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USW and Visclosky say China pledge to end steel subsidies not enough

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By KEVIN NEVERS

The United Steelworkers (USW) and U.S. Rep. Pete Visclosky, D-1st, are both taking with a grain of salt China’s pledge to end illegal government export subsidies to its steel industry.

That pledge was announced on Thursday by U.S. Trade Representative Michael Froman.

The Chinese government’s subsidization of its steel industry has allowed it to sell exported product in the U.S. at prices far below the cost of production, low-balling domestic steel and grabbing large new swathes of market share. The result: over the last year or so, some 13,500 steelworkers have received layoff notices, as U.S. Steel Corporation, ArcelorMittal, and other steelmakers have idled or shuttered facilities.

Among other things, China has agreed to end direct central-government subsidies to enterprises in seven different sectors, including metals. It has also agreed to terminate preferential service agreements between sub-central government units and industry, under which, for instance, companies have received free or discounted utilities. Finally, China has agreed to prohibit sub-central units from awarding export-contingent cash grants.

“Today we have signed an agreement with China to eliminate export subsidies that the United States challenged because they are prohibited under (World Trade Organization) rules,” Froman said. “This is a win for Americans employed in seven diverse sectors that run the gamut from agriculture to textiles to medical products, who will benefit from a more level playing field on which to compete.”

“The agreement once again underscores,” Froman added, “President Obama’s commitment to enforce our trade rights aggressively to secure real economic results for American workers, farmers, and businesses of all sizes in every part of the country.”

Chinese Overcapacity

For the USW and Visclosky, though, China’s pledge to kill its subsidy program is only part of the solution to the problem of depressed prices and market-share loss, because the subsidies were prompted in the first place by a more deeply rooted distortion: Chinese vast steel overcapacity.

According to the USW, in 2000 China’s annual steelmaking capacity was roughly the same as this country’s, around 100 million tons. By 2014, its capacity had increased tenfold, to 1.2 billion tons.

“This growth has taken place at a rate far faster than domestic and international demand would dictate,” the USW stated in a recent report, entitled “Chinese Steel Overcapacity: A Legacy of Broken Promises.” “As a result, China’s steel industry is actively and deliberately flooding the international market with over a 100 million tons of steel each year. Steel plants in the United States and around the world are being forced to close, laying off thousands of workers in the face of China’s torrent of excess steel.”

Visclosky is accordingly viewing the U.S. Trade Representative’s agreement with China with caution. “The agreement is one good step forward,” he told the Chesterton Tribune today. “However, the agreement will not make the 700 million tons of excess global steel capacity, including China’s 425 million tons of excess steel, vanish into thin air. China continues to pose a real and constant threat to American workers and their families, and I will continue to work every day to fully enforce all of our trade laws and stop the influx of illegal steel imports.”

The USW, for its part, is lobbying for more aggressive action with regard to China. First, it supports an initiative under which a move by the Obama Administration to grant market-economy status to China would first require congressional authorization. China’s current non-market economy status allows the U.S. to respond “more effectively to any unfair trade practices of a state-run economy (like China’s) by ensuring that its domestic trade remedy laws can be fully enforced.

Second, the USW is insisting, as International President Leo Gerard testified on Thursday before the Congressional Steel Caucus, that the World Trade Organization “must make clear that market principles require that China not only cut back but actually dismantle significant production,” up to 500 million tons of its 1.2 billion-ton capacity. That “excess capacity is depressing world prices, driving competitors out of business, and causing massive layoffs,” Gerard said.

‘Broken Promises’

In any case, the USW says it has cause to doubt China’s promise to terminate subsidies. In the “Chinese Steel Overcapacity” report, the union documents what it calls four separate “Broken Promises”:

* In 2009 China pledged to cut its steel output by 12 percent, to 460 million tons from 521 million in 2008. Instead, the USW said, China’s steel production increased to 577 million tons in 2009, and to 700 million in 2010.

* In 2010 China’s State Council announced plans to stop greenlighting any further steel capacity expansion projects. Yet in 2011 60 million more tons of capacity were brought on line.

* In 2011 China released its 12th Five-Year Plan, which similarly “identified the need to suppress” excess steel capacity. Yet in 2012 96 million new tons were brought on line.

* In 2013 China “issued guidance to curb the excess capacity of steel.” By 2014, however, 70 million additional tons had been brought on line.

The USW’s conclusion from the record: “The Chinese government views this overcapacity as a strategic interest and a driver of domestic social stability. It simply will not give up this advantage on its own, no matter how often it makes and breaks promises to do so.”

 

 

Posted 4/15/2016

 

 
 
 
 

 

 

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