[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
THE UNINTENDED CONSEQUENCES OF INCREASED STEEL TARIFFS ON AMERICAN
MANUFACTURERS
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC, JULY 23, 2002
__________
Serial No. 107-66
__________
Printed for the use of the Committee on Small Business
U. S. GOVERNMENT PRINTING OFFICE
81-372 WASHINGTON : 2002
___________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
COMMITTEE ON SMALL BUSINESS
DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
ROSCOE G. BARTLETT, Maryland California
FRANK A. LoBIONDO, New Jersey DANNY K. DAVIS, Illinois
SUE W. KELLY, New York BILL PASCRELL, Jr., New Jersey
STEVE CHABOT, Ohio DONNA M. CHRISTENSEN, Virgin
PATRICK J. TOOMEY, Pennsylvania Islands
JIM DeMINT, South Carolina ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota TOM UDALL, New Mexico
MICHAEL PENCE, Indiana STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York MARK UDALL, Colorado
TODD W. AKIN, Missouri JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania BRAD CARSON, Oklahoma
ANIBAL ACEVEDO-VILA, Puerto Rico
Doug Thomas, Staff Director
Phil Eskeland, Deputy Staff Director
Michael Day, Minority Staff Director
C O N T E N T S
----------
Page
Hearing held on July 23, 2002.................................... 1
WITNESSES
Baughman, Laura, President & Economist, Trade Partnership
Worldwide...................................................... 5
Nelson, Michael, General Manager, Arnold Engineering............. 7
Trilla, Lester, President & CEO, Trilla Steel Drum Corporation... 8
Jones, Gordon, Drum Loader, Trilla Steel Drum Corporation........ 10
Pritchard, David, President & CEO, A.J. Rose Manufacturing....... 10
Herrman, Robert, Machine Technician, A.J. Rose Manufacturing..... 12
Grove, John, Vice President, Procurement, Cold Metal Products.... 13
Emery, Merle, Vice President & General Manager, G.R. Spring &
Stamping....................................................... 14
Tanner, Michael, president, Wren Industries, Inc................. 16
Connors, Charles, President & CEO, Magneco/Metrel................ 17
APPENDIX
Opening statements:
Manzullo, Hon. Donald........................................ 35
Velazquez, Hon. Nydia........................................ 39
Jones, Hon. Stephanie Tubbs.................................. 41
Visclosky, Hon. Peter J...................................... 43
Prepared statements:
Baughman, Laura.............................................. 47
Nelson, Michael.............................................. 61
Trilla, Lester............................................... 63
Jones, Gordon................................................ 71
Pritchard, David............................................. 73
Herrman, Robert.............................................. 77
Grove, John.................................................. 79
Emery, Merle................................................. 83
Tanner, Michael.............................................. 90
Connors, Charles............................................. 93
Additional Information:
Letter to Hon. John Ashcroft, Attorney General, Department of
Justice, from Chairman Donald Manzullo, House Small
Business Committee......................................... 97
Posthearing submission by WCI Steel; Steel Dynamics; Gallatin
Steel................................................98, 100, 103
Posthearing submission from Mr. John Grove................... 105
Posthearing submission by David Pritchard, President & CEO of
A.J. Rose Manufacturing.................................... 107
Written Testimony of Nels Leutwiler, Park View Metal Products 121
Written Testimony of Tony Pileggi, Chicago Steel Container
Corporation................................................ 125
Written Testimony of Wes Smith, E&E Manufacturing Co., Inc... 129
Written Testimony of American Steel Producing Community...... 137
Written Testimony of Consuming Industries Trade Action
Coalition.................................................. 171
Submission of Hans Mueller titled ``The Impact of 201 Tariffs
on U.S. Steel Users and Foreign Steelmakers: A Critique of
Peter Morici's `Survey of Some Counterintuitive Results,'
July 2002''................................................ 178
Submission of Joseph Francois and Laura Baughman titled
``Estimated Economic Effects of Proposed Relief Remedies
for Steel''................................................ 192
Written testimony of Specialty Equipment Market Association.. 229
The Chicago Tribune, Wednesday, April 3, 2002, ``U.S. Steel
Users Feel Pinched by Prices''............................. 235
The Los Angeles Times, Monday, June 24, 2002, ``Steel Prices
Stoke Tariff Backlash''.................................... 238
The Chicago Tribune, Saturday, June 29, 2002, ``Steel Drum
Firms Hammer Tariffs''..................................... 240
USA Today, Wednesday, July 24, 2002, ``Steel Tariffs Catch
Some in Middle''........................................... 242
The Wall Street Journal, Tuesday, July 23, 2002,
``Steelmakers Post Improved Results for 2nd Quarter''...... 245
Rockford Register Star, Sunday, July 21, 2002, ``Bush Tariffs
Backfire on Local Steel Users''............................ 246
Letters to Chairman Manzullo, House Small Business Committee. 254
THE UNINTENDED CONSEQUENCES OF INCREASED STEEL TARIFFS ON AMERICAN
MANUFACTURERS
----------
TUESDAY, JULY 23, 2002
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:06 a.m. in Room
2360, Rayburn House Office Building, Hon. Donald Manzullo
(chairman of the Committee) presiding.
Chairman Manzullo. The Committee will come to order.
Hopefully by the time I am done with my opening statement, Ms.
Velazquez will be here.
The first law of medicine, to do no harm, is also valid in
trade. When the President announced his decision last March to
impose higher tariffs on some imported steel products, most
everyone, including me, was willing to give the President the
benefit of the doubt and support him on his action because
everybody has an interest in a strong and vibrant domestic
steel industry.
Many steel using manufacturers make a concerted effort to
buy from American steel companies not just because it is easier
logistically, but because it helps maintain a strong
manufacturing base in our country. However, the law of
unintended consequences has set in a way that I do not think
the Administration anticipated.
Over the past six weeks, the Small Business Committee has
gathered over 200 communications, and this continues to grow,
coming from small manufacturers and now large manufacturers
throughout the country that are being severely impacted by
increases in steel prices of anywhere between 30 and 50
percent.
We have seen five general themes arise from this
correspondence. First, some steel using manufacturers are
caught in a price/cost squeeze. While the tariffs on foreign
steel products were raised to 30 percent, many small
manufacturers have seen price increases on domestic steel rise
even higher to 70 and 80 percent.
For many of these small companies, the cost of the steel
forms a significant portion of the overall price of their final
product. Because these small manufacturers are often suppliers
to larger companies, they cannot pass along any increases to
their customer. In fact, these larger company customers often
demand annual price reductions of between one and five percent
as part of their existing contract. Thus, these small
manufacturers cannot absorb these cost increases for very long
without going bankrupt.
Second, some steel using manufacturers are subject to
arbitrary allocations and shortages from steel manufacturers.
They may be able to pay the higher prices, but the U.S. steel
manufacturer cannot produce enough steel to meet demand. They
have no assurance of a supply of steel beyond this month.
The first priority of steel manufacturers is to supply the
big companies who have long-term, large dollar contracts with
them. Some small steel users attempting to buy on the spot
market are left to the whim of the steel manufacturer as to
whether or not they will supply these orders, and some spot
market prices exceed 50 percent increases.
Third, some steel using manufacturers assert that the
recent increase in the price of steel has made them
uncompetitive as compared to their overseas rival. They have
lost sales of foreign companies that can purchase steel at
world market prices. These foreign companies not only purchase
steel at world market prices and make the products overseas,
but they export the finished good into the U.S. at a lower
tariff rate.
In fact, most lost sales of comparable finished goods are
going to Chinese firms. Some small U.S. steel users even talk
about relocating some or all of their manufacturing overseas to
avoid the high price of steel in the U.S. and then bringing
back the finished good as an import.
Fourth, some steel using manufacturers lament that they
have had to lay off a number of workers over the past four
months because the high price of steel has not made them
competitive. Many predict more layoffs by the fall unless the
price of steel drops.
Finally, some steel manufacturers complain about big steel
manufacturers breaking existing contracts to arbitrarily raise
prices. As they are unable to break their own contracts with
their customers based on a higher steel price, the small
manufacturers get caught in a vice.
They have been faithful, pro-American, long-time buyers
from the domestic steel mills, yet right in the middle of a
contract the big steel companies all of a sudden change their
prices--one is Bethlehem Steel--and challenge the small steel
using manufacturer by essentially saying, go sue me. Where are
you going to get your steel from? What option is left to the
small manufacturer? They cannot afford to sue. Is this the
reward they get for years of loyalty?
That is why I am releasing a letter I sent today asking the
Attorney General to open an antitrust investigation to
determine whether or not the big steel companies are not only
gouging the American steel using manufacturers, but also to see
what can be done to combat unilateral abrogation of contracts.
The purpose of this hearing is for all of us in the
legislative and executive branch and in the private sector to
take a moment to reconsider the steel remedies in light of the
unintended consequences that have occurred over the past four
months.
At minimum, we urge the Administration to be as generous as
possible with exclusion requests, particularly to those from
small manufacturers. We also ask them to rethink and hone down
or eliminate the tariffs that have been placed on the foreign
steel.
Last Sunday, the Rockford Register Star published a
penetrating special report entitled ``Steel Shakeup: An
Industry Under Attack.'' In this front page story, the paper
documented how the steel tariffs are strangling local small
manufacturing shops. The already fragile manufacturing base in
Rockford, Illinois, is damaged and further threatened by these
tariffs. Rockford, Illinois, led the nation in unemployment in
1981 at 25.9 percent. It has a manufacturing base of about 30
percent. It is a city of about 170,000 that is home to over
1,100 manufacturing companies.
The problem is not just in northern Illinois. It is spread
across many small manufacturers across the state. They already
have enough to worry about. In addition to existing regulatory
and tax burdens, they suffer thin margins from stiff foreign
competition. They are sometimes subject to complex and
burdensome export controls and unilateral sanctions not imposed
on their foreign competitors. The U.S. dollar is still over
valued by as much as 25 percent. They have difficulty in
accessing credit, and they are asked to do even more with less
through immense market pressure to further increase
productivity to drive down costs.
On top of this, small manufacturers now have a double digit
increase in the cost of their raw material--steel--and they are
also threatened with a possible increase in the minimum wage,
interest rates and higher medical and property insurance
payments.
What are we doing? Do we really want a manufacturing base
in this country, or are we justsending an invitation to them to
relocate overseas? The votes of the Republican Members for trade
promotion authority are in danger. The philosophy of free trade is
becoming increasingly difficult to articulate because of the mixed
messages contained in these types of actions.
We need to reverse this trend. We need to show that free
trade works for the little guys. If it does not work for the
little guys, then it does not work for most Americans. We need
to show that our government is doing everything in its power to
help small manufacturers succeed and thrive in this country.
