Fuel Economy Regulation

							             Steel Crisis:
  The Washington, DC Perspective
What can be done to assist the industry?

              Ana M. Lopes
    Director, Government Relations
                 MEMA
              April 6, 2004
Industry Efforts on Steel 2002-2003: Auto
Suppliers Led the Effort to Repeal the Tariffs

  Announced by President George W. Bush in March
  2002, the Section 201 safeguard program imposed
  tariffs of up to 30 percent on imported steel. Under
  the original decision, the tariffs were slated to last
  until March 2005.
  U.S. steel mills and service centers swiftly enacted
  steep price increases on all products: auto suppliers
  experienced price increases in the area of 20 – 50
  percent.
  U.S. auto suppliers and MEMA served as leaders in
  the effort to secure the full repeal of the tariffs.
Industry Efforts on Steel 2002-2003: Auto
Suppliers Led the Effort to Repeal the Tariffs

  The MEMA initiative consisted of more than three
  separate Industry Fly Ins and lobbying events in
  Washington, DC, three Congressional hearings, a formal
  hearing before the International Trade Commission in
  June 2003, countless letters from MEMA and individual
  member companies to President Bush and members of
  Congress.
  This work resulted in the introduction of two pieces of
  legislation on behalf of the industry: HCR 23 by Rep. Joe
  Knollenberg (R-MI) and SCR 27 by Sen. Kit Bond (R-MO).
  Success came on December 4, 2003 when the Bush
  Administration announced that it would immediately
  terminate the tariffs based on “changed economic
  circumstances” – the very argument that had been
  espoused and promoted by the auto supplier industry
  throughout its campaign.
Status of Global Trade in Key Raw Materials:
Barriers and Unfair Trade Practices
The following countries are presently maintaining restrictions, fees or other
   measures to block or prevent the exports of certain industrial raw
   materials:

China continues to impose export restrictions on strategically sensitive
   commodities. Since 2003 China has deliberately slowed its export licensing
   program for coke (by placing a quota on exports and raising licensing fees
   among other measures), ostensibly restricting coke exports to other markets. At
   the same time, China’s consumption of steel and other critical materials used in
   the production of steel has accelerated dramatically. There are also indications
   that China may limit the export of steel scrap.

Belarus maintains export restrictions on scrap metals.

India, according to certain press reports, has decided to restrict exports of iron ore.

Ukraine maintains export restrictions on scrap steel as of 2003 and the country is
   considering restrictions on coke exports

South Korea is reportedly planning to start requiring export licenses for ferrous
   scrap exports in March

Source: National Association of Manufacturers, Financial Times and other media reports
Status of Global Trade in Key Raw Materials:
Barriers and Unfair Trade Practices
Serbia maintains a 15 percent export duty on ferrous and non-ferrous scrap exports.

Egypt imposes export duties on ferrous waste and iron and steel scrap exports.

Slovenia has reportedly imposed export taxes ranging between 10 percent and 20
   percent on the export of a variety of raw materials (lumber, timber, and scrap
   raw materials).

Sweden is reportedly requiring some raw materials (including scrap metals) to have
  a special permit or individual license for export.

Thailand imposes export taxes on scrap iron.

Venezuela presently permits scrap iron exports only with a license issued by the
   Venezuelan customs and excise service.
The Elephant in the Room: China
 The factors affecting this change in the market are varied and
 complex, but it is clear that the growing consumption of key raw
 materials by other countries carries long-term repercussions for
 the U.S. manufacturing community. At this time, the main
 protagonist in this drama is China.
 The “notification of surcharges” letters delivered to the majority
 of the automotive parts industry from their steel mills and service
 centers repeatedly cite factors such as Asia’s, and more
 specifically – China’s - rising consumption of steel, rod and
 other sensitive raw materials as the cause of the surcharges.
 The Facts: China’s steel imports alone have increased
 dramatically by an estimated 31.6% over its 2002 levels and by
 50 percent over the nation’s 2001 levels. China consumed more
 than 235 million tonnes of steel in 2003, and analysts have
 predicted that this number could surge to 523 million tonnes by
 2010.
The Elephant in the Room: China

