ITC Mid-Point Review Release

Section 332 Study: "Steel Consuming Industries:
Competitive Conditions with Respect to Steel Safeguard Measures"

FACT SHEET

On Friday, September 19, the International Trade Commission (ITC) released its Mid-Point Review report on the impact of the Section 201 steel tariffs on U.S. steel consumers (Section 332 study). The study shows that the steel tariffs resulted in increased prices, a significant net loss to United States businesses in decreased returns on capital and labor, as well as findings of declines in the availability and quality of steel in the year following the imposition of the tariffs, and shift by customers to offshore sourcing. Looking beyond the report's Executive Summary, which plays down the full scale of the damage on U.S. steel consuming companies caused by the steel tariffs, the body and substance of the report provides strong evidence that the tariffs are damaging steel consumers and the U.S. economy as a whole, confirming previous analyses by CITAC Steel Task Force members. CITAC STF is urging President Bush to terminate the steel tariffs as soon as possible.

Section 332 Highlights:

• The report confirms that the 201 tariffs have damaged the U.S. economy, costing U.S. businesses more than $680 million. The study states, "Overall, the simulation results indicate that returns to capital fall by $294.3 million and returns to labor, based on the net effect on all labor in the U.S. economy, fall by $386.0 million as a result of the safeguard measures." (Page vii and table 4-3). The study also states that these losses were "offset" by tariff revenue increase by $649.9 million. But where did the tariff revenue come from? From steel consumers, who paid this tax on the imported steel subject to the tariff. In other words, the study offsets the negative impact on the economy by the tariffs by the increase in revenues into the federal coffers from a tax increase (the tariffs). The study therefore is reporting to the Bush Administration that a tax increase -the tariff money paid by steel consumers to the federal government - offsets the negative impact of the tariffs on the economy.

• In the first year of the Section 201 steel tariff, one quarter of steel consuming companies reported that their customers had shifted to purchasing finished parts or assemblies overseas as a result of the steel tariffs. Twenty-four percent of steel consumers reported that they lost customers to overseas competition in the first year of the tariffs. (Table 2-15). While the 332 Study's executive summary only focuses on the 76 percent who did not report this outflow of jobs, a 24 percent shift overseas is a highly significant number for just one year of business under the steel tariffs.

• Almost one third (29%) of steel consumers reported that steel suppliers modified or broke contracts with their firms after the implementation of the tariffs and reported a loss in profits due to these problems of approximately $190 million. (pages 2-14 and 2-21). The report states that, "steel-consuming firms reported many other problems associated with their inability to obtain steel (table 2-10)." These include longer lead times (43%), delayed deliveries (37%), steel shortages (29%), being put on allocations by their suppliers (26%), broken contracts (20%), and a refusal on the part of domestic steel suppliers to provide quotes to the steel consuming firm (11%) (page 2-22). [Note: numbers have been converted to percentage of respondents].

• The report confirms that prices remain higher than pre-tariff prices. The report refutes the rhetoric of the domestic steel industry that steel prices are below pre-tariff levels. "Prices (based on the PPI) for most of the steel products generally increased after the imposition of the safeguard measures; however, public data indicate a decline in these prices after that initial increase but remained higher than pre-safeguard prices for several products including hot-rolled, cold-rolled, corrosion, bars, and pipe and tube." (page 2-2). The report states that 39 percent of responding steel consuming firms reported that the tariffs were the only important factor in price changes. (page 2-12).

• The report confirms that most steel consumers have had difficulty in passing steel price increases onto their customers. "Forty-three percent reported that they were unsuccessful in passing on any increase. Sixteen percent of responding steel consuming companies reported that they were able to pass on price increases in some instances but not in others." Had the ITC note included steel distributors in its definition of steel consuming companies, these numbers would be even higher. Steel distributors-firms that buy imported steel and resell it to U.S. steel consumers- could pass on the price increase to their customers.

• The report confirms that steel consuming companies had difficulty in obtaining steel in the quantity or quality needed as a result of the steel tariffs. Almost half (49%) of steel consumers reported difficulty in obtaining steel in the quantities and quality needed and of these firms, 75% stated that higher steel prices were the principal difficulty (table-2-9 and page 2-21).

• Thirty-four percent of respondents said that employment would increase if the tariffs were terminated September 20, 2003 and most respondents said that removing the tariffs would increase their competitiveness. (page 5-12).

• Finally, the 332 study does not dispute the findings of the CITAC Foundation's February 2003 study that higher steel prices cost 200,000 jobs in the U.S. Both the ITC and CITAC studies are in agreement that more jobs were lost in the year prior to the implementation of the tariffs because of the economy. The CITAC study isolated the effect of higher steel prices in 2002, in part caused by the tariffs, on job losses. The main difference between the studies is that the ITC assumes full employment (that a worker who loses his or her job will be re-employed) and the CITAC Foundation does not.

In summary, The ITC report confirms what the CITAC STF has been stating for the past 18 months - the tariffs have hurt the U.S. economy, severely damaged steel consumers and has done much more harm than good.