Statement of H.O. Woltz, III, President and Chief Executive Officer
Insteel Industries, Inc., and Vice President, American Wire Producers Association

Testimony Before the Subcommittee on Trade
of the House Committee on Ways and Means

Hearing on Steel Trade Issues

February 25, 1999

My name is H. O. Woltz, III, and I am President and CEO of Insteel Industries, Inc., with its headquarters in Mt. Airy, North Carolina. I am also Vice President of the American Wire Producers Association and Chairman of the Association's Government Relations Advisory Committee.

The American Wire Producers Association (AWPA) is a national trade association which represents the vast majority of independent manufacturers of carbon, alloy and stainless steel wire and wire products. The 102 members of the AWPA operate more than 210 plants that provide good paying jobs to over 42,000 American workers. Those plants are located in over 38 states and 138 congressional districts.

AWPA members produce a vast array of steel wire and wire products which are used in the automotive, agricultural and construction industries as well as directly by consumers. AWPA member companies purchase hot rolled carbon steel wire rod from domestic and foreign sources. We process this wire rod into wire and fabricate a wide variety of end products and semifinished products from this wire. Examples of wire and wire products produced by our members include nails, wire strand, chain link fence, springs, garment hangers, agricultural fencing, and steel reinforcing products for concrete structures. AWPA members supply between 85 and 90 percent of the total domestic demand for these products with an annual value in excess of $19 billion.

Given the almost infinite variety of wire and wire products, the common denominator for the manufacturers in this sector of the steel industry is their raw material - hot rolled carbon steel wire rod. In fact, the stated goal of the AWPA is "to undertake programs and activities that assure wire producers free and fair access to an adequate supply of wire rod. This includes the encouragement of an increase in North American capacity for the manufacture of wire rod." To this end, the AWPA's active members, who constitute the largest group of consumers of domestic wire rod in the United States, have supported the domestic rod industry's initiatives to develop and expand the availability of American-made wire rod. As independent wire producers, the AWPA's active members have no affiliations with their rod sources. Hence, we depend on our main suppliers - the US rod manufacturers - to provide sufficient quantities and qualities of rod for our wire-drawing operations. Despite this strong and mutually beneficial commercial relationship with the domestic rod industry, independent wire producers still must purchase imported rod to meet their requirements. The domestic rod industry is not capable of satisfying all of the domestic demand, either in terms of over all quantities or the variety of grades of wire rod used by AWPA members. This economic reality was recognized recently by the US International Trade Commission(ITC) in its antidumping and countervailing investigations of Certain Alloy and Carbon Steel Wire Rod from Canada, Germany, Trinidad & Tobago and Venezuela. In those investigations, the ITC found that the domestic rod industry was able to supply approximately 80 percent of the domestic demand for rod. The remaining 20 percent must be obtained from other sources.

It is also significant that most domestic producers of hot rolled wire rod own, or are affiliated with, downstream wire producers. These integrated producers, therefore, compete in the marketplace with AWPA's independent wire producers for sales of wire and wire products. The AWPA believes that this encourages the domestic hot rolled wire rod producers to restrict supply of wire rod in order to improve the profitability of the steel mills and to improve the competitiveness of their downstream operations vis-a-vis independent producers of wire products. Potentially damaging cost-price squeezes for independent wire producers can result under these circumstances, thus sapping the vitality of an important and efficient industry. Adequate competition for hot rolled wire rod is, therefore, essential to the viability of independent producers of wire and wire products.

In order to protect its members' access to an adequate supply of wire rod, the AWPA has opposed measures to limit, artificially, the availability of wire rod. Such artificial restrictions lead to shortages, allocations and inflated pricing. Furthermore, restrictions on the importation of hot rolled wire rod inevitably result in increased imports of downstream wire and wire products. As foreign producers are foreclosed from the US rod market, they shift their exports downstream into wire and wire products. In other words, restrictions on the importation of hot rolled wire rod leads to increased imports of wire and wire products such as nails, strand and springs. This downstreaming not only affects the employment levels and vitality of the wire industry, but also that of the hot rolled wire rod producers as demand for domestically produced wire rod is reduced by downstreaming.

