West German steel industry bows to limits on production but gets some consolations

After a month of tough bargaining, the European Community has finally brought West Germany around to the EC's first-ever compulsory production limits on steel.

Bonn, however, did win from its eight partners various qualifying conditions: no minimum price or import controls but only gross production quotas, exemption for specialty steels and small producers, and a limited nine-month term for quotas that began retroactively Oct. 1 and will end next June 30. The mandatory curbs replace the three-year voluntary cartel restraints that broke down this year under German pressures.

West German Economics Minister Otto Lambsdorff said Oct. 31 that he was "skeptical" about the agreement to share production cuts of 18 percent. West German steel company spokesmen called the quotas about as suited to solving the current steel crisis "as a hammer is to repairing a wristwatch." Output limits, West Germans point out, cannot solve the structural problems and chronic overcapacity of steel plants in developed industrial lands.

The West Germans, traditional champions of free trade, went along with their eight EC partners this time ti preserve European unity. They didn't quite veto the EC steel plan originally projected for adoption in early October. They did hold out for better terms, however, arguing that West Germany's private, only lightly subsidized steel industry should not be penalized for its efficiency in competition with less efficient British and other nationalized and heavily subsidized steel industries.

The Germans slimmed down, rationalized, and specialized in high-quality steel in the 1970s in the face of the cheaper crude steel coming from developing countries. Other European steel producers have been slower in adjusting, and the EC as a whole paid the price in the worst postwar steel slump in 1975 and the second worst in 1980.

According to Organization for Economic Cooperation and Development figures released Oct. 30, third-quarter steel output in the EC this year dropped to 30.6 million tons from 35.7 million tons a year ago. This year's savage price-cutting war dropped steel prices over 30 percent, to an average loss of about $55 a ton. Some 40,000 steel jobs were lost in the EC from January through August of this year (as compared with 60,000 lost in the United States).

The general view is that sales will pick up by next summer -- and that in the meantime the output curbs will prevent further price chaos. The West Germans fear that the curbs will simply postpone the necessary rationalization in the European steel industry.

Bonn's consolations in agreeing to the limits include use of the good year of 1974 as a base, and a consequent 32.25 percent (rather than the original projected 30.1 percent) German share of the EC market. They also include exemption of all producers of less than 6,000 (rather than 3,000) metric tons of steel each quarter -- an exemption for 62 (rather than 22) of Germany's 75 steel companies. They include exemption for tin plate, rails, large tubes, liquid steel for castings, and high-quality alloyed steel containing 5 percent or more of other metals. After a last-minute phone call to British Prime Minister Margaret Thatcher from Chancellor Helmut Schmidt, small tubes were also exempted , pending any new chaos in this market.

Mr. Lambsdorff estimates the agreement will affect 75 percent of West German steel output -- and could cost several thousand jobs.