Steel Quotas Fail to Stem Imports
More than nine months after the Reagan Administration’s steel import quotas went into effect, foreign steel today is still flooding into the United States at levels far exceeding the quota ceiling, and industry analysts are predicting that imports will remain above the government’s limits throughout 1985.
Top domestic steel industry officials acknowledge that the Reagan program, established last October in response to 1984’s record import levels, will not meet its objective of reducing foreign steel’s share of the U.S. market to 18.5% this year. Nonetheless, many industry leaders are continuing to publicly support the quota program, apparently because they believe that even flawed restraints are better than none at all and also because they hope that the Reagan program will show better results by year’s end.
At the same time, however, they are starting to concede privately that the 18.5% annual limit for each of the remaining four years of the Reagan program may never be reached unless the program is revamped to provide the U.S. industry with more comprehensive trade protection.
Huge Gaps in Coverage
Huge gaps in the program’s coverage--such as the absence of quotas on steel from Canada and a number of smaller steel-producing nations--is making it possible for steel customers here to shop around for cheap foreign steel not covered by the Reagan program, according to industry and government officials. Coupled with what appears to be a growing problem with violations by importers of the complex web of steel accords, the holes in the program appear to be large enough for thousands of extra tons of steel to continue to pour through.
“My instinct is that we will always be above 18.5%,” says Robert B. Peabody, president of the American Iron & Steel Institute, the domestic steel industry’s trade organization.
The continuing import surge has left the domestic industry reeling this year, at a time when the nation’s steelmakers had hoped that the Reagan program would be giving them breathing room to start healing their wounds after years of intense battering from imports. Instead, almost all of the major steel companies posted big losses in the first quarter, and one of the weakest--Wheeling-Pittsburgh--was forced into bankruptcy proceedings in April. Steel industry analysts, who had earlier predicted the domestic industry would return to profitability this year thanks to the Reagan program, now don’t believe the quotas will help improve the industry’s financial health until at least the fourth quarter. “It’s too late for the program to be of much help for third-quarter earnings,” says Charles Bradford, steel industry analyst with Merrill Lynch.
Big Market Share
In fact, there has been little evidence so far that the program is having much success in blunting the import tide. Through the first four months of 1985, imports of finished steel products still accounted for 26.5% of the domestic finished steel market, a fraction higher than 1984’s record share of 26.4%. Imports even posted one of their highest market shares for any month on record last December--31.2%--two months after the quota program took effect.
“We haven’t seen much effect from the quotas on the West Coast yet,” notes Joe Crider, executive vice president of Reliance Steel & Aluminum, a Los Angeles-based steel distributor. “Time will tell if it gets down to the 18.5% level, but it hasn’t happened yet.”
Since the December peak, imports have begun a slow decline, leading many steel executives to declare their willingness to give the Reagan program more time to take hold. They note that there is also a long lag in the government’s reporting of import statistics, and argue that much of the steel listed as having landed in American ports during early 1985 actually came in before the quotas began. As a result, they say the final year-end figures for 1985 will more closely conform with the limits imposed by the quota program.
“The Reagan Administration is entitled to have until the end of the year” before the industry once again presses for a tougher policy on imports, says Bruce E. Davis, manager for external affairs for Bethlehem Steel.
Hesitate to Complain
Privately, industry officials add that they have so far refrained from loud complaints about the Reagan program because they don’t want to appear ungrateful to an Administration that has at least tried to provide them with more trade protection than any in recent history.
“This is the first time in a long time that the government has been on our side, so we don’t want to speak out too critically,” said one top industry official who asked not to be identified.
But the market share for imports of finished steel has yet to dip below 23% for any month this year, and analysts warn that it won’t drop much more before the end of 1985.
“Imports definitely will come in over the 18.5% limit,” says Walter Carter, a steel analyst with Data Resources, which is providing the federal government with steel market forecasts for use in monitoring the quota program. Carter believes imports will capture 21% of the U.S. market for finished steel products this year, and he doesn’t expect the import share to drop below that level during any of the following quota years. Data Resources is also projecting that the combined import share for both finished and semifinished steel will hit 23.2% this year, exceeding the government’s 20.2% ceiling for those products.
