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    Opinion Editorial: "We Ought to Look in Our Own Backyard"

    by Jon E. Jenson

    Bridge News
    February, 2002

    I would like to comment on an opinion piece by Andrew Z. Szamosszegi of the Economic Strategy Institute that appeared in Bridge News on January 17.

    First, I find a number of constructive criticisms in Mr. Szamosszegi's piece. He correctly points out that the "conventional trade toolbox" has not brought relief to the domestic steel producers in need of such support. The cycle of antidumping cases and import surges is not helping the steel industry, nor will more such cases. There should be a better way.

    What he's suggesting is a government-sponsored cartel that would divide production worldwide and require production cuts. This is clearly anti-competitive and anti-market. It would also require permanent closure of uncompetitive domestic facilities. We should be willing, if we consider such a "radical alternative" approach, to close inefficient domestic facilities if, objectively speaking, they are not as competitive as those of other countries. We know that some US facilities would have to close under that standard. (It seems as if he should be going into an argument here about the real problem which is inefficiency and continuing government subsidies, but instead he goes off on a track that says Washington should lower the burdens on steel producers. Why does he want to make this argument instead?)

    Our house is not in order. Steel companies are not failing because of imports; they are failing because of their own structural weakness. They are in a downward spiral from which they will not emerge without attracting capital, and with excess inventory and production capacity, excessive debt and overhead, they will not attract capital. Government-imposed costs from pensions, environmental requirements (especially dealing with plant closures) and tax policy make them bad investments.

    If Washington is to be tasked with resolution of the current state of affairs, perhaps the focus should be not trade law or any creative alternatives, but an enabling environment that addresses the federally imposed burdens placed on the industry. For example, there are 4-5 workers on pensions for every active steel worker. Companies cannot support their pensioners in their current weakened state and still make enough return. This is a public policy issue that must be addressed at the federal level. Steel users and consumers as well as producers would benefit from intelligent and balanced pension reform.

    Another example steel companies are prevented from making new investment by environmental rules that make new plants (but are we talking about new, greenfield plants, or modernization?) prohibitively expensive. Again, the companies' current structure would not allow them to make these investments. They simply cannot afford them.

    A more acute problem is closing plants that are not efficient. Under environmental rules, plant closures require extensive clean-up. As long as the plants are "open," these costs are not incurred. Thus, steel companies keep making steel at inefficient plants and complain about imports when the rational economic decision would be to close inefficient capacity (needs to be confirmed and fleshed out).

    In addition, capital-intensive industries like steel are ill-served by a tax system that does not encourage capital investments. Depreciation schedules are too long new investment in this industry will occur in other countries (especially NAFTA countries) and only lead to more complaints about imports.

    Before we launch negotiations for a global steel cartel, we ought to look in our own back yard.


    Jon E. Jenson
    Consuming Industries Trade Action Coalition (CITAC)
    President Emeritus, Precision Metalforming Association (PMA)
    5700 Brookside Rd.
    Independence, OH 44131




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