The lower pr ices in the domest ic markets of foreign producers resulted from the foreign producers' enjoying lower costs of productio...
The lower pr ices in the domest ic markets of foreign producers resulted from the foreign producers' enjoying lower costs of production prior to the dollar devaluations. With their lower costs and prices, foreign producers were able to make significant inroads into the United States steel market. Imports as a percentage of apparent United States steel consumption reached a high of 17.9 percent in 1971. It was found . that the penetration into the United Stãtes steel market was not due to foreign steel producers pricing their exports relatively lower during recessions; i.e., cyclical dumping. Since 1971, the prices of United States steel producers have become competitive. In some years, the prices of some products were lowest in the United States. Lower domestic pr ices reflect an improvement in the relative cost position of the United states and were exaggerated in 1973 and 1974 due to domestic price controls. Corresponding to the cost and price trends, imports as a percentage of domestic apparent steel consumption declined from 17.9 percent in 1971 to 13.3 percent and 13.5 percent in 1974 and 1975, respectively. During the 1973~74 boom, as a result of the changed cost picture and domesticiprice controls, foreign steel sold at a premium over domestic steel and domestic mills sup~lied their regular customers on an allocation system. During the 1975 contraction, many domestic buyers chose to purchase domestic steel at slightly higber pr ices because of their belief that I they could purchase s~eel more cheaply, on average, from -239-
domestic suppl iers. Domestic steel purchasing managers are currently more concerned with establishing a long-term buying relationship with domestic suppliers. This study indicates that pr icing in the domestic steel industry may be character ized as barometr ic pr ice leadership. However, an important element in the industry structure which contributed to this conclusion is the role of imports. Edgar B. Speer, chairman of the united States.~teel Corporation and also the current chairman of ,the AISI, has stated that U. S. steelmakers plan a campa ign to get the Car ter admin istration to negotiate a worldwide steel agreement that would force foreign producers to sell in the United States at .unsubsidized prices..!21
In an apparent response to the U.S. industry's accelerated campaign against imports, Hiroshi Saito, president of Nippon Steel, U.S.A., Inc., the American affiliate of Japan's largest steelmaker, stated that his company intends vol un tar ily to pursue .orderly marketing. practices. 8BI This could limit exports to the U.S. 891 B71 .U.S. Steel Producers Hit 'Predatory Pricing' of Imports,. TEe Washington Post, May 26, 1977, pp. Cl, C3. BBI .Steel Study Hits Foreign Makers' Export Tactics,. The Wall Street Journal, May 26, 1977, p. 3. 891 As was mentioned, the European Community and MITI of Japan negotiated an agreement, dur ing 1976, wh ich 1 imi ted the expor ts of Japanese steel products into the EC. Regarding this agreement the American Iron and Steel Institute, on October 6, 1976, filed a complaint with the Office of the Special Representative for Trade Negotiations under section 301 of the Trade Act of 1974. In the complaint, the AISI objected to the fact that , (Continued) -240- Recently, officials of the U. S. Government and the European Community negotiated reference (or minimum) pr ices for steel imports. 90/ Reference pr ices would prohibit imports below the minimum prices via the immediate imposition of tariffs. Either an orderly marketing agreement or reference prices would in effect periodically implement import restrictions, and an important competitive element in the industry structure would be reduced. In the event such agreemënts were implemented, there would be a serious adverse effect on competition and the' domestic steel industry's pricing policy would not remain as competitive as was characterized herein. The costs to consumers and to the economy of such agreements are estimated in the final chapter of this study. B9/ (Continued) similar limitations on Japanese steel exports were not granted to the Un i ted StateS. The position of the AISI appears to be that, while it opposes such agreements which exclude the United States, it favors similar multilateral agreements which include the United States. See the testimony of R. Heath Lary (vice-chairman of the U.'S. Steel Corporation and former chairman of the International Trade Committee of the AISI) before the U.S. Senate, Committee on Finance, on February 4, 1976. 901 See .U.S., Europeans Hopeful of Steel Settlement Soon,. The Washington Post, Nov. 10, 1977, pp. Bl, B2; and .Program to Aid U.S. Steel Makers Unveiled,. The Washington Post, Dec. 7, 1977, pp. DB, Dll. -241- APPENDIX 4 Analysis of the Evidence on Pricing Below Costs Presented by The pifer, Marshall, and Merrill Study The recent study by pifer, Marshall, and Merrill (PMM) !Z3l has attempted to verify empirically that the Japanese have sold their steel in the United States at prices below their average total cost of production during at least two periods, 1975-76 and 1968. lI Although our research has not addressed the .~ . question of pricing below cost, a brief comment on the evidence presented in the PMM study is required. PMM used a di fferent methodology for each period to support their argument. For the 1975-76 period, they first estima ted the average pr ice per ton each month for Japanese carbon steel products. This was based on exit prices (f.a.s., from Japan) for various carbon steel products arriving in the United States that month, and the total production of these products in Japan during that month.
They compared these monthly prices with annual estimates of the per ton total cost of producing steel in Japan. The cost estimates were based on the financial statements of major Japanese steel companies. The PMM price series falls below their cost 11 The PMM study also alleges, with a much less extensive empirical verification, that the EC has sold below average years. ! total cost and perhaps I below average variable costs in recent -242- series in August 1975 and stays below it through November 1977. "l/ This study has not attempted to verify either the PMM price or cost estimates in any detail. The cost estimates used by PMM are due to Schneider (27) of I.V .M. Detailed criticism of the Schneider study has been presented in a submission to the U.S. Treasury Department by Steptoe and Johnson (31), counsel to Nippon Steel Corporation. Sc'hneider ''C28i has presented a detailed reply to the Steptoe and Johnson critique. The methods used certainly leave room for error, but there is no apparent reason to believe that they are biased.
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