I want to show you the lead story in the Rockford,
Illinois, Sunday Register Star, ``Bush Tariffs Backfire on
Local Steel Users''. [Information may be found in the appendix;
on pages 246-253.] I could lose tens, if not hundreds, of small
manufacturing companies in the congressional district that I
represent. This is the story that has not been told, and this
is the reason we are having the hearing because the people that
are here today, the ones that have been hurt, have not had a
voice in the consideration or in trying to talk to the
Administration to tell them to get rid of these terrible
tariffs.
I now yield to an opening statement from my good friend and
colleague from New York, Mrs. Velazquez.
[Chairman Manzullo's statement may be found in the
appendix.]
Ms. Velazquez. Thank you, Mr. Chairman.
Chairman Manzullo. Good morning. How are you today?
Ms. Velazquez. Good morning. Thank you.
Everyone has known for a long time that the American steel
industry has been in trouble. A combination of legacy costs
here and cheaper production overseas has threatened the engine
of heavy industry in the United States. The situation became
even more dire at the end of last year when the basic price of
steel fell to $210 per ton. That was clearly an unsustainable
price for U.S. steel manufacturers since production here costs
about $293 a ton.
At the beginning of March, the President intervened to
protect our steel makers. He imposed tariffs on imported steel
to level the price of cheap foreign steel. As a result, the
price of steel rose quickly from $260 in March to $340 in June.
The immediate effect of the tariffs has been to shore up a
critical component of our economy--the steel industry--and has
saved thousands of jobs. There is anecdotal evidence, however,
that these tariffs may have had the unintended consequence of
impeding the competitiveness of small manufacturers.
The issue of tariffs is a complicated one that has affected
many players in the economy, both large and small, but the idea
that these tariffs have negatively impacted all small
businesses is just not true because for every small business
harmed by these tariffs there are many small producers or
distributors as well that have actually benefited from these
tariffs and some manufacturers that due to waivers remain
unaffected.
The truth is that small businesses across the country were
hurt by the world's over-supply of steel and the dumping
practices of foreign manufacturers. These unfair trade
practices not only hurt big steel, but also the small
businesses that serve steel-making communities hit hard by the
low price of dumped steel. In addition, small steel makers,
mini-mills that produce recycled batches of steel from scrap,
were also hurt by the continued artificially low steel prices.
The tariff was just one part of a solution to help not only
big steel, but the communities that serve and depend on the
industry and small steel makers. While we may focus today on
the impact of other small businesses constrained by a higher
but more reasonable price of steel, we must continue to look
for solutions so that all small businesses can thrive.
We know that the American industry, given a level playing
field, can out-produce every other nation. We do not fear a
truly free market, but when countries exploit our strong
economy, dumping for dollars by unloading their products at
below-market rates, that is not a level playing field. These
tariffs are necessary to help our producers and many small
businesses, and it tells the world that we are not the dumping
ground for their products just because the dollar remains
dominant.
I hope we can use this hearing to examine ways that we can
help small businesses affected by the steel tariffs. But we
must remind ourselves that not all small businesses were hurt
by the tariffs. Many were in fact helped. We need to make sure
that our solutions to the problem of global steel production
take both sides into account.
Thank you, Mr. Chairman.
[Ms. Velazquez's statement may be found in the appendix.]
Chairman Manzullo. Thank you, Mrs. Velazquez.
I have been advised we are having a journal vote at 10:30,
and that is to approve the marvelous things that happened
yesterday in naming a couple of post offices, but hopefully
that will be the only interruption and we can finish the
testimony.
The rules are that it is five minutes for testimony. We
have two pairs, Mr. Trilla and Gordon Jones with the same
company and Mr. Pritchard and Mr. Herrman with the same
company. With regard to those that are speaking in the pairs,
if the two of you could limit your total testimony to six
minutes, we would appreciate that.
Our first witness is Laura Baughman, president and
economist at Trade Partnership Worldwide. We look forward to
your testimony.
STATEMENT OF LAURA BAUGHMAN, PRESIDENT AND ECONOMIST, TRADE
PARTNERSHIP WORLDWIDE
Ms. Baughman. Thank you, Mr. Chairman and Members of the
Committee, for giving me the opportunity to testify before you
today. My name is Laura Baughman. I am president of Trade
Partnership Worldwide, an economic and trade research firm.
As an economist, I have spent more than 20 years studying
and analyzing the dynamics of the U.S. steel industry and in
particular the impact of imports on that industry. I would like
to offer you some general information about the American steel
consuming sector to provide context for the company testimony
that will follow mine.
U.S. steel consumer industries span a wide range of
sectors, including obvious ones like fabricated metal
manufacturing, machinery and equipment manufacturing and
transportation equipment and parts manufacturing. Steel
consumers also include chemical manufacturers, petroleum
refiners and their contractors, tire manufacturers and non-
residential construction companies, among others. All these
industries need to purchase steel and steel containing products
readily at internationally competitive prices. The ability to
do so is crucial to the economic health of these sectors.
As the tables attached to my written testimony demonstrate,
the vast majority of steel consuming manufacturers are small
businesses. Over the last six years, they added 1.2 million
jobs to the American economy at a time when other segments of
the manufacturing sector lost jobs.
Unions represent millions of workers in steel consuming
sectors. Workers in steel consuming sectors outnumber steel
industry workers by 59 to one. In short, steel consumers are a
vitally important segment of the American economy. Their
domestic and international competitivenessshould be a concern
of policy makers.
We have over the last year heard a lot about the market
dynamics affecting U.S. steel producers. Understanding what
affects the competitiveness of steel consuming industries is
equally essential to making sound policy choices. First and
most fundamentally, American steel consuming companies and
their workers compete in global markets. Because production can
be readily and quickly moved to where it makes the most
economic sense, these markets set U.S. prices for products that
contain steel.
Second, steel consumers must have steady and reliable
sources of steel supplies, often on a just in time basis, to be
competitive. Steel supply lead times must be predictable to
allow efficient manufacturing operations and on time
deliveries.
Third, steel consumers need reliable price quotes in order
to make price quotes of their own. Steel represents 40 to 70
percent of many steel using manufacturers' costs. Steel
consumers cannot operate profitably in a market where steel
suppliers cannot tell them what the steel they order will cost.
Steel consumers who supply auto and appliance manufacturer
customers also face pressure to lower prices of the goods they
make from steel, as Chairman Manzullo pointed out. Contracts
with these customers typically require steel consumers to
reduce prices annually. Attached to my written testimony are
charts that show the prices of machinery and equipment and
motor vehicle parts have in fact declined steadily since early
1996.
About half the steel sold in the United States is purchased
by large steel consumers under long-term contracts directly
from domestic mills. Smaller steel consumers must purchase the
other half in the spot market through steel service centers and
other distributors. Service centers typically sell both U.S.
made and foreign steel. Many steel users buy commodity grades
of steel. They may not know where the steel came from, nor do
they care, as long as they have a steady, reliable supply of
competitively priced steel that meets their and their customers
specifications.
However, many other steel using manufacturers care
enormously where their steel comes from. Their customers demand
safety and performance standards that can only be met by a
particular type of steel made by a particular manufacturer, be
it domestic or foreign.
Last fall, the Consuming Industries Trade Action Coalition
asked Dr. Joseph Francois and me to evaluate the likely impacts
of the tariffs on steel consuming jobs. Dr. Francois is a
professor of economics at Erasmus University, former head of
the Office of Economics of the U.S. International Trade
Commission and managing director of Trade Partnership
Worldwide. We evaluated the effects of the ITC's remedy
recommendations.
The President's selected tariffs fall somewhere in the
middle of the ranges we estimated. Our results are consistent
with those of the ITC and those of other respected economists
analyzing the likely impact of the tariffs on the U.S. economy.
Very briefly, we found that higher costs of steel inputs
and greater competition from imports of steel containing
products resulting from the tariffs would lead to a loss across
all sectors of the economy of between 36,000 and 74,000 jobs.
Losses in steel consuming sector jobs alone would range from
15,000 to 30,000. Eight jobs would be lost for every steel job
protected. Every state loses out under the tariffs, including
states in the steel belt.
Only time will tell whether these estimates bear out.
However, the dramatic price increases steel consumers are
already seeing in the market exceed even our estimates, and
this does not bode well for the future.
The President's steel decision added formidable import
barriers to already substantial barriers caused by antidumping
and countervailing duty orders and investigations. These
barriers have hurt American steel using manufacturers badly and
will continue to do so as long as they are in effect.
Thank you, Mr. Chairman.
[Ms. Baughman's statement may be found in the appendix.]
Chairman Manzullo. Thank you.
We are going to recess for a few minutes to go down and
vote, and then we will be right back and continue the hearing.
[Recess.]
Chairman Manzullo. Our next witness is Michael Nelson, who
is the general manager of Arnold Engineering in Marengo,
Illinois. Marengo is part of the congressional district that I
have the privilege of representing.
Mr. Nelson, we look forward to your testimony. It is five
minutes. When the yellow light comes on there that means there
is one minute to go.
Mr. Nelson. Thank you.
Chairman Manzullo. The complete statements of all the
witnesses and the Members will be made part of the record.
STATEMENT OF MICHAEL NELSON, GENERAL MANAGER, ARNOLD
ENGINEERING
Mr. Nelson. I am Mike Nelson, general manager of the Rolled
Products Division at the Arnold Engineering Company, Marengo,
Illinois.
Mr. Chairman and Members of the Committee, I would like to
thank Chairman Manzullo and the Committee for allowing me to
testify on the subject of increased tariff rates on steel and
the effect it has on small manufacturers. I would like to also
thank you, Chairman Manzullo, for presenting our request for
relief to Ambassador Zoellick and for the support that you and
your staff have given me during this process.
At this time, as my testimony to this Committee I would
like to read the letter addressed to you, Chairman Manzullo,
dated June 19, 2002, regarding the impact the tariff is having
on the Rolled Products Division of the Arnold Engineering
Company.
Dear Congressman Manzullo: I write regarding the negative impact
that the imposition of tariffs upon magnetic steel products is having
upon the Arnold Engineering Company, known as Arnold, and its employees
in Marengo, Illinois, and to request your assistance in having our
completed questionnaire for exclusion reviewed by the applicable
regulatory agency, the Office of the United States Trade
Representative.
Recently, Arnold was informed that its material, ARNOKROME-5C, was
subject to additional duties under the Section 201 remedy for imported
steel products. We had proceeded under the assumption that ARNOKROME-5C
would not be subject to any tariffs due to the specialized nature of
the alloy and the unique capabilities of our suppliers. ARNOKROME-5C is
processed by Arnold in Marengo and then sold to a domestic producer of
anti-theft tags, who then in turn sells these tags to retail stores
throughout the United States.
Arnold originally conducted an extensive search to locate a
domestic supplier of ARNOKROME-5C, but no domestic suppliers were
either capable of or willing to supply ARNOKROME-5C. Hence, Arnold
widened its search and began to conduct business with an offshore
source in Germany.
