Statement by Senator Chuck Hagel
International Trade Commission
Section 201 Remedy Hearing for Steel
November 9, 2001

Chairman Koplan and Commissioners,

Thank you for this opportunity to share my views. There is no question that the steel industry is in trouble and we must deal with it.

I urge the Commission to recommend to the President a remedy that addresses the industry's problems without adversely impacting the global economy that is so essential to the health of our own economy.

In my opinion, the problems of the steel industry stem from a lack of competitiveness, inadequate vigilance at our borders, inefficient overcapacity, and an economic recession.

The steel industry proposes 30-50% tariffs over 4 years. Also proposed are price floors and import quotas. Will these proposals address the industry's problems? No, I don't believe they will.

Trade barriers do not address competitiveness problems. Barriers do not create incentives to restructure, consolidate, reform, and innovate. They never have and never will.

Trade barriers will not address inefficient overcapacity. We need a systemic approach to resolving this problem.

Trade barriers will not improve border enforcement efforts. The opposite is true. We have just completed 14 years of convincing the Chinese government that lowering trade barriers improves compliance with border measures.

Trade barriers will hurt the U.S. economy, the global economy, our access to energy, our ability to form coalitions to combat such things as terrorism, and our ability to encourage the development of free markets and institutions in developing countries.

Trade is an essential component of our country's foreign policy. Poverty and hopelessness are breeding grounds for radicalism and terrorism. Trade helps nations eliminate these breeding grounds. Trade creates jobs, helps open closed societies, improves standards of living and provides increased hope and opportunities in all nations for all people.

When we lose trade opportunities, we also lose the ability to help encourage the development of the rule of law, the empowerment of the individual, the integration of foreign enterprises into the global economy, and commitments by other nations to enact market-oriented reforms.

Import barriers also hurt downstream industries by creating higher prices and supply problems. Higher prices don't just mean higher costs to consumers and smaller profits to downstream industries. They also mean the elimination of some goods to consumers and job losses to workers in downstream industries. More than 50 times as many workers are employed in steel-consuming industries as in the steel industry itself.

Trade barriers will also increase the likelihood of a prolonged economic recession through inflationary prices. In 1930, Congress passed the destructive Smoot-Hawley Tariff Act. This Act called for an average 50% tariff on imported goods, similar to the very proposal before you today for steel. Congress hoped to stem the economic woes brought on by the stock market crash. Instead, the Act spread America's economic troubles to the rest of the world and created a global depression, one in which there was little demand for U.S. products. In 1947, the U.S. and other nations started a slow process of trade liberalization through the implementation of the General Agreement on Tariffs and Trade. It has taken over 50 years of negotiations through the GATT and the WTO to reverse the disastrous effects of the 1930 mistake.

Then, what are the effective remedies to the steel problem? First, we need to be honest and admit that, to become more competitive, the industry must rationalize and consolidate. The government can help steel companies become more competitive in concrete ways. One way to do this is to provide meaningful assistance to companies in their efforts to restructure, rationalize, modernize, and make improvements in delivery and customer service, thereby promoting growth in demand for steel. For example, in place of import quotas, the Administration recently agreed to provide grants to the wheat gluten industry earlier this year to help it become more competitive.

Second, in order to assist the restructuring and rationalization, the government should examine ways to address the industry's retiree health care issues in the context of our national healthcare debate.

Third, enforcement at the border should be enhanced with greater manpower and better technology to guard against circumvention of existing trade remedies.

Fourth, to address inefficient overcapacity, the President should continue and complete multilateral negotiations through high-level meetings at the OECD.

Trade barriers and government assistance are both costs to the American consumer, the steel-user, and the taxpayer. So, what is the difference between the two approaches? The difference is that high trade barriers have an adverse impact on the economies of the U.S. and other countries, affect global and trade relationships, and stunt industry growth and productivity. Temporary assistance does not.

American workers can compete in this industry with their intellect, creativity, technology, and capital in this industry if we can help reduce the burdens of the past. Steel is a capital-intensive industry. America has financial capital. It can compete. The remedy to its problems should be to provide temporary assistance that does not eliminate the incentive to innovate and make progress. I prefer to be more aggressive in helping and fostering industry reform than in settling for protectionism.

Thank you for receiving my views.





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