New Strategy Required For Aiding Distressed Steel Industry

EMD-81-29: Published: Jan 8, 1981. Publicly Released: Jan 8, 1981.

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GAO reviewed the problems facing the domestic steel industry and outlined the factors that should be considered in developing a program to revitalize the industry as a part of its ongoing efforts to improve the nation's capabilities to meet the materials requirements of the national economy. The comprehensive steel policy components addressed by GAO include: (1) wage and compensation restraint and labor-management commitment to a sound revitalization strategy; (2) measures to induce the entry and growth of new competitors; (3) accelerating depreciation rates; (4) improving administration of environmental regulation; (5) eliminating discriminatory price restraints; and (6) creating a trade policy yielding predictable and acceptable effects on imports with a minimum of inflation.

There is an international surplus of steelmaking capacity. However, if there is an upturn in the global economy, competition for foreign production is certain to increase significantly and there may not be enough steel to supply all customers. A large segment of the U.S. steel industry has become unable to compete with efficient foreign producers due to high labor costs, inefficiently sized plants, low utilization capacity, and restrictive government policies. Transportation costs give U.S. steel an edge in some domestic markets. Unfair pricing of steel products in the United States by foreign producers has been alleged to harm U.S. competition in the steel market. If American steel producers are to regain lost domestic consumers, they will need newer and more productive facilities and a more customer-oriented approach to their marketing. Many nations provide their steel industries with preferential financing, loan guarantees, and trade inducements. An effective policy toward steel ought to represent the nation's overall objective for the domestic industry's performance and include means for stimulation of competition, assistance in capital formation, and administration of environmental regulations. In establishing a performance goal, factors to be considered are: the point beyond which national security will be compromised if capacity drops; a target market-share for domestic firms; a target ratio of capacity to peak domestic needs; and the extent to which the industry's modernization and expansion needs can be met without depending on government assistance.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: In the almost 3 years since this report was issued, Congress has taken no steps to enact legislation to define a performance objective for the domestic steel industry. No action is contemplated.

    Matter: Congress should enact legislation to define a performance objective for the domestic steel industry. This objective, defined in terms of industrywide, efficient capacity goals and a timeframe for their realization, should serve as a benchmark against which the realism of industry revitalization activity and related government policy can be assessed. Such legislation may have to be subsequently amended in light of periodic reevaluation of mandated capacity assessment studies. The objective should also be sufficiently stable to give confidence to investors and policy administrators.

  2. Status: Closed - Not Implemented

    Comments: There is no way to determine whether Congress has considered the kind of labor and management commitments to industry revitalization which presently exist or which may be needed since no legislation is contemplated.

    Matter: Congress should consider the kind of labor and management commitments to industry revitalization which presently exist and/or which may be needed. Meaningful labor and management commitments could include: (1) continuing labor's helpful attitude towards adopting efficient new technology; (2) restraining wage, salary, and dividend levels and devising innovative methods as needed to redress compensation premium problems; and (3) new initiatives to minimize adverse job dislocation effects arising from plant closings, adoption of new technology, or business cycle fluctuations.

  3. Status: Closed - Not Implemented

    Comments: Congress has not considered a performance objective for the domestic steel industry.

    Matter: Congress should, as part of its consideration of a performance objective for the domestic steel industry, review the Administration's latest steel program. Such a review should relate alternative performance objectives to specific program proposals such as (1) assistance on near-term (5-year) capital formation and investment needs; (2) the adequacy of proposed import controls to jointly satisfy the earnings-investment needs of producers, the inflation protection needs of domestic consumers, and trade access opportunities for low-cost foreign suppliers; and (3) proposed amendments to environmental laws to ensure that they reflect both a commitment to reasonable administrative flexibility and industry achievement of environmental protection standards.

  4. Status: Closed - Not Implemented

    Comments: Congress has not seen fit to enact legislation requiring biannual assessments of steel capacity conditions.

    Matter: Congress should enact legislation requiring the Executive Office of the President or other appropriate executive branch agencies to undertake a biannual assessment of steel capacity conditions. The assessment should cover both domestic and foreign suppliers and the plausible range of supply-demand conditions which might be encountered over the coming 5 to 10 years. These recurring assessments ought to provide the basis for judging the present and prospective capability of the domestic steel industry and for identifying policy initiatives to avoid undue risk from foreign supply sources.


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