Congressional leaders from steel-producing states are becoming increasingly alarmed by such import numbers and, unlike industry executives, are beginning to protest to the Administration. In a letter to President Reagan released in late May, Sen. John Heinz (R.-Pa.), chairman of the Senate steel caucus, wrote that “our experience in the last few months suggests the program is not working as effectively as had been hoped. Imports have increased in terms of both actual tonnage and market share in the first quarter of 1985 compared to the same period of 1984.”
Denies There Was Goal
In response, Administration officials now claim that an 18.5% market share for imports is not the goal of the Reagan program, despite the fact that the White House said last fall that the quotas were designed to do just that. “We have never promised we would get to 18.5%, only that we would stop unfair trade in steel,” insists Desiree Tucker, spokeswoman for the U.S. Trade Representative’s Office. But Tucker’s comments seem to contradict a letter sent by President Reagan to a steel industry conference last month which reaffirmed that the Administration still expects imports to be cut to an 18.5% share “once the program is fully in place.”
Heinz and industry analysts agree that the quota program is failing partly because it doesn’t cover all 59 of the countries that export steel to the United States--only 77% of the steel imported into the United States currently comes under restrictions agreed to by the Common Market countries and 11 other steel-producing nations.
But Canada, the third largest steel importer, is not covered, and other small steel-producing nations--such as Argentina, Taiwan, East Germany and even Trinidad and Tobago--are continuing unrestricted shipments to the United States, filling the void left by the quotas on the larger steel countries. U.S. officials say they plan to monitor import surges from countries that haven’t agreed to join the quota program, but no formal actions have been taken against those nations by the government yet.
In addition, at least a few of the countries that have agreed to the quotas are apparently violating the program. Some of the agreements with individual nations weren’t hammered out until this spring, and importers from those countries shipped vast amounts of steel into the United States for storage before the quotas took effect. Brazil, for instance, shipped about 50% more steel reinforcing bars in the first quarter than it was allowed for the entire year, according to estimates compiled by Bethlehem.
Hoping for Change
Heinz charges that importers are apparently trying to break open the quota program by selling high levels of steel early in the year, hoping that their American buyers will then pressure the Administration to ease the quotas for the remainder of the year once their limits have been reached.
The government has not yet attempted to send any excess steel back, but is promising that quota overruns will be deducted from each country’s allocations for future years, Tucker said. She added that Brazil has already been prohibited from shipping any more reinforcing bars to the United States this year, and that its overruns are being deducted from its 1986 allocations.
But more holes in the quota program keep sprouting. Not all of the steel products exported by the Common Market countries are restricted under the quotas, prompting European producers to ship more uncovered steel products to make up for their lost business on steel that is limited. (Concerned by the problem, U.S. officials are currently negotiating with the Common Market in an effort to expand and extend their steel pact.)
And while all of the agreements reached in the last few months were made retroactive to last October, any steel that left a foreign port before Oct. 1 was not covered (even if it arrived in the United States after that date), a loophole that has possibly been used by foreign producers to elude the quotas by backdating their steel shipments, some industry officials charge.
Imports Rerouted
Thousands of tons of foreign steel are also apparently being illegally transshipped through Canada to avoid American quotas. Since the United States doesn’t have an agreement with Canada, importers can place false Canadian labels on their steel and reship it to the United States while not counting it against their quota allocations, Davis and other industry executives allege. John Mangan, a senior trade attorney with U.S. Steel, says several federal grand juries around the country are quietly conducting investigations into such charges.
But the opening of big loopholes appears to be inevitable under any program that doesn’t apply equally to all steel products and all importers, industry officials agree. “The reality is that this isn’t going to be an 18.5% program, it is going to be a 22% or 23% program, because not everything or everyone is covered,” said a top industry official who asked not to be identified.