Arnold has continued to search for a domestic backup and/or
replacement supplier, but those efforts have all resulted in no quotes
from domestic sources. In light of the fact that Arnold has diligently
searched for a replacement product for ARNOKROME-5C and demonstrated
there is no replacement supplier or material in the U.S., we believe
that this tariff should not be imposed upon Arnold.
At stake are the six years that Arnold invested, amounting to well
over $500,000 in product development costs alone, and Arnold's
continued participation in the magnetic anti-theft marketplace. In
particular, if the tariff remains in effect for ARNOKROME-5C we
anticipate that at least five hourly workers and an as yet undetermined
number of support personnel will be terminated when Arnold exits the
magnetic anti-theft marketplace.
On behalf of the Arnold Engineering Company, I respectfully request
that you consider this request, and if you are in agreement with
Arnold's position we ask that you champion our case with the Office of
the United States Trade Representative to obtain an exclusion to
preserve the investment that we have made and secure the future
employment of the affected Arnold personnel that support this program.
Thank you for your consideration of our request.
Respectfully,
Michael D. Nelson,
General Manager, Rolled Products Division,
Arnold Engineering Company.
Thank you, Mr. Chairman.
[Mr. Nelson's statement may be found in the appendix.]
Chairman Manzullo. You were going to add to your testimony
the number of employees at your facility.
Mr. Nelson. I have a total employment of 50 people, and
five would be affected relative to this issue.
Chairman Manzullo. Thank you.
Mr. Nelson. Thank you.
Chairman Manzullo. Our next witness is a team, Lester
Trilla, president and CEO of Trilla Steel Drum Corporation,
testifying along with Gordon Jones, who is a drum loader who
works with the company.
As we said before, if the two of you could combine and
limit your testimony to approximately six minutes we would
appreciate it. Mr. Trilla, if you could bring the mike real
close to your mouth, and then when it is Mr. Jones' time just
send it over, please.
STATEMENT OF LESTER TRILLA, PRESIDENT AND CEO, TRILLA STEEL
DRUM CORPORATION
Mr. Trilla. Good morning. My name is Lester Trilla. I am
president of Trilla Steel Drum Corporation. Mr. Chairman and
Members of the Committee, I want to thank you very much for the
honor of appearing before you to testify about the impact of
the steel 201 tariffs on my business and my workers. I also
want to thank the Chairman especially for his leadership on
behalf of the small business owners.
I would also like to express my appreciation to the
Consuming Industries Trade Action Coalition, or CITAC, for its
good work for standing up for America's steel users, especially
small businesses like mine.
By way of a short introduction, Trilla Steel Drum is
located in Chicago, Illinois. We are a leading manufacturer of
new 55 gallon steel drums. They are used in filling and
transportation of various products, including hazardous
materials. Trilla is a family owned, family run business. Three
generations of the Trilla family have built the company from a
drafty garage on the south side of Chicago into a major Midwest
supplier of more than one million 55 gallon steel drums
annually to a diverse client base.
Cold-rolled steel is the major raw material used in our
drums. The imposition of a 30 percent additional tariff on the
steel that Trilla needs to import has been a disaster for
Trilla. It has effectively cut off the supply of the major raw
material we need. The significant shortfall in domestic
capacity and expanding lead times give us grave concern that we
may not be able to get enough steel from domestic sources to
meet our needs.
Furthermore, its inconsistent quality makes it poorly
suited for Trilla's use. Trilla has a stringent qualification
process. Only imported steel consistently meets our exacting
requirements and those of our customers. Trilla's customers
include an increasing number of companies that ship hazardous,
sensitive and expensive materials.
The integrity of the steel drum used to ship these
materials is critical, and any contamination or leakage into
the environment could be disastrous. Drums with cracks,
fractures and leaks, which can easily result from the use of
steel that is unsuitable for our steel drums, are unacceptable,
but will be inevitable if we are forced to use steel that does
not consistently meet our strict specifications.
Not only would this have a severe impact on our ability to
compete effectively, increasing our costs due to scrap and
rejections, but it would impact the quality of our drums and
undermine our credibility with our customers.
In order for Trilla to certify to its customers that each
drum meets the stringent performance requirements set forth by
the United Nations and required by the U.S. Department of
Transportation, we can only use raw materials that meet
exacting gauge control requirements, hardness value and surface
cleanliness and are free of defects like laminations and
pinholes.
For instance, steel that does not have a consistent low
hardness value will not withstand the state-of-the-art
expansion process we employ, which ensures a stronger container
with better stacking, vacuum and dent resistance. The imported
steel has better gauge tolerance, resulting in an increased
yield. In addition, while less than one percent of imported
steel is rejected, the domestic steel scrap figure is two to
three times higher.
The 201 tariff, coupled with the threatened antidumping
duties, have removed our imported steel from the market. The
price of the domestic steel we now must buy has increased by
over 54 percent since the imposition of the steel tariffs. That
equals around a 20 percent increase in the cost of the drum.
Add to that the cost of increased scrap, breakdowns, rejected
drums because of the quality of the steel, and you can see our
competitive damage.
Trilla simply cannot absorb these huge cost increases. Our
customers are balking at significant higher prices necessitated
by the steel tariffs and are starting to look for lower cost
plastic or bulk containers.
More significantly, if this situation continues for any
length of time some of our larger global accounts will choose
to fill their drums offshore in other parts of the world. This
would not only dramatically reduce production of the jobs at
Trilla and other American drum manufacturers, but at domestic
filling operations and shipping operations throughout the
United States.
[Mr. Trilla's statement may be found in the appendix.]
Chairman Manzullo. Let me go on to Mr. Jones at this point.
Is that okay with you?
Mr. Trilla. Okay.
Chairman Manzullo. Mr. Jones. Gordon Jones. If you could
put the mike over there and speak directly into the mike?
STATEMENT OF GORDON JONES, DRUM LOADER, TRILLA STEEL DRUM
CORPORATION
Mr. Jones. Good morning. My name is Gordon Jones. I am a
drum----
Chairman Manzullo. Gordon, could you put the mike a little
bit closer? You have a very soft voice. There you are.
Mr. Jones. Good morning. My name is Gordon Jones. I am a
drum loader at Trilla Steel Drum Corporation. My major
responsibilities are to make sure that the drums are properly
loaded and secured so that they arrive at our customers'
destinations in good shape. I also must be certain that the
count of drums is accurate.
I am a member of the Sign, Display, Pictorial Artists and
Allied Workers Local Union 830. About 45 of Trilla's 70
employees are members of this union. I have worked at Trilla
for over three years. Recently, because it has been difficult
to get the steel that we need to run our drums on our machines,
we have started to carefully monitor the hours of production.
Also, it seems that during some weeks there is not always
enough business to fill the hours that we can count on for the
last few years. If this is going to get worse and we lose all
of our overtime hours and even some of our regular hours
because of the lack of steel or because our steel costs make
the drums too high priced, it will leave me and my family in
terrible shape.
As a father of six, it takes all of my wages to pay the
rent and to feed and clothe my family. If my pay is cut, I do
not know how we could make it. I know for sure that we could
not afford to live where we live now. I am sure that this would
be true for most, if not all, of my fellow union members.
This is a little scary to see. Here we have a successful
company that is a leader in the industry. We were growing and
buying new equipment and machinery. Now all of a sudden there
seems to be a real possibility that we might have to cut back
production or even turn away business because of these tariffs
that have nothing to do with the steel drums, this company or
my family.
They say that these tariffs are supposed to help workers,
to save steel jobs, but what about me? I do not understand why
the union jobs of steel producers are any more important than
my union job. It just does not make sense.
Thank you.
[Mr. Jones' statement may be found in the appendix.]
Chairman Manzullo. Thank you, Mr. Jones.
Mr. Trilla, for the record, how many employees do you have?
Mr. Trilla. Total, including myself, I have 70 employees.
Chairman Manzullo. Thank you.
Our next team of witnesses are David Pritchard, president
and CEO of A.J. Rose Manufacturing Company in Avon, Ohio, and
testifying with him is Robert Herrman, who is a machine
technician.
Mr. Pritchard, we look forward to your testimony.
STATEMENT OF DAVID PRITCHARD, PRESIDENT AND CEO, A.J. ROSE
MANUFACTURING
Mr. Pritchard. Thank you. Good morning, and thank you very
much for asking me to testify about the consequences that the
steel 201 tariffs have had on my company. My name is Dave
Pritchard, and I am president of A.J. Rose Manufacturing
Company.
A.J. Rose, headquartered in Avon, Ohio, is a family owned
company with three generations in this business that was
established in 1922. We have 400 associates in the business.
Two hundred and seventy of these associates are members of the
United Steelworkers Local 735.
We at Rose specialize in manufacturing tight tolerance
metal stampings, airbag components and spun formed products for
the automotive, original equipment and after market. Over 90
percent of our products are components used on motor vehicles
running at very high rpms. We need to produce safe and reliable
products. That is the most important thing to us. Failure of
our components would be devastating not just to our company's
reputation, but also to our customers and their customers, not
to mention the risk to passengers and highway safety.
Because of these considerations, we have developed a
relationship with Corus, who, along with their predecessor
company, have provided us with 100 percent of our requirements
of several special grades of hot-rolled steel since 1976. This
supply relationship was the result of collaboration between the
engineering teams at A.J. Rose, Corus and our U.S. supplier,
Imports International or Chesterfield Steel. Together, we
developed unique steels to make our products the best and the
safest on the market.
Our partnership with Corus and Chesterfield has been an
integral and necessary part for our growth. Corus supplies us
with hot-rolled material with the guaranteed tight tolerance
and unique characteristics that we need and that as yet cannot
be supplied by other mills.
U.S. producers are unable to produce products meeting these
requirements without significant retooling and diversion of
their product lines. In fact, when we have contacted domestic
mills and given them our specifications for the material, they
have declined to even give us a quote. This is the reason we
have applied for exclusions from the steel tariffs for these
products. Those product exclusions are Request No. N-330.01
through .07.
A.J. Rose has been able to grow and add jobs because we
manufacture high quality products that a limited few can do.
Now, however, with the steel 201 tariffs everything has
changed. The additional tariff increases the cost of our basic
raw material significantly. Many of our customers have refused
to accept any price increase, and those who have accepted some
increase have only taken a portion of the increased costs that
we face, leaving us to absorb the rest.
These additional tariffs are a disaster for our business.
They make us much more vulnerable to foreign competition, which
is not crippled by artificially inflated raw material prices.
In fact, one of our major customers has recently contacted us
to let us know that they will be resourcing 11 of the current
jobs we run for them to overseas suppliers with savings that
they are telling us of 38 to 42 percent on finished goods that
they can import from Brazil and Asia.
In addition, a significant number of our customers have
told us that they will be market testing us. What this means is
they will be trying to find a lower cost supplier anywhere in
the world. Thus, we are concerned that we may soon lose
additional business as well.
