FREE ESSAY ON DUMPING OF STEEL

DUMPING OF STEEL

INTRODUCTION
Foreign steel producers plague the U.S. steel industry with unfair competitive practices.
This practice is referred to as dumping. Dumping of foreign steel has been a problem
throughout the history of the U.S. steel industry. In the 1990s dumping has become more
of a problem, due to the breakdown of the Russian economy and its transition from
Capitalism to a free-market economy. According to Microsoft Encarta 98 (1998),
Free-Market Economy, is an economic system in which individuals, rather than government,
make the majority of decisions regarding economic activities and transactions. In
addition, the Asian financial crisis has led to another round of dumping into the U.S.
markets by many Asian countries.
The effects of dumping have a positive as well as a negative impact on the health of the
overall U.S. economy. On the positive side, steel-using industries enjoy lower prices for
steel used in the manufacture of their products. Turning to the negative side, the U.S.
steel industry has suffered tremendously through layoffs and a collapse of a number of
steel makers. 
Should the U.S. Government provide protection against dumping? The debate on
protectionism has gone on for years. Protection of one industry by the U.S. Government
has come at the cost of another including the U.S. consumer.
BREIF HISTORY OF THE STEEL INDUSTRY
The steel industry grew out of the need for stronger and more easily produced metals.
During the last half of the 19th century, many technological advances in steelmaking
played an important role in creating modern economies. These economies depended on the
steel industry to supply rails, autos, girders, bridges, and many other steel products.
Iron making can be traced as far back as 3,500 b.c. in Armenia. The Bessemer process,
created independently by Henry Bessemer in England and William Kelly in the United States
during the 1850s, allowed the mass production of low-cost steel; the open hearth process,
first introduced in the United States in 1888, made it easier to use domestic iron ores.
By the 1880s, the growing demand for steel rails made the United States the world's
largest producer. The open-hearth process dominated the steel industry between 1910 and
1960, when it converted to the oxygen process, which produces steel faster, and the
electric furnace process, which makes it easier to produce alloys such as stainless
steel. After World War II, the U.S. steel industry faced increased competition from
Japanese and European producers, who rebuilt and modernized their industries. Later, many
Third World countries such as Brazil built their own steel industries and large U.S.
steelmakers faced increased competition from smaller, nonunion mills. The U.S. produced
about
half of the world's steel in 1945; by 1991 it was the third largest producer, with only
11% of the world market, behind the former Soviet Union and Japan. Since the 1970s,
growing competition and the increasing availability of alternative materials, such as
plastic, slowed steel industry growth; employment in the United States steel industry
dropped from 2.5 million in 1974 to 1.6 million in 1991. Global production stood at 736
million tons in1991, down from 786million tons in 1988 (The Columbia Encyclopedia,
1993).
DUMPING
Columbia Encyclopedia, (1993) defined dumping as the selling of goods at less than normal
price, usually as exports in international trade. It may be done by a producer, a group
of producers, or a nation. However, dumping is usually done to drive competitors off the
market and secure a monopoly, and/or to hinder foreign competition. Nations, in an effort
to counterbalance international dumping, often resorted to flexible tariffs.
International trade through acute competition from foreign producers often leads to
dumping infractions of law. A policy regarding dumping, depends on its effectiveness in
maintaining separate domestic and foreign markets, the monopolistic mechanism that
influences the stability of high prices in the home market, on export bounties, or on low
import duties in the foreign market help maintain economic balance. Dumping disturbs
those markets that receive dumped goods and it may drive local producers out of business.
Governments may condone, even sponsor, dumping in other markets for political reasons
and/or to achieve more favorable balance of payments. In the late 19th century, dumping
became part of the trade policy of great European cartels, especially German cartels.
Britain, France, Japan, and the United States have also practiced dumping. Canada first
passed antidumping legislation in 1904. The United States in an effort to discourage
dumping, imposed various tariff acts that dealt with different types of dumping; in
particular the Emergency Tariff Act of 1921, imposed special duties on goods imported for
sale at less than their fair value or cost of production. It was amended by the Customs
Simplification Act of 1954. The General Agreement on Tariffs and Trade (GATT) prohibits
dumping and provides for increased import duties to combat the practice (Columbia
Encyclopedia, 1993).
DUMPING IN THE 1990s
The dumping of steel products into the U.S. market has been going on throughout history.
Nevertheless, it has become more prevalent during the 1990s. According To Robert J.Grow
(1998), the first major shock of the 1990s came from the near total collapse of steel
plate demand in the former Soviet Union and a concomitant surge in exports to the U.S.
