New Strategy Required For Aiding Distressed Steel Industry

GAO reviewed the problems facing the domestic steel industry and outlined the factors that should be considered in developing a program to revitalize the industry as a part of its ongoing efforts to improve the nation's capabilities to meet the materials requirements of the national economy. The comprehensive steel policy components addressed by GAO include: (1) wage and compensation restraint and labor-management commitment to a sound revitalization strategy; (2) measures to induce the entry and growth of new competitors; (3) accelerating depreciation rates; (4) improving administration of environmental regulation; (5) eliminating discriminatory price restraints; and (6) creating a trade policy yielding predictable and acceptable effects on imports with a minimum of inflation.

There is an international surplus of steelmaking capacity. However, if there is an upturn in the global economy, competition for foreign production is certain to increase significantly and there may not be enough steel to supply all customers. A large segment of the U.S. steel industry has become unable to compete with efficient foreign producers due to high labor costs, inefficiently sized plants, low utilization capacity, and restrictive government policies. Transportation costs give U.S. steel an edge in some domestic markets. Unfair pricing of steel products in the United States by foreign producers has been alleged to harm U.S. competition in the steel market. If American steel producers are to regain lost domestic consumers, they will need newer and more productive facilities and a more customer-oriented approach to their marketing. Many nations provide their steel industries with preferential financing, loan guarantees, and trade inducements. An effective policy toward steel ought to represent the nation's overall objective for the domestic industry's performance and include means for stimulation of competition, assistance in capital formation, and administration of environmental regulations. In establishing a performance goal, factors to be considered are: the point beyond which national security will be compromised if capacity drops; a target market-share for domestic firms; a target ratio of capacity to peak domestic needs; and the extent to which the industry's modernization and expansion needs can be met without depending on government assistance.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: John W. Sprague Team: General Accounting Office: Energy and Minerals Division Phone: (202) 512-7783