August, 2003: Publius

By Greg Rushford

Published in the Rushford Report

In September, President George W. Bush will review his three-year Section 201 steel program that slapped on tariffs as high as 30 percent on foreign steel back in March 2002. Have the tariff walls worked, or should they be dismantled ahead of schedule?

            Lawyers for the domestic steel industry contend that the tariffs are working, and that continuing them is essential to give troubled mills time to get back on their feet. “Domestic producers plainly need more time to complete the consolidation process and they also need profits to pay for additional capital expenditures,” Robert Lighthizer, a Washington trade lawyer for U.S. Steel Corp., told the International Trade Commission last month.

            Lighthizer has a point: the domestic steel industry has been restructuring. But whether the tariff protection has aided or inhibited the process is highly debatable. I believe that the weight of the economic evidence strongly suggests that the industry would today be pretty much the same today had there never been a Bush steel plan.

            The connection between high tariffs and productivity reforms is a dubious proposition. This is the same domestic steel industry that for decades has used the trade laws and assorted subsidies to avoid restructuring. As Donald Cameron, who represents Korean steel exporters, told the ITC at the July 22 steel hearing. “We don’t understand why you needed the 201 relief to go from 226 shift foremen to 20,” Cameron declared. “That doesn’t make any sense.”

            But forget the debate between advocates. The most convincing evidence presented to the ITC that the domestic steel industry has been restructuring regardless of the Bush steel plan came from two domestic industry witnesses who supported continued tariff protection: Mark Glyptis, and Wilbur J. Ross, Jr. Glyptis is president of the Independent Steelworkers Union. He has worked at Weirton Steel Co. for three decades and is a member of the company’s board of directors. Ross is  chairman of International Steel Group, Inc. ISG has bought key assets of three bankrupt steel companies — LTV, Acme, and Bethlehem — at fire-sale bankruptcy proceedings, and has been busy initiating management and labor reforms to turn these old mills into modern competitors. 

            Glyptis testified that as bankruptcy loomed, his union had been helping the long-troubled Weirton mill to survive. “Our union leadership agreed to work with the company to restructure our labor agreement to change our work rules and reduce the workforce at Weirton Steel by 550 jobs,” he said. “At one time, Weirton Steel employed over 14,000 steelworkers. Today, we employ about 3,500. It was not an easy or popular change, but our union membership recognized the hard times in the domestic industry and voted overwhelmingly to ratify the out-of-court restructuring agreement.”

            But the steps that Glyptis outlined had taken place in 2001 — before there was a Bush steel plan.

            Late last year when the Bush plan was in effect, “our union leadership stepped up again and negotiated modifications to our existing labor agreement that called for an immediate 5 percent pay cut, the elimination of a scheduled $1.00 an hour wage increase and immediate freeze of our pension plan,“ Glyptis said. “To my knowledge, Weirton was the only steel company that froze their pensions outside of a bankruptcy type setting. This totaled about 17 percent in wages and benefit costs.”

            Again, Glyptis was describing wise and necessary steps — that would have been necessary even if there had never been a Bush steel plan.

            By rescuing LTV, Acme, and Bethlehem from bankruptcy, Ross’ ISG has become the second largest integrated steel producer in North America , after U.S. Steel. In his ITC testimony, Ross summarized what he had done to turn the bankrupt dinosaurs into proud competitors: “By purchasing and restructuring these formerly high-cost bankrupt facilities, ISG saved 11,000 direct steel jobs and a multiple of that number of jobs at vendors and local service providers in the six states where we have major facilities.”

            Ross described his success in obtaining necessary concessions from the United Steelworkers of America. “The ground-breaking new collective bargaining agreements between ISG and USWA will and are significantly improving productivity while addressing issues of importance to the company’s workforces,” Ross asserted. “These agreements, which do not expire until 2008, introduce a new operating culture that emphasizes individual performance and productivity through a broadened scope of responsibility and accountability at every level of the workforce.”

            Continuing, Ross explained his success in dealing with the steelworkers union, which has long had a reputation for intransigence: “Steel labor agreements historically had more than 30 job classifications. ISG’s new agreements reduced that to five. We have eliminated previously restricted work rules and provided other productivity-enhancing changes such as implementation of alternative work schedules.”

            Ross also told commissioners that he had “eliminated 90 percent of management positions” at the old top-heavy mills.

            “These changes have reduced the number of manhours needed to produce a ton of steel from about 2.5 to about one,” he said. “By contrast, China and Russia ’s steel industries each require about six manhours while Europe ’s industry requires more than two, and workers at the former LTV facilities have already received their first profit-sharing checks.”

            To be sure, Ross supported continuing the Bush tariffs. “The combination of temporary safeguard measures, enlightened leadership of the United Steelworkers of America, and new management approaches have created a 16 million-plus ton integrated steel company that will be globally competitive by the end of the president’s three-year program,” the ISG chairman maintained.

            Yet, the more I read Ross’ testimony, the more it seemed apparent that ISG would have taken the same steps to resurrect LTV, Acme, and Bethlehem , even without any Bush Section 201 plan. Sure, Ross would understandably be happy to take any tax break that the government is willing to give. But it is difficult to escape the conclusion that it was the U.S. bankruptcy code, and not the Bush tariff barriers, that has made ISG’s much-welcome accomplishments possible.

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