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81–372 2002

THE UNINTENDED CONSEQUENCES OF INCREASED

STEEL TARIFFS ON AMERICAN MANUFACTURERS

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

WASHINGTON, DC, JULY 23, 2002

Serial No. 107–66

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS 

DONALD MANZULLO, Illinois, Chairman 

LARRY COMBEST, Texas 

JOEL HEFLEY, Colorado 

ROSCOE G. BARTLETT, Maryland 

FRANK A. LOBIONDO, New Jersey 

SUE W. KELLY, New York 

STEVE CHABOT, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

JIM DEMINT, South Carolina 

JOHN R. THUNE, South Dakota 

MICHAEL PENCE, Indiana 

MIKE FERGUSON, New Jersey 

DARRELL E. ISSA, California 

SAM GRAVES, Missouri 

EDWARD L. SCHROCK, Virginia 

FELIX J. GRUCCI, JR., New York 

TODD W. AKIN, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

BILL SHUSTER, Pennsylvania 

NYDIA M. VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

DANNY K. DAVIS, Illinois 

BILL PASCRELL, JR., New Jersey 

DONNA M. CHRISTENSEN, Virgin Islands 

ROBERT A. BRADY, Pennsylvania 

TOM UDALL, New Mexico 

STEPHANIE TUBBS JONES, Ohio 

CHARLES A. GONZALEZ, Texas 

DAVID D. PHELPS, Illinois 

GRACE F. NAPOLITANO, California 

BRIAN BAIRD, Washington 

MARK UDALL, Colorado 

JAMES R. LANGEVIN, Rhode Island 

MIKE ROSS, Arkansas 

BRAD CARSON, Oklahoma 

ANI ́BAL ACEVEDO-VILA ́ , Puerto Rico 

DOUG THOMAS, Staff Director 

PHIL ESKELAND, Deputy Staff Director 

MICHAEL DAY, Minority Staff Director

(III)

C O N T E N T S 

Page 

Hearing held on July 23, 2002 ............................................................................... 1

WITNESSES 

Baughman, Laura, President & Economist, Trade Partnership Worldwide ....... 5

Nelson, Michael, General Manager, Arnold Engineering ..................................... 7

Trilla, Lester, President & CEO, Trilla Steel Drum Corporation ....................... 8

Jones, Gordon, Drum Loader, Trilla Steel Drum Corporation ............................ 10

Pritchard, David, President & CEO, A.J. Rose Manufacturing ........................... 10

Herrman, Robert, Machine Technician, A.J. Rose Manufacturing ...................... 12

Grove, John, Vice President, Procurement, Cold Metal Products ....................... 13

Emery, Merle, Vice President & General Manager, G.R. Spring & Stamping ... 14

Tanner, Michael, president, Wren Industries, Inc ................................................ 16

Connors, Charles, President & CEO, Magneco/Metrel ......................................... 17

APPENDIX 

Opening statements: 

Manzullo, Hon. Donald .................................................................................... 35

Vela ́zquez, Hon. Nydia ..................................................................................... 39

Jones, Hon. Stephanie Tubbs .......................................................................... 41

Visclosky, Hon. Peter J .................................................................................... 43

Prepared statements: 

Baughman, Laura ............................................................................................. 47

Nelson, Michael ................................................................................................ 61

Trilla, Lester ..................................................................................................... 63

Jones, Gordon ................................................................................................... 71

Pritchard, David ............................................................................................... 73

Herrman, Robert ............................................................................................... 77

Grove, John ....................................................................................................... 79

Emery, Merle .................................................................................................... 83

Tanner, Michael ................................................................................................ 90

Connors, Charles .............................................................................................. 93

Additional Information: 

Letter to Hon. John Ashcroft, Attorney General, Department of Justice, 

from Chairman Donald Manzullo, House Small Business Committee ..... 97

Posthearing submission by WCI Steel; Steel Dynamics; Gallatin 

Steel...................................................................................................... 98, 100, 103

Posthearing submission from Mr. John Grove ............................................... 105

Posthearing submission by David Pritchard, President & CEO of A.J. 

Rose Manufacturing ...................................................................................... 107

Written Testimony of Nels Leutwiler, Park View Metal Products ............... 121

Written Testimony of Tony Pileggi, Chicago Steel Container Corporation . 125

Written Testimony of Wes Smith, E&E Manufacturing Co., Inc ................. 129

Written Testimony of American Steel Producing Community ...................... 137

Written Testimony of Consuming Industries Trade Action Coalition .......... 171

Submission of Hans Mueller titled ‘‘The Impact of 201 Tariffs on U.S. 

Steel Users and Foreign Steelmakers: A Critique of Peter Morici’s 

‘Survey of Some Counterintuitive Results,’ July 2002’’ ............................. 178

Submission of Joseph Francois and Laura Baughman titled ‘‘Estimated 

Economic Effects of Proposed Relief Remedies for Steel’’ .......................... 192

Written testimony of Specialty Equipment Market Association .................. 229

The Chicago Tribune, Wednesday, April 3, 2002, ‘‘U.S. Steel Users Feel 

Pinched by Prices’’ ........................................................................................ 235

Page

IV

Additional Information—Continued

The Los Angeles Times, Monday, June 24, 2002, ‘‘Steel Prices Stoke 

Tariff Backlash’’ ............................................................................................ 238

The Chicago Tribune, Saturday, June 29, 2002, ‘‘Steel Drum Firms Hammer Tariffs’’ ................................................................................................... 240

USA Today, Wednesday, July 24, 2002, ‘‘Steel Tariffs Catch Some in 

Middle’’ ........................................................................................................... 242

The Wall Street Journal, Tuesday, July 23, 2002, ‘‘Steelmakers Post 

Improved Results for 2nd Quarter’’ ............................................................. 245

Rockford Register Star, Sunday, July 21, 2002, ‘‘Bush Tariffs Backfire 

on Local Steel Users’’ .................................................................................... 246

Letters to Chairman Manzullo, House Small Business Committee ............. 254

(1)

THE UNINTENDED CONSEQUENCES OF INCREASED STEEL TARIFFS ON AMERICAN 

MANUFACTURERS 

TUESDAY, JULY 23, 2002 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10:06 a.m. in Room 

2360, Rayburn House Office Building, Hon. Donald Manzullo 

(chairman of the Committee) presiding. 

Chairman MANZULLO. The Committee will come to order. Hopefully by the time I am done with my opening statement, Ms. 

Vela ́zquez will be here. 

The first law of medicine, to do no harm, is also valid in trade. 

When the President announced his decision last March to impose 

higher tariffs on some imported steel products, most everyone, including me, was willing to give the President the benefit of the 

doubt and support him on his action because everybody has an interest in a strong and vibrant domestic steel industry. 

Many steel using manufacturers make a concerted effort to buy 

from American steel companies not just because it is easier 

logistically, but because it helps maintain a strong manufacturing 

base in our country. However, the law of unintended consequences 

has set in a way that I do not think the Administration anticipated. 

Over the past six weeks, the Small Business Committee has 

gathered over 200 communications, and this continues to grow, 

coming from small manufacturers and now large manufacturers 

throughout the country that are being severely impacted by increases in steel prices of anywhere between 30 and 50 percent. 

We have seen five general themes arise from this correspondence. First, some steel using manufacturers are caught in a price/

cost squeeze. While the tariffs on foreign steel products were raised 

to 30 percent, many small manufacturers have seen price increases 

on domestic steel rise even higher to 70 and 80 percent. 

For many of these small companies, the cost of the steel forms 

a significant portion of the overall price of their final product. Because these small manufacturers are often suppliers to larger companies, they cannot pass along any increases to their customer. In 

fact, these larger company customers often demand annual price 

reductions of between one and five percent as part of their existing 

contract. Thus, these small manufacturers cannot absorb these cost 

increases for very long without going bankrupt. 

2

Second, some steel using manufacturers are subject to arbitrary 

allocations and shortages from steel manufacturers. They may be 

able to pay the higher prices, but the U.S. steel manufacturer cannot produce enough steel to meet demand. They have no assurance 

of a supply of steel beyond this month. 

The first priority of steel manufacturers is to supply the big companies who have long-term, large dollar contracts with them. Some 

small steel users attempting to buy on the spot market are left to 

the whim of the steel manufacturer as to whether or not they will 

supply these orders, and some spot market prices exceed 50 percent 

increases. 

Third, some steel using manufacturers assert that the recent increase in the price of steel has made them uncompetitive as compared to their overseas rival. They have lost sales of foreign companies that can purchase steel at world market prices. These foreign 

companies not only purchase steel at world market prices and 

make the products overseas, but they export the finished good into 

the U.S. at a lower tariff rate. 

In fact, most lost sales of comparable finished goods are going to 

Chinese firms. Some small U.S. steel users even talk about relocating some or all of their manufacturing overseas to avoid the 

high price of steel in the U.S. and then bringing back the finished 

good as an import. 

Fourth, some steel using manufacturers lament that they have 

had to lay off a number of workers over the past four months because the high price of steel has not made them competitive. Many 

predict more layoffs by the fall unless the price of steel drops. 

Finally, some steel manufacturers complain about big steel manufacturers breaking existing contracts to arbitrarily raise prices. As 

they are unable to break their own contracts with their customers 

based on a higher steel price, the small manufacturers get caught 

in a vice. 

They have been faithful, pro-American, long-time buyers from 

the domestic steel mills, yet right in the middle of a contract the 

big steel companies all of a sudden change their prices—one is 

Bethlehem Steel—and challenge the small steel using manufacturer by essentially saying, go sue me. Where are you going to get 

your steel from? What option is left to the small manufacturer? 

They cannot afford to sue. Is this the reward they get for years of 

loyalty? 

That is why I am releasing a letter I sent today asking the Attorney General to open an antitrust investigation to determine whether or not the big steel companies are not only gouging the American steel using manufacturers, but also to see what can be done 

to combat unilateral abrogation of contracts. 

The purpose of this hearing is for all of us in the legislative and 

executive branch and in the private sector to take a moment to reconsider the steel remedies in light of the unintended consequences 

that have occurred over the past four months. 

At minimum, we urge the Administration to be as generous as 

possible with exclusion requests, particularly to those from small 

manufacturers. We also ask them to rethink and hone down or 

eliminate the tariffs that have been placed on the foreign steel. 

3

Last Sunday, the Rockford Register Star published a penetrating 

special report entitled ‘‘Steel Shakeup: An Industry Under Attack.’’ In this front page story, the paper documented how the steel tariffs 

are strangling local small manufacturing shops. The already fragile 

manufacturing base in Rockford, Illinois, is damaged and further 

threatened by these tariffs. Rockford, Illinois, led the nation in unemployment in 1981 at 25.9 percent. It has a manufacturing base 

of about 30 percent. It is a city of about 170,000 that is home to 

over 1,100 manufacturing companies. 

The problem is not just in northern Illinois. It is spread across 

many small manufacturers across the state. They already have 

enough to worry about. In addition to existing regulatory and tax 

burdens, they suffer thin margins from stiff foreign competition. 

They are sometimes subject to complex and burdensome export 

controls and unilateral sanctions not imposed on their foreign competitors. The U.S. dollar is still over valued by as much as 25 percent. They have difficulty in accessing credit, and they are asked 

to do even more with less through immense market pressure to further increase productivity to drive down costs. 

On top of this, small manufacturers now have a double digit increase in the cost of their raw material—steel—and they are also 

threatened with a possible increase in the minimum wage, interest 

rates and higher medical and property insurance payments. 

