1. Adam B. Parr Director, Policy & Communications Steel Manufacturers Association May 2, 2011 Legislation, Regulation, & Public Policy in the 112 th Congress & the Obama Administration Wire Rod Supply Chain Conference

2. Outline About the SMA The Tone in Washington U.S. Macro Issues Some SMA Policy Priorities What Does the U.S. Need To Do? Conclusions Wire Rod Supply Chain Conference 2

3. About the SMA 3

4. The Steel Manufacturers Association (SMA) – 35 North American companies: 30 U.S., 3 Canadian, and 2 Mexican – Operate 125 steel recycling plants in North America – Electric Arc Furnace (EAF) steelmakers using recycled steel – EAF steel producers account for nearly 2/3 of U.S. production – SMA represents approximately 90 million of 120 million ton U.S. capacity – 128 Associate Members - Suppliers of goods and services to the steel industry Wire Rod Supply Chain Conference 4

5. The Tone in Washington 5

6. Factors in the 2010 Elections It’s the economy, stupid… The economy was the number one issue for the American public in 2010— frustrations with high and stagnant unemployment figures, struggling housing markets, and persistently tight credit drove voter sentiment Those concerns were confirmed in exit polls on November 2, where over 60% of voters ranked the economy as the nation’s top problem and almost 90% expressed concern about the state of the economy over the next year (Associated Press) Dissatisfaction/perception that government is not tackling the right issues Frustrations augmented by the belief that the government has done more for Wall Street than for Main Street during the economic crisis That sentiment, coupled with increasing public concern/skepticism regarding the role of government in the private economy and the growing deficit and long-term national debt, has resulted in a general perception that lawmakers aren’t listening and are overreaching  In exit polling, 75% of voters “expressed negative views about how the federal government is working”, while over half said “the government should let business and individuals handle more things on their own” (Associated Press) Wire Rod Supply Chain Conference 6

7. Return to Divided Government – Control of the Senate remains with the Democrats New breakdown: 53 Democrats (including 2 Independents who caucus with the Democrats), 47 Republicans – The House of Representatives is now controlled by the Republicans New breakdown: 242 Republicans, 193 Democrats – The majority of state Governorships now held by Republicans New breakdown: 29 Republicans, 20 Democrats, 1 Independent 7 Wire Rod Supply Chain Conference

8. U.S. Macro Issues 8

9. -Economy -War in Iraq -War in Afghanistan -Health Care -Deficit -Size of Government, Government Spending -Homeland Security -Taxes -Financial Oversight -International Trade -Energy and Environment -Transportation and Infrastructure -Labor -Middle East Tensions -Japan Earthquake -Continuing Resolutions – Funding the Government Big U.S. Government Issues/Priorities Wire Rod Supply Chain Conference 9

10. While the recession officially ended in June 2009, the sluggish pace of the recovery remains a top concern for both the public and policymakers Impact of Japanese Earthquake? Impact of Libya oil costs? Economy Wire Rod Supply Chain Conference 10

11. The need for policies to promote economic growth in the short-run is complicated by the need/desire for longer-term austerity measures to address the nation’s deficit and long-term debt President Obama has signaled that addressing the deficit and long-term debt is an area ripe for compromise with Congressional Republicans What will be the impact of a reliance on continuing resolutions and a discussion of debt ceilings? Deficit Wire Rod Supply Chain Conference 11

12. Ways and Means Committee Chairman Dave Camp (R-MI) and Trade Subcommittee Chairman Kevin Brady (R-TX) are avowed free-traders – Addressing China’s trade practices Last Fall, the House passed the Currency Reform for Fair Trade Act—Sen. Schumer (D-NY) has pressed for a Senate currency vote, but prospects for action this year are unclear Last October, U.S. Trade Representative Ron Kirk announced that the United States has initiated an investigation of China’s practices affecting trade and investment in green technologies—will Congress enter the debate? More generally, the effect of the Tea Party is unknown—the movement has an anti- government, free market strain, but there is also a populist, anti-Wall Street component and it is unclear how this cuts on any particular issue, particularly trade International Trade Wire Rod Supply Chain Conference 12

13. Vigorous oversight of EPA will be a general theme throughout the 112 th Congress Prospects for comprehensive climate legislation are weak—will see continued Congressional efforts to slow down EPA’s regulation of carbon emissions In early April, Senate voted down a number of amendments designed to stop the EPA from regulating greenhouse gas emissions – Voting on McConnell-Inhofe Amendment was evenly split 50-50, with four Democrats joining forty-six Republicans in supporting the Amendment – Less aggressive alternatives were defeated by more dramatic margins – White House has issued veto threat against House bill that mirrors the McConnell-Inhofe Amendment Energy & Environment Wire Rod Supply Chain Conference 13

