NEWS AND VIEWS: U.S. steel mills try to stymie Ukrainian steel imports (01/12/97)

NEWS AND VIEWS: U.S. steel mills try to stymie Ukrainian steel imports

by Alex Anderson

WASHINGTON - On November 5, 1996, United States steel producers filed a petition with the Department of Commerce and International Trade Commission alleging that Ukrainian steel producers were "dumping" steel plate on the U.S. market by selling large quantities at low prices. They asked for the imposition of crippling duties in order to close off the U.S. steel-plate market.

According to a well-placed source at the Commerce Department, the U.S. producers are using this petition as a test case in the hope of closing off all steel imports from Ukraine.

Ironically, the first meeting of the new Kuchma-Gore Commission was held in Washington on November 5-6, 1996, to discuss political, trade and investment, security and global issues. In a joint statement, the Committee on Foreign Policy noted that "the U.S. and Ukraine strategic partnership is based on common values and goals." In an earlier joint statement, the full commission noted that Ukraine's "market reforms have gone far toward stabilizing the economy and creating a foundation for growth. These steps have advanced Ukraine's integration with Europe and the West, and have positioned Ukraine to be a pivotal and stabilizing force in an evolving Europe."

Clearly, the issue of whether U.S. steel producers can monopolize the U.S. steel market while destabilizing Ukraine will be a major test of the commission because it involves policy considerations at the very heart of U.S.-Ukrainian bilateral relations.

Both the White House and Congress have made clear that the economic stability of Ukraine is a top U.S. priority. Without such stability, there can be no political stability. This is evident from the recent assassination attempt on Prime Minister Pavlo Lazarenko. Officials in Kyiv are convinced that the attempt was a direct result of Mr. Lazarenko's investigation of the failure to pay coal miners for several months.

The coal producers are largely dependent on the steel mills for currency, and much of that currency was not getting to the miners in time to pay salaries. One of the changes that Prime Minister Lazarenko instituted was to require the mills to pay the coal producers in advance rather than later through local officials. It follows that any disruption in U.S. steel sales, presently comprising 55 percent of Ukraine's exports to the U.S. (worth $200 million per year), will have a profound destabilizing effect on the Ukrainian economic and political situation. Moreover, it will strain relations and foment distrust of U.S. intentions.

Ukraine is now the third largest recipient of U.S. aid - $330 million in grants and $675 million in bilateral credits for 1996 - much of which is earmarked for assisting Ukrainian industry in joining the world market economy. These, along with loans from the World Bank and International Monetary Fund, have been predicated on an economy growing as a result of exports to countries with hard currency.

Ukraine has been granted most-favored-nation status and the U.S. government has set up working groups at the departments of State, Commerce and Energy to provide assistance and expertise with economic development. Why then, on November 25, 1996, did Robert LaRussa, acting assistant secretary of the Commerce Department, allow initiation of the anti-dumping petition against Ukraine by finding that the petition alleged "material injury or threat of material injury to domestic producers"?

A senior administration official stated that Mr. LaRussa's action was not well received by the White House. Speaking on the condition of anonymity, he said, "It is amazing that a Commerce official would allow a highly profitable U.S. industry to undermine years of work by the administration and destablize the economy of a strategic partner. The Ukrainians must think we're as bad as the Communists in the Russian Duma who recently imposed draconian duties on Ukrainian imports."

Jack Segal, director for Ukraine, Belarus and Moldova at the State Department, put it more diplomatically but no less forcefully: "The administration is 100 percent in support of Ukraine's economic restructuring efforts, and we fully understand the importance of this export to Ukraine's well-being. But this allegation of dumping is in a legal process that is clearly delineated by law. Obviously, it is in everyone's interest to move this forward as rapidly as the law permits."

U.S. steel producers, according to their own petition, have at least a 79 percent share of the U.S. steel-plate market and are bringing on 10 percent additional production in the next six months. The U.S. demand for steel is high because of the growing economy, and the domestic mills cannot fill that demand because of production and weather-related problems. The marketing manager for the largest producer of U.S. steel plate, Bethlehem, recently testified that the company made "significant" profits from plate sales and that the problem "is not with demand, but with supply."

Despite the fact that U.S. producers cannot satisfy the demands of their own customers, they want to close off foreign competition in order to cause prices to rise. This protectionism would, of course, ultimately hurt the American manufacturing and consumer sectors, and cause a slowdown of economic growth.

The Ukrainian producers were obviously shocked and surprised by the dumping charge because, for several years, they have acted responsibly by setting prices higher for the U.S. market than for all other markets. Moreover, they have been at near full production capacity and are not interested in expanding exports to the U.S.

The current level of exports, however, is vital to the national interests of Ukraine and needs to continue unabated. Without it, the important processes of privatization and economic development in Ukraine will be interrupted and undermined. Clearly, the danger of the dumping petition is that steel exports to the U.S. will be wiped out and havoc will be wreaked on the Ukrainian economy.

As Volodymyr Khrebet of the Ukrainian Embassy's Trade Mission put it, "Our government is not pleased with this development." To be sure, it is contrary to the administration's policy considerations toward Ukraine and will have a negative effect on the good relations that have been so carefully nurtured in recent years.

The five commissioners of the International Trade Commission voted at a preliminary hearing on December 18, 1996, to allow the U.S. steel producers' petition against Ukraine to proceed. According to Washington attorney Marty Lewin, who represents the Ukrainian mills, "there is a strong case to be made that imports from Ukraine are not injuring the U.S. industry. Companies such as Bethlehem and U.S. Steel are doing very well. Unfortunately, at a preliminary determination, it is very rare that the ITC will vote to stop the petition. However, I believe that in the final analysis, the facts of this case should compel the ITC to terminate it."

The administration and those in Congress who are concerned about a consistent approach toward Ukraine, the survival of its economy and stability in the region should act immediately to stop this act of economic aggression.

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