THE WHITE HOUSE
Office of the Press Secretary
I. EXECUTIVE SUMMARY
This Report to Congress on a Comprehensive Plan for Responding to the Increase in Steel Imports responds to the request from Congress described in Section 1l1 of the Conference Report on H.R. 4328, Making Omnibus Consolidated Emergency Supplemental Appropriations for Fiscal Year 1999.
The Administration is deeply concerned about the recent surge in low-priced steel imports and its impact on America's steel industry and the workers, families and communities that depend on it. There is no more important challenge than to ensure the strength of the U.S. economy and to minimize the impact of the global financial crisis on all Americans.
Free and fair rules-based trade is essential for both global economic recovery and for U.S. prosperity. We are committed to providing a comprehensive response to the steel import situation. This report outlines the important and forceful steps we have taken, and are currently taking, to address the import surge. We continue to monitor developments and consult with industry and labor representatives, members of Congress, as well as our trading partners, and will take additional action as circumstances warrant.
The State of the Steel Industry
The financial crisis has resulted in downward pressure on prices and in a steep drop in demand for steel in the countries affected by the economic crisis, which over the last decade had experienced a sharp increase in steel production and consumption. With demand in the U.S. relatively strong and global production high relative to global demand, U.S. steel imports surged to record levels in 1998, rising 30 percent in the first ten months of 1998 over the same period last year. Surges have been higher in key products such as hot-rolled sheet and coils, where imports are up 66.3 percent in the first ten months of this year compared to the same period last year. Import penetration rose from 24.2 percent in the first 10 months of 1997 to 29.5 percent in the same period in 1998. Steel imports from Japan, Russia and Korea together account for 78 percent of the increase. Japan accounts for nearly half of the overall increase(42 percent), while Korea (18.5 percent) and Russia (17.5 percent) are the other two major sources of import growth. Steel prices have also decreased sharply.
While the strength and resilience of the U.S. economy have withstood global economic pressures and U.S. growth continues, increased steel imports have had an adverse impact on U.S. steel producers and workers. U.S. steel shipments declined 7.8 percent in the June-through-October 1998 period compared to a year earlier. The American Iron and Steel Institute reports that capacity utilization has fallen to 74 percent from 90 percent a year ago. Labor statistics show a 10,000 drop in steel employment to 226,300 between November 1997 and November 1998, compared to the average annual decline of 1,225 workers from 1993 to 1997.
The steel import situation has received sustained attention at the highest levels of the Administration, including the President, the Vice President and members of the Cabinet, who have met with industry and union representatives on a number of occasions to discuss industry and labor concerns and potential responses. The White House has held regular, senior level, inter-agency meetings to craft an appropriate, timely and comprehensive response to alleviate the adverse impact of steel imports, and to avoid further disruption to the U.S. market. The Administration has developed a seven-point action plan, containing a number of specific actions, which are summarized below and described in greater detail in the remainder of this report.
Japan: Japan has been a key focus of our efforts, since Japan has been the single largest contributor to the current pressures faced by the American steel industry. Japan alone accounts for almost half of the entire U.S. import surge. During his visit to Tokyo in November, the President expressed strong concern about the extraordinary increase in Japan's steel exports to the United States and the resulting impact on the U.S. market. The President underscored the need for fair, rules-based trade, full enforcement of trade commitments and greater market opening. He pressed Japan to adopt and implement effective economic stimulus and reform measures. We have told the Japanese government that we expect Japan's exports to return to appropriate pre-crisis levels. The Japanese government has indicated to us that Japanese steel exports would return close to 1997 levels in 1999. It is our expectation that Japan's exports will return to appropriate pre-crisis levels in 1999. Accordingly, the Administration's Steel Task Force will monitor steel imports from Japan on a monthly basis. The Administration stands ready to take appropriate WTO-consistent actions under our trade laws to ensure that imports from Japan return to pre-crisis levels, including, if necessary, self-initiated actions under our Section 201 and antidumping law. Russia: The Vice President has raised concerns about unfair steel trade with Russia's leadership. There is currently an ongoing antidumping investigation on hot-rolled steel imports from Russia. The dumping law allows the United States Government to negotiate suspension agreements that limit imports of products covered by pending dumping cases with non-market economies, such as Russia. In appropriate circumstances, such suspension agreements can be the best and most effective way to enforce our law. In this context, Commerce is exploring whether a possible suspension agreement could provide early, effective relief from the surge of Russian steel imports consistent with statutory requirements. The Administration is committed to strong enforcement of our trade laws and Commerce will work closely with U.S. industry, unions and Congress throughout this process. In addition, the Administration is working with Russia and the IMF to stabilize the Russian economy, promote market reforms and help Russia move toward economic growth. A stronger and more market-oriented Russian economy will, over time, stimulate Russian domestic demand and should rationalize excess capacity in sectors such as steel. Korea: During his visit to Seoul, the President pressed President Kim to place Korea's steel sector on a market footing, and President Kim agreed to work with the United States to make progress toward this goal. Our steel dialogue with Korea has already produced a Korean Government commitment that Korea's second largest steel producer would be sold and that the government would not support or direct others to support it. The bilateral steel dialogue has been expanded to include examination of the Korean government's role with respect to other steel producers, including POSCO, Korea's largest -- and the world's second largest -- steel producer. U.S. and Korean officials convene again in January. Korea's reform program also contains financial supervisory steps to make financing of industrial enterprises such as steel companies more market-oriented. European Union: The Administration has pressed the European Union to fairly share the burden of increased steel imports. During the U.S.-EU Summit in December, the President pressed President Santer to open the EU market to greater steel imports from distressed economies such as Russia. The U.S. Trade Representative pursued this issue during her recent tour of European capitals.