This constant threat to our business is very real, and it
will get worse if we are forced to continue to pay such a
premium for the steel we need to run our business. The hardship
of this tariff and our constant inability to pass along any
increases in cost to the automotive companies will cost not
only jobs, but also most certainly it will affect A.J. Rose
Manufacturing's ability to survive in the future.
Thank you, and I would like to pass the microphone to my
associate.
[Mr. Pritchard's statement may be found in the appendix.]
Chairman Manzullo. Thank you. Our next witness is Robert
Herrman, also from A.J. Rose Manufacturing Company. Go ahead.
STATEMENT OF ROBERT HERRMAN, MACHINE TECHNICIAN, A.J. ROSE
MANUFACTURING
Mr. Herrman. Good morning. Thank you very much for inviting
me to this hearing. My name is Robert Herrman. I am a machine
technician at A.J. Rose Manufacturing Company. I am also a
member of the United States Steelworkers Local 735-14, a union
that represents 270----
Chairman Manzullo. Mr. Herrman, could you bring the
microphone closer?
Mr. Herrman. A union that represents 270 workers at A.J.
Rose.
Over the past nine years I have been with A.J. Rose, and it
has been a growing company. With this growth, the company has
added jobs to the work force to keep up with the pace of new
business. Since March, business has been slowing down. I know
we have lost customers due to the increased cost of steel, and
other customers may drop out, too. As an employee of A.J. Rose,
I am very concerned. I know that when the profits of the
company go down, this will affect my wage rate in the future.
It definitely means less pay, less benefits, and it probably
means fewer jobs.
The steel tariffs were supposed to protect American
businesses and save American jobs. So why do the steel mills
deserve to stay in business more than A.J. Rose? Why are jobs
at steel mills more important than the 250 jobs of the union
associates of the work force at A.J. Rose? I do not understand
a policy that helps some U.S. jobs at the expense of other U.S.
jobs.
Thank you.
[Mr. Herrman's statement may be found in the appendix.]
Chairman Manzullo. Thank you.
Our next witness is John Grove, vice-president, Cold Metal
Products, from is that Swickley?
Mr. Grove. Swickley, Pennsylvania.
Chairman Manzullo. Swickley. Swickley, Pennsylvania.
Mr. Grove. Right.
Chairman Manzullo. We look forward to your testimony.
STATEMENT OF JOHN GROVE, VICE-PRESIDENT PROCUREMENT, COLD METAL
PRODUCTS
Mr. Grove. Thank you. Good morning, everyone. My name is
John Grove. I am the vice-president of procurement with Cold
Metal Products, Inc. I do appreciate the opportunity to testify
before this Committee today to relate to you about the impact
the steel 201 tariffs have had on my business.
As a result of the steel 201 tariffs, we have been put on
allocation by our domestic suppliers, and we cannot get enough
steel for our operations. We have also lost business because
our customers are unwilling to pay----
Chairman Manzullo. Mr. Grove, we evidently have low grade
steel that is used in these microphones. Could you bring that
closer to you?
Mr. Grove. How is that?
Chairman Manzullo. That is much better. Thank you.
Mr. Grove. Shall I start over or just keeping going?
Chairman Manzullo. No, that is fine. Keep on going.
Mr. Grove. We have also lost business because our customers
are unwilling to pay for our increased steel costs and have
suffered financially because of this.
Cold Metal Products is located in Swickley, Pennsylvania,
with plants and service centers in Youngstown, Ohio, Ottawa,
Ohio, Roseville, Michigan, and Indianapolis, Indiana, where we
employ over 400 workers. Our production workers are members of
the United Steelworkers Local Union Nos. 3047 and 1999-2.
We manufacture specialty and conventional strip steel to
meet the critical requirements of precision parts
manufacturers. We also provide value added products to
manufacturers in the automotive, construction, cutting tool,
consumer goods and industrial goods markets. As a leading maker
of intermediate steel products in this country, a constant and
reliable supply of raw material is absolutely critical to our
success.
The steel tariffs imposed in March have increased the price
and reduced the availability of steel to the point that our
supply of steel is no longer reliable. Cold Metal Products has
been put on allocation by three of our long-time suppliers in
the U.S., namely WCI Steel, Steel Dynamics and Gallatin. They
simply cannot supply us with the volume of steel we need, given
their capacity limitations and orders from larger customers.
As a result, we have run out of steel a number of times in
the past couple of months and have not been able to service our
customers. We have no assurance of steel supplies or prices
past September of this year. When we are able to obtain steel,
it also arrives late roughly 40 to 50 percent of the time.
In addition, because of the scarcity of steel in the U.S.
market, we have been forced to accept non-negotiable price
increases of $130 per ton since January 1, 2002. This $130
constitutes more than a 30 percent price increase and is the
largest increase in a six month time span ever seen by Cold
Metal Products since its founding in 1926.
Our customers have refused to pay any of these increased
costs and have begun to move their business offshore where
steel is cheaper. For example, one of our longstanding
customers, Stanley Tool, recently indicated they would divert
their business from us to England or China because the product
was cheaper there.
This loss of business will have a profoundly negative
effect on our company. We anticipate that we will lose more
business in the future because our increased steel prices due
to the steel 201 tariffs have made us unable to compete in a
global economy.
Cold Metal has long been recognized as the leading
innovator in the strip steel industry with an unmatched
capability to develop products and processing that provides
solutions for our customers' applications. Our business is
based on providing cold-rolling, annealing, normalizing, edge
conditioning, oscillate winding and slitting service. In order
to provide these value added specialty steel products, we must
have steel to process. In the current environment of steel 201
tariffs, however, we cannot get the steel we need.
We have done everything we can to be a success in a very
demanding marketplace. The effort to save the U.S. steel mills,
however, should not sacrifice companies like ours.
Thank you for your time and attention in listening to the
little guys' side of the story.
[Mr. Grove's statement may be found in the appendix.]
Chairman Manzullo. We appreciate that.
On page 2 of your testimony, it states the year January 1,
1992. That should be 2002? Is that correct?
Mr. Grove. 2002.
Chairman Manzullo. We will let the record reflect that
correction.
Also made part of your testimony will be the letter from
Robert Boak, president of Local 3047of the United Steelworkers
of America, who works at Old Metal Products. That will be made part of
your testimony.
[Letter can be found in the appendix, currently on page
273.]
Mr. Grove. Thank you.
The next witness is Merle Emery, vice-president and general
manager of G.R. Spring & Stamping from Grand Rapids, Michigan.
Mr. Emery, we look forward to your testimony.
STATEMENT OF MERLE EMERY, VICE-PRESIDENT AND GENERAL MANAGER,
G.R. SPRING & STAMPING
Mr. Emery. Thank you, Mr. Chairman, Committee Members. On
behalf of my company and its 200 employees, we would like to
thank you for holding this hearing. We are grateful that you
are taking the time to hear from the small businesses like ours
that have been deeply hurt by the 201 action.
My name is Merle Emery. I am the vice-president and general
manager of G.R. Spring & Stamping. We are located in Grand
Rapids, Michigan, and we employ 200 workers in the custom
manufacture of metal stampings, progressive dies, slide forming
stampings, springs, wire forms and value added assemblies.
Our customer base is made up of 70 percent automotive
customers, 15 percent appliance, ten percent office furniture
and a few others mixed in there. The imposition of steel
tariffs have led to uncertainty in supply and price of steel
that we need to produce our product. It has also cost us
significant business and has placed us in a price/cost squeeze.
My company requires approximately 20,000 tons of steel each
year. With the increased cost and decreased supply of available
steel, our service centers have either broken their contracts
or simply have been unable to meet their commitments due to
allocations to supply us with the steel we need. This has
forced us in many cases to go out on a spot market to obtain
the steel that we need to produce our product. As a result, the
price of the steel that we are purchasing today has increased
by 20 to 30 percent since the 201 action was implemented.
These increases in steel have already cost us a substantial
amount of business. For example, soon after the 201 tariffs
were put into effect, G.R. Spring & Stamping lost a major
contract with a well established customer, and I might add this
customer was in our community. This company went to a Canadian
company for the purpose of this product. This Canadian company
is now able to purchase its steel for 30 percent less than we
can, and this cost advantage was directly reflected in their
bid.
The sad part is this customer has never worked with a
foreign supplier of this type of product before in the past.
Their decision was solely based on price. We are a small
company. We are $30 million a year in sales, and this was a
huge contract for us. It equaled $4.5 million per year in sales
on a four year contract.
This contract, like I said, was huge for us, but we could
not compete on price due to the increased cost of steel. For
the first time we lost market share to foreign competition. The
reality of our market is that we cannot pass the additional
cost of these tariffs on to our customers.
As the example just illustrated, our customers will take
advantage of the global economy and buy our product from a
cheaper source. Nor can we afford to absorb these additional
costs. These additional costs are so high they will turn our
margins negative and put our company on the road to ruin.
In addition, since the imposition of the steel tariffs we
find ourselves faced with uncertainty of both supply and price.
We do not always get our steel when we need it. Our suppliers
cannot deliver on time. When we receive steel orders late, this
just adds to our cost and to our misery.
Number one, it requires us to work overtime to deliver to
our customers on time. We cannot miss our commitments. Our
customers will not allow it. It also requires us to incur
additional costs in getting that product to our customer, and
that can relate to expedited freight. Sometimes that expedited
freight has, and it has, meant an airplane at an extremely high
cost just to get that product to our customer.
We have also been faced with the uncertainty of pricing.
Because of the volatility in our market, our service center
suppliers refuse to price steel more than a month in advance.
It causes great difficulty when we are trying to formulate
quotations. This means that we have to guess at what our steel
costs will be when we calculate a price for our customers. Keep
in mind, this is a very competitive market. This is an
impossible way to operate a small business.
Our present circumstances must change. We have already lost
one sizeable contract, and we are in danger of losing more due
to the increased steel costs. Furthermore, the uncertainty of
pricing and availability of our steel is untenable. Our short-
term and long-term viability as a company and an employer of
American workers is threatened.
Thank you very much.
[Mr. Emery's statement may be found in the appendix.]
Chairman Manzullo. Thank you, Mr. Emery.
Our next witness is Michael Tanner, president of Wren
Industries, Inc., from is it Tipp City?
Mr. Tanner. Tipp City. Yes, sir.
Chairman Manzullo. Tipp City.
Mr. Tanner. It is just north of Dayton.
Chairman Manzullo. Tipp City, Ohio. We look forward to your
testimony.
STATEMENT OF MICHAEL TANNER, PRESIDENT, WREN INDUSTRIES, INC.
Mr. Tanner. Thank you. My name is Mike Tanner, and I am
president of Wren Industries. I want to thank you very much for
inviting me to speak at this hearing about the unintended
consequences of increased steel tariffs on American
manufacturers.
