Just Say No to Steel Tariffs

July 1, 2003
Three electrical manufacturer executives joined Tim Feldman, vice president of government affairs for the National Electrical Manufacturer's Association,

Three electrical manufacturer executives joined Tim Feldman, vice president of government affairs for the National Electrical Manufacturer's Association, Washington, D.C., to testify June 19 at the U.S. International Trade Commission (ITC) hearing on “Steel-Consuming Industries: Competitive Conditions with Respect to Steel Safeguard Measures.”

The executives gave accounts of how the Section 201 foreign steel tariffs, which were imposed last year, have increased the cost of manufacturing products and asked that the tariffs be terminated.

Here are excerpts from their testimonies. Full text is available on at www.nema.org.

Tim Feldman, NEMA vice president of government affairs: In a nutshell, NEMA strongly urges the U.S. Government to end its Section 201 foreign steel tariffs — tariffs that a World Trade Organization (WTO) panel has informed the Administration are inconsistent with U.S. commitments under the Agreement on Safeguards. Despite the many specific product exceptions granted since the safeguard measures were launched a year ago, we firmly believe that protectionist steel tariffs such as these do not help the domestic steel industry become more globally competitive, and are causing far more damage in consuming industries than benefit among domestic steel producers.

Tom Naramore, senior vice president, Acuity Brands Lighting Group, Conyers, Ga.: The lighting industry is under tremendous pricing pressure. Most of our products are sold through the commercial and industrial channels of the construction industry, and as such are subjected to quoting, bidding, and negotiating processes. These processes serve to continuously drive down pricing for lighting products. Over the last five years, our prices have eroded over 10 percent. Margins were already depressed prior to Section 201.

In our industry, profits before tax are single digit in a good year and even worse in a recession. Survival is about improving total operating cost in our plant operations, purchase materials, and fixed overhead fast enough to stay ahead of selling price erosion. We have taken aggressive measures to focus on this goal; however, Section 201 has presented a severe setback to lowering our total operating cost since we are unable to pass this cost on to our customers.

For lighting products, steel is the primary raw material, and the No. 2 purchased category overall. Steel comprises over 15 percent of the overall product cost.

We and our competitors have announced further plant closings; we have moved more production to Mexico and expanded our operations there. We and our competitors have put sourcing offices in China to source more finished products and materials there.

Brian Dundon, president and CEO, Advance Transformer Co., Rosemont, Ill.: Advance Transformer Co. urges a swift end to the Section 201 foreign steel tariffs. The tariffs have severely harmed Advance Transformer by causing severe disruptions in steel supplies, double-digit increases in steel prices, and substantial market share losses to our competitors, who manufacture nearly all of their products outside the United States.

Advance purchases 60,000 tons of steel annually, nearly all of which is purchased from multiple domestic steel producers. Advance typically negotiates annual contracts with these suppliers that cover a calendar year. The terms of the contracts set prices and expectations for quantities to be delivered and other performance standards.

Historically, throughout our 50-year history in the United States, this arrangement has been beneficial, and only rarely has any supplier missed a delivery date. All this changed dramatically beginning July 2002.

Two of our suppliers, including our largest, routinely missed scheduled deliveries of substantial quantities of steel. In some weeks, less than 70 percent of steel ordered was received. This disruption continued until the end of the year, when Advance began purchasing steel at the higher prices that went into effect in 2003.

I believe that the 201 Action created such a substantial increase in demand for domestic steel, that our suppliers could not meet it all. Rather than deliver steel to Advance at a price negotiated prior to the 201 Action, these manufacturers chose to sell to those who would pay the price commanded in a protected market.

In December last year, Advance closed its magnetic ballast assembly operations in Monroe, Wis., and moved production outside the country. Our parent company, Philips, is now building HID ballast manufacturing capability in China.

Our decision as to whether to move production to China is dependant upon whether we can purchase U.S. steel at global prices in the near future. A continuation of the 201 tariffs could have the perverse effect of driving our manufacturing overseas and our steel purchases to foreign suppliers.

John Stropki, executive vice president and chief operation officer, Lincoln Electric Holdings Inc., the parent company of The Lincoln Electric Co., Cleveland, Ohio: Lincoln Electric employs over 2,750 workers in the United States and has been the subject of two Harvard Business School case studies due to its innovative incentive management system and long-standing policy against layoffs. In fact, we have not experienced a layoff at our Cleveland facilities in over 60 years. We have accomplished this remarkable record competing against hundreds of global competitors who enjoy free and unabated access to our U.S. markets and customers. In addition to the United States, Lincoln Electric has manufacturing operations, manufacturing alliances and joint ventures in 19 foreign countries, and a sales and distribution network that serves more than 160 countries.

Lincoln Electric's welding products business involves the design, manufacture and distribution of arc welding equipment and consumable welding products. The company's welding products are used in a wide range of industrial applications.

Lincoln Electric purchases hot rolled and cold rolled sheets for our welder manufacturing operations in eight different country and I can attest to the fact that the prices we pay for hot rolled and cold rolled sheets in the United States are higher than the prices we pay or would pay for comparable quantities in any other location. As an example, we pay a price 10 percent higher in the United State for the like products than we pay in Canada or France, despite the fact we use 10 times the volumes in our U.S. operations.

I strongly recommend that the program be terminated since the costs resulting from the steel import relief program far outweigh the economic benefits to the U.S. steel industry.