2. Strong Enforcement of U.S. Laws Against Unfair Trade Practices: U.S. trade laws provide a strong mechanism to counter import injury from any unfair trade and subsidization practices. The Administration is vigorously, fairly and expeditiously enforcing U.S. trade laws consistent with our international obligations and taking action to eliminate unfair trade practices.
Expedited Investigations: Commerce has shifted resources to expedite the recent dumping cases on hot-rolled steel from Japan, Russia and Brazil that were filed by U.S. producers and workers on September 30. Imports covered by these cases account for 37 percent of the steel import growth. Preliminary dumping determinations will be announced in February. Critical Circumstances: On November 23, Commerce issued a preliminary ruling of critical circumstances with respect to hot-rolled sheet imports from Japan and Russia. Based on this finding, if Commerce determines that dumping is occurring, importers may be retroactively assessed dumping duties on imports reaching back 90 days before the preliminary antidumping determination, to imports dating back to mid-November. The critical circumstances finding has thus put importers on notice of potential antidumping duty assessments. This may already be having an impact on importers' decisions on whether to purchase Japanese and Russian hot-rolled steel. Existing Antidumping and Countervailing Duty Orders and Investigations on Steel Products: The Department of Commerce is currently enforcing more than 100 antidumping and countervailing duty orders on steel products from a number of countries and over the past year has completed or is conducting 35 new steel investigations. Strong New Countervailing Duty Regulations: The Commerce Department recently issued strong new countervailing duty regulations that will strengthen our ability to combat unfair subsidies. Commerce carefully considered the comments received from the steel industry and members of the Steel Caucus in preparing these regulations.
3. Section 201 Safeguards Actions: Our safeguards law provides an important and WTO-consistent mechanism for addressing import surges. A petition for relief under Section 201 has recently been filed on steel wire rod. We understand the steel industry is examining other possible cases. The Administration has met with industry and labor representatives pursuant to their request as they review the possibility of trade action under Section 201. As steel industry and labor representatives review options, we are prepared to consult with them and to ask the International Trade Commission to expedite any steel safeguards investigations.
4. Early Warning System to Monitor Import Trends and Guidelines for Release of Preliminary Import Statistics: The Administration has developed an early warning system to monitor steel imports. Such monitoring is designed to provide early warning on import trends for sensitive products, and to develop the information needed to help ensure that our trading partners are fully abiding by international commitments under the WTO and International Financial Institution (IFI) reform programs. Preliminary steel import data is now used in the Administration's internal early warning system.
The Administration will also put into place new guidelines permitting the release of preliminary import data in extraordinary circumstances to address import surges. This new policy will result in the public release for a limited period of preliminary steel import data approximately 20 to 25 days prior to the current release date. The release of this data has been requested by U.S. steel producers and will enable the steel industry to make decisions based on the most current information available.
5. Restoring Global Economic Growth and Ensuring Market-Based Reform: Restoring growth and demand in emerging markets, generating the conditions necessary for stronger, more stable currencies in our trading partners, and strengthening market-based reform in economies affected by the financial crisis are critical to reducing the steel import pressure on the U.S. market. The President is leading the world in these efforts. This coordinated response is focused on encouraging strong reform programs in affected countries such as Korea, buttressed by international financial assistance to provide breathing room for the reforms to take hold. The Administration has been urging Japan and Europe to put into place policies to restore strong domestic demand-led growth.
6. Tax Relief -- Extending the Net Operating Loss Carryback Period for Steel: The President's soon-to-be released budget will include tax relief for the steel industry. The proposal is designed to provide timely and significant relief and to help stave off job losses. Steel companies experiencing losses would be allowed to offset these losses against taxes paid during the prior five years, instead of the current law two-year carry-back period. This would permit steel companies to obtain refunds for prior taxable years. The benefit will feed directly and immediately into a troubled steel company's cash flow. This would provide more than $300 million in tax relief over five years.
7. Adjustment Assistance for Steelworkers and their Communities: The Administration is committed to helping workers and communities harmed by international trade get back on their feet. To address the problems confronting steelworkers and their communities, the Administration will appoint a high-level White House official to coordinate adjustment assistance. This individual will convene an interagency task force on steel adjustment assistance to help workers and communities identify and access the full range of federal resources. Two federal departments, Labor and Commerce, are already working to provide adjustment assistance to hard-hit steelworkers and communities. In the past 15 months, the Department of Labor has certified 4,100 workers in 21 steel and steel products plants to receive benefits and services under the Trade Adjustment Assistance program, including trade readjustment allowances following exhaustion of Unemployment Insurance. Commerce's Economic Development Administration is actively working with several steel communities on an economic adjustment strategy. In response to Administration concerns about trade-related dislocation, Congress provided an additional $50 million for EDA in FY1999 for economic assistance, and those funds are now available for, among others, communities harmed by increased steel and other imports.
II. STATE OF THE U.S. STEEL INDUSTRY
The American steel industry is important to our economy, contributing importantly to the auto, high-tech, and construction industries and many other sectors. The steel industry employs 226,000 American workers and supports employment in many related industrial and service fields.