Usually when I come to Washington, it is a very solemn and
serious visit. I go to visit some of my friends at the Vietnam
wall. I want to tell everyone here that this, too, is a very
serious visit. I am here because the steel tariffs imposed by
the President in March have increased the price and reduced the
availability of steel in the market to a point that our supply
of steel is not reliable. Without a reliable supply of steel,
we cannot continue to operate.
Wren is a metal stamper located in Tipp City, Ohio, just
north of Dayton. We are a tier one and tier two supplier of
metal stampings for the automotive industry. We employ over 200
associates and have been in business since 1977. We have the
unenviable position of being smaller than our customer and
smaller than our steel supplier.
The steel tariffs imposed by the President in March have
reduced the availability of steel in the market to the point
that our supply of steel is not reliable. Wren's service center
suppliers have been placed on allocation, and the steel
deliveries that we are able to secure have been arriving a
month or as much as two months late. This causes additional
manufacturing time, which means additional manufacturing costs.
The flurry of e-mails and phone calls between procurement
and production about staggering production in one press, pull
the die out, put another one in, is extremely costly. Plus on
several occasions I hate to admit how close we have come to
shutting down our customers' production lines, which would be
catastrophic for our reputation and credibility, as well as
incurring penaltycharges, all because we could not get the
steel we need on time.
Wren sends three parts, for instance, at 36,000 parts a
week to seven different General Motors plants. If we were ever
to shut them down, the cost penalty would be prohibitive, and
we would be out of business in a month.
I have no assurance of steel supplies past September of
this year. In addition, several of the service center suppliers
have breached existing contracts with us. One example, our
service center provider that supplies 25 percent of our steel
requirements increased the price of delivered steel by as much
as 48 percent despite our contract.
We, of course, have relied on these contracts with our
suppliers and based our pricing to our own customers
accordingly. My customers will not pay the increased price I am
now being forced to pay for steel. In fact, I must actually
grant annual price reductions to my customers.
Ladies and gentlemen of the Committee, the bottom line is
that my business is in danger if I cannot get steel and must
continue to pay the increased prices. Unless things change
rapidly, my company will lose business to foreign competition
now that our international competitors have a built in cost
advantage and a ready supply of steel.
Wren is a small business. We operate on tight margins in a
very competitive market. We cannot pass on any of our increased
costs to our customers. Wren is now in the position of selling
dollars for 95 cents. If there is no relief in the pricing of
steel, I do not know how our business will be able to survive
beyond the end of this year. We are in these dire straits due
to the operation of the steel 201 tariffs.
Thank you very much for your time.
[Mr. Tanner's statement may be found in the appendix.]
Chairman Manzullo. Thank you.
Our next witness is Charles Connors, CEO of Magneco/Metrel.
Mr. Connors, in preparation for your testimony I looked up the
definition of a refractor. We do read testimony in advance, and
if you do not mind if I could read the definition into the
record so we can follow your testimony? It is a specialty.
A refractor is a ceramic heat resistant material used to
line blast furnaces, cast houses and steel ladles. It helps to
resist oxidation, corrosion and erosion damage in order to
extend the useful lifetime of linings.
Is that a good definition?
Mr. Connors. That is a good definition. I would take it a
little further than that.
Chairman Manzullo. Why do you not go ahead and define it
first, and then we will start the clock.
Mr. Connors. I think a refractory is a metal oxide ceramic
material able to withstand high heat, which I normally think of
as over 2,000 degrees Fahrenheit. The applications of iron
making and steel making are applications. Also, other
applications are waste incineration, ceramic manufacture,
glass, crematoriums and a whole lot of other things that we
need in life.
Chairman Manzullo. Now that we know what you do, I will
start the clock, and we look forward to your testimony.
STATEMENT OF CHARLES CONNORS, PRESIDENT AND CEO, MAGNECO/METREL
Mr. Connors. Thank you, and thank you for allowing me to
testify. It is a little bit of a different side of the coin.
Magneco/Metrel is a company with manufacturing operations in
Columbiana County, Ohio, DuPage County, Illinois, and Lake
County, Indiana. We have 135 employees, and we expect $39
million in sales this year if the steel industry continues to
be able to operate.
We are both a supplier to the steel industry and a consumer
of steel products. We buy about $300,000 a year worth of steel
plate in the form of molds, which is a little less than one
percent of our sales. In a tight margin industry, that could be
affected by price. It has not seemed to be so far.
It is only about four and a half months since the 201 went
into effect, but the effect on our company has been dramatic.
We lost $300,000 in the months of January and February, and we
made $500,000 since the first of March. We did that helping
steel companies get equipment back on line.
We sell products about, 90 percent of which are either
patented or proprietary, and they are used instead of bricks to
line furnaces in a quick way. An example are the steel mills,
which are now known as ISG, which are the equipment that used
to be LTV Steel. A new company is starting up that equipment,
and they would not have been able to start up the equipment in
the time they did without materials like ours, that can get a
blast furnace lined and running in about three days as opposed
to six weeks for a brick job.
Now, the technology that we have and have developed working
with the steel industry is used to supply all the other high
temperature industries, and we could not afford to supply them
at the prices that we do if we did not have the steel industry
as a base. The steel industry is by far the majority user of
all the refractories in the world.
We also export about 30 percent of our sales. About half of
that goes to Europe, and the other half goes to Latin America.
The 201 tariffs have also saved the Mexican steel industry.
Sacartsa and Ispat Mexico are big customers of ours. That has
been very helpful also.
It seems to me I am very sympathetic with what I am hearing
here because we have been through it. In the last three years,
there has been $2.3 million that was owed to Magneco/Metrel
that was lost because of Chapter 7 or Chapter 11 filings by
steel companies. We could not continue if that continued.
The fears, that I hear, I think show some prudence and
foresight. People are looking towards the future and wondering
how rocky the road might be. As someone who has already been
down that rocky road, I certainly sympathize with that, but I
would hate to see a total change in a tariff situation after
only four and a half months to prove it out.
I think we are talking about worries of supply, as well as
worries of price, and I think the marketplace is more likely to
work out the price worries if there is a supply. The supply
would not be there if we did not have any more steel industry
in this country.
Thank you.
[Mr. Connors's statement may be found in the appendix.]
Chairman Manzullo. Thank you very much.
I saw in today's paper where Pittsburgh based U.S. Steel
now has earnings of $27 million compared with a loss of $30
million, but it also shows that steel production facilities are
operating now at 96 percent capability, which could be
accounting for the shortage.
I want to ask a question of I think it is the steel drum
company. That is Mr. Trilla. Is that your company?
[The information may be found in the appendix on pge 245.]
Mr. Trilla. Yes.
Chairman Manzullo. Is that correct?
Mr. Trilla. Correct.
Chairman Manzullo. Now, you were buying your steel from is
it South Korea for the 55 gallon drums?
Mr. Trilla. Yes. Over the past year, we have been buying
most of our steel from South Korea. We also buy domestic,
though.
Chairman Manzullo. And the steel that you are buying from
South Korea, was that costing you more than domestic steel?
Mr. Trilla. Yes, it was. It was costing us more for the
past year than we were paying domestically. Yes.
Chairman Manzullo. Okay. So you would disagree that that
particular steel is being dumped on the American market?
Mr. Trilla. I definitely disagree with that, Mr. Chairman.
Initially we started paying more money than domestic. It was a
higher quality product and enabled our plant to run more
efficiently.
Chairman Manzullo. Okay. Anybody else? Let us see. Mr.
Pritchard?
Mr. Pritchard. Yes, sir.
Chairman Manzullo. Were you importing steel prior to this?
Mr. Pritchard. Yes. We began in 1976 bringing in steel from
a mill at that time known as the Hogavans. It is now part of
the Corus organization.
Chairman Manzullo. Where is that?
Mr. Pritchard. The mill itself is in the Netherlands.
Chairman Manzullo. Okay.
Mr. Pritchard. We were having difficulty with supply and
availability of material. We were on allocation all the time
back in the 1970s.
Chairman Manzullo. Domestic supply?
Mr. Pritchard. Domestic steel. We bought from LTV. We
bought from Republic. We bought from U.S. Steel all in our
backyards in Cleveland here and were not able to continue doing
that because other customers were much larger than we were at
that time as a $7 million or $8 million a year company.
We began looking for the other supply. That turned out to
be very successful with the Hogavan mills. We have been dealing
with them ever since, and they have developed time after time
when there was a need for a specialty material to satisfy a
customer requirement, they were there to help us work out a
solution that would generally exceed anything that was
available here.
Chairman Manzullo. What is there about the nature of that
foreign steel that you are stating you cannot find in domestic
steel?
Mr. Pritchard. The gauge control in the foreign steel.
Chairman Manzullo. What is that gauge control? What is
that?
Mr. Pritchard. Thickness.
Chairman Manzullo. Thickness. Okay.
Mr. Pritchard. The accuracy of the thickness that is
ordered or that the product specifies is held to in most cases
less than half of what domestic mill tolerances are for hot-
rolled product, and that is almost in the range of what you
would call cold-rolled, a material that is a step higher in the
category of pricing. We have traditionally paid a premium for
every pound of hot-rolled that we buy.
Chairman Manzullo. So you were importing steel that cost
you more than domestic steel?
Mr. Pritchard. Yes.
Chairman Manzullo. And so you also disagree that this was
not a dumping case as to that?
Mr. Pritchard. I have never been able to buy cheap foreign
steel that made any of the parts my customers expected.
Chairman Manzullo. In your testimony you stated that you
have contacted domestic mills. They have declined to even
provide you with a quote.
Mr. Pritchard. We have on several occasions gone to, as a
matter of fact, the most recent LTV when they were in dire
straits because most of our associates are members of the
steelworkers union and had brethren working at LTV, so we asked
them if they would come in, discuss what we use and see if
there is some way we could not get together on this.
We received a letter about five weeks later saying that
they were unable to at that time produce this material. It was
possible that after a capital expenditure improving their lines
they may be able to do something, but it was indeterminative as
to whether that would go forward or not.
Chairman Manzullo. And then how much more are you paying
now for your steel?
Mr. Pritchard. We made an agreement or we came to terms
with our two other partners, the mill and the supplier, the
processor locally, so that they insulated us from paying the
entire 30 percent, but we are paying well in excess of half of
that----
Chairman Manzullo. Okay.
Mr. Pritchard [continuing]. And are unable to pass this
along to our customers in the marketplace.
Chairman Manzullo. Are those customers also demanding
annual price reductions?
Mr. Pritchard. Absolutely. Every year.
Chairman Manzullo. Of what magnitude, Mr. Pritchard?
Mr. Pritchard. Some customers--I mean, they are all looking
for five percent. That seems to be the golden number, but it
depends on the age of the product, how long you have been
producing it, what you can negotiate. It generally ranges
between one to three percent.
Chairman Manzullo. Now, you also stated that one of your
customers is going to Brazil for the finished product?
