Severe Disadvantage

GUEST OPINION

Last month Associate Editor Brian Corbett wrote a commentary supporting the Bush Admin. tariffs on imported steels. He said suppliers were over-reacting to the tariffs and suggested they should be working instead to develop more mutually beneficial relationships with their auto maker customers. We invited the Motor & Equipment Manufacturers Assn., a key opponent of the steel tariff program, to provide an opposing view.

In the past few months we've seen an almost endless media exchange between U.S. steel producers and U.S. steel consuming industries, including automotive suppliers. At the heart of this debate is the Bush Admin.'s steel safeguard program, including the Section 201 tariffs on imported steel, which became effective in March 2002. Many view the tariffs as the only avenue of recovery for the domestic steel industry and one that enabled prices to rise dramatically while also spurring consolidation within the steel base.

This benefit to the steel sector, however, has come at an enormous price to steel consumers in the U.S. The Motor & Equipment Manufacturers Assn. remains committed to supporting a strong domestic steel industry. Our companies are among the domestic steel industry's largest and most consistent customers. Yet the tariffs and the overall safeguard program fail to recognize the vulnerable state of manufacturing in this country and the fact that U.S. companies now operate on a global playing field. Automotive suppliers, in particular, are shouldering the effects of this transition.

The Administration's steel exclusion process, now in its second round, has not served as a significant avenue of relief for U.S. auto suppliers. Many have depicted this process as an easy loophole in the program, but this perception is flawed.

If a product traditionally has been produced and offered for sale in the domestic market, then it is not eligible for a tariff exclusion even if it now is only available in scarce quantities or at extremely high prices. About 95% of all the steel used by U.S. suppliers falls into this category. In the meantime, foreign automotive suppliers continue to source steel at lower cost.

The inability to access relief, coupled with rising concerns over increased imports of foreign auto parts, is what has fueled the supplier industry's support for the Knollenberg Resolution.

It is clear that automotive suppliers lack pricing power in the present incarnation of the industry. This inability has heightened the supplier industry's sensitivity to the unexpected repercussions of the safeguard program, which go far beyond higher prices. Delivery delays, quality concerns, increasing lead times, searches for alternative sourcing patterns and additional testing for the adoption of new grades of steel have imposed both timing and financial burdens on our member companies. Our “just in time” system does not allow for disruptions along our raw material chain.

It has been suggested that the core of the steel tariff problem lies in the failings of Detroit's auto makers, and that if suppliers held greater pricing power, perhaps the safeguard program would not have dealt a blow of these proportions.

Such finger pointing will not lead suppliers or the federal government to a solution. In waging its advocacy program on steel, MEMA and its member companies are not discounting the hardships of the U.S. steel industry or disputing the need for reducing global steel production capacity. Instead, suppliers have kept the focus on the crux of our difficulties — the defects in the steel remedy and the unintended consequences of the steel relief program on U.S. manufacturers.

Moreover, the contention that much of the problem is the result of poor relations between Detroit's vehicle manufacturers and their suppliers is discounted by the fact that automotive suppliers are not alone in their quest for a comprehensive midterm review.

A wide variety of affected industries — farm equipment producers, furniture makers, stampers, tool manufacturers, appliance manufacturers and providers of construction equipment — are all suffering. The problem goes far beyond Detroit and lies in the steel remedy itself.

The supplier industry's opposition to Section 201 steel tariffs boils down to one basic tenet: The tariffs have placed our companies at a severe disadvantage in comparison to our foreign competitors and have crippled our ability to maintain our operations in the U.S. Through the Knollenberg Resolution and our parallel efforts with the Bush Admin. we are merely seeking the ability to compete without an unsustainable competitive burden. Supplier jobs already have been lost and plant closings announced.

The Administration must consider this evidence and that of other steel-consuming industries as part of its analysis of the steel program this September.

Ana M. Lopes is Director of Government Relations for the Motor & Equipment Manufacturers Assn. in Washington, D.C.