Internationally, until 1998, the United States had been the world's third largest producer of steel after China and Japan, with estimated production of 97.5 million metric tons of crude steel in 1997. In 1998, the United States became the world's largest steel producer due to a sharp decline in Japan?s production. Since 1995, due to strong demand and favorable market conditions, U.S. and foreign firms have added substantial new steel making capacity in the United States, amounting to about 11 million metric tons for crude steel. We have a highly competitive industry, which can compete and succeed in a market that is not distorted by subsidies, unfair trade practices and government intervention.
However, many foreign governments continue to view steel production and self-sufficiency in steel as prerequisites to economic achievement. Foreign steel industries have often been supported through government subsidies to encourage expansion or forestall restructuring.
Effects on the U.S. Steel Sector of the Global Financial Crisis
The problem of overcapacity in the steel sector was compounded in 1998 by the Asian financial crisis and the catastrophic drop in demand in Asia. As a result, a high volume of shipments has been diverted from Asian to North American markets. Aggravating the situation further, Russian steel exports were shifted from Asian to North American markets. Steel import quotas against Russian imports made it difficult to increase Russian exports to the European Union. As a result, steel imports to the United States have surged to the highest level ever. While demand in the United States has remained strong, U.S. steel producers and workers have been adversely affected by the sharp increase in imports and the resulting price suppression.
Through October of 1998, the United States imported 31.4 million metric tons of steel. This represents an increase of 7.2 million metric tons or nearly 30 percent over imports in the first ten months of 1997. The import increase was particularly pronounced in the second half of 1998, with imports for the June through October 1998 period in 1998 up 52.9 percent over the same period in 1997. Most major foreign steel producers have contributed to this import growth. However, the increase is concentrated in three countries, which together account for 78 percent of the increase and 10.8 percent of apparent U.S. consumption. (Japan 4.7 percent; Russia 3.7 percent; Korea 2.4 percent). They are:
The largest import increase has occurred in hot-rolled carbon flat steel covered by the ongoing dumping trade case, in which imports grew by 3.3 million metric tons accounting for 45 percent of the total import growth. Imports of these products from Japan and Russia account for 82 percent of this increase, and are subject to ongoing Commerce Department antidumping investigations which include hot rolled carbon sheet and strip, and plate in coils. These carbon flat-rolled products account for 25.8 percent of total steel imports through October.
Overall steel import penetration has increased from 22.6 percent in the first ten months of 1997 to 29.5 percent in the comparable period in 1998. For the June through October period, import penetration jumped from 23.5 to 33.6 percent between 1997 and 1998.
There has also been a steep drop in steel prices. The average value per metric ton for all steel imports had dropped from about $512 at the beginning of 1998 to $400 in October 1997. This has placed substantial downward pressure on steel prices in the United States. Price declines have been evident for virtually all steel products.
During this period, U.S. steel production and employment have fallen. U.S. steel shipments declined 7.8 percent, from 41.2 million metric tons in the June through October 1998 period, to 38.0 million tons in the same period in 1998. The Federal Reserve reports that capacity utilization has dropped 17.8 points to 74.1 percent in November 1998 as compared with 91.9 percent a year ago. In comparison, capacity utilization for all manufacturing dropped 1.6 points (from 85.3 percent to 83.7 percent) over the same period.
Labor statistics show a 10,000 (4 percent) drop in steel employment, from 236,300 to 226,000 jobs between November 1997 and November 1998, compared to the average annual decline of 1,225 jobs in the 1993 through 1997 period. While overall manufacturing employment has increased by nearly 500,000 in the past five years, manufacturing employment declined by 174,000 in the past 12 months. Overall, however, the economy has created 2.8 million jobs over the past year ending in November, an average of 236,000 new jobs per month. In addition the unemployment rate has declined from 4.6 percent in November 1997 to 4.4 percent in November 1998.
The adverse effect on U.S. producers is significant, but has been somewhat dampened by continued strong U.S. demand.
Economic recovery in Asia and other emerging markets would be the single most significant antidote to excessive import pressures in the steel industry. The U.S. steel industry has experienced the direct effect of large increases in lower priced imports. In addition, our economy has been hit by the indirect effect of price pressures from an oversupply of steel exacerbated by falling demand in Asia and Russia. In the absence of international efforts to stabilize the economies and currencies of countries affected by the crisis, it is likely that currencies would have fallen even further and the effects on our trade flows would have been even larger.
III. STEEL ACTION PLAN
Since the outset of the steel import crisis, the Administration has pressed steel exporting and importing countries in consultations aimed at ensuring fair trade and sharing of the import burden. The President has personally expressed his deep concern about the impact of increased imports and the need for fair trade, both in public and in private meetings, including in his recent visits to Japan and Korea and in recent meetings with European leaders. The Vice President expressed strong concern about the surge in imports from Russia during his recent meeting in November in Kuala Lumpur with Prime Minister Primakov, pressed Korean President Kim to end subsidies to Korean Steel manufacturers and strongly urged the EU to open their markets and absorb their fair share of imports in his speech to the TransAtlantic Business Dialogue. During her recent visit to European capitals, Ambassador Barshefsky pressed the European Commission and member states to share the burden of increased steel exports, particularly with respect to Russia and Japan, two countries which account for the bulk of the existing excess steel supply, and from which the United States has taken a substantially higher share of steel imports.
The Administration has particularly urged Japan, Russia and Korea, three countries which account for eighty percent of our steel import growth, to respect established international rules and to trade fairly, including refraining from subsidization and dumping.
