Is the United States the world's dumping ground for steel? Recent influxes in steel imports in the United States, the effects, and the possible remedies.

• Author: Henry, Kelly

1. INTRODUCTION

   Due to the repercussions from the tragic events of September 11, 2001, it is even more imperative that the general public be made aware of the current U.S. steel crisis. The economic devastation suffered in the United States resulting from the tragedy could be ameliorated by resurgence in the U.S. steel industry. Significant indications of the crisis began to emerge in 1998 when the American steel industry saw a strong U.S. steel market severely disrupted by record levels of increased imports at low prices. (1) To date, the American steel industry has suffered tremendously: thirty-five steel companies have filed for bankruptcy, (2) more than fifty thousand steelworkers have lost jobs, (3) and steel prices have remained at or below their mid-2000 levels and their historical average. (4) Although most industry experts agree that the 1997 Asian financial crisis (along with financial turmoil in other countries) indirectly led to the recent influx of steel imports, (5) these experts disagree as to whether existing overcapacity in the steel industry, unfair trade practices, or both are to blamer. (6)

   Given the effects of what some industry leaders call the most serious crisis for steel producers since the 1980, (7) representatives from both production mills and Congress have called for action. (8) However, the appropriate remedial action that should be taken has been the subject of some debate. (9) For example, some American companies have individually filed antidumping and countervailing duty cases under section 701 and section 731 of the Tariff Act of 1930 (10) against foreign importers, (11) while at the same time they have urged the President to initiate an investigation under section 201 of the 1974 Trade Act. (12) Meanwhile, the European Union (E.U.), the American Institute for International Steel, Inc., and others condemn these actions as "protectionist" measures in order to save inefficient U.S. companies. (13)

   On June 5, 2001, President Bush announced his three-pronged comprehensive initiative to address the challenges facing the U.S. steel industry. (14) First, he directed the U.S. Trade Representative (USTR), in cooperation with the Secretary of Commerce and the Secretary of the Treasury, to initiate negotiations with trading partners to eliminate inefficient steel capacity worldwide. (15) Second, the President instructed the USTR, along with the Secretaries of Commerce and Treasury, to initiate negotiations with trading partners concerning rules to govern steel trade in the future and eliminate market-distorting government subsidies. (16) Finally, he instructed the USTR to request the U.S. International Trade Commission (ITC) to initiate an investigation concerning the injurious consequences on the U.S. steel industry under section 201 of the Trade Act of 1974. (17)

   On October 22, 2001, the ITC concluded its section 201 investigation and determined that twelve steel import products (out of thirty-three product categories) are being imported into the United States at such increased quantities as to be a substantial cause of serious injury or threat of serious injury to the U.S. industry. (18) The ITC has also affirmatively concluded several of the anti-dumping investigations and found that certain steel products have been imported into the United States at prices that are less than fair value and by companies that are subsidized by their respective governments. (19)

   This Comment focuses on two of the primary U.S. trade laws that may be utilized to remedy the deleterious effects from the increased imports of steel. These mechanisms, as identified above, are (1) anti-dumping and countervailing duty investigations under section 701 and section 731, respectively, of the Tariff Act of 1930 (20) and (2) an investigation under section 201 of the Trade Act of 1974. (21) Part II of this Comment briefly outlines the complex history of problems concerning the declining steel industry in the United States. (22) Part III summarizes the background concerning the World Trade Organization (WTO) agreements and the role they play in the current steel crisis. (23) Part IV highlights the corresponding U.S. trade laws; discusses which remedy, if any, is more effective in dealing with the current crisis; and addresses any potential conflicts between the relevant U.S. trade laws and the obligations of the United States under the WTO agreements. (24)

