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From NAFTA to an Integrated North American Steel Market Rafael Rubio NASPD Fall Conference Cancun , Mexico October 11, 2007 October 11, 2007 Agenda I. Economic Integration II. Where do we come from? III. Where are we now? IV. Where are we heading for? October 11, 2007 2 I. Economic integration ● Integration is a process rather than a single act. ● The NAFTA steel sector can, and should, deepen its integration and movement toward the formation of one regional market: ─ Increasingly interdependent. ─ Enhance competitiveness. ─ Face common challenges form abroad. October 11, 2007 3 How can 3 markets can be integrated? Two ways: ● Market Way: 3 markets can become a single one when companies have investment or customers in the other markets and make no geographical distinctions in their operations. ● Institutional Way: When governments create the instruments and institutions that drive 3 markets into become a single one. ● Steel sector has been moving along those two ways. October 11, 2007 4 II. Where do we come from? ● Fred Telmer – CEO Stelco. Chairman North American Steel Council (August 1992): “We should be looking for open markets to increased trilateral steel trade: we agree that open markets should mean the elimination of steel tariff, non-tariff barriers and other trade-distorting practices”. ● His proposal: a North American Steel Sector Agreement as part of the NAFTA negotiations. October 11, 2007 5 NAFTA: timeline ● 1994: NAFTA was the first step in Mexico's globalization. For Mexico, It was more than a trade agreement. ● 1994 - 2004: Mexico orientation was to signed more FTA (44 countries) NAFTA was taken as “given”. ● 2005 (March): Security and Prosperity Partnership of North America (SPP): Work together more effectively and efficiently. October 11, 2007 6 NAFTA: has been a successful story … Mexico – USA Trade Trade Balance US Investment in Mexico (Billion USD) (Billion USD) 250 25 140 Accumulated 200 120 Exports 20 100 150 Imports 15 80 100 60 10 Annual 50 Trade Balance 40 5 0 2006** 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 -25 2007* 20 Source: Mexican Ministry of Economy Statistics with Mexican Central Bank Data * 2007 Estimated from January – June 2007 data ** 2006 Data up to September 2006. October 11, 2007 7 … Changing our economy Mexican Exports (%) 1982 Manufacturing Agricultural 25 % 5% Oil & Mining 70% 2006 Oil & Mining 16% Agricultural 3% Manufacturing 81% Source: BANXICO October 11, 2007 8 The Market Way in steel ● The steel trade between Mexico and the US has been growing over time. ● Mexico has a surplus in some products and a deficit in other. In some products, Mexico is the largest exporter to the US Market. ● The US, on the other hand, is the largest exporter to the Mexican market. ● BUT, there has been trade frictions. Less than in the past. Current cases are in pipe and tube. October 11, 2007 9 Mexico – USA Trade Finished Steel Products (thousand metric tones) 3,000 Imports 2,500 2,000 Exports 1,500 1,000 500 Trade Balance 0 -500 -1,000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007* Source: Mexican Customs & CANACERO Statistics * 2007 Estimated from January – July 2007 data October 11, 2007 10 Mexico – USA Trade Flat Products (thousand metric tones) 1,500 Imports 1,000 500 Exports 0 Trade Balance -500 -1,000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007+ Source: Mexican Customs & CANACERO Statistics * 2007 Estimated from January – July 2007 data October 11, 2007 11 Mexico – USA Trade Weld Pipes (thousand metric tones) 400 350 Exports 300 Trade Balance 250 200 150 Imports 100 50 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007* Source: Mexican Customs & CANACERO Statistics * 2007 Estimated from January – July 2007 data October 11, 2007 12 Mexico – USA Trade Seamless Pipes (thousand metric tones) 120 Exports 100 80 60 Imports 40 20 0 Trade Balance -20 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007* Source: Mexican Customs & CANACERO Statistics * 2007 Estimated from January – July 2007 data October 11, 2007 13 Mexican Imports USA Share of Total Mexican Imports (%) 90% 80% Weld Pipes 70% 60% Finished Steel Products 50% 40% 30% Seamless Pipes Flat Products 20% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007* Source: Canacero October 11, 2007 * Estimated from January – July 2007 data 14 Mexican Exports USA Share of Total Mexican Exports (%) 100% 90% Weld