Global Steel Trade; Structural Problems and Future Solutions

CHAPTER 3
Behind the Crisis
Introduction
As their domestic and export markets declined during the Asian financial crisis, major steel producers
around the world turned to other markets, especially the United States, where demand was strong, prices
were high, and the market was open. Currency depreciations made the U.S. market even more attractive.
While these short-term factors led to increased steel imports into the United States, market forces alone
do not fully explain the speed and magnitude of the increases in low-priced imports into the United
States.
The steel industries in the four countries most involved in the crisis—Russia, Japan, Korea and, to a
lesser extent, Brazil—differ substantially in terms of production efficiency and quality. However, they
share some common structural problems that amplified the huge import volume increases and sharp
import price declines that characterized the U.S. steel crisis. Market-distorting practices in each of these
countries have insulated their steel industries from competition and thereby have facilitated unfair
trading. These practices include:
• Direct government assistance.
• Apparent coordination among steel producers.
• Unsound banking practices.
• Import barriers.
Some of these practices were developed in these countries as their institutional frameworks were
established in support of long-term economic development, and were not necessarily always aimed at
supporting the steel industry. However, in some cases, the end result was to give their steel industry a
competitive edge. A closer look at the four key countries reveals how particular market-distorting trade
practices exacerbated the U.S. steel crisis.
Russia. In Russia, while the steel industry was privatized and downsized somewhat after 1991, many of
the old ways of thinking remained. Although much of the excess capacity created by the Soviet Union’s
central planners needed to be restructured or closed down, the Russian government and most steel firms
resisted the deep restructuring that would have led to massive layoffs. To tide them over, steel companies
(like other companies) bartered their products, did not pay their bills or taxes, and exploited the absence of
a real bankruptcy process. Moreover, those input suppliers controlled by the state continued the traditional
practice of selling cheaply to industry.
Chapter 3: Behind the Crisis 37