What are we doing? Do we really want a manufacturing base in 

this country, or are we just sending an invitation to them to relocate overseas? The votes of the Republican Members for trade promotion authority are in danger. The philosophy of free trade is becoming increasingly difficult to articulate because of the mixed 

messages contained in these types of actions. 

We need to reverse this trend. We need to show that free trade 

works for the little guys. If it does not work for the little guys, then 

it does not work for most Americans. We need to show that our 

government is doing everything in its power to help small manufacturers succeed and thrive in this country. 

I want to show you the lead story in the Rockford, Illinois, Sunday Register Star, ‘‘Bush Tariffs Backfire on Local Steel Users’’. 

[Information may be found in the appendix; on pages 246–253.] I 

could lose tens, if not hundreds, of small manufacturing companies 

in the congressional district that I represent. This is the story that 

has not been told, and this is the reason we are having the hearing 

because the people that are here today, the ones that have been 

hurt, have not had a voice in the consideration or in trying to talk 

to the Administration to tell them to get rid of these terrible tariffs. 

I now yield to an opening statement from my good friend and colleague from New York, Mrs. Vela ́zquez. 

[Chairman Manzullo’s statement may be found in the appendix.] 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Chairman MANZULLO. Good morning. How are you today? 

Ms. VELA ́ ZQUEZ. Good morning. Thank you. 

Everyone has known for a long time that the American steel industry has been in trouble. A combination of legacy costs here and 

cheaper production overseas has threatened the engine of heavy industry in the United States. The situation became even more dire 

at the end of last year when the basic price of steel fell to $210 

4

per ton. That was clearly an unsustainable price for U.S. steel 

manufacturers since production here costs about $293 a ton. 

At the beginning of March, the President intervened to protect 

our steel makers. He imposed tariffs on imported steel to level the 

price of cheap foreign steel. As a result, the price of steel rose 

quickly from $260 in March to $340 in June. 

The immediate effect of the tariffs has been to shore up a critical 

component of our economy—the steel industry—and has saved 

thousands of jobs. There is anecdotal evidence, however, that these 

tariffs may have had the unintended consequence of impeding the 

competitiveness of small manufacturers. 

The issue of tariffs is a complicated one that has affected many 

players in the economy, both large and small, but the idea that 

these tariffs have negatively impacted all small businesses is just 

not true because for every small business harmed by these tariffs 

there are many small producers or distributors as well that have 

actually benefited from these tariffs and some manufacturers that 

due to waivers remain unaffected. 

The truth is that small businesses across the country were hurt 

by the world’s over-supply of steel and the dumping practices of 

foreign manufacturers. These unfair trade practices not only hurt 

big steel, but also the small businesses that serve steel-making 

communities hit hard by the low price of dumped steel. In addition, 

small steel makers, mini-mills that produce recycled batches of 

steel from scrap, were also hurt by the continued artificially low 

steel prices. 

The tariff was just one part of a solution to help not only big 

steel, but the communities that serve and depend on the industry 

and small steel makers. While we may focus today on the impact 

of other small businesses constrained by a higher but more reasonable price of steel, we must continue to look for solutions so that 

all small businesses can thrive. 

We know that the American industry, given a level playing field, 

can out-produce every other nation. We do not fear a truly free 

market, but when countries exploit our strong economy, dumping 

for dollars by unloading their products at below-market rates, that 

is not a level playing field. These tariffs are necessary to help our 

producers and many small businesses, and it tells the world that 

we are not the dumping ground for their products just because the 

dollar remains dominant. 

I hope we can use this hearing to examine ways that we can help 

small businesses affected by the steel tariffs. But we must remind 

ourselves that not all small businesses were hurt by the tariffs. 

Many were in fact helped. We need to make sure that our solutions 

to the problem of global steel production take both sides into account. 

Thank you, Mr. Chairman. 

[Ms. Vela ́zquez’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you, Mrs. Vela ́zquez. 

I have been advised we are having a journal vote at 10:30, and 

that is to approve the marvelous things that happened yesterday 

in naming a couple of post offices, but hopefully that will be the 

only interruption and we can finish the testimony. 

5

The rules are that it is five minutes for testimony. We have two 

pairs, Mr. Trilla and Gordon Jones with the same company and 

Mr. Pritchard and Mr. Herrman with the same company. With regard to those that are speaking in the pairs, if the two of you could 

limit your total testimony to six minutes, we would appreciate that. 

Our first witness is Laura Baughman, president and economist 

at Trade Partnership Worldwide. We look forward to your testimony. 

STATEMENT OF LAURA BAUGHMAN, PRESIDENT AND 

ECONOMIST, TRADE PARTNERSHIP WORLDWIDE 

Ms. BAUGHMAN. Thank you, Mr. Chairman and Members of the 

Committee, for giving me the opportunity to testify before you 

today. My name is Laura Baughman. I am president of Trade Partnership Worldwide, an economic and trade research firm. 

As an economist, I have spent more than 20 years studying and 

analyzing the dynamics of the U.S. steel industry and in particular 

the impact of imports on that industry. I would like to offer you 

some general information about the American steel consuming sector to provide context for the company testimony that will follow 

mine. 

U.S. steel consumer industries span a wide range of sectors, including obvious ones like fabricated metal manufacturing, machinery and equipment manufacturing and transportation equipment 

and parts manufacturing. Steel consumers also include chemical 

manufacturers, petroleum refiners and their contractors, tire manufacturers and non-residential construction companies, among others. All these industries need to purchase steel and steel containing 

products readily at internationally competitive prices. The ability 

to do so is crucial to the economic health of these sectors. 

As the tables attached to my written testimony demonstrate, the 

vast majority of steel consuming manufacturers are small businesses. Over the last six years, they added 1.2 million jobs to the 

American economy at a time when other segments of the manufacturing sector lost jobs. 

Unions represent millions of workers in steel consuming sectors. 

Workers in steel consuming sectors outnumber steel industry workers by 59 to one. In short, steel consumers are a vitally important 

segment of the American economy. Their domestic and international competitiveness should be a concern of policy makers. 

We have over the last year heard a lot about the market dynamics affecting U.S. steel producers. Understanding what affects the 

competitiveness of steel consuming industries is equally essential 

to making sound policy choices. First and most fundamentally, 

American steel consuming companies and their workers compete in 

global markets. Because production can be readily and quickly 

moved to where it makes the most economic sense, these markets 

set U.S. prices for products that contain steel. 

Second, steel consumers must have steady and reliable sources 

of steel supplies, often on a just in time basis, to be competitive. 

Steel supply lead times must be predictable to allow efficient manufacturing operations and on time deliveries. 

Third, steel consumers need reliable price quotes in order to 

make price quotes of their own. Steel represents 40 to 70 percent 

6

of many steel using manufacturers’ costs. Steel consumers cannot 

operate profitably in a market where steel suppliers cannot tell 

them what the steel they order will cost. 

Steel consumers who supply auto and appliance manufacturer 

customers also face pressure to lower prices of the goods they make 

from steel, as Chairman Manzullo pointed out. Contracts with 

these customers typically require steel consumers to reduce prices 

annually. Attached to my written testimony are charts that show 

the prices of machinery and equipment and motor vehicle parts 

have in fact declined steadily since early 1996. 

About half the steel sold in the United States is purchased by 

large steel consumers under long-term contracts directly from domestic mills. Smaller steel consumers must purchase the other half 

in the spot market through steel service centers and other distributors. Service centers typically sell both U.S. made and foreign steel. 

Many steel users buy commodity grades of steel. They may not 

know where the steel came from, nor do they care, as long as they 

have a steady, reliable supply of competitively priced steel that 

meets their and their customers specifications. 

However, many other steel using manufacturers care enormously 

where their steel comes from. Their customers demand safety and 

performance standards that can only be met by a particular type 

of steel made by a particular manufacturer, be it domestic or foreign. 

Last fall, the Consuming Industries Trade Action Coalition asked 

Dr. Joseph Francois and me to evaluate the likely impacts of the 

tariffs on steel consuming jobs. Dr. Francois is a professor of economics at Erasmus University, former head of the Office of Economics of the U.S. International Trade Commission and managing 

director of Trade Partnership Worldwide. We evaluated the effects 

of the ITC’s remedy recommendations. 

The President’s selected tariffs fall somewhere in the middle of 

the ranges we estimated. Our results are consistent with those of 

the ITC and those of other respected economists analyzing the likely impact of the tariffs on the U.S. economy. 

Very briefly, we found that higher costs of steel inputs and greater competition from imports of steel containing products resulting 

from the tariffs would lead to a loss across all sectors of the economy of between 36,000 and 74,000 jobs. Losses in steel consuming 

sector jobs alone would range from 15,000 to 30,000. Eight jobs 

would be lost for every steel job protected. Every state loses out 

under the tariffs, including states in the steel belt. 

Only time will tell whether these estimates bear out. However, 

the dramatic price increases steel consumers are already seeing in 

the market exceed even our estimates, and this does not bode well 

for the future. 

The President’s steel decision added formidable import barriers 

to already substantial barriers caused by antidumping and countervailing duty orders and investigations. These barriers have hurt 

American steel using manufacturers badly and will continue to do 

so as long as they are in effect. 

Thank you, Mr. Chairman. 

[Ms. Baughman’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you. 

7

We are going to recess for a few minutes to go down and vote, 

and then we will be right back and continue the hearing. 

[Recess.] 

Chairman MANZULLO. Our next witness is Michael Nelson, who 

is the general manager of Arnold Engineering in Marengo, Illinois. 

Marengo is part of the congressional district that I have the privilege of representing. 

Mr. Nelson, we look forward to your testimony. It is five minutes. 

When the yellow light comes on there that means there is one 

minute to go. 

Mr. NELSON. Thank you. 

Chairman MANZULLO. The complete statements of all the witnesses and the Members will be made part of the record. 

STATEMENT OF MICHAEL NELSON, GENERAL MANAGER, 

ARNOLD ENGINEERING 

Mr. NELSON. I am Mike Nelson, general manager of the Rolled 

Products Division at the Arnold Engineering Company, Marengo, 

Illinois. 

Mr. Chairman and Members of the Committee, I would like to 

thank Chairman Manzullo and the Committee for allowing me to 

testify on the subject of increased tariff rates on steel and the effect 

it has on small manufacturers. I would like to also thank you, 

Chairman Manzullo, for presenting our request for relief to Ambassador Zoellick and for the support that you and your staff have 

given me during this process. 

At this time, as my testimony to this Committee I would like to 

read the letter addressed to you, Chairman Manzullo, dated June 

19, 2002, regarding the impact the tariff is having on the Rolled 

Products Division of the Arnold Engineering Company.

DEAR CONGRESSMAN MANZULLO: I write regarding the negative impact that the 

imposition of tariffs upon magnetic steel products is having upon the Arnold Engineering Company, known as Arnold, and its employees in Marengo, Illinois, and to 

request your assistance in having our completed questionnaire for exclusion reviewed by the applicable regulatory agency, the Office of the United States Trade 

Representative. 

Recently, Arnold was informed that its material, ARNOKROME–5C, was subject 

to additional duties under the Section 201 remedy for imported steel products. We 

had proceeded under the assumption that ARNOKROME–5C would not be subject 

to any tariffs due to the specialized nature of the alloy and the unique capabilities 

of our suppliers. ARNOKROME–5C is processed by Arnold in Marengo and then 

sold to a domestic producer of anti-theft tags, who then in turn sells these tags to 

retail stores throughout the United States. 

