- The Washington Times - Wednesday, September 11, 2002

The Bush administration had hoped that steel tariffs, in additional to providing a political boost, would give American producers a chance to consolidate into a few globally competitive players.
But the duties of up to 30 percent that President Bush imposed in March in some cases have had the opposite effect: Rather than promoting consolidation, some mills that closed last year amid a glut of cheap steel and crushing debt are positioning themselves as new players, rejuvenated through higher prices.
Gulf States Steel of Gadsden, Ala., a producer of steel plating and metal for kitchen appliances, went into liquidation last year as part of a wave of bankruptcies in the sector. Now, a group of investors led by Frank Williams Jr., founder and board member of the Manassas-based construction company Williams Industries, plans to revive Gulf States with help from the local government.
John Duncan, a former Gulf States executive now working to re-create the company, said the effort, which began 18 months ago, was listless until the tariffs gave potential backers reason to believe they could make money on the venture.
"The investment community was scared to death of steel until the tariff relief," Mr. Duncan said.
Economists regard restructuring and consolidation as the only way to deal with excess production capacity around the world, the root cause of persistent crises in the steel industry. But tariffs are keeping mills open, said Charles Bradford, president of Bradford Associates, a steel research firm in New York.
Cleveland-based LTV Steel is another company reopening under a new name, Mr. Bradford said, and Pittsburgh's Bethlehem Steel and National Steel of Michawaka, Ind., were seen as acquisition targets before Mr. Bush's decision.
"The tariffs have worked the other way around," Mr. Bradford said. "They have discouraged consolidation."
Critics of the levies, such as Dave Phelps, president of the American Institute for International Steel, say Mr. Bush's decision eventually will exacerbate the global glut by keeping inefficient mills in business. He noted that bankruptcies in the industry last year were helping to correct this problem.
"By the end of 2001, the marketplace was working its own magic without the tariffs," said Mr. Phelps, whose group represents importers of steel. "Stringent [duties] will have the effect of delaying restructuring."
But those involved in resuscitating Gulf States make no apologies.
"This may have an adverse impact on the global industry, but our concern has to be the creation of local jobs and tax revenues," said Mike McCain, executive director of the Gadsden-Etowah Industrial Development Authority.
The authority has provided extensive assistance to Mr. Williams, who resides in Falls Church, and his partners, known as Gulf States Reorganization Group.
Local government officials this year pulled together a $10 million financing and incentive package to help revive the Gulf States plant. The city of Gadsden believes the investment will pay off in tax revenue.
The group first will have to outbid two other investors for the Gulf States assets in an auction Monday, but it has the solid support of the local government. If Mr. Williams' group is successful, it will receive the old plant but will be free of the $190 million in debt that hobbled Gulf States, Mr. McCain said.
With a leaner work force, the new company plans to concentrate on the market in the southeastern United States.
"We're not looking at the global market," Mr. Duncan said. "We're looking at a healthy regional market."

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