Global Steel Trade; Structural Problems and Future Solutions

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and risk management techniques remained undeveloped. The misallocation of credit was facilitated by a weak system of prudential controls and forbearance by the supervisory authorities. The result was a banking system with little commercial orientation, limited ability to price risk, and excessive exposure to large corporations. (5) The information in the text box is derived from the following sources: International Monetary Fund, IMF Staff Country Report No. 00/11: Republic of Korea: Economic and Policy Developments (Washington, D.C., February 2000), 5; OECD– Korea. “Prior to the crisis, the financial system was characterized by pervasive government intervention and discretionary enforcement of prudential rules.” ; A report from the International Monetary Fund echoes this sentiment: “The government’s history of intervening in the market, bailing out corporations, directing lending and appointing bank managers had undermined banks’ ability to appraise credit and market risk … and led to excessive corporate risk-taking.” IMF– Korea, 94; Organization for Economic Cooperation and Development, Asia and the Global Crisis – The Industrial Dimension (Paris, 1999), 74; Organization for Economic Cooperation and Development, Conference on Corporate Governance in Asia: A Comparative Perspective, Corporate Governance in Korea (Seoul, March 3–5, 1999), 38–44; See also the Organization for Economic Cooperation and Development, OECD Economic Surveys: Korea (1997–1998) (Paris, 1998), stating: Until 1997, the authorities had never allowed any financial institution to fail. Banks and industry operated under the implicit assumption that if they faced serious difficulties while pursuing government policy objectives, the government would provide assistance through bailouts, arranged mergers or regulatory forbearance. (58) See also Seong Min Yoo, “Corporate Restructuring in Korea: Policy Issues Before and During the Crisis,” Joint U.S. – Korea Academic Studies, Volume 9, 1999, 131, 164. Korea’s insolvency laws consist of the Bankruptcy Act, Composition Act, and the Company Reorganization Act. Organization for Economic Cooperation and Development, OECD Economic Surveys: Korea (1997–1998) (Paris, 1998), 32. 27. There have been four countervailing duty cases against Korean steel products covering exports to the United States in 1997 and 1998. The steel products covered by these investigations are stainless plate in coils, stainless sheet and strip, cut-to-length plate and structural steel. The following are the Commerce Department’s findings: Final Negative Countervailing Duty Determination: Stainless Steel Plate in Coils from the Republic of Korea, 64 FR 15530 (March 31, 1999) (Plate in Coils); Final Affirmative Countervailing Duty Determination: Stainless Steel Sheet and Strip in Coils from the Republic of Korea, 64 FR 30636 (June 8, 1999) (Sheet and Strip); Final Affirmative Countervailing Duty Determination: Certain Cut-to-Length Carbon-Quality Steel Plate From the Republic of Korea, 64 FR 73176, 73178 (December 29, 1999) (Cut-to-Length Plate); Final Affirmative Countervailing Duty Determination: Structural Steel Beams from the Republic of Korea, (June 26, 2000). The Department of Commerce first concluded that the Korean government directed financial institutions to provide preferential loans to the Korean steel industry in a 1992 investigation covering basic steel products. Final Affirmative Countervailing Duty Determinations and Final Negative Critical Circumstances Determinations: Certain Steel Products from Korea, 58 FR 37338, 37339 (July 9, 1993) (Steel Products from Korea). That investigation examined bank lending practices through 1991. In several other countervailing duty investigations, the Commerce Department found that the government continued to direct certain types of credit to the Korean steel industry through 1997 and 1998. Final Negative Countervailing Duty Determination: Stainless Steel Plate in Coils from the Republic of Korea, 64 FR 15530 (March 31, 1999) (Plate in Coils); Final Affirmative Countervailing Duty Determination: Stainless Steel Sheet and Strip in Coils from the Republic of Korea, 64 FR 30636 (June 8, 1999) (Sheet and Strip); Final Affirmative Countervailing Duty Determination: Certain Cut-to- Length Carbon-Quality Steel Plate From the Republic of Korea, 64 FR 73176, 73178 (December 29, 1999) (Cut-to- Length Plate); Final Affirmative Countervailing Duty Determination: Structural Steel Beams from the Republic of Korea, (June 26, 2000). In 1999, the Court of Appeals for the Federal Circuit ruled that the Department of Commerce’s 1992 investigation lacked sufficient evidence to show that the Korean government directed credit specifically to the Korean steel industry through private commercial banks. AK Steel Corp v. United States, 192 F.3d 1367. However, in subsequent investigations the Department of Commerce reexamined these practices in light of the Court’s decision, and concluded on the basis of additional information that the steel industry did in fact benefit from government involvement in the financial sector prior to 1992. See Final Affirmative Countervailing Duty Determination: Certain Cut-to-Length Carbon-Quality Steel Plate From the Republic of Korea, 64 FR 73176, 73178 (December 29, 1999) (Cut-to-Length Plate); Final Affirmative Countervailing Duty Determination: Structural Steel Beams from the Republic of Korea, (June 26, 2000). In the other investigations, the Commerce Department also determined that loans 212 Global Steel Trade: Structural Problems and Future Solutions
