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MHIA warns: VRAs on steel push firms offshore.

MHIA warns: VRAs on steel push firms offshore

Will users be buying more materials handling equipment from foreign suppliers in the future? Recent industry testimony before a Congressional panel raises that question. And the answer, at the very least, awaits action by Washington to extend the U.S. program of quotas on steel imports.

The program of voluntary restraint agreements (VRAs) is due to expire September 30, unless it's renewed or modified. The VRAs are accords the U.S. has with other steel producing nations.

Testifying recently before the House Subcommittee on Trade, A.L. Leffler, CEO of the Material Handling Industry of America (MHIA), suggested that more "downstreaming" of products containing steel is one possible outcome, if the quota program continues.

"When other countries cannot ship steel products, they ship downstream products made of steel . . . that's the $10 billion in imports that have rocked our industry as late as 1988," Leffler told the House panel.

"We predict that our industry will be faced with more and more downstreamed products as the dollar strengthens against foreign currencies," Leffler continues. In the last five years, MHIA member companies have increased both quality and productivity, he says. Yet the industry has had to fight equipment imports through the anti-dumping laws.

"We have brought the manufacture of lift trucks back on shore. But there is only one strategy when faced with cheap, downstreamed products. Our manufacturing base will have to move back offshore to seek less expensive raw materials," Leffler warns.

U.S. manufacturers of materials handling pay 32 to 35 cents per pound for their steel, he says. Those prices compare to 20 to 25 cents per pound in Japan.

VRAs currently limit steel from foreign producers to about 20% of the U.S. market. As this issue goes to press, top officials within the Bush Administration differ over how long a period to extend VRAs beyond September 30, and other details. President Bush, during his campaign, pledged to keep VRAs.

MHIA's Leffler suggests a formula for adjusting imports of steel, depending upon how hard U.S. steel makers are driving their plants to meet domestic demand (see table). More foreign steel could be shipped into the U.S. during an economic upturn, for example, so that steelmaking is not a choke point for other U.S. industries.

U.S. manufacturers of materials handling equipment are at a competitive disadvantage, Leffler maintains, chiefly because of:

* Cutbacks in domestic steel output,

* Curbs on imported steel by VRAs, and

* Cost increases from allegedly inflated prices for the metal sold to small- and medium-sized American manufacturers.

U.S. steelmaking capability has been cut back 30%, Leffler notes. "Big Steel" firms control prices for the metal sold to MHIA companies. (MHIA companies annually buy some $4 billion, or 15% of the U.S. market for steel.) These firms "forced price increases ranging from 17% to 38% upon both large and small companies in our industry in 1988," Leffler charges.

Some of this steel comes from the same mills supplying Ford, Chrysler, and GM. Over the last six years, Leffler says, auto companies' steel costs rose only 2%. Yet when small manufacturers challenge their higher price hikes, "the threat of allocation and spot shortages enters the negotiations," he says.

Concluding his testimony, Leffler noted that the VRA program "started with the best intentions." But it has turned into "a cartel-like atmosphere that is charged with opportunity for abuse. The small customer without a voice [gets] lost in the cheers for Big Steel's success," Leffler warned, in asking the panel to modify VRAs.
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Title Annotation:Material Handling Industry of America; voluntary restraint agreements
Publication:Modern Materials Handling
Date:Aug 1, 1989
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