1. Steel Orbis: Steel Trade Conference (Session 2 – Trade Matters and Legislation) North American Steel Industry Challenges Thomas A. Danjczek President Steel Manufacturers Association San Diego, CA July 11, 2008

2. Outline U.S. Competitiveness China - Comments - Chinese subsidies - Chinese interference with raw materials - Auto parts - Circular welded steel pipe Regulating GHGs Conclusion Steel Orbis – Session 2

3. Competitiveness U.S. - China Steel Future Competitiveness Drivers DriverU.S.ChinaComment 1. MetallicsWeak $1/2 importedTechnological (Availability/Price)Scrap exportsFreightdevelopments + to U.S. 2. EnergyGas/electricity+ to ChinaClimate change (Availability/Price)constraintspolicy Limited nuclear 3. LaborLack of technical+ to China Health care costs 4. Transportation+ to U.S. 5. Trade+ to ChinaGrowth of steel- intensive goods 6. Environment+ to U.S.Enforcement?

4. Steel Orbis – Session 2 China’s Trade Surplus with the U.S. YearChina’s Trade Surplus 2001$22 billion (year China joined WTO) 2006$177 billion 2007$262 billion (up 47.7%) The U.S. has lost 3.3 million manufacturing jobs since 2000… imbalances cannot go on forever.

5. Steel Orbis – Session 2 Impact of AD/CVD Percent of the value of Chinese imports covered by AD/CVD duties? 2004 – 0.13% 2006 – 0.10% (TAD comment – What Protectionism?) International Trade Commission, based on U.S. DOC and Customs official statistics

6. Steel Orbis – Session 2 China Steel Comments -China has NOT become the world’s largest steel producer by accident, or by operation of free markets, or comparative advantage -China is NOT a low-cost steel producer -China has reached its position through a combination of subsidies, mandates, and planned intervention -In finished goods containing steel, China’s exports are expanding by approximately 30 percent per year -Chinese steel market is still reliant on exports to absorb overproduction -Chinese steel industry is overbuilt and under-demolished

7. China Continues to Interfere with Raw Material Markets China’s steel policy mandates such interference –Article 28: “Mineral resources belong to the state” –Article 30: The state will encourage large Chinese producers to “construct production supply bases of iron ores, chrome ores, manganese ores, nickel ores, scrap steel, and coking coal in foreign countries” –Article 30: The state will use its power to prevent “cut-throat competition” among Chinese mills for raw materials –Article 30: The export of “coke, iron alloy, cast iron, scrap steel, {and} steel billet... shall be restricted.” Examples of how China restricts critical exports: –Metallurgical coke –Ferroalloys and other nonferrous metals China has subsidized domestic iron ore production, as well as foreign ventures created to obtain iron ore from abroad.

8. Case Study: China Has Supported Auto Parts Production in Many Different Ways WTO-prohibited subsidies Transfer technology requirements Five-year plans Government ownership of auto parts producers Preferential financing for auto parts producers Research and development incentives Restrictions on imported auto parts

9. U.S. Imports of Auto Parts and Vehicle Bodies from China Source: AISI

10. U.S. Indirect Steel Trade Balance with China: Automotive Sector Source: AISI 2001 2002 2003 2004 2005 2006 2000

11. Recent WTO Case Regarding Auto Parts Involves a local content regulation: 25 percent surcharge on imported auto parts for any car that does not comply This regulation violated China’s 10 percent bound tariff rate on imported auto parts February 2008 – WTO issued preliminary ruling against China Case does nothing about other forms of government support for China’s auto parts industry

12. On June 20, 2008, ITC - final injury determinant - Duties: 69.2 to 75.5% for antidumping 29.5 to 615.9% for counter civilian duties (Average subsidy rate of 37.2%) - Event: First time CVD on steel product from China - Numbers: See next graph Background: Filed on June 7, 2007 - DOC Preliminary on November 5, 2007, with margins at 0 to 26.4% (Avg – 16.6%) - Final on May 29, 2008, with margins at 69.2 to 75.5% Conclusion: U.S. producers will not allow this industry to be undercut by unfair subsidies Steel Orbis – Session 2 AD/CVD – Circular Welded Steel Pipe from China

14. Regulating GHGs: Trade Perspectives Acting unilaterally creates significant potential for trade and investment distortions (“carbon leakage”) North American production cutbacks are a bad compliance mechanism - Environmental and economic “lose/lose” Medium to longer term requires comprehensive global sectoral approach Until global approaches are in place, N.A. needs to level compliance cost obligations - Border measures to avoid loss of competitiveness Steel Orbis – Session 2

15. Steel Trade and Environment: Perspectives Developing countries >90% global GHG rise since 1990 Canada, US, EU, Japan committed to or considering significant short-term GHG reduction mandates India not committed to action; Russia? Brazil? China? Steel sector approx 4% of global GHGs - China over 50% of GHGs, and growing - North American steel <0.5% of total global GHGs High rate of recycling – lowest steel emitters Steel will continues to grow globally - 3-5 percent in total; 8-10 percent in China, India, Russia - Could be ~ 3 billion tonnes by 2050 (vs. 1.2 bT in 2007) Steel Orbis – Session 2

16. Climate Change Policy Overview: U.S. Congress considering cap and trade - Unlikely to pass before 2009 - Lieberman-Warner most likely basis Both Presidential candidates support some form of cap and trade system Various state-level plans: inconsistent Some momentum for global sectoral agreement Industry Position: - Recognize current-day technology limits and time to develop/deploy/diffuse new technologies - Supports global sectoral agreement - If cap and trade, then: Carbon intensity standard – verifiable - Apply to all domestic and imported steel sold in U.S. Credit/exemption for recycling and process emissions Steel Orbis – Session 2

17. China, China, China (Anything else is an embellishment) More CVDs against China are coming Doha talks must not be used to weaken trade laws. Need strong and effective enforcement of trade laws throughout the NAFTA region Need a more effective approach to dealing with market-distorting practices in China. Need to monitor raw material situation to ensure that market forces operate properly. Conclusions