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Dr. Thomas J. Usher, former chairman and CEO of the U.S. Steel Corporation, was recently interviewed by FrontPageMagazine about the influence of foreign VAT taxes on steel exports and imports. The article paraphrases Dr. Usher as follows – using an example where the local price of steel for the United States, China and Germany is $100: “As that U.S. steel goes to China, it gets hit with a 17 percent VAT that raises the price of that steel to $117 in China; on the contrary, when that China steel is exported to the United States, China applies a 13 percent VAT rebate, bringing it down to $88.89. Likewise, Germany does the same thing with a 16 percent VAT and a 16 percent VAT rebate. So, their governments are giving them advantages that U.S. steelmakers do not get from our government… Over the last decade, the cost of steel from a labor standpoint has dropped from about 50 percent of the sales dollar to about 17 percent. As for the costs of any producer bringing steel into this country … well, we can match that anywhere. So, it’s not a question of lower efficiency or lower cost. It’s more a question of whether you’re going to allow those steel producers from other countries to bring in steel and price it -- on a short-term basis -- at a price below their production, with the help of those governments.” (cited from FrontPageMag.com, October 23, 2007) * * * Some 760 workers at the bankrupt Union Stamping and Assembly plant in South Charleston, Virginia, have had their pensions taken over by the government’s Pension Guarantee Benefit Corporation. The plan was simply abandoned when Union’s assets were sold off during last year’s bankruptcy. Retirees will continue to receive checks and an assortment of other workers will be covered under PBGC rules when they are eligible to retire. According to the agency, pensions workers who retire at age 65 subject to a cap of of $47,659 for plans terminated in 2006. However, the benefit table is considerably lower for those who retire earlier or have elected survivor benefits. PBGC is still assessing Union obligations so it is not clear at this point whether or how much benefits will be reduced. * * * Limiting steel imports into the U.S. has long been a hot policy potato. American steel companies have consistently argued for “protection” against what they consider unfair pricing policies by foreign producers and their governments. Meanwhile, the U.S. industries that use steel complain that higher prices to protect domestic steel make their own prices uncompetitive and simply transfer the steel price differential to the U.S. economy and consumers. In 2002, President Bush imposed temporary steel tariffs of between 8% and 30%. These “Section 201” tariffs were rescinded early in December of 2003 after a dustup with the WTO and European threats to impose counter tariffs on U.S. products. But U.S. steel has in effect been protected for decades by a whole arsenal of barriers which maintained prices for domestic producers – including quotas, voluntary export restraints by other nations, minimum price agreements, and literally hundreds of antidumping, countervailing duty, and other safeguard measures. As a result, some U.S. steel producers have stayed in business when they might otherwise have closed down. Nonetheless, change continues through the smoke and mirrors involved in steel pricing. The latest takeover of Sparrows Point refinery -- now producing for Esmark -- is just the latest example. * * * United Steelworkers at the Kokomo plant of Hayes International in Illinois are set to receive lump sum payments of $4,000 each following approval of a three-year pact between the union and management approved last week. Considered generous at a time when most manufacturers are holding firm against wage and benefit increases, the settlement reflects a very successful IPO in March that made millionaires of several Haynes owners. * * * In what many regard as a possible model for union negotiations across America, General Electric Co. reached tentative agreements June 17 with two of its largest unions. The agreements cover contracts that would bind over 20,000 GE employees nationwide and, if approved, would be expanded to cover additional GE unions including steelworkers. The four-year agreements turn on efforts to deal with pensions and rising health care costs. No specifics have been released, but as the approval process moves forward, strategists across the country will be watching to see which way the wind is blowing. Both sides claim the package is a “victory.” The negotiating unions, GE’s largest, were the IUE-CWA and the United Electrical, Radio and Machine Workers of America. * * * Steel companies in trouble? Unions still have a major say in who can come in and juggle jobs and benefits. According to a page one article in The Wall Street Journal on May 9, the USW still has the muscle to make or break steel acquisition deals. When Brazilian steel power CSN tried to merge with Wheeling-Pittsburgh Corp. last year, USW put up a proxy fight with the help of another bidder and threw out the Wheeling-Pittsburgh board, which had been in