Two (long) NYT articles on the steel tariff issue.
Clinton resisted aid, perhaps because he could get out of town before it came to a head, but Bush is leaning towards major assistance, 30% or higher tariffs are mentioned. Bad policy but great politics. The Europeans are certain to resist.
At least he's not going to cover the cost of retirees, whose generous benefits are the biggest factor in the ongoing ruin of the old-line "integrated" steel mills. Newer "mini-mills" like Nucor are more efficient, mostly non-union, and are opposed to the government paying for the retirees.
At Bethlehem Steel, retiree health care costs come to $26.40 per ton of steel; at Nucor, they are 27 cents a ton.
Doc
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nytimes.com
March 1, 2002
Bush Officials Meet to Seek a Compromise on Steel Tariffs
By JOSEPH KAHN and DAVID E. SANGER
As President Bush's advisers met yesterday to consider policy on imported steel, thousands of steel workers near the White House showed support for high tariffs.
WASHINGTON, Feb. 28 — President Bush's top political and economic advisers, deeply divided on one of the most excruciating decisions of Mr. Bush's 14-month-old presidency, met today to begin drafting a compromise that would place high tariffs on some imported steel, but force the American steel industry to shoulder the costs of the retirement benefits of its workers.
The meeting in the Roosevelt Room of the White House came as thousands of steel workers massed on the Ellipse, only a few hundred yards away, greeting a parade of Democratic and Republican senators who called for tariffs of no less than 40 percent on steel from Russia, Germany, China and other major steel-producing countries. Mr. Bush is set to announce his decision on Wednesday, in response to the International Trade Commission's ruling in December that American steel producers had been injured by foreign competitors.
More is at stake than just a decision over tariffs, or even the fate of the steel industry. It is a critical political issue in West Virginia — which Mr. Bush narrowly won in 2000, partly because he pledged to do more than President Bill Clinton to act on the industry's behalf — as well as other swing states like Pennsylvania and Ohio.
"The way the House goes this year may hinge on how we make this decision, and how we present it," one of Mr. Bush's aides said today.
Yet the decision is also a test of Mr. Bush's commitment to free markets, and his ability to convince the rest of the world, including allies in the war against terrorism, that he is keeping America's markets open. And there is little doubt that no matter what he decides next week, Europe will take him to the World Trade Organization, seeking to nullify the American action.
Though Mr. Bush initiated the trade case against imported steel last year, his top aides are now signaling that the president will probably shy away from granting the ailing steel industry many of the items on its lengthy wish list.
Today's meeting with Mr. Bush, which was led by Lawrence B. Lindsey, who heads the National Economic Council, and was attended by most of Mr. Bush's top economic and political aides, reviewed a wide range of options. "It was a listening session for the president," said one participant, "and it's fair to say he got a wide diversity of opinions."
In fact, the administration has been fractured into two camps, with a few officials straddling compromise positions that Mr. Bush will have to explore in the next five days.
Mr. Lindsey, who did not offer his opinions at the meeting because he acted as moderator, has been described by his colleagues as taking a heavily free-market position — consistent with his long-held views that any government intervention in the markets should be limited.
He has been joined in that view by R. Glenn Hubbard, chairman of the Council of Economic Advisers, who has warned that if the steel companies are given the 40 percent tariffs they demand the effects will ripple through the economy as a wide range of industries and consumers pay higher prices for cars, appliances and other goods just as the nation is struggling to emerge from recession.
"Glenn realizes that a tariff is another word for a tax, and the effects would be the same as raising taxes," one participant in the discussion said.
The Federal Reserve chairman, Alan Greenspan, has also weighed in on the debate. He told Congress this week that keeping international markets open to the free flow of goods and services was "far more important" economically than the possible loss of jobs in the steel industry.
On the other side is the president's chief political adviser, Karl Rove, who advocates stiff tariffs to protect steelmaking jobs. Though participants said he did not speak at today's meeting, he has said that Mr. Bush can peel steel workers away from the Democratic Party. It is his mission to win back the Senate, which the Democrats hold by one vote, and to keep the House of Representatives from going to the Democrats in the November midterm elections.
