Major steel-producing nations yesterday agreed to cut production in a move to help a struggling industry find profits and save jobs.
Steel makers in the United States and elsewhere have been hurt by low worldwide prices and competition from cheaper imports. The Bush administration has tried to save the mills by blocking some of those imports. But any long-term fix involves eliminating a worldwide steel glut, officials said.
The new agreement, which will requires extensive work on details in the coming year, focuses on eliminating government subsidies and will consider ways to shut down inefficient plants.
“What this represents is a political commitment made by the world’s major steel-producing nations to reach a subsidies agreement on steel,” said Grant Aldonas, the U.S. Commerce Department’s undersecretary for international trade.
Government aid in the form of subsidies is the root cause of the overproduction and the low prices, Mr. Aldonas said.
The United States and other steel-producing countries have struggled to solve the steel glut. Yesterday’s agreement came while the United States, the European Union and several other nations are involved in a dispute over tariffs that the Bush administration imposed to protect domestic firms.
“It’s a landmark agreement,” Mr. Aldonas said at a press conference following two days of meetings at the Organization for Economic Cooperation and Development (OECD) in Paris.
EU officials strongly supported the agreement, though the two sides played down a dispute over steel tariffs. The agreement puts off immediate consideration of tariffs but a joint U.S.-EU communique does say that the two sides are ready to address “other market-distorting practices in the steel sector worldwide.”
“We can’t get through discussions without touching remedies eventually,” Mr. Aldonas said, referring to the tariffs.
Faltering U.S. mills earlier this year, hurt by low prices, demanded and received from the Bush administration temporary tariffs of up to 30 percent on steel products. The move, announced in March, was designed to shore up political support in steel states like Pennsylvania, Ohio and Indiana for an industry that has lost more than half its jobs since 1980.
The tariffs have boosted prices in the United States, helping some mills while hurting firms that import or buy domestically and refinish steel products.
The tariff decision also strained trade relations with other steel producers eight World Trade Organization members complained and the sides are awaiting a final decision on whether the tariffs are consistent with WTO rules.
Talks on subsidies would tie into ongoing trade negotiations at the 144-nation WTO and could be completed by September, Mr. Aldonas said.
Steel producers welcomed the OECD meeting results.
A joint statement by the American Iron and Steel Institute, which represents companies producing two-thirds of the raw steel produced in North America, and counterparts from Canada and Mexico strongly endorsed the discussions on reducing subsidies and exploring ways to close down inefficient producers.
U.S. steel makers are hoping for a solution that will last past the end of the three-year tariff package.
“There needs to be some kind of solution in place that reduces the huge oversupply. I think the fact that the president is focused on reducing worldwide capacity and trying to level the playing field is the key,” said Jim Kosowski, spokesman at Wheeling-Pittsburgh Steel Corp., a Wheeling, W.Va.-based company.
In the meantime, the tariffs have helped Wheeling’s bottom line. The company reported a net income of $7.1 million in this year’s third quarter compared with a $41.2 million loss at the same time last year.
“Tariffs have helped steel pricing improve,” Mr. Kosowski said. “It’s been the most important aspect as far as the rebound we’ve seen this year in steel pricing.”
Others were not as happy with the drawn-out process of negotiations and, in the meantime, continuing tariffs to support inefficient firms.
“Why doesn’t the marketplace do that,” said Jim Zawacki, president of GR Spring and Stamping, a Grand Rapids, Mich.-based firm that supplies the automotive industry with steel parts.
Mr. Zawacki, who buys steel domestically and turns it into finished products, said that rising prices since the tariffs were implemented have cost his company 20 jobs to offshore production and lowered company income by about 35 percent. The firm’s annual sales are an estimated $34 million.
“Why are we protecting less-efficient operations. They’re not reinvesting to get better, they have low technology, poor equipment and poor management who didn’t see this coming,” he said.
“We’re going to lose a lot of jobs because of the tariffs,” he added.