Steel: Key Issues for Congress

Steel: Key Issues for Congress

Order Code RS21152
Updated October 7, 2002
CRS Report for Congress
Received through the CRS Web
Steel: Key Issues for Congress
Stephen Cooney
Industry Analyst
Resources, Science, and Industry Division
Summary
This report reviews steel industry issues facing Congress, including:
! President Bush’s Section 201 steel trade case decision;
! The international response;
! Legacy costs and industry consolidation;
! Legislative proposals concerning the steel industry.
For more detail, see CRS Report RL31107, Steel Industry and Trade Issues, CRS
Report RL31279, Steel: Legacy Cost Issue, and CRS Report RL31474, Steel and the
WTO: Summary and Timelines of Pending Proceedings Involving the United States.
The Section 201 Trade Case
Presidential Request. To address the question of imports, and in response to
many requests from Congress, union representatives and steel companies, President Bush
on June 5, 2001, announced that his Administration would call upon the U.S.
International Trade Commission (ITC) to begin an investigation under Section 201 of
U.S. trade law. He also announced that he would seek multilateral negotiations with U.S.
trading partners on fundamental issues of overcapacity and subsidies.1 On March 5, 2002,
at the end of the Section 201 process, the President announced a series of temporary trade
relief measures to safeguard the U.S. steel industry against injury from imports.2
1 President George W. Bush. Statement by the President Regarding a Multilateral Initiative on
Steel. (June 5, 2001), [http://www.whitehouse.gov/news/releases/2001/06/20010605-4.html].
2 President George W. Bush. To Facilitate Positive Adjustment to Competition from Imports of
Certain Steel Products, Message to Congress, March 5, 2002, (House Doc. 107-185). The ITC
case number was TA-201-73. The Section 201 process is described in CRS Trade Briefing Book
entry, “Section 201 of the Trade Act of 1974,” by Jeanne J. Grimmett
([http://www.congress.gov/brbk/html/ebtra68.html]).
Congressional Research Service ˜ The Library of Congress

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The Bush Administration request was on a broad basis, covering more than 500 tariff
line items, grouped by an ITC staff report into 33 products and four broad groups:
! carbon and alloy flat products, including semi-finished steel slabs, but not
upstream inputs, such as iron ore, pig iron and coke;
! carbon and alloy long products;
! carbon and alloy pipe and tube products; and
! stainless and tool steel products.
Injury Phase. The ITC must find that imports are a “substantial” cause of serious
injury (i.e., “important and not less than any other cause”) in order to propose relief under
Section 201. On October 22, 2001, the ITC determined that in 16 cases imports were a
substantial cause of injury to the domestic industry, which covered three-quarters of all
U.S. steel imports. In the other 17 product categories, the ITC found no substantial injury
from imports, and dismissed them from further consideration. These products included
stainless and carbon steel wire, rope and nails, and oil country tubular goods.
Remedy Phase. The ITC conducted hearings on possible trade remedies in
November 2001. In general, the petitioners, representing especially U.S. integrated steel
mills, minimills, and the United Steelworkers union (USWA) asked for high levels of
protective tariffs, at the 40 to 50% level. Respondents, representing importers, mills that
use imported steel in various stages of processing, and steel-consuming industries, in
general preferred a solution based on quotas that would allow continued importation at
historic levels without assessment of additional tariff charges. The ITC remedy
recommendations were varied. All commissioners recommended relief for the maximum
period, four years, with the highest remedy tariff levels ranging from 20% to 40% for
semi-finished and most flat products. All of the six commissioners recommended a tariff-
rate quota for semi-finished steel slabs. On the lower volume, but higher cost, tubular,
stainless and tool steel products, the recommendations were generally for lower levels of
remedy tariff relief. One commissioner essentially abjured remedy tariffs altogether and
instead recommended import quotas across the board.3
Presidential Decision. Acting within the period prescribed by law, President
Bush announced trade remedies for all products on which the ITC had found substantial
injury, except for two specialty categories (tool steel and stainless steel flanges and
fittings). All remedies were of three years duration and were imposed as of March 20,
2002. The President will also impose a general import licensing and monitoring system.
! For the high-volume flat, bar and tin mill products, the President imposed
a remedy tariff of 30% for the first year, reduced to 24% in the second
year and 18% in the third year.
! For semi-finished steel slabs the President established the same levels of
tariff remedy, with a quota of 5.4 million tons, on which no remedy
tariffs will be applied.
! For other products, the President set the following levels of remedy tariff
protection: for rebar, welded tubular steel, stainless rod and stainless bar,
3 The commissioners’ injury determinations and remedy recommendations, plus background
material for the hearings are compiled in U.S. International Trade Commission. Steel:
Investigation No. TA-201-73, Publication 3479 (December, 2001), 3 volumes.

