Mr. CORT. Well, so far the industry has enough flexibility; the tightness is caused by basic steel capacity, in other words, our ingot capacity, and our finishing capacities. In most, product demand exceeds the raw steel supply. As flat rolled demand from Detroit has diminished, the ingot capacity has been applied to other products such as carbon bars, plates, and, to a certain extent, structurals.

Senator BENNETT. I know we in the Congress have put pressure on you for reinforcing bars and baling wire and a few other things.

Mr. CORT. Well, a lot of the steel, basic steel that was going into Detroit has been diverted to carbon bars and reinforcing bars and the whole gamut of finished products.

Senator BENNETT. Thank you. I have used more than my 5 minutes, and as I said in the beginning, I am supposed to be somewhere else, and now that I have two potential replacements, Senator Fannin, I will turn the Chair over to you, and also the questions.

Senator FANNIN (presiding). Thank you, Mr. Chairman.

Gentlemen, it's a pleasure to have you with us today. To follow up on what Senator Bennett was inquiring about, there has been considerable problems for independent oil producers to acquire the pipe and drilling equipment, casing and so forth, that they need to expand domestic energy supply.

Is your industry putting a high priority on energy-related equipment?

I will give that to the panel, anyone on the panel.

Mr. LARRY. I believe the industry is indeed putting a high priority on energy-related supplies. But there is a limit beyond which one can go, averting to what you were talking about and to what Senator Bennett was talking about a moment ago, the rod area and the barbed wire. Unfortunately, there was a period of time with respect to both those examples and they are good ones because the penetration became so great, so enormous when nearly 40 or 50 percent of the domestic market was being supplied from abroad at prices, if you will remember which were really distressed prices. As a result, a great many of the facilities to make certain types of wires, certain types of rods, certain types of pipe, began to fall into disuse. Suddenly those who used to supply them at distressed prices now command premium prices and are shipping them elsewhere in the world, therefore withdrawing from our market. Customers are inclined to look askance at the domestic supply and wonder where it is.

Well, I am glad they are wondering now and I hope that they will continue to wonder, because it simply emphasizes the need to have a Sounder American steel industry than we have had in the past, and to enable the industry to find the capital to do the kind of a job that will support the economy.

Senator FANNIN. I do wholeheartedly agree that we do need to take a very good look at what has happened in the past and try to avert it happening again because I know that we are getting some questions about GATT, and maybe we can cover some of it at that time. But it has been alleged that the voluntary steel arrangement is the primary cause of our current steel shortage.

Would you care to comment on that?

Mr. CORT. Mr. Chairman, I do not agree with that statement. The cause of our current shortage in capacity started some 10 or 12 years

www

ago when imports began to swell and take more and more of the market growth in the U.S. steel industry.

In the face of this and the ruinous pricing policies on foreign steel, there was no domestic producer that could consider investing in additional capacity. The average $1.7 billion the industry spent over the last 10 years went completely to modernization and also to environmental controls. It added-that $17 billion-added not an additional pound of basic steel capacity, and it was a matter of survival to spend what money was available to the industry in modernization and improvement in techniques for survival.

Senator FANNIN. Well, I realize that it has been a very difficult situation, especially with Japan in the position that they were in, and certainly the way, as I understand it, to a certain extent subsidizing the industry and getting away with the environmental problems, that is, by not doing anything about the pollution control. But now, of course, this has caught up with them, and I do not know just what is going to be the effect.

But being from a western State, and I know our State has been vitally affected by steel imports, and I do feel that our committee should go very thoroughly into this matter, as you gentlemen have suggested, because it is a very serious problem and it could arise again. And here in the statement by Mr. Anthony; "The situation arises where 55 percent of an important product line, or 37 percent of the entire regional market, as in the case of western steel market is supplied from interruptable foreign sources should never have been allowed to happen. It is not good for the American economy; it is devastating to the western economy." I agree and hope that we can avert that. I do not know exactly where it stands today, but I am concerned. Where would you think we stand today in this respect?

Mr. ANTHONY. In relation to the 37-percent penetration in 1972, Mr. Chairman, our preliminary estimates for 1973-and they are not final-would indicate that the penetration has dropped to about 29 percent of the total western market. I do not have that for individual products, but the 55-percent products to which we are referring bappened to be galvanized sheets in 1972. We had products such as 1to 4-inch pipe in which 70 percent of the western market was taken up by foreign imports. In fact, that and the combination of Cost of Living Council controls caused us to discontinue the production of 11⁄2- to 4-inch galvanized pipe, for example. There was no way we could continue in production.

Senator FANNIN. Thank you, sir. My time is up.

Senator Hansen?

Senator HANSEN. One of the concerns that we have had expressed over and over in the West has been the extremely short supply of baling wire. The Secretary of Agriculture in conjunction with the administration has been calling for increased farm output this year, and a number of farmers that I know of are saying—

We are willing to do our part, but there are two shortages that are critical to us. No. 1 is the relatively scarce supply of certain types of farm machinery, and No. 2, the extremely short supply of baling wire.

I think you have spelled out some of the reasons why baling wire is in short supply. I gather that the Price Stabilization Act in its implementation has been a factor.

I would invite any of you to respond if you agree.

Mr. CORT. Well, actually, Senator, it started some years ago. Baling wire was one of the first products that went offshore in a major way, and the producers of baling wire in the United States had their equipment standing there for 4 or 5 years without any utilization because the prices were ridiculous.