favor of the Brazilians. One of the core issues is that the USW – with its load of potential lost wages and benefits – has maneuvered itself into the role of a “creditor” in bankruptcy negotiations. These tactics may well spread to other industries to block what union leaders see as Wall Street bottom feeders coming in to make profits by voiding union contracts. * * * On March 29 U.S. Steel announced it is acquiring Lone Star Technologies in a $2.1 billion deal. The move reflects a further consolidation in the steel industry as higher oil and gas prices continue to spike increased demand for steel tube necessary to drilling. Lone Star was considered the last of the independent players in the steel industry. U.S. Steel, based in Pittsburgh, has seen its cash flow soar over the last year with rising steel prices, and the company has been putting money into its pension funds, reducing its debt, and buying back its own stock. The consolidation within the steel industry has been going on for over ten years as once-powerful American steel producers struggled to survive. The U.S. Steel – Lone Star merger is expected to cut costs and make the new entity more competitive. Strong demand for tubular products essential to oil and gas drilling in North America drove the deal, but U.S. Steel remains a global player in niche steel production via joint ventures in China, Russia, Indonesia, Brazil and India. * * * On Feb. 20, the Justice Department ordered Mittal Steel Co. NV to rid itself of the 118-year-old Sparrows Point Mill in Maryland within 90 days. The forced sale comes in the wake of Mittal’s merger with Arcelor SA, a Luxembourg-based steel operation. The Justice Department’s decision is intended to prevent Mittal from having a monopoly on tin plate production. The Sparrows Point plant began as the Pennsylvania Steel Company. It was acquired by Bethlehem Steel in 1917. Bethlehem went bankrupt in 2002 and since then Sparrows Point has spiraled through owners. In 2003, some 95,000 retirees saw their pensions evaporate when ISG purchased the plant for $1.5 billion. It is still unclear who will buy the plant and what will happen to remaining pension funding. * * * In today’s environment, when embattled steelworkers reject management proposals, they’re often finding that follow-up proposals from the company offer less. At AK Steel in Middletown, Ohio, union members rejected a company proposal by a 2-to-1 margin on October 18 of last year. The proposal was subsequently withdrawn and a substitute offer had smaller wage increases and reduced benefits compared to the offer which was rejected. Union leaders now support the reduced plan. Workers at Ohio’s Eramet Marietta facility are facing a similar roadblock after a December 6 rejection of a contract offer. Courts have ruled that conflict a lockout, not a strike, which paves the way for workers to collect unemployment benefits. A $215 million private-equity deal in December has moved former Timken-owned Latrobe Steel in Pennsylvania to “closely held” status. As such, the firm no longer has to comply with regulations governing publicly traded companies. In a bizarre turn, it looks likely that Oregon Steel Mills will be taken over by the Evraz Group, one of the largest Russian steel and mining conglomerates. UAW workers are watching the $2.35 billion deal, which must be approved by Federal national security regulators, to make sure pension benefits for retired workers are protected. Evraz would pour money into the firm and integrate production into global markets for train rails. * * * The Pension Benefits Guarantee Corporation reports that its deficit dropped to $18.1 billion for 2006. The federal agency that insures private pension plans for some 44 million workers and retirees said the drop from 2005’s $22.8 billion shortfall showed that the PBGC’s financial condition may have stabilized for the time being. Most of the improvement came from new funding rules which carved out an exception for cash-strapped airlines. They were given a longer period to achieve full-pension funding, resulting in a lowered PBGC exposure. More than 90 percent of the participants in pension plans taken over by the PBGC face no reduction in benefits because of the legal limits set on coverage, according to an analysis done by the PBGC. In addition to insurance premiums paid by companies, the PBGC's operations are financed by money it earns from investments and funds from pension plans it takes over. Although it continues to run a huge deficit, the agency is not currently financed through tax revenues. * * *
