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TESTIMONY OF WES SMITH, PRESIDENT E & E MANUFACTURING, PLYMOUTH, MICHIGAN
BEFORE THE HOUSE COMMITTEE ON SMALL BUSINESS
"HOW CAN WE MAKE OUR TRADE LAWS WORK TO BENEFIT SMALL BUSINESSES?"
Wednesday, July 14, 2004
Mr. Chairman and members of the Committee, my name is Wes Smith, and I am President of E & E Manufacturing in Plymouth, Michigan. I am appearing today on behalf of the Consuming Industries Trade Action Coalition Steel Task Force to discuss ways that the U. S. trade laws can be made to work better for consumers of steel and other types of raw material.
E & E is located in Plymouth, Michigan, and is a world-class leader in metal joining technology. It meets the needs of its world-class automotive customers by manufacturing heavy gauge stamped metal fasteners, progressive die metal stampings, and high value added assemblies. E & E was founded in 1963 by my father, and provides meaningful employment to over 250 dedicated employees. Steel comprises 50 percent of our total cost of producing these products.
E & E Manufacturing and our primary trade association, the Precision Metalforming Association, were very active supporters of the CITAC Steel Task Force in the recent battle over the Global Safeguard Tariffs on steel, and we are grateful that, with support from many on this Committee, they were lifted in December of 2003. And while I don’t intend to rehash that issue today, the tariffs do serve as a good example of what we came to call the "collateral damage" that can occur to the economy when our trade laws get out of balance.
Let me state at the outset that we fully appreciate the need for trade remedy laws to protect U. S. businesses from unfair trade practices by foreign countries or producers seeking to gain access to the lucrative U. S. market. It is entirely appropriate that industries suffering from such conduct have recourse, and the recourse should be swift and predictable. However, all too often in our judgment, trade remedies intended to provide protection for one industry cause damage to other industries, particularly so-called "downstream" industries.
This is because our trade laws do not require, and in some cases do not permit, the Department of Commerce and the U. S. International Trade Commission to consider the total effects of trade policy decisions on the overall economy.
Increasingly, U. S. manufacturers are struggling to compete in the global economy — and low wages in foreign countries is not the sole reason. Higher costs in the U. S. — many of which are government imposed — are forcing some manufacturers to locate offshore in order to remain competitive. Others, without the flexibility to locate production outside the U. S., compete as best they can until they finally close their doors.
It’s tempting to blame "unfair foreign competition" for this problem, but that’s an excuse, not a reason. I believe my company can compete with anybody in the world, given a level playing field.
And that term, "a level playing field", is like a coin with two sides: it means protection from unfair trade practices by offshore competitors, but it also means protection from unintended consequences of U. S. policy.
Let’s take the case of steel, which is the primary raw material input for my company, amounting to about 50% of my total cost of production, on average. What we need, and what all U. S. steel-consuming manufacturers need, is access to an adequate, stable supply of globally priced steel. I don’t want to pay any more for steel than necessary, but the actual cost is less important than whether I can buy steel for the same total cost as my foreign competitors. If I can, then I can use improved productivity, better tooling design and automation to offset other disadvantages such as wage rates. If not, then I am at a fundamental disadvantage, and because steel is such a big part of my cost, I cannot overcome the difference.
When the Global Safeguard tariffs were put in place in March of 2002, the International Trade Commission staff analysis, which formed the basis of the recommendation to the President, was that 40 percent tariffs on imported steel would result in steel price increases of 4 to 8 percent. Mr. Chairman, I’m not an economist, but given that the U. S. steel industry produces only about 75-80 percent of the total steel consumed in this country, it is hard to imagine how anyone could conclude that imposing a 40 percent increase in the price of imported steel would not have a far greater impact than 4 to 8 percent.
In fact, as we now know, prices shot up 40, 50, 60 percent in some cases. Steel was hard to get, contracts were broken, and the steel-consuming industries suffered far more negative consequences than anyone anticipated.
And in fact, we are still suffering from the effects of the tariffs, some 7 months after their removal. Current prices for steel in the U. S. are higher than virtually anywhere in the world, due in part to the disruption caused by the tariffs, and delivery schedules are substantially longer than normal. If this situation persists, it will lead to increased offshoring of U. S.-based manufacturing.
So what can we do to avoid these effects? In our view, we must find the balance between providing protection for U. S. industries facing unfair foreign competition and making sure that the protection does not create more economic damage than good.
Specifically, we suggest that:
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U. S. trade laws should require an analysis of the total impact of any decision on the overall economy, including any "downstream" impacts;
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Industrial consumers of a product should have equal standing with domestic producers and importers in trade cases;
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Products that are not made in the U.S., or are in "short supply", should not be subject to trade remedies.
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Finally, when trade remedies are implemented, there is virtually no opportunity for those remedies to be altered in an expedited fashion if a changed circumstance occurs. This means that if there are unintended consequences, the industries negatively affected by those remedies must suffer far too long before changes can be made. For this reason, we believe an expeditious review mechanism for affected industries would provide a timely remedy against the unintended consequences of trade remedies.
In short, the CITAC Steel Task Force believes that access to an adequate, stable supply of globally priced raw material is critical to the ability of U. S.-based manufacturers to compete globally. Making sure that our trade laws protect those who need it without causing unintended "collateral damage" to other parts of the economy would help provide that access.
Thank you for the opportunity to appear before you today. I would be happy to respond to your questions.
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