West Virginia, Ohio and Pennsylvania are critical in that effort, and Mr. Rove wants to make sure that President Bush can claim to have done far more to preserve steel industry jobs than President Clinton did in the 1990's.
Joining Mr. Rove is Commerce Secretary Donald L. Evans, who, in the words of one administration insider, "sounds much like the steel industry executives these days."
The United States trade representative, Robert B. Zoellick, has been putting together plans that would try to bridge the differences, keeping free-marketers at bay while satisfying the steel companies and workers.
But it is Mr. Zoellick who will have to defend the president's final decision before the World Trade Organization, where any tariffs would very likely be immediately challenged as a violation of America's obligation under international trade rules. A major problem for the administration is that most steel imports have been falling in recent years after surges during the Asian crisis in the late 1990's, making it tougher to justify punitive tariffs.
Administration officials have been canvassing both supporters and opponents of steel tariffs to determine what level — the range most often discussed is 20 percent to 40 percent — would do the most good for steel producers while doing the least damage to companies that depend on inexpensive steel, like the auto, heavy equipment and home appliance industries.
One official suggested today that it was unlikely that the president would impose 40 percent tariffs across the board, but might opt for a mix of high and moderate tariffs that average 20 percent to 30 percent.
"Does it have to be 40 percent?" the official asked. "I can't say that that's necessarily the case."
But the official said the administration aimed to set the tariff level high enough to offer relief for the industry. Bethlehem Steel (news/quote) and LTV (news/quote) are among more than two dozen old- line steel makers that have filed for bankruptcy protection since 1998. And even modern minimills that are considered far more competitive in today's market say they are suffering from cheap imports and record low prices.
The administration appears to have firmly ruled out meeting the industry's demand for a bailout of the pension and health care costs for retired steel workers. Some traditional steel makers have requested a bailout of up to $12 billion to cover such costs, a step they say will help them clean up their balance sheet and arrange cost-saving mergers.
But smaller and newer steel makers that do not have large numbers of retired workers have argued strongly against such action, an administration official said. He added that the steel workers already get retirement and health benefits from other government-financed programs, as do most workers.
Gary Hill, chief executive of National Metalwares, a maker of tubular steel products for school furniture and lawn and garden equipment, has calculated that high tariffs could raise his costs 25 percent. That would hand a big advantage to overseas producers of value-added steel products, he said, and threaten his company's health. "The burden of this is going to fall on small companies, and I'm not sure that reality has come through," he said.
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II.
January 20, 2002
New York Times
Parched, Big Steel Goes to Its Washington Well
By LESLIE WAYNE
Thomas J. Usher of U.S. Steel, at its mill in Braddock, Pa., wants federal help — soon.
Bethlehem Steel's 13,000 active employees, like Esther Morton, top, and Shelly Miller, above, in Sparrows Point, Md., support 75,000 retirees.
Steve Miller, the chief executive, says "legacy costs" are a huge burden.
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As one industry after another troops to Washington to ask for handouts, Thomas J. Usher, the chief executive of the U.S. Steel Corporation, has an offer he feels the Bush administration cannot refuse.
He wants $12 billion in government aid to pay for employee retirement benefits that are now the obligation of the steel industry. After that, he wants antitrust clearance to allow U.S. Steel to acquire a raft of steel makers, for practically no cash, giving his company a near monopoly among old-line steel makers.
There's more. He wants the government to impose tariffs on imported steel of up to 40 percent, to protect U.S. Steel and others — tariffs that could raise the price of every refrigerator and automobile sold in America and that could threaten thousands of jobs in steel-using companies.
Finally, he wants it done soon — in the next few months, he says — to prevent the domestic steel industry from collapsing.
"Although my proposal is ugly," said Mr. Usher, who has been rallying the industry and its unions behind his plan, "it's not as ugly as liquidating some of these steel companies and putting 20,000 or 60,000 steelworkers and their families on the street without health care or pension plans."
With some, but not all, of the domestic steel industry reeling, Mr. Usher and platoons of steel executives and union officials have been meeting with the White House to press their case. Aspects of his proposal are so audacious that even some within his industry — mainly the Nucor Corporation (news/quote), a mini-mill steel maker — have taken out newspaper advertisements denouncing some elements as "corporate welfare." Still, Mr. Usher has been given an open door at the highest levels of the Bush administration, which has been surprisingly sympathetic to the pleas of Big Steel.
