does not appreciably affect our situation. The decrease in Russian steel imports is more than offset by increases from non-traditional suppliers like India, Indonesia, South Africa and Moldova. Indonesian imports alone went from zero in 1997 to a level nearly five times that of Russia in 1998. Second, the Section 201 approach is a flexible approach to a serious problem that can be remedied while taking into account the impact on customers and the U.S. economy. The President, after receiving the recommendations of the ITC, can fashion a remedy to meet specific needs. The 201 remedy is particularly suitable in this case where more than 20 countries export wire rod to the United States. Wire rod mills are found all over the world, and there are additional foreign suppliers who are undoubtedly targeting this market as I speak. Adverse conditions abroad and measures taken in a number of countries to protect their home markets make the United States the export destination of choice. Moreover, the Section 201 remedy may be molded in appropriate circumstances to accommodate the supply and product needs of wire rod customers. For example, it can reflect the existence of a more integrated North American market so that imports from Canada and Mexico, as NAFTA countries, can continue flowing as normal into the U.S. market. On the other hand, non-traditional suppliers who have flooded the market with low-priced imports can be dealt with decisively. " Third, the Section 201 approach is appropriate because, as our lawyers emphasize, it is fully consistent with the international obligations of the United States. Those obligations require that safeguard actions conform to GATT 1994, in particular Article XIX, and the World Trade Organization agreement implementing that Article. So what we are seeking is a remedy that is consistent with our international trade rules, and one that must gradually phase down during the adjustment period. Finally, use of Section 201 is appropriate at this time in our nation's economic history when inflationary pressures are in check. As Federal Reserve Chairman Alan Greenspan said just this week, recent experience does seem to suggest that the economy has become less inflation prone than in the past, so that the chances of an inflationary breakout arguably are, at least for now, less than they would have been under similar conditions in earlier cycles. . ." Other economic observers note that our economy is flexible and resilient, currently reaping the benefits of productivity increases from years of technological investments, of decades of deregulation, of advances in telecommunications and distribution, and cheap energy costs. This makes it a particularly opportune time for the ITC to recommend, and for the President to impose, safeguard remedies without risking any significant inflationary impact on the overall U.S. economy. Mr. Chairman, so far I have only referred to existing law and I know you're interested in our views on the bills pending before this Committee. We decided months ago to file our Section 201 petition under current law because we believe that the dismal conditions in our industry fit the injury criteria of the law. If you insist on my providing specific recommendations on the proposed legislation, then I would ask for your indulgence let me tell you what I think after July 12th when the ITC must make a final decision on our petition. If Section 201 remedies are not recommended in our situation, then I may be back before this Committee very quickly asking for changes in law because if we're not "seriously injured," I don't know who is. Later this morning, you will hear from our customers in the wire products industry, who plan to oppose our Section 201 petition before the ITC. We had hoped that our customers would understand our predicament. We had many candid discussions with the American Wire Producers Association ("AWPA") leadership about our plans to file a petition. We made clear our intention to work with them to achieve a remedy that would alleviate the wretched financial condition of the rod producers, yet take into account the interests of the rod consumer. We made a number of adjustments to accommodate the wire industry: • We acknowledged customer needs and excluded certain products from our petition such as wire rod for tire cord, valve spring wire, and pipe wrap; • We will not request that imports from Canada and Mexico be covered by any remedy; We have agreed to work with the wire producers to find appropriate ways to avert any possible downstreaming if relief is granted on wire rod; and • We proposed to work with the wire producers as we develop the specific remedy plan. Having taken these steps, and made these commitments, we are sorry that the AWPA has elected to oppose the petition. At the same time, we understand that the AWPA door "is still open" to us. For our part, we are prepared to continue the dialogue and will follow through with our commitment to work with the AWPA throughout the process. The wire rod industry needs a remedy that will enable it to climb out of a sea of red ink and to resume making the kind of investments that will maintain stateof-the-art facilities. A rod industry that defers investments, shutters capacity, and is financially weakened is not in the long-term interest of the U.S. wire producers and the U.S. economy as a whole. The flexibility of Section 201 will permit the President to fashion a remedy