A weak Japanese economy continues to be one of the largest impediments to economic recovery in Asia and a significant cause of the surge in low-priced steel imports into the United States. Japan's producers have re-directed a large portion of their excess steel production to the U.S. market.
Japan moved from being the third largest supplier of steel imports into the U.S. market in 1997, to being the largest source of U.S. steel imports in 1998, and was responsible for 42 percent of the increase in U.S. steel imports in the first ten months of 1998. While U.S. imports from Japan have surged in a number of steel products, 51 percent, or 1.5 million metric tons, of the import growth has been in hot rolled sheet products. These hot rolled steel imports are now subject to the dumping investigation described above.
Pressing Japan to take the necessary steps to achieve economic recovery has been a key element of the Administration's economic and trade policy. Specifically, the Administration has urged Japan, in the strongest terms, to stimulate its economy, reform its banking sector, and deregulate and open its market to international competition. Swift and effective implementation of these polices in Japan would be the single most effective way to restore growth and demand in Asia, thereby reducing steel import pressures on U.S. producers and workers and stimulating exports of U.S. goods and services to Japan.
During his November visit to Japan, in addition to pressing the Japanese Government to take the steps necessary to stimulate domestic demand-led growth, strengthen its financial system and open and deregulate its markets, the President expressed serious concerns about the significant increase in Japanese steel exports to the United States, both in his public statements and in his private meeting with Prime Minister Obuchi. Citing a nearly the over four-fold increase in U.S. imports of Japanese hot rolled sheet, the President underscored the need for fair, rules-based trade and greater market opening, as well as the need to "avoid market penetrations that have no relationship to market forces." Ambassador Barshefsky has made it clear that Japan cannot expect to export its way out of its recession; rather, it must take decisive and immediate steps to revive its economy and consequently its domestic demand for steel.
We have told the Japanese government that we expect Japan's exports to return to appropriate pre-crisis levels in order to restore stability to the United States steel market. The Japanese government has informed us that Japanese steel exports would return close to 1997 levels in 1999. It is therefore our expectation that Japan's exports will return to appropriate pre-crisis levels in 1999. Accordingly, the Administration's Steel Task Force will monitor steel imports from Japan on a monthly basis. The Administration stands ready to take appropriate WTO-consistent actions under our trade laws to ensure that imports from Japan return to pre-crisis levels, including, if necessary, self-initiated actions under Section 201 and antidumping law.
Japan's export data for November reflects exports to the United States of 97,000 metric tons of hot rolled sheet. While this level is still substantially higher than the average 1997 monthly exports to the United States of 49,000 tons in this product, it is substantially lower than the average exports of 290,000 for June through October 1998. This trend, if accurate, would be reflected in the U.S. Census Bureau import statistics for December 1998, which will be available towards the end of February 1999.
The Administration remains concerned about allegations by U.S. steel producers of collusive private activities in international steel trade that may have the effect of artificially diverting Japanese steel exports from European to U.S. markets. The Administration has pressed these concerns with the appropriate EU and Japanese officials to ensure that any such activities are dealt with vigorously and effectively.
Russia is the second largest contributor to the surge in steel imports, so they are also an important focus of our efforts. U.S. imports of steel products from Russia increased 47 percent or 1.3 million metric tons in the first ten months of 1998 over the same period in 1997. Imports of hot rolled sheet accounted for 1.1 million metric tons or 91 percent of that growth. Hot rolled sheet imports are now subject to a dumping investigation by the Department of Commerce, pursuant to a petition filed on September 30, 1998 by U.S. producers and workers. The Commerce Department critical circumstances finding described above can lead to the retroactive application of dumping duties.
The dumping law allows the United States Government to negotiate agreements -- suspension agreements -- that limit imports of products covered by pending dumping cases with non-market economies, such as Russia. In appropriate circumstances, such suspension agreements can be the best and most effective way to enforce our law. In this context, Commerce is exploring whether a possible suspension agreement could provide early, effective, relief from the surge of Russian steel imports consistent with statutory requirements. The Administration is committed to strong enforcement of our trade laws and Commerce will work closely with U.S. industry, unions and Congress throughout this process.
In addition to actions being taken by the Department of Commerce pursuant to its antidumping investigation of hot-rolled steel from Russia, the Administration is working with Russia and the IMF to stabilize the Russian economy, promote market-based reforms, and help Russia move toward economic growth. The Vice President, in his meeting with Prime Minister Primakov in Kuala Lumpur, and other U.S. officials including the Secretaries of State and Treasury have all urged Russia to stay engaged with the IMF and to push ahead with stabilization and growth-oriented reform. A stronger Russian economy will, over time, stimulate Russian domestic demand, rationalize sectors such as steel and help Russia diversify its economy. We are also encouraging Russia to take the economic steps necessary to join the World Trade Organization. Such integration with the global economy will encourage the kind of competition needed to help Russia restructure its economy, encourage a shift to service sectors, facilitate labor mobility and reduce Russia?s dependence on industries such as steel.
The economic crisis in Asia and Russia has seriously depressed demand for Russian steel. Russian GDP and industrial output are now roughly half of their 1989 levels. By September 1998, Russia's GDP had declined 9.9% compared with September 1997, and industrial output had declined 14.5% in the same period. The OECD estimates that consumption of steel in Russia has declined to 26% of 1992 levels, and that Russia exported 51% of its steel production in 1998, compared to 12% in 1992. The slump in exports to Asia, and European Union import quotas restricting steel imports from Russia, increased exports to the United States as Russian producers sought new markets for their steel.
