Protectionism: Asia's New Steel Tiger

When U.S. steelmakers raise the bogeyman of unfair foreign competition, one firm they have in mind is POSCO of South Korea, which last year passed Japan's Nippon Steel to become the world's top producer. Churning out 27.8 million tons of steel products, POSCO earned $620 million, with exports accounting for 25% of revenues. But does it owe its competitive edge to government handouts? Its ties to Seoul are certainly cozy, and its exports still face countervailing duties abroad, to offset subsidies it received years ago. But analysts say POSCO now operates independently and succeeds through smart management and planning.

A visit to the firm's Kwangyang operation shows why it's a global leader. Completed in 1992, the plant is laid out like a big assembly line, with barges transporting raw materials like iron ore in one end and finished steel out the other end. Capacity in the blast furnaces matches capacity in rolling mills down the line, yielding efficiencies. The plant is highly computerized, workers aren't unionized, and POSCO doesn't bear heavy pension costs.

In the brewing trade war, POSCO's exports to the U.S. could shrivel. Yet in the twisted calculus of steel politics, the company lobbying hardest for tariffs, USX-U.S. Steel, also has a stake in cheap POSCO imports. USS-POSCO, a California-based joint venture between the firms, buys most of the Korean steelmaker's hot-rolled coil imports, which the venture uses to make other products sold in the U.S. A spokesman for U.S. Steel wouldn't comment on the joint venture's viability should tariffs be imposed. But, says POSCO's Lee Chun Hwan, "[The venture] might not be able to meet its obligations."

--D.F. Reported by Donald Macintyre/Seoul