1. October 11, 2007 From NAFTA to an Integrated North American Steel Market Rafael Rubio NASPD Fall Conference Cancun, Mexico October 11, 2007

2. 2 Agenda I. Economic Integration II.Where do we come from? III.Where are we now? IV.Where are we heading for?

3. 3 October 11, 2007 I. Economic integration ●Integration is a process rather than a single act. ●The NAFTA steel sector can, and should, deepen its integration and movement toward the formation of one regional market: ─Increasingly interdependent. ─ Enhance competitiveness. ─Face common challenges form abroad.

4. 4 October 11, 2007 How can 3 markets can be integrated? Two ways: ● Market Way: 3 markets can become a single one when companies have investment or customers in the other markets and make no geographical distinctions in their operations. ●Institutional Way: When governments create the instruments and institutions that drive 3 markets into become a single one. ●Steel sector has been moving along those two ways.

5. 5 October 11, 2007 II. Where do we come from? ●Fred Telmer – CEO Stelco. Chairman North American Steel Council (August 1992): “We should be looking for open markets to increased trilateral steel trade: we agree that open markets should mean the elimination of steel tariff, non-tariff barriers and other trade-distorting practices”. ● His proposal: a North American Steel Sector Agreement as part of the NAFTA negotiations.

6. 6 October 11, 2007 NAFTA: timeline ●1994: NAFTA was the first step in Mexico's globalization. For Mexico, It was more than a trade agreement. ● 1994 - 2004: Mexico orientation was to signed more FTA (44 countries) NAFTA was taken as “given”. ● 2005 (March): Security and Prosperity Partnership of North America (SPP): Work together more effectively and efficiently.

7. 7 October 11, 2007 NAFTA: has been a successful story … Mexico – USA Trade Trade Balance Exports Imports -25 0 50 100 150 200 250 19901991199219931994 1995 19961997 1998199920002001 2002 2003 2004200520062007* Trade Balance (Billion USD) Source: Mexican Ministry of Economy Statistics with Mexican Central Bank Data * 2007 Estimated from January – June 2007 data ** 2006 Data up to September 2006. Annual Accumulated 5 10 15 20 25 1994 1995 1996 1997 1998 1999 200020012002 20032004 2005 2006** 20 40 60 80 100 120 140 US Investment in Mexico (Billion USD)

8. 8 October 11, 2007 Mexican Exports (%) Source: BANXICO 1982 Oil & Mining 70% Manufacturing 25 % Agricultural 5% 2006 Oil & Mining 16% Manufacturing 81% Agricultural 3% … Changing our economy

9. 9 October 11, 2007 The Market Way in steel ● The steel trade between Mexico and the US has been growing over time. ● Mexico has a surplus in some products and a deficit in other. In some products, Mexico is the largest exporter to the US Market. ● The US, on the other hand, is the largest exporter to the Mexican market. ● BUT, there has been trade frictions. Less than in the past. Current cases are in pipe and tube.

10. 10 October 11, 2007 Mexico – USA Trade Finished Steel Products (thousand metric tones) Trade Balance Exports Imports -1,000 -500 0 500 1,000 1,500 2,000 2,500 3,000 1995199619971998199920002001200220032004200520062007* Source: Mexican Customs & CANACERO Statistics * 2007 Estimated from January – July 2007 data

11. 11 October 11, 2007 Trade Balance Exports Imports -1,000 -500 0 500 1,000 1,500 1995199619971998199920002001200220032004 20052006 2007+ Mexico – USA Trade Flat Products (thousand metric tones) Source: Mexican Customs & CANACERO Statistics * 2007 Estimated from January – July 2007 data

12. 12 October 11, 2007 Mexico – USA Trade Weld Pipes (thousand metric tones) Source: Mexican Customs & CANACERO Statistics * 2007 Estimated from January – July 2007 data Trade Balance Exports Imports 0 50 100 150 200 250 300 350 400 1995199619971998199920002001200220032004200520062007*

13. 13 October 11, 2007 Mexico – USA Trade Seamless Pipes (thousand metric tones) Source: Mexican Customs & CANACERO Statistics * 2007 Estimated from January – July 2007 data Trade Balance Exports Imports -20 0 20 40 60 80 100 120 1995199619971998199920002001200220032004200520062007*

14. 14 October 11, 2007 Mexican Imports USA Share of Total Mexican Imports (%) Source: Canacero * Estimated from January – July 2007 data Finished Steel Products Flat Products Weld Pipes Seamless Pipes 20% 30% 40% 50% 60% 70% 80% 90% 1995199619971998199920002001200220032004200520062007*