The OECD also notes that pricing of Russian steel exports has often been uneconomic because of a lack of standard accounting principles, the use of barter and a lack of familiarity by producers with market conditions and established distribution channels in export markets. In a recent OECD Steel Committee resolution, OECD member states recommended technical assistance for Russia "aimed at the promotion of restructuring and environmental clean-up of the steel sector, the development of additional Russian domestic demand for steel, and the promotion of sound business and marketing practices" in this sector.
Republic of Korea
In addition to actions taken by the Commerce Department in specific unfair trade cases, the United States has pursued an intensive dialogue with The Republic of Korea aimed at ensuring that the Korean steel sector operates on a market-driven basis. This dialogue has been comprehensive, sustained, and conducted at all levels of government. On November 21, President Clinton stressed to Korean President Kim Dae Jung the need for further progress in our expanded steel dialogue and emphasized that "special care" must be taken to "prevent unfair trade practices or subsidization in sensitive sectors like steel and semiconductors."
In response to a complaint from U.S. steel producers alleging that Hanbo Iron and Steel (Hanbo), a Korean mini-mill, had been provided government subsidies, Ambassador Barshefsky and Secretary Daley engaged the Government of the Republic of Korea (ROKG) in substantive and detailed consultations on this issue. Through these consultations, the Administration obtained written assurances from the ROKG that it will not support or direct others to support Hanbo. Hanbo has now temporarily shutdown production of hot-rolled sheet. We also have received assurances that the Hanbo creditors and the independent agent managing the sale of Hanbo will take all steps necessary to effectuate a market-driven sale. We continue to monitor these assurances. These ROKG undertakings constitute the most timely, direct and commercially meaningful means to address our industry's concerns about Hanbo.
The Administration also expanded the steel dialogue to encompass broader concerns about the Korean steel industry -- in particular, regarding two other Korean steel producers: Pohang Iron and Steel Company (POSCO), the world's second largest steel producer, and Dongkuk, a large producer of cut plate exports to the United States. With respect to POSCO, our goal is to ensure that the company is fully and expeditiously privatized. Effective privatization of POSCO would help ensure that its pricing, production, and other business decisions are made at arm's length from the Korean government, thereby addressing industry concerns about POSCO's operations.
In response to the Korean government's announcement of its plans to privatize POSCO, and U.S. industry's interest in seeing the ROKG's ties with POSCO severed, USTR officials initiated detailed bilateral discussions about the Republic of Korea's plans in this regard, and strongly urged the ROKG to expeditiously complete this process. On December 9, 1998, the ROKG sold 5.1 percent of its 33 percent stake in POSCO through a stock offering on the New York and London exchanges, and further steps are anticipated shortly. The Administration is also seeking to ensure that other Korean steel producers, including Dongkuk, a large exporter of cut plate to the United States, are not benefitting from ROKG support. Additionally, the Administration has emphasized that Korean steel exports to the United States from companies such as Dongkuk, which are supplied with inputs from POSCO, must be traded fairly and must not be afforded an unfair advantage over U.S. companies through market-distorting subsidies. Over the coming months, the Administration will continue the dialogue with the ROKG with a view to addressing concerns U.S. steel producers and workers have raised about possible unfair trade practices. The next round of bilateral discussion is scheduled for January.
The Republic of Korea's reform program also contains financial supervisory steps to make financing of industrial enterprises such as steel companies more market-oriented. The Republic of Korea's reform program includes steps that will help to improve bank oversight and place limits on lending. The Ministry of Finance no longer has control over bank supervision; instead, the independent Financial Supervisory Commission has its own, three year budget with a mandate that includes overseeing bank operations and loan portfolios. Recently adopted limits on lending will prevent Korean banks from becoming overexposed to individual firms.
The Administration has been concerned that the EU quotas on steel imports from several former Soviet Republics, and Russia in particular, may be causing a diversion of Russian steel exports into the United States. We are also concerned that the EU may not be bearing an equitable burden of the Asian steel export surge and, in particular, that the EU's imports from Japan are only a fraction of ours. U.S. industry representatives have alleged that a primary reason for the low rate of Japanese exports to the EU may be the existence of anticompetitive understandings between European and Japanese producers.
The Administration has undertaken a detailed comparison of U.S. and EU steel trade data, and U.S. government officials have discussed this issue at various levels with officials of the European Commission, the EU Presidency and with member states. Similar to the United States, the EU experienced a substantial increase of steel imports following the Asian crisis, as well as a drop in steel exports. Through August of 1998 (the most recent import data available in the EU), U.S. and EU imports grew by an equivalent amount -- 4.7 million metric tons for the United States compared to 4.8 million for the EU. The EU has traditionally been a net steel exporter, and its imports grew from a lower base, and thus the growth has been higher in percentage terms (53 percent compared to 24 percent in the United States). At 24 million metric tons through August 1998, U.S. steel imports were about double the EU imports of 13 million tons.
However, due to import quotas and licensing requirements on imports from Russia, EU imports from that country through August 1998 remained flat from the year before, at 1.1 million metric tons. This compares to U.S. imports from Russia of 2.9 million metric tons in the same period. Due to the substantial steel overcapacity in Russia and the strong demand in the EU, we believe that Russia's exports to the EU would also have grown substantially, were it not for import restraints. We have therefore urged the European Commission to review its import licensing and quota arrangements with Russia and other former Soviet republics, with a view to accommodating additional tonnage. We understand that the government of Russia is seeking quota increases.
