Submitted By:-Aman Sawhney

Alika Koshy

Ribhu Vashishtha

Sanchita Kapoor

The US Steel Industry in 2004 :

Still in Need of Protection?

•US Steel Industry existing since 19th century.

•Greater stability to production and prices led to the consolidation of steel industry (between 1898 - 1900) and led to the formation of few large companies.

•Inefficiency of large companies led to formation of “The US Steel Corporation.

Early History

•Order to dissolve US Steel Corporation which was later taken back.

•Great Depression of 1930’s leading to breakdown of structure of uniform delivered

prices.

•Price Fixing Made legal(under NIRA- 1934).

•US enters World War II (1939 – 1945).

Early History

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1. Before World War 2, Open Hearth Furnaces (OHF) were in use. It took Several hours to produce the steel through OHF.

2. After World war 2, Basic Oxygen furnace (BOF) were in use.BOF use to complete the job in 45 minutes.Used by Integrated Steel mills

3. After BOF, Electric Arc Furnaces ( EAF)Mini Mills use EAF Method.

Technological Innovation

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Oligopolistic to Globally Competitive from 1960 to 1990

Earlier 4 players then increased to many

Cheap Import from many countries

Domestic competition

Overcapacity in Foreign countries

Financial Crisis in South East Asia and Russia results in dumping the Steel in US

Competition

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Started in early 2000s with an objective to achieve economies of scale

31% capacity shifted from small firms to large firms

Achieved cost savings rather than economies of scale

Industry Consolidation drive

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US President George W Bush in 2001 announced the Steel Program which consisted of 3 parts:

1. Eliminating Inefficient Excess CapacityI. Excess capacity one of the main reason for crisis in the industryII. Review of steel capacity worldwideIII. Plant closures and ‘capacity closure fund’

President’s Steel Program

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2. Eliminating Market Distorting Practices1. eliminate subsidy and govt. involvement in steel sectorII. agreement to eliminate trade-distorting practices

3. Section 201 Tariff Measures

I. investigation under USITC and it’s recommendations

II. Tariffs ranging from 8 to 30 % on imported steel products for 3 years

III. Anti-surge mechanism and import licensing system

IV. Tariffs to be removed if domestic industry does not improve its competitiveness

President’s Steel Program

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PROTECTIONISM

i. Tariff Measures.

ii. Safeguard the interest of the Steel producers in US.

iii. Legacy Cost’s.

iv. Because of Protection the Industry was able to regain its leadership position in quality and productivity and in 1991 experienced highest level of exports since 1970.

v. Unfair trade practices were being restricted like dumping (during financial crises in South East Asia and Russia)

PROTECTIONISM Vs FREE TRADE

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FREE TRADEi. Overproduction (Due to Subsidies) and

Demand.

ii. After the imposition of Section 201 , the steel industry was still struggling because foreign govt. were also subsidizing there steel industries.

iii. Before the govt. intervention in the matter in 1960’s , the average compensation in the industry was almost equal to the avg. compensation in other manufacturing sector.

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FREE TRADE (Cont….)iv. In 2000s , the average compensation

was more than 50% higher than that in the manufacturing sector because the steel industry was highly unionized and strong trade unions without any threat of foreign competition could negotiate for higher packages.

v. Due to technology advancement mini-mills with there effective production techniques increased competition.

vi. Section 201 forces user to pay more.

What the US industry needs; Protectionism or Free Trade???

•GLOBALISATION

•HEALTHY COMPETITION

•LESSER COST

As Herman Daly has rightly said “Under the new global economy, capital tends simply to flow to wherever costs are lowest—that is, to pursue absolute advantage”

Imposition Of Section 201 Tariff Measures by “The President” - United States

1. Fierce Opposition by Major Trading Partners* and the matter was raised with WTO.

2. In July 2003, WTO gave its ruling that Section 201 Tariff measures violated “International

Trade Rules”.3. As a result, the opposition** now could impose “Retaliatory Duties” on imports from

US.4. In Aug, 2003 US govt. appealed to WTO

Appellate Body.5. In Nov 2003, WTO gave its “definitive” ruling

and held their stance as in July 2003.

TRADE WARS

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After the “Definitive” ruling US President had few options in hand.

1. Drop Tariffs .. (Domestic Steel Industry will turn hostile)

2. Defy WTO .. (Retaliation from EU)3. To find a mid-way* to pacify-

a) Domestic Steel Industryb) Foreign Steel exporters

TRADE WARS – Continued …

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1. The implementation of section 201 tariffs were defended as –

a. To revive steel industry.b. To protect the workers* and

communities dependent on steel industry for their livelihood.

2. In Dec 2003 The President lifted the Tariff, thus avoiding a Trade War with EU.

3. The decision was met with wide domestic criticism.

Section 201 Tariff Measures Lifted

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1. The US Steel industry faces considerable domestic and international challenges.

2. Raw material cost is increasing and US trade laws continue to be under “Global Attack”.

3. To remain competitive, the industry will have to invest in new facilities and technologies.

4. The challenge before the industry is to attract capital which seems difficult because the industry is experiencing –

I. Low Rates of profitII. BankruptcyIII. High CostsIV. Global overcapacityV. Slowly growing product market

FUTURE OUTLOOK

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Though it is difficult to predict the future course of US Steel Industry, but it seems,

Employment in the industry is likely to fall in US.

The importance of US Steel in the US economy will further decline.

FUTURE OUTLOOK-CONTINUED …

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