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HOGAN & HARTSON LLP
Lewis E. Leibowitz
Lynn G. Kamarck
Counsel to CITAC

I. INTRODUCTION

II. An Import Restraining Remedy Would Result in a Net Welfare Loss for the United States

III. Import Restraining Remedies Would Seriously Harm U.S. Consuming Industries
   A. Import Restraining Remedies Would Do Considerable Harm to Consuming Industries
   B. Import Restraining Remedies Would Create Supply Shortfalls

IV. Import Restraining Remedies Do Not Allow for Sufficient Flexibility to Improve Significantly the Condition of Domestic Steel Producers

V. Any Remedy Must Permit Additional Imports of Steel Products Unavailable from U.S. Suppliers or in Short Supply

VI. There is No Justification for Import Restraining Remedies Under Multiple Trade Statutes

VII. The Commission Should Recommend Non-Restraining Remedies, Such as Expedited Trade Adjustment Assistance and Government Assistance to Address Legacy Costs

VIII. CONCLUSION

EXHIBITS

Exhibit

1 Responses to Questions from Mr. Devaney
2 Steel-Producing and Steel-Consuming Employment
3 CITAC Foundation Study: "Costs to American Consuming Industries of Steel Quotas and Taxes"

This prehearing brief on remedy issues is submitted on behalf of Consuming Industries Trade Action Coalition ("CITAC"). ###1 CITAC is a coalition of American companies and trade associations committed to open markets for U.S. consuming industries and their workers. Consuming industries need access to raw materials and other imports that are vital to maintaining the international competitiveness of U.S. firms. In short, American industry needs imports.

This Section 201 investigation threatens American industries' access to vital raw materials made of steel. Threatened industries range from the steel industry itself to major segments of U.S. manufacturing. In considering what remedy to recommend for steel producers found to be seriously injured, the welfare of consuming industries must be taken into account.

The steel producers seeking relief are essentially interested in increasing their income. This must not be done at the expense of their customers, who cannot afford the additional expense and who are unlikely to benefit from subsidizing steel producers unable to compete in the market.

Import restraining remedies amount to a tax increase on consuming industries during a recession. This disastrous public policy will jeopardize the jobs and welfare of all Americans, but most particularly the more than 12 million workers in steel consuming industries.

CITAC urges the Commission not to recommend any remedy that causes more harm to U.S. manufacturers, farmers and consumers than good to steel producers. In recommending remedial action, the Commission must take into consideration the inevitable impact of trade restraints on the U.S. economy, America's consumers, and businesses. It is imperative - based on statutory directive and common sense - that a steel initiative, however well-intentioned, does not work to the disadvantage of the broad American public in a futile effort to protect a narrow segment of the economy.

American companies rely on imports for components and raw materials, including steel. These companies, which represent a broad range of sectors and regions in the United States, include more than 100,000 small, medium and large U.S. producers of many products, such as automobiles, housing and commercial buildings, mechanical parts and components, electronic equipment, heavy machinery, tires, food processing equipment, oil and gas drilling equipment, and others. There are few American citizens who are not linked through their purchases or communities to steel-consuming industries.

These companies also support American workers with good, high-paying jobs. Jobs in these steel-consuming industries outnumber those in steel producing industries by a ratio of 57 to 1 - there are more than 12.8 million jobs in U.S. steel-consuming industries. ###2

As set forth below, the negative impact of import restrictions (tariffs, tariff rate quotas or quotas) in this case clearly outweighs any positive benefit from such remedies. Indeed, in the case of steel, while these remedies will do serious damage to American consuming industries, they will not allow steel producers to adjust to new realities of import competition and will do nothing to address the current and future status of the steel industry. The only rational remedy for the United States, its economy, consumers and businesses, is one that addresses the root causes of the steel industry's problems. Import restraining remedies will not do so.

Under Section 201, the Commission is required to recommend a remedy that would be "most effective in facilitating the efforts of the domestic industry to make a positive adjustment to import competition." ###3 The statute does not require that the Commission recommend an import-restraining remedy. The statute authorizes the Commission to recommend any of several forms of import relief, including adjustment measures. ###4 In determining which form of remedy would be most effective in remedying the serious injury and facilitating positive adjustment to import competition, the Commission has "examined closely the costs and benefits of each." ###5

In this case, import restrictions on steel will have damaging effects on downstream users of all types of steel and threaten millions of good, high-paying U.S. jobs that depend on the adequate availability of these production inputs. A CITAC Foundation study found that import restrictions proposed by H.R. 808 (quotas on steel imports and a steel excise tax) would cost an estimated nine jobs in steel-using industries for every single job preserved in the steel industry.###6 Further, H.R. 808 would cost American taxpayers $14.5 billion over five years. ###7

There is a measurable trade-off between assistance to the steel sector (in the aggregate) through import restrictions and the costs such quotas impose on consuming industries. Not only does every 10 percent cut in the volume of imports cost consumers $1 billion a year, it also results in a loss of 7,000 jobs in steel-consuming sectors, and just over 2,000 steel jobs preserved. ###8

Said differently, three steel consuming jobs would be lost for every steel job preserved with import restraints. ###9 In addition, every 10 percent reduction in imports costs consumers $1 billion a year. ###10

The negative impact of tariffs is not identical to quotas, but is of a similar magnitude. Clearly, tariffs constitute a tax increase during an economic downturn, exactly the wrong public policy. Steel consuming industries cannot afford this tax increase, which will damage them severely.