Fortunately, U.S. producers successfully challenged the dumping of plate into the U.S.
market with trade cases filed in Nov. 1996. After findings of massive dumping margins and
affirmative determinations of injury, the governments of Russia, Ukraine, and China
reached suspension agreements that will reduce imports from these countries by 70 percent
from 1996 levels of over 1 million tons. These countries essentially had not shipped to
the U.S. market before 1993.
The entire U.S. steel industry is attempting to overcome the second major shock of the
1990s the Asian financial crisis. The Asian financial crisis has meant collapsing
currencies for many Asian countries, International Monetary Fund (IMF) bailouts for
several of these countries, soaring domestic interest rates, bankruptcy filings, and
significantly reduced home-market demand in Asian countries (Grow, 1998). This crisis has
forced many Asian countries to resort to dumping steel on the U.S. market due to low
demand at home.
THE CAUSE
For years, the Asian model involved government-directed lending within a closed financial
system to favored companies and industries in export-targeted sectors like steel despite
the creditworthiness of the enterprises receiving the financing. Long-term capital
expenditures were financed with short-term debt, and increased capacity was used to fuel
higher exports and increases in the standards of living for workers. Workers in Korea
were granted lifetime employment. Profits or the lack thereof, was not important;
instead, market share and increased exports were emphasized. When the poster child of
these Asian financial abuses, Hanbo Steel, filed for bankruptcy in Jan. 1997, the
dominoes began to fall. Incredibly, at the time of the bankruptcy, Hanbo had received
$5.8 billion in loans, led by the Korean-government-owned Korea Development Bank. Since
the bankruptcy, Hanbo has been managed by Pohang Iron and Steel, now the world's largest
steel producer and still 36-percent-owned and controlled by the Korean government (Grow,
1998).
Because of the lack of demand for steel products in many Asian countries coupled with
subsidized over capacity the U.S. has witnessed an inflow of steel products into the
country. Korea has exported record numbers of steel pipe to the U.S. Also, increased
exports of plate from Korea and Indonesia, and increased imports of hot-rolled sheet from
Japan, among other countries in the region. According to American Metal Market (1999),
By June of 1999, the list of countries allegedly dumping steel has grown to include
Argentina (28 percent), Brazil (32 percent to 63 percent), China (27 percent), 
Japan (49 percent to 53 percent), Russia (76 percent to 100 percent), South Africa
(17 percent), Slovakia (35 percent to 44 percent), Taiwan (38 percent to 59 
percent), Thailand (94 percent to 122 percent), Turkey (33 percent and Venezuela 
(25 percent to 56 percent). Cold-rolled imports from these countries totaled 
2,283,710 tons in 1998, accounting for 13.7 percent of the total U.S. domestic 
market and 63.2 percent of all cold-rolled imports.
THE EFFECTS
The dumping of foreign steel into the U.S. market can have a positive effect on the
economy; However, dumping can effect the economy in a negative way as well. 
First lets look at the positive effects dumping has on the economy. The dumping of steel
by foreign countries has caused the price of commodity grade sheet steel to drop to as
little as $220 a ton, down from around $300 a ton. The lower prices due to steel imports
have been a boon to steel-using industries, from carmakers to lawnmower manufacturers.
Companies are always looking for ways to cut costs and increase their total profit.
Companies that use steel in the manufacture of their products will benefit from the use
of substitutes that the foreign steel companies provide through lower priced steel. This
will allow the steel-using industries to hold the line on price increases of their
products, allowing the American consumer to benefit from lower prices due to dumping. In
1998, the demand for steel was so great that domestic producer's were themselves taking
advantage of cheap foreign produced steel. A number of domestic steel producers were
buying cheap slabs from foreign producers to run through their mills. Domestic producers
found that it was cheaper to buy slabs from foreign mills than to make the slabs
themselves (Robertson, 1998). 
For the U.S. steel industry, the negative effects of dumping out-weigh any positive
effects. Demand for steel in the U.S. has been perfectly inelastic for much of the 1990s
meaning that whatever the steel makers could produce the market would absorb no matter
what the price. If demand is inelastic, a price rise leads to an increase in total
revenue, and a price fall leads to a decrease in total revenue (Arnold, 1998). Dumping
leads to lower prices, although demand is the same, total revenue decreases. Since 1997,
The U.S. steel manufacturing industry has been suffering from the record level of steel
imports that have been flooding the country. The situation has caused the collapse of a
number of steelmakers, a reduction in operating levels and the layoff of thousands of
workers. Before 1998, the peak level of U.S. steel imports was 27 million tons. Steel
imports, in 1998 reached an all-time high of 41.5 million tons, a 54-percent increase
over the previous record level (Garvey, 1999). U.S. Steel producers blame more than
10,000 layoffs in late 1998 and the bankruptcies of three steel companies in 1999 on the
surge in steel imports.