Arnold originally conducted an extensive search to locate a domestic supplier of 

ARNOKROME–5C, but no domestic suppliers were either capable of or willing to 

supply ARNOKROME–5C. Hence, Arnold widened its search and began to conduct 

business with an offshore source in Germany. 

Arnold has continued to search for a domestic backup and/or replacement supplier, but those efforts have all resulted in no quotes from domestic sources. In light 

of the fact that Arnold has diligently searched for a replacement product for 

ARNOKROME–5C and demonstrated there is no replacement supplier or material 

in the U.S., we believe that this tariff should not be imposed upon Arnold. 

At stake are the six years that Arnold invested, amounting to well over $500,000 

in product development costs alone, and Arnold’s continued participation in the 

magnetic anti-theft marketplace. In particular, if the tariff remains in effect for 

ARNOKROME–5C we anticipate that at least five hourly workers and an as yet undetermined number of support personnel will be terminated when Arnold exits the 

magnetic anti-theft marketplace. 

On behalf of the Arnold Engineering Company, I respectfully request that you 

consider this request, and if you are in agreement with Arnold’s position we ask 

8

that you champion our case with the Office of the United States Trade Representative to obtain an exclusion to preserve the investment that we have made and secure the future employment of the affected Arnold personnel that support this program. 

Thank you for your consideration of our request. 

Respectfully, 

MICHAEL D. NELSON, 

General Manager, Rolled Products Division, 

Arnold Engineering Company.

Thank you, Mr. Chairman. 

[Mr. Nelson’s statement may be found in the appendix.] 

Chairman MANZULLO. You were going to add to your testimony 

the number of employees at your facility. 

Mr. NELSON. I have a total employment of 50 people, and five 

would be affected relative to this issue. 

Chairman MANZULLO. Thank you. 

Mr. NELSON. Thank you. 

Chairman MANZULLO. Our next witness is a team, Lester Trilla, 

president and CEO of Trilla Steel Drum Corporation, testifying 

along with Gordon Jones, who is a drum loader who works with the 

company. 

As we said before, if the two of you could combine and limit your 

testimony to approximately six minutes we would appreciate it. Mr. 

Trilla, if you could bring the mike real close to your mouth, and 

then when it is Mr. Jones’ time just send it over, please. 

STATEMENT OF LESTER TRILLA, PRESIDENT AND CEO, 

TRILLA STEEL DRUM CORPORATION 

Mr. TRILLA. Good morning. My name is Lester Trilla. I am president of Trilla Steel Drum Corporation. Mr. Chairman and Members 

of the Committee, I want to thank you very much for the honor of 

appearing before you to testify about the impact of the steel 201 

tariffs on my business and my workers. I also want to thank the 

Chairman especially for his leadership on behalf of the small business owners. 

I would also like to express my appreciation to the Consuming 

Industries Trade Action Coalition, or CITAC, for its good work for 

standing up for America’s steel users, especially small businesses 

like mine. 

By way of a short introduction, Trilla Steel Drum is located in 

Chicago, Illinois. We are a leading manufacturer of new 55 gallon 

steel drums. They are used in filling and transportation of various 

products, including hazardous materials. Trilla is a family owned, 

family run business. Three generations of the Trilla family have 

built the company from a drafty garage on the south side of Chicago into a major Midwest supplier of more than one million 55 

gallon steel drums annually to a diverse client base. 

Cold-rolled steel is the major raw material used in our drums. 

The imposition of a 30 percent additional tariff on the steel that 

Trilla needs to import has been a disaster for Trilla. It has effectively cut off the supply of the major raw material we need. The 

significant shortfall in domestic capacity and expanding lead times 

give us grave concern that we may not be able to get enough steel 

from domestic sources to meet our needs. 

9

Furthermore, its inconsistent quality makes it poorly suited for 

Trilla’s use. Trilla has a stringent qualification process. Only imported steel consistently meets our exacting requirements and 

those of our customers. Trilla’s customers include an increasing 

number of companies that ship hazardous, sensitive and expensive 

materials. 

The integrity of the steel drum used to ship these materials is 

critical, and any contamination or leakage into the environment 

could be disastrous. Drums with cracks, fractures and leaks, which 

can easily result from the use of steel that is unsuitable for our 

steel drums, are unacceptable, but will be inevitable if we are 

forced to use steel that does not consistently meet our strict specifications. 

Not only would this have a severe impact on our ability to compete effectively, increasing our costs due to scrap and rejections, 

but it would impact the quality of our drums and undermine our 

credibility with our customers. 

In order for Trilla to certify to its customers that each drum 

meets the stringent performance requirements set forth by the 

United Nations and required by the U.S. Department of Transportation, we can only use raw materials that meet exacting gauge 

control requirements, hardness value and surface cleanliness and 

are free of defects like laminations and pinholes. 

For instance, steel that does not have a consistent low hardness 

value will not withstand the state-of-the-art expansion process we 

employ, which ensures a stronger container with better stacking, 

vacuum and dent resistance. The imported steel has better gauge 

tolerance, resulting in an increased yield. In addition, while less 

than one percent of imported steel is rejected, the domestic steel 

scrap figure is two to three times higher. 

The 201 tariff, coupled with the threatened antidumping duties, 

have removed our imported steel from the market. The price of the 

domestic steel we now must buy has increased by over 54 percent 

since the imposition of the steel tariffs. That equals around a 20 

percent increase in the cost of the drum. Add to that the cost of 

increased scrap, breakdowns, rejected drums because of the quality 

of the steel, and you can see our competitive damage. 

Trilla simply cannot absorb these huge cost increases. Our customers are balking at significant higher prices necessitated by the 

steel tariffs and are starting to look for lower cost plastic or bulk 

containers. 

More significantly, if this situation continues for any length of 

time some of our larger global accounts will choose to fill their 

drums offshore in other parts of the world. This would not only 

dramatically reduce production of the jobs at Trilla and other 

American drum manufacturers, but at domestic filling operations 

and shipping operations throughout the United States. 

[Mr. Trilla’s statement may be found in the appendix.] 

Chairman MANZULLO. Let me go on to Mr. Jones at this point. 

Is that okay with you? 

Mr. TRILLA. Okay. 

Chairman MANZULLO. Mr. Jones. Gordon Jones. If you could put 

the mike over there and speak directly into the mike?

10

STATEMENT OF GORDON JONES, DRUM LOADER, TRILLA 

STEEL DRUM CORPORATION 

Mr. JONES. Good morning. My name is Gordon Jones. I am a 

drum——

Chairman MANZULLO. Gordon, could you put the mike a little bit 

closer? You have a very soft voice. There you are. 

Mr. JONES. Good morning. My name is Gordon Jones. I am a 

drum loader at Trilla Steel Drum Corporation. My major responsibilities are to make sure that the drums are properly loaded and 

secured so that they arrive at our customers’ destinations in good 

shape. I also must be certain that the count of drums is accurate. 

I am a member of the Sign, Display, Pictorial Artists and Allied 

Workers Local Union 830. About 45 of Trilla’s 70 employees are 

members of this union. I have worked at Trilla for over three years. 

Recently, because it has been difficult to get the steel that we need 

to run our drums on our machines, we have started to carefully 

monitor the hours of production. 

Also, it seems that during some weeks there is not always 

enough business to fill the hours that we can count on for the last 

few years. If this is going to get worse and we lose all of our overtime hours and even some of our regular hours because of the lack 

of steel or because our steel costs make the drums too high priced, 

it will leave me and my family in terrible shape. 

As a father of six, it takes all of my wages to pay the rent and 

to feed and clothe my family. If my pay is cut, I do not know how 

we could make it. I know for sure that we could not afford to live 

where we live now. I am sure that this would be true for most, if 

not all, of my fellow union members. 

This is a little scary to see. Here we have a successful company 

that is a leader in the industry. We were growing and buying new 

equipment and machinery. Now all of a sudden there seems to be 

a real possibility that we might have to cut back production or even 

turn away business because of these tariffs that have nothing to do 

with the steel drums, this company or my family. 

They say that these tariffs are supposed to help workers, to save 

steel jobs, but what about me? I do not understand why the union 

jobs of steel producers are any more important than my union job. 

It just does not make sense. 

Thank you. 

[Mr. Jones’ statement may be found in the appendix.] 

Chairman MANZULLO. Thank you, Mr. Jones. 

Mr. Trilla, for the record, how many employees do you have? 

Mr. TRILLA. Total, including myself, I have 70 employees. 

Chairman MANZULLO. Thank you. 

Our next team of witnesses are David Pritchard, president and 

CEO of A.J. Rose Manufacturing Company in Avon, Ohio, and testifying with him is Robert Herrman, who is a machine technician. 

Mr. Pritchard, we look forward to your testimony. 

STATEMENT OF DAVID PRITCHARD, PRESIDENT AND CEO, A.J. 

ROSE MANUFACTURING 

Mr. PRITCHARD. Thank you. Good morning, and thank you very 

much for asking me to testify about the consequences that the steel 

11

201 tariffs have had on my company. My name is Dave Pritchard, 

and I am president of A.J. Rose Manufacturing Company. 

A.J. Rose, headquartered in Avon, Ohio, is a family owned company with three generations in this business that was established 

in 1922. We have 400 associates in the business. Two hundred and 

seventy of these associates are members of the United Steelworkers 

Local 735. 

We at Rose specialize in manufacturing tight tolerance metal 

stampings, airbag components and spun formed products for the 

automotive, original equipment and after market. Over 90 percent 

of our products are components used on motor vehicles running at 

very high rpms. We need to produce safe and reliable products. 

That is the most important thing to us. Failure of our components 

would be devastating not just to our company’s reputation, but also 

to our customers and their customers, not to mention the risk to 

passengers and highway safety. 

Because of these considerations, we have developed a relationship with Corus, who, along with their predecessor company, have 

provided us with 100 percent of our requirements of several special 

grades of hot-rolled steel since 1976. This supply relationship was 

the result of collaboration between the engineering teams at A.J. 

Rose, Corus and our U.S. supplier, Imports International or Chesterfield Steel. Together, we developed unique steels to make our 

products the best and the safest on the market. 

Our partnership with Corus and Chesterfield has been an integral and necessary part for our growth. Corus supplies us with hotrolled material with the guaranteed tight tolerance and unique 

characteristics that we need and that as yet cannot be supplied by 

other mills. 

U.S. producers are unable to produce products meeting these requirements without significant retooling and diversion of their 

product lines. In fact, when we have contacted domestic mills and 

given them our specifications for the material, they have declined 

to even give us a quote. This is the reason we have applied for exclusions from the steel tariffs for these products. Those product exclusions are Request No. N–330.01 through .07. 

A.J. Rose has been able to grow and add jobs because we manufacture high quality products that a limited few can do. Now, however, with the steel 201 tariffs everything has changed. The additional tariff increases the cost of our basic raw material significantly. Many of our customers have refused to accept any price increase, and those who have accepted some increase have only taken 

a portion of the increased costs that we face, leaving us to absorb 

the rest. 

These additional tariffs are a disaster for our business. They 

make us much more vulnerable to foreign competition, which is not 

crippled by artificially inflated raw material prices. In fact, one of 

our major customers has recently contacted us to let us know that 

they will be resourcing 11 of the current jobs we run for them to 

overseas suppliers with savings that they are telling us of 38 to 42 

percent on finished goods that they can import from Brazil and 

Asia. 

In addition, a significant number of our customers have told us 

that they will be market testing us. What this means is they will 

12

be trying to find a lower cost supplier anywhere in the world. Thus, 

we are concerned that we may soon lose additional business as 

well. 