"Inside the administration, this issue has gotten more high-level attention from the cabinet than any other on the economic front," said Grant D. Aldonas, under secretary of commerce for international trade. "There's lots of intense review of the numbers the industry has put forward, and we are trying to get a bottom-line number on what the cost to the taxpayer would be."
The "can't refuse" aspect of the plan is the political cost that goes with not backing it. While the Bush administration has not said whether it will support the plan, Mr. Usher and his fellow executives, as well as leaders of the politically powerful steelworkers union, paint a bleak picture of what refusal would mean. Particularly vivid is the specter of another round of industry bankruptcies and the shuttering of steel mills. That would throw thousands of angry steelworkers into the streets in crucial battleground states just as the Republicans are seeking more Congressional seats in midterm elections.
"The cost to the administration of doing nothing has bad politics associated with it," said Terry Straub, a U.S. Steel lobbyist. "You would have lots of bankruptcies in steel states, and the politics of that speaks for itself. The Republicans see opportunity in states that traditionally do not have strong Republican support."
William Klinefelter, a lobbyist for the United Steelworkers of America, concurred: "If things work out, the president can go back to those states and say, `This is what I did.' "
Big Steel believes that it has a friend in President Bush. The companies were heartened by Mr. Bush's decision to spend his Labor Day at a steelworkers picnic near Pittsburgh and to see Vice President Dick Cheney campaigning in 2000 at Weirton Steel (news/quote) in West Virginia.
Even more important has been the administration's effort to enact some of the broadest restrictions on foreign-made steel in over a decade. Within the next month, Mr. Bush is widely expected to impose large duties or quotas on imported steel, something that the Clinton administration had steadily resisted.
"Frankly, these guys have been a lot easier to deal with than the Clinton White House," one steel industry lobbyist said. "For four years, we got a lot of lip service, but not action."
To prevail in Washington, U.S. Steel is leaving nothing to chance. The company has doubled its lobbying budget, spending $2.7 million in the first six months of 2001, the most recent figures available, compared with $2.3 million for all of 2000. Its lobbying team includes Washington heavyweights like Edward Gillespie, a former official in the Bush Commerce Department and a top Republican strategist, and former Representative Vin Weber, a Republican from Minnesota. The company recently hired Joe Lockhart, the former Clinton press secretary, as its spokesman.
In the last week, some of this fancy footwork has paid off within the industry. On Tuesday, U.S. Steel announced that it had gained the support of Nucor, which had been leading the opposition among steel mini- mills, the newer and more technologically advanced rivals of old-line steel makers. With the administration hinting that it would like to see the steel industry united if it were to push for import tariffs, Nucor agreed to back parts of Mr. Usher's plan, including industry consolidation.
While embracing tariffs, Nucor made it clear that it still disapproved of some of Mr. Usher's more far- reaching pleas, especially for billions of federal dollars to help pay for generous benefit packages for retired steelworkers.
"Our position has not changed," said Dan DiMicco, the chief executive of Nucor. "I want to make it clear that we are very opposed to having the American taxpayer and the federal government bail out the industry on these premium benefit packages that are not available to the average American taxpayer who would be be asked to foot the bill."
Under Mr. Usher's plan, up to five existing steel makers would be acquired by U.S. Steel, currently the nation's largest steel company. The consolidation would allow U.S. Steel to become much closer in size to its two biggest rivals, Usinor (news/quote) of Europe and Nippon Sumitomo of Japan, which are now about four times as big. Among those to be acquired would be Bethlehem Steel (news/quote), Wheeling- Pittsburgh, National Steel (news/quote) and, possibly, Weirton Steel — all either close to bankruptcy or in it.
But there is one big "if" to the plan — whether the government picks up the "legacy costs," or the benefit packages for retired steelworkers that are part of the union contracts at the companies to be acquired.
Written in much better times, these contracts provide a rich array of benefits to retirees, far superior to most pension and health plans. To date, the liability for these costs has prevented any potential buyers from taking over these troubled steel companies. Mr. Usher and his colleagues say that acquiring one of them would be like buying a $100,000 house with a $500,000 mortgage.