PROTECTION
The illegal dumping of foreign steel products in the U.S. is depressing the
steel-manufacturing sector in the U.S. America's steel industry wants special protection
from falling prices in the global marketplace. Should this come at the expense of our
nation's overall economic health?
U.S. steelmakers and their unions have banded together and petitioned for protection
against illegally dumped foreign steel. This campaign Stand Up For Steel has worked by
putting the pressure on politicians in Washington to do something. Doing something,
particularly when it comes to a political heavy hitter like steel means relying on
anti-dumping statutes. Anti-dumping laws, which penalize companies for selling their
products for less than production cost, have been a useful cover from global competition
for the steel industry: one out of three anti-dumping actions in the past 20 years was
directed at imported steel (Morrissey, 1999). The U.S. anti-dumping law is stacked in
favor of domestic producers, virtually guaranteeing that a dumping margin will be found.
The Commerce Department upholds more than 95 percent of all dumping charges. In addition,
U.S. law punishes foreign producers for engaging in practices that are legal, and common,
in the domestic U.S. economy, where struggling companies often sell at a loss to clear
inventory and cover fixed costs (Griswold, 1998).
In March of 1999, the House of Representatives voted overwhelmingly, (289-141), to slap
quotas on dumped steel imports. The quota bill would cost the private sector almost $900
million over the next three years, according to a Congressional Budget Office report
(Morrissey, 1999). The quota bill would drive up domestic steel prices; this would be a
boon to the relatively small steel-producing sector but a burden to far larger
steel-using industries. Higher steel prices will drive up costs and depress sales and
employment in steel-using sectors such as automobiles, construction, home appliances and
food packaging. For Example, the average five-passenger sedan contains $700 worth of
steel, a fact that has prompted General Motors to file a brief this fall with the U.S.
International Trade Commission urging caution about steel dumping duties. Caterpillar
Inc., a major exporter of construction equipment, buys 600,000 tons of steel a year.
General Electric uses 750,000 tons a year in home appliances and a range of other
products. Overall, the major steel-consuming sectors of the U.S. economy transportation
equipment, fabricated metal products, and industrial machinery and equipment employ 3.4
million production workers, compared to 175,000 employed by the basic steel industry
(Griswold, 1998, p.2).
For every steelworker whose job is made more secure by protection, nearly 20 workers in
steel-using industries will be made less secure (Griswold, 1998, p.2). Propping up steel
prices will cheer unions and stockholders of domestic steel, but will hurt far more
numerous Americans who buy and make steel products. Most steel companies posted profits
in late 1998 and all of 1999. Lower prices will potentially drive some of the less
efficient U.S. producers out of business, but the more efficient among them, will survive
and thrive, leaving the U.S. industry more competitive overall.
FUTURE OUTLOOK
The U.S. steel industry can look forward to a prosperous year 2000 and beyond. Kenneth
Hoffman, steel industry analyst with Prudential Securities, .New York, predicted
hot-rolled sheet prices would be in the range of $365 per ton to $400 per ton. Hoffman
also predicted prices for cold-rolled sheet would be in the range of $425 per ton to $465
per ton (up, from current prices of around $410 per ton) and galvanized sheet up to $525
per ton to $600 per ton from current prices of around $420 per ton. I think U.S. prices
will go nuts next year, Hoffman said. Asia right now is a boom or bust economy. It is the
U.S. of 100 years ago, and it will be significantly stronger next year. That strength
will help curb the high levels of imports that came from Asia to the U.S. in the second
half of 1998 and early 1999 (Robertson, 1999). This will cause less dumping into the U.S.
market, thereby allowing domestic steelmakers to raise their prices. Furthermore, supply
will decrease as demand rises. Thus increasing total revenue for most steel companies.
CONCLUSION
Dumping is a worldwide problem, the breakdown of the Russian economy and the Asian
financial crisis were problems during the 1990s. Finding ways to deal with dumping is one
of the major issues facing U.S. steel makers in the new millenium. Should the U.S.
Government protect the steel industry at the expense of the rest of the U.S. economy?
Furthermore, at the chance that foreign countries will retaliate due to punishment levied
against them because of dumping. As global expansion continues, U.S. steelmakers will
have to become more aggressive in finding ways to compete in the global marketplace. This
will have to be done through modernization of old mills and the use of new technologies
to make a better product at lower costs. Dumping will always be a threat to the U.S.
steel industry. Finding the way to fight it will be the big challenge facing the U.S.
steel industry in the 21st century.
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