"Political Challenges and Opportunities for Russian Steel Exporters to the United States"

Accompanying Statement
By Paul Nathanson

I am speaking today in my role as senior advisor to the president and board of directors of the American Institute for International Steel (AIIS) and senior vice president of The PBN Company, a strategic communications firm with offices in Washington, DC, London, Moscow, Kyiv, Riga, and Chisinau. I'd like to thank the organizers of this important event for including me in the program. My topic is one that is on the minds of many participants here and being hotly debated in Washington as well.

AIIS is a Washington, DC-based trade association representing North American corporations, both domestic and foreign owned, which import and export steel, and companies who supply services to them. AIIS is unabashedly free trade and against subsidies; we exist to promote economic growth through free trade in steel. My firm's Washington office represents a coalition of steel-consumers. These are American companies who rely on domestic and imported steel to stay competitive in a global market.

Unfortunately, there is a long history of protection of the domestic steel industry in the United States. Beginning in the 1960s and continuing through today, each time there was a crisis, the US steel industry was granted some form of import relief. Protection has included import quotas, minimum prices, a nearly decade-long quota system, followed by relentless anti-dumping trade case filings.

The manipulation of U.S. trade laws, particularly the filing of anti-dumping complaints, is a favorite tool of the domestic industry. The latest twist is the Byrd Amendment, so named for Senator Byrd of West Virginia. This amendment, signed into law last year, hands money received from antidumping and countervailing duties back to the US companies that are petitioning the US government for protection. That means if a U.S. company files an anti-dumping petition and wins, the money goes into the pockets of the U.S. steel company.

As it has since the days of President Lyndon Johnson in the 1960s, the domestic steel industry immediately began calling for relief from imports days after President Bush was inaugurated. The industry also hired high-powered Republican lobbyists to advocate for their cause. On June 5, President Bush announced that he was launching a Section 201 investigation on steel imports. This clause in U.S. trade law allows the President to basically stop imports of products if these imports are deemed to cause injury to the U.S.'s domestic industry. An ardent free trader, President Bush shocked many analysts by going even further than President Clinton to protect the U.S. steel industry. The reason was pure politics. Steelworkers only number 160,000 in the United States, but they live in key electoral states including Ohio, West Virginia and Pennsylvania. These states are very important to both political parties for the next presidential elections. By calling for the investigation, Bush, at least temporarily, brings the steelworkers, who usually support the Democrats to his side.

Another reason for Bush's actions was that the Democrats were to take control of the U.S. Senate in a matter of days. A 201 Investigation can be initiated by the President or by Congress. It was evident that the Democrats were going to launch the investigation anyway. Bush beat them too it and garnered the political benefit.

As I mentioned before, the 201 process requires a finding of injury - not dumping, not subsidies. This time around, the International Trade Commission divided steel products into 33 categories. In October, they determined that 16 of those 33 categories had evidence of injury. The next step is the remedy phase in which both proponents and opponents of restrictions offer their arguments and proposals for restrictions to the Commissioners. The US domestic industry has proposed 40-50 percent tariffs with proceeds going directly to injured companies. By the end of the month, the ITC will provide its recommendations to the President, who must act on those recommendations within 75 days.

The Bush Administration has called upon the US Trade Representative to do an investigation independent of the ITC and provide recommendations to him. Given what we think is USTR Zoellick's opposition to new restrictions, those of us who oppose new barriers view USTR's role as a positive sign.

Given the 5-year US-Russia comprehensive agreement and the hot-rolled agreement both in force between the US and Russia, further quotas or tariffs from the 201 could severely limit Russian exports to the US. Proceedings toward Russia's acceptance as a "market economy" could further complicate the situation.

It's probably easier for Russians, Ukrainians, and other former Soviet steel producers to understand the situation U.S. steel companies have created in the US. Some of you do not just run a company; you have created entire towns, supplying heat, providing daycare, healthcare, some even housing, for your employees. US integrated producers haven't gone that far, but as the largest employers and taxpayers in many communities, the similarities are clear. As in Russia, Americans become emotional about these factory closings when it means the local school system loses millions of dollars in tax payments and many in the community lose jobs. Those emotions take steelworkers and retirees to Washington, where they make the case to their Senators and Representatives for saving these companies. There are less than 200,000 steelworkers in the US today, but there are many times more retirees who rely on these companies still to pay their healthcare costs. That's a lot of voters.

But as my title reflects, the future is not all gloom and doom for Russian steel exporters. There are opportunities to influence what is mostly a political process.

The key players opposing import restrictions who can influence the Bush Administration are American steel-consuming companies and their workers and international companies allied with foreign governments. Political pressure from American consumers on one side and foreign governments and companies is a key to influencing the outcome of the 201 investigation.

Steel-consumers in the US — producers of cars, dishwashers, fire extinguishers and many other steel-containing products - are mainly small entrepreneurial companies, but in total, they employ 12.8 million workers around the country. That's 57 times as many workers as are employed by the domestic industry. Even in steel-producing states, steel-consuming employees still outnumber the steelworkers. For steel-using companies, restrictions will mean higher prices, possibly lower quality steel, and possibly lost access to the specialty steel they need. These companies compete globally; their competitors will get the steel they need at world prices and take away our business, causing bankruptcies and lay-offs.

My message to Russian companies is simple: To avoid the closing of the US market to steel imports, Russian companies must become active in the policy debate over steel trade issues in Washington, DC.

The tragic events of September 11 dramatically changed the political landscape of the steel trade debate. The new relationship between the United States and Russia offers Russian steel companies provides some leverage for Russia to advocate for a fair deal regarding steel exports to the U.S.

To do so, Russian companies — and the Russian Government — must act now. The following are practical steps Russian steel companies can undertake to protect their interests in Washington, DC:

1. Work with and support key US-based interest groups, such as the AIIS or the Consuming Industries Trade Action Coalition. On an ongoing basis, these groups are advocating free trade policy positions media, government decisionmakers, and think tanks. Membership in the AIIS for foreign steel companies for one year costs less than two days worth of a Washington trade attorney's fees. Members obtain regularly updated information on the trade policy debate and participate in advocacy programs.
   
   
2. Lobby your own government to become more actively involved in the process and make clear to the Bush Administration that import restrictions will do more harm than good to the global economy, international trading and political relationships.
   
   
3. Work collectively via a coalition to speak with one voice. Japanese, European and Latin American steel producers already have organized into coalitions to help advocate their positions in Washington, DC.
   
   
4. Engage Washington-based assistance to make your views known directly to US government policymakers — Congress, USTR, the Department of Congress, and other agencies. Your respective trade representatives do this on a regular basis, but having the message delivered directly by the companies affected can be very powerful. Washington-based representatives can also assist in communicating to the news media and think tanks.As I mentioned earlier, USTR's involvement in the steel investigation, combined with tough talk we've heard from both Treasury Secretary Paul O'Neill and USTR Robert Zoellick lead us to be more optimistic about the outcome of the 201. The best case scenario, and one that is within the power of the ITC to recommend, would be trade adjustment assistance that helps workers be trained and relocated, possibly with a wage insurance program. These measures will not affect price or availability of imported steel and therefore, will not threaten the rest of the economy.

There is still time for Russian steel companies and the Russian Government to influence President Bush's decision on whether or not to restrict steel imports as part of the 201 investigation. Any outreach Russian companies do on the 201 will continue to pay off in the trade cases that will inevitably follow until the US industry consolidates and becomes fully competitive.