-Caveat Lector- Ky. steelmakers, users square off on import law By Gail Gibson HERALD-LEADER WASHINGTON BUREAU WASHINGTON -- The glut of cheap, foreign steel that touched off this year's biggest trade fight in Congress hit the bottom line at the Gallatin Steel Co. in Northern Kentucky. Since late last year, production at the mini-mill in Ghent has dropped to 50 percent of capacity. Prices for the hot-rolled steel the company sells to businesses like automotive stamping plants have fallen from $300 a ton to $200. ``That just comes out of your pocket, because costs don't drop like that,'' said Ed Puisis, Gallatin's chief financial officer. Last month, lawmakers in Washington stepped in to try to help domestic steelmakers like Gallatin, who say increased imports are crushing their business. In a 298-141 vote, the U.S. House approved legislation that would impose quotas on steel imports for three years. But a solution may not come that easily. The quota bill already faces criticism from leading economists, a veto threat from the White House and an uncertain future in the Senate as lawmakers return to work this week after a two-week recess. And in Kentucky, the story isn't just in the old steel mills in towns like Newport or Ashland. On the other side of the fight is the state's burgeoning auto industry -- including leading employers like Toyota Motor Manufacturing of North America -- which says the import restrictions would hurt business. ``It's a question of whose margin is at stake,'' said Dennis Cuneo, Toyota's vice president for corporate affairs. Cuneo said that Toyota-North America buys roughly $300 million worth of steel each year, about 95 percent of it from U.S. producers. Import restrictions would push up steel prices across the board. And that increase could force carmakers to respond by cutting costs -- trimming wages or laying off employees -- or raising sticker prices. ``I do feel for the individual steelworker who may lose his or her job,'' Cuneo said. ``But on the other hand, I don't think it justifies losing three or four other jobs in the steel industry so the government can prop up that job.'' Worries of `protectionism' By sheer employment numbers, steelmakers in Kentucky don't have the same strength as steel users -- particularly major operations like Toyota's Georgetown plant or Ford's truck plants in Louisville. In 1998, carmakers Toyota, Ford and General Motors employed 17,000 people in the state. The state's 56 steel companies combined to employ 6,199, state figures show. But the steelmakers showed their muscle on the import restriction bill. Of Kentucky's six U.S. House members, only two -- Republican Reps. Ernie Fletcher of Lexington and Anne Northup of Louisville -- voted against the bill. It wasn't an easy decision, Fletcher said in a recent interview. ``My dad worked in the steel mills when he was younger, and we were talking to the steel workers coming in, and I'm very concerned about their jobs and their well-being,'' Fletcher said. Fletcher balanced that view against the concerns of Toyota, a major player in his Central Kentucky district, and other steel users like heavy- equipment manufacturer Caterpillar Inc., which produces tractor treads at a Danville plant. ``I came down on the fact that in the long run, our protectionism is going to have a greater ill effect on our citizens than in the short term,'' he said. Some of the nation's leading economists have sounded the same concerns. Testifying at a House Ways and Means committee hearing this winter, Federal Reserve Chairman Alan Greenspan warned that a ``drift toward protectionist policies, which are always difficult to reverse, is a much greater threat than is generally understood.'' Writing in the Wall Street Journal last month, economist Robert Crandall, a senior fellow with the Brookings Institution, called the steel bill ``one of the most blatantly protectionist pieces of legislation since the 1930s.'' The debate highlights some of the nation's free-trade angst, which has been exacerbated in parts of Kentucky by the closings of textile plants in the wake of the North American Free Trade Agreement. House members split Rep. Ken Lucas of Union is a conservative Democrat and businessman who generally favors free trade. But his Northern Kentucky district also includes some of the larger steel mills, and on this issue, Lucas said, the ``benefits outweighed the negatives.'' Other Kentucky House members who backed the steel quota bill said they did so to signal concerns that the Clinton administration is not adequately enforcing existing trade laws. ``Unfortunately, President Clinton has refused to stand up for American steelworkers; therefore, the responsibility fell to Congress,'' said Rep. Ron Lewis, R-Cecilia. Big U.S. steel companies and their workers also say the administration isn't doing enough to crack down on increasing imports. And they say the impact on their business has been great. Three U.S. steel manufacturers -- two in Illinois and one in Utah -- have filed for bankruptcy protection in the past year. About 10,000 of the country's 170,000 steelworkers have been laid off. In a March 11 letter to Clinton, George Becker, president of the United Steelworkers of America, urged the president not to veto the quota bill if it reaches his desk. Steelworkers have ``played by the rules, and after 17 months of speaking out about this crisis, with no comprehensive response, we have sadly concluded that playing by these rules when no one else does is a sucker's game,'' Becker wrote. Impact mixed in Kentucky Not all Kentucky steelmakers have felt the brunt of the increased imports. AK Steel in Ashland, which remains Kentucky's largest steel producer with about 1,500 workers, has faced lower prices for some of its products. But spokesman Alan McCoy said the company's increased focus on specialized products -- like high-grade, flat-rolled steel for automobiles -- has kept business even. ``I cannot say it has not affected us -- it has,'' McCoy said. ``But I go back again to we saw this coming, and we prepared for it.'' Other shops, though, are struggling. At Newport Steel in Newport, Ky., the full-production work force of about 1,200 has been cut roughly in half, said Ben Vinzant, vice president for sales and manufacturing. 1997 was one of the company's best financial years ever, Vinzant said. ``All I can say now is all we're seeing is red ink,'' he said. Back at Ghent, Gallatin Steel has not laid off any of its nearly 340 workers, said Puisis, the financial officer. The company is committed to retaining its work force, he said, although the company has had to trim back outside contracts from about 100 to 30. Something has to be done, said Puisis, because the steel industry's troubles today could easily be another industry's problem tomorrow. ``I think there's a genuine concern about the United States becoming the dumping grounds for the world to sell products cheap when they're in a position of over-capacity,'' he said. * * * This article contained a misspelled name. This version of the story was corrected on April 14, 1999. 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