In considering whether import restraining remedies ###11would be in the "national economic interest" of the United States, the President is directed to consider the effect of the implementation of remedial actions on consumers and on competition in domestic markets. ###12 Under the law, we believe the Commission is empowered to consider these factors as well. The interests of downstream industries in the United States require and deserve such consideration.

Import restraining remedies would be inconsistent with the national economic interest because of the devastating effects these would have on U.S. downstream consuming industries.

Consuming industries have more at stake in this proceeding than in any previous proceeding since the adoption of the Uruguay Round of trade negotiations. This proceeding covers about 75 percent of steel imports after the injury votes on October 22. Over 12 million people work in 100,000 companies that use steel in their manufacturing activities in this country and their futures are on the line in this proceeding.

Import restraining remedies would artificially restrict supply with the stated goal of raising domestic prices in the United States. However, such remedies would not raise steel prices elsewhere in the world. If the United States causes U.S. prices to increase to levels higher than worldwide prices, it will shift competitive advantage to steel consuming industries outside the United States. Businesses that can will migrate from the United States to other countries; others will close. As this occurs, U.S. businesses will buy less steel, reducing demand and softening prices. Thus, over the period of relief, there will be no significant advantage to U.S. steel producers because their domestic customer base will shrink. As the world economy continues to soften, these artificial disadvantages will be magnified.

More than 12 million American workers and more than 100,000 businesses in the U.S. use steel products in their operations. These companies risk hardship and, in some cases, extinction as a result of import restraining remedies.

CITAC pointed out this concern during the injury phase of this investigation. Two businessmen flew to Washington for the September 17 hearing to describe their own businesses' vulnerability to import restrictions. John C. Kennedy, President and CEO of Autocam, a Michigan auto parts producer, testified that, because steel costs are a significant part of his company's production costs, his company cannot survive in the United States for long if they pay higher prices for steel than in other markets. William Sopko, CEO of Stampco Company, testified that restrictions could deny him access to imports that he needs to meet his customers' requirements. If Stampco cannot meet these needs, someone else will. With import restraining remedies, that other company will likely be located in another country.

Ironically, domestic producers have produced no evidence that prices for steel products in the United States are lower in the U.S. than in other markets. Such evidence is lacking because it does not exist. In fact, prices for steel in the U.S., as low as they may be compared to past levels, are already generally higher than they are abroad. Import restraining remedies on steel will drive these prices even higher, damaging downstream users of steel and threatening millions of good, high-paying U.S. jobs that depend on the adequate availability of these raw materials.

The outcome of import restraining remedies is clear: U.S. steel consuming industries will be severely injured by such action. U.S. and foreign steel producers will not be significantly affected, because economic activity will decline in the United States, reducing any benefit for U.S. steel producers and increasing sales for foreign producers. Foreign steel consuming industries will be the chief beneficiaries of import restraining remedies. The Commission must not recommend such an obviously disastrous course to the President.

Steel imports are an economic necessity for the United States: U.S. producers are not capable of supplying the needs of America's steel consumers. At best, only 75 percent or so of current U.S. demand can be filled from domestic producers, and U.S. steel demand has increased considerably during the period of investigation (1996-2001). ###13 Furthermore, U.S. steel makers themselves are a consuming industry and import steel to assist their own operations. Restricting imports of steel products will further erode the competitive position of U.S. steel producers, which account for about 30 percent of all steel imports.

A clear premise of the domestic steel producers is that consuming industries will absorb higher prices without reducing demand. This is patently false. As shown above, artificial shortages will send a great

deal of businesses offshore, either because contracts will shift to foreign suppliers of downstream products, or international businesses (e.g., automotive and machinery suppliers) will shift production to foreign facilities that already exist and can continue to obtain steel at world competitive prices. Thus, import restraining remedies would create a severe supply shortfall for steel consumers.

As the Commission is well aware, the condition of the domestic producers of steel is far from monolithic. Clearly not all members of the domestic industry require assistance. Minimill producers of flat-rolled steel products such as hot-rolled and cold-rolled sheet, corrosion resistant sheet and plate are generally healthy and competitive (for example, in 2000, Nucor's profits and sales were at record levels). Some integrated producers, by contrast, have performed very poorly.

The statute provides that remedies under the Safeguards provision shall be taken "only to the extent the cumulative impact of such action does not exceed the amount necessary to prevent or remedy the serious injury." ###14 Thus, any 201 remedies should be no greater than necessary to facilitate adjustment. Accordingly, it would be inconsistent with the statute to impose remedies that apply across the board - such as import restrictions or duties - when some portions of the U.S. industry are performing quite well and clearly do not need any assistance.