Senator HANSEN. This was before the Price Stabilization Act.

Mr. CORT. Oh, yes. This started in the early 1960's, and so many wire producers went out of the baling wire business because they just could not afford to stay in it. They scrapped their wire machines and diverted their wire rods to other wire products, and so it is not something that you can turn on like a spigot. We just do not have the capability.

As far as the farm equipment people are concerned, I think that is more a shortage in their manufacturing capabilities because they have had such a rush of business. The demand is recordbreaking for them and it takes time for them to gear up their factories and add new capacity, and I understand most of them are doing that.

Senator HANSEN. Mr. Cort, you spoke about the industry's inability to do some of the things that it might have chosen to do because, as I understood you, it found itself obliged primarily to invest the moneys available in modernizing plants and meeting environmental require

ments.

Did I understand you correctly on that point?

Mr. CORT. That is correct.

Senator HANSEN. There has been a lot said about the environment, but I do not find too much of a followthrough among the environmentalist groups in this country, and I think basically we are all environmentalists. There is no one who does not subscribe to their goals, but until a few years ago, about the only thing we asked of industry was to expect that it would produce a quality product, and that the price would be competitive. And we did not ask how much the air was fouled up or what the working conditions were of people who may have manufactured it. We just asked how how good is your product and what does it sell for?

I should think that we ought to extend our interest in the environment. If we expect American industry to provide the contribution that it is capable of in improving the environment, we ought to accord It consideration that would be reflected by our saying to importers into this country, "You meet the same standards." I understand that Tokyo is the most polluted city in the world; the air is terrible and the water is even worse. And yet a lot of the environmentalists I know drive European cars around. They seem to find a lot of fault with American manufacturers, but they sure seem to express no obvious similar concern for products coming from abroad.

Do you think that the steel industry can compete with foreign industries if you are going to be saddled with standards-and I am not complaining about your having to meet the environmental standards. Do you think as a matter of fact that you can compete when manufacturers in foreign countries do not have similar restraints imposed upon them?

Mr. CORT. No, I do not think we can over the long pull. Right now the American steel industry is spending somewhere between 15 and

20 percent of their capital outlay on environmental control, and instead of yielding a return, it has a minus return of about 12 percent a year because of the cost of operating and maintaining these facilities. The rest of the world has not come close to trying to meet the standards that have been set for the American industry. They are getting a lot of flak now about trying to clean up their operations, but so far it has not translated into their costs as it has in our case.

Senator HSEN. It occurs to me that we must, and I would add very quickly, impose some similar standard on imports or we are just going to drive the American producer right out of business. I do not see how else we can avoid that situation, and I do not think it is one that can be delayed.

I am deeply impressed with what you say about the voluntary restraint agreement. Was it you who mentioned that? Mr. Anthony or Mr. Ahlbrandt?

Mr. ANTHONY. Well, all three of us did.

Senator HANSEN. I have a couple of questioins; Mr. Cort. I have asked you several. I just toss these out to anyone on the panel who would be interested.

Could you supply for the record the per unit cost of a ton of steel produced in the United States compared with Japan and European steel?

I will hand these to you so you will not have to respond now.

Could you also supply us with the price information over the period 1955 through 1973 for basic steel products, both in current and constant dollars?

[The questions and answers follow. Hearing continues on p. 1074.] Question. What were prices for basic steel products, both in current and constant dollars, from 1955 through 1973?

Answer. The attached table of steel Product Prices shows the U.S. Bureau of Labor Statistics Index of wholesale prices of steel mill products and average sales realization per ton of steel mill products calculated from Bureau of the Census reports. These series have been deflated to constant 1967 dollars, using the GNP private sector deflator and also the USBLS Wholesale Price Index of Industrial Commodities.

Question. What is the unit cost of a ton of steel produced in the United States compared with Japan and Europe?

Answer. We have not developed such figures since 1971. At that time unit costs for carbon steel in the United States wereabout $12 per ton higher than in the EEC countries and about $50 per ton higher than in Japan. Most of the difference was in employment costs.

Since that time there have been numerous changes in employment and materia! costs, as well as in foreign exchange rates. It appears that at present our steel costs are competitive with those in Europe but still $30-40 a ton higher than in Japan.

We hope to have updated figures in a month or six weeks and will make them available when completed.

TABLE 1.-Foreign Trade in Steel Products

TABLE 2.-Steel Mill Products Trade Balance

TABLE 3.-Imports of Steel Mill Products by Countries of Origin

TABLE 4.-Imports of Steel Mill Products from Countries Other than EEC, United Kingdom, Japan and Canada

TABLE 5.-Imports by Grades in Tons and Percentages of Total

TABLE 6.-Imports of Steel Mill Products by Regions of Entry in Tons and Percentages of Total Imports

TABLE 7.-Steel Industry Manhours Per Ton Shipped in Selected Countries

TABLE 8.—Steel Industry Employment Costs Per Manhour in Selected Countries TABLE 9.—Estimated Raw Steel Production Under Direct Government Ownership in 1972

TABLE 10.-World Apparent Steel Consumption by Major Areas

TABLE 11.-World Raw Steel Production by Major Areas

TABLE 12.-World Steel Exports by Areas

TABLE 13.-World Steel Imports by Areas

TABLE 14-Steel Consumption, Production, Exports and Imports-Percentages of Total

TABLE 15.-Selected Steel Prices and Price Indexes United States and Foreign TABLE 16.-Steel Industry Capital Expenditures in Major Steel Producing Countries