For that reason, no one has been stepping up to buy failing steel mills. As a result, there have been 29 bankruptcies in the last few years and at least a dozen liquidations. Most recently, the LTV Corporation (news/quote), after two trips through bankruptcy, decided to liquidate, leaving 70,000 employees and retirees without the full array of health care and pension benefits they had expected.
Making matters worse are the demographics of the steel industry, which is burdened by a small work force relative to the number of retirees. There are around 150,000 workers and about 600,000 retirees, according to a study by Andersen Value Solutions, a consulting firm in Washington. Retiree dependents, who also receive benefits, add untold thousands more to the retiree benefit pool. Within the industry, the current rule of thumb is that there is one active worker for every five retirees.
"The ticking time bomb is the retirees," Mr. Usher said. "With any company we bought, it would be impossible to take on the health care and pension costs for the retirees."
For the moment, it is not clear exactly what costs Mr. Usher wants to shift to the government. Last week, U.S. Steel confirmed that it was sticking to its price tag of $10 billion to $12 billion. But many in the steel industry say the proposal may be scaled back to cover a smaller array of health care benefits and fewer workers.
Whatever form Mr. Usher's proposal takes, the numbers involved are enormous. But so is the problem. At Bethlehem Steel alone, Mr. Usher's prime takeover target, 13,000 active employees support 75,000 retirees. The bill for Bethlehem's unfunded pension liability comes to $2 billion, and unfunded health care costs are $3 billion. The company's stock is trading at around 50 cents.
"We can't give this company away," said Steve Miller, the new chief executive of Bethlehem Steel, in an interview. Mr. Miller, a turnaround specialist and a top executive at the Chrysler Corporation when it received a federal loan guarantee in 1979, said, "Our legacy costs are greater than the value of our company."
Mr. Usher contends that whatever the cost, it is preferable to other costs that would occur — lost wages, human suffering and a greater demand for government benefits — if companies in bankruptcy were liquidated and their assets sold piecemeal. "The option of doing nothing is not cost-free to the government," he said. "The government is already on the hook for a lot of the social costs."
Rather than experience the disruptions and chaos that could occur with liquidation, Mr. Usher wants the highly fragmented steel industry to consolidate in a more orderly way.
Yet others say a free-market alternative exists, although one less attractive to Mr. Usher's company. That would be to allow bankrupt steel mills that are unable to reorganize to liquidate. With their labor contracts broken, these companies would be freed of their legacy costs, allowing buyers to step in.
Many of these steel assets would be attractive to buyers both domestic and foreign. But selling these assets to the highest bidder would mean that U.S. Steel, rather than getting them for practically no cash outlay, would have to compete with other buyers.
"You would have a bidding war for some of the good facilities," said William Barringer, a Washington lawyer who represents foreign steel makers. "Buyers would end up paying some real money. I think this is a pre-emptive strike by U.S. Steel to get this package together on its own terms."
In Washington, the main question facing Mr. Usher's plan is this: Why should the government spend billions of dollars to aid retired steelworkers, many of whom are still in their 50's, especially when millions of other workers have no health or pension benefits at all? The question is being posed as Congress is facing the costly prospect of adding a prescription drug program to Medicare for the elderly — a benefit that steelworkers already enjoy.
"It would be a dangerous precedent to have the government just bail out these guys," said Aldo Mazzaferro, a steel industry analyst at Goldman, Sachs. "But it may happen. It would open up a whole new territory in government subsidy. Giving money to failing companies is not a solution."
Moreover, the steelworkers' health care plan, the most costly element of Mr. Usher's proposal, is far richer than anything most Americans have. At many steel mills, there are no deductibles and few co- payments, 100 percent coverage at the worker's doctor of choice, and dental, vision and prescription drug plans. One Bush administration official called it "better health care than I had when I was a partner in a law firm earning $750,000 a year."
Michael F. Gambardella, a steel industry analyst at J.P. Morgan Chase (news/quote), said, "The industry has a ridiculously rich benefits package compared to every other industry out there."
For that reason, Thomas A. Danjczek, president of the Steel Manufacturers Association, which represents mini-mills, raised doubts. "Will Congress go along with paying for these health care benefits? I think not," he said. "Do you think the AARP will go along with it? I think not." He was referring to the lobbying group for senior citizens.