This constant threat to our business is very real, and it will get 

worse if we are forced to continue to pay such a premium for the 

steel we need to run our business. The hardship of this tariff and 

our constant inability to pass along any increases in cost to the 

automotive companies will cost not only jobs, but also most certainly it will affect A.J. Rose Manufacturing’s ability to survive in 

the future. 

Thank you, and I would like to pass the microphone to my associate. 

[Mr. Pritchard’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you. Our next witness is Robert 

Herrman, also from A.J. Rose Manufacturing Company. Go ahead.

STATEMENT OF ROBERT HERRMAN, MACHINE TECHNICIAN, 

A.J. ROSE MANUFACTURING 

Mr. HERRMAN. Good morning. Thank you very much for inviting 

me to this hearing. My name is Robert Herrman. I am a machine 

technician at A.J. Rose Manufacturing Company. I am also a member of the United States Steelworkers Local 735–14, a union that 

represents 270——

Chairman MANZULLO. Mr. Herrman, could you bring the microphone closer? 

Mr. HERRMAN. A union that represents 270 workers at A.J. Rose. 

Over the past nine years I have been with A.J. Rose, and it has 

been a growing company. With this growth, the company has added 

jobs to the work force to keep up with the pace of new business. 

Since March, business has been slowing down. I know we have lost 

customers due to the increased cost of steel, and other customers 

may drop out, too. As an employee of A.J. Rose, I am very concerned. I know that when the profits of the company go down, this 

will affect my wage rate in the future. It definitely means less pay, 

less benefits, and it probably means fewer jobs. 

The steel tariffs were supposed to protect American businesses 

and save American jobs. So why do the steel mills deserve to stay 

in business more than A.J. Rose? Why are jobs at steel mills more 

important than the 250 jobs of the union associates of the work 

force at A.J. Rose? I do not understand a policy that helps some 

U.S. jobs at the expense of other U.S. jobs. 

Thank you. 

[Mr. Herrman’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you. 

Our next witness is John Grove, vice-president, Cold Metal Products, from is that Swickley? 

Mr. GROVE. Swickley, Pennsylvania. 

Chairman MANZULLO. Swickley. Swickley, Pennsylvania. 

Mr. GROVE. Right. 

Chairman MANZULLO. We look forward to your testimony. 

13

STATEMENT OF JOHN GROVE, VICE-PRESIDENT 

PROCUREMENT, COLD METAL PRODUCTS 

Mr. GROVE. Thank you. Good morning, everyone. My name is 

John Grove. I am the vice-president of procurement with Cold 

Metal Products, Inc. I do appreciate the opportunity to testify before this Committee today to relate to you about the impact the 

steel 201 tariffs have had on my business. 

As a result of the steel 201 tariffs, we have been put on allocation by our domestic suppliers, and we cannot get enough steel for 

our operations. We have also lost business because our customers 

are unwilling to pay—— Chairman MANZULLO. Mr. Grove, we evidently have low grade 

steel that is used in these microphones. Could you bring that closer 

to you? 

Mr. GROVE. How is that? 

Chairman MANZULLO. That is much better. Thank you. 

Mr. GROVE. Shall I start over or just keeping going? 

Chairman MANZULLO. No, that is fine. Keep on going. 

Mr. GROVE. We have also lost business because our customers 

are unwilling to pay for our increased steel costs and have suffered 

financially because of this. 

Cold Metal Products is located in Swickley, Pennsylvania, with 

plants and service centers in Youngstown, Ohio, Ottawa, Ohio, 

Roseville, Michigan, and Indianapolis, Indiana, where we employ 

over 400 workers. Our production workers are members of the 

United Steelworkers Local Union Nos. 3047 and 1999–2. 

We manufacture specialty and conventional strip steel to meet 

the critical requirements of precision parts manufacturers. We also 

provide value added products to manufacturers in the automotive, 

construction, cutting tool, consumer goods and industrial goods 

markets. As a leading maker of intermediate steel products in this 

country, a constant and reliable supply of raw material is absolutely critical to our success. 

The steel tariffs imposed in March have increased the price and 

reduced the availability of steel to the point that our supply of steel 

is no longer reliable. Cold Metal Products has been put on allocation by three of our long-time suppliers in the U.S., namely WCI 

Steel, Steel Dynamics and Gallatin. They simply cannot supply us 

with the volume of steel we need, given their capacity limitations 

and orders from larger customers. 

As a result, we have run out of steel a number of times in the 

past couple of months and have not been able to service our customers. We have no assurance of steel supplies or prices past September of this year. When we are able to obtain steel, it also arrives late roughly 40 to 50 percent of the time. 

In addition, because of the scarcity of steel in the U.S. market, 

we have been forced to accept non-negotiable price increases of 

$130 per ton since January 1, 2002. This $130 constitutes more 

than a 30 percent price increase and is the largest increase in a 

six month time span ever seen by Cold Metal Products since its 

founding in 1926. 

Our customers have refused to pay any of these increased costs 

and have begun to move their business offshore where steel is 

cheaper. For example, one of our longstanding customers, Stanley 

14

Tool, recently indicated they would divert their business from us to 

England or China because the product was cheaper there. 

This loss of business will have a profoundly negative effect on 

our company. We anticipate that we will lose more business in the 

future because our increased steel prices due to the steel 201 tariffs 

have made us unable to compete in a global economy. 

Cold Metal has long been recognized as the leading innovator in 

the strip steel industry with an unmatched capability to develop 

products and processing that provides solutions for our customers’ applications. Our business is based on providing cold-rolling, annealing, normalizing, edge conditioning, oscillate winding and slitting service. In order to provide these value added specialty steel 

products, we must have steel to process. In the current environment of steel 201 tariffs, however, we cannot get the steel we need. 

We have done everything we can to be a success in a very demanding marketplace. The effort to save the U.S. steel mills, however, should not sacrifice companies like ours. 

Thank you for your time and attention in listening to the little 

guys’ side of the story. 

[Mr. Grove’s statement may be found in the appendix.] 

Chairman MANZULLO. We appreciate that. 

On page 2 of your testimony, it states the year January 1, 1992. 

That should be 2002? Is that correct? 

Mr. GROVE. 2002. 

Chairman MANZULLO. We will let the record reflect that correction. 

Also made part of your testimony will be the letter from Robert 

Boak, president of Local 3047 of the United Steelworkers of America, who works at Old Metal Products. That will be made part of 

your testimony. 

[Letter can be found in the appendix, currently on page 273.] 

Mr. GROVE. Thank you. 

The next witness is Merle Emery, vice-president and general 

manager of G.R. Spring & Stamping from Grand Rapids, Michigan. 

Mr. Emery, we look forward to your testimony. 

STATEMENT OF MERLE EMERY, VICE-PRESIDENT AND 

GENERAL MANAGER, G.R. SPRING & STAMPING 

Mr. EMERY. Thank you, Mr. Chairman, Committee Members. On 

behalf of my company and its 200 employees, we would like to 

thank you for holding this hearing. We are grateful that you are 

taking the time to hear from the small businesses like ours that 

have been deeply hurt by the 201 action. 

My name is Merle Emery. I am the vice-president and general 

manager of G.R. Spring & Stamping. We are located in Grand Rapids, Michigan, and we employ 200 workers in the custom manufacture of metal stampings, progressive dies, slide forming stampings, 

springs, wire forms and value added assemblies. 

Our customer base is made up of 70 percent automotive customers, 15 percent appliance, ten percent office furniture and a few 

others mixed in there. The imposition of steel tariffs have led to 

uncertainty in supply and price of steel that we need to produce 

our product. It has also cost us significant business and has placed 

us in a price/cost squeeze. 

15

My company requires approximately 20,000 tons of steel each 

year. With the increased cost and decreased supply of available 

steel, our service centers have either broken their contracts or simply have been unable to meet their commitments due to allocations 

to supply us with the steel we need. This has forced us in many 

cases to go out on a spot market to obtain the steel that we need 

to produce our product. As a result, the price of the steel that we 

are purchasing today has increased by 20 to 30 percent since the 

201 action was implemented. 

These increases in steel have already cost us a substantial 

amount of business. For example, soon after the 201 tariffs were 

put into effect, G.R. Spring & Stamping lost a major contract with 

a well established customer, and I might add this customer was in 

our community. This company went to a Canadian company for the 

purpose of this product. This Canadian company is now able to 

purchase its steel for 30 percent less than we can, and this cost advantage was directly reflected in their bid. 

The sad part is this customer has never worked with a foreign 

supplier of this type of product before in the past. Their decision 

was solely based on price. We are a small company. We are $30 

million a year in sales, and this was a huge contract for us. It 

equaled $4.5 million per year in sales on a four year contract. 

This contract, like I said, was huge for us, but we could not compete on price due to the increased cost of steel. For the first time 

we lost market share to foreign competition. The reality of our market is that we cannot pass the additional cost of these tariffs on 

to our customers. 

As the example just illustrated, our customers will take advantage of the global economy and buy our product from a cheaper 

source. Nor can we afford to absorb these additional costs. These 

additional costs are so high they will turn our margins negative 

and put our company on the road to ruin. 

In addition, since the imposition of the steel tariffs we find ourselves faced with uncertainty of both supply and price. We do not 

always get our steel when we need it. Our suppliers cannot deliver 

on time. When we receive steel orders late, this just adds to our 

cost and to our misery. 

Number one, it requires us to work overtime to deliver to our 

customers on time. We cannot miss our commitments. Our customers will not allow it. It also requires us to incur additional costs 

in getting that product to our customer, and that can relate to expedited freight. Sometimes that expedited freight has, and it has, 

meant an airplane at an extremely high cost just to get that product to our customer. 

We have also been faced with the uncertainty of pricing. Because 

of the volatility in our market, our service center suppliers refuse 

to price steel more than a month in advance. It causes great difficulty when we are trying to formulate quotations. This means 

that we have to guess at what our steel costs will be when we calculate a price for our customers. Keep in mind, this is a very competitive market. This is an impossible way to operate a small business. 

Our present circumstances must change. We have already lost 

one sizeable contract, and we are in danger of losing more due to 

16

the increased steel costs. Furthermore, the uncertainty of pricing 

and availability of our steel is untenable. Our short-term and longterm viability as a company and an employer of American workers 

is threatened. 

Thank you very much. 

[Mr. Emery’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you, Mr. Emery. 

Our next witness is Michael Tanner, president of Wren Industries, Inc., from is it Tipp City? 

Mr. TANNER. Tipp City. Yes, sir. 

Chairman MANZULLO. Tipp City. 

Mr. TANNER. It is just north of Dayton. 

Chairman MANZULLO. Tipp City, Ohio. We look forward to your 

testimony. 

STATEMENT OF MICHAEL TANNER, PRESIDENT, WREN 

INDUSTRIES, INC. 

Mr. TANNER. Thank you. My name is Mike Tanner, and I am 

president of Wren Industries. I want to thank you very much for 

inviting me to speak at this hearing about the unintended consequences of increased steel tariffs on American manufacturers. 

Usually when I come to Washington, it is a very solemn and serious visit. I go to visit some of my friends at the Vietnam wall. I 

want to tell everyone here that this, too, is a very serious visit. I 

am here because the steel tariffs imposed by the President in 

March have increased the price and reduced the availability of 

steel in the market to a point that our supply of steel is not reliable. Without a reliable supply of steel, we cannot continue to operate. 

