The staff of the Federal Trade Commission has criticized a new Carter administration program that sets minimum prices for steel imports, arguing that the program "effectively compels foreign steel producers to act as if they were a steel price cartel."
The FTC staff said a system of tariffs would be better than the minimum price system because the revenues would go to the U.S. Treasury.
In the minimum price system, the difference between what a foreigner must sell his steel for and what he would be willing to sell it for goes into the foreign producer's pocket.
The criticism of the administration's special steel program came at the conclusion of a massive 574-page analysis of the steel industry that was several years in the making.
The administration program, developed by a task force headed by Treasury Undersecretary Anthony M. Solomon, concluded that the steel industry was the victim of below-cost dumping of steel products by many foreign manufacturers.
If imported steel is below the minimum, or trigger, price, an immediate government investigation is launched to determine whether the steel is being sold illegally below cost. The trigger prices are based on the cost of production of the Japanese, reportedly the most efficient steel makers in the world.
The Treasury Department can decide within 60 to 90 days if dumping has occurred and levy a temporary compensating duty.
The study warned that exporters can be expected to cheat and that a "variety of quasi-legal kickback devices would emerge."
The study, conducted by the FTC's Bureau of Economics, also argued that such a reference price system discourages flexible pricing over the business cycle -- almost prohibiting producers from lowering prices when demand is declining and raising them when it increases.
The study concluded that the United States steel industry does not administer its prices, but that, over the long run; American steel prices "rise and fall with demand."
The study noted that there has been a significant shift in steel-price behavior since 1959 and that the industry was better able to administer prices (vary them with respect to certain goals, but not necessarily supply and demand).
A common criticism of the industry has been that its prices do not reflect demand.
The agency's economists said that price leadership in the industry --where a firm generally paves the way for price changes -- is "barometric," reflecting market conditions, rather than "dominant or collusive."
The study also disputed commonly held notions that the industry is poorly run, saying that it has been among the quickest to adopt new technology.
It also found that:
The major reason that imports have made big inroads in the U.S. market has been that U.S. costs of production have been rising faster than costs abroad, not because foreign steel makers are being heavily subsidized by their governments.
Government attempts to hold down steel price increases by "moral sausion" have had little impact on steel profits, but the price control program of 1971-74 did hold down steel profits and may have hurt the industry's ability to expand.