The OECD is considering asking both company chief executives and senior government figures to present their views on the issues of global “over capacity” and subsidies, say industry reports. At present, the most likely date for the OECD high-level meeting is 17 September. But given the wide range of views in the industry, it is unclear if it is even possible to agree on an agenda.

On 5 June, besides asking for a 201 investigation into all steel imports, Bush proposed the elimination of both “inefficient excess capacity,” and “the underlying market-distorting subsidies.” On the same occasion, he also suggested that any agreed policy measures on these two areas should be included in new rules on steel trade.

World-wide, there are at least three, and maybe four, quite different reactions to the proposals from president Bush:

• The “we are right” US/Canadian view
• The extreme “let the US industry sort out its own difficulties” view of some Europeans: with 201 restrictions in place, the US consumer would pay; without any limits on imports, the US consumer would benefit
• The more moderate “rules-based” approach, which would include the USA, on certain conditions, proposed by many Europeans and others

The US position

The US steel industry, spurred on by the trade unions continues to proclaim that imports have and are destroying a modernised and efficient domestic industry. This is despite a 25% decline in year-to-date imports, and the dependence of a number of US mills on imports of either semis or HR coil. In the recent past, 15-20 US steel companies are said to have filed for Chapter 11 reorganisation; more may be on the way.

Based on US industry comments, the office of the US Trade Representative is preparing a paper showing the USA as one of the world’s most efficient producers. It has done this by focusing on pointers such as average man-hours per tonne produced, rather than market indicators, such as sales, profits, and bankruptcies. It is understood that Canada will probably support the USA’s position in any talks.

Most industry sources outside North America see this position as hypocritical. They see the move to blame imports for the US Chapter 11 “bankruptcies” as shifting the burden of adjustment on to foreign companies. Rather the real problem is the inability of the USA’s high cost producers to cease production.

Let the US sort out its own difficulties

The extreme European view believes that the rest of the world should do nothing to hinder the closure of these inefficient, and mostly uneconomic firms. They continue to produce due to a range of political and/or administrative measures taken by governments to thwart the market, says this view.

If Bush brings in widespread quantitative import restrictions after the 201 investigations, it would again be the US consumer, which pays for keeping the country’s non-viable producers alive. The main European producers could afford – in the short term - to ignore such a protected US market, says this view. However, some smaller producers, dependent on US sales, and whatever their location might disappear, again allowing the large European players to take up their market share.

In contrast, if Bush manages to avoid any onerous import restrictions, US consumers would benefit. They would have access to cheaper products from the more efficient US producers, from Europe and elsewhere. The non-economic US mills would close quite quickly, this scenario suggests.

A worldwide rules-based approach

The more moderate European position is that industry worldwide should adopt rules for international trade, particularly to facilitate closures. But these would have to prohibit all measures – including those of the USA - that sustain uneconomic capacity, they say. Otherwise, there are no grounds for meaningful talks at the OECD or elsewhere.

Over the last 20 years, the US state is seen by many as having intervened too often in the market adjustment process. This means the US industry’s average costs are too high, relative to other suppliers globally. Consequently, many have been unable to earn a sufficient return, even in boom years, to allow them to invest in more efficient production methods. Industry – in the USA and in other countries - has to reject the need “to protect any capacity at any cost,” Francis Mer, Usinor’s chief executive recently said.

This moderate view also believes that the US industry has to be told – in clear terms – that its problems have domestic causes. By supporting its uneconomic mills, the USA has stopped industrial restructuring, and hence “encouraged” imports from more competitive, lower cost producers overseas.

The USA subsidises its mills at local and state levels, as well as through the Chapter 11 restructuring process. “As practised today, Chapter 11 has undeniable subsidy effects,” says Charlie Blum, president of the US-based International Advisory Group. “In almost every case, it is a negotiated transfer of liabilities from the struggling company to its creditors, enforced by a federal court, without regard to any changes in the structure and functioning of the company,” he adds. The losers in this process are the competitive companies, which manage their affairs better than the Chapter 11 businesses. They in turn suffer from the restricted access to capital, which the temporarily lower-cost companies inflict on the market.

A rules based approach would specifically identify appropriate tools to facilitate the closure of steel producers globally. This cannot be based on crude national capacities, as the US industry is arguing. An international steel agreement would sanction the various options that governments could take in specific circumstances.

At a general level, such an agreement would need to consider a host of issues, says this view. These would include individual product capacities, subsidies, transparency in global trade and stocks, as well as the specific needs of developing countries. They would also need to consider the specifics of the adjustment process – for instance the appropriateness of World Bank funding of redundancies, or the sale of licences to control imports, using the Chinese model, suggest industry observers.

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