Mr. Pritchard. Yes, they are for the finished pulleys in
this case.
Chairman Manzullo. Right. Now, Brazil is considered to be a
developing country, yet Brazilian steel is not exempt from
tariffs, yet Brazilian finished products that use that same
Brazilian steel are not subject to the tariffs. Does this make
sense to you?
Mr. Pritchard. No, sir. I have never really been able to
put that in the perspective where it made sense.
Chairman Manzullo. And how long have you been waiting on
the USTR's Office for your exclusion?
Mr. Pritchard. I believe they were originally filed about
two and a half months ago I think is when our office took care
of the filings.
Chairman Manzullo. And have you heard from the USTR's
Office? I know they are moving very quickly.
Mr. Pritchard. They are moving forward. Right.
Chairman Manzullo. They have over 1,100 requests.
Mr. Pritchard. I have been tracking a website on the
internet that reports these, and I think the time for argument
was closed on July 3. We have not as yet heard anything
official. Nothing has been posted yet.
Chairman Manzullo. We met with Ambassador Zoellick, and he
has assured us that they are going to move as fast as possible.
Has any company filed an objection to your request for
exclusion?
Mr. Pritchard. I just heard yesterday through our chief
operating officer who is in close touch with the steel
supplier, Chesterfield Steel, locally that there have been
several companies that have I believe it was referred to as
placed objections to the exclusion, but then when asked if they
could produce the material they said either they would not or
they could not.
Chairman Manzullo. And yet they formally objected, and
that, of course, continues the period of time for considering
your exclusion?
Mr. Pritchard. Correct. That is what I understand. I would
like to be able to find more detail out on that, but as of yet
I have not.
Chairman Manzullo. So you cannot find out the nature of the
objections because it is proprietary?
Mr. Pritchard. That is right.
Chairman Manzullo. This makes sense. You cannot get a quote
from any domestic steel manufacturer to give you what you want.
Is that correct?
Mr. Pritchard. Correct.
Chairman Manzullo. And yet they turn right around and file
objections to your request for an exclusion?
Mr. Pritchard. Correct.
Chairman Manzullo. That does not make sense either, does
it?
Mr. Pritchard. No. They have you in the middle.
Chairman Manzullo. And that is why I have asked for an
investigation by the Attorney General into collusion and anti-
trust violations on the part of some of our U.S. steel
producers.
Would you agree with the fact that it makes sense to ask
for that investigation?
Mr. Pritchard. It certainly bears looking into because
there are things happening now that just are not part of what
the business world should have to deal with.
Chairman Manzullo. Okay. I am sure that everybody here
would agree, everybody seated at the table, that it is
important to keep a viable U.S. manufacturing base for steel.
You all agree on that, do you not?
Mr. Pritchard. Yes.
Chairman Manzullo. But you all have various reasons for
wanting to import steel. Okay.
Ms. Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Connors, can you please assess the state of the steel-
producing industry prior to the introduction of the tariff,
and, in addition to the tariff, what other actions are needed
to help the domestic steel industry recover?
Mr. Connors. Well, prior to March 6, National Steel filed
Chapter 11 during the first quarter of 2002. Bethlehem Steel
filed for Chapter 11 in the fourth quarter of 2001. The
National Steel filing brought the companies in Chapter 11 to I
believe 35 percent of the production.
One of the big problems is that the steel industry is in
two sections. You often hear about the mini mills and Nucor
versus the integrated mills and why are the integrated mills
not like the mini mills. The problem is that the mini mills,
Nucor particularly, are all new equipment. The mills were built
new, the equipment is new, and they have the right number of
people to run that equipment.
When the integrated mills switched to new equipment, the
equipment was more efficient. They did not need as many people.
They had to downsize. A lot of people took early retirement.
The deals that were made were made post World War II, and they
have what they refer to as a legacy cost.
That is the other thing that is hurting the steel industry.
Most foreign steel companies, and we do business with all the
foreign steel companies, I have been in them, are not more
efficient than the U.S. companies, but the health care and the
pension plans are all government plans, not company plans.
Ms. Velazquez. Would you explain how consolidation would
affect the steel industry?
Mr. Connors. That one is a little heavy for me, I am
afraid, Congresswoman. There are a lot of people that say we
should have consolidation, and I know Secretary O'Neil feels
that way because in the aluminum industry you have a very small
number of manufacturers. In the steel industry you have a large
number, but is that going to be better or worse? I do not know.
Ms. Velazquez. How does the tariff affect the U.S. trade
deficit?
Mr. Connors. All I know, is that in the last two months,
what has it been, $37 billion in June and $36 billion in May,
and it sort of makes me wonder when we are the largest, most
powerful country in the world with the biggest consumer market.
We are being threatened with a trade war. I do not
understand it. I do not think we have any more to fear from a
trade war than we have to fear from a shooting war.
Ms. Velazquez. Is it important for the U.S. economy to have
a viable steel sector, and what would be the affect on small
businesses if they relied only on foreign steel?
Mr. Connors. Well, if we had no domestic steel industry and
it was all foreign steel, the prices would go up rather
quickly.
Most of the foreign steel companies are either
consolidated, or they talk to each other a lot. They coordinate
their activities. I think the prices would be prohibitive.
Ms. Velazquez. Mr. Emery, is it important to have a viable
domestic steel industry? Would you agree that the domestic
steel industry has faced years of unfair conditions?
Mr. Emery. I would agree that it is important for the
United States, both its economy and the security of the United
States, that we have a strong steel industry.
To your second question, would I agree that it has been
unfair or if we have seen changes? Was that your question?
Ms. Velazquez. Yes.
Mr. Emery. Yes. A lot of things have changed. If you look
at the price of oil and you look at the price of electronics,
prices have continually gone down. That has been done by
competition, both foreign and domestic.
To answer your second question, yes, there has been a
change. There has been a difference. We have seen prices go
down, although I think that has been contributed to competition
in the marketplace.
Ms. Velazquez. My specific question is if you agree that
the domestic steel industry has faced years of unfair
conditions.
Mr. Emery. I am not an expert in the manufacture of steel.
I do not profess to be. I can say this, and it was touched on.
There are certain sectors of the steel industry in the United
States that are doing very well.
I can relate to my industry. I have been in it all of my
adult life, and I have seen changes there as well. We have been
forced to modernize. We have been forced to retrain our
workers. We have been forced to invest in technology. If we had
not done that, we, too, would be in the same shape that the
steel industry found themselves in back in March.
Ms. Velazquez. Mr. Emery, instead of the tariff, what other
methods would you propose to help the domestic steel industry?
Mr. Emery. I think that again I do not profess to be an
expert in the steel industry. I do believe that during the
years when the steel industry was doing very well in this
country, and there were years when they were. We all know that.
The failure to reinvest, the failure to update and modernize is
what has hurt that industry.
Ms. Velazquez. Thank you.
Mr. Emery. I think that the small businesses are being
asked to pay the price for that today.
Ms. Velazquez. Mr. Trilla, in your testimony you mentioned
that only imported steel meets your requirements. Can you
explain why domestic steel does not meet your requirements?
Mr. Trilla. Domestic steel does meet my requirements. It is
just difficult to find a mill that consistently--I said
consistently--meets our requirements.
The foreign steel I have enjoyed the past year and a half,
we have had less than one-quarter of one percent reject through
the facility in any parts of the manufacturing, whereas
typically rejects in the United States steel could be three to
four times that.
We can buy steel here. The problem is, as was testified
earlier, I have applied for an exemption. They have been
questioned, and the mills that objected to my exemption will
not even make a sales call or answer our phone call, so I
cannot buy domestically.
Ms. Velazquez. Mr. Chairman, I have other questions, but I
would like to go on to the second round.
Chairman Manzullo. Mrs. Napolitano.
Mrs. Napolitano. Thank you, Mr. Chairman.
The stories I have heard from all of you are very much like
the stories of one of my stampings in one my cities. The
additional burden that this particular company has is that
California has energy prices that have gone sky high, so you
went back to the mix, and they are going to be out of business
in December, even though they did stockpile a little bit of
steel to be able to help out.
I guess my concern is that our steel manufacturers, the
companies have not been able to either supply enough product
that is acceptable to the customers that would like to buy, and
I know very little about steel. All I know is what I have heard
from my company and what I am hearing here and what I have
learned from the media.
I am assuming that in order to provide steel that will
reach a certain pressure there has to be very little mix in it
so that it provides more safety pressure or to deliver that
product for especially automobiles.
Why is it that our steel producers cannot meet that, Mr.
Connors? Can you possibly shed some light on that?
Mr. Connors. Why can they not meet the spec, the gauge
control?
Mrs. Napolitano. Correct.
Mr. Connors. Well, I worked as a metallurgist. I started
out, and I grew up in U.S. Steel before I got into my later
life, so maybe I could say something about it.
It sort of amazes me that steel companies that can make a
drawn iron can, a pop can, a beverage can or a soup can, cannot
provide tight enough speced steel to make a steel drum.
I have bought a lot of steel drums, and I buy them in my
business. I am very familiar with the lubrication processes in
making and forming steel. It is a matter really of finding the
right person, it sounds like to me, more than it is a fact that
we cannot do it here.
Mrs. Napolitano. And you are very right, but it just does
not make sense to me. Even with the retooling costs, auto
manufacturers go through it. Why would steel not be able to
meet the requirements going through retooling to be able to do
the job?
Does anybody else have any other comment on that? That to
me is one of the biggest questions that remains unanswered.
Yes, sir?
Mr. Trilla. In sort of an answer to your question and
rebuttal to the former statement, the light can industry has
gotten a tremendous amount of money invested in it to design
and develop the new lightweight can. The steel industry, U.S.
Steel, has bought a facility in Czechoslovakia, the former
Czechoslovakia in Slovakia, and make light gauge metal there
specifically for that type of industry.
Unfortunately for the steel drum industry, they still think
that we are making anchors, and they have not invested in the
gauge control that we need or in the better steels that are
available today throughout the world. The cleanliness, the
finishing of the steel, has not been invested in our so-called
cold-rolled product.
Mrs. Napolitano. Thank you.
I was amused by one of the news articles that was attached
to somebody's testimony where somebody called it a carefully
orchestrated attempt to downplay the effect the tariffs have
had on our business. I think that is somebody who does not know
what is going on or who is making an effort to downplay the
problems that manufacturers are having.
I think somebody ought to call them up and take them and
tour them through some of your facilities to make them
understand. Essentially they are missing the main point of
this.
Mr. Chair, I will go ahead and pass on to you and the
Ranking Member. There are a lot of things I could state, but
they would not be printable.
Chairman Manzullo. I have never known you to be at a loss
of words.
Mrs. Napolitano. Not necessarily a loss of words. Believe
me, I am for the tariffs to a certain degree. The problem has
been that there has not been a good mix to be able to make it
so that we do not hurt our own industries. No thought has been
given to the unintended consequences, and that is where I am
at.
