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Brazil Steel Firms Defy Doomsday Outlook

Devalued currency and shortage in U.S. have spurred exports despite tariffs and quotas.

November 11, 2002|Chris Kraul | Times Staff Writer

Gerdau has purchased five plants in Canada, Florida and New Jersey since the late 1980s, enabling it to expand its network of regionally autonomous operations from those in Brazil, Uruguay and Argentina.

The ongoing problems in the U.S. steel industry also have helped Brazil's competitiveness. The huge U.S. integrated steel companies that survive after decades of bankruptcies and mergers are saddled with high "legacy" costs -- the pension and health benefits of about 1 million retired steel workers.

Meanwhile, the pool of active steel workers whose wages they can tap for pension and health fund contributions has shrunk to about 100,000, said Clyde Prestowitz, president of the Washington-based Economic Strategy Institute and a former trade negotiator during the Reagan administration.

To make up for the legacy cost shortfall, domestic producers must raise prices for customers, charging as much as $100 a ton more than producers in other parts of the world, according to David Phelps, president of the American Institute for International Steel in Washington. That inflated U.S. cost is why steel makers say they need tariffs and quotas to survive.

Whether the Brazilians can maintain their export momentum is open to question. Optimists here note that the U.S. tariffs on foreign steel imports will slowly recede over the next two years, thereby easing the entry of Brazilian steel products.

Prestowitz said Brazil's hand in trade matters, including steel, may have been strengthened by the victory of leftist Luiz Inacio Lula da Silva in the recent presidential election.

"Given the angst in the U.S. government over the Brazilian economy, and with the new president in there, there is an incentive here to make sure the Brazilian economy works, and that means letting steel products in," Prestowitz said.

But the shortage of U.S. steel manufacturing capacity that helped drive up prices this year could evaporate in 2003 as other North American companies ramp up production to fill the void.

Lower prices would mean a smaller competitive window for tariff-laden Brazilian imports.

Peter Morici, a professor of international business at the University of Maryland and chief economist of the International Trade Commission during the Clinton administration, said the surcharges have worked well so far, saving U.S. jobs with no apparent harm done to consumers.

"We are seeing the reorganization of the U.S. steel industry," Morici said. "Consumers have seen no appreciable rise in prices of cars or appliances or other products that are heavy users of steel."

But Jose Augusto de Castro, director of the Brazilian Exporters Assn. in Rio, disagrees. He says surcharges and quotas are affecting producers around the world, skewing prices and production "without any advantage to the United States."

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