As a significant consumer of hot rolled steel wire rod, I personally am alarmed at the news from Washington with regard to steel trade issues. I read of proposed legislation calling for a moratorium on steel imports, proposals for drastic decreases in the importation of steel from Japan, Korea and Brazil, agreement on quotas for steel imports from Russia, and a host of other protectionist proposals. Underlying these proposals is the notion that imported steel is ruining the domestic industry and that dumping and other unfair trade practices are rampant. I would like to provide you with another perspective on this issue.

My company, Insteel Industries Inc., is a leading producer of steel wire and wire products. Our company operates eight manufacturing facilities in Delaware, North Carolina, South Carolina, Tennessee, Texas and Virginia. Insteel employs approximately 1,100 people. Insteel is a state of the art manufacturing company serving the appliance, construction, and home furnishing industries with products such as nails, wire for springs, reinforcing wire for tires, and concrete reinforcing products.

Our raw material, hot rolled carbon steel wire rod, accounts for more than half the total cost of our products. We source our raw material domestically and internationally. In an ideal world, all of our raw material would come from steel producers located in the United States. The world is not ideal, however, and therefore we must rely on imported steel for a portion of our requirements.

Speaking from Insteel's experience , through 1997 and until early 1998 supplies of hot rolled steel wire rod were being allocated to consumers by domestic mills because of limited domestic supply. Transaction prices rose more than 10 percent during 1997, reflecting strong demand. The availability of foreign steel was critical to our ability to meet our commitments to our customers during this period of time. Without it, our plants would have been idle, our employees would have been on short weeks, and our customers would have suffered delays and disruptions of supply.

It is a fact that imports of steel products rose substantially in 1998. However, if you go beyond the self-serving arguments of the steel companies and their labor unions, you will see that the facts are much different than they would have you believe. Literally millions of tons of steel products have been imported by the domestic steel producers themselves. During 1997, and 1998 steel companies imported semi-finished steel products and hot rolled steel because their business was strong and they were unable to fully satisfy demand from their own capacity. Without these imports there would have certainly been a steel shortage, accompanied by rapidly increasing prices.

Market conditions for much of the world steel industry changed in 1998. The Asian financial crisis took its toll on demand world wide, and prices declined. It is interesting to note, however, that the cost of inputs to make steel also declined significantly. Steel scrap and pig iron both plummeted in price during 1998. After a period of adjustment during which the new, lower prices worked their way through the inventory pipeline, many steel makers found that they still had adequate margins to operate profitably, despite the heightened international competition brought on by the financial collapse in Asia. This is quite a tribute to the vitality of the domestic steel industry - a vitality to which they apparently do not want to admit.

The lead times for importing steel are long. Sometimes we are required to make commitments as far as nine months ahead in order to have steel produced and delivered to us from overseas sources. With the strong demand that the steel industry experienced in 1997, the pipeline was full when the Asian crisis began to affect demand. Logically, the pipeline took time to adjust in 1998 following the robust conditions of 1997. As orders and commitments worked their way through the pipeline during 1998, imports began to decline at the end of the year. The steel companies, however, are using the increased import figures of 1998 to bolster their arguments for more protection from competition. Steel is a cyclical business, and the disequilibrium of supply and demand that was witnessed during 1998 will likely correct itself in 1999. By mischaracterizing the events of 1998, "Big Steel" hopes during 1999 to alter significantly the trade playing field to their advantage, assuring tight supplies and high prices - and reduced competitiveness of steel consumers - for years to come.

The world steel markets, and indeed many world markets, have been destabilized by the Asian crisis. Insteel and the other members of the AWPA are facing heightened competition from imported wire products as a result of market disruptions worldwide. Prices for our finished products, such as nails, tire reinforcing wire, and prestressed concrete strand, have fallen significantly in the past twelve months because of heightened import competition. It will take time for our markets to adjust to these new realities, but they will recover. In the meantime, restricting the availability of raw materials to companies like Insteel through protectionist legislation will result in reduced competitiveness of our products and job losses in our industry. Those jobs will be lost to producers of wire products in foreign countries that have access to world market steel.