provided after 1991 by domestic banks, both private and government owned, constituted countervailable subsidies to Korean steel companies. 28. KOSA, 1998 Yearbook, 286–287; CMA-Korea, “Steel Financial Ratios.” 29. Debt-to-equity ratios for USX, Bethlehem Steel, National Steel, LTV, and Nucor (top 5 U.S. producers of raw steel in 1998) from public financial statements. 30. International Monetary Fund, Allocation and Financial Crisis in Korea, IMF Working Paper 99/20 (Washington, D.C., February 1999), 9. 31. Organization for Economic Cooperation and Development, Conference on Corporate Governance in Asia: A Comparative Perspective, Corporate Governance in Korea (Seoul, March 3–5, 1999), Chart I–4. 32. Averages for electric arc furnace producers are from Korea Iron & Steel Association Yearbook, 1998, excerpted for CMA-Korea, “Steel Financial Ratios.” 33. Korea Iron & Steel Association Yearbook, 1998, excerpted for CMA-Korea, “Steel Financial Ratios.” 34. These are Sammi Steel, Kia Steel, Hwanyung Steel, and Shinho. 35. Korea Iron & Steel Association and POSCO Research Institute, information translated and excerpted for CMA-Korea, “Follow-up Questions Two.” 36. Organization for Economic Cooperation and Development, Asia and the Global Crisis – The Industrial Dimension (Paris, 1999), 74. 37. Organization for Economic Cooperation and Development, OECD Economic Surveys: Korea (1997–1998) (Paris, 1998), 83. 38. Organization for Economic Cooperation and Development, Asia and the Global Crisis – The Industrial Dimension (Paris, 1999), 69–74. 39. Russ McCulloch, “Korean Banks Step in to Help Sammi,” Metal Bulletin, July 2, 1992. Nine Korean banks are this week due to begin disbursing some 132bn won ($167m) in emergency loans to help the Sammi group of companies out of their financial trouble… The Korea First Bank, Sammi Steel’s main creditor bank will extend the largest single portion of the new loans with 40bn won, followed by the Korea Development Bank with 30bn and the Commercial Bank of Korea with 20bn. (21) 40. John Burton, “POSCO Pins its Hopes on IMF: Steelmaker needs freer hand,” The Financial Times, Nov. 27, 1999. The initial government response was to press state-run Pohang Iron & Steel (POSCO), Korea’s dominant steel company and the world’s largest in terms of production, to help rescue its bankrupt rivals…The forced intervention of POSCO worried investors, who feared that the spree of acquisitions would burden the steelmaker with unwanted facilities. Credit-rating agencies threatened to downgrade POSCO if the deals were concluded. (27) 41. Organization for Economic Cooperation and Development, Conference on Corporate Governance in Asia: A Comparative Perspective, Corporate Governance in Korea (Seoul, March 3–5, 1999), Table IV–1. 42. Michael Schuman, “South Korea Risks Deepening Crisis As Ailing Firms Cling to Old Patterns,” The Wall Street Journal, March 13, 1998, 1. “Like many other victims of the financial turmoil, Kia is benefitting from Korea’s lingering willingness to allow financially troubled major companies to carry on indefinitely.” 43. CMA-Korea, “Steel Questions Four.” Includes finished steel for companies that do not make crude steel. 44. Collier Bankruptcy Manual, 3rd ed., Vol. 1, section 364.01-364.07 (2000). 45. Hanbo’s hot-rolled mill did, however, shut-down in July, 1998. 46. Michael Schuman, “South Korea Risks Deepening Crisis As Ailing Firms Cling to Old Patterns,” The Wall Street Journal, March 13, 1998, 1. 47. POSCO, the only integrated steel producer in Korea, remained healthy during the financial crisis of 1998. Despite a colossal drop in domestic demand, POSCO increased its relative share of the domestic steel market. 48. The information in the text box was derived from the following sources: “POSCO Keeps the Momentum Going,” Metal Bulletin Monthly, February 1998; Hannuri Investment & Securities, POSCO (0549.KS) –Up-shifting Earnings Momentum, 31 May 1999. 49. Korea Fair Trade Commission, Joint Anti-Competitive Activities of 11 Scrap Demanding Companies and Korea Iron and Steel Association: Decision No. 98-273 (November 24, 1998). [Hereinafter KFTC November 1998 Report] The report investigated anticompetitive practices in the steel sector from April to October of 1998. See also Government of Korea March 9, 1999, response to USTR questions. 50. According to the KFTC November 1998 Report, POSCO holds 70 percent of the hot-rolled steel, cold-rolled Notes 213
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Preface This report is the product
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Contents Preface ..................
