adam b. parr director, policy & communications steel manufacturers association may 2, 2011...

Adam B. ParrDirector, Policy & CommunicationsSteel Manufacturers AssociationMay 2, 2011

Legislation, Regulation, & Public Policy in the 112th Congress & the Obama Administration

Wire Rod Supply Chain Conference

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Outline

•About the SMA

•The Tone in Washington

•U.S. Macro Issues

•Some SMA Policy Priorities

•What Does the U.S. Need To Do?

•Conclusions


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About the SMA

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The Steel Manufacturers Association (SMA)– 35 North American companies:

30 U.S., 3 Canadian, and 2 Mexican– Operate 125 steel recycling plants in North America– Electric Arc Furnace (EAF) steelmakers using recycled steel– EAF steel producers account for nearly 2/3 of U.S. production– SMA represents approximately 90 million of 120 million ton U.S. capacity– 128 Associate Members - Suppliers of goods and services to the steel industry


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The Tone in Washington

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Factors in the 2010 ElectionsIt’s the economy, stupid…• The economy was the number one issue for the American public in 2010—

frustrations with high and stagnant unemployment figures, struggling housing markets, and persistently tight credit drove voter sentiment

• Those concerns were confirmed in exit polls on November 2, where over 60% of voters ranked the economy as the nation’s top problem and almost 90% expressed concern about the state of the economy over the next year (Associated Press)

Dissatisfaction/perception that government is not tackling the right issues• Frustrations augmented by the belief that the government has done more for Wall

Street than for Main Street during the economic crisis• That sentiment, coupled with increasing public concern/skepticism regarding the

role of government in the private economy and the growing deficit and long-term national debt, has resulted in a general perception that lawmakers aren’t listening and are overreaching

In exit polling, 75% of voters “expressed negative views about how the federal government is working”, while over half said “the government should let business and individuals handle more things on their own” (Associated Press)


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Return to Divided Government

– Control of the Senate remains with the Democrats

• New breakdown: 53 Democrats (including 2 Independents who caucus with the Democrats), 47 Republicans

– The House of Representatives is now controlled by the Republicans

• New breakdown: 242 Republicans, 193 Democrats

– The majority of state Governorships now held by Republicans

• New breakdown: 29 Republicans, 20 Democrats, 1 Independent


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U.S. Macro Issues

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- E c o n o m y- War in Iraq- War in Afghanistan- Health Care- D e fi c i t- Size of Government, Government Spending- Homeland Security- Ta x e s- Financial Oversight- I n t e r n a ti o n a l T r a d e- E n e r g y a n d E n v i r o n m e n t- Transportation and Infrastructure- L a b o r- Middle East Tensions- Japan Earthquake- Continuing Resolutions – Funding the Government

Big U.S. Government Issues/PrioritiesWire Rod Supply Chain Conference

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• While the recession officially ended in June 2009, the sluggish pace of the recovery remains a top concern for both the public and policymakers

• Impact of Japanese Earthquake?

• Impact of Libya oil costs?

EconomyWire Rod Supply Chain Conference

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• The need for policies to promote economic growth in the short-run is complicated by the need/desire for longer-term austerity measures to address the nation’s deficit and long-term debt

• President Obama has signaled that addressing the deficit and long-term debt is an area ripe for compromise with Congressional Republicans

• What will be the impact of a reliance on continuing resolutions and a discussion of debt ceilings?

DeficitWire Rod Supply Chain Conference

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• Ways and Means Committee Chairman Dave Camp (R-MI) and Trade Subcommittee Chairman Kevin Brady (R-TX) are avowed free-traders

– Addressing China’s trade practices

• Last Fall, the House passed the Currency Reform for Fair Trade Act—Sen. Schumer (D-NY) has pressed for a Senate currency vote, but prospects for action this year are unclear

• Last October, U.S. Trade Representative Ron Kirk announced that the United States has initiated an investigation of China’s practices affecting trade and investment in green technologies—will Congress enter the debate?

• More generally, the effect of the Tea Party is unknown—the movement has an anti-government, free market strain, but there is also a populist, anti-Wall Street component and it is unclear how this cuts on any particular issue, particularly trade

International TradeWire Rod Supply Chain Conference

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• Vigorous oversight of EPA will be a general theme throughout the 112th Congress

• Prospects for comprehensive climate legislation are weak—will see continued Congressional efforts to slow down EPA’s regulation of carbon emissions

• In early April, Senate voted down a number of amendments designed to stop the EPA from regulating greenhouse gas emissions– Voting on McConnell-Inhofe Amendment was evenly split 50-50, with four

Democrats joining forty-six Republicans in supporting the Amendment– Less aggressive alternatives were defeated by more dramatic margins– White House has issued veto threat against House bill that mirrors the

McConnell-Inhofe Amendment

Energy & EnvironmentWire Rod Supply Chain Conference

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Energy & Environment Cont.

