Under Secretary of Treasury Anthony Solomon yesterday told a meeting of the Senate steel caucus that the industry enjoyed a good year in 1978 due to the steel trigger-price system as well as to increased demand.
At a session in the Dirksen Office Building called by Sen. Jennings Randolph (D-W.Va.), the caucus chairman, to review the effectiveness of the trigger price system, Solomon said that import penetration dropped from 22 percent of the U.S. steel market last May to about 14 percent in December
"As a whole, I don't see that one could expect a better picture in terms of health of the industry," Solomon said. In general, he got a warm response from the caucus members present, who praised the administration's "cooperative" attitude.
But Solomon, who led the task force that designed the trigger-price system, warned the industry that further reductions in import penetration depend on its own competitive pricing practices.
He said that if domestic companies comply with the president's price guidelines, "the industry's competitive position should substantially improve" this year.
The trigger-price system was designed to avert losses sustained by the U.S. industry from "dumping" of foreign steel. The Treasury calculates the costs of the most efficient producer -- currently the Japanese companies -- and publishes the figures. Foreign sources offering to sell below the "trigger prices" are considered to be dumping, and thus invite Treasury prosecution.
Solomon stressed repeatedly that the trigger-price system had not been designed "as an import-reducing system as such," but to test the industry's claim that it could compete against the most efficient producers if dumping were stopped.
The result for last year was a domestic industry operating ratio of about 90 percent, and a tripling of the industry's cash flow after taxes and dividends to nearly $3 billion, he said. Moreover, industry profits in the first nine months of 1978 had soared to $974 million from a loss of $40 million in the comparable 1977 period, he added.
In response to a question by Sen. John Glenn (D-Ind.), who wondered whether steel demand in 1979 might not taper off, Solomon said that the growth of domestic steel sales would not necessarily follow lower expected rates for the gross national product as a whole.
He noted that trigger prices for the first quarter of 1979 had been set 7 percent higher than in the final quarter of 1978, primarily because of upward fluctuations in the Japanese yen. He said this "should make for a low level of (import) penetration" in the first quarter. Second-quarter triggers will depend on the results of a study of Japanese costs. While the dollar has now moved up some against the yen (which would tend to lower the trigger), Solomon said that Japanese operating rates had gone down, which would tend to raise production costs.
He rejected as impractical a suggestion by Sen. Richard S. Schweiker (R-Pa.) that other, or supplemental, trigger prices be calculated on the basis of European costs because European imports, which had been only 19 percent of the U.S. total in 1977, had risen to 34 percent last year while Japanese imports, which had been 60 percent, had dropped to 30 percent.
"Why aren't we looking at Europe?" Schweiker asked. "I think it's unfair to zap Japan at the same time we're not doing anything about Europe."
Solomon said that European sales here dropped in December, and that Europe's penetration of the U.S. market would likely drop in 1979. But he reiterated that the concept of the program was not to cut off imports from any source, but only to carry out the congressional mandate for fair trade, which means averting dumping.
"There's no way we could make the system work with different triggers," Solomon said. "And if we were faced with that, I would have to recommend to the president to dismantle the (trigger) system and return to the old method of dealing with dumping."
When Schweiker pressed the point, saying "we've built a system that penalizes the efficient and rewards the inefficient producers of the world," Solomon commented that it would be of no benefit to domestic producers to see European shipments cut back, only to have Japanese producers "fill the vaccuum." And, he added, a multitrigger system would have trade policy and inflation complications.
The caucus members will meet with steel company presidents today to get their views on how the trigger-price system has been working. The industry has complained that despite the benefits it is enjoying under the system, total imports are at a record level.
In opening the hearing yesterday, Randolphs estimated 1978 imports at 21 million tons, up 9.5 percent over 1977, the second annual record in a row.