Download About the SMA

Wire Rod Supply Chain Conference
Legislation, Regulation, & Public Policy in the 112th
Congress & the Obama Administration
Adam B. Parr
Director, Policy & Communications
Steel Manufacturers Association
May 2, 2011
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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 Elections
It’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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Big U.S. Government Issues/Priorities
Economy
War in Iraq
War in Afghanistan
Health Care
Deficit
Size of Government, Government Spending
Homeland Security
Ta x e s
Financial Oversight
I n t e r n a t i o n a l Tra d e
Energy and Environment
Transportation and Infrastructure
Labor
Middle East Tensions
Japan Earthquake
Continuing Resolutions – Funding the Government
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Economy
• 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?
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Deficit
• 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?
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International Trade
•
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 antigovernment, 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
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Energy & Environment
• 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
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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
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Transportation & Infrastructure
Good 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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Labor
• 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
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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 Unknown
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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Steel Caucus
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
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Raw Materials
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
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Raw Materials
WTO Raw Material Case
• 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
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Raw Materials
WTO Raw Material Case cont.
• 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
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Raw Materials
World Demand for Steel Scrap
• 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
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China
The WTO
•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
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Currency Reform
China
• 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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China
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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China
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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China
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
China’s State-Owned Enterprises
-”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
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Taxes
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
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Energy
Energy Independence
•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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EPA & OSHA
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!)
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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
–
–
–
–
–
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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?
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