Life after the Voluntary Restraint Agreements: The Future of the U.S. Steel Industry

Article excerpt

Between 1974 and 1985, the U.S. steel industry faced a crisis. Thirty steel mills in the United States were shut down and those that survived were forced to lay off tens of thousands of steelworkers.(1) Steelworkers, traditionally among the highest paid workers in the United States, suddenly faced devastating layoffs with little chance for reemployment within the steel industry.(2)

By the early 1980s, the steel industry had reached a critical point; foreign steel competitors were producing high quality steel at low prices using advanced technology,(3) while U.S. producers operated aging production facilities with high overhead costs.(4) The U.S. steel industry was injured further by the effects of the recession on its largest consumers, the automobile and construction industries.(5)

In 1984, in an attempt to establish a domestic steel agenda, the Reagan administration reestablished the Voluntary Restraint Agreement (VRA) program and rejected the use of protectionist quotas.(6) VRAs are agreements negotiated between the U.S. Trade Representative and foreign steel-producing countries which limit the amount of steel a foreign country can import into the United States.(7) VRAs set export ceilings on various categories of steel for foreign countries by establishing either (1) a maximum market share that a foreign steel-producing country can acquire in the U.S. steel market; or (2) a fixed-tonnage limit.(8) For example, Austria cannot export a quantity of alloy tool steel into the United States that exceeds four percent of the projected U.S. apparent consumption.(9)

In return for signing the VRAs, foreign steel-producing countries were given two significant concessions. First, the U.S. Government suspended antidumping and countervailing duties that were in effect on steel products covered by the VRAs.(10) Second, U.S. steel producers agreed to withdraw pending unfair trade petitions against such foreign steel-producing nations.(11)

Proponents of VRAs claim that they are necessary to provide the U.S. steel industry more time to modernize and restructure.(12) Steelmakers in the United States argue that without the protection of VRAs, foreign steelmakers would overwhelm the U.S. market by dumping underpriced imports.(13) Not everyone, however, shares the steel industry's enthusiasm for VRAs. Steel consumers, for instance, argue that VRAs have hurt the U.S. economy by making steel more expensive and less available in the United States.(14)

The main reason that the VRAs were adopted is because the U.S. steel industry is considered essential to the U.S. economy. The United States is dependent on steel for everything from pipes to nails to cars to buildings.(15) Two of the largest in the United States, the automobile and construction industries, consumed approximately thirty million short tons of steel in 1989.(16) Overall, the United States consumed 97.7 million short tons of steel in 1989, generating gross sales of $51.4 billion.(17)

Steel is also considered an important industry from a strategic viewpoint. A well-equipped military requires massive amounts of steel to manufacture tanks, airplanes, and other military equipment; U.S. national security, therefore, could be threatened if the United States became dependent on foreign steel.(18) Finally, the steel industry remains important because of the large number of Americans it employs. In 1990, the steel industry employed approximately 270,700 people,(19) more than three-quarters of which were production workers.(20)

The importance of the steel industry to the U.S. economy led President Ronald Reagan in 1984 to direct the U.S. Trade Representative to negotiate VRAs with many of the world's largest steel-producing countries.(21) On March 31, 1992, the VRAs expired, and the United States must now decide whether to reinstate the VRAs or develop a new steel policy.

This Note evaluates the economic and political history of steel VRA programs and the effects of such VRAs on the U. …