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New Rules Needed to Solve Steel Crisis

Friday, September 9th, 2016

China is gorging itself on steelmaking. It is forging so much steel that the entire world doesn’t need that much steel.

Companies in the United States and Europe, and unions like mine, the United Steelworkers, have spent untold millions of dollars to secure tariffs on imports of this improperly government-subsidized steel. Still China won’t stop. Diplomats have elicited promises from Chinese officials that no new mills will be constructed. Still they are. Chinese federal officials have written repeated five-year plans in which new mills are banned. Yet they are built.

All of the dog-eared methods for dealing with this global crisis in steel have failed. So American steel executives and steelworkers and hundreds of thousands of other workers whose jobs depend on steel must hope that President Barack Obama used his private meeting with China’s President XI Jinping Saturday to press for a novel solution. Because on this Labor Day, 14,500 American steelworkers and approximately 91,000 workers whose jobs depend on steel are out of work because China won’t stop making too much steel.

A new report on the crisis, titled “Overcapacity in Steel, China’s Role in a Global Problem,” by the Duke University Center on Globalization, Governance & Competitiveness flatly concludes that existing policies to stop China from building excessive steel capacity have failed.

steel-overcapacity-table

Since 2007, China has added 552 million metric tons of steel capacity – an amount that is equivalent to seven times the total U.S. steel production in 2015. China did this while repeatedly promising to cut production. China did this while the United States actually did cut production, partly because China exported to the United States illegitimately subsidized, and therefore underpriced, steel.

That forced the closure or partial closure of U.S. mills, the layoffs of thousands of skilled American workers, the destruction of communities’ tax bases and the threat to national security as U.S. steelmaking capacity contracted.

Although China, the world’s largest net exporter of steel, knows it makes too much steel and has repeatedly pledged to cut back, it plans to add another 41 million metric tons of capacity by 2017, with mills that will provide 28 million metric tons already under construction.

None of this would make sense in a capitalist, market-driven system. But that’s not the system Chinese steel companies operate in. Chinese mills don’t have to make a profit. Many are small, inefficient and highly polluting. They receive massive subsidies from the federal and local governments in the form of low or no-interest loans, free land, cash grants, tax reductions and exemptions and preferential access to raw materials including below market prices.

That’s all fine if the steel is sold within China. But those subsidies violate international trade rules when the steel is exported.

These are the kinds of improper subsidies that enable American and European companies to get tariffs imposed. But securing those penalties requires companies and unions to pay millions to trade law experts and to provide proof that companies have lost profits and workers have lost jobs. So Americans must bleed both red and green before they might see limited relief.

The Duke report suggests that part of the problem is that market economies like those in the United States and Europe are dealing with a massive non-market economy like China and expecting the rules to be the same. They just aren’t.

Simply declaring that China is a market economy, which is what China wants, would weaken America’s and Europe’s ability to combat the problems of overcapacity. For example, the declaration would complicate securing tariffs, the tool American steel companies need to continue to compete when Chinese companies receive improper subsidies.

The Duke report authors recommend instead delaying action on China’s request for market economy status until China’s economic behavior is demonstrably consistent with market principles.

The authors of the Duke report also suggest international trade officials consider new tools for dealing with trade disputes because the old ones have proved futile in resolving the global conflict with China over its unrelenting overcapacity in steel, aluminum and other commodities.

For example, under the current regime, steel companies or unions must prove serious injury to receive relief. The report suggests: “changing the burden of proof upon a finding by the World Trade Organization (WTO) dispute settlement panel of a prohibited trade-related practice, or non-compliance with previous rulings by the WTO.”

It also proposes multilateral environmental agreements with strict pollution limits. Under these deals, companies in places like the United States and Europe that must comply with strong pollution standards would not be placed at an international disadvantage as a result, and the environment would benefit as well.

In addition to the family-supporting steelworker jobs across this country that would be saved by innovative intervention to solve this crisis, at stake as well are many other jobs and the quality of jobs.

The Congressional Steel Caucus wrote President Obama before he left last week on his trip to Hangzhou for the G-20 Summit asking that he secure the cooperation of China and pointing out the large number of downstream jobs that are dependent on steel.

Also last week, the Economic Policy Institute issued a report titled “Union Decline Lowers Wages of Nonunion Workers.” It explained that the ability of union workers to boost nonunion workers’ pay weakened as the percentage of private-sector workers in unions fell from about 33 percent in the 1950s to about 5 percent today.steel-overcapacity-table-2

The EPI researchers found that nonunion private sector men with a high school diploma or less education would receive weekly wages approximately 9 percent higher if union density had remained at 1979 levels. That’s an extra $3,172 a year.

Many steelworkers are union workers. If those jobs disappear, that would mean fewer family-supporting private sector union jobs. And that would mean an even weaker lift to everyone else’s wages.

America has always been innovative. Now it must innovate on trade rules to save its steel industry, its steel jobs and all those jobs that are dependent on steel jobs.

This post originally appeared on ourfuture.org on August 25, 2016. Reprinted with Permission.

Leo Gerard is the president of the United Steelworkers International union, part of the AFL-CIO. Gerard, the second Canadian to lead the union, started working at Inco’s nickel smelter in Sudbury, Ontario at age 18. For more information about Gerard, visit usw.org.