that accommodates the interests of both producer and consumer. As the President's Steel Plan notes, Section 201 is a legitimate and essential tool for addressing the type of world conditions we now face. In conclusion, Mr. Chairman, we believe the existing trade laws are designed to address the flood of imports that the steel industry is facing. In the case of the wire rod sector, we have set out to put those safeguards to the test to determine if they will live up to Congress' design. We hope that you and the Members of this Committee will support us in this effort. Thank you. Mr. HOUGHTON. Thank you. Thank you very much. STATEMENT OF H.O. WOLTZ III, PRESIDENT AND CHIEF EXECUTIVE OFFICER, INSTEEL INDUSTRIES, INC., MOUNT AIRY, NORTH CAROLINA; AND VICE PRESIDENT, AND CHAIRMAN, GOVERNMENT RELATIONS ADVISORY COMMITTEE, AMERICAN WIRE PRODUCERS ASSOCIATION, ALEXANDRIA, VIRGINIA Mr. WOLTZ. My name is H.O. Woltz III. I am president and chief executive officer of Insteel Industries, which is headquartered in Mount Airy, North Carolina. I am also the vice president of the American Wire Producers Association and chairman of the association's government relations advisory committee. As the only purchaser of hot-rolled steel speaking today, you will find my testimony in sharp contrast to much of what you have heard today. The 102 members of the AWPA employ 42,000 workers in 38 states and 138 congressional districts. Our members make wire and wire products such as nails, garment hangers, springs, wire fencing, and steel reinforcing products. As independent wire producers, the AWPA active members depend on U.S. steel producers to provide sufficient quantities and qualities of wire rod. However, because domestic wire rod capacity is substantially lower than domestic demand, imports are critical to our survival. This economic reality was recently recognized by the U.S. International Trade Commission when it concluded that the domestic industry could supply only about 80 percent of the domestic demand for wire rod. As a significant consumer of steel wire rod, I am alarmed at the news from Washington with regard to steel trade issues. Underlying the many recent proposals to restrict trade is the notion that imported steel is ruining the domestic industry. I would like to provide another perspective on this issue. Our raw material, hot-rolled steel wire rod, accounts for more than half the total cost of our products. Through 1997, and until early 1998, supplies of wire rod were being allocated to consumers by domestic mills because of limited domestic supply. Transaction prices rose more than 10 percent in the year 1997, reflecting strong demand. Without the availability of foreign steel during this period, Insteel would have been unable to meet its commitments and would have idled its plants. In 1998, demand climbed as the Asian financial crisis impacted world markets. Wire rod supply problems disappeared and prices fell due to heightened import competition. Significantly, prices for many of my companies' products declined by double-digit percentages as new import competition in our markets had an adverse effect on selling prices. Contrary to the mantra of big steel and big labor, steel producers are not the only companies to experience heightened levels of competition due to the Asian crisis. It will take time for our markets to adjust to the events of 1998, but they will recover. Until they do, restricting the availability of raw materials to companies like Insteel will result in reduced competitiveness of our products and job losses in our industry. While about 170,000 people are employed in the domestic steel production, literally millions of workers owe their livelihoods to the availability of competitively priced steel that allows their employers to compete in the global economy. History shows that restrictions on imported wire rod inevitably result in increased imports of downstream wire and wire products. Consider the thousands of jobs in steel-consuming industries that may be put at risk by arbitrary restrictions on imports of hot-rolled steel. With this background in mind, the AWPA and its members oppose legislation that would adversely affect our ability to obtain wire rod in the quantities we need in order to meet our customers' requirements. H.R. 327, 412, 502, and 506 threaten the viability of a large segment of American industry. These proposals are either contrary to our national trade laws, violate our obligations under the WTO, or require the creation of even more bureaucracy for purposes of administration and oversight. Significantly, one or more of these resolutions may have the impact of reducing the availability of imported wire rod, despite recent ITC rulings that these imports do not injure the domestic industry. There are, however, legislative changes that the AWPA believes would improve the administration of our trade laws and the fairness of their application. Most importantly, the current law discriminates against U.S. purchasers by denying them the same access to information as other parties in trade cases. In injury investigations before the ITC, consumers of the imported product are not interested parties and their counsel are excluded from reviewing proprietary information in accordance with an administrative protective order. It should be an overriding goal of the trade laws to provide due process to purchasers and to encourage the involvement of U.S. industry