14. Energy & Environment Cont. Impact of U.S. EPA regulations on power plant emissions Piecemeal approach to energy policy presents opportunities for cooperation—as demonstrated by bipartisan legislation approved by the Senate Energy and Natural Resources Committee in the last Congress under Chairman Bingaman (D-NM) – Potential Renewable Energy Standard (RES), but Republicans were likely to push for inclusion of nuclear energy and clean coal technology, a “clean energy standard” – Proposals for increased energy efficiency in industrial facilities and buildings (Home Star) as well as financing for green technologies also on the table, but finding pay-fors will be difficult 14 Wire Rod Supply Chain Conference

15. Transportation & Infrastructure Good News Early March, Congress passed legislation to extend Federal Highway & Transit Program spending for 7 months Funding through end of current fiscal year at 2009 level – will allow some projects and planning to proceed Bipartisan effort Bad News Need long-term reauthorization bill, not stopgap measures Spending levels do not come close to matching the levels that are needed Current gas tax woefully inadequate, but Congress will not address Wire Rod Supply Chain Conference 15

16. Pending or planned Democratic labor-related legislative initiatives are very unlikely to move forward in 112 th Congress – “Card-check” legislation (Employee Free Choice Act) – Mine Safety Reform – Legislation to allow all firefighters and police officers to unionize In fact, legislative efforts moving in the opposite direction have been proposed previously – Anti-card check legislation (Secret Ballot Protection Act) – Campaign finance reforms to regulate use of union dues to support union political activity Some Democratic priorities can be pursued through administrative efforts of the Department of Labor or the National Labor Relations Board – Boeing Labor Wire Rod Supply Chain Conference 16

17. Wire Rod Supply Chain Conference 2012 Elections In the House, Democrats hold few competitive districts, and need 24 to retake the majority In the Senate, Democrats will defend 24 Senate seats (including two Independents) to the Republicans 10. Republicans need four net wins to take control of Senate More trouble for incumbents? Republicans currently have no clear frontrunner for the presidential nomination It’s President Obama’s race to lose 17

18. 18 Some SMA Policy Priorities

19. The Good, the Bad, and the Unknown 19 Wire Rod Supply Chain Conference The Good -Congressional turnover means an opportunity to educate new Members and their staff on the policy priorities of EAF steel producers -Increased receptiveness toward manufacturing and job-creating industries The Bad -Through retirements and electoral defeats, steel industry lost a number of Congressional supporters -Many steel industry priorities currently are taking a backseat to budgetary and deficit concerns The Unknown -How long before budgetary items are adequately addressed and other discussions can gain traction? -More gridlock, or will the parties come to the middle?

20. The House Steel Caucus 20 -Bipartisan House Steel Caucus led by Rep. Tim Murphy (PA) and Rep. Pete Visclosky (IN) -Approximately 100 House Members -Staff briefing held on April 27th -Hearing tentatively scheduled for May 26 th to address issues impacting industry competitiveness -If your Representative is not yet a Steel Caucus member, ask them to join Wire Rod Supply Chain Conference Steel Caucus

21. Raw Material Cost and Availability is #1 Issue for SMA Members Many countries continue to impose a variety of restrictions on exports of vital raw materials – Export prohibitions – Export duties – Export quotas – Other measures Trade-distorting restrictions on exports of raw materials – Give domestic producers in the exporting country an unfair advantage – Increase worldwide costs of production – Place a heavy burden on steel industries in developing countries that do not have substantial iron ore reserves or steel scrap supplies Raw Materials Wire Rod Supply Chain Conference 21

22. 22 Raw Materials The United States, the EU, and Mexico have challenged China’s application of a variety of restrictions to exports of key raw materials used in steelmaking, including: – Coke – Refractory bauxite – Fluorspar – Zinc The restrictions China applies include: – Export duties – Export quotas – Restrictive bidding procedures Wire Rod Supply Chain Conference WTO Raw Material Case

23. 23 Raw Materials China has argued that these measures are justified to prevent pollution and to preserve natural resources China has also claimed a “sovereign right to regulate” its raw material exports This decision could have a major impact on international trade in raw materials for steelmaking: -If these justifications are accepted, every scrap producer could legitimately limit exports of steel scrap -This would wreak havoc on the global steel industry; countries that are heavily dependent on scrap imports would be particularly affected USTR is very interested in a potential case regarding China’s restrictions on exports of rare earths and other raw materials Wire Rod Supply Chain Conference WTO Raw Material Case cont.

24. World demand for steel scrap is likely to continue to increase: -Increased steel production in China, India, and Brazil -Economic recovery Steel scrap is subject to more export restrictions than any other raw material There is a significant problem with transparency, because export restrictions change frequently, making supply even more problematic The American Scrap Coalition continues to engage in a global discussion on scrap trade through the OECD and other venues World Demand for Steel Scrap Wire Rod Supply Chain Conference Raw Materials 24

25. 25 Wire Rod Supply Chain Conference China When China was approved as a member of the WTO, its leaders committed the nation to adhere to the rules embodied in the articles governing the WTO’s member nations China has flagrantly violated these rules, thumbing its nose at the protests of other governments The WTO

