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From NAFTA to an Integrated North American Steel Market

From NAFTA to an Integrated North American Steel Market. Rafael Rubio NASPD Fall Conference Cancun , Mexico October 11, 2007. Agenda. I. Economic Integration II. Where do we come from? III. Where are we now? IV. Where are we heading for?. I. Economic integration.

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From NAFTA to an Integrated North American Steel Market

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  1. From NAFTA to an Integrated North American Steel Market Rafael Rubio NASPD Fall Conference Cancun , Mexico October 11, 2007

  2. Agenda I. Economic Integration II. Where do we come from? III. Where are we now? IV. Where are we heading for?

  3. I. Economic integration ● Integration is a process rather than a single act. ● The NAFTA steel sector can, and should, deepen its integration and movement toward the formation of one regional market: ─ Increasingly interdependent. ─ Enhance competitiveness. ─ Face common challenges form abroad.

  4. How can 3 markets can be integrated? Two ways: ● Market Way: 3 markets can become a single one when companies have investment or customers in the other markets and make no geographical distinctions in their operations. ● Institutional Way: When governments create the instruments and institutions that drive 3 markets into become a single one. ● Steel sector has been moving along those two ways.

  5. II. Where do we come from? ● Fred Telmer – CEO Stelco. Chairman North American Steel Council (August 1992): “We should be looking for open markets to increased trilateral steel trade: we agree that open markets should mean the elimination of steel tariff, non-tariff barriers and other trade-distorting practices”. ● His proposal: a North American Steel Sector Agreement as part of the NAFTA negotiations.

  6. NAFTA: timeline ● 1994: NAFTA was the first step in Mexico's globalization. For Mexico, It was more than a trade agreement. ● 1994 - 2004: Mexico orientation was to signed more FTA (44 countries) NAFTA was taken as “given”. ● 2005 (March): Security and Prosperity Partnership of North America (SPP): Work together more effectively and efficiently.

  7. 25 140 Trade Balance (Billion USD) Accumulated US Investment in Mexico (Billion USD) 120 20 250 100 200 Exports 15 80 150 Imports 60 10 Annual 100 40 5 50 Trade Balance 20 0 2006** 1994 1996 1998 1995 1997 1999 2005 2003 2004 2000 2001 2002 -25 2007* 2004 2005 2006 2003 2002 1998 1999 2000 2001 1995 1990 1991 1992 1993 1994 1996 1997 NAFTA: has been a successful story … Mexico – USA Trade Source: Mexican Ministry of Economy Statistics with Mexican Central Bank Data * 2007 Estimated from January – June 2007 data ** 2006 Data up to September 2006.

  8. … Changing our economy 1982 2006 Agricultural Manufacturing Oil & Mining Agricultural 3% 25 % 16% 5% Oil & Mining Manufacturing 81% 70% Mexican Exports (%) Source: BANXICO

  9. The Market Way in steel ● The steel trade between Mexico and the US has been growing over time. ● Mexico has a surplus in some products and a deficit in other. In some products, Mexico is the largest exporter to the US Market. ● The US, on the other hand, is the largest exporter to the Mexican market. ● BUT, there has been trade frictions. Less than in the past. Current cases are in pipe and tube.

  10. 3,000 Imports 2,500 2,000 Exports 1,500 1,000 500 Trade Balance 0 -500 -1,000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007* Mexico – USA Trade Finished Steel Products (thousand metric tones) Source: Mexican Customs & CANACERO Statistics * 2007 Estimated from January – July 2007 data

  11. 1,500 Imports 1,000 500 Exports 0 Trade Balance -500 -1,000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2007+ 2005 2006 Mexico – USA Trade Flat Products (thousand metric tones) Source: Mexican Customs & CANACERO Statistics * 2007 Estimated from January – July 2007 data

  12. 400 350 Exports 300 Trade Balance 250 200 150 Imports 100 50 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007* Source: Mexican Customs & CANACERO Statistics * 2007 Estimated from January – July 2007 data Mexico – USA Trade Weld Pipes (thousand metric tones)

  13. 120 Exports 100 80 60 Imports 40 20 0 Trade Balance -20 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007* Source: Mexican Customs & CANACERO Statistics * 2007 Estimated from January – July 2007 data Mexico – USA Trade Seamless Pipes (thousand metric tones)

