U.S. Metalcasting industry testifies before U.S. ITC at Section 332 hearing: using its one opportunity to speak directly to the ITC, the metalcasting industry detailed the affect low-price foreign competition has had on our facilities and the future of our industry.

Continuing the passion that has become a trademark of its Section 332 Investigation with the U.S. International Trade Commission (ITC), the U.S. metalcasting industry, with the support of AFS, testified before the ITC during a public hearing held October 14 in Washington D.C. This hearing was the sole opportunity for representatives from both sides of the Section 332 Investigation--U.S. producers of metal castings and foreign producers of metal castings importing low-price product into the U.S.--to provide verbal comments to the ITC.

This public hearing is the last formal step for the ITC in its Section 332 Fact-Finding Investigation to determine the extent to which the U.S. metalcasting industry has been harmed by low-price foreign competition. The first step was a survey distributed to more than 1,000 U.S. producers of metal castings, followed by surveys distributed to U.S. purchasers of castings and foreign producers of castings importing components to the U.S.

According to Federal Law, the ITC must complete the Section 332 within 12 months from the initiation date of the investigation--May 3, 2005. Once the Section 332 is complete, U.S. metalcasters can use the published report that is generated as a foundation for further trade action (such as tariffs, quotas, and/or antidumping duties) against foreign producers of metal castings.

Section 332 Hearing Testimony

At the public hearing, the U.S. metalcasting industry had 11 speakers (nine were representatives of AFS) provide statements on its behalf and three other representatives (including AFS President Chuck Kurtti) available to respond to questions before six commissioners of the ITC.

The nine representatives of AFS were: Albert Lucchetti, Cumberland Foundry Co., Dave Bumbar, Aurora Metals Div. LLC, Goldens' Foundry & Machine Co., Jim Keffer, EBAA Iron Sales Inc., Kory Brockman, Wisconsin Aluminum Foundry Co., Larry Comunale, Doncasters Southern Tool, Randall Lawton, Bay Engineered Castings, Roy Hanks, ThyssenKrupp-Waupaca, and Tim Brown, Benton Foundry Co.

The goal of each speaker was to present the ITC with first-hand descriptions of their segment of the industry, the products they produce, the competitive conditions in the marketplace and the difficulties their operations are facing. Each speaker, representing their own metalcasting facility and industry segment, then proceeded to give specific instances, when possible, and the affect these actions had on their firm.

"Our product is the service to our customers of providing the components that they need to build their products," said George Boyd, Goldens' Foundry & Machine Co. Inc., who was the first metalcaster to speak on behalf of the industry and AFS. "We are not readily identified with our products since our contribution, though essential, is often internal; often part of an assembly, and frequently under the sheet metal cover of the machine. This is one of the significant difficulties when evaluating our industry."

Boyd went on to discuss a recent $4 million dollar investment his firm undertook to upgrade melting and molding departments at the urging of one of his OEM customers. This upgrade in technology was expected to increase business from this OEM because of Goldens' new advanced capabilities. Despite this investment and the additional news that two of Goldens' domestic competitors for this OEM's business closed substantial capacity, the OEM customer still sent a significant amount of the new business to Brazil.

In another statement presented by Albert Lucchetti, Cumberland Foundry Co. Inc., the loss of sales to global competitors due solely to price was underlined. Cumberland has recently been informed that one of its five largest customers has begun sourcing a portion of its product lines (previously sourced to Cumberland) to a competitor in China (representing $90,000 in sales), and will be sourcing its entire product line ($243,000 in sales) in the near future.

"We were not even asked to re-think our price on one particular casting because of such a low-quoted price from China," said Lucchetti.

In another example, Lucchetti cited one of Cumberland's leading accounts that is proceeding with plans to purchase castings from India. While the domestic OEM is "only moving its high-volume work offshore," the total sales hit to Cumberland is $255,650.

"In our communication with these two particular customers, we have been informed that the reason for the loss of work to offshore sources was strictly because of prices," said Lucchetti.

Larry Comunale, Doncasters Southern Tool, spoke on behalf of AFS and the investment casting industry, focusing specifically on how the loss of investment casting jobs to low-price foreign competition threatens the security of the U.S.

"For 50 years, investment casting has been linked to America's leadership in jet engine, gas-turbine power generation and all types of military aerospace technology," said Comunale. "It is a national asset that should not be allowed to be carried off by changes to our national industrial base due to globalization. Nor should we participate in handing this technology over to engineers in other countries."

He continued, "Despite the importance of investment casting to America, the future does not look promising. During the last three years our segment of the casting industry has permanently lost more than $300 million in annual sales, primarily to China. That's 10% of the current U.S. production ... The erosion in the investment casting industry will severely jeopardize our ability to meet the critical needs of U.S. defense."

After the hearing, Kurtti summed up what the industry was trying to achieve.

