March 2004

Russians Take Over Rouge Mill; Sale Shows Complexity of Economy, Politics
by James Drew

Dearborn, MI— When Henry Ford needed steel for his auto plant in 1920, he ordered construction of the Rouge steel mill.

The massive mill became one of capitalism’s citadels. Labor and capital supplied the steel for automobiles that revolutionized transportation.

Nearly three decades after the Rouge mill opened, Josef Stalin decided to build a steel empire in Russia, a government-run enterprise later renamed Severstal, Russian for “north steel.”

Severstal - which became privately-owned after the 1991 collapse of the Soviet Union - is now the new owner of the Rouge steel mill.

And one of America’s most powerful union locals helped the Russians buy the mill.

“I guess it goes to say what kind of society we live in today, when we have to depend on foreign investors to preserve American jobs and the American way of life,” said Jerry Sullivan, president of United Auto Workers Local 600, which represents 2,000 of the Rouge steel mill’s 2,600 workers.

As the presidential race heads for Michigan and Ohio, Democratic candidates will continue to focus on the economy, hammering President Bush for the loss of 2 million manufacturing jobs since he took office in 2001.

Michigan Democrats held their caucuses February 7. Ohio’s presidential primary is March 2, when 11 other states including New York and California hold presidential contests.

Michigan, which Mr. Bush lost narrowly to Vice President Al Gore in 2000, has lost 150,000 manufacturing jobs since 2001.

Ohio, where Mr. Gore halted his campaign a month before election day and still lost by only 4 percentage points to Mr. Bush, has lost 162,000 manufacturing jobs over the past three years.

Both states have been hammered by the recession and manufacturers moving jobs to China and Mexico for cheaper labor.

“I don’t think you can be concerned about jobs without being concerned about failed trade policies in this country,” said Lloyd Mahaffey, Ohio regional director for the United Auto Workers.

But others say voters will judge Mr. Bush’s track record on the economy without analyzing free trade agreements.

“I think the political balance depends more on how the overall jobs numbers are doing and whether there is a pick-up in employment, which I think will happen,” said Gary Hufbauer, a trade expert at the Institute of International Economics in Washington.

The Rouge steel mill is at the heart of a complex debate over the nation’s economy, trade policies, and globalization.

For Jerry Sullivan, who began working at the mill 32 years ago, “the Rouge means jobs, the quality of life that many people have been used to, and stability of this community and this state.”

Others view it as a shining example of how free trade can benefit American workers and two countries that once were Cold War foes.

“There are benefits to be reaped from increased international trade and globalization, and this is a good example of why it is good that a Russian company invests in the United States, and U.S. firms invest in Russia,” said Anna Meyendorff, a business professor at the University of Michigan.

When Mr. Bush lifted steel tariffs last year that he imposed in March, 2002, political scientists said the decision could help the President in steel-consuming states such as Michigan and hurt him among steelworkers in Ohio.

It’s much more complex than that, say experts who track economics and politics in Ohio and Michigan.

“I’m still trying to understand how trade and globalization affects the jobs issue,” said Jeff Williams, vice president of a Lansing, Michigan-based public policy firm. “If I am anti-trade and pro-jobs, the price of goods might rise at Wal-Mart. Many of the people who are protesting the out-sourcing of jobs also are angry about the price of Kleenex going up.”

Michigan and Ohio are among 15 states that either Mr. Gore or Mr. Bush carried in 2000 by fewer than 5 percentage points.

Mr. Gore carried Michigan. Mr. Bush won in Ohio and West Virginia, and among the reasons cited is President Bill Clinton’s decision to reject requests by steel companies - faced with massive imports fueled in part by a strong U.S. dollar - to enact tariffs on cheaper, imported steel.

In March, 2002, Mr. Bush imposed tariffs of up to 30 percent on various kinds of imported steel.

It was a controversial move that U.S. steelmakers said would give them time to restructure, shift a big chunk of the pension costs for retirees to the federal government, close old mills, and renegotiate union contracts to prevent further job losses.

An estimated 20,000 jobs in U.S. steel mills were lost from 2001 to 2003, as a wave of bankruptcies and mergers hit the industry.

The tariffs initially sharply increased the price of steel. Auto parts suppliers, already facing a weak economy, criticized Mr. Bush’s decision because automakers won’t allow them to increase prices even though materials are more expensive.

“There were a tremendous amount of unintended consequences,” said Neil DeKoker, president of a Troy, Michigan-based group that represents 345 firms that make parts for automakers.

A study by the U.S. International Trade Commission released in September, 2003, said the tariffs had triggered thousands of jobs lost in steel-consuming industries and cost the economy hundreds of millions of dollars.

A coalition of companies that use steel said higher steel prices had wiped out 200,000 jobs - 12,000 more than the total employed by U.S. steelmakers.