Wren is a metal stamper located in Tipp City, Ohio, just north 

of Dayton. We are a tier one and tier two supplier of metal 

stampings for the automotive industry. We employ over 200 associates and have been in business since 1977. We have the unenviable 

position of being smaller than our customer and smaller than our 

steel supplier. 

The steel tariffs imposed by the President in March have reduced 

the availability of steel in the market to the point that our supply 

of steel is not reliable. Wren’s service center suppliers have been 

placed on allocation, and the steel deliveries that we are able to secure have been arriving a month or as much as two months late. 

This causes additional manufacturing time, which means additional manufacturing costs. 

The flurry of e-mails and phone calls between procurement and 

production about staggering production in one press, pull the die 

out, put another one in, is extremely costly. Plus on several occasions I hate to admit how close we have come to shutting down our 

customers’ production lines, which would be catastrophic for our 

reputation and credibility, as well as incurring penalty charges, all 

because we could not get the steel we need on time. 

Wren sends three parts, for instance, at 36,000 parts a week to 

seven different General Motors plants. If we were ever to shut 

them down, the cost penalty would be prohibitive, and we would 

be out of business in a month. 

17

I have no assurance of steel supplies past September of this year. 

In addition, several of the service center suppliers have breached 

existing contracts with us. One example, our service center provider that supplies 25 percent of our steel requirements increased 

the price of delivered steel by as much as 48 percent despite our 

contract. 

We, of course, have relied on these contracts with our suppliers 

and based our pricing to our own customers accordingly. My customers will not pay the increased price I am now being forced to 

pay for steel. In fact, I must actually grant annual price reductions 

to my customers. 

Ladies and gentlemen of the Committee, the bottom line is that 

my business is in danger if I cannot get steel and must continue 

to pay the increased prices. Unless things change rapidly, my company will lose business to foreign competition now that our international competitors have a built in cost advantage and a ready 

supply of steel. 

Wren is a small business. We operate on tight margins in a very 

competitive market. We cannot pass on any of our increased costs 

to our customers. Wren is now in the position of selling dollars for 

95 cents. If there is no relief in the pricing of steel, I do not know 

how our business will be able to survive beyond the end of this 

year. We are in these dire straits due to the operation of the steel 

201 tariffs. 

Thank you very much for your time. 

[Mr. Tanner’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you. 

Our next witness is Charles Connors, CEO of Magneco/Metrel. 

Mr. Connors, in preparation for your testimony I looked up the definition of a refractor. We do read testimony in advance, and if you 

do not mind if I could read the definition into the record so we can 

follow your testimony? It is a specialty. 

A refractor is a ceramic heat resistant material used to line blast 

furnaces, cast houses and steel ladles. It helps to resist oxidation, 

corrosion and erosion damage in order to extend the useful lifetime 

of linings. 

Is that a good definition? 

Mr. CONNORS. That is a good definition. I would take it a little 

further than that. 

Chairman MANZULLO. Why do you not go ahead and define it 

first, and then we will start the clock. 

Mr. CONNORS. I think a refractory is a metal oxide ceramic material able to withstand high heat, which I normally think of as over 

2,000 degrees Fahrenheit. The applications of iron making and 

steel making are applications. Also, other applications are waste 

incineration, ceramic manufacture, glass, crematoriums and a 

whole lot of other things that we need in life. 

Chairman MANZULLO. Now that we know what you do, I will 

start the clock, and we look forward to your testimony. 

STATEMENT OF CHARLES CONNORS, PRESIDENT AND CEO, 

MAGNECO/METREL 

Mr. CONNORS. Thank you, and thank you for allowing me to testify. It is a little bit of a different side of the coin. Magneco/Metrel 

18

is a company with manufacturing operations in Columbiana County, Ohio, DuPage County, Illinois, and Lake County, Indiana. We 

have 135 employees, and we expect $39 million in sales this year 

if the steel industry continues to be able to operate. 

We are both a supplier to the steel industry and a consumer of steel products. We buy about $300,000 a year worth of steel plate 

in the form of molds, which is a little less than one percent of our 

sales. In a tight margin industry, that could be affected by price. 

It has not seemed to be so far. 

It is only about four and a half months since the 201 went into 

effect, but the effect on our company has been dramatic. We lost 

$300,000 in the months of January and February, and we made 

$500,000 since the first of March. We did that helping steel companies get equipment back on line. 

We sell products about, 90 percent of which are either patented 

or proprietary, and they are used instead of bricks to line furnaces 

in a quick way. An example are the steel mills, which are now 

known as ISG, which are the equipment that used to be LTV Steel. 

A new company is starting up that equipment, and they would not 

have been able to start up the equipment in the time they did without materials like ours, that can get a blast furnace lined and running in about three days as opposed to six weeks for a brick job. 

Now, the technology that we have and have developed working 

with the steel industry is used to supply all the other high temperature industries, and we could not afford to supply them at the 

prices that we do if we did not have the steel industry as a base. 

The steel industry is by far the majority user of all the refractories 

in the world. 

We also export about 30 percent of our sales. About half of that 

goes to Europe, and the other half goes to Latin America. The 201 

tariffs have also saved the Mexican steel industry. Sacartsa and 

Ispat Mexico are big customers of ours. That has been very helpful 

also. 

It seems to me I am very sympathetic with what I am hearing 

here because we have been through it. In the last three years, 

there has been $2.3 million that was owed to Magneco/Metrel that 

was lost because of Chapter 7 or Chapter 11 filings by steel companies. We could not continue if that continued. 

The fears, that I hear, I think show some prudence and foresight. 

People are looking towards the future and wondering how rocky 

the road might be. As someone who has already been down that 

rocky road, I certainly sympathize with that, but I would hate to 

see a total change in a tariff situation after only four and a half 

months to prove it out. 

I think we are talking about worries of supply, as well as worries 

of price, and I think the marketplace is more likely to work out the 

price worries if there is a supply. The supply would not be there 

if we did not have any more steel industry in this country. 

Thank you. 

[Mr. Connors’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you very much. 

I saw in today’s paper where Pittsburgh based U.S. Steel now 

has earnings of $27 million compared with a loss of $30 million, 

but it also shows that steel production facilities are operating now 

19

at 96 percent capability, which could be accounting for the shortage. 

I want to ask a question of I think it is the steel drum company. 

That is Mr. Trilla. Is that your company? 

[The information may be found in the appendix on pge 245.] 

Mr. TRILLA. Yes. 

Chairman MANZULLO. Is that correct?

Mr. TRILLA. Correct. 

Chairman MANZULLO. Now, you were buying your steel from is 

it South Korea for the 55 gallon drums? 

Mr. TRILLA. Yes. Over the past year, we have been buying most 

of our steel from South Korea. We also buy domestic, though. 

Chairman MANZULLO. And the steel that you are buying from 

South Korea, was that costing you more than domestic steel? 

Mr. TRILLA. Yes, it was. It was costing us more for the past year 

than we were paying domestically. Yes. 

Chairman MANZULLO. Okay. So you would disagree that that 

particular steel is being dumped on the American market? 

Mr. TRILLA. I definitely disagree with that, Mr. Chairman. Initially we started paying more money than domestic. It was a higher quality product and enabled our plant to run more efficiently. 

Chairman MANZULLO. Okay. Anybody else? Let us see. Mr. 

Pritchard? 

Mr. PRITCHARD. Yes, sir. 

Chairman MANZULLO. Were you importing steel prior to this? 

Mr. PRITCHARD. Yes. We began in 1976 bringing in steel from a 

mill at that time known as the Hogavans. It is now part of the 

Corus organization. 

Chairman MANZULLO. Where is that? 

Mr. PRITCHARD. The mill itself is in the Netherlands. 

Chairman MANZULLO. Okay. 

Mr. PRITCHARD. We were having difficulty with supply and availability of material. We were on allocation all the time back in the 

1970s. 

Chairman MANZULLO. Domestic supply? 

Mr. PRITCHARD. Domestic steel. We bought from LTV. We bought 

from Republic. We bought from U.S. Steel all in our backyards in 

Cleveland here and were not able to continue doing that because 

other customers were much larger than we were at that time as 

a $7 million or $8 million a year company. 

We began looking for the other supply. That turned out to be 

very successful with the Hogavan mills. We have been dealing with 

them ever since, and they have developed time after time when 

there was a need for a specialty material to satisfy a customer requirement, they were there to help us work out a solution that 

would generally exceed anything that was available here. 

Chairman MANZULLO. What is there about the nature of that foreign steel that you are stating you cannot find in domestic steel? 

Mr. PRITCHARD. The gauge control in the foreign steel. 

Chairman MANZULLO. What is that gauge control? What is that? 

Mr. PRITCHARD. Thickness. 

Chairman MANZULLO. Thickness. Okay. 

Mr. PRITCHARD. The accuracy of the thickness that is ordered or 

that the product specifies is held to in most cases less than half of 

20

what domestic mill tolerances are for hot-rolled product, and that 

is almost in the range of what you would call cold-rolled, a material 

that is a step higher in the category of pricing. We have traditionally paid a premium for every pound of hot-rolled that we buy. 

Chairman MANZULLO. So you were importing steel that cost you 

more than domestic steel? 

Mr. PRITCHARD. Yes. 

Chairman MANZULLO. And so you also disagree that this was not 

a dumping case as to that? 

Mr. PRITCHARD. I have never been able to buy cheap foreign steel 

that made any of the parts my customers expected. 

Chairman MANZULLO. In your testimony you stated that you 

have contacted domestic mills. They have declined to even provide 

you with a quote. 

Mr. PRITCHARD. We have on several occasions gone to, as a matter of fact, the most recent LTV when they were in dire straits because most of our associates are members of the steelworkers union 

and had brethren working at LTV, so we asked them if they would 

come in, discuss what we use and see if there is some way we could 

not get together on this. 

We received a letter about five weeks later saying that they were 

unable to at that time produce this material. It was possible that 

after a capital expenditure improving their lines they may be able 

to do something, but it was indeterminative as to whether that 

would go forward or not. 

Chairman MANZULLO. And then how much more are you paying 

now for your steel? 

Mr. PRITCHARD. We made an agreement or we came to terms 

with our two other partners, the mill and the supplier, the processor locally, so that they insulated us from paying the entire 30 

percent, but we are paying well in excess of half of that——

Chairman MANZULLO. Okay. 

Mr. PRITCHARD [continuing]. And are unable to pass this along 

to our customers in the marketplace. 

Chairman MANZULLO. Are those customers also demanding annual price reductions? 

Mr. PRITCHARD. Absolutely. Every year. 

Chairman MANZULLO. Of what magnitude, Mr. Pritchard? 

Mr. PRITCHARD. Some customers—I mean, they are all looking 

for five percent. That seems to be the golden number, but it depends on the age of the product, how long you have been producing 

it, what you can negotiate. It generally ranges between one to three 

percent. 

Chairman MANZULLO. Now, you also stated that one of your customers is going to Brazil for the finished product? 

Mr. PRITCHARD. Yes, they are for the finished pulleys in this 

case. 

Chairman MANZULLO. Right. Now, Brazil is considered to be a 

developing country, yet Brazilian steel is not exempt from tariffs, 

yet Brazilian finished products that use that same Brazilian steel 

are not subject to the tariffs. Does this make sense to you? 

Mr. PRITCHARD. No, sir. I have never really been able to put that 

in the perspective where it made sense. 

21

Chairman MANZULLO. And how long have you been waiting on 

the USTR’s Office for your exclusion? 

Mr. PRITCHARD. I believe they were originally filed about two and 

a half months ago I think is when our office took care of the filings. 

Chairman MANZULLO. And have you heard from the USTR’s Office? I know they are moving very quickly. 

