Trade Deal Opens Doors for Manufacturers

The impact of the trade agreement on the US steel industry will be minimal, industry analysts say

OF all the basic industries in the United States, steelmakers may be the least affected by a North American Free Trade Agreement (NAFTA). The scales involved are too disproportionate to make much difference quickly.

For one thing, the US steel industry dwarfs its North American counterparts. Its production is seven times that of Canada, 10 times that of Mexico.

Thus, even if the doors were thrown open tomorrow, US steelmakers would not see an explosion of new business. The Mexican and Canadian markets are too small. Likewise, competition from Mexico and Canada in US markets would be minimal.

"When you open the borders and you eliminate tariffs, the effects will not be immediately huge," says one well-placed industry official who declined to be quoted by name.

In any case, the free-trade agreement would not eliminate all the barriers immediately. In many areas, it wouldn't reduce trade barriers at all.

"They should call it a free-investment agreement instead of a free-trade agreement," says Mark Anderson, director of the AFL-CIO Task Force on Trade. The union federation is particularly concerned that issues such as worker safety and environmental standards won't be addressed in the NAFTA.

The Bush administration claims that such concerns are addressed in the treaty. But Mr. Anderson says the provisions are not nearly enough.

Even the steelmakers are keeping an eye on those provisions. If Mexico has less stringent (and thus less costly) regulations on the environment and worker safety, its steel industry will have a leg up.

Though the treaty will give US companies more freedom to set up shop in low-wage Mexico - a boon to investors, perhaps - that will not offer much comfort to US workers left jobless, Anderson says.

Building new steel plants involves so much capital that analysts don't expect a rapid shift across the border. As it happens, US, Canadian, and Mexican steelmakers share many mutual concerns.

"It's not at all a battlefield," the steel official says.

Companies from all three countries have joined together to form the North American Steel Council. In July, the council announced it had reached agreement on five of nine key points: rules of origin, safeguards, elimination of tariffs, resources for customs offices, and third-country access to the treaty's provisions.

All three countries are eager to ensure that a non-NAFTA country won't be able to export steel to, say, Mexico then re-export it duty free to the US.

Steelmakers in Canada and Mexico were anxious to weaken provisions of US trade law. They didn't want the US to retain the power to slap countervailing duties on their goods. But US steelmakers - not to mention US negotiators - have held firm on that issue.

"We cannot give away the strength of the current trade laws," says Thomas Ferrall, a spokesman at USX Corporation.

The US, meanwhile, would like to supply huge government-owned Mexican companies, such as Pemex, with steel.

But Mexico is unlikely to offer up that plum to outsiders. It argues its own steel industry is too weak to survive without some form of trade protection.

If and when all North American trade barriers come down, the US industry does stand to gain. Thanks to a decade of restructuring and modernization, it is at least as efficient as its neighbors to the north and south.

"The US steel industry is now perhaps the leader in terms of labor productivity," says John Jacobson, head of Jacobson and Associates, a steel consulting firm in Philadelphia. But the industry's gains will be slow and gradual - in the same way that the trade barriers will fall.