The AWPA and its members are concerned about proposed legislation which would adversely affect our ability to obtain wire rod in the quantities and qualities that we need in order to meet our customers' demanding requirements. As I have already noted, the domestic rod producers are the principal source of our raw material. However, the domestic producers themselves have acknowledged that they cannot meet all of our needs - either in total volume or in certain important grades and types. We must rely on foreign mills for these requirements. Legislative proposals to impose rigid quotas would severely disrupt our operations and undermine our ability to compete in the domestic and international marketplace. Rigid quotas can not possibly keep pace with the dynamic changes that occur in our market places. Accordingly, the AWPA opposes the recent trade bills which have been introduced in this Congress.

(1) House Resolution 327 would enable the Secretary of Commerce to impose antidumping duties retroactively for a period of up to one year prior to the filing of the original antidumping petition. The AWPA believes that this proposal is not only contrary to our national trade laws but that it also violates our obligations under the World Trade Organization. The existing system of the retroactive assessment of dumping duties already creates uncertainty and often results in unfairness for American importers and customers. The proposal to extend that uncertainty and unfairness for an additional period of more than a year is abusive, as well as unnecessary.

(2) House Resolution 412 would, among other things, establish a permit and monitoring system for steel imports. The AWPA believes that the proposed system would be cumbersome, cause delays in the entry of legitimate merchandise, and impose significant administrative burdens and costs on the Department of Commerce (Commerce) and the US Customs Service. The permit system appears to be a thinly disguised trade barrier for the benefit of one group of domestic companies.

(3) House Resolution 502 would prohibit the importation of steel products from four countries: Brazil, Japan, Korea and Russia. Not only is this proposal contrary to our international trade obligations, but it affects imports of steel wire rod which the US Government has previously found not to be a cause of injury to the domestic rod producers. How can the United States ban the entry of products which its agencies have determined are not causing economic harm?

(4) House Resolution 506 would establish quotas on imports of wire rods and other steel products at levels which are equivalent to or lower than those during 1995 through 1997. This rigid formulation does not take into account the dynamic nature of our industry and the growth in the demand for wire rod. Equally as important, this formulation does not consider the negative effect on imports of the antidumping and countervailing investigations which were pending during part of this period. As the members of this Subcommittee know, the mere filing of a trade case disrupts and often depresses imports during the course of the investigation. Even in the cases involving wire rod - where the US International Trade Commission found no injury - rod imports from the subject countries were adversely affected during the course of those investigations.

There are, however, two legislative changes which the AWPA believes would improve the administration of our trade laws and the fairness of their application.

First, the current trade laws discriminate against US companies which purchase imported raw materials, by denying them the same access to information as other parties in an investigation before the ITC. In injury investigations by the ITC, the antidumping and countervailing duty laws limit the disclosure of business proprietary information to counsel for "interested parties," in accordance with an administrative protective order. The term "interested parties" includes domestic and foreign manufacturers, US importers, labor unions, and foreign governments.

However, industrial consumers in the United States - such as the members of the AWPA - do not meet this definition of "interested parties." As a result, counsel for AWPA are not permitted to review the same proprietary information that is available to counsel for the domestic industry or the importers. This places the AWPA and other consumers at a serious - and completely unfair - disadvantage. Other parties' counsels have access to the information submitted by AWPA members, but AWPA's counsel cannot examine the entire record. In fact, in the recent antidumping and countervailing duty investigations of steel wire rod, counsel for the domestic rod industry responded in a confidential submission to many of the points raised by the AWPA. Counsel for the AWPA were not allowed to see that response, effectively denying the AWPA due process and the right to answer the arguments of its opponents.

Not only is this result unfair, it also discourages customers from participating in these and other trade proceedings. The same rule applies in Section 201 investigations. The AWPA knows from its experience that the active participation of industrial consumers enhances the amount and the quality of information available to the decision-makers at the ITC. It should be an overriding goal of the trade laws to encourage the involvement of the US industry that purchases and uses the product under investigation. This goal would be advanced by recognizing the interests of customers to the same extent as the law now recognizes the interests of domestic and foreign producers and their agents.

