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
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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)
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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.
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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
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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.