The Administration has pressed the European Union to bear its share of absorbing the excess supply of steel in the world market on various occasions. President Clinton raised the issue during the U.S.-EU Summit in Washington on December 18. In his November 6 speech to the TransAtlantic Business Dialogue, the Vice President told Europeans the U.S. cannot be the world's importer of only resort, nor can we carry alone the burden of absorbing the imports of recovering countries. In her recent visit to Brussels, Germany, France and Britain, Ambassador Barshefsky underscored that the EU's steel imports from Russia are less than half the volume of U.S. imports from Russia, and its steel imports from Japan are only a tenth of Japan's shipments to the United States, and asked that barriers to imports be reviewed.
In addition, we have pressed the EU to examine the reasons for the low levels of imports from Japan. The Administration will be alert to evidence of possible collusive private activities in international steel trade that may have the effect of artificially diverting Japanese steel exports from European to U.S. markets.
2. Strong Enforcement of U.S. Trade Laws Against Unfair Trade Practices
U.S. trade laws provide strong mechanisms to counter unfair trade practices, unfair subsidies and import injury from import surges. This Administration is committed to aggressively enforcing U.S. trade laws to address the adverse impact that unfairly traded steel imports have on U.S. steel companies and American jobs. We will enforce our trade laws in a manner consistent with international obligations.
On September 30, U.S. domestic producers and unions filed petitions for antidumping and countervailing duty relief on imports of hot-rolled steel products from Japan, Russia, and Brazil. The most dramatic import surges in steel imports have occurred in these products which make up the bulk of the steel trade. Imports of Japanese hot-rolled steel products in the first 10 months of 1998 have increased almost 400 percent over the same period in 1997, a record year for imports, while imports of Russian hot-rolled steel products have increased 71 percent. The Commerce Department immediately shifted resources to ensure that our trade laws would be enforced as vigorously and as expeditiously as possible. The Commerce Department initiated the cases five days ahead of the statutory deadline and has committed to expediting the preliminary determinations in those cases up to 20 days prior to the statutory deadline, while preserving the right of all parties to due process. This schedule would result in the issuance of the preliminary determination on February 12, an unprecedented 25 days early.
On November 23, 1998, the Commerce Department issued a preliminary finding of critical circumstances with respect to Russia and Japan. The finding makes clear that if Commerce makes a preliminary determination of dumping, importers will potentially be liable for duties retroactively. This means that, if both Commerce and the ITC make final critical circumstances findings, any dumping margin found will be applied to all imports entered as of November 14, 1998, ninety days before the preliminary dumping determination scheduled for February 12, 1999. As a result, importers are on notice now they may face increased retroactive duties. This could lead to reduced imports right away.
Existing Antidumping and Countervailing Duty Orders and Investigations on Steel Products
The Commerce Department currently enforces over 100 antidumping and countervailing duty orders covering various steel products from 30 countries. Since late 1997 Commerce has taken a number of strong enforcement actions with respect to steel. In October 1997, Commerce concluded four suspension agreements on cut-to-length plate from China, Russia, South Africa and Ukraine. These agreements provide strong relief to steel plate producers by ensuring that plate imports from these countries are fairly priced and by reducing imports of Chinese, Russian and Ukrainian plate by 45, 55 and 72 percent, respectively. During the first six months of 1998, Commerce completed or initiated 31 antidumping and countervailing duty investigations on a variety of stainless steel products, such as stainless steel wire rod, sheet and strip, plate in coils and round wire.
In ongoing investigations, Commerce is looking at possible unfair pricing of exports from a range of countries as well possible subsidies provided to the stainless steel industry. For example, on November 17, 1998, Commerce made a preliminary finding that the Republic of Korea's Pohang Iron and Steel Company's (POSCO) two-tiered pricing system in its home market is countervailable. The final ruling on this issue currently is scheduled for early March 1999.
Strong New Countervailing Duty Regulations
Over the past year, Commerce has been working on several sets of regulations that reflect the Administration's strong commitment to fighting unfair trade practices. In November, Commerce released final countervailing duty regulations that will guide its analysis and calculation of the benefit from foreign subsidies. In preparing these regulations, Commerce considered carefully the comments received, including those of the steel industry and Members of Congress. The final regulations are designed to enhance strong enforcement of the trade laws, and send an important signal to our trading partners that we will not tolerate the subsidization of imports that harm our industries and workers.
For example, one area where the subsidy rules were strengthened concerned the government's provision of equity to an unhealthy company. Consistent with many of the comments received, a final rule was adopted that treats the entire amount of the equity infusion as a grant which raises the offsetting duty. Likewise, the rules regarding government loans to uncreditworthy companies have been strengthened to better account for the increased risk associated with lending to such companies. In addition, Commerce addressed the concerns raised by some industries and Members of Congress that the transnational subsidies rule could allow countries to use funds from foreign governments or international institutions to subsidize their industries with immunity from the U.S. countervailing duty law. The final regulations limit the application of the transnational rule. They do not permit immunity from U.S. countervailing duty law for subsidies established by a government on its own, outside of a program or project funded with transnational funds.
Commerce also recently released regulations and a policy bulletin concerning sunset reviews. These reviews, which are required to be conducted every five years under U.S. law and the WTO, determine whether an antidumping or countervailing duty order is still needed to address dumping or unfair subsidies and injury. Commerce has set out tough, but fair, rules regarding sunset reviews to ensure that orders that are necessary to remedy unfair trade practices are not revoked.
