Last week, the Alabama state legislature unanimously approved a package of incentives and tax breaks in order to convince Thyssen Krupp of Germany to build a steel plant in their state (most likely in the Mobile area) instead of in Louisiana. This bill has the outspoken support of Alabama's governor, and approval by the state senate can be taken for granted.
This bill exempts Thyssen Krupp (or any other potential investor considering Alabama) for 10 to 20 years from state or local taxes as well as from the utility tax. Further corporate income tax cuts valid for 20 to 30 years will be granted to recover capital costs of $2.9 billion. Furthermore, the state legislature has called on local governments to come up with additional incentives of $60 million. Mobile County has already indicated that it will add $40 million worth of incentives. All of this will surpass Louisiana's incentive package of $300 million.
Last week we reported that Nucor implied on its web site that it cannot compete with state governments around the world - clearly referring to China. In a subsequent news conference, Nucor's chairman, Dan DiMicco, complained that China had not entirely abolished its VAT refund system. Let's make one thing very clear: the VAT rebate for exports is entirely legal according to the World Trade Organization's (WTO) rules. The largess that Alabama is about to bestow upon Thyssen Krupp is, to a very large extent, not.
Of course, Nucor is correct in saying that there are state subsidies for Chinese steel, and the US has taken measures in the form of antidumping and countervailing duty suits against Chinese steel products. Still, these subsidies have to be and will be addressed with the Chinese authorities. In the meantime, how do we deal with Alabama?