 This dramatic escalation in its national consumption
 has occurred simultaneously with the emergence of
 several new protectionist measures by China.
 The Chinese government has moved swiftly to
 restrict its existing export licensing program for coke,
 ostensibly designed to create a larger domestic
 reserve of this key input. As China had been a
 prominent exporter of coke to markets around the
 world, including the U.S., the ramifications of this loss
 of supply have been immediate and severe.
Is China Playing By The Rules?
   In addition, China’s recent action clearly violates                   its
   commitments under the World Trade Organization.
   The publication World Steel Dynamics further reported in early
   March 2004 that China might take additional action to maintain a
   domestic stockpile of coking coal by restricting exports of this
   material as well.
   It is clear that China’s consumption of raw materials is growing
   exponentially as the nation continues to build its infrastructure
   and engage in new manufacturing initiatives. This development
   bears significant ramifications for U.S. manufacturers and those
   companies in the auto parts sector.
   China’s export restrictions, as well as those embraced by other
   nations, enable these countries to protect their domestic supply,
   shelter their domestic industries and focus greater demand on
   the open markets of the world, such as the United States.

Sources: Wall Street Journal, Feb. 23, 2003; and World Steel Dynamics,
Jan. 29, 2004 edition
Actions Undertaken By Other Governments
   In mid-March 2004, the European Union (EU) took formal
   steps to cite the adverse repercussions of China’s rising
   consumption of raw materials and its concerted efforts to
   restrict key exports on European manufacturers. The EU
   strongly argued that China’s attempts to distort the
   market and restrict access to valuable commodities had
   undermined “the economic viability of some EU
   industry.” The EU alleged that China had broken trade law
   by restricting exports of coke and thus reducing global
   supplies.
   In a March 17th public statement, EU Trade Minister Pascal
   Lamy requested that China “play fair” and stated that the EU
   had requested that China cease its efforts to strengthen
   export license restrictions on coke in a direct communication
   with Bo Xilai, China’s commerce minister.
Actions Undertaken By Other Governments
 These restrictions, set in place over the past few
 months, were designed to protect the Chinese steel
 industry from rising costs.
 Subsequently, on March 31st, the EU issued a
 second warning to China that it must end restrictions
 on exports of coking coal or risk a challenge at the
 World Trade Organization (WTO).
 According to the Financial Times, the Chinese
 government has restricted coke export licenses for
 2004 to less than 10 million tonnes compared with
 14.7 million tonnes exported in 2003. Meanwhile,
 prices for coke have risen from $79 a ton to $350 a
 ton in the first quarter of 2004.
U.S. Government: Response to Crisis

 Congressman Don Manzullo (R-IL), Chairman of the
 House Small Business Committee, convened a
 hearing on “Metal Prices and Small Businesses” on
 March 10, 2004. MEMA submitted a formal industry
 statement as part of the record of this hearing.
 The hearing featured testimony from Wilbur Ross,
 Chairman of the International Steel Group; Robert
 Stevens, CEO of Impact Forge, Inc., and William
 Hickey, Jr., President of the Lapham-Hickey Steel
 Corp. Three Illinois-based steel consuming
 manufacturers also participated: Youngberg
 Industries, Inc.; Revcor, Inc.; Trilla Steel Drum Corp.
U.S. Government: Response to Crisis

 The testimony offered by Wayne Atwell, a Managing
 Director from Morgan Stanley, noted that steel
 consumers in the U.S. are presently paying the
 highest prices in the world, with the increases
 charting into an almost vertical line.
 Chairman Manzullo called a second hearing on
 March 25th.
 No formal statement has emerged from the Bush
 Administration.
 At a number of industry forums, members of the
 Administration’s trade staff have indicated that,
 although they are aware of the steel situation, no
 specific work items or actions have been undertaken
 to address it – e.g. Russia accession to the WTO.
Response by Rep. Don Manzullo, Chairman of the
House Small Business Committee
Chairman Manzullo issued the following statement on March 25:

Manzullo Offers Potential Remedies to Reduce Surging Steel, Metal
Prices
(WASHINGTON) House Small Business Committee Chairman Don Manzullo
(R-IL) today offered several possible remedies to help reduce the recent
surges in steel and metal prices which are harming small manufacturers and
threatening job creation in America.
Manzullo, who held his second Small Business Committee hearing on the
issue this morning, said many events -- foreign and domestic -- have
occurred since the beginning of the year to spike the costs of steel and other
metals for U.S. manufacturers. He offered the following potential solutions to
the problem during today's hearing:
* Fight Unfair Foreign Trade Practices -- Many foreign countries are
flouting international trade rules to get an unfair competitive advantage over
U.S. manufacturers. This unfair advantage has increased the demand for
their foreign products, which has increased their demand for U.S. steel and
other metals, which increases the U.S. price for those commodities. China,
specifically, manipulates its currency and directly subsidizes its corporations
to give them an unfair advantage over U.S. companies.
Statement by Chairman Manzullo – March 25, 2004
* The Administration must continue to crack down on foreign
   currency manipulation and should support the U.S. manufacturing
   sector's effort to proceed with a Section 301 trade case against China
   for pegging its currency to the U.S. dollar. In addition, Congress should
   pass H.R. 3716 to allow U.S. petitioners to file countervailing duty trade
   cases against non-market economies, which would allow us to get
   tougher on China's trade abuses. The Administration should also
   review all existing anti-dumping and countervailing duty orders placed
   on foreign imports of steel into the United States to see if they are
   warranted considering the tightened markets in America.
* Consider export controls on U.S. scrap steel -- The Administration
   should immediately begin a study to consider the validity of imposing
   export controls on U.S. scrap steel. If the Administration does not
   support export controls, it should draft a plan to negotiate the removal
   of current export restrictions on scrap steel and coking coal
   products imposed by Russia, the Ukraine, Venezuela and China.
   Failure to remove the foreign export restrictions should result in a
   "hiatus" in the WTO accession process for Russia and the
   Ukraine.
* Lower energy costs for U.S. steel and metal producers -- One of the
   factors driving up costs for U.S. steel and metals is surging energy
   prices in America. The Senate must pass the Energy Bill (H.R. 6) and
   let the President sign it into law so that we can increase energy
   production in this country and lower the production costs for steel
   producers.
Statement by Chairman Manzullo - March 25, 2004

* Assess threat to national security -- The Department of Defense and
    the Bureau of Industry and Security at the Department of Commerce
    must examine whether the steel and metal shortages in America will
    have an adverse affect on our Defense Industrial Base and our national
    security. They must determine whether the U.S. government needs to
    enact the Defense Production Act to restrict the export of certain critical
    metals or raw materials necessary to defend the United States from its
    enemies.
* Investigate reported shortages of scrap steel and coking coal -- The
    Administration, through the Department of Commerce or the U.S.
    International Trade Commission via a Section 332 investigation, should
    examine more closely the reported shortages of scrap steel and coking
    coal to determine the effects they have had on production problems
    and the overall competitiveness of U.S. industry.

   "Time is of the essence and we must begin taking action to bring the
   metals markets back into balance," Manzullo said. "Our manufacturers
   are holding on to the thinnest of threads and they need our help to
   remain the thriving backbone of our economy. Our government must
   act to help them get through this crisis."
2004 MEMA Outreach & Advocacy on Steel Issue

  On behalf of its member companies, MEMA has
  launched an effort to address the escalating raw
  material costs that have emerged in the U.S. market
  since Dec. 2003 and to staunch the adverse
  repercussions for the U.S. auto parts sector.
  Although steel remains the most prominent raw
  material in this debate, the prices for other important
  inputs such as copper and aluminum have also
  notably escalated over the past three months.
  In January 2004, MEMA re-vitalized its Steel
  Subcommittee which served as the steering group for
  the association’s Steel Tariff Campaign in 2002-2003.
2004 MEMA Outreach & Advocacy on Steel Issue

