More trade complaints seeking duties in the wings

By Staff -- Purchasing, 12/8/2000

The new U.S. Farm and Steel Support Law of 2000 includes a unique steel provision that gives U.S. steel companies compensation from tariffs levied on foreign steel imports as a result of successful dumping suits. This is a drastic departure from the typical protocol, where tariff revenues go to government coffers. "At a time when the steel industry is reeling from poor pricing, this new legislation will add fuel to the rising tide of dumping suits filed by steel companies against their foreign competitors," suggests international economist Sara Moreno.

In fact, U.S. steel firms have filed trade suits seeking punitive tariffs on hot-rolled steel products from a half-dozen foreign nations. "Another surge in dumping cases may be coming quickly," agrees analyst Charles A. Bradford at Bradford & Associates in New York." The woes of the steel industry won't be alleviated by more dumping suits, Moreno contends. "The steel industry's primary problem is that the world is simply producing too much steel."

Moreover, she adds that the benefits of successful dumping suits clearly only serve the interests of producers. "One should also look at the loss or benefit of anti-dumping for consumers, she says. "Distortions to trade serve only to hurt consumers who should have access to the lowest price available."

Moreno also notes that steel-using industries affected by decreased imports or higher prices due to dumping laws are generally larger employers and more important industries to the overall economy than is the steel industry. "These factors should enter into the equation when the government seeks to help one specific industry that, regardless of its exposure to dumping, needs desperately to restructure in the face of increased competition," she says.

Too much capacity

Although the steel industry is in a tough situation, Moreno admits, "dumping laws are not the solution to its real trouble of overcapacity." Steelmakers currently have the capacity to produce 869 million metric tons of steel annually, which is 15% more than can be consumed, according to World Steel Dynamics. The most obvious result of this excess capacity is low steel prices.

Economists and market analysts have been saying for months that the world steel industry needs to consolidate, which would allow for the rationalization of operations and eventually create a healthier global market for the industry. However, in a column published on the economy.com Web site, Moreno notes: "In the U.S., the needed rationalization is impeded because of programs such as the U.S. Emergency Steel program, which comes to the aid of distressed companies. Add to this the anti-dumping laws that funnel tariffs to domestic producers, and the trade distortions are significant in the steel industry."

The Asian crisis exacerbated the troubles of the U.S. steel industry. The currency devaluation in Asia coupled with an economic downturn led to a drastic drop in demand for steel in that region and created a surge in steel available in the world market. With the U.S. enjoying a solid economic expansion, many nations sought to sell their steel in the U.S. Steel imports soared to as much as 30% of total market, workers were laid off from domestic steel companies and profits plummeted. The remedy against the surge of imports thus far has been applying anti-dumping laws.

"The remedy, however, is misguided," says Moreno. "Dumping in economic terms refers to the selling of products abroad at a lower price than the price sold in the domestic market. This predatory pricing is economically plausible in a scenario where foreign firms engage in price-cutting in order to drive competing firms out of business and then exact monopoly profits. This is the argument taken up by the U.S. steel industry in its call for protection. However, the argument is dubious in the case of the steel industry, as there are hundreds of producers from many nations, making it nearly impossible for sustained monopolistic pricing ever to occur."

Also, dumping laws are more of a double-edged sword for the U.S. as a whole. "While the U.S. steel industry may benefit from successful anti-dumping suits, U.S. exports are vulnerable to suits from other nations," she says. "Given that the U.S. and Europe are already battling over bananas and beef, starting another spate of anti-dumping suits may derail the broader free trade agenda."