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Steel is testing America's mettle; Battle over imports could reshape trade attitudes; Basic industries

THE BALTIMORE SUN

Though Big Steel has waged an aggressive fight over the imported steel it says stands at the core of its current woes, the situation is much more complex than it appears on its face. And the steel spat could easily end up in this country as a referendum on free trade, industry analysts and other economics experts say.

"Is there a problem in the steel industry right now? Certainly," said steel analyst Charles A. Bradford, head of Bradford Research in New York City. "Is foreign steel a part of it? Absolutely. So is extreme overcapacity on the part of the U.S. So is inefficiency on the part of the U.S."

A bipartisan group of senators unveiled legislation last week aimed at stemming steel imports, the latest shot fired in the battle against foreign steel that's allegedly being "dumped" on U.S. shores.

Industry leaders, union officials and some politicians say what's been happening in the steel market here is a clear-cut case of foreign steel being sold here for less than the same product is being sold for in its home market -- the strict definition of dumping. In fact, there are even contentions that this steel is sometimes being sold here for less than it costs to make, essentially predatory pricing.

Proponents of boundary-less trade and allies of foreign steel firms contend that there is no dumping and that the U.S. steel industry is trying to enlist Washington to erect trade barriers to protect it during an uncertain period in the world market.

The U.S. steel industry itself is a big buyer of foreign steel, which it coats, processes or turns into other finished products for its steel-using customers, said David Phelps, executive director of the American Institute for International Steel, a Washington trade group that represents the interests of importers. The attitude of steelmakers seems to be "if the price is low, and we're buying, that's good. But if the price is low and our customers are buying, it's unfair, illegal, and I'm going to call my congressman and run to Washington," he said.

But the importance of what happens to the U.S. steel industry could serve as an early indicator of whether U.S. industry leaders, politicians, government agencies, U.S. economists and even consumers are equipped to deal with the many new challenges that the global economy poses, experts contend.

"Various polls I've seen say that a majority of the people are skeptical of the benefits of trade," said Daniel T. Griswold, associate director for the CATO Institute's Center for Trade Policy Studies, a free-market-economy think tank in Washington.

The surge in imports may be fanning protectionist sentiment in this country at a time when many experts are advocating an open U.S. market as a way to induce other countries to reciprocate.

In good times, this view might garner greater support. However, a recent Wall Street Journal/NBC news poll found that 58 percent of Americans agreed that foreign trade hurts the U.S. economy because cheap imports dampen wages and cost jobs. Only 32 percent said foreign trade spurred economic growth and, therefore, job growth.

But times are not necessarily good the world over.

The plunge in the currencies of countries such as Brazil and Russia and those in Southeast Asia made their products -- including steel -- cheaper than the U.S. competition on a relative basis. When foreign currencies fall against the dollar, the dollar buys more of those currencies -- and more of the foreign products priced in those currencies. In dollar terms, then, those products cost less.

However, the global meltdown has done more than make foreign products cheaper to buy. It shut down demand in the home markets of overseas steel companies, leaving the markets of Europe and the United States as the only big ones where real demand for steel remain. The countries that were the victims of the "Asian contagion," wishing to bolster their economies, have tried to use exports as a means of easing their countries' woes, and have targeted the United States, since economists say Europe has erected effective barriers to protect its market against dumped steel.

The U.S. steel industry isn't the only one feeling the fallout. Furniture imports were up 20 percent in the first 10 months of 1998, textile imports 6 percent and finished apparel imports 13 percent, according to Smart Money magazine.

But it's steel that's garnered the most attention, thanks to vocal company leaders and union members and vocal backing in Congress. According to industry figures, foreign steel made up about 35 percent of all steel shipments in the United States as of the third quarter, the most recent figures available, compared with 20 percent to 25 percent of the market in normal times. At one point, steel imports were accelerating at a pace that would give them half the market on an annualized basis, according to U.S. steel industry executives and industry figures.

Most experts believe that import growth is slowing -- largely because of a dumping case the U.S. steel industry filed, and because of pressure from Washington.

Nonetheless, Baltimore is starting to feel the pinch. At Bethlehem Steel Corp.'s Sparrows Point Division, which makes the kind of steel under direct assault by foreign steelmakers, the company already has cut back on hours, reduced shifts and ratcheted back output because demand for its products has fallen as foreign imports take up a bigger share of the market.

Though no layoffs have resulted directly from imports, dumping "has a tremendous effect on cash flow at a time when we're trying to modernize the plant," said Joseph J. Rosel Jr., president of United Steelworkers of America Local 4727 at Sparrows Point, and a vocal critic of the acceleration in import growth. "We're doing this in a bad market that's due to illegally dumped imports."

Steel is a basic, smokestack industry that lacks the sexiness of, say, software or the Internet. But the fact that it is a basic industry anchors it on the front lines of the debate about free trade.

Unlike software, where one company has a real ability to differentiate its products from those of its rivals, steel is a commodity, where the only opportunity for one company to set its product apart from others comes from slight differences in quality -- but mostly from price.

Bradford, of Bradford Research, believes that much of the hullabaloo about dumping is overdone. For one thing, he doesn't trust the industry figures, contending that a lot of imported steel gets "double-counted" -- once as an import when it comes in as raw steel and again as a domestic product when it gets coated or otherwise processed into a finished product.

Dumping definitely has been taking place, he emphasizes, but not to the degree that the industry contends, he said. Other analysts, such as Morgan Stanley Dean Witter analyst Waldo T. Best, believe that dumping is a big problem and say it will hurt the earnings of U.S. steelmakers well into the second half of the year.

"The steel industry continues to be negatively impacted by the flow of imports," he said.

Cheap steel from Russia, Japan, South Korea and Brazil had helped push the average price for a ton of hot-rolled sheet steel -- the kind made at Sparrows Point -- from about $330 at midyear to $240 to $250 by year-end. Industry insiders have told stories of foreign steel being sent into this country without having a buyer and being left to rust on the docks until one could be found. In some cases, steel worth $300 a ton when it left Russia, was priced at $180 when it hit U.S. docks because the ruble had been devalued en route. Even at such low dollar prices, the sale represented the same number of rubles, meaning that it might not have been dumping. But such sales distorted the market, since the steel didn't have to be priced that cheaply -- unfairly taking market share from U.S. steelmakers, said analyst Bradford.

Making matters worse, he said, was that U.S. steelmakers had raised prices early last year, even as they continued to bring production capacity on line. It was a poor tactical move that left them somewhat at the mercy of foreign rivals when the price of imported steel fell -- either because of currency devaluations or because the imports were downright dumped, Bradford said.

U.S. producers have cut back. Some have laid off workers. And some have filed for bankruptcy.

In September, big U.S. steelmakers, with Bethlehem Steel taking the point position, filed illegal trade cases against Japan, Brazil and Russia, alleging that those three countries have been illegally "dumping" commodity steel on the U.S. market and calling for the U.S. government to clap quotas or punitive tariffs on the low-priced imports.

The dumping case probably has had the most impact in getting foreign steelmakers to voluntarily cut back on imports into this country, experts say, which may help defuse the dumping crisis.

Pub Date: 1/24/99

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