Mr. PRITCHARD. They are moving forward. Right. 

Chairman MANZULLO. They have over 1,100 requests. 

Mr. PRITCHARD. I have been tracking a website on the internet 

that reports these, and I think the time for argument was closed 

on July 3. We have not as yet heard anything official. Nothing has 

been posted yet. 

Chairman MANZULLO. We met with Ambassador Zoellick, and he 

has assured us that they are going to move as fast as possible.

Has any company filed an objection to your request for exclusion? 

Mr. PRITCHARD. I just heard yesterday through our chief operating officer who is in close touch with the steel supplier, Chesterfield Steel, locally that there have been several companies that 

have I believe it was referred to as placed objections to the exclusion, but then when asked if they could produce the material they 

said either they would not or they could not. 

Chairman MANZULLO. And yet they formally objected, and that, 

of course, continues the period of time for considering your exclusion? 

Mr. PRITCHARD. Correct. That is what I understand. I would like 

to be able to find more detail out on that, but as of yet I have not. 

Chairman MANZULLO. So you cannot find out the nature of the 

objections because it is proprietary? 

Mr. PRITCHARD. That is right. 

Chairman MANZULLO. This makes sense. You cannot get a quote 

from any domestic steel manufacturer to give you what you want. 

Is that correct? 

Mr. PRITCHARD. Correct. 

Chairman MANZULLO. And yet they turn right around and file 

objections to your request for an exclusion? 

Mr. PRITCHARD. Correct. 

Chairman MANZULLO. That does not make sense either, does it? 

Mr. PRITCHARD. No. They have you in the middle. 

Chairman MANZULLO. And that is why I have asked for an investigation by the Attorney General into collusion and anti-trust violations on the part of some of our U.S. steel producers. 

Would you agree with the fact that it makes sense to ask for that 

investigation? 

Mr. PRITCHARD. It certainly bears looking into because there are 

things happening now that just are not part of what the business 

world should have to deal with. 

Chairman MANZULLO. Okay. I am sure that everybody here 

would agree, everybody seated at the table, that it is important to 

keep a viable U.S. manufacturing base for steel. You all agree on 

that, do you not? 

Mr. PRITCHARD. Yes. 

Chairman MANZULLO. But you all have various reasons for wanting to import steel. Okay. 

Ms. Vela ́zquez. 

22

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Mr. Connors, can you please assess the state of the steel-producing industry prior to the introduction of the tariff, and, in addition to the tariff, what other actions are needed to help the domestic steel industry recover? 

Mr. CONNORS. Well, prior to March 6, National Steel filed Chapter 11 during the first quarter of 2002. Bethlehem Steel filed for 

Chapter 11 in the fourth quarter of 2001. The National Steel filing 

brought the companies in Chapter 11 to I believe 35 percent of the 

production. 

One of the big problems is that the steel industry is in two sections. You often hear about the mini mills and Nucor versus the 

integrated mills and why are the integrated mills not like the mini 

mills. The problem is that the mini mills, Nucor particularly, are 

all new equipment. The mills were built new, the equipment is 

new, and they have the right number of people to run that equipment. 

When the integrated mills switched to new equipment, the equipment was more efficient. They did not need as many people. They 

had to downsize. A lot of people took early retirement. The deals 

that were made were made post World War II, and they have what 

they refer to as a legacy cost. 

That is the other thing that is hurting the steel industry. Most 

foreign steel companies, and we do business with all the foreign 

steel companies, I have been in them, are not more efficient than 

the U.S. companies, but the health care and the pension plans are 

all government plans, not company plans. 

Ms. VELA ́ ZQUEZ. Would you explain how consolidation would affect the steel industry? 

Mr. CONNORS. That one is a little heavy for me, I am afraid, Congresswoman. There are a lot of people that say we should have consolidation, and I know Secretary O’Neil feels that way because in 

the aluminum industry you have a very small number of manufacturers. In the steel industry you have a large number, but is that 

going to be better or worse? I do not know. 

Ms. VELA ́ ZQUEZ. How does the tariff affect the U.S. trade deficit? 

Mr. CONNORS. All I know, is that in the last two months, what 

has it been, $37 billion in June and $36 billion in May, and it sort 

of makes me wonder when we are the largest, most powerful country in the world with the biggest consumer market. 

We are being threatened with a trade war. I do not understand 

it. I do not think we have any more to fear from a trade war than 

we have to fear from a shooting war. 

Ms. VELA ́ ZQUEZ. Is it important for the U.S. economy to have a 

viable steel sector, and what would be the affect on small businesses if they relied only on foreign steel? 

Mr. CONNORS. Well, if we had no domestic steel industry and it 

was all foreign steel, the prices would go up rather quickly. 

Most of the foreign steel companies are either consolidated, or 

they talk to each other a lot. They coordinate their activities. I 

think the prices would be prohibitive. 

Ms. VELA ́ ZQUEZ. Mr. Emery, is it important to have a viable domestic steel industry? Would you agree that the domestic steel industry has faced years of unfair conditions? 

23

Mr. EMERY. I would agree that it is important for the United 

States, both its economy and the security of the United States, that 

we have a strong steel industry. 

To your second question, would I agree that it has been unfair 

or if we have seen changes? Was that your question? 

Ms. VELA ́ ZQUEZ. Yes. 

Mr. EMERY. Yes. A lot of things have changed. If you look at the 

price of oil and you look at the price of electronics, prices have continually gone down. That has been done by competition, both foreign and domestic. 

To answer your second question, yes, there has been a change. 

There has been a difference. We have seen prices go down, although I think that has been contributed to competition in the 

marketplace. 

Ms. VELA ́ ZQUEZ. My specific question is if you agree that the domestic steel industry has faced years of unfair conditions. 

Mr. EMERY. I am not an expert in the manufacture of steel. I do 

not profess to be. I can say this, and it was touched on. There are 

certain sectors of the steel industry in the United States that are 

doing very well. 

I can relate to my industry. I have been in it all of my adult life, 

and I have seen changes there as well. We have been forced to 

modernize. We have been forced to retrain our workers. We have 

been forced to invest in technology. If we had not done that, we, 

too, would be in the same shape that the steel industry found 

themselves in back in March. 

Ms. VELA ́ ZQUEZ. Mr. Emery, instead of the tariff, what other 

methods would you propose to help the domestic steel industry?

Mr. EMERY. I think that again I do not profess to be an expert 

in the steel industry. I do believe that during the years when the 

steel industry was doing very well in this country, and there were 

years when they were. We all know that. The failure to reinvest, 

the failure to update and modernize is what has hurt that industry. 

Ms. VELA ́ ZQUEZ. Thank you. 

Mr. EMERY. I think that the small businesses are being asked to 

pay the price for that today. 

Ms. VELA ́ ZQUEZ. Mr. Trilla, in your testimony you mentioned 

that only imported steel meets your requirements. Can you explain 

why domestic steel does not meet your requirements? 

Mr. TRILLA. Domestic steel does meet my requirements. It is just 

difficult to find a mill that consistently—I said consistently—meets 

our requirements. 

The foreign steel I have enjoyed the past year and a half, we 

have had less than one-quarter of one percent reject through the 

facility in any parts of the manufacturing, whereas typically rejects 

in the United States steel could be three to four times that. 

We can buy steel here. The problem is, as was testified earlier, 

I have applied for an exemption. They have been questioned, and 

the mills that objected to my exemption will not even make a sales 

call or answer our phone call, so I cannot buy domestically. 

Ms. VELA ́ ZQUEZ. Mr. Chairman, I have other questions, but I 

would like to go on to the second round. 

Chairman MANZULLO. Mrs. Napolitano. 

24

Mrs. NAPOLITANO. Thank you, Mr. Chairman. 

The stories I have heard from all of you are very much like the 

stories of one of my stampings in one my cities. The additional burden that this particular company has is that California has energy 

prices that have gone sky high, so you went back to the mix, and 

they are going to be out of business in December, even though they 

did stockpile a little bit of steel to be able to help out. 

I guess my concern is that our steel manufacturers, the companies have not been able to either supply enough product that is acceptable to the customers that would like to buy, and I know very 

little about steel. All I know is what I have heard from my company and what I am hearing here and what I have learned from 

the media. 

I am assuming that in order to provide steel that will reach a 

certain pressure there has to be very little mix in it so that it provides more safety pressure or to deliver that product for especially 

automobiles. 

Why is it that our steel producers cannot meet that, Mr. Connors? Can you possibly shed some light on that? 

Mr. CONNORS. Why can they not meet the spec, the gauge control? 

Mrs. NAPOLITANO. Correct. 

Mr. CONNORS. Well, I worked as a metallurgist. I started out, 

and I grew up in U.S. Steel before I got into my later life, so maybe 

I could say something about it. 

It sort of amazes me that steel companies that can make a drawn 

iron can, a pop can, a beverage can or a soup can, cannot provide 

tight enough speced steel to make a steel drum. 

I have bought a lot of steel drums, and I buy them in my business. I am very familiar with the lubrication processes in making 

and forming steel. It is a matter really of finding the right person, 

it sounds like to me, more than it is a fact that we cannot do it 

here. 

Mrs. NAPOLITANO. And you are very right, but it just does not 

make sense to me. Even with the retooling costs, auto manufacturers go through it. Why would steel not be able to meet the requirements going through retooling to be able to do the job? 

Does anybody else have any other comment on that? That to me 

is one of the biggest questions that remains unanswered. Yes, sir? 

Mr. TRILLA. In sort of an answer to your question and rebuttal 

to the former statement, the light can industry has gotten a tremendous amount of money invested in it to design and develop the 

new lightweight can. The steel industry, U.S. Steel, has bought a 

facility in Czechoslovakia, the former Czechoslovakia in Slovakia, 

and make light gauge metal there specifically for that type of industry. 

Unfortunately for the steel drum industry, they still think that 

we are making anchors, and they have not invested in the gauge 

control that we need or in the better steels that are available today 

throughout the world. The cleanliness, the finishing of the steel, 

has not been invested in our so-called cold-rolled product. 

Mrs. NAPOLITANO. Thank you. 

I was amused by one of the news articles that was attached to 

somebody’s testimony where somebody called it a carefully orchesVerDate Sep 04 2002 18:12 Sep 25, 2002 Jkt 081377 PO 00000 Frm 00028 Fmt 6633 Sfmt 6602 E:\HR\OC\A372.XXX A372
25

trated attempt to downplay the effect the tariffs have had on our 

business. I think that is somebody who does not know what is 

going on or who is making an effort to downplay the problems that 

manufacturers are having. 

I think somebody ought to call them up and take them and tour 

them through some of your facilities to make them understand. Essentially they are missing the main point of this. 

Mr. Chair, I will go ahead and pass on to you and the Ranking 

Member. There are a lot of things I could state, but they would not 

be printable. 

Chairman MANZULLO. I have never known you to be at a loss of 

words. 

Mrs. NAPOLITANO. Not necessarily a loss of words. Believe me, I 

am for the tariffs to a certain degree. The problem has been that 

there has not been a good mix to be able to make it so that we do 

not hurt our own industries. No thought has been given to the unintended consequences, and that is where I am at. 

Chairman MANZULLO. Ms. Vela ́zquez, you wanted to continue? 

Ms. VELA ́ ZQUEZ. Mr. Pritchard, could you refresh our memory 

again in terms of what type of steel you need? Is it hot-rolled steel? 

