Tense Showdown over Steel

By Christopher Byron

The U.S. moves to stop imports in a troubled industry

Perhaps no industry is more suffused with nationalistic pride than steelmaking. Last week brought a chilling whiff of the protectionist sentiments that are easily aroused when steelmen start complaining of foreign competition. At issue were charges filed in January with the U.S. Commerce Department by a group of seven American steel producers, including U.S. Steel, Bethlehem Steel and Jones & Laughlin Steel. The companies charged that foreign producers, mostly from Western Europe, had chiseled their way into a 19% import share of the U.S. market by selling government subsidized steel to American buyers.

Since then, the steel business has gone from bad to worse around the world. In the U.S., more than 30% of the industry's 450,000-man work force is now unemployed or working short time, with steel mills operating at their lowest level since 1938. The situation in Europe is equally glum. During the past two years, there have been strikes in Britain and riots in Belgium and France as a result of job losses. The European steel industry ran about $2 billion in the red last year.

The American steel companies charge that the Europeans are using cutthroat tactics, including predatory pricing and domestic subsidies, to sell their products in the U.S. at less than it costs to manufacture them. They maintain that the Europeans can sell their products cheaply because many producers are either outright government owned or else heavily subsidized.

Reagan Administration officials have been seeking to ward off action on the industry's complaints. Their fear is that a decision against European Community producers could force Europeans to retaliate against American exports like soybeans and other agricultural products.

Last week, almost five months to the day after the industry's complaints were filed, the administrative clock ran out, and the Commerce Department issued a preliminary ruling that foreign steel producers from seven European nations, including Britain and West Germany, as well as producers in South Africa and Brazil, were selling in the U.S. market at unfairly low prices. Effective immediately, importers of their goods will have to post bonds on shipments pending final determination of damages later this year. Said Viscount Etienne Davignon, European Community commissioner for industry in Brussels, in response: "It has been quite clear that the highest level of the American Administration has not perceived the real meaning of this case. This certainly has a protectionist flavor about it."

With the economies of Europe as well as the U.S. already in trouble, a brush-fire trade war is the last thing that any government would like to see erupt. Thus, for weeks, U.S. negotiators had been meeting privately with European Community officials in a search for some sort of agreement that would head off the need for action by the Commerce Department. Washington's preferred solution was a voluntary pledge by the Europeans to limit exports. Since 1978 the Japanese have kept their steel sales in the U.S. to approximately 6 million tons annually. It was hoped that such a self-restraint deal could be used by the Administration to persuade the American producers to with draw their complaints.

At one point last week, European negotiators seemed ready to limit their share of the American steel market at least somewhat. But when Commerce Secretary Malcolm Baldrige met in New York City with a group of top steel-industry executives to try to sell them on the idea, they were not interested.

Big Steel's woes are not due entirely to imports. Many of its troubles are made in the U.S. Perhaps the most important difficulty the industry faces is excessively high wages. Robert Crandall, a senior fellow of the Brookings Institution, estimates that American steel companies are now paying 75% more than the wages paid in other U.S. manufacturing industries. The average union wage and benefit payment: $22 an hour. Says Crandall: "That is the industry's biggest problem."

In addition, American steelmakers have been skimping on the capital invest ments required to keep their factories up to date and efficient. Many outdated plants have been in operation too long and are badly in need of modernization and new investment in order to compete with fac tories in Japan and West Germany.

Whenever business has soured, steel executives have sought Government protection, usually by arguing that all they need is a li little breathing room so that they can modernize their factories. Rather than using the time to upgrade their plants, however, the companies have been down grading their steel operations.

During the past year alone, a number of the biggest and best-known American steel companies have been diversifying out of the industry. U.S. Steel spent $6.2 billion to acquire Marathon Oil Co. The steel giant is now seeking to sell off a 50% interest in RMI Co., the second largest American producer of titanium, a steel-like strategic metal that is crucial to the aerospace industry, to help pay for the Marathon take over. Meanwhile, National Steel Corp., the sixth largest U.S. producer, has spent $75 million to take over savings and loans in Miami and New York. In 1978 Armco even went so far as to drop the word steel from its corporate name altogether, and is now diversified into oilfield equipment and financial services.

Last week's Commerce Department rulings might give U.S. steel producers some more of that precious breathing room they keep asking for in order to get their industry back on track. The action, though, could bring on the very sort of risky and pointless transatlantic trade battles that would benefit no one. Either way, the outlook for steelmen is not encouraging. not encouraging. -- By Christopher Byron. Reported by Gisela Bolte/Washington and Lawrence Malkin/Paris

With reporting by Gisela Bolte/Washington, Lawrence Malkin/Paris

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