications down to six," he said.

   Union and company officials agree that the groundbreaking labor contract promises to increase flexibility and productivity in the plant, making the company a more competitive player in the global market.

   "What I see for 2004 depends on worldwide supply and demand," Saltsgaver said about the impact of the tariffs being lifted. "China is starting to buy more steel and is using most of its own steel. If consumption of steel stays high, we'll be OK, and we'll keep our heads above water for 2004."

   Frank Spreng, PhD, professor of economics at McKendree College, said other forces in the market might help protect the domestic steel industry in the absence of tariffs:

   A weak U.S. dollar overseas - which means American-made products of any kind (steel included) - is more attractive in both domestic and foreign markets, and higher transportation costs, which discourages foreign companies from shipping their products to America.

   Dixon, of U.S. Steel, agreed, and added, "Shipping and freight rates have increased up to four times, costing foreign companies much more for transportation." In addition to the strong demand in China, he cites a solid demand for steel in Europe as well. "China is becoming a real player in the international market," Spreng added. "China is probably the wild card. The capacity to produce steel worldwide already exceeds the demand, and China could impact supply conditions by bringing more capacity online."