Pipes 80% 70% 60% Finished Steel Products Flat Products 50% 40% 30% Seamless Pipes 20% 10% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007* Source: Canacero * Estimated from January – July 2007 data October 11, 2007 15 USA Exports Mexico & Canada Share in Total USA Exports (%) 70% 60% Canada 50% 40% 30% Mexico 20% 10% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007* Source: AISI. October 11, 2007 * Estimated from January – July 2007 data 16 The Institutional Way … NAFTA Negotiations American Iron and Steel Institute North American Steel Council October 11, 2007 17 … some examples ● North American Steel Council: a forum in which Directors from Producer Members located in Canada, Mexico and the United States can discuss public policy issues relating to the North American Free Trade Agreement (NAFTA). ● Section 201: Temporary safeguard imposed by the US government in March 2002. Mexico and Canada were excluded because of NAFTA. ● OECD Steel Committee: NAFTA worked as a group on common issues. October 11, 2007 18 III. Where are we now? ● The Market Way: Trade + investments + consolidation = have increased market integration Steel companies with facilities in 2/3 countries - Arcelor Mittal - Gerdau - US Steel - Ipsco (SSAB) - Timken - Essar - Tenaris - Ternium October 11, 2007 Steel Users with facilities in 2/3 countries - Caterpillar - Auto companies - Magna International - Tyco International - Associated Spring - Lincoln Electric - Home Depot - Hubbell Electric - Palliser 19 The Institutional Way … North American Steel Council In December 2002, the NAFTA governments pledged to identify areas in which they might work together to promote more openness in the North American steel market and cooperation on steel trade and industry policies North American Steel Trade Committee October 7, 2003 ─ Mexico City, November 21, 2003. October 11, 2007 20 … Developments North American Steel Trade Committee Security and Prosperity Partnership of North America - Economics and security are intertwined. - New economic rivals: China and India. - Work has to be strategic and realistic. North American Competitiveness Council October 11, 2007 21 North America is losing market-share in world trade … Region North America EU Asia Pacific South America October 11, 2007 World Trade Share % Share % Growth 2000 2006 Rate (%) 22.1 17.3 (21.8) 37.9 37.9 0.02 18.3 21.3 16.4 2.4 2.6 9.3 22 … Loss of international competitiveness in the US market … 20 US imports 1993-2006 19.1% Canada 16.3% China 15.5% 17 14 Mexico 10.6% 11 8 5 6.8% 5.4% 2 1993 October 11, 2007 1996 1999 2002 2005 23 … As well as versus other competitors BRICs vs. Mexico % Change (2000 – 2006) Exports GDP FDI Brazil 150 19 229 Russia 131 44 946 India 124 50 310 China 289 75 72 Mexico 51 15 13.8 Source: : WTO, IMF and UNCTAD October 11, 2007 24 IV. Where are we heading for? Market Way Trade, Investment and Consolidation Institutional Way NASC/NASTC NACC SPP Declaration of Governments (2006): Steel: A Strategic Partnership – A Strategic Industry North American Steel Strategy October 11, 2007 25 North American Steel Strategy … ● Implement a North American Steel Strategy to benefit the North American steel industry by pursuing the elimination of external trade distortions, reducing the costs and the risks on intra-NAFTA trade, and promoting competitiveness and productivity. ● Sectoral approach: steel, pork, consumer electronics and chemicals. ● NAFTA Commission (August 14, 2007): the North American steel market is highly integrated and the industry in all 3 NAFTA countries share common interest and concerns. October 11, 2007 26 … Next steps ● Areas of work: ─ External trade ─ Internal trade ─ Competitiveness and productivity “We should be looking for open markets to increased trilateral steel trade: we agree that open markets should mean the elimination of steel tariff, non-tariff barriers and other trade-distorting practices”. October 11, 2007 27 From NAFTA to an Integrated North American Steel Market Rafael Rubio NASPD Fall Conference Cancun , Mexico October 11, 2007 October 11, 2007 China Trade in Pipe and Tube Weld Pipes Seamless Pipes (thousand metric tones) (thousand metric tones) 3000 4000 3500 2500 Exports Exports 3000 2000 2500 2000 1500 1500 1000 Imports Imports 1000 500 500 0 0 Trade Balance -500 Trade Balance -500 -1000 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 Source: Mexican Customs & CANACERO Statistics October 11, 2007 29