China Heavily Subsidizes It's Steel Industry, So Firms Like Angang Steel Can Undercut Their American Competitors – Senators Call For Advance Notice On Major Contracts So American Firms Are Prepared To Compete
Purchasing State-Subsidized Chinese Steel For Massive Domestic Infrastructure Projects Promotes A Race To The Bottom That Could Ultimately Drive U.S. Steel Producers Out Of Business, Reduce Competition, And Cause Prices To Skyrocket
WASHINGTON, D.C. – U.S. Senators Charles E. Schumer (D-NY) and Sherrod Brown (D-OH) today urged the Metropolitan Transportation Authority (MTA) to alter its bidding processes to level the playing field for American steel manufacturers by accounting for the inherently unfair advantages state-sponsored firms, especially those from countries like China, now enjoy. These advantages take the form of subsidies from the government - including reduced energy costs, reduced environmental regulations, and infrastructure support - and make Chinese steel artificially cheap, allowing Chinese companies to undercut their American competitors by up to 25 percent. This issue was recently underscored by the MTA's announcement that it would be using steel from Angang Steel (Ansteel) Group, a state-owned enterprise in China, to make repairs along the Verrazano-Narrows Bridge.
The senators, citing these anticompetitive and unfair advantages enjoyed by state-subsidized foreign firms, said reforms should be made to MTA's bidding process so that domestic companies have an equal chance of securing a contract. They said that while purchasing steel from these state-sponsored companies may save money in the very short run, it would ultimately lead to higher steel prices and harm the United States economically. Continuing to purchase Chinese steel priced artificially low due to Chinese subsidies would lead to a race to the bottom, undermining the competitiveness of American manufacturers and potentially putting them out of business. If state-subsidized firms drive their competition out of business, they are free to dramatically raise prices.
Schumer said that MTA generally does a very good job supporting workers and businesses in New York and America, but that extra care needs to be taken not to reward China's anticompetitive practices.
“State-owned enterprises like Ansteel have an unfair, artificial, competitive advantage against American firms, and in the future the MTA should change its processes to account for this unfair advantage, and do everything in its power to avoid purchasing from these companies,” said Schumer. “If we continue to source to Chinese companies based entirely on bid pricing, they will always win – with the level of government support and overproduction it’s impossible to beat their prices. This is causing a global race to the bottom on steel prices, a budding environmental catastrophe and the threatening of steel production not just in the U.S. but worldwide. If American government entities like the MTA don’t support a level playing field for American steel made by American steelworkers, no one will.”
Brown has led the fight to ensure that federally-funded infrastructure projects utilize American-made steel, successfully amending the highway bill and water infrastructure bill to strengthen “Buy America” provisions and close loopholes.
“American infrastructure projects should utilize American-made steel,” Brown said. “In Ohio and across the country, there is no shortage of supply for the strongest and safest steel in the world to repair and build roads and bridges. The U.S. steel manufacturers are the world’s most efficient and our bridge industry can meet our nation’s infrastructure needs, and I encourage the MTA and any government entity to give American companies a fair shot to compete for this and future work.”
The MTA awarded a $235.7 million contract to Tutor Perini Corporation for repairs along the Verrazano-Narrows Bridge. The contractor subcontracted the steel decks to China Railway Shanhaiguan Bridge Group and will be using 15,000 tons of steel plate fabricated by Ansteel. The steel is being used to replace the bridge’s concrete upper roadway.
The Buy America Act requires the U.S. government to use American-made products. The Act allows for preferential treatment to domestically produced materials used for mass-transit-related projects which are funded through the federal government.
The MTA normally falls under the Buy America Act but because bridge and tunnel repairs are funded by bonds backed by toll collections, the repairs along the Verrazano-Narrows Bridge are exempt from domestic sourcing requirements.