  MEMA also initiated inquiries with the U.S. Commercial Service
  at the U.S. Embassy in Shanghai to ascertain if the Chinese
  government had amended its export licensing program for coke
  in order to maintain a high supply of this material in China.
  As China had been a prominent exporter of coke to markets
  around the world, including the U.S., the potential connection
  between this policy and the dramatic price escalations that
  automotive suppliers are experiencing is pivotal. A
  communication from the U.S. Commercial Service on Feb. 5,
  2004 to MEMA confirmed that “the procedures for exporting
  coke from China are getting more strict” as coke has been
  deemed a resource and an essential raw material by the
  Chinese government.
  MEMA has held meetings with a number of the industry’s
  Congressional supporters to explain the present situation and to
  solicit support for future communication with the Bush
  Administration.
2004 MEMA Outreach & Advocacy on Steel Issue

  MEMA has also initiated internal mechanisms to estimate the
  financial and economic damage imposed on groups of its
  member companies through the additional surcharges on steel
  shipments and growing scarcity of certain materials. OESA has
  provided the results of a comprehensive survey conducted on its
  members. The MEMA Washington, DC office has also worked
  to amass data through the Automotive Aftermarket Suppliers
  Association (AASA) and the Heavy Duty Manufacturers
  Association (HDMA).
  MEMA has consulted extensively with its Executive Committee
  to further assess other potential areas of action.
  MEMA staff members have also worked with members of the
  automotive press and other major media outlets such as BBC
  News to highlight the growing crisis and to detail the potential
  impact on this industry sector.
MEMA Meeting With the Department of
Commerce: March 31, 2004

 Pursuant to a letter to Undersecretary for Trade Grant Aldonas
 and other communications with Department of Commerce
 officials on this matter, MEMA requested a formal meeting with
 the Department on March 31st.
 MEMA staff met with officials from the various pertinent divisions
 within the Department:
    Timothy Hauser, Deputy Under Secretary, International
    Trade Administration
    Joseph Bogosian, Acting Assistant Secretary for
    Manufacturing
    Henry Misisco, Director, Office of Automotive Affairs
    Charlie Bell, Senior Analyst, Office of Metals
    Kelly Parkhill, Supervisory Import Compliance Specialist,
    International Trade Administration
MEMA Meeting With the Department of
Commerce: March 31, 2004

 MEMA conveyed the gravity of the situation and
 provided specific examples of the costs facing the
 automotive parts industry. Commerce officials
 confirmed that the agency leadership is aware of the
 situation and is assessing it. MEMA also noted the
 long-term implications for the industry as a whole as
 China enters the world trading system.The
 Commerce Department noted specifically that
 Secretary has been informed on the specifics of the
 current crisis.
MEMA Missive to Bush Administration
Primary Messages:
  MEMA is urging the Bush Administration to take
  immediate action to address China’s rising consumption of
  steel and other essential raw materials and to initiate
  consultations with China concerning its present
  restrictions on the export of domestic coke. China’s
  National Development and Reform Commission has
  moved swiftly to institute protectionist measures which will
  aid China’s domestic businesses, while gravely
  disadvantaging those manufacturers operating in the U.S.
  MEMA does not dispute the right of the Chinese economy
  to consume raw materials. Our distinct concern is that
  China is presently combining an escalating consumption
  of valuable raw materials with a WTO-illegal export control
  regime. Clearly, the inequity of this strategy must be
  challenged.
MEMA Missive to Bush Administration

 MEMA believes that the U.S. government must also
 address these most recent actions by the Chinese
 government concerning the export of coke and coal
 and that it should assess the ramifications of China’s
 growing industrial base. China’s entry into the world
 trading system will have both short-term and long-
 term implications for manufacturers in the United
 States as they struggle to compete in the global
 arena. If China continues its unsustainable
 consumption of certain valuable commodities, while
 also restricting the fair and transparent trade in such
 base materials, U.S. businesses and domestic jobs
 will be placed at risk.
MEMA Missive to Bush Administration
 The Bush Administration must not permit these nations to adopt
 market-distorting practices that gravely hinder the ability of U.S.
 companies to acquire their needed raw material base and to
 produce goods for domestic consumption and for export. The
 current situation does not reflect an equal playing field for
 U.S. manufacturers.
 In addition to the coke export controls in China, MEMA is also
 aware that Russia and the Ukraine instituted export restrictions
 on their domestic supplies of scrap steel in 2003; thereby,
 placing additional pressure on other markets around the world.
 As Russia is presently in the end stage of its WTO accession
 agreement, it is clear that this practice must be addressed and
 terminated before any further progress in the negotiations
 should be allowed.


