- The Washington Times - Tuesday, February 20, 2001

Major steel producers are pleading with the U.S. government to curb imports they claim are killing the domestic industry, which is presenting the Bush administration with the first challenge to its ambitious free-trade agenda.

With 16 steel firms in bankruptcy or emerging from it, corporations such as Bethlehem Steel and U.S. Steel want the administration to slap quotas on imports, which they say lie at the heart of their woes.

And they have powerful allies on the Senate Finance Committee and the House Ways and Means Committee, two panels whose cooperation the new U.S. trade representative, Robert Zoellick, needs to pass legislation that would allow the president to negotiate new trade agreements.

"The Bush administration needs to jump this hurdle in order to move forward on its whole trade agenda," said Dave Phelps, president of the American Institute for International Steel, a group that represents steel importers and opposes trade restrictions.

A congressional aide added that it will be "hard to get anything done on trade without taking care of steel."

As a result, an interagency group already is wrestling with various options for how to deal with the steel industry, including import cutbacks, according to sources close to the issue.

"I am willing to look at this quite seriously," Mr. Zoellick said at his confirmation hearing. A bipartisan group of senators, including Sen. John D. Rockefeller IV, West Virginia Democrat, and Sen. Mike DeWine, Ohio Republican, already have pressed the Bush administration to reduce imports.

But the administration will have to mediate between steel companies that are in deep trouble, those that are still healthy and oppose government bailouts for their weaker competitors, and the dozens of industries that use steel to manufacture other products and oppose trade restrictions.

Mr. Zoellick cautioned that any protection from imports would have to be accompanied by restructuring within the industry, with possible plant closings and layoffs to reduce excess capacity.

As the administration considers the issue, any temporary quotas, for example, would have to be accompanied by incentives for consolidation in the industry to avoid future crises, sources close to the issue said.

In addition, these sources said, the steel industry and the sectors that use imported steel would have to agree on the highly contentious issue of whether U.S. firms would give up their right to seek "dumping" duties on top of any quotas.

The wave of bankruptcies began late last year as steel producers felt the full force of a manufacturing slowdown that swept over the U.S. economy and erased a late-1990s recovery in the industry. Demand for steel, by automobile manufacturers, for example, dropped sharply, along with prices.

Ohio-based LTV Corp., which employs 18,000 people, dropped the largest bomb when it declared bankruptcy in December. Though some companies have managed to reorganize and continue operations, others have not. Alabama's Gulf States Steel has ceased operations and is selling off its assets to pay creditors.

But many observers eschew import reductions as the best medicine for ailing firms. Instead, they would like to see a smaller number of more nimble and efficient steel companies, and point to yesterday's announcement that three European companies are joining forces as a model.

France's Usinor, Luxembourg's Arbed and the Spanish Aceralia Corporacion Siderurgica said they would complete a merger by the fall that will result in $320 million in investment savings between 2002 and 2005.

"This deal shows the benefits of consolidation," said Charles Bradford, a New York-based steel-industry specialist. "It allows each company's strengths to be exploited across the entire group."

But consolidation is harder than a few friendly takeovers, Mr. Bradford said. The steel industry labors under massive costs for pensions, health care and other expenses that would exist even if they are shut down.

Despite the persistent calls in Washington for import curbs, many steel firms are doing quite well. Firms that use electricity in place of traditional coke-fired blast furnaces, enjoyed solid profits last year.

Even one traditional firm, Ohio's AK Steel, which employs 11,000 people at seven American mills, turned a profit in 2000. Demands for quotas on foreign steel by other companies prompted Rep. John A. Boehner, Ohio Republican, to invite President Bush to visit an AK Steel mill in an effort to challenge perceptions that the entire industry is in crisis.

"Without any government intervention, AK Steel and its employees have quietly changed and adapted to the changing economic forces, while others have not," Mr. Boehner wrote.

Andrew Sharkey, president of the American Iron and Steel Institute, which represents a broad range of producers and called for broad trade restrictions, concedes that AK Steel and other firms are doing well, but points to near-record imports as the cause for the low prices.

"You always find a broad spectrum in terms of the health of the companies," he said. "But imports are the root cause of the problem."

The United Steelworkers of America, fearing massive job losses, wants quotas, a $100-per-ton surcharge on imported steel, and a $10 billion fund to help the industry manage a transition to profitability.

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