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CHAPTER 1 Overview Introduction Ove
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steel prices and still make money (
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History of Steel Trade Friction The
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• Led by “mini-mill” companie
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New Players in the Global Steel Mar
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CHAPTER 2 The U.S. Steel Import Cri
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The Steel Workers’ Perspective on
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1997: A Cloud Behind Every Silver L
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These productivity increases and sh
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In mid-1998, financial crisis hit R
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concerns regarding purchase allocat
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percent from Korea, and 59 percent
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from Brazil, Japan, and Russia. 58
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finished steel prices is very compl
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Department of Commerce determined t
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The Role of Trading Companies Tradi
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Trading companies viewed these atyp
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Weirton, W.V.: A Community Unites i
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CHAPTER 3 Behind the Crisis Introdu
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Competition has been restrained by
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When the Asian economic crisis sapp
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The Russian steel industry has made
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steel is traded between the world
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estructuring of companies and predi
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Under the conditions of introducing
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When prices began to escalate after
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pension payments) reached almost 20
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exports extremely profitable, the b
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Trading Companies and the Marketing
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these intermediaries, one source es
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• Domestic demand for hotrolled s
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Although the production facilities
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3.2 Structural Factors and Japanese
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apparent in the marked differences
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High Domestic Prices The apparent c
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outstripped growth in domestic dema
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Noncompetitive Domestic Market and
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Professor Tilton’s price analysis
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The Product Certification System Ad
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Three factors contributed to tippin
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Collapse of Asian Export Markets At
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at a loss. The rationale for pricin
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3.3 Korea’s Steel Industry in The
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negotiations for the purchase of Ha
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almost 700 percent (Chart 3-31). By
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of 1997 and 1998, when capacity uti
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• Regulating POSCO after privatiz
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approximately 32 percent from 1997
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denominated revenue. For other mini
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Rounding Out the Big Three Usiminas
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Chapter 3: Behind the Crisis—Braz
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Import Licensing System Importers m
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they were able to cut their prices,
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CHAPTER 4 U.S. Response to the Cris
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compared to November 1998 and conti
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downstream products. The U.S. indus
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for by the WTO. The industry argues
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Effect of Excess Inventories Much o
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coke but also to the large increase
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The Role of the Chinese Coke Indust
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CHAPTER 5 Reforms and Restructuring
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The current dramatic economic and s
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While this analysis is largely corr
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these four heavyweights will be abl
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Government Initiatives to Encourage
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U.S. Firm Takes Over Hanbo Steel Pr
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ensure that the commercial banks fo
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Again, while these efforts hold pro
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Brazil-IMF Reform Program Throughou
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CHAPTER 6 New Players in the Global
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• Be subject to strong subsidy di
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Technological Backwardness. China
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100 kg at present. Per capita consu
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Current Reform Efforts in the State
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wire rod production with an annual
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Notwithstanding the negative impact
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Media reports and interviews with v
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Baoshan is not equipped to provide
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Domestic Consumption In 1998, Ukrai
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two firms, Enakievo and Konstantino
Page 167 and 168: • Barter. Ukrainian steel compani
Page 169 and 170: Today India is the world’s tenth
Page 171 and 172: among steel-intensive sectors, such
Page 173 and 174: Banks’ Debt and Equity Exposure D
Page 175 and 176: Tariffs. High tariff rates also con
Page 177 and 178: new sales growth. 196 By 1998, even
Page 179 and 180: CHAPTER 7 Avoiding Future Crises In
Page 181 and 182: propose to monitor additional data
Page 183 and 184: determination of dumping. In Octobe
Page 185 and 186: Engaging Korea On Hanbo In late 199
Page 187 and 188: Korea Korea’s steel industry has
Page 189 and 190: New Players: China, Ukraine, and In
Page 191 and 192: government and private sector assis
Page 193 and 194: Notes Chapter 1 1. Difference of av
Page 195 and 196: massive layoff data shows 9,550 emp
Page 197 and 198: also possess weaknesses, which the
Page 199 and 200: 64. Ibid., 145-177. 65. Id. Bethleh
Page 201 and 202: ITC considered numerous factors. On
Page 203 and 204: 104. Harry Thuedaus was recently re
Page 205 and 206: Frank Markus, Successes and Failure
Page 207 and 208: Decrepit Steel Plant in the Urals,
Page 209 and 210: 2. WTO. At the time of this report,
Page 211 and 212: Among those who have written on thi
Page 213 and 214: line pipe markets, the European and
Page 215 and 216: 97. Merrill Lynch, “Steel Industr
Page 217: chaebol to downside risk. This crea
Page 221 and 222: 61. Catholic University of Korea Pr
Page 223 and 224: acquired on economically viable ter
Page 225 and 226: date of publication in printed vers
Page 227 and 228: Producers of iron ore and coke, the
Page 229 and 230: production may be shut down by the
Page 231 and 232: 56. U.S. government sources. 57.
Page 233 and 234: 79. World Bank-Korea, 12. 80. Seong
Page 235 and 236: 24. 24. “Hard Times for China’s
Page 237 and 238: 60. “PRC To Further Cut Steel Out
Page 239 and 240: 132. In terms of crude steel produc
Page 241: 195. The capacity of the new steel
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