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the remedy tariff is 15% for the first year, then declines by 3% per year;
for carbon and alloy steel flanges and fittings the remedy relief is 13% in
the first year, then declines by 3% per year; and for stainless steel wire
the remedy relief is 8%, declining by 1% per year for the subsequent two
years.4
Exemptions and Exclusions. Imports from free trade partners are excluded
from the presidential order, meaning Canada and Mexico (significant exporters of steel
products to the U.S. market), as well as Israel and Jordan. Semi-finished slabs from
Mexico (a major supplier) are excluded from the tariff-rate quota, accordingly reduced
from the level recommended by the ITC.5 Also exempted are imports from developing
countries that are World Trade Organization (WTO) members and eligible for tariff-free
treatment under the Generalized System of Preferences. Exceptions to this exemption are
when developing country products are significant shares of U.S. imports. China, Russia
and the Ukraine are not included in the developing country exemption.6 A wide range of
specific products were also excluded on a case-by-case basis, particularly when it was
argued that domestically produced substitutes are not available. Final decisions on
exclusions were made by August 22, 2002, with 727 product requests granted, as listed
in the Annex to the presidential proclamation and in supplemental lists.7 Adjustments to
exemptions and exclusions under the safeguard tariffs will be reviewed annually. In
hearings before the House Small Business Committee, many witnesses argued that these
exclusions have been inadequate to prevent damage to steel-consuming businesses from
higher steel costs and reduced availability.8
An opponent of Section 201 remedy tariffs, Representative William Jefferson,
introduced a resolution of disapproval, H.J.Res. 84, as provided under the 1974 Trade
Act. The resolution would substitute for the presidential determination the lower tariff
levels that represented the official recommendation of the ITC. On April 24, the House
Ways and Means Committee voted to report H.J.Res. 84 unfavorably and on May 8, 2002,
it was tabled in two procedural votes on the House floor.9
International Reaction and Response
The Section 201 case is but one prong of the Bush Administration global steel
policy. The Administration has also initiated international negotiations on global capacity
4 President Bush. Report under Section 203 (b) (1), pp. 2-4, and Section 201 Steel Remedies List,
also at [http://www.ustr.gov].
5 President Bush. Report under Section 203 (b) (1), p. 4.
6 See list, Developing Countries Excluded/Not Excluded from Remedy at [http://www.ustr.gov].
7 See Annex in H. Doc. 107-185 and lists at the USTR website.
8 American Metal Markets (AMM), July 24, 27 and Sept. 26, 2002. DER, “Commerce Official
Rebuffs Call to End Steel Tariffs; Leverage Cited,” (September 26, 2002).
9 BNA. Daily Report for Executives (DER), “Rep. Jefferson Announces Challenge to Bush
Decision to Impose Tariffs on Steel” (Mar. 8, 2002), “Key House Panel Backs White House
Decision to Impose Steel Safeguards Up to 30 Percent” (Apr. 25, 2002), and “House Crushes
Move to Overturn Controversial Safeguard Steel Tariffs” (May 9, 2002).