Eliminating Subsidies and Directed Lending
Foreign steel industries have often been supported through government subsidies to encourage expansion or to forestall restructuring and lay-offs. Global overcapacity remains a serious problem in the industry. Through bilateral efforts, multilateral fora such as the OECD Steel Committee and the WTO, and through strict enforcement of our countervailing duty laws, the Administration is taking forceful action to eliminate improper government involvement in important sectors such as steel.
When the financial crisis began to spread in 1997, a number of U.S. industries, particularly the steel and semiconductor industries, expressed concern that foreign governments would resort to subsidies in an attempt to export their way out of the crisis. Commerce's Subsidies Enforcement Office responded by expanding its activities and working closely with USTR to evaluate industry concerns about possible new subsidies abroad. As a result of these activities, the Administration has actively engaged a number of countries to address subsidy concerns. Our considerable bilateral efforts with respect to the subsidies in the Korean steel industry are described in the next section of this report.
Treasury, Commerce, and USTR have taken numerous steps to address the problem of government directed lending (i.e., the practice of certain governments to influence commercial banks to lend to favored industries at preferred rates), particularly with respect to the Korean steel and semiconductor industries. All three agencies have been carefully monitoring the Korean government's lending practices and involvement in the Korean financial sector, and have paid close attention to banking reforms and recent government restructuring funds for Korean industries. The issue of Korean government support to strategic industries such as steel or semiconductors has been raised on numerous occasions with the Korean government and Korean industries, by the President, the Vice President and the Secretaries of State, Treasury, Commerce and the United States Trade Representative. The elimination of directed lending is a key element of the Republic of Korea's IMF program. Potential subsidies from alleged government directed lending to the steel industry are also being examined by Commerce in two ongoing Korean countervailing duty investigations on certain stainless steel products, along with several other alleged subsidy practices. These cases are currently scheduled to be completed in March and April 1999.
3. Section 201 Safeguards Actions
Section 201 of the Trade Act of 1974, the so-called "safeguards" statute, provides a remedy against import surges that cause or threaten to cause serious injury to U.S. workers or industries. Section 201 is a key component of U.S. trade remedy laws and is designed to address injuries resulting from rapid changes in the global economy and to facilitate industry and worker adjustment to import competition. This type of "safeguard" has long been sanctioned by the GATT and now the WTO. The Administration supports the availability to U.S. producers and workers of a strong and effective WTO-consistent safeguards mechanism.
Obtaining relief under the U.S. safeguards mechanism involves a two-step process. First, the U.S. International Trade Commission (ITC) conducts an investigation to determine whether increased imports are causing or threaten to cause serious injury or threat of serious injury to the domestic industry producing a like or directly competitive product. Second, if the ITC makes an affirmative determination, the President weighs a variety of factors in deciding whether relief will be granted and, if so, in what form. Section 201 enables the President to fashion the remedy most appropriate to the industry involved. Section 201 also provides expedited procedures for seeking provisional relief.
On December 30, 1998, the U.S. steel wire rod industry and the United Steel Workers of America filed a petition with the International Trade Commission requesting relief pursuant to Section 201. This petition will give the ITC the opportunity to evaluate the evidence, to decide whether a trade remedy is warranted, and to recommend what it should be. If an affirmative determination is reached, the President will decide on the appropriate response.
The Administration fully supports the industry's right to avail itself of the safeguards mechanism under U.S. law for these and other steel products, where circumstances justify such action. Consistent with the Administration's determination to date to act expeditiously and vigorously to enforce U.S. trade laws, any affirmative ITC recommendations will be acted on in a timely manner, and in full consultation with interested parties, consistent with U.S. law. The Administration has met with industry and labor representatives pursuant to their request as they review the possibility of trade action under Section 201. As steel industry and labor representatives review options, we are prepared to consult with them and to ask the International Trade Commission to expedite any steel safeguards investigations.
4. Early Warning System to Monitor Import Trends and Guidelines for Release of Preliminary Import Statistics
In anticipation of potential trade problems arising out of the global financial crisis, early in 1998, Commerce put in place an extensive import monitoring program that closely tracks imports and prices in key import-sensitive sectors, such as steel, semiconductors, autos, paper, textiles and chemicals. This program was designed to provide an early warning system that the Administration could use to formulate a swift response to potential import surges. With respect to steel, we have enhanced our monitoring efforts by obtaining for internal government use preliminary Census data on steel imports 20 days prior to the official release date.
The Administration has also been working with the industry to make available information on steel imports as early as possible, such as the preliminary steel import data now used in the early warning system. The Administration is in the process of adopting guidelines regarding the release of preliminary import data in extraordinary circumstances to address import surges. This will result in the public release for a limited period of time of preliminary import data for qualifying industries approximately 20 days prior to the current release date. Under the guidelines, the Secretary of Commerce would request approval from OMB to release the preliminary import statistics compiled by Census for a particular industry based on certain factors such as an extraordinary increase in imports, a high degree of import penetration, a history of unfair trade with respect to the industry and the reliability of the early data. Once the new guidelines are adopted, the Secretary of Commerce will formally request OMB to approve release of the preliminary steel import statistics because of the substantial surge in steel imports this year, the significant import penetration and the long history of unfair trade in these products in the United States and the reliability of the early steel import data.
5. Restoring Global Demand and Ensuring Market-Based Reform
Currency depreciations in several countries, deepening recession in Japan and Russia, and the loss of Asian markets due to the Asian financial crisis have combined to produce pressures on U.S. import-sensitive industries. Global overcapacity in the steel sector has compounded these problems for the U.S. steel industry. The Administration's highest international economic priority has been restoring global economic health and preventing contagion from the crisis on the U.S. economy. Restoring growth in Asia will help to revive global demand for steel, and will reduce the import pressure on the U.S. market.