"Our goal when initiating the Section 332 was to energize the industry where possible to speak as one voice. With the opportunity to tell our story at the public hearing, we feel we have accomplished this objective," said Kurtti. "We now must wait for the results of the study for the facts on how the pricing policies of our foreign competitors have impacted our industry and its ability to remain viable within our own country and competitive in the global economy."

Questions from the ITC

Once the statements were read by representatives from the U.S. metalcasting industry and one representative for an importer of low-price foreign castings, the six ITC commissioners proceeded with questions for the industry representatives. The questions focused on:

* clarification of testimony;

* an attempt to understand how to measure growth and/or declines in sales and production for the U.S. metalcasting industry;

* prices pressures from foreign competition and the discrepancy between U.S. and foreign pricing for like products;

* what countries pose the greatest competitive threat and in what markets;

* level of technology in the U.S. vs. that of foreign competition;

* what U.S. metalcasters must do to compete with foreign competition;

* export competitiveness of U.S. metalcasters;

* the make-up of the industry and its ability to produce low-volume vs. high-volume work;

* current leadtimes for U.S. casting production;

* tooling production in the U.S. and overseas;

* environmental, safety and health compliance in the U.S. vs. foreign competition;

* raw material pricing in the U.S. vs. foreign competition;

* what the U.S. metalcasting industry hopes to gain from the results of the Section 332 Investigation.

With each question, one industry representative was directed to respond, with other panelists invited to add comments if they desired.

Pre-Hearing Brief

Supporting the verbal testimony was the pre-hearing brief supplied by AFS that established a foundation of data supporting the contention that U.S. metalcasters are being harmed by low-price competition.

Quoting from the brief: "The U.S. foundry industry is at a critical juncture. The industry has been undergoing a massive restructuring, and the pace of closures of production facilities has escalated in recent years. Industry members that still remain have worked hard to reduce costs and improve efficiency while complying with numerous regulations concerning environmental protection and worker safety. In the face of these efforts, the number of foreign sources of foundry products has increased and the output and aggressiveness of producers in low-price sources such as China, Brazil, India and Mexico has risen dramatically. As imports of foundry products have increased, the ability of U.S. foundries to compete has become a consistently greater challenge."

Some of the statistics presented in the brief in support of this statement included data supplied by U.S. metalcasters in the surveys they completed for the ITC investigation. Quoting the brief," As U.S. imports of foundry product have increased in the 1999-2003 period, the domestic industry as a whole has suffered declines in almost all of its trade and financial indicators":

* employment of production and related workers among responding producers has declined 16.9%, and hours worked by production workers has declined 25.1%

* total net sales of responding producers has declined 7.2%;

* operating income for the industry as a whole fell 65.3%;

To illustrate that prices have been suppressed in relation to production cost trends, the ratio of the industry's cost of goods sold to net sales value increased in each year from 1999-2003 for a 9.2% jump over the four-year period.

Quoting the brief, "Imports have come to account for a significant and growing share of the U.S. market for foundry products. An increasing number of imports has displaced U.S. sales of the domestic industry via two forms of competition. First, imports of foundry products themselves into the U.S. have taken sales directly from the domestic industry, as purchasers such as automotive OEMs have increased foreign sourcing of foundry products. Second, further-manufactured products and finished products that contain foreign-made castings (such as imports of finished construction equipment) have been increasingly imported, thereby supplanting sales by domestic producers and reducing demand for foundry products within the U.S. market."

"Based on the industry's inability to obtain reasonable margins for its value, the continued erosion of its domestic base seems inevitable unless pricing power and raw material stability is realized," said Kurtti after the hearing. "Presently, the loss of R&D, intellectual capital, an educated and capable labor force, and the ability to re-capitalize facilities due to low margins is challenging the metalcasting industry's existence as viable and capable of sustaining an essential domestic presence. With 90% of all manufactured goods in this country and our national defense dependent on the health of metalcasting, we are left no choice but to continue our quest to define a business plan that assures survival."

Section 332 History

For the past two and a half years, the U.S. metalcasting industry and its AFS Trade Commission (lead by AFS President Chuck Kurtti) have been working with the ITC to determine the extent to which the industry has been harmed by low-price foreign competition.

The thrust of this Section 332 Investigation is a survey that was completed by U.S. metalcasters in September. This survey requested specific data and descriptions about the current state of the U.S. metalcasting industry and the conditions of competition between the U.S. industry and certain foreign countries. The survey was focused on 10 different metal/product groups, covering 24 different NAICS codes.

This survey was followed by two others--one sent to casting purchasers in the U.S. and one sent to foreign producers of castings. The ITC uses these surveys as the foundation for its investigation.

From the results of the surveys as well as the public hearings and supporting documentation submitted by all affected parties, the ITC issues a final report that documents facts about the industry and the competitive conditions. While this report makes no formal recommendations on what should be done to help the metalcasting industry (tariffs, quotas, etc.), it is a highly respected Federal document that would serve as the foundation for all future trade action by the industry as a whole or individual segments of it.

For More Information

Visit the AFS website at www.afsinc.org and click on the AFS Trade Commission link.