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reduction and improved trade discipline in the steel industry. The President’s Section 201
remedy decision has led to concern among U.S. trading partners and WTO challenges.
The European Union (EU) has reacted most aggressively so far. It filed the first case
under WTO dispute settlement rules. Its case has been combined with those of seven
other members (China, Japan, New Zealand, Norway, Korea , Switzerland and Brazil).10
The European Commission also stated that it could impose retaliatory tariffs before any
WTO ruling on the U.S. Section 201 actions, but withdrew this threat after September 30,
following completion of the U.S. product exclusion reviews.11 The EU has also
announced its own safeguards against diversion of steel from the United States. Canada
has supported the U.S. Section 201 policy, although it is considering safeguards against
any diversion of steel from the U.S. market.12 Mexico has also set a safeguard tariff on
non-NAFTA steel imports.13
Meanwhile, multilateral discussions in the steel committee of the Organization for
Economic Cooperation and Development (OECD) have produced promised global
capacity reductions of about 120 million metric tons (MT) by 2005, including roughly
equal U.S. and EU projections of 15-20 million MT of reductions. The U.S. government
has proposed a plan to end distortions in the world steel market.14
Legacy Costs and Steel Industry Consolidation
Legacy costs may be defined as pension and health care provisions of steel worker
contracts that are funded by earnings of steel companies. These benefits were negotiated
at unionized integrated steel companies to encourage workers to accept downsizing and
productivity improvements necessary to keep these companies competitive. Now many
of these companies are in bankruptcy and facing liquidation, leaving retirees facing loss
of benefits. A number of legislative proposals have been made to address this issue; a
major question is whether responsibility for benefits deals negotiated by private parties
should be transferred to the U.S. government.
The USWA calculates that total unfunded liabilities may be $13 billion and USWA
president Leo Gerard estimated the number of affected retirees at 600,000 in a letter to
10 DER, “U.S. Agrees with Complainants on Way to Approach Steel Tariffs Dispute Panels,”
(July 23, 2002).
11 European Commission press release, “Last Minute U.S. Steel Concessions Persuade EU to
Hold Fire on Sanctions” (July 19, 2002); DER, “EU Ministers Expected to Endorse Delaying
Retaliation Against U.S. for Steel Safeguards,” (Sept. 27, 2002); Financial Times, Sept. 26, 2002;
New York Times, Sept. 26, 2002; AMM, Sept. 27, 2002.
12 Canada Dept. of Foreign Affairs and International Trade, press release (Mar. 5, 2002); AMM,
July 8, 2002 (print ed.).
13 AMM, September 27, 2002.
14 OECD press statement, “High-Level Meeting on Steel, 18-19 April 2002.” DER, “U.S. Will
Propose Ending Subsidies to Steel Sector at OECD Meeting Sept. 12-13,” (Sept. 10, 2002), also
provides a source for the text of the U.S. proposal, and “OECD Talks Continue Without
Breakthrough,” Sept. 16, 2002; AMM ,Sept.16, 2002.

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Members of Congress dated January 15, 2002.15 They argue that the major integrated
companies are at a competitive disadvantage against many steel minimills, which do not
face legacy costs, or foreign manufacturers whose governments cover all steelworkers
through national health care plans.16 Retirees and active employees of a company
providing health care would have lost all coverage, if the employer ends the plan upon a
liquidation under Chapter 7 of the bankruptcy law, though now limited assistance is
provided under the expanded Trade Adjustment Assistance Act (TAA). Retiree health
coverage may still be subject to modification or termination in a bankruptcy
reorganization.17 The U.S. Steel Corporation, supported by the USWA, has proposed a
comprehensive plan for consolidating much of the integrated steel industry, but it would
require a resolution of the legacy cost problem through some form of government
involvement. The minimills have opposed direct legacy cost aid and support only a very
limited form of legacy cost relief, with no direct government payments or subsidies to
operating steel companies.18 The Bush Administration has not supported legacy cost
relief to industry, emphasizing that Members of Congress urged it to focus on Section 201
trade relief as its initial step.19
Legislative Proposals
Implementation of the 2000 Continued Dumping and Subsidy Offset
Act. Under this law antidumping duties are being distributed among successful
petitioners (“Byrd Amendment” in P.L. 106-387). More than $200 million has been
distributed so far, about half to steel companies. The law was challenged by 11 U.S.
trading partners in the WTO. The WTO dispute settlement panel found this law
inconsistent with WTO rules and stated that it should be repealed. Distribution of
antidumping duties to petitioners will continue pending a U.S. appeal.20
Amendment of the Emergency Steel Loan Guarantee Program (P.L.
106-51). It was passed in 1999, but only one company has been able to use a guarantee
15 USWA sources include: Domestic Steelmakers, Retiree Health Insurance Costs, 1999. The
Crisis in American Steel, May 22, 2001. Major integrated steelmakers included U. S. Steel,
Bethlehem Steel, LTV Steel, AK Steel, National Steel, Ispat Inland and Wheeling-Pittsburgh.
The latest estimate is quoted in a New York Times article of December 5, 2001.
16 USWA. Domestic Steelmakers: Retiree Health Care Legacy Costs ( no date).
17 Health care and pension benefits for employees and retirees of a company that has entered
Chapter 7 or Chapter 11 bankruptcy proceedings are discussed by Robin Jeweler, CRS Report
RL30641, Employment Benefits in Bankruptcy; see especially pp. 6-7 on retiree health care
issues. For recent changes to TAA that address this situation, see below.
18 “U.S. Steel Developing Plan for Significant Consolidation in Domestic Integrated Steel
Industry,” USX press release (Dec. 4, 2001). Identical press releases of Nucor and U.S. Steel,
January 15, 2002; see also New York Times, Dec. 5, 2001; DER, “Steel Industry Heads Announce
Plan for Steel Industry Recovery,” Jan. 16, 2002; Steel Manufacturers Association, “Steel
Industry Statement on Sections 201-203 Trade Remedy” (Feb. 8, 2002); DER, “Steelworkers’
President Says Health Care Is Next Step for Protecting Industry Workers” (Mar. 7, 2002).
19 Press Briefing by U.S. Trade Representative Robert Zoellick (March 5, 2002).
20 DER, “WTO Issues Final Ruling Condemning Byrd Amendment,” (Sept. 4, 2002) and “U.S.
Must Repeal Byrd Amendment, WTO Concludes in Official Report,” (Sept. 17, 2002).

