Steel 'dumping' case: Europe to hit US fibers?

The US chemical industry will be anxiously watching the results of United States Steel Corporation's antidumping suits brought against antidumping suits brought against European steel manufacturers.

If Us Steel and the seven other steel manufacturers that have joined it win their case, the Europeans may retailiate by slapping an antidumping suit against the US chemical companies, especially those producing synthetic fibers.

The main basis for the European suit would be the lower cost of US energy. The Europeans maintain that US government controls on the prices of oil and natural gas have kept American energy costs below those of the world market. And, with the dollar remaining relatively cheap, American companies have been exporting as fast as they could write up the orders.

For example, E. I. du Pont de Nemours & Co., the largest chemical company in the United States, reports that exports from this country soared 39 percent last year over 1978, to nearly $2 billion. And Monsanto, another chemical giant, reports that its 1979 exports rose 31 percent, to $406 million.

According to Harry Flavin, an analyst with Merrill Lynch, Pierce, Fenner & Smith Inc., the exports of eight major chemical companies increased 45 percent on average, or almost three times the 17 percent sales increase in the US last year. Other major increases were posted by Celanese (57.9 percent), Dow Chemical (43.6 percent), Hercules (34.6 percent), Rohm & Haas (27.5 percent), Stauffer Chemical (57.9 percent), and Union Carbide (56.4 percent).

Mr. Flavin, in a recent research report, stated that "unquestionably, the US chemical industry is benefiting from this country's lower-priced energy relative to the rest of the world." Favorable exchange rates, he added, "reinforced this advantage." In polyester filament yarn alone, the US has increased its market share in the European Community from 10 to 15 percent, causing the Europeans, by their own account, to lose $250 million on the yarns.

The US manufacturers, however, contend they are not "dumping." Larry Martin, assistant to the president of the Manmade Fiber Producers Association, says there are other reasons for the surge in exports. He notes, for example, that the US chemical plants are larger. "In the terms of economy of scale," he says, "our plants are about twice the size of the European plants and our productivity is about twice as good as theirs, as well."

He also notes that the Carter administration has encouraged the textile industry to export and that the surge in exports is an indication "of the industry's sincere efforts."

The Europeans, however, are not so sure about this. The British brought a suit against the US companies for dumping polyester filament yarn and nylon carpet yarn. The EC, citing an escape clause in the General Agreement on Tariffs and Trade, allowed the British to impose quotas on the United States. The US is now trying to negotiate some form of compensation for the British action. This could include easier access to U.K. markets for other items, such as finished fabric.

US manufacturers point to the British action as proof that the European argument -- that lower oil and gas prices allow them to dump products -- would not hold up in an antidumping hearing. If the argument worked, they say, it would have been used. Furthermore, Mr. Martin adds, American products are being sold in Europe at higher prices than in the US.

According to one industry source, the price differential because of the lower , feedstock (energy) cost can be "striking." He notes that US producers, during the first quarter, had a 30 to 40 percent cost advantage from lower energy costs. "If you add 10 percent for distribution and 10 to 15 percent in tariff barriers, you still can sell below European manufacturers," he says.

Still, the chemical industry says it might well see an antidumping suit. Michael Smith, a lawyer for American Cyanamid, says he would not be surprised to see such a suit.

"If one country takes an action, such as the US Steel suit," he says, "then we might see another country take an action -- especially with a recession coming on."

F. J. Fitzgerald, general manager of Monsanto-Europe and Africa, says he believes that only a "worsening of the economic situation" could provoke such a suit. On both sides of the Atlantic, he adds, "there is a feeling that people would rather not be hysterical about this issue." But he cautions that if the US economy continues to slip and American producers start to export more, European producers might be tempted to bring a suit in a few months.

In Europe, the impact of the US exports has already been felt on the bottom line. Imperial Chemical Industries, one of Europe's largest chemical companies, recently announced it is reducing its capital spending program because of "inadequate levels of cash flow and profitability."

ICI's chairman, Sir Maurice Hodgson, blamed US exports for its problems. He said the exports have a considerable advantage over those of European companies because of the controls on oil and gas. Despite the company's complaints, it showed a profit increase of 33 percent over 1978, which was a bad year.