Mr. PRITCHARD. Yes, it is primarily hot-rolled material in low 

carbon grades, C–1008. Then we get into a good deal of usage of 

the high strength, low alloy materials that are used in our spinning 

and forming operations. 

Ms. VELA ́ ZQUEZ. In discussing the objection to your exclusion, you 

stated that while companies objected, none could produce the steel 

you need, correct? 

Mr. PRITCHARD. Yes. The word I got from a gentleman in our office yesterday, and I have to say I think this is what you would 

call hearsay from him because I did not witness it myself, was that 

there was word of several objections, but when they were asked if 

they could supply the material they indicated they could not or 

would not. 

Ms. VELA ́ ZQUEZ. Sir, I think that you got the information wrong. 

I have here a copy of the objection where in fact Bethlehem Steel 

Corporation, National Steel Corporation and United Steel Corporation can in fact produce the metal that you need, the steel that you 

need. 

Mr. PRITCHARD. All seven grades? Is that part of the exemption 

paper there? 

Ms. VELA ́ ZQUEZ. Yes, this is part of that. 

Mr. PRITCHARD. I have not seen any of that yet. 

Ms. VELA ́ ZQUEZ. Well, I am just sharing with you the right information regarding the objection. 

Chairman MANZULLO. Would you yield? 

Ms. VELA ́ ZQUEZ. Yes, sir.

Chairman MANZULLO. Have any of those companies given you a 

quote? 

Mr. PRITCHARD. No. 

Chairman MANZULLO. And have you asked them for a quote? 

Mr. PRITCHARD. Generally, yes. Our purchasing department has 

worked with, you know, steel producers in this country. They have 

also tried Canada and all over trying to obtain, you know, a——

Ms. VELA ́ ZQUEZ. Would the gentleman yield? 

26

Chairman MANZULLO. It is your time. 

Ms. VELA ́ ZQUEZ. Could you please explain what generally means? 

Mr. PRITCHARD. Generally? I mean, we do not do this every day. 

We have tried generally on an annual basis they will contact a new 

potential supplier. As I mentioned before, the last time was about 

a year or year and a half ago when we contacted LTV. 

Since then I know there have been discussions, but again that 

is our purchasing group, and that is not something I have day to 

day information for you on. I can provide that if you would wish. 

Ms. VELA ́ ZQUEZ. Mr. Chairman, I would ask unanimous consent 

for this to be included on the record. 

[The information may be found in the appendix, new enclosure 

for the record.] 

Chairman MANZULLO. Without objection. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Pritchard. 

Mr. PRITCHARD. Yes. 

Chairman MANZULLO. Ms. Moore, you just came in. Do you have 

questions? I did not see you. You came in so quietly. 

Ms. CAPITO. Thank you, Mr. Chairman. 

Chairman MANZULLO. I am sorry, Ms. Capito. I called you by 

your father’s name. 

Ms. CAPITO. You can call me whatever you want. 

Chairman MANZULLO. There you are. 

Ms. CAPITO. No. I am just here to listen, and I appreciate you 

holding this hearing. 

I am interested. Steel, of course, is an enormous issue in my 

state of West Virginia, and we support in West Virginia—I did—

the President’s decision to place these tariffs on imported steel. It 

has had an impact already in my state of West Virginia with our 

steel producers, but I am interested to hear the rest of the meeting. 

I apologize for being a little on the late side. 

Chairman MANZULLO. That is okay. 

Mr. Pritchard, from whom do you buy steel? Is it a broker? 

Mr. PRITCHARD. It is a steel processor they call it. They buy master coils, large coils of steel——

Chairman MANZULLO. Okay. 

Mr. PRITCHARD [continuing]. In a semi-processed or semi-ready 

stage to be used. They bring it in, they slit, and then they prepare 

the surface on it. Then it is sold to us. 

Chairman MANZULLO. And my understanding is the inference 

here is that these companies that have filed objections can furnish 

you with the steel, but you have been advised by the people who 

supply you with the prepared steel that no one else is interested 

in bidding on your product. Is that your testimony? 

Mr. PRITCHARD. In the case of the exemptions, yes. 

Chairman MANZULLO. Okay. 

Mr. PRITCHARD. I can tell you that over the years many have 

said they could supply it, and then when asked to do so and, you 

know, we would place orders with them they were not able to. 

Chairman MANZULLO. Here is what I would like to do for you. 

Give me the spec sheet of what you want from these companies. 

Mr. PRITCHARD. Yes. 

27

Chairman MANZULLO. I will mail personally to these companies. 

They are probably present here in the room today. I will ask them 

to mail back to me directly. I will be your broker for you. 

Mr. PRITCHARD. Wonderful. 

Chairman MANZULLO. I will try to find the steel for you. 

Mr. PRITCHARD. All right. 

Chairman MANZULLO. All right. If they are here, if they want to 

bid on it that is fine. 

I am learning all kinds of things about steel, but what I am seeing here today is the fact that somebody is trying to undermine the 

credibility of the small people’s ability to go out there and get steel. 

I am going to put in the record another letter. Boy, do we get 

letters. This one is from the Rockford Company in my hometown 

of Rockford, Illinois [the letter may be found in the appendix, currently on pages 299–301], and this really is in response, which it 

could not have come at a better time, to a statement that is part 

of the record that was furnished by the American steel producing 

community that really took offense at the fact that I used in our 

statement that the 201’s unintended consequences was a double hit 

suffered by steel using manufacturers due to huge, arbitrary price 

hikes. 

The American steel producing community that filed this statement said that this is not the fact. They say, ‘‘The language used 

in this hearing announcement shows a certain lack of balance.’’ Has anybody ever asked you guys about these tariffs before this 

hearing? 

Mr. PRITCHARD. No, sir. 

Chairman MANZULLO. You were asked? 

Mr. CONNORS. I was here about 13 months ago with 699 other 

suppliers of the steel industry. This is my second trip to this building in my life. That was the first, and that was in support of the 

tariffs. 

Chairman MANZULLO. That was in support of the tariffs. Did any 

of you guys ever get asked here if you were being subject to price 

hikes? 

‘‘While the language used in the hearing announcement shows a 

certain lack of balance, it is of greater concern that the points 

made in it are factually inaccurate.’’

Let me show you this. That is about the price hikes. Exhibit 1, 

and somebody can take me on from the steel industry if you are 

interested back there or whoever wrote this statement. I am going 

to make it part of the record as a matter of courtesy. Here it is. 

‘‘Dear Congressman Manzullo: I am writing to express our company’s dissatisfaction with President Bush’s decision to tariff imported steel. We are a Rockford manufacturer that produces steel 

parts for a variety of industries. Through June of this year, we 

were able to purchase coiled steel for $21 per 100 pounds. Due to 

the President’s decision, our new steel price effective July 1 is now 

$31.62 per 100 pounds. That is a 50 percent increase in our cost 

of raw material.’’

That is the statement. Here is the invoice. Invoice from Coil Plus 

Illinois, Inc., out of Plainfield, Illinois, dated June 10, 2002, for previous orders at $21 per 100. Now, one month later, in fact July 17, 

five weeks later, the very same material at $31.62. 

28

Now, who is telling me and who is telling these people that they 

are not getting arbitrary increases in prices? Would somebody like 

to stand up in the audience and say that this is not correct? Would 

somebody like to tell these people here—I do not have them under 

oath, and it is not necessary—that they are exaggerating as to the 

increase in these prices? 

Would somebody please tell the small manufacturers? Tell my 

guys back home that are paying 30 to 50 percent more for their 

steel. Tell them that this has not had an adverse impact upon them

and that they are ready to go under. 

My question to all of you is this. We recognize there is a problem 

with steel in this country. What is the solution? Let us start with 

the economist. There has to be a solution to this to help domestic 

steel supply, to help out our steel workers and at the same time 

to get the facts straight that the price of steel is going through the 

ceiling. 

Ms. BAUGHMAN. Thank you, Mr. Chairman. This is the $64,000 

question clearly. As an economist, the answer has to be that the 

market is the best way to help the steel industry. When you impose 

artificial barriers on a piece of the market, it has widespread ramifications throughout the economy. 

It may help the steel industry in the short run for a small period 

of time, but it does not help the steel industry in the long run, and 

it has, as you have aptly called it, collateral damage all over the 

place. Import restraints are not the answer. I can tell you that 

much. 

Chairman MANZULLO. What is the answer? I personally agree 

that there was an import surge taking place. If you look at the decision, it was 6–0 on the ITC. It is well documented that there was 

surging taking place on the 201. How do we work through this? 

Ms. BAUGHMAN. Mr. Chairman, the United States has a number 

of laws on the books that are meant to address different types of 

problems associated with import competition. Dumping is addressed through antidumping laws, and illegal foreign subsidies 

are addressed through countervailing duty actions. 

Section 201 tariffs or quotas, whatever results from a Section 201 

investigation, have nothing whatever to do with unfairness. They 

do not get at the problem of unfairness because they apply to imports whether they are fairly traded or not. 

Chairman MANZULLO. Surges. 

Ms. BAUGHMAN. Surges, yes. 

Chairman MANZULLO. Surges. 

Ms. BAUGHMAN. But it does not matter whether they are fairly 

traded imports or not. They all get hit with the tariff. If the problem——

Chairman MANZULLO. Excuse me. An example would be the 

South Korean steel. 

Ms. BAUGHMAN. Precisely. 

Chairman MANZULLO. The South Korean steel that you are actually paying more for. 

Ms. BAUGHMAN. Precisely. If the problem is unfairness, then the 

solution is antidumping actions or countervailing duty actions. 

Now, the U.S. steel industry has been perhaps the biggest users 

of antidumping laws and countervailing duty actions. They file 

29

hundreds of these cases, it seems like, that result in double, even 

triple digit duties applied to imports from specific countries for specific products. 

Chairman MANZULLO. And you agree with that remedy? 

Ms. BAUGHMAN. I think that that is what we have available. 

That is the appropriate route. 

Chairman MANZULLO. Anybody else on the question? What do we 

do here? There is a problem with maintaining viable domestic steel 

production. 

Mr. Connors? 

Mr. CONNORS. One thing that bothers me, and I am not an economist, but on the matter of arithmetic, if the top tariff is 30 percent, how come the markups are as high as 54 percent? 

It sounds like some steel service centers are marking up the tariffs, and maybe the competition should be between the steel service 

centers. Maybe they have an agenda of their own because they do 

not want to have the foreign steel. 

Chairman MANZULLO. I have a letter from a steel service center 

increasing the price of steel with an attached letter from Bethlehem Steel saying due to the steel shortage. You can follow the 

train of the steel suppliers directly back to the steel manufacturers 

on there, but there could be some collusion going on. 

I appreciate that thought. You are not an economist, but you are 

a metallurgist. 

Mr. Trilla. 

Mr. TRILLA. Yes, Mr. Chairman. I buy all my steel direct from 

the mills. I am sitting in Chicago right next to Gary, Indiana. Five 

steel mills, including LTV that closed, would not even make a sales 

call on us or answer a call. 

We buy nothing from a warehouse. Occasionally with a late delivery lately we are forced to buy something, you know, 50 or 100 

tons, but not a steady flow. One hundred percent of my steel is purchase ordered out directly to the steel mills, and my costs have 

gone up 54 percent. 

Chairman MANZULLO. Did any Members have any other questions? Ms. Vela ́zquez. 

Mrs. NAPOLITANO. I have not a question. Well, yes, a question. 

What would you view as a solution? 

Chairman MANZULLO. There it is. 

Mr. TRILLA. I will attempt to answer. I am here to talk about my 

problems and to tell you how it is affecting my industry and my 

fellow brothers in the steel drum industry across the country. 

