Zekelman Makes Case for Trade Intervention

Currently, more than 60 percent of the U.S. market demand for pipe and tube is being supplied by foreign producers. In July, monthly import licenses for standard pipe hit nearly 130,000 tons—the highest monthly level ever. For oil country tubular goods used in the energy sector, import licenses in July totaled 355,000 tons—four times the level of imports in July last year. Overall pipe and tube imports in July, more than 800,000 tons, represented a historically high level, wrote members of the Committee on Pipe and Tube Imports.

Excess capacity in countries like China, Korea, Taiwan, Turkey and Vietnam is the major cause of the current surge of imports into the United States. The high and growing level of import penetration has come at the expense of U.S. producers who have seen their sales plummet and their profitability decimated, forcing them to idle capacity and reduce their workforces. Pipe and tube products are essential to the national security and critical infrastructure of the United States, maintain Zekelman and the other signatories.

“This is shocking,” Zekelman told the crowd at the SMU summit, commenting on OCTG products. “We have an energy revolution going on in North America, but the people who are benefiting from it don’t even live in this country.”

Zekelman Industries filed the trade suit reluctantly, said the company’s chief executive. The process is very time-consuming and expensive. But it’s also very necessary. Producers in China sell steel on the world market for $300 a ton, an impossibly low price without government support. They transship steel through other countries, like Taiwan and Vietnam, or reclassify products, to avoid paying U.S. duties.

“We make these free trade agreements with the expectation that our trading partners will be upfront and honest. But they are not. They are absolute thieves. They will do anything to circumvent and gain access to our market. They have many avenues to cheat the system, and we are naïve and don’t see through it,” said Zekelman.

His frustration was clear when responding to a question from Dan Pearson, senior fellow with the Cato Institute, who also spoke at the conference. Pearson asked, hypothetically, if it would not be better policy for the U.S. to take advantage of the cheap imported steel and then compensate American companies that might be injured. “Would your business be better off if there were no AD/CVD duties on any products at all so you would have access to world-priced materials? Would that be a solution rather than having the government build one level of regulation on top of another?”

“I would not be here and my company would be gone. With no antidumping, we are done. Totally done,” Zekelman responded.

“Americans like a bargain. If they [Chinese] want to sell us steel for less than it’s worth, I say we ought to buy it,” said Pearson, playing the devil’s advocate.

“What’s the true cost of that cheap product? If it puts a manufacturer out of business, he closes his facility. His workers need unemployment. They are not paying taxes. Property values go down. The community deteriorates. Drugs and crime spike. Take that imported product and tack on all those costs, and we are paying a helluva lot more.”

Zekelman continued: “You assume it’s all equal. It’s not. We are competing against countries with no labor laws, no environmental laws, no social networks. They abuse their workers and don’t pay them living wages. We have higher costs because we have good intentions. To compete freely with them is naïve. We must hold them accountable. The only way to do that is to give them a speeding ticket [through trade actions] and slow them down.”

The crowd signaled their agreement with a loud round of applause.

Written by Tim Triplett, Tim@SteelMarketUpdate.com