  14. 90% 80% Weld Pipes 70% 60% Finished Steel Products 50% 40% 30% Seamless Pipes Flat Products 20% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007* Source: Canacero * Estimated from January – July 2007 data Mexican Imports USA Share of Total Mexican Imports (%)

  15. 100% 90% Weld Pipes 80% 70% 60% Finished Steel Products Flat Products 50% 40% 30% Seamless Pipes 20% 10% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007* Source: Canacero * Estimated from January – July 2007 data Mexican Exports USA Share of Total Mexican Exports (%)

  16. 70% 60% Canada 50% 40% 30% Mexico 20% 10% 1995  1996  1997  1998  1999  2000  2001  2002  2003  2004  2005  2006  2007*  Source: AISI. * Estimated from January – July 2007 data USA Exports Mexico & Canada Share in Total USA Exports (%)

  17. NAFTA Negotiations American Iron and Steel Institute North American Steel Council The Institutional Way …

  18. … some examples ● North American Steel Council: a forum in which Directors from Producer Members located in Canada, Mexico and the United States can discuss public policy issues relating to the North American Free Trade Agreement (NAFTA). ● Section 201: Temporary safeguard imposed by the US government in March 2002. Mexico and Canada were excluded because of NAFTA. ● OECD Steel Committee: NAFTA worked as a group on common issues.

  19. Steel companies with facilities in 2/3 countries - Arcelor Mittal - Gerdau - US Steel - Ipsco (SSAB) - Timken - Essar - Tenaris - Ternium Steel Users with facilities in 2/3 countries - Caterpillar - Auto companies - Magna International - Tyco International - Associated Spring - Lincoln Electric - Home Depot - Hubbell Electric - Palliser III. Where are we now? ● The Market Way: Trade + investments + consolidation = have increased market integration

  20. North American Steel Council In December 2002, the NAFTA governments pledged to identify areas in which they might work together to promote more openness in the North American steel market and cooperation on steel trade and industry policies North American Steel Trade Committee October 7, 2003 ─ Mexico City, November 21, 2003. The Institutional Way …

  21. North American Steel Trade Committee Security and Prosperity Partnership of North America - Economics and security are intertwined. - New economic rivals: China and India. - Work has to be strategic and realistic. North American Competitiveness Council … Developments

  22. North America is losing market-share in world trade … Region World Trade

  23. 19.1% 20 Canada 17 16.3% China 14 15.5% Mexico 11 10.6% 6.8% 8 5 5.4% 2 1993 1996 1999 2002 2005 … Loss of international competitiveness in the US market … US imports 1993-2006

  24. … As well as versus other competitors BRICs vs. Mexico % Change (2000 – 2006) Source: : WTO, IMF and UNCTAD

  25. Institutional Way NASC/NASTC NACCSPP Market Way Trade, Investment and Consolidation Declaration of Governments (2006): Steel: A Strategic Partnership – A Strategic Industry North American Steel Strategy IV. Where are we heading for?

  26. North American Steel Strategy … ● Implement a North American Steel Strategy to benefit the North American steel industry by pursuing the elimination of external trade distortions, reducing the costs and the risks on intra-NAFTA trade, and promoting competitiveness and productivity. ● Sectoral approach: steel, pork, consumer electronics and chemicals. ● NAFTA Commission (August 14, 2007): the North American steel market is highly integrated and the industry in all 3 NAFTA countries share common interest and concerns.

  27. “We should be looking for open markets to increased trilateral steel trade: we agree that open markets should mean the elimination of steel tariff, non-tariff barriers and other trade-distorting practices”. … Next steps ● Areas of work: ─ External trade ─ Internal trade ─ Competitiveness and productivity

  28. From NAFTA to an Integrated North American Steel Market Rafael Rubio NASPD Fall Conference Cancun , Mexico October 11, 2007

  29. Weld Pipes (thousand metric tones) Seamless Pipes (thousand metric tones) 3000 4000 3500 2500 Exports Exports 3000 2000 2500 2000 1500 1500 Imports 1000 Imports 1000 500 500 0 0 Trade Balance -500 Trade Balance -500 -1000 2006 2002 2003 2004 2005 2006 2002 2003 2004 2005 Source: Mexican Customs & CANACERO Statistics China Trade in Pipe and Tube

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