Schumer and Brown today pointed to two issues with using steel from Ansteel that are in direct conflict with the best interest of the U.S. economy. First, state-sponsorship can dramatically drive down costs on steel production. The Chinese government has a long history of subsidizing production and dumping products into the United States at a reduced cost in order to threaten the solvency of the domestic market. They do this by providing energy, environmental and infrastructure subsidies and other benefits to the companies, making it far easier and cheaper for them to produce steel. Second, China keeps its currency artificially low, giving imports from China a significant competitive advantage against competitors worldwide.
Last month, Brown introduced the Currency Exchange Rate Oversight Reform Act of 2013, bipartisan legislation that would reform and enhance oversight of currency exchange rates. Specifically, the bill would use U.S. trade law to counter the economic harm to U.S. manufacturers caused by currency manipulation, and provide consequences for countries that fail to adopt appropriate policies to eliminate currency misalignment. Brown’s introduction came in advance of talks between President Obama and Chinese President Xi later that week in California.
In May, the U.S. Senate passed a Brown amendment, introduced with Sen. Jeff Merkley (D-OR), in the Water Resources Development Act (WRDA) that would ensure that American-made iron, steel, and manufactured goods are used in federally-funded water infrastructure projects whenever they are available and competitively priced. The amendment passed by a vote of 60 in favor, 36 against. The entire bill, with Brown’s amendment, passed by a vote of 83-14 and now heads to the House of Representatives for consideration.
In June 2012, the U.S. Senate passed a Brown amendment in the bipartisan highway bill to strengthen “Buy America” provisions and support Ohio-made steel. The legislation benefits several Ohio steel companies, including ArcelorMittal and Cliffs Natural Resources in Cleveland; Nucor, located in Marion; and AK Steel in Middletown.
In their letter to Chairman Prendergast, Schumer and Brown today urged the MTA to consider using domestic companies when making sourcing decisions in the future.
Thomas F. Prendergast
CEO & Chairman
Metropolitan Transportation Authority
347 Madison Avenue
New York, NY 10017
July 11, 2013
Dear Chairman Prendergast,
We write today with concern over the recent decision of the Metropolitan Transportation Authority to use steel from Angang Steel (Ansteel) Group in China, a state-owned enterprise, to repair the Verrazano-Narrows Bridge. While we are appreciative of the tight budget constraints that MTA is subject to on public works projects, we believe that supporting state-owned enterprises such as Ansteel is in direct conflict with the best interest of the U.S. economy and in the future MTA should exercise all power within their authority to avoid this outcome.
Ansteel is the second largest steel manufacturer in mainland China and a state-owned enterprise, which means they are wholly owned by the Chinese government and as a result receive significant preferential treatment. Through this preferential treatment by the Chinese government companies such as Ansteel can dramatically drive down costs on steel production, even in a fragmented market. The Chinese government, through its state-owned steel market, has a long history of subsidizing production and dumping products into the United States at a reduced cost in order to threaten the solvency of our domestic market. This is why the Commerce Department has issued dozens of anti-dumping and countervailing duty orders on Chinese steel and iron imports over the last three decades. In addition to unfair trade practices specific to state-owned enterprises and steel on the part of the Chinese government, flagrant currency devaluation continues to give all imports from China a significant competitive advantage against competitors worldwide.
Together these two factors create a circumstance in which Chinese state-owned steel companies will continue to have a significant competitive advantage against American and other foreign steel manufacturers. If government entities such as the MTA cannot make the conscious choice to source from domestic producers, or at minimum foreign manufacturers who play by the same global trade rules as our American companies for the sake of the domestic market and free and fair trade, we worry the global steel market will be forced into a race to the bottom due to the unfair mercantilist practices of the Chinese government.
In the future we hope that the Metropolitan Transit Authority considers the broad implications for the domestic market when making sourcing decisions. It is our hope that in the future MTA will consider the profound impact that their purchasing power has on supporting domestic manufacturing against unscrupulous foreign and state-owned companies.
U.S. Senators Charles E. Schumer & Sherrod Brown