Chairman Manzullo. Ms. Velazquez, you wanted to continue?
Ms. Velazquez. Mr. Pritchard, could you refresh our memory
again in terms of what type of steel you need? Is it hot-rolled
steel?
Mr. Pritchard. Yes, it is primarily hot-rolled material in
low carbon grades, C-1008. Then we get into a good deal of
usage of the high strength, low alloy materials that are used
in our spinning and forming operations.
Ms. Velazquez. In discussing the objection to your
exclusion, you stated that while companies objected, none could
produce the steel you need, correct?
Mr. Pritchard. Yes. The word I got from a gentleman in our
office yesterday, and I have to say I think this is what you
would call hearsay from him because I did not witness it
myself, was that there was word of several objections, but when
they were asked if they could supply the material they
indicated they could not or would not.
Ms. Velazquez. Sir, I think that you got the information
wrong. I have here a copy of the objection where in fact
Bethlehem Steel Corporation, National Steel Corporation and
United Steel Corporation can in fact produce the metal that you
need, the steel that you need.
Mr. Pritchard. All seven grades? Is that part of the
exemption paper there?
Ms. Velazquez. Yes, this is part of that.
Mr. Pritchard. I have not seen any of that yet.
Ms. Velazquez. Well, I am just sharing with you the right
information regarding the objection.
Chairman Manzullo. Would you yield?
Ms. Velazquez. Yes, sir.
Chairman Manzullo. Have any of those companies given you a
quote?
Mr. Pritchard. No.
Chairman Manzullo. And have you asked them for a quote?
Mr. Pritchard. Generally, yes. Our purchasing department
has worked with, you know, steel producers in this country.
They have also tried Canada and all over trying to obtain, you
know, a----
Ms. Velazquez. Would the gentleman yield?
Chairman Manzullo. It is your time.
Ms. Velazquez. Could you please explain what generally
means?
Mr. Pritchard. Generally? I mean, we do not do this every
day. We have tried generally on an annual basis they will
contact a new potential supplier. As I mentioned before, the
last time was about a year or year and a half ago when we
contacted LTV.
Since then I know there have been discussions, but again
that is our purchasing group, and that is not something I have
day to day information for you on. I can provide that if you
would wish.
Ms. Velazquez. Mr. Chairman, I would ask unanimous consent
for this to be included on the record.
[The information may be found in the appendix, new
enclosure for the record.]
Chairman Manzullo. Without objection.
Ms. Velazquez. Thank you, Mr. Pritchard.
Mr. Pritchard. Yes.
Chairman Manzullo. Ms. Moore, you just came in. Do you have
questions? I did not see you. You came in so quietly.
Ms. Capito. Thank you, Mr. Chairman.
Chairman Manzullo. I am sorry, Ms. Capito. I called you by
your father's name.
Ms. Capito. You can call me whatever you want.
Chairman Manzullo. There you are.
Ms. Capito. No. I am just here to listen, and I appreciate
you holding this hearing.
I am interested. Steel, of course, is an enormous issue in
my state of West Virginia, and we support in West Virginia--I
did--the President's decision to place these tariffs on
imported steel. It has had an impact already in my state of
West Virginia with our steel producers, but I am interested to
hear the rest of the meeting. I apologize for being a little on
the late side.
Chairman Manzullo. That is okay.
Mr. Pritchard, from whom do you buy steel? Is it a broker?
Mr. Pritchard. It is a steel processor they call it. They
buy master coils, large coils of steel----
Chairman Manzullo. Okay.
Mr. Pritchard [continuing]. In a semi-processed or semi-
ready stage to be used. They bring it in, they slit, and then
they prepare the surface on it. Then it is sold to us.
Chairman Manzullo. And my understanding is the inference
here is that these companies that have filed objections can
furnish you with the steel, but you have been advised by the
people who supply you with the prepared steel that no one else
is interested in bidding on your product. Is that your
testimony?
Mr. Pritchard. In the case of the exemptions, yes.
Chairman Manzullo. Okay.
Mr. Pritchard. I can tell you that over the years many have
said they could supply it, and then when asked to do so and,
you know, we would place orders with them they were not able
to.
Chairman Manzullo. Here is what I would like to do for you.
Give me the spec sheet of what you want from these companies.
Mr. Pritchard. Yes.
Chairman Manzullo. I will mail personally to these
companies. They are probably present here in the room today. I
will ask them to mail back to me directly. I will be your
broker for you.
Mr. Pritchard. Wonderful.
Chairman Manzullo. I will try to find the steel for you.
Mr. Pritchard. All right.
Chairman Manzullo. All right. If they are here, if they
want to bid on it that is fine.
I am learning all kinds of things about steel, but what I
am seeing here today is the fact that somebody is trying to
undermine the credibility of the small people's ability to go
out there and get steel.
I am going to put in the record another letter. Boy, do we
get letters. This one is from the Rockford Company in my
hometown of Rockford, Illinois [the letter may be found in the
appendix, currently on pages 299-301], and this really is in
response, which it could not have come at a better time, to a
statement that is part of the record that was furnished by the
American steel producing community that really took offense at
the fact that I used in our statement that the 201's unintended
consequences was a double hit suffered by steel using
manufacturers due to huge, arbitrary price hikes.
The American steel producing community that filed this
statement said that this is not the fact. They say, ``The
language used in this hearing announcement shows a certain lack
of balance.''
Has anybody ever asked you guys about these tariffs before
this hearing?
Mr. Pritchard. No, sir.
Chairman Manzullo. You were asked?
Mr. Connors. I was here about 13 months ago with 699 other
suppliers of the steel industry. This is my second trip to this
building in my life. That was the first, and that was in
support of the tariffs.
Chairman Manzullo. That was in support of the tariffs. Did
any of you guys ever get asked here if you were being subject
to price hikes?
``While the language used in the hearing announcement shows
a certain lack of balance, it is of greater concern that the
points made in it are factually inaccurate.''
Let me show you this. That is about the price hikes.
Exhibit 1, and somebody can take me on from the steel industry
if you are interested back there or whoever wrote this
statement. I am going to make it part of the record as a matter
of courtesy. Here it is. ``Dear Congressman Manzullo: I am
writing to express our company's dissatisfaction with President
Bush's decision to tariff imported steel. We are a Rockford
manufacturer that produces steel parts for a variety of
industries. Through June of this year, we were able to purchase
coiled steel for $21 per 100 pounds. Due to the President's
decision, our new steel price effective July 1 is now $31.62
per 100 pounds. That is a 50 percent increase in our cost of
raw material.''
That is the statement. Here is the invoice. Invoice from
Coil Plus Illinois, Inc., out of Plainfield, Illinois, dated
June 10, 2002, for previous orders at $21 per 100. Now, one
month later, in fact July 17, five weeks later, the very same
material at $31.62.
Now, who is telling me and who is telling these people that
they are not getting arbitrary increases in prices? Would
somebody like to stand up in the audience and say that this is
not correct? Would somebody like to tell these people here--I
do not have them under oath, and it is not necessary--that they
are exaggerating as to the increase in these prices?
Would somebody please tell the small manufacturers? Tell my
guys back home that are paying 30 to 50 percent more for their
steel. Tell them that this has not had an adverse impact upon
themand that they are ready to go under.
My question to all of you is this. We recognize there is a
problem with steel in this country. What is the solution? Let
us start with the economist. There has to be a solution to this
to help domestic steel supply, to help out our steel workers
and at the same time to get the facts straight that the price
of steel is going through the ceiling.
Ms. Baughman. Thank you, Mr. Chairman. This is the $64,000
question clearly. As an economist, the answer has to be that
the market is the best way to help the steel industry. When you
impose artificial barriers on a piece of the market, it has
widespread ramifications throughout the economy.
It may help the steel industry in the short run for a small
period of time, but it does not help the steel industry in the
long run, and it has, as you have aptly called it, collateral
damage all over the place. Import restraints are not the
answer. I can tell you that much.
Chairman Manzullo. What is the answer? I personally agree
that there was an import surge taking place. If you look at the
decision, it was 6-0 on the ITC. It is well documented that
there was surging taking place on the 201. How do we work
through this?
Ms. Baughman. Mr. Chairman, the United States has a number
of laws on the books that are meant to address different types
of problems associated with import competition. Dumping is
addressed through antidumping laws, and illegal foreign
subsidies are addressed through countervailing duty actions.
Section 201 tariffs or quotas, whatever results from a
Section 201 investigation, have nothing whatever to do with
unfairness. They do not get at the problem of unfairness
because they apply to imports whether they are fairly traded or
not.
Chairman Manzullo. Surges.
Ms. Baughman. Surges, yes.
Chairman Manzullo. Surges.
Ms. Baughman. But it does not matter whether they are
fairly traded imports or not. They all get hit with the tariff.
If the problem----
Chairman Manzullo. Excuse me. An example would be the South
Korean steel.
Ms. Baughman. Precisely.
Chairman Manzullo. The South Korean steel that you are
actually paying more for.
Ms. Baughman. Precisely. If the problem is unfairness, then
the solution is antidumping actions or countervailing duty
actions.
Now, the U.S. steel industry has been perhaps the biggest
users of antidumping laws and countervailing duty actions. They
file hundreds of these cases, it seems like, that result in
double, even triple digit duties applied to imports from
specific countries for specific products.
Chairman Manzullo. And you agree with that remedy?
Ms. Baughman. I think that that is what we have available.
That is the appropriate route.
Chairman Manzullo. Anybody else on the question? What do we
do here? There is a problem with maintaining viable domestic
steel production.
Mr. Connors?
Mr. Connors. One thing that bothers me, and I am not an
economist, but on the matter of arithmetic, if the top tariff
is 30 percent, how come the markups are as high as 54 percent?
It sounds like some steel service centers are marking up
the tariffs, and maybe the competition should be between the
steel service centers. Maybe they have an agenda of their own
because they do not want to have the foreign steel.
Chairman Manzullo. I have a letter from a steel service
center increasing the price of steel with an attached letter
from Bethlehem Steel saying due to the steel shortage. You can
follow the train of the steel suppliers directly back to the
steel manufacturers on there, but there could be some collusion
going on.
I appreciate that thought. You are not an economist, but
you are a metallurgist.
Mr. Trilla.
Mr. Trilla. Yes, Mr. Chairman. I buy all my steel direct
from the mills. I am sitting in Chicago right next to Gary,
Indiana. Five steel mills, including LTV that closed, would not
even make a sales call on us or answer a call.
We buy nothing from a warehouse. Occasionally with a late
delivery lately we are forced to buy something, you know, 50 or
100 tons, but not a steady flow. One hundred percent of my
steel is purchase ordered out directly to the steel mills, and
my costs have gone up 54 percent.
Chairman Manzullo. Did any Members have any other
questions? Ms. Velazquez.
