Steel Industry Rescue Triggers Illegalities

 

The trigger price mechanism is a complex system, designed to protect the domestic steel industry from import competition. But it has produced a number of distortions -- and outright illegalities -- that have changed the nature of this country's steel market, says a leading steel analyst. And many of the small businessmen who traditionally have found a niche in the distributor or "service center" and of the business agree.

The trigger prices were devised by the Carter Administration in late 1977 as part of a rescue package to aid the domestic steel industry. The triggers, which are based on the production costs of the Japanese steel industry, place a floor under import prices and thus help domestic steel producers prop up their prices and profits.

To hear some small businessmen tell it, however, the trigger program threatens to destroy the independent steel distributor. "Because of the way the system works, it's become more advantageous for a lot of people to sell out to a foreign-owned company," says Charles Fox, who heads Reliance Sheet & Strip, a Berkeley, Calif., distributor.

The way to make money as a distributor these days is to buy foreign made steel overseas at low prices, bring it into the United States at the higher trigger level (roughly $180 per short ton on some product lines), but leave the profit outside the country with an offshore subsidiary, according to Peter F. Marcus, steel analyst at Paine Webber Mitchell Hutchins Inc. "One of the many tragic consequences of this environment is the growing belief among [steel] distributors and service centers that they cannot survive as independents," Marcus says.

Another disturbing trend has been a tendency by some companies to resort to illegal practices, including bribery, kickbacks, and alteration of import documents in order to "beat" the triggers. "Most of us in the industry are playing by the rules, but it seems that there are a growing number who have decided to go outside the law," says Kurt Orban, president of Kurt Orban Co. Inc., a major steel importer based in Wayne, N.J.

The Customs Service is conducting more than 40 separate investigations on alleged customs fraud involving steel imports shipped into the United States including forgery of documents, phony damage claims and false backdating of orders, many of which stem directly from attempts by importers to bypass the triggers.