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to obtain a loan. An amendment to the FY 2002 Interior appropriations law (P.L. 107-63)
made conditions easier for obtaining loan guarantees, primarily by extending the
repayment deadline to 2015. In view of LTV’s failure to obtain a loan guarantee and its
subsequent liquidation, legislation has been introduced in the 107th Congress to ease these
conditions further (H.R. 3428 and S. 1884/H.R. 3559).
Steel Revitalization Act (H.R. 808/S.957). This comprehensive relief bill
includes mandatory five-year import or other trade restraints, a steel sales tax to pay for
industry legacy costs, and other industry relief measures. The bill has gained 228 House
co-sponsors and a discharge petition has gained 123 signatures out of the 218 required to
bring the bill to the House floor. President Bush’s Section 201 remedies appear to have
rendered the trade provisions of this bill moot.
Steel Industry Legacy Cost Bills (S. 2189, H.R. 4574, H.R. 4646). Sens.
Rockefeller and Specter introduced a Senate bill in April 2002. It would provide federal
health care coverage for steel industry retirees who lose their private coverage through an
industry bankruptcy. It would also encourage industry consolidation by allowing acquiring
steel companies to shift responsibility for acquired companies’ retirees to the new federal
program. The program would be financed by Section 201 duties, current health care
assets and premiums, a $5 per ton tax on assets of acquired operations, and further
appropriations as necessary. Sen. Stevens attempted to add a version of this bill to the
Senate energy package, with funding also from Alaska oil royalties, but was defeated in
a floor cloture vote. House bills with similar goals and approaches to S. 2189 are H.R.
4574 and H.R. 4646. A subcommittee of the House Energy and Commerce Committee
heard industry and labor representatives on September 10 urge action on H.R. 4646.21
Trade Adjustment Assistance Act (TAA) Reauthorization. TAA provides
assistance to workers who have lost their jobs because of competition from imports. TAA
reform provisions were added in the Senate to the bill granting President Bush trade
promotion authority (H.R. 3009), but an effort on the floor to include health care coverage
for retired steelworkers was not successful on May 21, 2002. However, a limited health
care benefit for all retirees was added to the final trade package as approved by Congress
and signed into law by President Bush on August 6, 2002. Retirees who are not eligible
for Medicare will be eligible for a tax credit covering 65% of the cost of participation in
a qualified health care plan, if their company’s pension plan has been liquidated and they
receive a pension from the Pension Benefit Guarantee Corporation.22
21 Ibid. “Government Funding of Steel Retiree ‘Legacy Costs’ Debated by Lawmakers,” (Sept.
11, 2002).
22 Ibid., “Trade Adjustment Assistance Measure Includes 70 Percent Health Care Subsidy” (May
10, 2002) and “Measure Cleared for Bush to Provide Health Care to Workers Displaced by
Trade,” (Aug. 2, 2002); Congressional Record (May 21, 2002) S4581-91; Inside U.S. Trade,
“Steel TPA Amendment Fails on Procedure, Withdrawn by Sponsors” (May 21, 2002). See P.L.
107-210, Sec. 201 and H. Rept. 107-518, p. 2.