15. 15 October 11, 2007 Mexican Exports USA Share of Total Mexican Exports (%) Source: Canacero * Estimated from January – July 2007 data Finished Steel Products Flat Products Weld Pipes Seamless Pipes 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1995199619971998199920002001200220032004200520062007*

16. 16 October 11, 2007 USA Exports Mexico & Canada Share in Total USA Exports (%) Source: AISI. * Estimated from January – July 2007 data Canada Mexico 10% 20% 30% 40% 50% 60% 70% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007*

17. 17 October 11, 2007 The Institutional Way … NAFTA Negotiations American Iron and Steel Institute North American Steel Council

18. 18 October 11, 2007 … some examples ● North American Steel Council: a forum in which Directors from Producer Members located in Canada, Mexico and the United States can discuss public policy issues relating to the North American Free Trade Agreement (NAFTA). ● Section 201: Temporary safeguard imposed by the US government in March 2002. Mexico and Canada were excluded because of NAFTA. ● OECD Steel Committee: NAFTA worked as a group on common issues.

19. 19 October 11, 2007 III. Where are we now? ●The Market Way: Trade + investments + consolidation = have increased market integration Steel companies with facilities in 2/3 countries - Arcelor Mittal - Gerdau - US Steel - Ipsco (SSAB) - Timken - Essar - Tenaris - Ternium Steel Users with facilities in 2/3 countries - Caterpillar - Auto companies - Magna International - Tyco International - Associated Spring - Lincoln Electric - Home Depot - Hubbell Electric - Palliser

20. 20 October 11, 2007 The Institutional Way … North American Steel CouncilNorth American Steel Trade Committee In December 2002, the NAFTA governments pledged to identify areas in which they might work together to promote more openness in the North American steel market and cooperation on steel trade and industry policies October 7, 2003 ─ Mexico City, November 21, 2003.

21. 21 October 11, 2007 … Developments North American Steel Trade Committee Security and Prosperity Partnership of North America - Economics and security are intertwined. - New economic rivals: China and India. - Work has to be strategic and realistic. North American Competitiveness Council

22. 22 October 11, 2007 North America is losing market-share in world trade … Share % 2000 Share % 2006 Growth Rate (%) North America 22.117.3(21.8) EU 37.9 0.02 Asia Pacific 18.321.3 16.4 South America 2.4 2.6 9.3 RegionWorld Trade

23. 23 October 11, 2007 US imports 1993-2006 … Loss of international competitiveness in the US market …

24. 24 October 11, 2007 BRICs vs. Mexico % Change (2000 – 2006) Source: : WTO, IMF and UNCTAD Exports GDPFDI Brazil15019229 Russia13144946 India12450310 China289 75 72 Mexico51 15 13.8 … As well as versus other competitors

25. 25 October 11, 2007 IV. Where are we heading for? Market Way Trade, Investment and Consolidation Institutional Way NASC/NASTC NACC SPP Declaration of Governments (2006): Steel: A Strategic Partnership – A Strategic Industry North American Steel Strategy

26. 26 October 11, 2007 North American Steel Strategy … ● Implement a North American Steel Strategy to benefit the North American steel industry by pursuing the elimination of external trade distortions, reducing the costs and the risks on intra-NAFTA trade, and promoting competitiveness and productivity. ● Sectoral approach: steel, pork, consumer electronics and chemicals. ● NAFTA Commission (August 14, 2007): the North American steel market is highly integrated and the industry in all 3 NAFTA countries share common interest and concerns.

27. 27 October 11, 2007 … Next steps ● Areas of work: ─ External trade ─ Internal trade ─ Competitiveness and productivity “We should be looking for open markets to increased trilateral steel trade: we agree that open markets should mean the elimination of steel tariff, non-tariff barriers and other trade-distorting practices”.

28. October 11, 2007 From NAFTA to an Integrated North American Steel Market Rafael Rubio NASPD Fall Conference Cancun, Mexico October 11, 2007

29. 29 October 11, 2007 China Trade in Pipe and Tube Source: Mexican Customs & CANACERO Statistics Seamless Pipes (thousand metric tones) -1000 -500 0 500 1000 1500 2000 2500 3000 3500 4000 2002200320042005 2006 Exports Imports Trade Balance Weld Pipes (thousand metric tones) Exports Imports -500 0 500 1000 1500 2000 2500 3000 2002200320042005 2006 Trade Balance