U.S. Steel Firms Fear Lifting of Trade Shield : Industry: A GATT agreement, which guarantees 80% of the American market to U.S. and Canadian companies, is set to expire.

When Posco, a South Korean steel giant, agreed in 1986 to help U.S. Steel modernize its Pittsburg, Calif., plant, the joint venture saved the plant’s 1,200 jobs.

Together, Posco and U.S. Steel--now known as USX--invested about $450 million to turn an aging, outmoded plant into one of the nation’s most advanced and competitive steel mills. In doing so, they forged a partnership that stands as an industry symbol of international cooperation.

Now an international trade war over steel could threaten the venture’s accomplishments.

A multilateral trade accord that has guaranteed at least 80% of the U.S steel market to American and Canadian producers will expire March 31. American and foreign negotiators resume trade talks today in Geneva to try to forge a new agreement before the deadline. The talks, which began in 1989, have been stalled partly because Japanese and South Korean negotiators object to American definitions of “dumping,” or unfair pricing practices.

Many U.S. steelmakers say they fear that a failure to forge a new pact will create a void in which foreign producers would engage in widespread unfair trade practices against them.

If that occurs, they say, the United States may slap high tariffs on the foreign steel that some companies import to process and mold in their American plants. That is a possible scenario that disturbs USS-Posco, which imports semi-finished steel from South Korea and processes it into metal products for the American market.

In all, the joint venture imports about 700,000 tons of low-cost steel slab rolls, known as hot band, from South Korea. That’s half the steel processed at the facility, located in Contra Costa County in the east San Francisco Bay area. The Pittsburg plant converts steel into plating for tin cans and metal products used as construction material.

Posco hopes that negotiators reach a new trade agreement, said Sun Koo Lee, the company’s Washington-based senior managing director. “Trade action against Korean hot band would jeopardize the Pittsburg plant and create economic problems in that area,” Lee said.

The plant has an annual payroll of $44 million and pays about $10 million per year in local taxes, executives of the joint venture say.

Talk of a trade war also worries Gerald Dunbar, an economic development manager for the city of Pittsburg, a community that has pockets of high unemployment.

“Any adverse developments at the plant would send economic ripples through Contra Costa County,” Dunbar said. “The plant is of critical importance to this area.”

The American steel industry is already suffering. Last year the major U.S. steel companies had their worst losses in five years, and employment dropped about 10% from the year before. With 180,000 workers, the U.S. steel industry employs less than half the 400,000 it employed in 1980.

Much of the industry’s problems are due to a recession-related drop in the demand for steel. However, some American steel companies say they were also hurt in 1991 by foreign companies with excess supply that underpriced steel in the U.S. market. Most of their complaints are against steel producers in Asia.

“I’m afraid that if we don’t have an international agreement by March 31, we’re not going to have one at all,” said Roger Schagrin, an attorney who is representing U.S. steel companies in a dumping complaint against South Korea, Taiwan, Mexico, Romania, Brazil and Venezuela. “This is it. The clock is ticking. I think everyone is concerned about the possibility of trade war.”

The complaint, filed with the U.S. Commerce Department, alleges that producers in those countries in 1991 sold steel pipe at less than the cost of production or at prices lower than they charged in their own countries. Schagrin contends that some American jobs will be lost unless the Commerce Department levies anti-dumping duties against those foreign producers.

In a dumping complaint against China and Thailand, Commerce Department investigators determined that steel producers in the two countries dumped steel pipe fittings in the United States “at less than fair value.” If the Commerce Department determines that some American firms suffered from the practices, the U.S. government will levy anti-dumping duties on the imports.

There will likely be an increase in dumping complaints by U.S. companies if negotiators in Geneva fail to reach an international trade agreement, said William Hogan, a steel economist at Fordham University. President Bush has said he will not extend the current quota-based agreement even if negotiators fail to forge a pact. Hogan said U.S. firms will make more of an effort to find signs of unfair trade practices if they lack the protection of quotas and the security of international trade rules.

“The trade situation would stabilize if there’s a new agreement,” Hogan said. “Without an agreement, there would be concern about dumping complaints and countervailing duties by other countries.”

In fact, some members of the Korean Iron and Steel Assn. have warned that they may file complaints with the South Korean government alleging dumping on their domestic market by some U.S. steel companies. Such complaints would more likely be filed if current trade talks fail.

Korean industry executives say the United States has made great gains in bilateral steel trade recently. They cite reports that show that U.S. exports to Korea totaled $500 million in 1991--a 55% increase. On the other hand, Korean steel exports to the United States totaled $670 million last year, a decrease of 13%.

Overall, foreign producers have been exporting less to the United States because of the recession. Although limited to 20% of the market, producers in the European Community, Japan, South Korea, Mexico and Brazil and other countries obtained only 13% of the U.S. market in 1991 partly because American demand was lackluster.

U.S. industry reports say worldwide exports of American steel last year reached their highest level since the early 1970s because U.S. firms have modernized and were more efficient.

Improving the Balance of Trade

Steel imports have been declining and American steel exports have been expanding since the U.S. government negotiated a voluntary restraint agreement in 1984. Under the pact, foreign producers agree to limit themselves to 20% or less of the total U.S. steel market. That restraint agreement expires March 31.

If U.S. negotiators fail to negotiate a new international trade agreement, many U.S steel companies believe foreign producers will begin to engage in unfair trade practices to capture a much larger share of the American steel market. Some believe that possible trade friction could lead to a steel trade war.

U.S. Imports and Exports of Steel Mill Products in Net Tons (in millions)

Year Imports Exports 1985 24,256 0.932 1986 20,692 0.929 1987 19,924 1,129 1988 20,891 2,069 1989 17,320 4,578 1990 17,169 4,303 1991 15,741 6,346

Sources: Commerce Department, American Iron and Steel Institute