On the health care point, the steel union is particularly sensitive. "We hear this argument that no one else gets these benefits, so why should steelworkers?" said Mr. Klinefelter, the union lobbyist. "Well, government employees get retirement health care. If it's good enough for them, why isn't it good enough for steelworkers?"
Steel companies agreed to such sweet benefits without setting enough money aside to pay for them — making some people ask why they should be protected from the consequences of their own irresponsibility.
"The key thing is to offload legacy costs that the industry unwisely agreed to years ago," said Robert Crandall, a steel industry expert at the Brookings Institution, a research group in Washington. "If employers agree to all kinds of wage agreements that they cannot afford, you have huge moral hazard problems. What this industry did was agree to some unwise labor bargains, knowing full well that the executives wouldn't be around to pick up the pieces.
"But what is amazing is their clout," Mr. Crandall added. "Surely the dot-coms have laid off far more people than steel companies even employ and yet no one is talking about protection for failing dot- coms."
Should Mr. Usher prevail, this aid would be the latest in a long list of government efforts to aid the steel industry — to little avail. These have included "Buy America" programs for state and federal construction projects, exemptions or delays in environmental regulations, a variety of special tax breaks and abatements as well as generous government research grants.
In addition, the steel industry is the major beneficiary of the Pension Benefit Guaranty Corporation (news/quote) — a government-sponsored insurance program that is financed by corporate pension plans. Some 29.3 percent of all claims, over $1.9 billion, have been paid to steelworkers, more than any other industry, since the program started in 1975. The pension corporation, which has a surplus of $9.7 billion, covers costs when pension plans run short of money. Right now, it expects $2.1 billion in claims from LTV steelworkers and may get another $2 billion if Bethlehem Steel is liquidated.
Moreover, because of recent legislation championed by Senator Robert C. Byrd, Democrat of West Virginia, the steel industry is eligible for $1 billion in federal loan guarantees. In the loan program's first year, however, only one loan was approved, for $110 million, to Geneva Steel. All other applicants were rejected because they had no prospects for repaying the loans, according to the plan's administrator.
To many industry analysts, the real problem facing old-line steel makers is not cheaper imports or insufficient federal support. Rather, it is the companies' failed effort to compete with steel mini-mills, which have been steadily gaining market share with a largely nonunion work force and more advanced steel-making technology. Mini-mills turn scrap metal into steel by using modern electric-arc furnaces, while steel mills use large blast furnaces and basic-oxygen furnaces to make steel from iron ore and other raw materials, a technology stretching back a century.
While domestic steel output has remained about the same since the late 1970's — around 100 million finished tons a year — a different mix of companies makes it. Twenty-five years ago, old- line or "integrated" steel makers had a market share of about 90 percent. Their output has fallen by half, while their production costs remain among the highest in the world. Mini-mills have grown in that time from 10 million tons of output annually to around 50 million and now account for about half the domestic market.
One mini-mill company alone, Nucor, produces almost as much steel as U.S. Steel, which traces its roots to Andrew Carnegie. Nucor's market capitalization of $4.1 billion is greater than that of the integrated companies combined, at $3.2 billion. With a largely nonunion work force, Nucor has labor costs of around $45 per ton of finished steel, far lower than the $130 to $140 a ton at the integrated mills, according to statistics complied by Goldman, Sachs.
Even more striking are the retiree benefit costs. At Bethlehem Steel, retiree health care costs come to $26.40 per ton of steel; at Nucor, they are 27 cents a ton.
Largely as a result of this, steel costs $481 a ton to produce at old-line steel makers, compared with $376 at mini-mills, according to statistics compiled by Mr. Crandall of Brookings. These lower costs make it far easier for mini-mills to turn a profit.
Still, the old-line mills have something the mini-mills do not: political influence. As the debate over Mr. Usher's proposal heats up in Washington, the steelworkers union has its battle plan, which includes an e-mail and letter-writing campaign, telephone banks in crucial Congressional districts and lobbying visits by steelworkers to Congressional offices.
Mr. Klinefelter, the union lobbyist, said, "we will be pulling out all the stops." |
