FOR IMMEDIATE RELEASE

Wednesday, July 26, 2000 
Contact: Morrie Goodman/Pat Woodward, 202-482-4883 
Daniel Cruise, 202-482-3809
 
Commerce Report Outlines Comprehensive Strategy to Avoid Future Steel Crisis

Washington --The Commerce Department today announced a comprehensive strategy to guard against a recurrence of the 1998 steel crisis that took a heavy toll on U.S. steel industry and their families. This program was unveiled as part of a comprehensive report on the causes and effects of the 1998 steel import crisis. Last year President Clinton and Vice President Gore launched a Steel Action Program, which called for Commerce to examine market-distorting trade barriers and to develop a strategy to avoid similar crises in the future. 

The 240-page Report to the President on Global Steel Trade: Structural Problems and Future Solutions identifies numerous factors that triggered the 1998 crisis, including the Asian financial crisis and currency depreciations. It focuses on underlying long-term structural factors in key foreign steel producing countries which exacerbated the severity of the crisis. The Department of Commerce concludes that the recovery of the domestic steel industry is ongoing, and therefore, careful attention needs to be paid in coming months to key indicators. 

"The steel crisis signaled the need for vigilance and stepped-up efforts to address the root causes of global instability in global steel markets," said Commerce Secretary Norman Y. Mineta. "Free trade and open markets have been the engines of our nation's economic expansion, and we must ensure that our workers and businesses are allowed to compete under fair terms. This Report sets out a comprehensive strategy to eliminate practices that distort global steel trade, and is designed to avoid a future steel trade crisis." 

Major elements of the Strategy are:

• Early warning of import surges and of changes in industry conditions. Key steel trade data will continue to be released on an expedited basis. Commerce will webcast information to steel workers and producers.

• Faster relief for industries, workers, and communities when import surges occur. Antidumping investigations will be expedited and early critical circumstances determinations will allow for the imposition of duties early in a case pending a final determination. To address the impact of import surges on workers and communities, the Administration has requested funding to establish an interagency rapid response team.

• Steps to address the root causes of instability in global steel markets. Working with other agencies, Commerce will continue or initiate bilateral engagement with the major steel producing countries. The focus will be on the long-term structural factors that contributed to the speed and severity of the crisis.

• Reinvigorate the international steel policy agenda. We will seek broader international attention and sensitivity to steel trade issues. This includes seeking a moratorium on Multilateral Development Bank lending that expands global steel capacity and proposing that the OECD Steel Committee address difficult issues such as steel market reforms in Russia and Ukraine and the elimination of formal and informal import barriers to steel around the world.

Short-term Factors that Triggered the Steel Import Crisis

• The 1997-98 financial crisis was the immediate short-term event that precipitated the steel import crisis. The financial crisis resulted in lost steel consumption, sharp declines in real income and depreciating currencies in Asia, Russia, and Latin America. Combined with strong U.S. demand, this led to a flood of low-priced imported steel into the U.S. market.

• Structural factors in key steel producing countries enabled them to sell low-priced exports and forestall downsizing adjustments mandated by the market. Examples include:

• Russia --The emergence of Russia as one of the world's top steel producers was a significant factor leading up to the 1998 crisis. Russian producers have been able to weather substantial downturn in domestic market and turn increasingly to exports. This was due in large part to Russian steel mills that bartered their products, did not pay their bills and produced steel regardless of market demand, much of which was sold for export at prices that did not reflect a true market cost of production.

• Japan --The major structural problem is Japan's noncompetitive steel market. Apparent coordination among major integrated steel producers allows Japanese producers to charge high prices for their products at home. Higher profits on domestic sales can be used to export at low prices and weather downturns in the economy. In 1998 and 1999 the U.S. Department conducted antidumping investigations on a variety of steel products from Japan. Antidumping margins in these cases ranged from 18 percent to 67 percent for hot-rolled steel, 32 percent to 65 percent for heavy structural steel, and 37 percent to 58 percent for stainless cold-rolled sheet from Japan.

• Korea --Unsoundbank lending practices were the most pronounced structural issue in Korea. The financial difficulties of the Korean steel industry as a whole in the 1990s can be traced to over-borrowing to fund over-investment in under-performing capacity. 

• Brazil --Brazilian producers enjoy the advantage of a domestic market insulated from full market competition. The Brazilian producers are able to leverage the advantage of an insulated home market to sell at low prices abroad.

In the 1980s and early 1990s, the U.S. closed dozens of mills, cut capacity by 30 percent, invested $50 billion in new technology, and raised productivity by over 300 percent. During this time, the workforce was reduced by 60 percent. The U.S. became a world leader in low-cost production.

Extent of the Steel Crisis

• Steel imports in 1998 rose 33 percent above 1997, which at the time had set a record for steel imports. Average prices for finished steel products in the United States declined dramatically due to a 20 percent reduction in the price of these imports. U.S. steel plants, which were operating at over 90 percent capacity in early 1998, fell below 75 percent by year-end. 

• At the height of the crisis, imports of finished steel products garnered almost 35 percent of the U.S. market, up sharply from their normal levels near 20 percent. The cost of this surge in imports amounted to thousands of lost steel worker jobs and contributed to six U.S. companies going bankrupt.

In response to the 1998 steel crisis, the Clinton Administration launched a Steel Action Program. Its multi-pronged approach includes vigorous enforcement of trade laws, bilateral efforts to address underlying problems that led to the crisis, and improved import monitoring mechanisms.

• Since the steel crisis began, the Commerce Department has strengthened and expedited its steel-related antidumping duty investigations. 

By the beginning of this year, U.S. steel mills had returned to producing at about 90 percent of capacity. Domestic shipments of steel in the first quarter of 2000 reached record levels, and first quarter 2000 earnings were up for most major steel companies. Significantly, import penetration of the U.S. market for finished steel products has returned to its historic norm of approximately 20 percent.

• Nonetheless, prices have not rebounded and employment remains below pre-crisis levels. While the steel crisis may almost be behind us, its impact still remains.

• The Report underscores the need to recognize early warning signs and take action, including engaging our trading partners. The comprehensive strategy sets out a roadmap to achieve these important goals: 1) Faster relief for industries, workers, and communities when import surges occur; 2) Early warning of import surges and of changes in industry conditions; 3) Steps to address the root causes of instability in global steel markets; 4) A reinvigorated the international steel policy agenda to gain broader international attention and sensitivity to steel trade issues. 

• While the industry's ongoing recovery is reflected in increased production levels, imports for the first months of 2000 are on the rise. Over the course of the next few months, the Administration will watch carefully capacity utilization levels, steel prices, employment levels, import penetration, and will take appropriate steps to address ongoing concerns.