Mrs. Napolitano. I have not a question. Well, yes, a
question. What would you view as a solution?
Chairman Manzullo. There it is.
Mr. Trilla. I will attempt to answer. I am here to talk
about my problems and to tell you how it is affecting my
industry and my fellow brothers in the steel drum industry
across the country.
We are not in the steel business, but it is obvious, as you
stated earlier, that there was not a great deal of thought of
repercussions of this. There is nobody at this table that does
not want a strong domestic steel industry.
I was raised in a steel town. We need steel. We need to
have a strong steel infrastructure here in the United States. I
do believe in the tariffs. I support the President in his
tariffs also.
Admittedly, the President did not think that--we all agreed
that steel prices would go up. We all agreed that there would
be some movement in the cost of steel, et cetera. Admittedly, I
think the government figures came out about eight percent or
ten percent maybe maximum. We agreed to that.
As an industry, I am sure everybody at the table here is
willing to fight for our industry and help the domestic steel
industry, but 54 percent? There is just no way of recovering
that. I have been in this business all my life and never have
seen steel prices escalate like this.
I do not have the answers, but I just know that we are all
sitting here because there is a big problem by the tariffs.
Once again, we support the tariffs, but I think nobody
contemplated the after effects of them.
Chairman Manzullo. Ms. Capito.
Ms. Capito. Thank you, Mr. Chairman. I have just a general
question if anybody would like to jump in.
Mr. Trilla, you mentioned that the price of your steel had
gone up 54 percent. The import costs have ranged from 99 to 30
percent, the tariffs. Is there a point at which you would
consider then going ahead and buying imported steel and paying
the tariff?
Mr. Trilla. The tariffs are 30 percent. My domestic steel
costs have gone up 54 percent, or my direct cost of steel has
gone up 54 percent since the tariffs have been imposed.
We cannot get anybody to sell us steel. They will not
import the steel even with the 30 percent tariffs for the fact
that in dumping, and I am not a lawyer so if there is a lawyer
out there help me. In the dumping cases, the taxes and the
duties applied to a product are taken off the top of the
product, the cost of the product imported, the cost of the
product, to determine dumping.
If you take the 30 percent off the top of whatever somebody
would sell me steel for, they aredefinitely down there in the
dumping range. They get hit again, so it is like a double tariff. We
either have to have tariffs, or we have to have dumping.
In my case where I was paying more money for my steel than
domestically, I am really being punished because my steel is
not coming here being dumped. Mine was at global pricing higher
than the domestic cost of steel.
Ms. Capito. Let me just in terms of a summarization, and
again I apologize for not hearing the entire hearing. Basically
I am imagining that the trend is that while you just mentioned
that you would support the tariffs on imported steel, it seems
the pendulum, in your opinion, in all of your opinions, has
swung too far the other way and that it is causing prices to
rise too quickly or too drastically for you all to be able to
compete in a small business arena. Is that the basic message?
Mr. Trilla. That would be my basic message. I mean, once
again I repeat that the government, and we are supportive of
the President. I am supportive of the President and his actions
with the tariffs when he said maybe a maximum of eight percent,
and maybe a ten percent increase in steel.
I mean, over the course of the years the steel prices have
escalated and dipped and escalated and dipped. Yes, maybe the
domestic steel prices were lower than in recent history, but,
you know, ten percent? Maybe we could absorb that and pass that
off in a logical three year period of time.
Fifty-four percent in the course of five months is not
logical, but we would be supportive of tariffs, something that
makes sense.
Ms. Capito. I would like to say as well that if we go back
to where we were before these were imposed, the steel workers
in my state, the owners of the steel businesses in my state,
folks would ask me what is your impression of the steel
industry, and where is it going in America?
I would say that universally the one emotion and the one
thing that was universal among workers and owners was
desperation. I think the steel industry absolutely was at a
desperate stage when I first began my service a year and a half
ago.
There are other issues that keep coming up like legacy
issues and these kinds of things, so I do not think we are at
the end of the journey on trying to do something to bolster up
our steel industry, and most certainly you have issues that we
need to deal with as we are going through this along with
looking at legacy costs, another area that the steel industry
is really pressing us as members to take a look at.
Does anybody here have an opinion on legacy costs and where
we should go with that?
Mr. Trilla. I wish I had a statement on legacy costs. You
know, the one point we are missing here, especially because I
have bought steel out of your district----
Ms. Capito. Thank you.
Mr. Trilla. More importantly to Trilla and Trilla Steel
Drum and my 70 employees is admittedly the steel industry can
only produce 70 to 75 percent of the total capacity needed in
the United States, so as we are stating here today Mr. Gordon
Jones realizes there is not as much inventory in my facility as
there was six months ago. We cannot buy steel.
Unless we import steel, unless we get the ability to get
more steel in here, 30 percent of the consumption we will not
have product to produce our products, whether it is a
refrigerator door or a drum or a pail. That is a very, very
critical issue for us today besides the price.
Ms. Capito. Thank you.
Ms. Velazquez. Mr. Chairman, I would just like to ask Ms.
Baughman.
The way I see this is that the real issue is
competitiveness for our steel industry. One way to become
competitive without relying on tariffs would be some type of
consolidation that the gentlelady made reference to, but
because of the legacy costs, commitments that have been made to
the workers such as reduction in exchange for salaries, for
many of these companies, the legacy costs to many of these
companies, consolidation is not an option. You will agree with
me?
Ms. Baughman. Correct.
Ms. Velazquez. Rather than the tariff, if the federal
government assumed the legacy cost, would that solve the
problem? After all, we did it for the airline industry. Can we
do it for the steel industry?
Ms. Baughman. It might solve a problem, but it opens up
another, and that is that you have set a precedent for other
industries to go out and to negotiate similar types of deals,
knowing the government could bail them out if they cannot
ultimately----
Ms. Velazquez. If you would excuse me? The precedent would
not be set. It is there already. We did it for the airline
industry. We have done it for the insurance industry. Why can
we not do it for steel?
Ms. Baughman. You certainly can do it for the steel
industry. I am just saying that you need to be prepared to do
it for the textile industry and for the sugar industry and for
a whole host of other industries as well.
Ms. Velazquez. Well, I think that we were prepared when we
did it for the airline industry.
Thank you, Mr. Chairman.
Mr. Grove. Mr. Chairman, if we are going to do this for big
steel, would we also do it for small companies like Cold Metal
Products that has the United Steelworkers? That would impact
us. We have to pay pretty much the same legacy costs. We have
been in business since 1926.
Ms. Velazquez. If we supported it.
Chairman Manzullo. Do you have any idea how much money this
would cost?
Ms. Velazquez. $15 billion it cost to bail out the airline
industry.
Mr. Chairman, what about the tax cut? Do you have an idea
of how much it is going to cost?
Chairman Manzullo. Yes. It will probably save us from going
into a recession.
I have a problem with the fact that we sent $5 billion to
the airline industry.
Ms. Velazquez. $15 billion, Mr. Chairman.
Chairman Manzullo. $5 billion in grants. They all took the
grants, and now they are slowly getting the guarantees on it.
All right.
Ms. Velazquez. The whole package is $15 billion.
Chairman Manzullo. Okay. That would be so easy just to send
a check to pay the legacy costs of every company around, but
you are correct. That was a precedent, and I am not so sure
that it was the correct precedent to set.
At least when Chrysler got bailed out years ago it was a
loan, and they paid it back with interest. They had a time on
it. Your suggestion is just as viable as what is on the table
now because what is on the table now is not working.
Let me ask a question here. I find this extraordinary. This
again is the Rockford Company. ``In addition,'' the letter goes
on, ``we wanted to convey just how difficult it is becoming to
remain a viable manufacturer in America. One year ago, we sold
a particular part for 9.2 cents each. Today, we must sell the
same part for 4.7 cents each in order to keep the work from
going to Mexico. Our competitor in Mexico is paying his labor
force 60 cents an hour. We have worked hard in the past few
years to reduce costs, become more lean and reorganize to meet
such challenges, but we can only make so many cuts without
affecting our company's ability to perform.''
Now, what I have heard here today and the testimony in our
steel letter book is that American companies that were
supplying American manufacturers are now losing those contracts
to the Chinese, to the Brazilians, to other Asian countries and
to Canada. So one of the unintended consequences of the steel
tariffs is to further exaggerate our trade imbalance.
Who lost the contract to Canada?
Mr. Emery. I did.
Chairman Manzullo. Would you tell us about that again, Mr.
Emery?
Mr. Emery. Yes, I will. This is a company that has been a
longstanding customer of ours in our community within just
miles of our facility. It has been a customer for a long time.
A product that would generally go to our company or possibly
another company that we compete with also in the area. There
was no guarantee that we would get it. Neither one of us did.
You know, our customers are sympathetic as well. They
understand that we are paying more for steel. They also have to
be competitive, however. You know, they have customers as well
as we do, and they are competing for that same business.
Their price just was not getting where they needed to get,
and the reason was because steel prices have gone up
domestically. They were able to buy that material at 30 percent
less than cost for raw material in Canada. They felt bad about
it. We actually had a sit down meeting to discuss it. They just
really felt like they had no choice.
Chairman Manzullo. Canada. Now, that is U.S. steel. Canada
is the largest importer of U.S. steel.
Mr. Emery. Correct.
Chairman Manzullo. I wonder what price the Canadians are
paying for that steel?
Mr. Emery. I cannot answer that. All I do know is that when
we compared, and we get into some detail. When we compare labor
cost, we compare variable burden cost, overhead and so on, we
were on an equal. When it got to the material content of that
particular price is where we could not compete.
Chairman Manzullo. And then who lost the contract to China?
Was that yours, Mr. Pritchard?
Mr. Pritchard. Yes.
Chairman Manzullo. Okay. This has been a very interesting
hearing. We have always prided ourselves, Ms. Velazquez, on the
Small Business Committee coming up with solutions. Do you think
we have come up with a solution on this?
Ms. Velazquez. Yes. I am willing to write and send a letter
to the President regarding consolidation.
Chairman Manzullo. All right. We are looking for any and
all solutions to this, but the purpose of this hearing is to
show what I have called the unheard voice, and that is the
small manufacturers that do not have the clout in Congress that
the big steel companies do. It is just that simple.
They are big. They have huge lobbying firms. They have big
companies here that can pay a lot of money for full-time
lobbyists to get their message across. All you have is the
ability to come to Washington, pay your own fare and appear
before the Small Business Committee.
We are going to continue to monitor this. We are going to
ask for a response from the Attorney General in our request for
price gouging, for collusion that may be going on in the steel
industry, especially in light of Mr. Trilla's statement that
his domestic steel prices have gone up by 54 percent.
I just want to thank you all for coming to Washington.
Thank you for your tremendous testimony.
This Committee is adjourned.
[Whereupon, at 12:10 p.m. the Committee was adjourned.]