We are not in the steel business, but it is obvious, as you stated 

earlier, that there was not a great deal of thought of repercussions 

of this. There is nobody at this table that does not want a strong 

domestic steel industry. 

I was raised in a steel town. We need steel. We need to have a 

strong steel infrastructure here in the United States. I do believe 

in the tariffs. I support the President in his tariffs also. 

Admittedly, the President did not think that—we all agreed that 

steel prices would go up. We all agreed that there would be some 

movement in the cost of steel, et cetera. Admittedly, I think the 

government figures came out about eight percent or ten percent 

maybe maximum. We agreed to that. 

30

As an industry, I am sure everybody at the table here is willing 

to fight for our industry and help the domestic steel industry, but 

54 percent? There is just no way of recovering that. I have been 

in this business all my life and never have seen steel prices escalate like this. 

I do not have the answers, but I just know that we are all sitting 

here because there is a big problem by the tariffs. Once again, we 

support the tariffs, but I think nobody contemplated the after effects of them. 

Chairman MANZULLO. Ms. Capito. 

Ms. CAPITO. Thank you, Mr. Chairman. I have just a general 

question if anybody would like to jump in. 

Mr. Trilla, you mentioned that the price of your steel had gone 

up 54 percent. The import costs have ranged from 99 to 30 percent, 

the tariffs. Is there a point at which you would consider then going 

ahead and buying imported steel and paying the tariff? 

Mr. TRILLA. The tariffs are 30 percent. My domestic steel costs 

have gone up 54 percent, or my direct cost of steel has gone up 54 

percent since the tariffs have been imposed. 

We cannot get anybody to sell us steel. They will not import the 

steel even with the 30 percent tariffs for the fact that in dumping, 

and I am not a lawyer so if there is a lawyer out there help me. 

In the dumping cases, the taxes and the duties applied to a product 

are taken off the top of the product, the cost of the product imported, the cost of the product, to determine dumping. 

If you take the 30 percent off the top of whatever somebody 

would sell me steel for, they are definitely down there in the dumping range. They get hit again, so it is like a double tariff. We either 

have to have tariffs, or we have to have dumping. 

In my case where I was paying more money for my steel than 

domestically, I am really being punished because my steel is not 

coming here being dumped. Mine was at global pricing higher than 

the domestic cost of steel. 

Ms. CAPITO. Let me just in terms of a summarization, and again 

I apologize for not hearing the entire hearing. Basically I am imagining that the trend is that while you just mentioned that you 

would support the tariffs on imported steel, it seems the pendulum, 

in your opinion, in all of your opinions, has swung too far the other 

way and that it is causing prices to rise too quickly or too drastically for you all to be able to compete in a small business arena. 

Is that the basic message? 

Mr. TRILLA. That would be my basic message. I mean, once again 

I repeat that the government, and we are supportive of the President. I am supportive of the President and his actions with the tariffs when he said maybe a maximum of eight percent, and maybe 

a ten percent increase in steel. 

I mean, over the course of the years the steel prices have escalated and dipped and escalated and dipped. Yes, maybe the domestic steel prices were lower than in recent history, but, you know, 

ten percent? Maybe we could absorb that and pass that off in a logical three year period of time. 

Fifty-four percent in the course of five months is not logical, but 

we would be supportive of tariffs, something that makes sense. 

31

Ms. CAPITO. I would like to say as well that if we go back to 

where we were before these were imposed, the steel workers in my 

state, the owners of the steel businesses in my state, folks would 

ask me what is your impression of the steel industry, and where 

is it going in America? 

I would say that universally the one emotion and the one thing 

that was universal among workers and owners was desperation. I 

think the steel industry absolutely was at a desperate stage when 

I first began my service a year and a half ago. 

There are other issues that keep coming up like legacy issues 

and these kinds of things, so I do not think we are at the end of 

the journey on trying to do something to bolster up our steel industry, and most certainly you have issues that we need to deal with 

as we are going through this along with looking at legacy costs, another area that the steel industry is really pressing us as members 

to take a look at. 

Does anybody here have an opinion on legacy costs and where we 

should go with that? 

Mr. TRILLA. I wish I had a statement on legacy costs. You know, 

the one point we are missing here, especially because I have bought 

steel out of your district——

Ms. CAPITO. Thank you. 

Mr. TRILLA. More importantly to Trilla and Trilla Steel Drum 

and my 70 employees is admittedly the steel industry can only 

produce 70 to 75 percent of the total capacity needed in the United 

States, so as we are stating here today Mr. Gordon Jones realizes 

there is not as much inventory in my facility as there was six 

months ago. We cannot buy steel. 

Unless we import steel, unless we get the ability to get more 

steel in here, 30 percent of the consumption we will not have product to produce our products, whether it is a refrigerator door or a 

drum or a pail. That is a very, very critical issue for us today besides the price. 

Ms. CAPITO. Thank you. 

Ms. VELA ́ ZQUEZ. Mr. Chairman, I would just like to ask Ms. 

Baughman. 

The way I see this is that the real issue is competitiveness for 

our steel industry. One way to become competitive without relying 

on tariffs would be some type of consolidation that the gentlelady 

made reference to, but because of the legacy costs, commitments 

that have been made to the workers such as reduction in exchange 

for salaries, for many of these companies, the legacy costs to many 

of these companies, consolidation is not an option. You will agree 

with me? 

Ms. BAUGHMAN. Correct. 

Ms. VELA ́ ZQUEZ. Rather than the tariff, if the federal government 

assumed the legacy cost, would that solve the problem? After all, 

we did it for the airline industry. Can we do it for the steel industry? 

Ms. BAUGHMAN. It might solve a problem, but it opens up another, and that is that you have set a precedent for other industries 

to go out and to negotiate similar types of deals, knowing the government could bail them out if they cannot ultimately——

32

Ms. VELA ́ ZQUEZ. If you would excuse me? The precedent would 

not be set. It is there already. We did it for the airline industry. 

We have done it for the insurance industry. Why can we not do it 

for steel? 

Ms. BAUGHMAN. You certainly can do it for the steel industry. I 

am just saying that you need to be prepared to do it for the textile 

industry and for the sugar industry and for a whole host of other 

industries as well. 

Ms. VELA ́ ZQUEZ. Well, I think that we were prepared when we 

did it for the airline industry. 

Thank you, Mr. Chairman. 

Mr. GROVE. Mr. Chairman, if we are going to do this for big 

steel, would we also do it for small companies like Cold Metal Products that has the United Steelworkers? That would impact us. We 

have to pay pretty much the same legacy costs. We have been in 

business since 1926. 

Ms. VELA ́ ZQUEZ. If we supported it. 

Chairman MANZULLO. Do you have any idea how much money 

this would cost? 

Ms. VELA ́ ZQUEZ. $15 billion it cost to bail out the airline industry. 

Mr. Chairman, what about the tax cut? Do you have an idea of 

how much it is going to cost? 

Chairman MANZULLO. Yes. It will probably save us from going 

into a recession. 

I have a problem with the fact that we sent $5 billion to the airline industry. 

Ms. VELA ́ ZQUEZ. $15 billion, Mr. Chairman. 

Chairman MANZULLO. $5 billion in grants. They all took the 

grants, and now they are slowly getting the guarantees on it. All 

right. 

Ms. VELA ́ ZQUEZ. The whole package is $15 billion. 

Chairman MANZULLO. Okay. That would be so easy just to send 

a check to pay the legacy costs of every company around, but you 

are correct. That was a precedent, and I am not so sure that it was 

the correct precedent to set. 

At least when Chrysler got bailed out years ago it was a loan, 

and they paid it back with interest. They had a time on it. Your 

suggestion is just as viable as what is on the table now because 

what is on the table now is not working. 

Let me ask a question here. I find this extraordinary. This again 

is the Rockford Company. ‘‘In addition,’’ the letter goes on, ‘‘we 

wanted to convey just how difficult it is becoming to remain a viable manufacturer in America. One year ago, we sold a particular 

part for 9.2 cents each. Today, we must sell the same part for 4.7 

cents each in order to keep the work from going to Mexico. Our 

competitor in Mexico is paying his labor force 60 cents an hour. We 

have worked hard in the past few years to reduce costs, become 

more lean and reorganize to meet such challenges, but we can only 

make so many cuts without affecting our company’s ability to perform.’’

Now, what I have heard here today and the testimony in our 

steel letter book is that American companies that were supplying 

American manufacturers are now losing those contracts to the ChiVerDate Sep 04 2002 18:12 Sep 25, 2002 Jkt 081377 PO 00000 Frm 00036 Fmt 6633 Sfmt 6602 E:\HR\OC\A372.XXX A372
33

nese, to the Brazilians, to other Asian countries and to Canada. So 

one of the unintended consequences of the steel tariffs is to further 

exaggerate our trade imbalance. 

Who lost the contract to Canada? 

Mr. EMERY. I did. 

Chairman MANZULLO. Would you tell us about that again, Mr. 

Emery? 

Mr. EMERY. Yes, I will. This is a company that has been a longstanding customer of ours in our community within just miles of 

our facility. It has been a customer for a long time. A product that 

would generally go to our company or possibly another company 

that we compete with also in the area. There was no guarantee 

that we would get it. Neither one of us did. 

You know, our customers are sympathetic as well. They understand that we are paying more for steel. They also have to be competitive, however. You know, they have customers as well as we do, 

and they are competing for that same business. 

Their price just was not getting where they needed to get, and 

the reason was because steel prices have gone up domestically. 

They were able to buy that material at 30 percent less than cost 

for raw material in Canada. They felt bad about it. We actually 

had a sit down meeting to discuss it. They just really felt like they 

had no choice. 

Chairman MANZULLO. Canada. Now, that is U.S. steel. Canada 

is the largest importer of U.S. steel. 

Mr. EMERY. Correct. 

Chairman MANZULLO. I wonder what price the Canadians are 

paying for that steel? 

Mr. EMERY. I cannot answer that. All I do know is that when we 

compared, and we get into some detail. When we compare labor 

cost, we compare variable burden cost, overhead and so on, we 

were on an equal. When it got to the material content of that particular price is where we could not compete. 

Chairman MANZULLO. And then who lost the contract to China? 

Was that yours, Mr. Pritchard? 

Mr. PRITCHARD. Yes. 

Chairman MANZULLO. Okay. This has been a very interesting 

hearing. We have always prided ourselves, Ms. Vela ́zquez, on the 

Small Business Committee coming up with solutions. Do you think 

we have come up with a solution on this? 

Ms. VELA ́ ZQUEZ. Yes. I am willing to write and send a letter to 

the President regarding consolidation. 

Chairman MANZULLO. All right. We are looking for any and all 

solutions to this, but the purpose of this hearing is to show what 

I have called the unheard voice, and that is the small manufacturers that do not have the clout in Congress that the big steel companies do. It is just that simple. 

They are big. They have huge lobbying firms. They have big companies here that can pay a lot of money for full-time lobbyists to 

get their message across. All you have is the ability to come to 

Washington, pay your own fare and appear before the Small Business Committee.

34

We are going to continue to monitor this. We are going to ask 

for a response from the Attorney General in our request for price 

gouging, for collusion that may be going on in the steel industry, 

especially in light of Mr. Trilla’s statement that his domestic steel 

prices have gone up by 54 percent. 

I just want to thank you all for coming to Washington. Thank 

you for your tremendous testimony. 

This Committee is adjourned. 

[Whereupon, at 12:10 p.m. the Committee was adjourned.]

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