On November 10, 2003, the World Trade Organization ruled that U.S. tariffs on steel violated trade rules.

The WTO, which is the international group that sets trade rules, gave the 15-nation European Union and seven other countries the power to retaliate by slapping tariffs up to 30 percent on roughly $2.2 billion a year in U.S. exports.

Less than a month later, Mr. Bush scrapped the steel tariffs, which had been scheduled to phase out in March, 2005. The EU dropped its threats, which had included imposing tariffs on citrus from Florida and textiles from the South.

Mr. Bush’s decision pleased auto parts suppliers in Ohio and Michigan.

“The suppliers basically vote with their campaign contributions,” said John Logue, a professor at Kent State University who is director of the Ohio Employee Ownership Center.

Steel prices have climbed since last August, in part because demand has increased in China, the world’s largest steel consumer.

But auto parts suppliers cannot blame the tariffs anymore, said Mr. DeKoker, head of the Michigan-based trade association.

Mr. Hufbauer, the trade expert at the Institute of International Economics in Washington, believes that Mr. Bush imposed the steel tariffs as part of a deal with Congress in 2002 to give him more authority to negotiate trade deals.

“I don’t think Bush was going to get many votes from steelworkers anyway,” he said.

But Dave McCune, who lost his job in December, 2002, when an Indian company closed the Massillon stainless steel plant where he and 100 others worked, said Mr. Bush’s decision to lift the steel tariffs has energized union workers in Ohio and Michigan.

Along with 20 other international unions, the United Steelworkers of America last year endorsed U.S. Rep. Richard Gephardt of Missouri for the Democratic nomination.

Mr. Gephardt was the sole candidate to vote against the decade-old North American Free Trade Agreement, and bills to give the President more authority to negotiate trade deals - referred to as “fast-track” - and to expand trade relations with China.

But Mr. Gephardt bowed out of the race after his fourth-place showing in the Iowa caucuses. The steelworkers’ union now supports Kerry.

Although former Vermont Gov. Howard Dean backed trade deals with Mexico and China, he has criticized free-trade agreements for failing to include environmental and labor standards.

Mr. McCune said he is leaning toward U.S. Senator John Kerry of Massachusetts because he is a Vietnam War veteran.

Union members may face a repeat of 1992, when Mr. Clinton courted them and then pursued a free-trade agenda during his two terms.

Mr. Kerry voted in favor of NAFTA, creation of the WTO, closer trade relations with China, and “fast-track” authority for the President.

U.S. Senator. John Edwards of North Carolina was not in the Senate when the NAFTA vote was taken. He voted in favor of expanding trade relations with China. He changed his vote on “fast track” from a “yes” to a “no” after provisions were deleted that would have helped workers who lose their jobs.

“It will be easy to stand up to Bush on economics, but what the public wants Democrats to stand up for is defense,” said Mr. McCune, citing Mr. Kerry’s veteran status.

Like most of the other Democratic candidates, Mr. Kerry has pledged he would take action against “unfair” trade practices, but he has said he won’t repeal or renegotiate NAFTA and WTO agreements.

Ms. Meyendorff, the business professor at the University of Michigan, said she is alarmed that with the exception of U.S. Senator. Joe Lieberman of Connecticut, the Democratic candidates “seem to be against globalization.”

She cites Severstal’s decision to buy the assets of the Rouge steel mill for $285 million as another reason why U.S. presidents should continue to support trade expansion.

Severstal executives committed to investing in the mill so the first Russian company to buy one in the United States can become a supplier to U.S. automakers. Severstal is expected to import steel slab from Russia, and then process it at the Rouge mill.

U.S. Steel, which bid against Severstal in federal bankruptcy court, wanted to buy the mill to shut it down, said Mr. Sullivan, president of UAW Local 600. That would have enabled U.S. Steel to remove 2.5 million tons of steel annually from the market “so it could name its price,” he added.

John Armstrong, a spokesman for Pittsburgh-based U.S. Steel, declined comment on the charge. “The price of Rouge during the bidding exceeded the value of Rouge. That is why we stopped bidding,” he said.

Last Thursday, UAW Local 600 members by a wide margin ratified a new contract that could lead to the loss of 500 jobs at the Rouge steel mill. Several of the laid-off workers, however, could fill slots at Ford Motor Co., which sold the steel mill in 1989.

As a Russian company tries to keep a steel mill open which once had a blast furnace named after Henry Ford II, Mr. Sullivan said many American workers in Michigan and Ohio are fighting for survival.

“There’s no nationalism anymore, the way there should be,” said Mr. Sullivan, 56. “It’s all about profit. People don’t mean anything.”

—Reprinted with permission from The Blade, 2/1/04.