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What's Wrong with the Steel Industry -- Again?
ARTI Transcripts
(202) 347-0030 and www.artitranscripts.com
1

CATO INSTITUTE
POLICY FORUM


WHAT'S WRONG WITH THE STEEL INDUSTRY -- AGAIN?


Tuesday, February 20, 2001


Moderator:
Dan Ikenson, Center for Trade Policy Studies,
Cato Institute

With:
Thomas Danjczek, Steel Manufacturers Association;
Charles Bradford, Steel Analyst; and
David Phelps, American Institute for International Steel

The Cato Institute
F.A. Hayek Auditorium
Washington, D.C.
ARTI Transcripts
(202) 347-0030 and www.artitranscripts.com
2
P R O C E E D I N G S



MR. IKENSON: Welcome to the Cato Institute's F.A.
Hayek Auditorium. I'm Dan Ikenson. I'm an analyst with the
Center for Trade Policy Studies here at Cato. The mission of the
Center is to educate the public and policymakers about the
benefits of free trade and the cost of protectionism. Some of
the Center's efforts to date in advancing this mission are
documented in policy papers, op ed columns, interviews, and
excerpts located on our Web site at www.freetrade.org.


This event is being broadcast live, and a recording
will be available for viewing and downloading later this
afternoon from that site.


Brink Lindsey, the Center's Director, brought me on in
October to coordinate the project on anti-dumping reform. The
purpose of the project is to bring continuous attention to the
economic irrationality, dubious administration, and unfair
consequences of the anti-dumping laws. In the spring, we will
release a policy paper on the proliferation of foreign
anti-dumping orders against U.S. companies, which is currently a
fairly under-appreciated side effect of the government's support
for anti-dumping measures at home.


Several other studies highlighting the burden placed on
various U.S. constituencies by the government's support of
ARTI Transcripts
(202) 347-0030 and www.artitranscripts.com
3
anti-dumping will be forthcoming as part of that project. Of
course, the largest abuser of the U.S. anti-dumping laws, the
steel industry, may be spotlighted more than others.


While the focus of today's discussion is not
anti-dumping specifically, we are here to address "What's Wrong
with the Steel Industry -- Again?" Yes, this is deja vu all over
again. In fact, just over two years ago, the Center for Trade
Policy Studies hosted an event to discuss the steel "crisis" of
1998. At that time, much like today, the steel industry was
trying to force quotas upon imported steel, badgering Americans
into feeling false guilt and obligation in its Stand Up For Steel
Campaign.


Then, as now, the cause for steel's woes was a
combination of poor corporate decisions and macroeconomics.
Then, as now, hundreds of firms in dozens of industries
experienced falling profitability, layoffs, and even
bankruptcies. Then, as now, workers in the steel-using
industries, who outnumber steel workers by a margin of at least
40 to 1, will bear an enormous burden if steel's wish list of
quotas, surcharges, and loan guarantees prevails.


And why should it prevail? There is nothing unique
about steel's woes. Rather, it is its insistence on blaming
foreign competition that is uniquely steel's approach, and its
refusal to weed out and prune back inefficient capacity that has
ARTI Transcripts
(202) 347-0030 and www.artitranscripts.com
4
this industry tumbling over backward whenever it faces even
moderate financial head winds. What is puzzling is that steel's
perspective still carries enough weight to pose a credible threat
to the process of multilateral trade liberalization and the WTO
itself.


The industry employs less than 200,000 workers in a
135-million-worker economy. The industry's collective market
capitalization is smaller than many individual American companies
in other industries. And it accounts for only $30 billion of
value added in a $10 trillion economy. Yet, steel's problems are
hyper-magnified through an elaborate, well-organized network of
public relations and lobbying efforts. It's no wonder resources
to address the real problems are scarce.


Now, more than ever, for reasons that transcend steel,
it is time to see these issues resolved. The past 15 months,
commencing with the meltdown in Seattle, have brought U.S. laws
into question and leadership under stress. Certain features of
the anti-dumping regulations, the Anti-dumping Act of 1916
itself, crucial aspects of Section 201, the CVD law's approach to
privatization, and the Foreign Sales Corporation law have all
been found to violate various WTO agreements. And the incendiary
Byrd Amendment is currently under challenge. This session,
Congress will have to bring these measures into compliance or
renege on our obligations at the WTO.
ARTI Transcripts
(202) 347-0030 and www.artitranscripts.com
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Meanwhile, about 100 regional free trade agreements
have commenced since passage of the URAA, the Uruguay Round
Agreements Act, to which the U.S. is a party in exactly zero. As
multilateral negotiations have stalled, other nations have moved
forward to continue realizing the benefits of liberalized trade.
It appears certain that USTR will have to agree to at least put
anti-dumping on the table if a new round is to be launched later
this year in Qatar.


The steel industry, which has virtually no stake in
foreign markets, will be lobbying to ignore our obligations and
oppose a new round at enormous expense to the majority of
Americans who benefit from free and open markets here and abroad.
Because the process of multilateral trade liberalization hangs in
the balance, steel's problems are our problems, so we struggle
together in search of ideas.


Here to discuss the problems and potential solutions is
a highly regarded panel of experts. David Phelps is President of
the American Institute for International Steel; Tom Danjczek is
president of the Steel Manufacturers Association; and Charles
Bradford is a Wall Street steel analyst, whose reports are widely
circulated and valued in the industry. Each of the panelists
will be allotted approximately 15 minutes to make his
presentation. After each has spoken, there will be an
opportunity for panelists to rebut, refute, elaborate upon, or
ARTI Transcripts
(202) 347-0030 and www.artitranscripts.com
6
challenge any points made by other panelists. After that, the
panelists will take questions from the audience.


Our first speaker today is David Phelps, President of
the American Institute for International Steel. Phelps joined
the AIIS in 1996, and is responsible for helping AIIS fulfill its
mission to support free trade and economic growth through
competition in the steel trade, and to oppose protectionist
barriers to trade, including tariffs, non-tariff barriers, and
subsidies.


Prior to joining AIIS, Mr. Phelps worked as a Customs
and steel products consultant. He was also an officer at the
American Iron and Steel Institute, where he was employed for
nearly 15 years. Mr. Phelps holds an M.A. in economics from
Virginia Tech and a B.S. in economics from George Mason
University. Please join me in welcoming Mr. Phelps.


(Applause.)

DAVID PHELPS,
AMERICAN INSTITUTE FOR INTERNATIONAL STEEL



MR. PHELPS: Good morning. I am pleased to be able to
address the Cato Institute and guests on this rather vexing
problem.
ARTI Transcripts
(202) 347-0030 and www.artitranscripts.com
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The announcement for the forum today says, "For the
second time in less than three years, the U.S. steel industry is
in crisis mode." This would make it seem that the domestic steel
industry has had a couple of tough years, and that somehow the
sequence of events is an unusual occurrence that requires and
deserves special attention by the government.


Well, as I'm sure everybody here must know, it's not an
unusual occurrence for the steel industry to be in crisis. But
this time the crisis is serious. The number of bankruptcies
makes it different. Why? We believe that the chickens have come
home to roost. Thirty years of living in a protected market have
given us a classic example of why protection does not create
competitive industries. We believe that there is a role for the
government to play,