The U.S. Steel Trigger Price Mechanism: Import Impact and Strategic Response

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The U.S. Steel Trigger Price Mechanism: Import Impact and Strategic Response

In 1947 American steel producers were the most efficient and most productive in the world. They produced 57 percent of the world steel output, an amount that was 82.4 times that of Japan, 2.7 times that of the European Community (EC), and 3.9 times that of Eastern Europe. By 1984 the U.S. had lost its dominant position in the world steel industry. It accounted for only 11.8 percent of world steel production. Indeed, U.S. steel production was only 80 percent of Japanese steel production, 70 percent of that of the EC, and 39 percent of the production of the Communist countries. During this period the U.S. lost its status as the leading exporter of steel and became the largest steel importer. Trade surpluses in steel until 1959 were replaced by large recurring annual deficits. According to the American Iron and Steel Institute [1], steel imports, which constituted only 4.7 percent of apparent supply as recently as 1960 and 13.5 percent in 1975, reached 20.5 percent in 1983 and as much as 26.4 percent in 1984. Barnett and Schorsch [2] and Crandall [3] have reported that in addition to losing their leading position in the technology race, American steel producers were unable to compete at home and abroad.

This steel import penetration occurred at the same time that capacity utilization and employment within the U.S. steel industry had been falling. Stagnant steel demand accompanied by substantial global excess capacity led to a price war. Aggressive price competition depressed prices and reduced the market share and profitability of the U.S. integrated steel firms. A global oversupply of steel resulted from an expansion of steel producing capacity by the developed and developing nations. Furthermore, the use of substitutes, like fiber glass and metallic alloys, and product down-sizing reduced the demand for steel. The Federal Trade Commission [4] and Grossman [5] have pointed out that the combination of excess supply and reduced demand led to aggressive international competition, with imported steel gaining a substantial share of the U.S. market. Jones [6] stated that the growth in market share of imported steel led U.S. steel producers to complain about unfair price competition. American producers alleged that foreign companies were being subsidized by their governments and/or were dumping steel in the U.S. market.

Two tests may be used to determine whether dumping has transpired under the Antidumping Act of 1921 as amended by the Trade Act of 1974 (U.S. Congress [10]), the "fair value" test and the "cost of production" test (U.S. International Trade Commission [11]). Under the fair value test, a foreign good is sold at "less than fair value" if, over a substantial period of time, the product is systematically sold at a higher price in the exporting country than in the U.S. Under the "cost of production" test, an American firm may allege dumping even if the U.S. price of the product is not below the price in the exporter's home market provided the price at which the product is sold in the U.S. is below the foreign manufacturer's full cost of production.

The steel Trigger Price Mechanism (TPM), or Solomon [7] Plan, was designed to protect U.S. steel producers from "unfair" import competition. It was to achieve this objective by (1) discouraging sales of imported steel products at prices below the foreign producer's cost of production plus the cost of landing the steel in the U.S. and by (2) expediting implementation of traditional anti-dumping investigations.

The cost of production test was incorporated in U.S. dumping legislation by the Trade Act of 1974. To conclude dumping has occurred, a finding is necessary that the sales made at prices below the manufacturer's cost of production continued for an extended period of time and involved a substantial quantity of the product (Williams [12]). Moreover, it must be found that the sales are not atprices that permit recovery of all costs within a reasonable period of time in the normal course of trade. …