The lockout at AK Steel’s Middletown mill continues. The company reports it has signed what it calls “new-era” labor agreements at 8 of 9 plants and that production at Middletown has increased with temporary workers. AK management has locked out some 1,857 Middletown union members since March of this year. Middletown remains the only mill which has not signed a new agreement. The company has been trying to shift more health care costs to its employees and retirees, and switch pensions to 401(k) plans for current employees. Lockouts have occurred with regularity since AK acquired the company from its previous owner, Armco. In other news, unions and companies alike await the impact of the Democratic Party's seizure of Congress in Tuesday's nationwide elections. Many crucial committee chairs will now go to Democrats. The longer term prospects for further pension reform and regulation of corporate pensions remain to be seen. * * * In a press release, AK Steel says it will make an early $75 million contribution to its pension trust fund. President and Chief Executive Officer James Wainscott says "AK Steel's board of directors remains committed to funding our pension legacy obligation for the 32,000 retirees, and their beneficiaries, who served this company for many years." The company has locked out workers at its Middletown plant since March 1 of this year, and has been trying to shift more health care costs to its employees and retirees, and switch pensions to 401(k) plans for current employees. The lockout of roughly 1,857 members of the International Association of Machinists and Aerospace Workers/Armco Employees Independent Federation Local Lodge 1943 has entered its ninth month. If accepted, the lockout at the Middletown Works would end in late October and all union workers would be back within 90 days. * * * In voting on Monday, September 25, members of the International Association of Machinists and Aerospace Workers/Armco Employees Independent Federation Local 1943 voted down AK Steel’s “final” contract proposal. The proposed 5-year contract would have allowed the steel company to bring in non-union temporary workers if not enough union members could be found to maintain production. The contract included several improvements in pensions. A new defined benefit pension under the IAM pension fund would have been established to which the company would make a $1.80 contribution per hour based on a 40-hour work week. All returning employees would be guaranteed a 40-hour work week. Following rejection by the union, both sides said they would take a one-week cooling-off break before continuing negotiations. A favorable vote would have ended a seven-month lockout at the Middleton plant. In the vote, union leaders opposed the contract. * * * On Thursday, Aug. 17, President Bush signed into law the Pension Protection Act of 2006, which he called the "most sweeping reform" of US pension law since the enactment of the Employee Retirement Income Security Act (ERISA) in 1974. The compromise measure will have broad impact on the way future pension plans are structured and funded. It will affect pension outcomes, not only for tens of thousands of employees whose plans are currently hanging on the contents of the bill, but for millions of Americans who remain but dimly aware of pension issues. Affected groups everywhere are weighing in with commentary. With some 44 million Americans covered by private pension plans, bipartisan support for private sector reform was made possible by not stirring up a hornet’s nest of debate about stricter funding guidelines for public employee defined-benefit plans, which remain generous and are woefully underfunded. In any case, the bill basically signals the end of private defined-benefit pension plans. As recently as 25 years ago, more than 80 percent of large and medium-sized companies offered such plans. Today, fewer than a third do. * * * Late in the day on August 3, the Senate approved a compromise Pension Reform Act and sent it on to the White House. For the most part, HR 4 does not change PBGC obligations to existing pensioners who have seen their plans taken over from bankrupt steel companies. However, the bill tightens rules for employers with defined-benefit pension plans -- 21% of all workers -- and clamps down on companies that are failing to meet their funding obligations. Underfunding of Defined Benefit plans is now estimated at $450 billion. The bill requires that companies bring their plans to 100 percent funding within seven years, although certain major airlines are given a longer period. Plans that are seriously underfunded face restrictions, such as a ban on increasing benefits, and must make accelerated catch-up contributions. President Bush, who has taken a tough stance on forcing full funding of company promises, is expected to sign the legislation shortly. * * * Airline pension funding remained a major sticking point in Congressional proposals to strengthen the nation's employer-based pension system and ensure the retirement benefits of tens of millions of people. It’s possible that a deal may be reached soon, passing to Congress for a vote and then on to the President for signature. Proposals on the table would substantially increase the deficit of the Pension Benefit Guarantee Corporation, the government agency that insures the plans. If passed, an agreement would likely go into effect in January of 2008 as the result of months of slow-moving talks between the House and Senate. It would impose stricter funding rules on companies that fall behind in contributions to defined-benefit pension plans, which are important source of retirement income for 44 million people in the United States.
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