 MEMA will formally meet with the Office of the U.S. Trade
 Representative on April 8, 2004.
Outreach By Other Organizations or Industries

  On March 26, 2004, the Board of the National Association of
  Manufacturers (NAM) publicly released a resolution “opposing
  WTO-illegal foreign controls on the export of industrial raw
  materials.”
  The NAM statement added “Scarcity of many raw materials,
  especially steel scrap, has become a major problem for many
  U.S. manufacturers. The resolution urges that the U.S.
  government “initiate consultations on an urgent basis with
  countries that have undertaken such actions and encourage
  them to immediately cease controls on raw materials exports.”
  The U.S. Big Three vehicle manufacturers also appear to be
  moving towards a more active stance in DC on this issue.
  MEMA has communicated with Daimler-Chrylser and Ford
  specifically on this concern. General Motors has remained the
  silent member in the Washington, DC debate.
Outreach By Other Organizations or Industries

  Daimler-Chrysler has also taken a different plan of
  action, agreeing to return offcuts of steel to the mill
  from which it purchases its steel shipments. This has
  partially shielded the company from the rising cost of
  scrap.
  Other industries have begun to assess other paths of
  action including the possible elimination of anti-
  dumping orders and countervailing duty orders now
  in place on steel products.
U.S. Manufacturers: Challenges to Remain
Competitive in the Global Arena
   Healthcare Costs and Prescription Prices
   Regulatory Compliance
   High Energy Costs
   Economy Stagnant in Many Areas
   Raw Material Costs

MEMA message to Bush Administration: Rising steel costs are
  not a solitary issue. They are a facet of the overall picture, which
  is that U.S. auto parts manufacturers are suffering under a
  tremendous burden and cost structure that their foreign
  competitors simply do not face. A Chinese manufacturer is able
  to absorb a 30 percent price increase in his steel costs, an
  American manufacturer is not. Our companies can not
  “maneuver” their way around these rising costs.
A Far Different Challenge… How Can the
Government Play a Role ?
 The current steel crisis stems from a far different
 source than the one experienced by the automotive
 supplier industry in 2002-2003.
 The previous price spiral was founded in a direct
 government action – the Section 201 Steel Tariffs
 which were imposed by a Presidential executive
 order and which could be rescinded by the U.S.
 government.
 The current crisis stems from market forces, most
 beyond the U.S. border.
A Far Different Challenge… How Can the
Government Play a Role ?

 Other Avenues of Action:
    Lobby Congress to initiate a request that the
    International Trade Commission (ITC) conduct an
    expedited fact-finding investigation of the global factors
    influencing the existing raw materials crisis and the
    direct impact on U.S. manufacturers, with a specific
    emphasis on steel. The ITC is charged with serving the
    President and Congress as an advisory, fact-finding
    agency on tariff, commercial-policy, and foreign-trade
    problems; thus, it is the appropriate body from which to
    secure the data required for any government action in
    relation to the raw material cost issue.
A Far Different Challenge… How Can the
Government Play a Role ?

    Seek fact-finding hearings in the House and/or
    Senate and generate opportunities for MEMA
    member companies to provide testimony on this
    concern. The Committees of Jurisdiction would be
    the House Ways & Means Committee or the
    Senate Finance Committee. This would require a
    concerted effort led by the MEMA Washington, DC
    staff and would also necessitate member
    company involvement on an individual basis with
    Congressional offices.
      Contact Information:


           Ana M. Lopes
 Director, Government Relations
Motor & Equipment Manufacturers
       Association (MEMA)
         Tel: 202 312 9241
        Fax: 202 737-3742
        alopes@mema.org