The Administration has led efforts in the international community to develop a coordinated response to the Asian financial crisis, focusing on four areas:
strong reform programs within the affected countries;
temporary financial assistance from the International Monetary Fund and other international financial institutions to bolster reserves, provide breathing room for the reforms to take hold, to help restore confidence, and to prevent a deeper, more prolonged crisis; encouraging growth in Japan, which is critical to restoring demand and growth in the Asia region; support for open markets, including pressing our trading partners do their fair share in permitting access to their markets for crisis countries. In the context of stabilization programs of International Financial
Institutions (IFIs), the Administration has supported strong provisions for reform in beneficiary countries such as the Republic of Korea designed to improve corporate governance, increase transparency and reduce government involvement in industrial decision-making. For example, the Korean government has agreed to end its involvement in directing lending decisions by Korean commercial banks. The Administration is carefully monitoring the subsidy and trade-related commitments made by IMF fund recipients as part of their IMF stabilization packages. The Secretary of the Treasury has recently certified to Congress that no IMF resources made available pursuant to the Korean Arrangement have been used to provide financial assistance to the steel industry, nor has the Fund guaranteed or underwritten private loans of steel manufacturers in The Republic of Korea.
6. Tax Relief: Extending the Net Operating Loss Carryback Period for Steel
The President's soon-to-be-released budget will include tax relief for the steel industry. Under current law, a net operating loss (NOL) of a taxpayer generally may be carried back two years and forward 20 years. The proposal would extend the carryback period for the NOL of a steel company to 5 years. The proposal would not change the 20-year carryforward period. Only losses related to activities incurred in the manufacture or production of steel and steel products would be eligible for the 5-year carryback. This would permit steel companies to obtain refunds for prior taxable years. The benefit will feed directly and immediately into a troubled steel company's cash flow, allowing that company maximum flexibility in determining how the benefit might be best applied.
The proposal would be effective for taxable years ending after the date of enactment, regardless of when the NOL arose. The proposal is estimated to lose about $300 million in the period 1999-2004, with most of that loss estimated to occur in the first three years.
7. Adjustment Assistance for Steelworkers and their Communities
Steel Task Force and Steel Coordinator
The President and this Administration as a whole are committed to helping workers and communities harmed by international trade to adjust to the forces of globalization. No adjustment plan can avoid the pain of layoffs and dislocation altogether, but rapid action to provide workers and communities with adjustment assistance can limit the dislocation and speed the pace of economic recovery.
To address the problems confronting steelworkers and their communities, the Administration will appoint a high-level White House official to coordinate adjustment assistance efforts from all relevant agencies. Borrowing a page from the Administration's successful adjustment effort for base closure communities, this individual will convene an interagency task force on steel adjustment assistance to help workers and communities identify and access the full range of federal resources. The task force will include the Departments of Labor, Commerce, Housing and Urban Development, Transportation, Education, Health and Human Services, Energy and Interior, as well as the Small Business Administration.
Key Adjustment Assistance Programs
Two federal departments, Labor and Commerce, play particularly important roles in trade-related adjustment assistance. The Department of Labor has two programs to assist dislocated workers, including steelworkers harmed by increased foreign imports. Title III of the Job Training Partnership Act (JTPA) provides funds to states and local grantees to support:
On-site assistance when major layoffs are announced ("rapid response");
Readjustment services such as skill assessment and job search assistance;
Retraining in demand occupations; and Support services such as child care and income support that allow workers to participate in training.
Workers whose jobs are lost to an important degree as a result of increased imports are eligible for the Trade Adjustment Assistance (TAA) program. TAA provides an array of benefits and services, including up to 104 weeks of approved training; job search and relocation allowances; and "trade readjustment allowances" (income support) while in training following exhaustion of Unemployment Insurance. (Workers who are subject to recall by their former employers may qualify for 26 weeks of trade readjustment allowances, even without entering training, after their UI has been exhausted.)
Since October 1, 1997, the Department of Labor has received petitions seeking TAA certification from workers in 33 steel and steel products plants. DOL has certified 21 of the 33 petitions, covering approximately 4100 workers. DOL is still reviewing the remaining 12 petitions (all of which were received in the last three months), which cover approximately 1800 workers.
The Department of Commerce's Economic Development Administration (EDA) is the major source of assistance for communities hurt by steel imports. In its FY1999 budget, the Administration requested $50 million for a new EDA. Office of Community and Economic Adjustment, specifically to assist communities harmed by foreign competition. Although Congress did not approve the new office, it did provide the additional $50 million for economic assistance. Those funds are now available for, among others, communities harmed by increased steel imports, and EDA is actively working with several steel communities to help them speed their economic recovery.
Under its Economic Development Assistance Program, EDA can provide: 1) planning/strategy and technical assistance grants, to help communities develop and implement an economic adjustment strategy; 2) Revolving Loan Funds (RLFs), to help support small business start-up or expansion activities; and 3) grants for physical infrastructure improvements, including development of a business incubator or industrial park. EDA can respond to an application for a strategy grant in as little as 2-4 weeks. And through its 12 regional Trade Adjustment Assistance Centers, EDA can provide technical and consultant assistance to small firms affected by foreign competition (e.g., supplier firms to a large steel plant).