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AISI Leaders Outline Policy Steps Needed for Domestic Manufacturing to Flourish

AISI Leaders Outline Policy Steps Needed

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A strong and broad-based domestic manufacturing policy is one of the primary goals of the U.S. steel industry, one to which associations such as the Washington, D.C.-based American Iron and Steel Institute devote considerable resources. Some of the biggest names in the steel industry addressed the media in a joint press forum last month, outlining what they believe are the steps necessary for the country to develop a more pro-manufacturing business climate.

Four main policy areas demand attention from the federal government, they said:

Fair Trade
“The fact is U.S. steelmakers and their workers can compete with anyone in the world, as long as we have a level playing field. We cannot compete against governments that rig the market to their advantage,” said Dan DiMicco, chairman and CEO of Nucor Corp., Charlotte, N.C.

AISI, he said, supports rules-based free trade, strong laws against unfair and injurious surges, and strictly enforced trade agreements. The group asks the federal government to combat currency manipulation and other protectionist practices by foreign competitors.

DiMicco said 80 percent of China’s outward investment is done by state-owned enterprises. The SOEs have advantages that most shareholder-owned companies do not, including access to cheap capital from state-owned banks, free land and subsidized energy.

“It’s OK if the product is produced and sold at home. But when it’s exported, it goes against our country’s and WTO’s rules and laws governing exports,” DiMicco said. “To address SOEs, we need Congress, the administration and federal agencies to work together to ensure healthy, balanced global trade.”

While a comprehensive national energy policy has long been a goal of the steel industry, when it comes to the growing shale gas sector, the steel industry would prefer the federal government to stay away.

“From a policy perspective, the states where shale production has taken place already have robust regulatory programs in place, and others are in the process of upgrading these structures,” said John Surma, chairman and CEO of Pittsburgh-based U.S. Steel. “The process is working. The regulation of shale gas resource development is best dealt with at the state, rather than federal, level.”

Of course, the federal government will continue to play a role in energy. At the moment, the industry is concerned about new EPA regulations on coal-generated electric facilities, regulations that could result in up to 32 facilities shutting down.
“AISI and other industrial groups are concerned the rules could have a negative effect on the availability and reliability of electricity supply, and the rules would likely result in higher power costs,” Surma said. “For an energy-intensive sector such as steel, it would detrimentally impact the industry’s competitiveness.”

Tax Policy
Recently, pro-business groups have proposed reducing the corporate tax rate from its current level of 35 percent—the highest in the developed world, AISI noted—to 28 or even 25 percent. While the steel industry supports a reduction in the corporate rate, some of the proposals on the table would simply exchange one uncompetitive situation for another, the association argued.

“Many of these proposals seek to pay for that rate cut by eliminating a number of corporate credits and deductions that are critical to promoting investment and creating jobs,” said Joseph Carrabba, chairman and CEO of Cleveland-based Cliff’s Natural Resources and the chairman-elect of AISI. “If not properly structured, swapping credits and deductions for a lower rate could result in a net tax increase on capital-intensive companies such as those represented here.”

Instead, AISI supports corporate tax reform that creates an environment for American companies to increase production and exports. “To do this, Congress must put together a tax reform plan that improves our competitiveness relative to our major global trading partners and does not result in a net tax increase on companies that add value to our economy,” he said.

The steel industry entered 2012 with the expectation that non-building structures such as highways, bridges and water-supply infrastructure would enjoy a healthy growth rate of 6 percent. But that was predicated on the successful passage of a well-funded surface transportation bill in advance of the highway construction season. Instead, Congress has only produced a series of short extensions.

“These extensions do not provide the boost our economy needs,” said Mike Rehwinkel, president and CEO of Evraz North America, Chicago. “We need a long-term bill with a level of funding that allows the states to plan the big construction projects that produce valuable jobs and generate demand for steel, concrete and other materials.”
Even if Congress is able to pass an adequate bill, it may be too late to provide the necessary boost this year, he noted.
“We must make rebuilding our crumbling transportation infrastructure system a top national priority,” Surma added. “It is essential to be able to do business efficiently within our own borders in order to maintain our dominant role in the global economy.”

Sign of Hope
While much work needs to be done in these areas, there is slightly more cause for optimism this year than in the recent past, noted one of the panelists.

“Both presidential candidates are putting forward in their platform a strong message that manufacturing is critical to job creation, wealth creation and economic growth,” DiMicco said. “That’s new, and a major success for people who have spent a decade trying to convince folks there’s a real issue here.”

DiMicco said both candidates have been critical of China’s trade practices, among other concessions to manufacturing’s needs. Moreover, he believes the electorate is also mindful of the need for better leadership on these issues.

“These aren’t just words in an election year,” DiMicco said. “The American people are going to demand that whoever becomes president acts on these words in a strong and effective way.”

Ultimately, he said, “it’s going to take government-to-government interaction and government-to-business leadership to really effect the change we need to get manufacturing back to being 20-plus percent of our GDP.”