that purchases and uses the product under investigation. More informed findings and more equitable remedies will result. In conclusion, it would be a tragic mistake for the United States to adopt protectionist measures to address short-term market dislocations created by the Asian financial crisis. The current proposals to limit steel trade will inevitably lead to shortages, skyrocketing prices, and an erosion of competitiveness of vital steel-consuming industries. Thank you for this opportunity to share my opin ions. [The prepared statement follows:] Statement of H.O. Woltz III, President and Chief Executive Officer, Insteel Industries, Inc., Mount Airy, North Carolina; and Vice President, and Chairman, Government Relations Advisory Committee, American Wire Producers Association, Alexandria, Virginia My name is H. O. Woltz III, and I am President and CEO of Insteel Industries, Inc., with its headquarters in Mt. Airy, North Carolina. I am also Vice President of the American Wire Producers Association and Chairman of the Association's Government Relations Advisory Committee. The American Wire Producers Association (AWPA) is a national trade association which represents the vast majority of independent manufacturers of carbon, alloy and stainless steel wire and wire products. The 102 members of the AWPA operate more than 210 plants that provide good paying jobs to over 42,000 American workers. Those plants are located in over 38 states and 138 congressional districts. AWPA members produce a vast array of steel wire and wire products which are used in the automotive, agricultural and construction industries as well as directly by consumers. AWPA member companies purchase hot rolled carbon steel wire rod from domestic and foreign sources. We process this wire rod into wire and fabricate a wide variety of end products and semifinished products from this wire. Examples of wire and wire products produced by our members include nails, wire strand, chain link fence, springs, garment hangers, agricultural fencing, and steel reinforcing products for concrete structures. AWPA members supply between 85 and 90 percent of the total domestic demand for these products with an annual value in excess of $19 billion. Given the almost infinite variety of wire and wire products, the common denominator for the manufacturers in this sector of the steel industry is their raw material-hot rolled carbon steel wire rod. In fact, the stated goal of the AWPA is “to undertake programs and activities that assure wire producers free and fair access to an adequate supply of wire rod. This includes the encouragement of an increase in North American capacity for the manufacture of wire rod." To this end, the AWPA's active members, who constitute the largest group of consumers of domestic wire rod in the United States, have supported the domestic rod industry's initiatives to develop and expand the availability of American-made wire rod. As independent wire producers, the AWPA's active members have no affiliations with their rod sources. Hence, we depend on our main suppliers-the US rod manufacturers-to provide sufficient quantities and qualities of rod for our wire-drawing operations. Despite this strong and mutually beneficial commercial relationship with the domestic rod industry, independent wire producers still must purchase imported rod to meet their requirements. The domestic rod industry is not capable of satisfying all of the domestic demand, either in terms of over all quantities or the variety of grades of wire rod used by AWPA members. This economic reality was recognized recently by the US International Trade Commission(ITC) in its antidumping and countervailing investigations of Certain Alloy and Carbon Steel Wire Rod from Canada, Germany, Trinidad & Tobago and Venezuela. In those investigations, the ITC found that the domestic rod industry was able to supply approximately 80 percent of the domestic demand for rod. The remaining 20 percent must be obtained from other sources. It is also significant that most domestic producers of hot rolled wire rod own, or are affiliated with, downstream wire producers. These integrated producers, therefore, compete in the marketplace with AWPA's independent wire producers for sales of wire and wire products. The AWPA believes that this encourages the domestic hot rolled wire rod producers to restrict supply of wire rod in order to improve the profitability of the steel mills and to improve the competitiveness of their downstream operations vis-a-vis independent producers of wire products. Potentially damaging cost-price squeezes for independent wire producers can result under these circumstances, thus sapping the vitality of an important and efficient industry. Adequate competition for hot rolled wire rod is, therefore, essential to the viability of independent producers of wire and wire products. In order to protect its members' access to an adequate supply of wire rod, the AWPA has opposed measures to limit, artificially, the availability of wire rod. Such artificial restrictions lead to shortages, allocations and inflated pricing. Furthermore, restrictions on the importation of hot rolled wire rod inevitably result in increased imports of downstream wire and wire products. As foreign producers are foreclosed from the US rod market, they shift their exports downstream into wire and wire products. In other words, restrictions on the importation of hot rolled