Testimony of Robert S. LaRussa

Under Secretary of International Trade

Department of Commerce

December 12, 2000

Before the Senate and House Steel Caucus

Mr. Chairman and members of the caucus, I am pleased today to have this opportunity to discuss the current state of the steel industry with you. This has been an issue I have worked on for almost four years now, first as the Assistant Secretary of Import Administration, and now as the Under Secretary of International Trade. Let me begin by saying that the Administration was immediately concerned and has reacted quickly to the current crisis.

The Current Crisis

Less than two years after a devastating import crisis, the steel industry is once again suffering. Attached to this statement are some handouts and charts that provide a quick overview of the current conditions facing the steel industry. Let me summarize the facts briefly:

• Import levels were high through August 2000, and while they have subsided recently, they continue to approach 1998's record-breaking annual level.

• Steel prices, in real terms, particularly for hot-rolled and cold-rolled steel products, are once again reaching record lows.



• Capacity utilization rates are now below 74 percent - the lowest levels since the 1998 crisis.



• Employment levels have dropped sharply in recent months.

Given those statistics, it is important to note that there are differences between today's crisis and the crisis of 1998. Import penetration levels were up this year (25.8 percent in July) but have fallen off (22.1 percent in September). These levels are for the most part lower than those in 1998 (ranging from 25.7 - 33.4 percent from May to December 1998). Import surges in 1998 were primarily from 2 or 3 countries - Japan, Russia, and, to a lesser extent Korea. In contrast, individual country import increases in 2000 are smaller in volume terms but are from many more countries.

However, two important factors may make this crisis even more severe than 1998. Unlike 1998, there are indications that domestic steel demand has fallen - down for the first time since 1992. Slowing GDP growth in recent months suggests a cyclical downturn in demand for steel. In addition, the steel industry had only recently begun to recover from the 1998 crisis. Unlike 1998, the industry no longer has reserves to carry it through another downturn.

Actions Taken to Address the Current Crisis

The Administration took a number of actions to address the steel crisis in 1998. First, we conducted over 100 antidumping and countervailing duty investigations on steel products, a number of which were expedited to provide faster relief to industry. These helped turn back massive import surges seen during the 1998 crisis. Second, we released a detailed report on the global steel industry. This report analyzed the short- and long-term structural factors that contributed to the 1998 steel crisis. In addition, we established a steel import monitoring program to provide early information. These initiatives were just a part of the Administration's actions in response to the 1998 crisis.

The Administration also learned several lessons during the 1998 crisis. First, we recognize that events during a crisis can move quickly requiring vigilant monitoring and swift action to address import surges. In response, we now closely track steel imports and conditions in the U.S. industry in order to take quick action and to address import surges. We also established the Federal Interagency Rapid Response Team to assist in counseling workers and communities about trade adjustment benefits and programs.

Second, we learned that swift application of the unfair trade laws is vital to providing relief for the U.S. industry. The Department of Commerce has worked hard to provide faster, more effective relief, when appropriate, through crisis response mechanisms, leading to expedited investigations and early critical circumstance determinations. We also know that maintaining hard-earned relief once antidumping and countervailing duty orders are in place is critical. In the sunset reviews, the Department of Commerce found continued likelihood of dumping or subsidization in the vast majority of the cases involving steel products. I also took the unprecedented step of appearing before the ITC in sunset proceedings on existing steel order to present Steel Report findings on market distortions in the global steel industry.

Third, we have a better understanding of how emerging players in the global steel market can quickly upset the global market and undermine relief to industry. USTR and I have had productive discussions with several new players, including Ukraine, Taiwan, India, and China.

These discussions are leading to concrete results for the US industry.

And lastly, we recognize that multilateral steps must also be taken to address market distortions in global steel industry. As a result, the Administration has pushed changes at the OECD Steel Committee to increase usefulness and make it more receptive to addressing problems in global steel trade. We are also seeking a moratorium on multilateral development bank lending that increases steel capacity. Two studies are underway on multi-lateral issues. An expedited study on subsidies in Brazilian iron ore and steel products will be completed in January, while a complete study of cost differences that affect the global competitiveness of U.S. steel producers is on target for completion in the spring 2001.

Steps for the Future

We continue to believe strong enforcement of trade laws is key to providing relief to industry. In response, we currently have antidumping and countervailing duty investigations on rebar, stainless angles, and hot-rolled steel from 11 countries, including several of the new players in the global steel trade such as Taiwan, India, and Ukraine. We plan to expedite a number of the cases to provide more effective relief to workers and companies.

U.S. producers have also successfully used the U.S. safeguards law (Section 201) to address import surges. In February, the President granted import relief to U.S. wire rod and welded line producers pursuant to cases filed by these industries. We continue to examine a request from the steel union and industry to seek comprehensive import relief under section 201 and to negotiate import restraint agreements with non-WTO countries which ship steel to the United States. We are communicating with industry and union representatives to discuss particulars and merits of a section 201 case on steel products and other solutions.

Thank you and I am happy to answer any questions.