26. 26 Currency Reform Addressing currency manipulation by foreign governments will significantly boost U.S. exports and stimulate the U.S. economy without adding to the debt. Currency undervaluation acts as an export subsidy, making Chinese imports cheaper in the U.S. and foreign markets, and U.S. exports more expensive. – Fred Bergsten of Petersen Institute: China’s currency undervaluation is the “biggest subsidy” of all Legislation will give U.S. industries the tools to fight back against this unfair practice and will give the Administration leverage to negotiate a multilateral agreement. Wire Rod Supply Chain Conference China

27. 27 Currency Reform Currency Reform for Fair Trade Act (H.R. 639) 127 cosponsors Allows U.S. industries injured by foreign government currency undervaluation to file a petition under our trade laws alleging currency undervaluation as a countervailable export subsidy. This bill is a measured approach. Relief would be on a narrow case-by-case basis; not broad economy-wide. Widely recognized as WTO-consistent Does not start a trade war or impose WTO-illegal tariffs on all Chinese imports Wire Rod Supply Chain Conference China

28. Customs Enforcement Issues 28 U.S. manufacturers are facing a surge in schemes by foreign producers to evade payment of duties owed on dumped and subsidized imports Efforts to evade AD/CVD duties range from transshipment through third countries to misclassification (e.g., by falsifying import documents) Some foreign companies blatantly and boldly advertise services to assist importers in circumventing our laws As a result, many U.S. producers continue to suffer injury even after winning a trade case Wire Rod Supply Chain Conference China

29. 29 Customs Enforcement Issues U.S. steel groups and workers have worked since late 2009 to identify customs enforcement issues impacting the collection of AD/CVD duties Legislation focusing on enforcement was introduced on August 5, 2010 by Senator Ron Wyden (D-OR) and Senator Olympia Snowe (R-ME) The bill, referred to as the ENFORCE Act, is designed to provide the trade agencies with the tools necessary to enforce U.S. trade laws Wire Rod Supply Chain Conference China

30. China’s State-Owned Enterprises 30 Wire Rod Supply Chain Conference -”Going abroad” strategy – expected to be component of forthcoming Five-Year Plan -Currently no sufficient way for U.S. Government to address from a commercial perspective foreign government ownership and investment in U.S. companies – CFIUS only deals with national security implications -Lack of reciprocity -U.S. steel producers can compete with producers anywhere in the world, but should not be expected to compete with foreign governments China

31. Corporate Tax Rate U.S. producers incur higher corporate tax rates than do manufacturers in almost all other countries The U.S. Government does not rebate taxes to corporations when they export manufactured products, as do almost all other nations with value-added taxes (VATs) The U.S. corporate tax rate, a combination of the 35% federal rate and state taxes, hovers around 40%; in contrast, the average tax of U.S. trading partners is 10% lower 31 Wire Rod Supply Chain Conference Taxes

32. Energy Independence 32 Wire Rod Supply Chain Conference Energy EAF-based steel production is an energy-intensive process that requires reliable and economically competitive energy supplies The U.S. must make a concerted drive for greater energy independence; we require all forms of energy to supply North America’s energy needs

33. Burdensome Regulatory Requirements SMA’s members are currently placed at a global competitive disadvantage by regulatory burdens and impediments at the EPA and OSHA (ex. GHGs, National Emphasis Program on Recordkeeping, Combustible Dust) Regulations should be established through approved legislative initiatives, rather than questionable regulatory actions OSHA’s shift in focus from cooperative programs to enforcement sends the wrong message to companies who are doing the right thing (look at the numbers – VPP, OHSAS 18001, etc work!) 33 EPA & OSHA Wire Rod Supply Chain Conference

34. Transportation & Infrastructure U.S. must rebuild its deteriorating infrastructure in order to remain globally competitive SMA is concerned with the lack of sufficient transportation competition Truck driver shortage is a growing concern – could be worsened by CSA 2010 and proposed Hours-of-Service rule changes Positive Train Control 34 Wire Rod Supply Chain Conference

35. 35

36. What does the U.S. need to do? 36

37. What does the U.S. need to do? Assume a Pro-Manufacturing Agenda – Business Tax Reform – Border Adjustable Taxes – Currency Adjustments – Energy Independence – Reasonable Regulatory Measures (Environment/Labor) – Climate for investments (Jobs, Jobs, Jobs) and Infrastructure Solve the structural problems that caused the recession - Real Foundation – Bad loans and securities on bank balance sheets – Reduce huge trade deficits Policy incrementalism is not sufficient Wire Rod Supply Chain Conference 37

38. Conclusions U.S. is in a traffic jam, moving slightly forward, but don’t know other consequences. More questions than answers at this point. Don’t look to Washington, DC for help. Reach out to your Representatives when they’re in the district. We have a great story to tell in safety, energy, environment, job creation, etc Reasons for optimism in steel in U.S.: – Scrap-based, 70% of cost – local supply – Low-cost on global basis (energy is neutral, labor less than 10%, others have higher transportation costs) – Relatively strong U.S. market and U.S. resiliency – Better U.S. company balance sheets Wire Rod Supply Chain Conference 38

39. 39 Thanks! Any questions?