EC Treats Hungary's Ailing Steel Industry As Friend and Foe

AS East European steelmakers struggle to find their place in the post-communist market, the European Community (EC) is split over whether to offer them the steady hand of free trade or a protectionist prod backwards.

Some EC officials are favoring an increase in imports from Eastern markets, while others are trying to protect ailing Western steel producers by placing limits on Eastern products.

Some EC officials admit that the pressure from Western Europe to prevent Eastern producers from steel dumping - selling a product at cheaper than agreed-upon prices - could hurt an already weakened Hungarian steel industry. Steel accounts for about 3 percent of Hungary's gross domestic product.

EC officials in Brussels have recently sent Budapest mixed signals. Sir Leon Brittan, EC commissioner for external economic affairs, has repeatedly urged the Community "to move with all determination to accelerate market liberalization toward sensitive Eastern products," says his spokesman, Peter Guilford. "Obviously, that includes steel."

But late last year the EC hit Hungary, Czechoslovakia, and Poland with stiff duties for allegedly dumping steel tubes on the Western European market. And an EC steel delegation has recently warned that new barriers may be imposed against Hungarian plate and coiled steel - key wares that last year made up 73 percent of the country's steel production and roughly half of its exports to the EC, according to the Hungarian Iron and Steel Association.

The move would be unwarranted, say EC officials such as Horst Rossig, a specialist on Eastern Europe in the European Commission's industrial directorate. But Western European "politicians are calling us every five minutes and asking us what we're doing about Eastern steel," he adds. "Some people think we had to put out this warning to satisfy our lobbies."

The lobbies include top-10 producing EC steel titans like the German firms Thyssen Stahl AG and Klockner-Werke and the Italian firm Ilva, which have announced layoffs, billion-dollar losses, or bankruptcies. An Organization for Economic Cooperation and Development report issued Feb. 4 predicts that steel demand within the EC will fall 2.5 percent this year.

The EC will discuss on Feb. 25 a plan to boost the depressed steel industry by slashing its work force by some 13.5 percent and cutting back 1992 production levels by a third over the next three years, EC officials say.

These woes, says one official, have led EC steelmakers "to exert absolute maximum pressure and do their best to get protection."

Even so, Hungarian steel hardly seems a threat, say some officials in Budapest and Brussels. Between 1988 and 1992, Hungarian steel production plummeted 57 percent and its work force fell 60 percent as annual state subsidies evaporated and the ex-Soviet market collapsed. Two of the country's three mammoth plants are being liquidated.

Dunnaferr, the plant expected to survive, has around 11,000 workers, and its exports jumped from 35 percent of production during the 1980s to 65 percent now, company officials say. It is Hungary's sole manufacturer of the plates and coils facing EC restrictions.

Exports to the Community are "the only way to survive" today, says Pal Gaspar, Dunaferr's export director.

Yet while significant to Hungary, its exports to the EC last year were 345,661 tons, or 2.6 percent of total EC production - "peanuts," says commission official Rossig. "The politicians and the lobbies are always looking for scapegoats somewhere .... They always say [Eastern producers] are dumping. They're not. Their costs are just cheaper."

Budapest is still worried. "In the context of a trade war, anything's possible," says Hungary's foreign trade minister, Bela Kadar. "Nobody can exclude a less receptive attitude for Eastern European products."