Ala., La. play dirty on steel mill issue

Point suffers

March 28, 2007|By Jay Hancock | Jay Hancock,Sun Columnist

If Alabama and Louisiana had to obey the economic rules applying to most of the world, 2,400 workers at the Sparrows Point steel mill might have one less thing less to worry about.

ThyssenKrupp would buy the Point, spend big money on improvements and ensure it a long and prosperous future. The German company badly wants a decent steel mill on a North American deepwater harbor, and Sparrows Point in Baltimore County is the perfect choice.

At least it was - until the governors of Alabama and Louisiana stepped up. They're bribing ThyssenKrupp with hundreds of millions of taxpayer dollars to put a new plant in one of their states. As a result, ThyssenKrupp has kissed off Maryland, leaving Sparrows Point's owner, Mittal Steel, to negotiate with other, possibly less desirable, suitors under a Justice Department order to sell the facility.

It's a beautiful illustration of the damage caused by state economic development incentives. By distorting the market, Alabama and Louisiana are depriving Sparrows Point of potential capital and simultaneously setting up a powerful Sparrows rival.

If Maryland were, say, Brazil and Alabama were Britain, the World Trade Organization would step in. The bonanzas that Alabama and Louisiana have offered to ThyssenKrupp are "actionable subsidies" under WTO rules, subject to litigation and stiff penalties.

And they should be. This kind of thing was supposed to disappear with the Soviet Union. Government paying for industry drains taxpayers and hurts markets.

But WTO regulations apply only internationally. Congress has refused to do anything about state-based corporate welfare.

Louisiana's and Alabama's congresspeople love to complain about unfair trade practices, but only when the offender is somebody else.

"We're at a point where we've got to confront China and insist that they play by the rules," an indignant Sen. Jeff Sessions, an Alabama Republican, said a few years ago when his state was losing thousands of manufacturing jobs, according to The Hill, a political weekly.

Sessions, however, has no problem threatening Maryland jobs with a massive, Chinese-style subsidy. In a February letter signed with other legislators, he promised to work with ThyssenKrupp "every step of the way" to get it to come to Alabama, the Mobile Register reported.

Alabama has promised ThyssenKrupp so much money that it's illegal under the state constitution. (Voters are supposed to approve an amendment.) Alabama and Louisiana reportedly each pledged more than $1 billion. That's a third of the cost of the plant.

What a shame. ThyssenKrupp, which wants to increase its North American market share, has been shopping for a mill there since 2005. Initially it tried and failed to buy Canada's Dofasco - twice.

Last year, before antitrust regulators announced that Mittal would have to sell Sparrows Point, ThyssenKrupp officials toured the Baltimore County plant, The Sun reported.

Nothing else on the market comes close to what ThyssenKrupp has been looking for. True, the Germans might have been just as likely as others to downsize Sparrows Point into a finishing mill, closing its blast furnace and relying on imported slabs.

But unlike prospective "financial" purchasers, ThyssenKrupp knows steel and would have been a long-term Sparrows Point proprietor. Unlike others, ThyssenKrupp's solid balance sheet (BBB+ debt rating) would have given it the wherewithal to invest in critical upgrades, including relining the blast furnace.

But why spend honest money on a used mill when Alabama or Louisiana will give you a 30 percent down payment to build a new one?

Whichever state wins, the subsidies will add capacity to an industry that only recently got over a factory glut. And the free taxpayer money, of course, will cut ThyssenKrupp's cost of capital and give it a pricing advantage over Sparrows Point and existing mills.

It's bad enough when foreign politicians rig the market against you. It's worse when they're American.

jay.hancock@baltsun.com

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