• Impact of U.S. EPA regulations on power plant emissions

• Piecemeal approach to energy policy presents opportunities for cooperation—as demonstrated by bipartisan legislation approved by the Senate Energy and Natural Resources Committee in the last Congress under Chairman Bingaman (D-NM) – Potential Renewable Energy Standard (RES), but Republicans were

likely to push for inclusion of nuclear energy and clean coal technology, a “clean energy standard”

– Proposals for increased energy efficiency in industrial facilities and buildings (Home Star) as well as financing for green technologies also on the table, but finding pay-fors will be difficult


Transportation & InfrastructureGood News

• Early March, Congress passed legislation to extend Federal Highway & Transit Program spending for 7 months

• Funding through end of current fiscal year at 2009 level – will allow some projects and planning to proceed

• Bipartisan effort

Bad News• Need long-term reauthorization bill, not stopgap measures• Spending levels do not come close to matching the levels that are

needed• Current gas tax woefully inadequate, but Congress will not address


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• Pending or planned Democratic labor-related legislative initiatives are very unlikely to move forward in 112th Congress– “Card-check” legislation (Employee Free Choice Act)– Mine Safety Reform– Legislation to allow all firefighters and police officers to unionize

• In fact, legislative efforts moving in the opposite direction have been proposed previously– Anti-card check legislation (Secret Ballot Protection Act)– Campaign finance reforms to regulate use of union dues to support union political activity

• Some Democratic priorities can be pursued through administrative efforts of the Department of Labor or the National Labor Relations Board– Boeing

Labor


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2012 Elections• In the House, Democrats hold few competitive districts, and need 24 to

retake the majority

• In the Senate, Democrats will defend 24 Senate seats (including two Independents) to the Republicans 10. Republicans need four net wins to take control of Senate

• More trouble for incumbents?

• Republicans currently have no clear frontrunner for the presidential nomination

• It’s President Obama’s race to lose

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Some SMA Policy Priorities

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The Good, the Bad, and the UnknownWire Rod Supply Chain Conference

The Good -Congressional turnover means an opportunity to educate new Members and their staff on the policy priorities of EAF steel producers -Increased receptiveness toward manufacturing and job-creating industries

The Bad -Through retirements and electoral defeats, steel industry lost a number of Congressional supporters -Many steel industry priorities currently are taking a backseat to budgetary and deficit concerns

The Unknown -How long before budgetary items are adequately addressed and other discussions can gain traction? -More gridlock, or will the parties come to the middle?

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The House Steel Caucus

-Bipartisan House Steel Caucus led by Rep. Tim Murphy (PA) and Rep. Pete

Visclosky (IN)

-Approximately 100 House Members

-Staff briefing held on April 27th

-Hearing tentatively scheduled for May 26th to address issues impacting

industry competitiveness

-If your Representative is not yet a Steel Caucus member, ask them to join

Wire Rod Supply Chain Conference Steel Caucus

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Raw Material Cost and Availability is #1 Issue for SMA Members

• Many countries continue to impose a variety of restrictions on exports of vital raw materials

– Export prohibitions

– Export duties

– Export quotas

– Other measures

• Trade-distorting restrictions on exports of raw materials

– Give domestic producers in the exporting country an unfair advantage

– Increase worldwide costs of production

– Place a heavy burden on steel industries in developing countries that do not have substantial iron ore reserves or steel scrap supplies

Raw MaterialsWire Rod Supply Chain Conference

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Raw Materials

• The United States, the EU, and Mexico have challenged China’s application of a variety of restrictions to exports of key raw materials used in steelmaking, including:– Coke– Refractory bauxite– Fluorspar– Zinc

• The restrictions China applies include:– Export duties– Export quotas– Restrictive bidding procedures


WTO Raw Material Case

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Raw Materials

• China has argued that these measures are justified to prevent pollution and to preserve natural resources

• China has also claimed a “sovereign right to regulate” its raw material exports

• This decision could have a major impact on international trade in raw materials for steelmaking:

-If these justifications are accepted, every scrap producer could legitimately limit exports of steel scrap

-This would wreak havoc on the global steel industry; countries that are heavily dependent on scrap imports would be particularly affected

• USTR is very interested in a potential case regarding China’s restrictions on exports of rare earths and other raw materials


WTO Raw Material Case cont.

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• World demand for steel scrap is likely to continue to increase:-Increased steel production in China, India, and Brazil-Economic recovery

• Steel scrap is subject to more export restrictions than any other raw material

• There is a significant problem with transparency, because export restrictions change frequently, making supply even more problematic

• The American Scrap Coalition continues to engage in a global discussion on scrap trade through the OECD and other venues

World Demand for Steel Scrap

Wire Rod Supply Chain Conference Raw Materials

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Wire Rod Supply Chain Conference China

•When China was approved as a member of the WTO, its leaders committed the nation to adhere to the rules embodied in the articles governing the WTO’s member nations

•China has flagrantly violated these rules, thumbing its nose at the protests of other governments

The WTO

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Currency Reform

• Addressing currency manipulation by foreign governments will significantly boost U.S. exports and stimulate the U.S. economy without adding to the debt.

