Letter to Leon E. Panetta, Secretary of Defense

Letter

Today, U.S. Senator Charles E. Schumer called on the Department of Defense to restore the requirement that all U.S. military steel be 100% made in the U.S., boosting jobs at New York steel manufacturers like Klein Steel. For 35 years, until 2009, the U.S. military received all of its steel from domestic producers, helping to create jobs at Klein Steel and other producers across the state. In the midst of the Iraq and Afghanistan wars when demand was soaring, the U.S. dropped the requirement which forced Klein to compete with companies from around the world, including China, some of which do not play by global trading rules. This rule-change put a damper on New York steel manufacturers, but the Defense Department has been ordered to consider reinstating the old requirement. Now that the Iraq war has ended and ample U.S. manufacturers exist to meet military's demand, Schumer is urging the Department of Defense to reinstate the old rule to make sure military steel is made 100% in the U.S. Reinstating the rule would likely help bring new work to Klein, which currently employs over 150 people in Rochester, driving job growth and helping the company expand its operation in Western New York.

"Our military steel should be proudly stamped "Made in the U.S.A.' and more of it should come from Rochester," said Schumer. "Great manufacturers like Klein are standing here, ready to answer the call of duty -- let's give them the chance to step up and produce high quality steel that our military needs, providing a shot in the arm for our Upstate economy at the same time. American workers can meet the military's need, so we should call on them instead of workers halfway around the world in China or other countries that don't play by the rules and undercut U.S. jobs at every turn."

Schumer was joined by Klein Steel CEO Major General John Batiste (Ret.) as he announced his push to require that the Defense Department get their steel from U.S. manufacturers like Klein Steel. Klein Steel currently employs roughly 150 workers in Rochester, as well as 50 workers in its Buffalo subsidiary. Klein receives its melted raw steel from Nucor, a firm with facilities in Auburn NY, and then tempers and produces armor steel plate with a proprietary process that involves cutting and finishing the armor steel plate. This steel plate can then fit into military vehicles, such as the Humvee. Klein has plans to begin production of the new steel armor plating called "Star Armor" over the next three months, which will be used in armored vehicles, military installations, and other military equipment. It is thinner and lighter than current steel armor, saving fuel since armored vehicles do not need to be as heavy, while still meeting performance targets. Moreover Star Armor is flexible and easier to weld, which make it an improvement over other types of armor steel plate products.

Klein Steel is positioning Star Armor to become widely used throughout the U.S. military, and Schumer is seeking to ensure that foreign steel melted abroad does not undercut the ability of Klein Steel and other U.S. producers' ability to compete and grow. Before 2009, the Department of Defense was required by law to purchase military steel that was 100% made in the U.S. Due to an increase in demand for steel in light of the wars in Iraq and Afghanistan, the Defense Department dropped the requirement, inviting competition from China and other global competitors who do not abide by the same rules as U.S. manufacturers like Klein. Chinese companies are notorious for undercutting U.S. prices on a range of goods by manipulating and devaluing their currency. Schumer is continuing to press for a bill that would fight back against currency manipulation. The legislation has passed the Senate, and Schumer is continuing to press for House passage so the bill can be sent to the President.

Schumer said today that American taxpayer money should support American jobs and manufacturers, particularly in national defense matters, and should not be sent overseas at the expense of Rochester and New York companies. He noted that the country should also not be dependent on foreign producers for equipment and products that are essential to our national security. Relying on foreign countries to produce our military's armor steel plate opens up the possibility that an embargo or the end of production could seriously disrupt our military supply chain, putting troops and missions at risk.

The FY11 Defense Authorization Bill required the Defense Department to re-evaluate its definition of what constituted "domestically" produced specialty metals like armor steel plate. The Department of Defense held a public comment period at the end of 2011 to hear from the public, industry, and lawmakers. Now, the Defense Department is deliberating on that input and expects to report on their policy later this year. According to the Congressional Steel Caucus, "while the Defense Department has claimed that its regulatory change was developed in response to insufficient domestic steel making capacity for armor steel plate, to the best of our knowledge there has been no significant shortage of armor steel plate, even in periods of critical demand. Additionally, in the event of any supply concerns, there already exists a proven statutory waiver process. We would also like to point out that the past several years have seen new entrants in the market, further increasing domestic capabilities for the production of armor steel plate from melt stage through final processing."

Founded in 1971, Klein Steel Service Inc. is the region's premier steel service center with six locations throughout New York. With over 3,200 line items of stock size carbon, stainless steel, and specialty metals, the company also offers a full range of value added processing and a fully integrated distribution network that extends the Klein Steel reach throughout the country. Klein Steel is acknowledged as an innovator and industry leader, having been named to the Rochester Top 100 multiple times along with honors as one of New York's Best Companies to Work For in 2010.

In light of the country's ability to meet the military's demand for steel and its potential impact on Rochester and Upstate New York jobs, Schumer is pushing the Defense Department to once again require that military steel be made from start to finish in the United States. Reinstating the requirement could be a boon for steel producers across the state, especially Klein Steel.

A copy of Schumer's letter to the Secretary of Defense appears below:

The Honorable c

Department of Defense

Office of the Secretary

The Pentagon

Washington, DC 20301

Dear Secretary Panetta,

I write concerning the Department of Defense's reconsideration of its definition of "produced" as it relates to the Department's procurement of armor steel plate and urge you to return to the Department's prior 35 year policy that required specialty metals like those used in armor steel plate to be entirely melted and produced in the United States.

Indeed, the FY11 National Defense Authorization Act required the Department to reevaluate the policy it adopted in 2009 which allowed steel melted by foreign producers to be considered "domestically produced" merely so long as the late stage finishing was performed in the United States. To label this foreign steel as a domestically-produced product is particularly troubling when you consider that the melting stage is undoubtedly the most critical step in the production of quality armor steel plate and accounts for over two-thirds of the product's capital and labor costs.

This policy not only runs counter to decades of procurement practices which required the melting be completed domestically, but could jeopardize national security as the military's steel plate supply chain would be sourced from foreign sources. Just as importantly, the Department should look to American workers and American Steel manufacturers to protect our troops, particularly when there is an ample domestic capacity to produce steel armor plate.

Steel armor plate is vitally important to our nation's war fighter and must be manufactured to the highest quality to ensure the safety of our troops and our nation's defense. As you deliberate on this policy, I strongly urge you to once again adopt the Department's former long standing policy to require our military source only 100% US-made armor steel plate in order to decrease our dependence on foreign suppliers and support our domestic manufacturing base.

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