One of the most bizarre bills making its way through Congress is the Visclosky steel quota bill (H.R. 975). It passed the House on March 17 (289 to 141) and is scheduled for a Senate vote today. If truth-in-labeling applied to legislation, H.R. 975 would be named the Steel Lottery Act of 1999. The annual cost to American households per steel job saved would exceed $800,000. But steel workers would receive less than 20 percent of this huge sum; lucky firms would collect more than 80 percent of the jackpot.
H.R. 975 would augment an array of import relief measures already obtained by the steel industry. Beginning in mid-1998, the industry mounted antidumping and countervailing duty cases against steel imported from Japan, Brazil, Russia and several other countries. In response, the Commerce Department announced penalty duties ranging up to 28 percent on Japan, 86 percent on Brazil and 200 percent on Russia. More restraints of this sort are working their way through the system.
Not satisfied with these remedies, integrated steel firms and their unions have made H.R. 975 a top legislative priority. The announced goals of this legislation are to save steel jobs and bring prosperity to depressed mill towns. The bill requires the Commerce Department to restrict U.S. monthly imports of steel products for the next three years to the monthly average attained during the 36-month period prior to July 1997 -- about 2.345 million short tons per month. If enacted, steel quotas will do little to arrest the downward trend of employment in steel production. In 1987, when the domestic industry produced 77 million short tons, steel employment was 163,000 workers. In 1997, when the domestic industry produced 106 million tons, employment was 112,000 workers. In other words, steel production is up and steel employment is down -- the consequence of rising productivity (472 tons per worker in 1987; 946 tons in 1997). Steel employment will continue to fall as inefficient integrated mills are displaced by minimills, whether or not steel quotas are imposed.
Steel quotas would violate U.S. internationaltrade obligations. If the United States ignores its obligations and imposes quotas, other WTO members will be entitled to "compensation." U.S. tariffs in other sectors such as textiles would have to be reduced, or other countries could impose tit-for-tat restrictions on U.S. exports.
Most important, steel quotas are a very expensive means of saving a small number of steel jobs, but they would deliver windfall riches to a handful of steel importers and efficient steel producers.
If H.R. 975 had been U.S. law in the 36 months prior to July 1997 -- the base period chosen by Rep. Peter Visclosky -- it would have lopped off an average of 0.324 million short tons of "excessive imports" per month in 19 of these 36 months. Our economic model indicates that a forced drop in imports of 0.324 million tons a month would have boosted import prices in those months by about $29 a ton. It would also have boosted domestic prices by about $6 a ton. These price hikes would have extracted an annual average of $1.5 billion from the pockets of American households, about $14 per household annually. Most of the jackpot money would have gone to lucky steel importers (windfall gains of about $800 million) and efficient U.S. steel firms (windfall gains of at least $400 million). Somewhat under $100 million would be lost to the U.S. economy through sheer inefficiency. At most, $200 million would have gone to steel workers.
How many jobs would have been saved? Our model says an annual average of about 1,700 steel jobs. Simple division reveals that the cost paid by American households for each steel job saved would have exceeded $800,000 per year.
The dynamic U.S. economy lays off about 1.4 million workers annually, as plants close and firms downsize. That statistic alone provides a compelling argument for national training programs. But it is not an argument for a rigged lottery that would take $1.5 billion per year from American households, confer more than $1.2 billion of windfall profits on a few firms, yet save the jobs of only 1,700 workers at an annual cost exceeding $800,000 per worker.
The writers are fellows at the Institute for International Economics.