2. HISTORY OF THE DECLINING STEEL INDUSTRY IN THE UNITED STATES

   During the early 1980s, the U.S. steel industry faced serious challenges. (25) Foreign competitors were reportedly producing massive quantities of inexpensive steel that eventually flooded the U.S. market during the same period the U.S. economy was hit by a devastating recession. (26) Throughout the 1980s and early 1990s, the U.S. steel industry underwent a painful restructuring. (27) Older, inefficient mills were shut down, capacity was cut, and billions of dollars were invested in new technology and training. (28) With these changes, productivity increased by three hundred percent and 330,000 jobs were eliminated. (29) Led by "mini-mill" companies, such as Nucor, the U.S. steel industry purportedly became a world leader in low-cost production and therefore felt "it would be difficult for foreign producers to deliver steel to the U.S. market at a lower cost than U.S. mills." (30) Consequently, the 1998 steel crisis was especially damaging to the U.S. steel industry because the American economy as a whole was doing well and both prices and demand for steel were up in the first half of 1998. (31)

   The 1997 Asian financial crisis coupled with catastrophic drops in Asian demand possibly compounded the problem caused by overcapacity in the global steel industry. (32) The Asian financial crisis suddenly led to deep recessions in several Asian economies, and investment in and consumption of steel plummeted in Asia. (33) Eventually, financial turmoil spread to other countries, such as Russia and Brazil, and increasing quantities of steel were diverted to the remaining healthy markets--the United States for one. (34) Considering the openness of the American market and continuing high demand and prices for steel, it was not surprising that the foreign-produced steel eventually found its way into the United States. (35)

   Beyond the immediate causes associated with the 1997 Asian financial crisis, other long-term factors contributed to the 1998 U.S. steel crisis. (36) Purportedly, common structural problems found in the steel industries of four countries--Russia, Japan, Korea, and, to a lesser extent, Brazil--amplified the increase of import volume and sharp decline of import prices. (37) Market-distorting practices in each of these countries insulated their steel industries from competition and thereby facilitated unfair trading. (38) Some of these practices included direct government assistance, apparent coordination among steel producers, unsound banking practices, and import barriers. (39)

   In Russia, for example, state planners produced tremendous amounts of steel without regard for efficiency, productivity, competitiveness, or environmental protection. (40) Thus, from 1990 to 1998, demand for steel in Russia dropped by eighty-five percent. (41) However, Russian central, regional, and local governments resisted restructuring to avoid layoffs and continued to keep most of the mills operating, which eventually led to an increase in steel exports by five hundred percent. (42)

   The Japanese steel market, on the other hand, purportedly was and still is dominated by a cartel of integrated producers who control prices and discourage imports. (43) Integrated steel producers thus collude to charge higher prices at home to turn higher profits and thereby allow exports to be "subsidized" at lower prices. (44) Consequently, after the Asian financial crisis hit, Japan actually reduced the volume of imports of hot-rolled steel from East Asian countries, while increasing exports to the United States from a monthly average of fifty thousand tons to more than two million tons in just a seven-month period. (45)

   Structural problems concerning Korea, however, may be linked to excessive borrowing to fund over-investment in under-performing capacity. (46) These extensive new investments in the 1990s were funded by unsound, often government-influenced, bank lending practices that allowed many insolvent companies to remain in operation both before and during the crisis. (47) Thus, exports to the United States were increased from 1998 to 2001 in staggering amounts. (48)

   Although Brazil did not increase exports to the United States as much as Russia, Japan, and Korea, Brazil did engage in considerable price-cutting in order to sustain export volumes. (49) "With an investment of over [fifteen] billion [dollars] from the late seventies to the early 1990's, the Brazilian government created a steel industry that ha[d] twice the capacity needed to meet domestic demand." (50) Brazil, similar to Japan, purportedly limited domestic price competition and engaged in various import barrier practices, such as high tariffs and import licensing, which allowed producers to sell cheaply abroad. (51)

   Economic growth in Asia and America during the early to mid-1990s initially obscured the fundamental structural problems resulting from the market-distorting practices of these four countries. (52) Growth was significant enough that the Asian and American markets absorbed the record amounts of steel produced and exported, however, only for a limited period. (53) When Japan, Korea, Brazil, and Russia experienced economic recessions and other key export markets collapsed, millions of tons of steel overcapacity had to be diverted to other markets. (54) Due to the large and open American market and its continued growth in demand and high prices, the United States naturally caught the attention of steel producers from these four countries. (55) The...