If the Commission determines to recommend import restraining remedies, it is critical that a procedure be established to provide for additional imports of steel products that are not available, or are in short supply in the United States. A substantial number of steel product exclusion requests has already been filed in this investigation. The requests may number in the hundreds, but they are only the tip of a very large iceberg. There are literally thousands of products needed by steel consuming industries in the U.S. that are not available from domestic suppliers. These products are highly specialized and essential to production of everything from automobiles to fire extinguishers.

Many companies have filed exclusion requests. But many more have not. In any import restraining remedy under Section 201, it is imperative that consuming industries have a process for obtaining the steel they need from foreign sources when a domestic source is not available. Accordingly, CITAC strongly urges the Commission to recommend a "short supply" procedure in any remedy recommendation it may develop. Without such procedures, the ultimate relief would surely do more harm than good by undermining the competitiveness of U.S. downstream industries.

CITAC has helped to develop legislation that addresses "short supply" considerations in antidumping and countervailing duty investigations (H.R. 2770). In the steel VRA program, short supply procedures were developed that helped many producers obtain needed steel from foreign sources from 1989-1992. Both are good models from which to proceed in crafting a short supply procedure. But all short supply needs cannot possibly be identified in advance and remedied through product exclusions.

A large number of articles included within the scope of this case are already subject to antidumping or countervailing duty investigations or orders. The statute does not contemplate Safeguard remedies and Title VII remedies on the same products. Rather, the statute requires that the Commission notify the appropriate administering authorities if it discovers evidence of dumping or subsidies in the course of a Safeguards investigation. The purpose for this requirement is clearly set forth in the legislative history when Congress stated a clear preference for antidumping and countervailing duty remedies instead of Safeguards relief. Section 202(c)(5) (19 U.S.C. § 2252(c)(5)) requires the Commission to notify the Department of Commerce immediately if it finds evidence of unfair trading practices. The Senate Finance Committee Report noted that this provision was intended to implement a preference for handling antidumping or subsidy practices under the AD/CVD laws rather than Safeguards. ###15 This preference must necessarily extend to antidumping and countervailing duty remedies already in place, clearly presenting a strong congressional statement that the same product should not be subject to multiple remedies.

In addition, we believe that multiple measures may well violate U.S. WTO obligations under the Safeguards, Antidumping and Subsidies Agreements. ###16 In any case, such multiple restraints would certainly be bad public policy.

Thus, the Commission should recommend that any import restraining remedies should be limited to products that are not subject to antidumping or countervailing duty relief, unless it is convincingly demonstrated that such imports are themselves a substantial cause of serious injury.

CITAC believes that any imports subject to antidumping or countervailing duty findings or orders are extremely unlikely to injure U.S. producers. If such imports are fairly traded (as, by definition, they are) and not increasing, they cannot harm U.S. steel producers. Further restrictions on these imports beyond antidumping and countervailing duty procedures would certainly damage steel consuming industries. Thus, multiple remedies would presumptively have considerably more economic costs than benefits and should not be recommended by the Commission or imposed by the President.

In deciding whether to grant relief under the safeguard provision, the President is required to consider whether proposed remedies will "provide greater economic and social benefits than costs." ###17 The ITC, in considering which, if any, remedial actions to recommend to the President's attention, should acknowledge and consider the statutory factors that the President must consider. Import restraining remedies clearly fail any cost-benefit test, as established above. The Commission should consequently focus on non-import restraining remedial actions.

Trade Adjustment Assistance is specifically mentioned in the statute and should be viewed as an alternative remedy by the Commission and the President. The 1988 amendments to the Safeguards statute expanded the breath of adjustment assistance programs available under the provision and placed an emphasis on ease of access (by firms and workers as well as communities) to such programs. As the 1988 Conference Report stated, in relation to the inclusion of "adjustment measures" among the actions the President may take:

The term "adjustment measures" refers not only to trade adjustment assistance, but to any existing authority to provide adjustment assistance, such as community assistance programs or manpower programs. ###18

Adjustment assistance would assist in adjustment to import competition by providing training for alternative employment for workers. In addition, to the degree that steel producers need assistance to become globally competitive, adjustment assistance may be used to enhance their competitiveness.

It is abundantly clear that steel consuming industries cannot and should not foot this bill. If the inability of steel producers to adjust to global competition is a national problem, it should be solved with a national remedy. Steel consuming industries cannot afford to pay the cost of any such program through taxes or higher prices.

Trade restrictions hurt American companies, American workers, and, in the end, every person who buys American-made steel-containing products. The future survival of the 12 million workers in U.S. steel consuming industries depends on the Commission's recommendations in this case. CITAC urges the Commission not to recommend any relief that would involve import restraining remedies. Not only would this not solve the problems experienced by U.S. domestic steel industries, it would have significant negative repercussions on downstream consumers and the economy as a whole. In difficult times, it makes no sense to put more Americans out of work to put a few companies in a better position.

Respectfully submitted,

________________________________

Lewis E. Leibowitz
Lynn G. Kamarck
Counsel for CITAC

October 29, 2001