Second, the AWPA also supports legislation to suspend, on a temporary basis, the assessment of antidumping and countervailing duties on products which are in short supply or otherwise unavailable from domestic suppliers. Such legislation would address the unintended effect of the antidumping and countervailing duty laws to prevent the importation of products which are not available domestically. Under the present law, there is no procedure which permits the temporary suspension of antidumping or countervailing duties for products which the domestic industry cannot supply.

The AWPA is not attempting to weaken the antidumping and countervailing duty laws. On the contrary, the AWPA has long supported the rigorous enforcement of US trade laws, and its members have used these laws in order to respond to unfairly traded or subsidized imports which have caused serious economic harm to the steel wire and wire products industry. Moreover, AWPA members rely primarily on US manufacturers of steel wire rod for their raw material. The AWPA members have worked closely with the domestic rod industry - now composed entirely of world-class and efficient mini-mills - to develop and expand the availability of American-made wire rod. The temporary suspension of duties would be invoked only if the specific product were not available from US producers. There can be no injury to these domestic producers if they cannot supply the needed product to their customers in the US market.

Independent wire producers of the AWPA have had considerable experience with the unintended effect of antidumping and countervailing duty proceedings on the availability of certain types of wire rod. During the investigations of carbon steel wire rod in 1993-94, and again in 1997-98, the imposition of preliminary dumping and countervailing duties prevented US manufacturers of steel wire and wire products from obtaining certain types of wire rod which were unavailable from domestic producers. In addition, there were severe shortages of even basic types of wire rod, leading to significant price increases, allocations, canceled orders and delayed deliveries. The unavailability of wire rod threatened severe economic harm to a vigorous and profitable US industry, and it encouraged foreign competitors to target the US market for steel wire and wire products. Although the ITC eventually made findings of no injury and these investigations were terminated, this experience demonstrates the necessity for a mechanism to provide relief in cases when domestic industries cannot obtain essential raw materials from sources in the United States.

The members of the AWPA have also had experience with the administration of a program which successfully dealt with the non-availability of certain types of steel products from domestic producers. During the Steel Voluntary Restraint Agreements Program (VRAs), steel wire drawers were able to obtain a positive short supply determination for rod products which were unavailable from domestic mills. For six consecutive calendar quarters, AWPA members that produce stainless steel wire, requested and obtained permission to import specific grades of stainless steel wire rod, which were not available from domestic producers. In fact, domestic producers of stainless steel wire rod confirmed to the US Department of Commerce that such rod was not available in the US market in sufficient quantities to meet domestic demand. Commerce was able to make these determinations in a prompt and fair manner without placing an undue burden on its resources.

In conclusion, let me say it would be a tragic mistake for the United States to adopt ill-advised protectionist measures to address the short term market dislocations created by the Asian crisis. The market is recovering even as we meet here today. We are already seeing domestic announcements of price increases for hot rolled steel products, indicating that demand is firming and import competition is moderating. We are also seeing significantly reduced levels of imported steel in the domestic market, particularly from Japan. The current proposals to limit steel trade will inevitably lead to shortages and skyrocketing prices in the near term because the markets are now recovering on their own. We should allow this recovery to continue and the market to adjust to recent events, as it has in the past.

The steel companies claim that 10,000 steelworkers have lost their jobs due to increased steel imports. This is, at best, misleading, and certainly only part of the story. Most reliable sources estimate the total employment within the steel producing industry in the United States at about 170,000 people. In contrast, there are literally millions of workers whose livelihoods depend on access to high quality, competitively priced hot rolled steel. Automakers, parts suppliers, construction workers, appliance manufacturers, and general industrial employees all depend on adequate supplies of competitively priced steel. These jobs will be at risk if Congress enacts legislation that arbitrarily restricts the importation of foreign steel in order to provide protection to the weakest of the domestic steel producers.

Thank you for considering these facts as you deliberate on these issues concerning steel trade. If I can provide any further information to you, please call on me.