• Currency undervaluation acts as an export subsidy, making Chinese imports cheaper in the U.S. and foreign markets, and U.S. exports more expensive. – Fred Bergsten of Petersen Institute: China’s currency undervaluation

is the “biggest subsidy” of all

• Legislation will give U.S. industries the tools to fight back against this unfair practice and will give the Administration leverage to negotiate a multilateral agreement.


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Currency Reform• Currency Reform for Fair Trade Act (H.R. 639)• 127 cosponsors• Allows U.S. industries injured by foreign government currency

undervaluation to file a petition under our trade laws alleging currency undervaluation as a countervailable export subsidy.

• This bill is a measured approach. Relief would be on a narrow case-by-case basis; not broad economy-wide.

• Widely recognized as WTO-consistent• Does not start a trade war or impose WTO-illegal tariffs on all

Chinese imports


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Customs Enforcement Issues

•U.S. manufacturers are facing a surge in schemes by foreign producers to evade payment of duties owed on dumped and subsidized imports

•Efforts to evade AD/CVD duties range from transshipment through third countries to misclassification (e.g., by falsifying import documents)

•Some foreign companies blatantly and boldly advertise services to assist importers in circumventing our laws

•As a result, many U.S. producers continue to suffer injury even after winning a trade case


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Customs Enforcement Issues

• U.S. steel groups and workers have worked since late 2009 to identify customs enforcement issues impacting the collection of AD/CVD duties

• Legislation focusing on enforcement was introduced on August 5, 2010 by Senator Ron Wyden (D-OR) and Senator Olympia Snowe (R-ME)

• The bill, referred to as the ENFORCE Act, is designed to provide the trade agencies with the tools necessary to enforce U.S. trade laws


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China’s State-Owned EnterprisesWire Rod Supply Chain Conference

-”Going abroad” strategy – expected to be component of forthcoming Five-Year Plan

-Currently no sufficient way for U.S. Government to address from a commercial perspective foreign government ownership and investment in U.S. companies – CFIUS only deals with national security implications

-Lack of reciprocity

-U.S. steel producers can compete with producers anywhere in the world, but should not be expected to compete with foreign governments

China

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Corporate Tax Rate

• U.S. producers incur higher corporate tax rates than do manufacturers in almost all other countries

• The U.S. Government does not rebate taxes to corporations when they export manufactured products, as do almost all other nations with value-added taxes (VATs)

• The U.S. corporate tax rate, a combination of the 35% federal rate and state taxes, hovers around 40%; in contrast, the average tax of U.S. trading partners is 10% lower

Wire Rod Supply Chain Conference Taxes

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Energy IndependenceWire Rod Supply Chain Conference Energy

•EAF-based steel production is an energy-intensive process that requires reliable and economically competitive energy supplies

•The U.S. must make a concerted drive for greater energy independence; we require all forms of energy to supply North America’s energy needs

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Burdensome Regulatory Requirements

• SMA’s members are currently placed at a global competitive disadvantage by regulatory burdens and impediments at the EPA and OSHA (ex. GHGs, National Emphasis Program on Recordkeeping, Combustible Dust)

• Regulations should be established through approved legislative initiatives, rather than questionable regulatory actions

• OSHA’s shift in focus from cooperative programs to enforcement sends the wrong message to companies who are doing the right thing (look at the numbers – VPP, OHSAS 18001, etc work!)

EPA & OSHAWire Rod Supply Chain Conference

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Transportation & Infrastructure

• U.S. must rebuild its deteriorating infrastructure in order to remain globally competitive

• SMA is concerned with the lack of sufficient transportation competition

• Truck driver shortage is a growing concern – could be worsened by CSA 2010 and proposed Hours-of-Service rule changes

• Positive Train Control


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What does the U.S. need to do?

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What does the U.S. need to do?

• Assume a Pro-Manufacturing Agenda– Business Tax Reform– Border Adjustable Taxes– Currency Adjustments– Energy Independence– Reasonable Regulatory Measures (Environment/Labor)– Climate for investments (Jobs, Jobs, Jobs) and Infrastructure

• Solve the structural problems that caused the recession - Real Foundation– Bad loans and securities on bank balance sheets– Reduce huge trade deficits

• Policy incrementalism is not sufficient


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Conclusions

• U.S. is in a traffic jam, moving slightly forward, but don’t know other consequences. More questions than answers at this point. Don’t look to Washington, DC for help.

• Reach out to your Representatives when they’re in the district.• We have a great story to tell in safety, energy, environment, job creation, etc• Reasons for optimism in steel in U.S.:

– Scrap-based, 70% of cost – local supply– Low-cost on global basis (energy is neutral, labor less than 10%, others have higher

transportation costs)– Relatively strong U.S. market and U.S. resiliency– Better U.S. company balance sheets


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Thanks! Any questions?

adam b. parr director, policy & communications steel manufacturers association may 2, 2011...

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