wire rod leads to increased imports of wire and wire products such as nails, strand and springs. This downstreaming not only affects the employment levels and vitality of the wire industry, but also that of the hot rolled wire rod producers as demand for domestically produced wire rod is reduced by downstreaming. As a significant consumer of hot rolled steel wire rod, I personally am alarmed at the news from Washington with regard to steel trade issues. I read of proposed legislation calling for a moratorium on steel imports, proposals for drastic decreases in the importation of steel from Japan, Korea and Brazil, agreement on quotas for steel imports from Russia, and a host of other protectionist proposals. Underlying these proposals is the notion that imported steel is ruining the domestic industry and that dumping and other unfair trade practices are rampant. I would like to provide you with another perspective on this issue. My company, Insteel Industries Inc., is a leading producer of steel wire and wire products. Our company operates eight manufacturing facilities in Delaware, North Carolina, South Carolina, Tennessee, Texas and Virginia. Insteel employs approximately 1,100 people. Insteel is a state of the art manufacturing company serving the appliance, construction, and home furnishing industries with products such as nails, wire for springs, reinforcing wire for tires, and concrete reinforcing products. Our raw material, hot rolled carbon steel wire rod, accounts for more than half the total cost of our products. We source our raw material domestically and internationally. In an ideal world, all of our raw material would come from steel producers located in the United States. The world is not ideal, however, and therefore we must rely on imported steel for a portion of our requirements. Speaking from Insteel's experience, through 1997 and until early 1998 supplies of hot rolled steel wire rod were being allocated to consumers by domestic mills because of limited domestic supply. Transaction prices rose more than 10 percent during 1997, reflecting strong demand. The availability of foreign steel was critical to our ability to meet our commitments to our customers during this period of time. Without it, our plants would have been idle, our employees would have been on short weeks, and our customers would have suffered delays and disruptions of supply. It is a fact that imports of steel products rose substantially in 1998. However, if you go beyond the self-serving arguments of the steel companies and their labor unions, you will see that the facts are much different than they would have you believe. Literally millions of tons of steel products have been imported by the domestic steel producers themselves. During 1997, and 1998 steel companies imported semifinished steel products and hot rolled steel because their business was strong and they were unable to fully satisfy demand from their own capacity. Without these imports there would have certainly been a steel shortage, accompanied by rapidly increasing prices. Market conditions for much of the world steel industry changed in 1998. The Asian financial crisis took its toll on demand world wide, and prices declined. It is interesting to note, however, that the cost of inputs to make steel also declined significantly. Steel scrap and pig iron both plummeted in price during 1998. After a period of adjustment during which the new, lower prices worked their way through the inventory pipeline, many steel makers found that they still had adequate margins to operate profitably, despite the heightened international competition brought on by the financial collapse in Asia. This is quite a tribute to the vitality of the domestic steel industry-a vitality to which they apparently do not want to admit. The lead times for importing steel are long. Sometimes we are required to make commitments as far as nine months ahead in order to have steel produced and delivered to us from overseas sources. With the strong demand that the steel industry experienced in 1997, the pipeline was full when the Asian crisis began to affect demand. Logically, the pipeline took time to adjust in 1998 following the robust conditions of 1997. As orders and commitments worked their way through the pipeline during 1998, imports began to decline at the end of the year. The steel companies, however, are using the increased import figures of 1998 to bolster their arguments for more protection from competition. Steel is a cyclical business, and the disequilibrium of supply and demand that was witnessed during 1998 will likely correct itself in 1999. By mischaracterizing the events of 1998, "Big Steel" hopes during 1999 to alter significantly the trade playing field to their advantage, assuring tight supplies and high prices and reduced competitiveness of steel consumers for years to come. The world steel markets, and indeed many world markets, have been destabilized by the Asian crisis. Insteel and the other members of the AWPA are facing heightened competition from imported wire products as a result of market disruptions worldwide. Prices for our finished products, such as nails, tire reinforcing wire, and prestressed concrete strand, have fallen significantly in the past twelve months because of heightened import competition. It will take time for our markets to adjust to these new realities, but they will recover. In the meantime, restricting the avail |