NYC Bridge and Tunnel Bosses Won’t Budge on Foreign Steel

Friday, October 4th, 2013

Bruce VailAn explosion of anger this summer from labor leaders and elected officials about a contract to import Chinese steel for bridge repairs in New York City has fizzled out in the face of stubborn insistence by local transportation officials that U.S-produced steel is just too expensive.

New York’s Metropolitan Transportation Authority (MTA), which is in charge of the project to repair the landmark Verrazano-Narrows Bridge, came into contention with the United Steel Workers when it revealed it was spending an estimated $34 million to buy specialized steel products from the China Railway Shanhaiguan Bridge Group and the Anshan Iron & Steel Group. USW President Leo Gerard went so far as to describe the decision as “anti-American.”  Despite the USW’s repeated calls to use U.S.-manufactured metal in the renovation project instead of 15,000 tons of Chinese steel, MTA officials have flatly rejected any proposed changes to their plan.

USW District 4 Director John Shinn tells Working In These Times that a top-level meeting with regional transport officials earlier this month was “disappointing.” Though there appeared to be some agreement that government agencies would try harder in the future to source steel procurement contracts in the United States, the New York meeting also revealed that a separate regional transportation agency—the Port Authority of New York & New Jersey—will proceed withits own contract with Italian steelmaker Cimolai to supply a project to upgrade the Bayonne Bridge, just a few short miles away from the Verrazano-Narrows span. Like the MTA, the Port Authority will not reconsider its plans to import foreign steel, Shinn says.

For their part, transportation officials are pushing back hard against the criticism from USW and its political allies like Sen. Charles E. Schumer (D-N.Y.) and Sen. Sherrod Brown (D-Ohio). MTA spokesperson Adam Lisberg told Working In These Times this summer that the agency went to “extraordinary lengths”  to recruit a U.S. steel manufacturer for the bridge job, but that higher prices and uncertain delivery schedules made an American purchase impossible. Likewise, Port Authority spokesperson Chris Valens said in an interview with Working In These Times that pricing and delivery issues had driven the agency in favor of the Italian manufacturer. Cimolai is a proven high-quality vendor to the Port Authority, Valens added, having provided steel for use in construction of the new rail-subway center built to replace the one destroyed in the 9/11 World Trade Center attack.

Both agencies also defended themselves by arguing that the vast majority of their construction spending benefits U.S. producers and employs unionized labor. The Verrazano-Narrows project, for example, will cost a total of $235 million (including all supples, labor and administration) and generate about one million man-hours of employment locally, most of which will be performed by unionized workers, according to Lisberg. Furthermore, the MTA is itself one of the region’s largest union employers, with about 55,000 of its 65,000 employees under union contract. Similarly, Valens maintained that the Bayonne Bridge importation of foreign steel was an exception to the Port Authority’s normal practices, and he said a planned $1.5 billion replacement of northern New Jersey’s Goethals Bridge will use all U.S.-manufactured metals.

But these rationalizations miss the point, Shinn insists. The U.S. steel industry can compete with foreign manufacturers in many respects if given an adequate opportunity, he says, and some transportation agencies are too anxious to exploit loopholes in existing “Buy American” laws and regulations. One rule, for example, allows the agency a cost waiver when the price of U.S. products exceeds similar foreign products by six percent, which Shinn says is too low. Further, a longer lead time for bidding on the Verrazano-Narrows steel contract could have allowed a U.S. producer to assemble a competitive bid, Shinn contends. And if government agencies like the MTA and the Port Authority repeatedly ignore the currency manipulation practices and subsidies of foreign governments that allow overseas companies the advantage in material pricing, then U.S steel will be permanently shut out of participation in the market to rebuild and improve U.S. transportation infrastructure, he says.

One positive aspect of the September meeting between USW and the New York-area transport bosses, Shinn adds, was the inclusion of representatives of the Alliance for American Manufacturing. A non-profit venture of the union and union-contracted manufacturing companies, the AAM will become involved in coordinating government agency contract procedures to ensure full participation and fair treatment of unionized American companies in the future, says Shinn.

AAM officials, however, remain skeptical that transportation authorities will actually allow such measures to be taken. “I’m pleased that AAM’s team opened a constructive dialogue with the MTA. However, after a major outsourcing event like the Verrazano-Narrows Bridge, it is natural that U.S. manufacturers and workers remain skeptical that this won’t be repeated in the future,” AAM President Scott Paul stated in an e-mail comment to Working In These Times.

“As we move forward from this missed opportunity to create American jobs, AAM will be stepping up its monitoring of major bridge and public works projects nationally. We’re pleased that MTA is willing to cooperate and support this effort. With the cooperation of MTA and other transportation officials, we know that these projects can be made here in America by domestic fabricators using U.S.-made steel and manufactured goods with American workers at the ready,” Paul added.

Shinn say that he, too, is wary of the promises of government officials. “I don’t think MTA did the due diligence they should have,” on the Verrazano-Narrows project, he says, and “we’ll just have to wait and see if they are serious” about a broader commitment to sourcing contracts in the United States. He continues, “They gave us credible promises, but the proof is going be what they actually do in practice.”

This article was originally printed on Working In These Times on October 1, 2013.  Reprinted with permission.

About the Author: Bruce Vail is a Baltimore-based freelance writer with decades of experience covering labor and business stories for newspapers, magazines and new media. He was a reporter for Bloomberg BNA’s Daily Labor Report, covering collective bargaining issues in a wide range of industries, and a maritime industry reporter and editor for the Journal of Commerce, serving both in the newspaper’s New York City headquarters and in the Washington, D.C. bureau.

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